The opinion of the court was delivered by: DITTER
This case is currently before me in the form of a motion to remand to the state court. Plaintiff originally brought suit in the Pennsylvania Court of Common Pleas for Philadelphia County seeking both injunctive relief and money damages for breach of fiduciary duties and for violations of the Pennsylvania Securities Act of 1972, 70 P.S. §§ 1-101 et seq. Defendants removed the action to this court and the plaintiff responded with the instant motion to remand. Since this case appears to fall within the command of specific authority from the Third and other circuits, plaintiff's motion must be granted.
Plaintiff, J. L. Wolgin, owns 6 3/4 percent convertible subordinated debentures of State Mutual Investors (Investors) having a face value of $76,000. He sues Investors and its Trustees, both present and past. Also joined as defendants are State Mutual Life, which formed Investors in 1970 as a real estate investment trust, and the America Group Management Corp., which was formed in order to furnish Investors with investment advice in return for a fee.
The complaint alleges, by way of introduction, that loans of $89,970,000. made by Investors are now in default. Auditors required the defendant to write these debts down to the value of the property securing them for a total loss of some $30,000,000. It is alleged that until the auditors stepped in, the property had never been appraised.
These allegations are more specifically delineated in the three counts of the complaint. Count I is a derivative action which charges the defendants, inter alia, with violating the provisions of Investors' Declaration of Trust by investing more than 10 percent of the Trust assets in junior mortgages and by allowing Trust debts to exceed 400 percent of net assets; violating their fiduciary duties to the shareholders and debenture holders by failing to diversify Trust investments; negligently causing Trust loans to be undersecured; and, rejecting an opportunity to invest $75,000,000. in prime long-term mortgage loans while investing a like amount in high risk construction and development loans, bearing only slightly higher yields, all of which are now in default. Count I further charges that defendants sold stock and debentures on the basis of false financial statements, using the funds thus acquired to make further under-secured loans. It is alleged that all of the above acts and omissions "were the result of Defendants negligence, wilful misfeasance, bad faith and reckless disregard of their fiduciary duties to INVESTORS . . ." Complaint at 20.
Count II, also a derivative action, charges that defendants filed a false and inaccurate Form 10K with the Securities and Exchange Commission. This 10K statement was then allegedly used as an annual report.
On the basis of all the above allegations, the complaint demands damages in the amount of $125,000,000. Furthermore, the plaintiff seeks the appointment of a receiver, injunctions against the advisory relationship between the defendants and remittance of all advisory fees, removal of the trustees, the appointment of a review committee to insure compliance with the reporting and proxy requirements of the Securities Exchange Act of 1934, and the preparation of a manual to be followed by management. In addition, under Count III, the plaintiff also requests an injunction against the proposed settlement in the Ohio cases until the rights of the 6 3/4 percent holders are secured.
Analysis of this case must begin with a restatement of the well-established principle that, in federal question cases, the basis for removal jurisdiction must appear on the face of the complaint, and reference may not be made to any other pleading or to the removal petition. Gully v. First National Bank in Meridian, 299 U.S. 109, 113, 57 S. Ct. 96, 98, 81 L. Ed. 70 (1936). Defendant asserts that the motion to remand should be denied because the complaint alleges violations of the Securities Exchange Act of 1934, and that the federal courts have exclusive jurisdiction of such violations. Plaintiff counters that while the acts alleged may constitute violations of the 1934 Act, he has scrupulously avoided the assertion of any claim or right arising under federal law. Rather, plaintiff argues that his cause of action is created entirely by state law, and that he seeks neither enforcement of nor relief under any federal statute.
It is clear that in deference to the rights of state governments, Congress intended to restrict removal jurisdiction sharply. American Fire & Casualty Co. v. Finn, 341 U.S. 6, 10, 71 S. Ct. 534, 538, 95 L. Ed. 702 (1951); Healy v. Ratta, 292 U.S. 263, 270, 54 S. Ct. 700, 703, 78 L. Ed. 1248 (1934). Furthermore, "where plaintiff's claim involves both a federal ground and a state ground, the plaintiff is free to ignore the federal question and pitch his claim on the state ground." 1A J. Moore, Federal Practice P 0.160, at 185 (2d ed. 1974), cited with approval LaChemise Lacoste v. Alligator Co., 506 F.2d 339, 346 (3d Cir. 1974). In LaChemise, plaintiff brought an action in state court seeking a declaration of its ownership rights to a trademark. The defendant removed the action to federal court, and a remand motion was denied. On appeal, the Third Circuit noted that the plaintiff did not assert any rights or claims arising under a federal statute. Rather, defendant sought to ground removal jurisdiction on the federal nature of its own threatened coercive action against which plaintiff sought declaratory relief. The court rejected this argument, finding it violative of the requirement that federal jurisdiction must appear on the face of the complaint. 506 F.2d at 343-44. Furthermore, the court suggested that the defendant's position was at odds with "a congressional policy of severe abridgement of the right to remove a state action to a federal court." Id. at 344. The defendant further argued that plaintiff had mistakenly or deliberately concealed the federal question, and that federal law preempted the trademark field. The Third Circuit rejected these contentions as well, pointing out once again that plaintiff had not sought relief under a federal statute. The panel also reminded the defendant that plaintiff was free to disregard the federal question and rely exclusively on state-created grounds. Id. at 345-46.
These cases are dispositive of the instant motion. Plaintiff's complaint does not assert any claim or right arising under federal law, nor does it seek relief pursuant to any federal statute.
The defendants are charged with making improvident investments, exercising poor judgment in managing the Trust, and inaccurately reporting the Trust's financial condition. The cause of action is cast solely in terms of breach of trust, breach of fiduciary duties, negligence, and fraudulent misrepresentations.