decided as amended september 5 1978.: June 13, 1978.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 75-1079)
Before Hunter and Weis, Circuit Judges and Cohen, District Judge.*fn*
This appeal presents two unrelated issues. The first is whether a real estate investment trust (REIT) may be treated as a corporation for diversity jurisdictional purposes. We echo the district judge's answer of no. The second questions the extent to which proceedings to open a state court judgment are determinative of issues raised by the same parties in a federal court suit. After a study of state procedural law, a subject important to many, but not a fillip for every man, we conclude that the district court erred in applying res judicata to the whole of the plaintiffs' case and limit the preclusion to only part of their claims.
UMET Trust, an unincorporated California real estate investment trust, loaned the plaintiffs, Riverside Memorial Mausoleum, Inc., L. Blumberg's Son, Inc., and Helen Rothchild Blumberg, the sum of $3,922,000 on July 25, 1973. The loan was secured by various security instruments, including a mortgage on plaintiffs' property. The funds were to be used for the construction of a mausoleum containing 5,000 crypts. The parties agreed that if Riverside were able to sell 5,000 crypts by January 25, 1974, UMET would lend additional funds so that the total loan would be $7,100,000. Plaintiffs did not meet the sales requirement and did not receive the additional funding.
A broker, codefendant Sonnenblick-Goldman, arranged the loan and was to receive a commission for its work. At the closing on July 25, 1973, Sonnenblick-Goldman received one-half of its commission in cash and the remainder in the form of a judgment note due January 24, 1974. The note was not paid on the due date, and Sonnenblick-Goldman, utilizing the warrant of attorney forming part of the note, confessed judgment for $80,247.50. The judgment was docketed in the Court of Common Pleas of Philadelphia County, Pennsylvania on March 21, 1974.
Pursuant to Pennsylvania practice, the Riverside parties filed a petition to open and strike the judgment, alleging Sonnenblick-Goldman had agreed that its commissions would be paid by UMET, and because the commission was to be based upon the amount actually received by Riverside, rather than the total commitment, the broker had been paid in full at the closing. After consideration of briefs, the deposition of Helen Blumberg (a Riverside principal), and argument, on November 21, 1974 the common pleas court denied the petition.
While this litigation was in progress, UMET began an action of mortgage foreclosure against the Riverside parties, and in December, 1974, began a second suit, this one based on the mortgage note itself. Judgment was entered in favor of UMET in both cases. Soon thereafter, the Riverside parties took the offensive and filed an equity action in the common pleas court against UMET and Sonnenblick-Goldman. The complaint alleged, Inter alia, that the defendants had conspired to prevent Riverside from selling its property by interfering with its negotiations with prospective purchasers so that the defendants could take the property at sheriff's sale and then sell to the same parties previously contacted by Riverside.
The common pleas court addressed all of the litigation between the parties in a consent order of January 3, 1975, directing that the equity conspiracy action be stayed and the sheriff's sales proceed on the judgments for the mortgage balance and broker's commission. Before the sheriff's sales could proceed, however, and despite their consent to the common pleas court order, the Riverside principals filed petitions in the United States District Court for Eastern Pennsylvania under Chapter XI of the Bankruptcy Act.*fn1
In April, 1975, the Riverside plaintiffs filed the present civil action in the district court, setting forth essentially the same grounds described in the common pleas equity suit. In addition to the conspiracy, the complaint alleged that the broker had not been entitled to additional commission for the same reasons asserted in the state court petition to open Sonnenblick-Goldman's confessed judgment.
The district court granted summary judgment in favor of the defendants on the ground of res judicata. On appeal, we vacated and remanded for findings of fact on the jurisdictional issue of whether UMET Trust could be treated as a corporation for diversity purposes.*fn2
On remand, the district court held a hearing and determined that since UMET was a real estate investment trust (REIT) and some of its investors were citizens of Pennsylvania, complete diversity between plaintiffs and UMET did not exist. Accordingly, the case as to UMET was dismissed. The court retained jurisdiction over Sonnenblick-Goldman and reinstated summary judgment in its favor. We agree that there was a lack of diversity between plaintiffs and the UMET Trust.
In Fox v. Prudent Resources Trust, 382 F. Supp. 81, 92-93 (E.D.Pa.1974), the District Court for Eastern Pennsylvania rejected a contention that a New York business trust should be treated as a corporation for business purposes. While recognizing the trust shares were traded on a major stock exchange and the trust's managerial structure was quite similar to a corporation, the court held that United Steelworkers v. R. H. Bouligny, Inc., 382 U.S. 145, 86 S. Ct. 272, 15 L. Ed. 2d 217 (1965), required that the entity be treated as an unincorporated association rather than a corporation for jurisdictional purposes under 28 U.S.C. § 1332. The Fox rationale was followed in Larwin Mortgage Investors v. Riverdrive Mall, Inc., 392 F. Supp. 97 (S.D.Tex.1975) (REIT); Chase ...