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General Heat and Power Co. v. Diversified Mortgage Investors A Massachusetts Business Trust 100 Federal Street Boston

filed: March 22, 1977.

GENERAL HEAT AND POWER CO., INC., APPELLANT,
v.
DIVERSIFIED MORTGAGE INVESTORS A MASSACHUSETTS BUSINESS TRUST 100 FEDERAL STREET BOSTON, MASSACHUSETTS 02110 (CIVIL ACTION NO. 74-871)



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA.

Gibbons and Garth, Circuit Judges, and Bechtle,*fn* District Judge.

Author: Gibbons

GIBBONS, Circuit Judge.

The plaintiff, General Heat and Power Company, Inc., a Pennsylvania corporation, appeals from an order granting the motion of Diversified Mortgage Investors, a Massachusetts business trust, to dismiss the complaint against it for insufficiency of process. Service of process was attempted pursuant to F.R. Civ. P. 4(e) and the Pennsylvania long arm statute, 42 P.S. §§ 8301-8310. The district court held that the attempt was ineffectual because Diversified was not subject to process under that statute.*fn1 We reverse.

The district court concluded that Diversified was not amenable to service of the instant complaint under any provision of the Pennsylvania longarm statute.*fn2 That complaint charges that Diversified, which is in the business of real estate mortgage financing, entered into a construction loan agreement with a Pennsylvania mortgagor under which it agreed to advance $15,500,000, secured by a duly executed mortgage on premises in Luzerne County, Pennsylvania. It further alleges that General Heat and Power, in reliance on the loan agreement, undertook to make improvements on the mortgaged premises by erecting buildings thereon. The complaint then alleges:

10. The defendant, with intent to defraud the plaintiff, failed to notify the plaintiff that it had decided not to advance further funds to Eastern Pennsylvania Marine Properties, Inc.

11. The failure of the defendant to notify the plaintiff was done willfully, maliciously and intentionally and was done for the specific purpose of inducing the plaintiff, as well as other contractors, materialmen and suppliers, in the expectation of payment and with a view toward enhancing the security interest held by the defendant in the subject premises.

12. As a result of the fraudulent actions on the part of the defendant, the plaintiff continued to provide services and materials pursuant to the terms and provisions of plaintiff's agreement with Eastern Pennsylvania Marine Properties, Inc., throughout the months of April, May, June, July and August, 1974, and contributed labor, services and materials in the amount of Two Hundred Sixty-eight Thousand Nine Hundred Nine Dollars and Fifty-seven Cents ($268,909.57).

(App. at 6a).

The gravamen of the first count,*fn3 then, is that an out of state lending institution, holding a security interest in real estate in Pennsylvania, fraudulently induced a Pennsylvania contractor to make improvements which enhanced the value of the security interest, by misrepresenting or concealing that it did not intend to perform a loan agreement with the owner in accordance with its undertaking.

If we regard Diversified as a foreign corporation which has not qualified to do business in Pennsylvania, service of process is governed by 42 P.S. § 8302, which authorizes service on any corporation which has done any business in the Commonwealth. Doing business is broadly defined in 42 P.S. § 8309(a), and § 8309(b) provides:

In addition to the provisions of subsection (a) of this section the jurisdiction and venue of courts of the Commonwealth shall extend to all foreign corporations and the powers exercised by them to the full extent allowed under the Constitution of the United States.

Thus, Pennsylvania has adopted by reference the limits of its long arm jurisdiction over foreign corporations imposed by the due process clause of the fourteenth amendment. There is, however, an exception which Diversified claims is applicable, for § 8309(c) provides:

Notwithstanding any other provision of this section, for the purpose of determining jurisdiction of courts within this Commonwealth, . . . acquiring real estate and mortgages, and other liens thereon, and personal property and security interest therein, . . . or collecting debts and enforcing mortgages and rights in property ...


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