Banks & Banking – Federal-Question Jurisdiction – FDIC – Promissory Note Chain of Custody

Applied Bank v. Power Development LLC. (Lawyers Weekly No. 10-04-0851, 7 pp.) (Martin Reidinger, J.) W.D.N.C.

Holding: Even though the promissory note at issue passed through the hands of the FDIC as receiver of the original lender, plaintiff’s claim on the note does not involve a federal question.

Remanded to state court.

Facts

Defendants removed this action from state court in May 2010, citing federal-question jurisdiction as grounds.

Plaintiff Applied Bank alleges it owns a commercial promissory note made by defendant Power Development and originally held by another bank. The FDIC became the receiver, at which time the loan was sold to plaintiff.

The complaint alleges the note was guaranteed by two other named defendants and secured by a deed of trust and assignments of rents. Plaintiff has a foreclosure action pending against the property that secured the note.

Plaintiff has filed a motion to remand to state court. Defendants filed a memorandum of law but have not responded to the motion to remand. Defendant Power Development is now in Chapter 11 of the U.S. Bankruptcy Code.

 Standard of Review

Only actions that originally could have been filed in federal court may be removed to federal court by the defendant. The defendants here rely on federal-question jurisdiction.

In the complaint removed from state court, plaintiff makes a series of allegations, none of which could have been filed originally in federal court. None implicates a substantial question of federal law.

Defendants claim that the plaintiff does not have physical possession of the original promissory note and may not enforce it without establishing a chain of custody – which, they say, can only be established through the statutory and regulatory scheme of the FDIC.

The issues raised in this action, however, do not include the management by the FDIC as the receiver of the original bank’s assets. The statute cited by defendants discusses FDIC’s authority and procedures but does not establish a federal jurisdiction question.

The court rejects the defendant’s argument as an attempt to bootstrap federal subject-matter jurisdiction through a defense.

Remanded to state court.