IN RE: ROGER B. SLEDD CASE NO. 86-1227

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

ROGER B. SLEDD CASE NO. 86-1227

DEBTOR CHAPTER 11

ROGER B. SLEDD PLAINTIFF

V. ADV. NO. 88-0015

FEDERAL LAND BANK ASSOCIATION

OF LEXINGTON, et al. DEFENDANTS

MEMORANDUM OPINION

This matter is pending before the court on motion of Farm Credit System Capital Corporation ("Capital Corporation") to substitute Farm Credit System Assistance Board ("Assistance Board") for Capital Corporation in this action, and on motion of the Assistance Board, as successor in interest to the Capital Corporation, to dismiss Capital Corporation from the action or in the alternative to have the action transferred to the United States District Court for the District of Columbia.

On December 6, 1986, Roger B. Sledd filed a petition for relief under chapter 11 of title 11 United States Code. On November 17, 1987, the debtor in possession initiated an action in Bourbon Circuit Court, No. 87-CI-256, against Federal Land Bank Association of Lexington, Federal Land Bank of Louisville, and Farm Credit System Capital Corporation. The complaint asserts various "lender liability" causes of action.

On December 8, 1987, the defendants filed a petition in the United States District Court for the Eastern District of Kentucky seeking removal of the action from Bourbon Circuit Court pursuant to 28 U.S.C. secs. 1452 and 1441 and reference of the matter to this court pursuant to Rule 21 of the Joint Local Rules for the United States District Courts of the Eastern and Western Districts of Kentucky. The district court entered an order referring the action to this court on January 14, 1988. On January 15, 1988, the debtor in possession filed a motion to remand the action but withdrew the motion on July 13, 1989.

Capital Corporation filed a motion on August 17, 1988, to substitute Assistance Board for Capital Corporation as defendant. Assistance Board, as successor in interest to Capital Corporation, filed a motion on October 24, 1988, to dismiss Capital Corporation or in the alternative to transfer the action to the United States District Court for the District of Columbia. The court heard arguments on the motions and took the matter under advisement. At a status conference on July 10, 1989, counsel for plaintiff notified the court that the debtor in possession intended to file a motion requesting the district court to withdraw the reference of this matter. This court entered an order on August 3, 1989, holding all pending motions in abeyance until further orders of the court. It appears no motion to withdraw the reference has been filed in the district court.

The basis for the motion of Capital Corporation to substitute Assistance Board for Capital Corporation is the enactment of the Agricultural Credit Act of 1987, Pub. L. No. 100-233, 101 Stat. 1568 (Jan. 6, 1988), which dissolves Capital Corporation and creates as a successor entity the Assistance Board. The Assistance Board, as successor in interest to Capital Corporation, relies on the Agricultural Credit Technical Corrections Act of 1988, Pub. L. No. 100-339, 102 Stat. 989 (August 17, 1988), which vests exclusive jurisdiction for actions by or against Assistance Board in the United States District Court for the District of Columbia, as grounds for its motion to dismiss or to transfer the action to the District of Columbia.

Title 12 United States Code sections 2216-2216k provided for the chartering and administration of the Farm Credit System Capital Corporation. The statute was repealed and replaced by 12 U.S.C. sec. 2278a, effective January 6, 1988, which provides for the revocation of the charter of the Capital Corporation and the establishment and administration of a Farm Credit System Assistance Board. Title 12 U.S.C. sec. 2278a-9 states:

Rule 25 of the Federal Rules of Civil Procedure, made applicable to this proceeding by Bankruptcy Rule 7025, provides for the substitution of parties in the event a party in an action dies, becomes incompetent, transfers its interest, or, if the party is a public officer, ceases to hold office. Nothing in the rule provides for substitution of parties in the event a corporation is dissolved, although Rule 7025(c) which provides as follows may be applicable:

The effect of dissolution of a federally chartered corporation is determined by federal law. See Defense Supplies Corp. v. Lawrence Warehouse Co., 336 U.S. 631 (1949). Generally the dissolution of a corporation operates as an abatement of pending actions by or against it, unless otherwise provided by statute. Id. at 634-35. A statute providing for the substitution of parties renders Rule 25 inapplicable. Monolith Portland Midwest Co. v. Reconstruction Finance Corp., 282 F.2d 439, 445-46 (9th Cir. 1960).

The charter of Capital Corporation has been revoked. The statute providing for the administration of Capital Corporation has been repealed. The Assistance Board has succeeded by statute to all assets and liabilities of Capital Corporation. It appears Congress intended the substitution of the Assistance Board for Capital Corporation in pending actions that may determine the existence and amount of a liability of the Capital Corporation.

The Farm Credit System Assistance Board shall be substituted as party defendant for the Farm Credit System Capital Corporation.

Section 6.3(b) of the Agricultural Credit Act of 1987, Pub. L. No. 100-233, 101 Stat. 1568 (Jan. 6, 1988) (codified as amended at 12 U.S.C. sec. 2278a-3(b)) provided:

The Agricultural Credit Technical Corrections Act of 1988, Pub. L. No. 100-339, 102 Stat. 989 (August 17, 1988) changed the term "original jurisdiction" in 12 U.S.C. sec. 2278a-3(b) to "exclusive jurisdiction." The Assistance Board argues this court lacks jurisdiction over any proceeding to which the Assistance Board is a party by reason of the grant of exclusive jurisdiction in 12 U.S.C. sec. 2278a-3(b) to the United States District Court for the District of Columbia. The Assistance Board requests the dismissal of Capital Corporation/Assistance Board from the action or in the alternative the transfer of the action to the district court for the District of Columbia pursuant to 28 U.S.C. sec. 1631, which provides:

This court is not without jurisdiction over the pending action. Title 28 United States Code section 1334(b) provides:

This proceeding was pending at the time title 12 U.S.C. sec. 2278a was enacted and amended. Nothing in the statute suggests the provision vesting exclusive jurisdiction in the district court for the District of Columbia over any action to which the Assistance Board is a party should have retroactive application to pending actions.

The motion of the Assistance Board to dismiss Capital Corporation/Assistance Board or to transfer this action to the United States District Court for the District of Columbia shall be overruled.

Dated:

By the court -

Judge

Copies to:

Eugene F. Mooney

Tracey N. Bosomworth

Kathleen Mullarkey

Ruth A. Harvey

Lori E. Fields

David Middleton