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Hudson United Bank v. LiTenda Mortg. Corp.

April 15, 1998

HUDSON UNITED BANK, BANKING CORPORATION OF THE STATE OF NEW JERSEY, APPELLANT
v.
LITENDA MORTGAGE CORP.; THEODORE H. HOWARD; LINDA M. HOWARD, HIS WIFE; FEDERAL HOME LOAN MORTGAGE CORPORATION, DOING BUSINESS AS FREDDIE MAC; GARY S. YOUNG; YOUNG, DIMIERO & SAYOVITZ; RICHARD G. NORWALK AND NORWALK ASSOCIATES



On Appeal from the United States District Court for the District of New Jersey (D.C. No. 96-cv-02204) Argued Thursday, December 11, 1997

Before: Greenberg, Roth, and Garth, Circuit Judges

The opinion of the court was delivered by: Garth, Circuit Judge:

OPINION OF THE COURT

This is an appeal of a district court order denying a motion for reconsideration filed by Hudson United Bank ("Hudson"). The district court had dismissed Hudson's federal claims, and remanded the state claims to state court pursuant to 28 U.S.C. § 1367(c). When Hudson moved for reconsideration of the dismissal and attempted to amend its complaint, the district court held that it had lost jurisdiction to hear the case when the remand order was sent to state court. Accordingly, Hudson's motion was denied.

We hold that the district court had jurisdiction to entertain Hudson's motions. Thus, we reverse.

I.

On March 20, 1995, Theodore H. Howard, Linda M. Howard, and their company, LiTenda Mortgage Corp., (collectively, "LiTenda") borrowed almost two million dollars from the Hudson United Bank ("Hudson") tofinance LiTenda's mortgage selling and servicing business. At the time, LiTenda was a mortgage seller/servicer approved by the Federal Home Loan Mortgage Corporation ("Freddie Mac").*fn1 As collateral for the loan, Hudson accepted LiTenda's contractual rights to income derived from servicing a portfolio of mortgages for Freddie Mac.

On May 2, 1996, Freddie Mac terminated LiTenda's eligibility as a seller/servicer. In a letter faxed to LiTenda, Freddie Mac stated that LiTenda's eligibility was revoked because LiTenda had violated their contractual agreement in at least nine different ways--among them, by pledging LiTenda's contractual rights as collateral to secure the loan with Hudson.*fn2 The termination letter directed LiTenda to return all files and mortgage documents to Freddie Mac, who in turn transferred its portfolio to another servicer.

Left without Freddie Mac's business, LiTenda's financial condition deteriorated, and the loan with Hudson went into default. *fn3 When Hudson sought the contract rights it believed it was owed under the loan agreement with LiTenda, Freddie Mac rejected Hudson's claim.

Hudson responded by filing a complaint in state court containing claims against both LiTenda and Freddie Mac.*fn4 Hudson's claims against Freddie Mac alleged that Freddie Mac was illegally withholding from Hudson the benefits it was due as collateral under the terms of its loan agreement with LiTenda. Freddie Mac then removed the case to federal court pursuant to 12 U.S.C. § 1452(f), which confers federal subject matter jurisdiction over any civil action to which Freddie Mac is a party.

Once in federal court, Freddie Mac filed a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). Freddie Mac argued that Hudson had failed to state a claim against Freddie Mac because Hudson's claim under the loan agreement derived solely from LiTenda's rights, and LiTenda's contract rights had been extinguished when Freddie Mac revoked LiTenda's privileges as a seller/servicer. Because LiTenda had no rights against Freddie Mac, Hudson could not use its claim to LiTenda's rights to state a cause of action against Freddie Mac.

On November 26, 1996, the district court granted Freddie Mac's motion to dismiss for failure to state a claim. Agreeing with Freddie Mac that Hudson had no claim against Freddie Mac because LiTenda had no such claim, the district court dismissed all of the counts against Freddie Mac under Fed. R. Civ. P. 12(b)(6).*fn5 Left without an original basis for federal subject matter jurisdiction, the district court exercised its discretion under 28 U.S.C. § 1367(c), and remanded the remaining portions of the case against LiTenda. A certified copy of the remand order was mailed to the state court the next day, on November 27, 1996.

On December 6, 1996, Hudson filed several post-dismissal motions in the district court. First, Hudson moved for the district court to reconsider its dismissal pursuant to Fed. R. Civ. P. 59(e) and Fed. R. Civ. P. 60(b). According to Hudson, the district court had wrongly concluded that LiTenda's rights were extinguished when Freddie Mac revoked LiTenda's status as a seller/servicer. Pointing to the contract between Freddie Mac and LiTenda, Hudson noted that this was true only if LiTenda's status had been revoked "with cause." If the termination was "without cause," Hudson continued, then the contract entitled LiTenda (and thus Hudson) to a termination fee equal to the market value of LiTenda's servicing portfolio. Although Hudson had not raised this issue previously, Hudson now argued that the termination was "without cause."

Hudson also moved to amend its complaint. The amended complaint contained what Hudson modestly termed "prophylactic" changes in its cause of action; in particular, the proposed amended complaint alleged for the first time that Freddie Mac had terminated LiTenda's portfolio "without cause."*fn6

The district court denied Hudson's motion in an order dated January 13, 1997. The district court quoted Trans Penn Wax Corp. v. McCandless, 50 F.3d 217, 225 (3d Cir. 1995) for the proposition that "a district court loses jurisdiction over a case once it has completed the remand by sending a certified copy of the remand order to the state court." Id. Because a certified copy of the remand order had been sent to the state court on November 27, 1996, the district court concluded that its jurisdiction to hear ...


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