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.