Loyola Federal Savings Bank v. Fickling

United States Court of Appeals,

Eleventh Circuit.

No. 93-9263.

LOYOLA FEDERAL SAVINGS BANK, f/k/a Loyola Federal Savings and
Loan Association, Plaintiff-Counterclaim Defendant-Appellant,
Cross-Appellee,

v.

William A. FICKLING, Jr., Defendant Third-Party, Plaintiff-
Counterclaim Plaintiff-Appellee, Cross-Appellant,

Ocean Forest Plaza Assoc. Limited Partnership; Erwin A.
Friedman; Stephen S. Friedman; Steven R. Gretenstein, Third-Party
Counterclaim Defendants.

July 14, 1995.

Appeals from the United States District Court for the Middle
District of Georgia. (No. 5:89-00110-CV-2-MAC(DF), Duross
Fitzpatrick, Chief Judge.

Before KRAVITCH, Circuit Judge, and GODBOLD and RONEY, Senior
Circuit Judges.

RONEY, Senior Circuit Judge:

Alleging diversity jurisdiction, Loyola Federal Savings Bank

filed this suit in federal court against William A. Fickling, Jr.

seeking recovery on a $1,100,000 loan guaranty. After four years

of litigation, the entry of summary judgment against it on its

complaint, and an adverse jury award of $2.7 million to Fickling on

his counterclaims, while awaiting a ruling on post-trial motions,

Loyola filed a "suggestion" that the district court lacked subject

matter jurisdiction. Its theory was that Loyola was a federally

chartered corporation and not a citizen of any state for diversity

purposes.

The district court accepted the argument that it did not have

diversity jurisdiction, but retained jurisdiction of all claims
because Fickling pled a federal securities counterclaim, which

invoked federal jurisdiction. Accordingly, the court ruled that it

had pendent jurisdiction over Fickling's state law claims, and

Loyola's initial claim would be a compulsory counterclaim to

Fickling's state law claims.

We affirm the decision of the district court that it had

jurisdiction, but on the independent ground that it had diversity

jurisdiction. As to the various other issues raised on appeal and

cross-appeal, we affirm, or dismiss as moot, except as to a portion

of the judgment, $520,000, which would amount to "double recovery"

by Fickling.

In 1985, Loyola Federal Savings Bank loaned the Ocean Forest

Limited Partnership $16.37 million to construct a hotel condominium

project in Myrtle Beach, South Carolina. Later that year, William

A. Fickling Jr., a resident of Georgia, invested approximately

$750,000 in Ocean Forest in return for a share in the limited

partnership. In late 1986, Erwin Friedman, the sole general

partner of Ocean Forest, obtained additional funding for Ocean View

from Loyola in the amount of $1.1 million. Fickling guaranteed

this loan. As part of the requirement for the loan, Ocean Forest

obtained a $1.5 million line of credit through the First Union Bank

of Macon, which Fickling also guaranteed. Still in need of funds

in late 1987, Ocean Forest obtained an additional $800,000 on this

line of credit, again with Fickling's guarantee. Eventually,

Fickling, as guarantor, paid off the First Union loans.

On December 28, 1988, Loyola, in state court proceedings,

foreclosed on the Ocean Forest property in South Carolina. When
Loyola filed this suit in federal court in Georgia on the $1.1

million loan guaranty, Fickling counterclaimed asserting federal

securities and state law claims, including a claim as subrogee to

an alleged First Union claim against Loyola. As to Loyola's claim

on the guaranty, the district court granted summary judgment to

Fickling because Loyola had altered the loan agreements without

Fickling's consent.

The district court then dismissed the federal securities

counterclaim for failure to state a cause of action. Fickling's

state law counterclaims were submitted to a jury, which rendered

verdicts in favor of Fickling. Only two survived a judgment

notwithstanding the verdict: a judgment for $2.49 million on the

claim of subrogation to a First Union cause of action for

misrepresentation by Loyola in inducing the First Union loan, and

a judgment for $215,000 on a claim that Loyola assisted Ocean

Forest's general partner in a breach of a fiduciary duty owed to

Fickling. Loyola appeals the summary judgment against it and the

judgments on the subrogation and breach of fiduciary duty claims.

Fickling cross-claims the dismissal of certain of his claims,

but our affirmance of the judgments in his favor make these issues

moot, since he recovered all that he was entitled to under the

affirmed claims.

Jurisdiction

In our de novo review of the district court's determination

of subject matter jurisdiction, see Woodruff v. U.S. Dep't of

Labor, 954 F.2d 634, 636 (11th Cir.1992), reh'g denied, 961 F.2d

224, we affirm the decision of the district court that it had
jurisdiction, but on the ground that it had diversity jurisdiction.

Contrary to Loyola's argument that as a federally chartered

corporation it is not a citizen of any state for diversity

purposes, the facts here make applicable the rule's exception

allowing a corporation to be considered a citizen of one state for

diversity purposes if the corporation's activities are "localized"

in that state, despite some out-of-state business activities. The

activities do not have to be 100% localized in order to trigger

this exception.

Loyola is a corporation chartered pursuant to federal law, 12

U.S.C. §§ 1461 et seq. It would not be a citizen of any state for

diversity purposes and diversity jurisdiction would not exist

unless the corporation's activities were sufficiently "localized"

in one state. Westcap Government Securities, Inc. v. Homestead Air

Force Base Federal Credit Union, 697 F.2d 911, 911-12 n. 1 (11th

Cir.1983), citing Feuchtwanger Corp. v. Lake Hiawatha Fed. Credit

Union, 272 F.2d 453 (3d Cir.1959). In Feuchtwanger the credit

union in question restricted its operations to one particular

community within the state of New Jersey. Feuchtwanger found

localization and, thus, diversity. However, in correctly noting

that there has been little discussion of this issue in this

Circuit, the district court felt constrained in extending its

analysis past those facts found in Feuchtwanger. We believe that

this is too restrictive an application of the localization test.

The court in Feuchtwanger demonstrated a similar thought when it

said, "[t]hus, for the future, localization less extreme than we

have in this case will suffice to establish corporate citizenship
in the administration of diversity jurisdiction." Feuchtwanger

Corp. v. Lake Hiawatha Fed. Credit Union, 272 F.2d at 456.

Determining whether a federal corporation is localized for

diversity purposes should not be simply a question as to whether

that corporation's activities are exclusive to one state. Such an

evaluation should involve a more expansive investigation into the

corporation's business. A variety of factors are relevant to this

inquiry, such as the corporation's principal place of business, the

existence of branch offices outside the state, the amount of

business transacted in different states, and any other data

providing evidence that the corporation is local or national in

nature. See Provident Nat'l Bank v. California Fed. Sav. & Loan

Ass'n, 624 F.Supp. 858, 860-61 (E.D.Pa.1985), aff'd, 819 F.2d 434

(3d Cir.1987); Waldron Midway Enterprises, Inc. v. Coast Federal

Bank, 1992 WL 81724 at 1 (E.D.N.Y. Apr. 10, 1992).

This more expansive approach comports with diversity

jurisdiction's purpose of avoiding any possible bias favoring the

party from the state in which the state court proceeding is

brought. See Barrow S.S. Co. v. Kane, 170 U.S. 100, 111, 18 S.Ct.

1526, 530, 42 L.Ed. 964 (1898); Feuchtwanger Corp. v. Lake

Hiawatha Fed. Credit Union, 272 F.2d at 455 ("local bias in favor

of local persons and institutions in controversies with strangers,

a principal justification for diversity jurisdiction, is more

likely to be present in the case of a corporation thus localized in

fact than one which is connected with the state only in the formal

sense of having been incorporated there.").

At the time of suit, Loyola's activities were amply localized
in Maryland for diversity purposes. Loyola's principal place of

business was located in Maryland. All but one of its thirty-one

branch offices were located in Maryland. Over two-thirds of its

residential mortgages were located in Maryland. Two-thirds of the

loans that it serviced were secured with property located in

Maryland. For loans it serviced secured by property outside

Maryland, payments were made in Maryland. The amount in

controversy here exceeds $50,000. Fickling is a citizen of

Georgia. Loyola, through its localized activities, is a citizen of

Maryland. Diversity jurisdiction is established.

Although this decision resolves all the jurisdictional issues

in this case, in the alternative, we would agree with the district

court that it had jurisdiction to enter the judgments appealed from

on the ground that it had federal question jurisdiction and pendent

jurisdiction of the state claims, as analyzed in the district

court's order of August 23, 1993. Loyola Federal Savings & Loan

Association v. Fickling, 783 F.Supp. 620 (M.D.Ga.1992).

Subrogation

The critical question on the judgment in favor of Fickling,

as a subrogee to First Union's cause of action for Loyola's

misrepresentation in inducing the First Union loans, is the effect

of the knowledge with which the court charged Fickling as to his

direct claims. The court set aside jury verdicts for Fickling on

his personal claims for fraud and negligent communication on the

ground that the evidence compelled the conclusion that Fickling

should have been aware of the facts about the financial condition

of his own partnership that he accused Loyola of concealing from
him. The court did not, however, bar Fickling's recovery as a

subrogee because of that evidence. This may seem paradoxical, but

careful examination of the facts demonstrates that this anomaly is

facial, and the district court's decision in this regard is

correct.

The district court ruled that Fickling cannot recover on his

personal claims because he knew, or should have known, all that he

complains Loyola failed to disclose to him. In contrast, First

Union had no knowledge of the information that it inquired of

Loyola. Fickling's knowledge of some of these facts is wholly

irrelevant to First Union's claim, since there is no reason to

impute to First Union what Fickling may have known. Since Fickling

guaranteed the line of credit and paid the loans, he stands in the

position of First Union to recover against Loyola for

misrepresentation. Thus, even if Fickling were prevented as a

creditor from making a claim due to his unique knowledge, Fickling

as a guarantor is not so hindered because a guarantor has no fewer

and no greater rights than the creditor for whom the guarantee is

provided—in this case First Union. Travelers Ins. Co. v.

Commercial Union Ins. Co., 176 Ga.App. 305, 308, 335 S.E.2d 681,

683 (1985), cert. denied. Therefore, Fickling as guarantor is

entitled to no fewer rights than if the guarantor were a stranger.

Contrary to Loyola's argument on appeal, there was sufficient

evidence to support the jury's decision that Loyola misled First

Union. First Union was not charged with any knowledge that

Fickling might have. The evidence indicates that First Union made

inquiries of Loyola concerning the state of Ocean Forest and
Loyola's commitment thereto. Loyola's responses to these inquiries

were material in First Union's decision to extend the line of

credit to Ocean Forest, even with Fickling's guarantee. Loyola

failed to inform First Union of delinquent interest payments,

Loyola's consideration of the loan for default and acceleration and

Loyola's earlier refusal to extend additional credit to the

project. The jury could properly conclude that this evidence

supported a finding that Loyola misled First Union. Once Loyola

agreed to respond to First Union's requests regarding Ocean Forest,

Loyola was under a duty to be forthcoming and not omit intrinsic

material facts unknown to and not reasonably discoverable by First

Union. Southern Intermodal Logistics v. Smith & Kelly Co., 190

Ga.App. 584, 585, 379 S.E.2d 612, 614 (1989).

Moreover, some of the facts undisclosed to First Union were,

in fact, beyond Fickling's knowledge, such as Loyola's

recommendation of foreclosure and Loyola's decision to violate its

own underwriting standards. Thus, despite Fickling's inability to

make a direct claim against Loyola, First Union's separate and

distinct claim remains solid.

"Double Recovery"

The jury granted Fickling full recovery on the guarantee

claim through subrogation because the line of credit would not have

been issued without Loyola's misrepresentations. Fickling,

nevertheless, immediately received $520,000 from the proceeds of

the First Union loan. If the loan had never been made, the

evidence indicates that Ocean Forest would not have paid Fickling

the $520,000 that he previously loaned or contributed to Ocean
Forest. Consequently, as a matter of law, Fickling has failed to

prove this amount in damages, and the jury's award must be reduced

by that amount so that Fickling will not recover for damages he did

not incur. See, e.g., Sea-Land Services, Inc., v. Gaudet, 414 U.S.

573, 591 n. 29, 94 S.Ct. 806, 818 n. 29, 39 L.Ed.2d 9 (1974)

(double recovery for tort not allowed), reh'g denied, 415 U.S. 986,

94 S.Ct. 1582, 39 L.Ed.2d 883; Trice v. Wilson, 113 Ga.App. 715,

721, 149 S.E.2d 530, 535 (1966) (same).

Breach of Fiduciary Duty

In exchange for Ocean Forest's general partner's agreement

not to object to Loyola's foreclosure on Ocean Forest, Loyola

released Friedman from his personal guarantees and agreed to pay

$430,000 of the partnership's debt to certain creditors. Unlike

Friedman, however, Fickling received no consideration for the

release of the partnership's interest. The jury's determination

that this constituted a breach of fiduciary duty that Friedman owed

Fickling, and that Loyola assisted in this breach, is sufficiently

supported by the evidence. The jury could find that Fickling, as

50% owner of the partnership, was entitled to one-half of the

$430,000 Loyola paid to Friedman.

Loyola's Complaint on Fickling's Guaranty

We affirm the district court's summary judgment in favor of

defendant Fickling on Loyola's original complaint. The evidence,

as argued in the briefs, indicates that the loan documents were

indeed materially altered. Contrary to Loyola's argument, those

who changed the agreement had no authority from Fickling to do so.

There is no evidence from which a jury could find that Fickling
could be held responsible for these alterations.

Fickling's Counterclaims

Since the outcome of Fickling's securities and personal claims

would in no way affect the amount of Fickling's recovery, other

than to indicate whether there were alternate grounds for recovery,

these issues raised on cross-appeal are dismissed as moot.

Conclusion

We AFFIRM the finding of subject matter jurisdiction, and all

of the district court's award except that the total award is to be

reduced by $520,000 to prevent "double recovery," or, more

precisely, recovery for damages which Fickling did not incur. We

VACATE AND REMAND the judgment for modification in this regard. We

DISMISS as moot Fickling's claims on cross-appeal.

AFFIRMED IN PART, DISMISSED IN PART, VACATED IN PART, AND

REMANDED.