United States Court of Appeals
For the First Circuit
No. 04-1480
HORIZON BANK & TRUST CO.,
Plaintiff, Appellee,
v.
COMMONWEALTH OF MASSACHUSETTS, DEPARTMENT OF REVENUE,
Defendant, Appellant,
PAUL FLAHERTY, Trustee of Custom House Associates Realty Trust;
CUSTOM HOUSE ASSOCIATES LIMITED PARTNERSHIP; SUSAN MANNING,
Trustee of Custom House Associates Realty Trust; UNITED STATES OF
AMERICA, INTERNAL REVENUE SERVICE; GIARRUSSO, NORTON, COOLEY, AND
McGLONE, P.C.; and EASTERN BANK,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Lynch, Circuit Judge,
Leval,* Senior Circuit Judge,
and Lipez, Circuit Judge.
Thomas A. Barnico, Assistant Attorney General, with whom
Thomas F. Reilly, Attorney General, and Eileen Ryan McAuliffe,
*
Of the Second Circuit, sitting by designation.
Counsel, Department of Revenue, were on brief, for defendant,
appellant Commonwealth of Massachusetts, Department of Revenue.
Thomas J. Clark, Attorney, Tax Division, with whom Eileen J.
O'Connor, Assistant Attorney General, and Randolph L. Hutter,
Attorney, Tax Division, were on brief, for defendant, appellee
United States, Internal Revenue Service.
December 8, 2004
LYNCH, Circuit Judge. On the merits this case presents very
difficult issues under the Eleventh Amendment about whether the
United States, asserting a tax claim, may remove an interpleader
action to federal court when an unconsenting state, which is also
a party with its own tax claim, asserts its Eleventh Amendment
immunity and argues that it is an indispensable party. We never
reach those merits issues because the appeal is moot. The state
has conceded that two other creditors including the United States
have superior claims, and that satisfaction of those claims leaves
no remaining assets to satisfy the state's tax claims.
I.
Horizon Bank & Trust Company ("Horizon") brought an
interpleader action in state court to determine the proper
distribution of a surplus pool of money that it had obtained after
foreclosing on a piece of property and after satisfying its own
monetary interests in that property. The United States Internal
Revenue Service, the Commonwealth of Massachusetts Department of
Revenue, and a law firm creditor, Giarrusso, Norton, Cooley, and
McGlone, P.C. ("Giarrusso"), holding another mortgage on the same
property, were named as defendants. The United States removed the
entire action to federal court. The Commonwealth then moved to
dismiss claims seeking adjudication of the Commonwealth's interest
because of its Eleventh Amendment immunity and simultaneously to
dismiss the entire interpleader action because it was an
-3-
indispensable party to that action. The issue of indispensability
had arisen in Massachusetts federal district courts in several
other interpleader actions involving both the United States and the
Commonwealth, with varying results.
The court here held that the Commonwealth was entitled,
because of its Eleventh Amendment immunity, to dismissal of claims
seeking adjudication of its rights relative to those of private
parties, but not of adverse claims of the United States. The court
ruled that the entire interpleader case need not be thrown out
because the Commonwealth was a necessary but not indispensable
party under Fed. R. Civ. P. 19. Horizon Bank & Trust Co. v.
Flaherty, 309 F. Supp. 2d 178, 184, 198 (D. Mass. 2004). The court
simultaneously held, on Giarrusso's motion for summary judgment,
that Giarrusso should receive the entire value of its interest in
the property, the federal government should receive the remaining
funds, a partial but not total satisfaction of its tax liens on the
property, and the Commonwealth should receive no money at all. Id.
at 198-200.
The Commonwealth, seeking to get an appellate ruling on an
issue that had divided the Massachusetts federal district courts,
appealed the district court's judgment, arguing that the entire
interpleader action should have been dismissed because it was an
indispensable party. But the Commonwealth has also stated in its
brief and at oral argument to this court that it "does not contest
-4-
the District Court's determination of the relative priorities or
rights to the surplus funds." Because the Commonwealth has not
contested the distribution of funds, no case or controversy remains
as required by Article III of the United States Constitution and we
hold that the appeal must be dismissed as moot.
II.
There are no contested facts in the case. Custom House
Associates Realty Trust ("Custom House") mortgaged a piece of
property to Giarrusso on August 6, 1998, to secure repayment of a
promissory note with a principal of $255,960. Custom House
subsequently mortgaged the property a second time to Horizon, as
security for a $395,000 loan. Giarrusso subordinated its mortgage
to Horizon's. The United States filed tax liens against the Custom
House property on February 10, 2000, July 18, 2000, and September
14, 2001, in amounts totaling $212,564.46. The Commonwealth
Department of Revenue filed three tax liens against the property on
December 13, 2002, totaling $257,747.77. Custom House defaulted on
its payments to Horizon on or around January 1, 2003, leading
Horizon to accelerate all payments due. Horizon ultimately
foreclosed on the property, sold it at public auction for $800,000,
and satisfied its own debt out of the proceeds.
Horizon filed this interpleader action to determine who owned
the remaining funds, $303,153.27. The claim was filed in
Massachusetts Superior Court. The United States removed the case
-5-
to federal court in the District of Massachusetts pursuant to 28
U.S.C. §§ 1444 and 2410, which give the United States this right in
any interpleader action where it has been named as a party.
The Commonwealth then filed a two-part motion to dismiss the
entire case. It asserted first that because it had, by state
statute, waived its Eleventh Amendment immunity only for cases in
state court and not for cases in federal court, it had a right to
be dismissed as a defendant from this case on Eleventh Amendment
immunity grounds. Second, it argued that once it was dismissed
from the case, it must be seen as both a necessary party under Fed.
R. Civ. P. 19(a) and an indispensable party under Fed. R. Civ. P.
19(b). If the Commonwealth was indispensable, the case could not
go forward at all.
The district court issued an opinion on January 13, 2004, and
a judgment two days later; the judgment was amended and a new
opinion issued on February 5, 2004. The district court's amended
opinion held that the state's Eleventh Amendment immunity applied
to the case and had not been waived by the state, so the
Commonwealth needed to be dismissed from the action vis-à-vis the
private parties. Horizon Bank, 309 F. Supp. 2d at 181-90. The
district court also held that any claims between the federal
government and the Commonwealth should not be dismissed. Id. at
192-95.
-6-
On the issue of indispensability, the court agreed with the
Commonwealth that it was a necessary party under Rule 19(a). Id.
at 191-92. But it held that the Commonwealth was not an
indispensable party. The district court stated that it would craft
its judgment so that any relief would only have preclusive effect
between the different private parties, between the United States
and the private parties, and between the United States and the
Commonwealth. The judgment would not carry preclusive effect
between the Commonwealth and the private parties. This protective
measure, in its view, would ensure that the Commonwealth was not
prejudiced by a judgment in which it did not participate. Id. at
194-95.
The court also granted Giarrusso's motion for summary judgment
on the claim that it was entitled to $264,942 from the surplus
fund, the amount of its debt plus interest. Id. at 199. Indeed,
the United States had consented to the motion. Id. Sua sponte,
the court resolved the issue of priority on the remaining funds as
between the United States and the Commonwealth. Holding that the
United States's liens had priority over the Commonwealth's because
they were assessed earlier, the court granted summary judgment for
the United States for the entire remainder of the funds,
$38,211.67, which was only a fraction of the amount of the United
States's total tax liens. Id. at 199-200. This distribution meant
that the Commonwealth ended up with none of the money.
-7-
The Commonwealth appealed the judgment on the grounds that it
is an indispensable party and thus the entire action should have
been dismissed. But it has not contested the finding that the
claims of Giarrusso and the United States are superior to its
claim, and that those claims exhaust the fund. Its claim of
indispensability hangs on its assertion that despite the district
court's efforts to tailor the effects of the judgment, the district
court's disposition might have persuasive or binding effect on a
later state court, thus prejudicing the Commonwealth, and that
hypothetically, there might be more litigation. The state court,
it argues, is an adequate alternative forum where all claims of all
parties could have been resolved in one attempt instead of the
piecemeal approach adopted by the federal court.
The United States, the only other party to file a brief on
appeal, argues that the Commonwealth's appeal is moot because the
Commonwealth has not challenged the district court's holding that
the funds are exhausted by the claims of superior creditors. The
United States further argues that even if the claim is not moot,
the district court judgment should be affirmed because the
Commonwealth never should have received Eleventh Amendment
immunity, for two reasons. First, the United States argues that
recent Supreme Court precedent, see Tennessee Student Assistance
Corp. v. Hood, 124 S. Ct. 1905, 1912-13 (2004), stands for the
proposition that an unconsenting state can be sued in an in rem
-8-
action without infringing Eleventh Amendment immunity. And despite
recent circuit precedent stating that interpleader actions are in
personam, see Metro. Prop. & Cas. Ins. Co. v. Shan Trac, Inc., 324
F.3d 20, 25 (1st Cir. 2003), this sort of interpleader action
should be considered in rem. Second, the United States notes that
even though a private party (Horizon) originally brought this
action in state court, it was the United States that removed it to
federal court, triggering the Eleventh Amendment immunity bar.
Thus, we should treat this case as though the United States were
the plaintiff suing the Commonwealth, and Eleventh Amendment
immunity does not apply when the United States sues a state. See
United States v. Mississippi, 380 U.S. 128, 140 (1965).
Alternatively, the United States argues that the district court did
not abuse its discretion in refusing to hold the Commonwealth
indispensable and in going forward with the case despite the
Commonwealth's absence.
We decide this case on mootness grounds and do not reach the
other issues.
III.
Mootness is a jurisdictional defect, rooted in Article III
case or controversy considerations. United States v. Reid, 369
F.3d 619, 624 (1st Cir. 2004). Courts cannot, consistent with
Article III, wander into the "realm of the advisory and the
hypothetical." Oakville Dev. Corp. v. FDIC, 986 F.2d 611, 615 (1st
-9-
Cir. 1993). A case is moot when the issues are no longer live or
the parties no longer have a legally cognizable interest in the
outcome. City of Erie v. Pap's A.M., 529 U.S. 277, 287 (2000).
Another way of putting this is that a case is moot when the court
cannot give any "effectual relief" to the potentially prevailing
party. Church of Scientology of California v. United States, 506
U.S. 9, 12 (1992) (quoting Mills v. Green, 159 U.S. 651, 653
(1895)). Mootness is closely related to standing, and in fact has
been described as the standing requirement placed in a time frame,
albeit with some important differences. Mangual v. Rotger-Sabat,
317 F.3d 45, 60 (1st Cir. 2003).1
Mootness can arise in different types of situations. A case
can of course be moot at the outset by virtue of the facts asserted
in the complaint. Or a case not moot at the outset can become moot
because of a change in the fact situation underlying the dispute,
making relief now pointless. See, e.g., Weinstein v. Bradford, 423
U.S. 147, 148-49 (1975) (prisoner's claim against parole board
seeking injunctive relief providing him with certain procedural
rights in his parole hearing was moot because he was paroled before
the appeal was heard). Mootness can arise when the adversarial
1
The idea we rely on today, that appeals are moot when only
subsidiary issues, and not the judgment itself, are challenged, in
fact could be described as the doctrine of "standing to appeal,"
although we do not think the difference in labels to be relevant.
Charles Alan Wright et. al., 15A Federal Practice and Procedure §
3902, at 63-67 (2d ed. 1992).
-10-
parties jointly settle all of the claims in a case. See, e.g.,
U.S. Bancorp Mortgage Co. v. Bonner Mall P'ship, 513 U.S. 18, 23
(1994); Lake Coal Co. v. Roberts & Schaefer Co., 474 U.S. 120, 120
(1985) (per curiam). An appeal can also become moot because of a
party's own choices about which issues in a case to appeal. See
Ashcroft v. Mattis, 431 U.S. 171, 172-73 (1977) (per curiam); see
also In re Pub. Serv. Co. of N.H., 879 F.2d 987, 989-90 (1st Cir.
1989) (per curiam) (appeals court has no jurisdiction where
plaintiff appeals only one of a lower court's two alternative
grounds, because the judgment will stand unless both grounds are
overturned).
In Mattis, the plaintiff's son was killed by police officers;
the plaintiff sought damages and declaratory relief that the
statutes authorizing the officers' actions were unconstitutional,
and the lower court held that no damages were available because the
officers acted in good faith. 431 U.S. at 171. The plaintiff did
not appeal the damages ruling, but did appeal a denial of the
declaratory judgment. Id. The Supreme Court held that the
plaintiff's decision not to appeal the damages claim mooted the
appeal because the only issue left in the case by the declaratory
judgment claim -- "whether the defendants would have been liable
apart from their defense of good faith" -- was purely
"hypothetical" and the plaintiff had no legal rights at stake. Id.
at 172.
-11-
Here, the Commonwealth appeals its indispensability without
challenging the ultimate finding as to disposition of funds by the
district court. On its own, the indispensability of the
Commonwealth is a purely abstract, hypothetical issue divorced from
any practical interests. The Commonwealth's real interest in this
interpleader action is in its share of the money; because it agrees
with the district court that it deserves no money, it has no
legally cognizable interest remaining. It is impossible for this
disposition to prejudice the Commonwealth's interests in the
interpleader fund in any way, precisely because it agrees that it
has no interest in those funds.
The Commonwealth tries to avoid the mootness doctrine by
citing two exceptions to it: collateral consequences and capable of
repetition yet evading review.
First, the Commonwealth argues that it still has a legally
tangible interest because of the collateral consequences of
judicial resolution. Although it has no continuing dispute about
the funds at issue (the primary item in dispute), it argues that it
continues to suffer harm to its sovereign authority because this
action has been adjudicated, and a judgment has been handed down,
without its presence. The collateral consequences doctrine applies
most often in criminal cases, where, for example, some of the
consequences of a felony conviction (loss of voting privileges,
probation, etc.) remain, despite the fact that the defendant has
-12-
been released from jail. See, e.g., Sibron v. New York, 392 U.S.
40, 55 (1968); see also United States v. Duclos, 382 F.3d 62, 66
(1st Cir. 2004) (collateral consequences are presumed when criminal
conviction itself is attacked, although no presumption occurs for
appeals to revocation of parole or supervised release). These
types of consequences are continuing harms; they are merely
subsidiary to the primary harm of criminal convictions, prison
time. By contrast, a party's emotional interests in a case outcome
are not enough of a collateral consequence to stave off mootness.
See Mattis, 431 U.S. at 173.
There is no collateral detriment to the Commonwealth's
Eleventh Amendment immunity on the facts here. The Commonwealth
was dismissed as a party vis-à-vis the private parties because of
its sovereign immunity, and it has no Eleventh Amendment immunity
vis-à-vis the federal government. See United States v.
Mississippi, 380 U.S. 128, 140 (1965). There is no present
collateral detriment.
Second, the Commonwealth relies on the well-known exception
from mootness for claims that are capable of repetition yet evading
review. This exception is "narrow." Cruz v. Farquharson, 252 F.3d
530, 534 (1st Cir. 2001). This exception normally arises where the
underlying facts are inherently temporary such that they will
predictably have changed and foreclosed meaningful relief by the
time the case has worked its way through the legal system. See,
-13-
e.g., Norman v. Reed, 502 U.S. 279, 288 (1992) (challenge to
obstacles to getting on ballot for 1990 election was not moot after
that election had ended, because elections do not last long enough
for issues to be fully litigated); Roe v. Wade, 410 U.S. 113, 125
(1973) (pregnant woman's challenge to abortion law was not moot
even though she had given birth because pregnancy would never last
as long as federal court litigation); Becker v. Fed. Election
Comm'n, 230 F.3d 381, 389 (1st Cir. 2000) (claim seeking to prevent
corporate sponsorship of presidential debates was not moot because
issue was sure to arise again in future elections, yet campaign
season never lasts long enough to fully litigate issues). Here,
there is nothing inherently temporary about the underlying fact
situation.2
This type of case is capable of repetition: several other
cases of the same type, involving the same governmental parties,
have come up in Massachusetts federal courts alone within the past
few years. See Horizon Bank, 309 F. Supp. 2d at 192. But it does
not evade review. The United States can appeal whenever the court
dismisses the entire case on the ground that the Commonwealth is
indispensable. And the Commonwealth can appeal whenever the court
2
The Commonwealth argues that usually funds are distributed in
an interpleader tax case after the judgment and before an appeal
can be concluded. Without accepting the premise, we note that our
holding turns not on the fact that the funds have been distributed,
but on the fact that the Commonwealth concedes that it no longer
has a claim to any of the funds.
-14-
refuses to dismiss the entire case and there continues to be an
open dispute about the Commonwealth's share of the interpleader
funds. Were it not for the fact that the Commonwealth has
effectively acknowledged the correctness of the district court's
distribution of the interpleaded fund, the appeal would not be
moot, and the Commonwealth could assert its contentions.
The mootness doctrine is rooted largely in the idea that
courts, because of their distinct institutional competence and
role, should not decide abstract questions of law divorced from
real factual controversies. See Hall v. Beals, 396 U.S. 45, 48
(1969); Erwin Chemerinsky, Federal Jurisdiction § 2.5, at 126-27
(4th ed. 2003). One might think, as the district court suggested,
that the issue of whether a state is an indispensable party in an
interpleader action removed to federal court by the federal
government would be decided similarly on all possible combinations
of facts. But this is not necessarily so.
Putting aside the merits argument of the United States that
this is essentially an in rem action not implicating the Eleventh
Amendment at all, the remaining indispensability issue is by nature
a very fact-specific inquiry that "can only be determined in the
context of particular litigation"; possibilities of prejudice and
the like must be determined as a "practical matter," not
"theoretically." Provident Tradesmens Bank & Trust Co. v.
Patterson, 390 U.S. 102, 113-16, 118 (1968); see also Charles Alan
-15-
Wright et. al., 7 Federal Practice and Procedure § 1612, at 174 (3d
ed. 2001) ("Pragmatic concerns rather than conclusory labels now
control. . . . [T]he opinions in most . . . decisions point out
the particular competing interests involved in the case.").
Indispensability questions turn on specific facts, and that is all
the more reason for us to hold this appeal moot.
IV.
The appeal is dismissed on grounds of mootness.
-16-