United States Court of Appeals,
Fifth Circuit.
No. 93-2041.
Charles W. WHITE, et al., Plaintiffs,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, As Receiver for Texas
American Bank-Galleria, et al., Defendants.
FEDERAL DEPOSIT INSURANCE CORPORATION, As Successor in Interest
to NCNB Texas National Bank, Defendant-Appellee,
v.
Toni Y. KOZAK, Trustee of Black Family Trust, Howard R. Block,
Porter & Clements and John E. O'Neill, Intervenors-Appellants.
April 27, 1994.
Appeal from the United States District Court for the Southern
District of Texas.
Before DUHÉ, and EMILIO M. GARZA, Circuit Judges and STAGG,1
District Judge.
STAGG, District Judge:
Intervenors-Appellants, Toni Y. Kozak, Howard R. Block, Porter
& Clements and John E. O'Neill (the "Appellants"), appeal from a
summary judgment rendered in favor of Defendant-Appellee, the FDIC.
Finding that the district court erred in granting summary judgment,
we reverse.
I.
FACTS AND PROCEEDINGS
This matter comes to the court for the second time. An
earlier panel reversed summary judgment in favor of NCNB Texas
1
District Judge of the Western District of Louisiana,
sitting by designation.
1
National Bank (NCNB) on the ground that the Appellants had not been
given an opportunity to present their respective oppositions to
NCNB's motion for summary judgment.2 To the factual summary
contained in this earlier decision—which we will not repeat here—we
add the following.
While this matter was pending on appeal for the first time,
NCNB transferred to the FDIC, inter alia, all of its interests in
this matter. On remand, therefore, the district court ordered that
the FDIC, in its corporate capacity, be substituted as a party
defendant for NCNB. The appellants filed briefs in opposition to
the FDIC's motion for summary judgment (formerly NCNB's motion for
summary judgment), as well as cross motions for summary judgment.
After exhaustive briefing by all parties, the district court
granted summary judgment in favor of the FDIC. The Appellants
timely appealed the final judgment.
II.
ANALYSIS
As noted by the earlier panel, the FDIC (as successor in
interest to NCNB) is either an unsecured judgment creditor or a
lien creditor of White, and the Appellants have either valid
assignments of, or merely unperfected security interests in,
White's share of the proceeds of the Southwest note.3 The district
court found that the documents relied upon by the Appellants did
2
See White v. Texas American Bank/Galleria, 958 F.2d 80 (5th
Cir.1992).
3
Id. at 85 n. 17.
2
not create valid assignments under Texas law, but that the
documents were sufficient to create unperfected security interests
on behalf of the Appellants in White's portion of the Southwest
note. The district court also concluded that the FDIC was a lien
creditor of White because the actions of NCNB subsequent to the
initiation of the interpleader action were of sufficient quality
and quantity to create a lien on the proceeds of the Southwest
note. Under Texas law, an unperfected security interest is
subordinate to the rights of a lien creditor.4
Appellants argue that the district court erred in concluding
that the FDIC was a lien creditor. Alternatively, the Appellants
argue that the documents executed by White were sufficient to
constitute an assignment under Texas law. The district court's
conclusion that the FDIC's claim is superior to that of the
Appellants is premised upon the court's implicit assumption that
activity subsequent to the time that the interpleader fund has been
deposited into the registry of the district court can affect the
4
Tex.Bus. & Com.Code § 9.301. In relevant part the statute
provides:
(a) Except as otherwise provided in Subsection (b), an
unperfected security interest is subordinate to the rights
of
(2) a person who becomes a lien creditor before
the security interest is perfected;
(c) A "lien creditor" means a creditor who has acquired
a lien on the property by attachment, levy or the like and
includes an assignee for benefit of creditors from the time
of assignment, and a trustee in bankruptcy from the date of
the filing of the petition or a receiver in equity from the
time of appointment.
3
relative rights of the potential claimants to that fund. Finding
that the rights of claimants to an interpleader fund should
normally be determined as of the time that the fund was created,
this court does not reach the issue of whether the actions of NCNB
were sufficient to create a lien under Texas law. Further, we need
not address Appellants' assertion that they were assigned White's
interests in the note proceeds.
In this case, Southwest Airlines filed a counter-claim and a
cross-claim in interpleader and deposited the 1989 and 1990
installments on the note into the registry of the district court
because there was a genuine dispute among a number of parties as to
who was entitled to the funds. Southwest filed its original claims
in interpleader on September 22, 1989, and deposited the 1989 note
installment on September 25, 1989. In September of 1990, Southwest
amended its claims in interpleader and deposited the 1990 note
installment into the court's registry. NCNB, and thus the FDIC,
became a judgment creditor of White in December of 1989.5
Subsequently, NCNB moved for a writ of garnishment against the
interpleader fund. In January of 1990, the district court denied
this motion. In May of 1990, NCNB moved for a charging order,
which was also denied by the district court. NCNB never sought a
writ of garnishment against Southwest Airlines.
5
Under Texas law, no lien is created by the mere rendition
of a judgment. Citicorp Real Estate, Inc. v. Banque
Arabe Internationale D'Investissement, 747 S.W.2d 926,
929 (Tex.Ct.App.1988) (citing Burton Lingo Co. v.
Warren, 45 S.W.2d 750, 751-52 (Tex.Civ.App.—Eastland
1931, writ ref'd)).
4
Interpleader is a procedural device which entitles a person
holding money or property, concededly belonging at least in part to
another, to join in a single suit two or more persons asserting
mutually exclusive claims to the fund.6 The issue presented by
this case—which is one of first impression in this circuit—is
whether activity subsequent to the initiation of an interpleader
action can give one claimant a right to the interpleader fund which
is superior to that which he had at the time the interpleader was
initiated. Today, we join with our brethren of the Second Circuit
to hold that activity subsequent to the initiation of an
interpleader action is normally immaterial in determining which
claimant has a superior right to the interpleader fund.
In Avant Petroleum, Inc. v. Bangue Paribas,7 Crysen Trading
and Marketing, Inc. ("Crysen") gave Banque Paribas ("Paribas") a
general security interest in all Crysen assets, including its
accounts receivable. Paribas perfected its security interest by
filing U.C.C. financing statements, which were effective for five
years. Approximately four and one-half years later, BP North
America Petroleum Inc. ("BP") instituted suit against Crysen and
obtained an order for a writ of garnishment against Avant
Petroleum, Inc. ("Avant"). At the time, Avant owed Crysen
approximately $16,000,000. The writ provided, inter alia, that
6
Gaines v. Sunray Oil Co., 539 F.2d 1136, 1141 (8th
Cir.1976); U.S. v. Estate of Swan, 441 F.2d 1082, 1085
(5th Cir.1971); Wittry v. Northwestern Mutual Life
Ins. Co., 727 F.Supp. 498, 499 (D.Minn.1989); and 3A
Moore's Federal Practice ¶ 22.02[1] (1993).
7
853 F.2d 140 (2nd Cir.1988).
5
Avant, the garnishee, was not to pay any of its debts to Crysen
pending further orders of the court. Avant then filed an
interpleader action, asking that the court resolve the competing
claims of Paribas, BP and Crysen.
While the interpleader action was pending, the five year
U.C.C. financing statements filed by Paribas lapsed, and Paribas
failed to file new financing statements for two months. BP moved
for summary judgment, arguing that the filing lapses had caused
Paribas's security interest to become subordinate to BP's
judicially created lien. Paribas filed a cross-motion for summary
judgment, which the district court granted. On appeal, the
judgment was affirmed.
The Avant Petroleum court held that the retroactive
unperfection of a security interest which takes place subsequent to
the date that the interpleader action was initiated and the funds
were deposited does not divest the secured creditor of his superior
interest in the funds. In so holding, the court concluded "that
where an interpleader action is brought to have the court determine
which of two parties has priority with respect to the interpleader
fund, the court should normally determine priority as of the time
the fund was created."8 In Avant Petroleum, the issue before the
court was whether the failure of a secured creditor to file
continuation statements after the initiation of the interpleader
action would result in the subordination of his interests to those
of a lien creditor, whose rights were indisputably inferior to
8
Id. at 144.
6
those of the secured creditor at the time the interpleader action
was initiated. In the instant case, the issue is whether the
affirmative actions of an unsecured judgment creditor after the
initiation of the interpleader action can give the judgment
creditor a claim superior to that of a secured creditor, whose
rights were indisputably superior to those of the judgment creditor
when the interpleader action was initiated. Although Avant
Petroleum is factually distinguishable from the present case, the
ratio legis of that case is clearly applicable.
Once money is deposited into the court's registry, the money
is held by the court pending a determination of which party's claim
is superior. In other words, "[t]he court can be said to have
taken custody of the money for the benefit of the rightful owner,
creating a trust for the purpose of preserving the funds and
thereby securing the rightful owner's claim to them."9 Further,
while the money remains in the custody of the court, a secured
creditor is prevented from taking any action to enforce his claim.
If we were to allow one claimant to obtain an advantage over the
others while the interpleader action is pending, we "would create
the bizarre result that the very act of setting up the "trust' in
order to protect and preserve the property for the benefit of its
rightful owner would be the indirect cause of that rightful owner
losing its rights in the property."10
9
Id. at 145 (quoting Avant Petroleum, Inc. v. Banque
Paribas, 652 F.Supp. 542, 547 (S.D.N.Y.1987)).
10
Avant Petroleum, 853 F.2d at 145 (quoting Avant Petroleum,
652 F.Supp. at 547).
7
In the instant case, NCNB (now the FDIC) sought a writ of
garnishment against the interpleader funds. Garnishment is a
statutory proceeding brought by a creditor (the garnishor) of a
person (the debtor) against a third party in order to satisfy a
debt owed to the garnishor.11 NCNB, the garnishor, moved for a writ
of garnishment against the district court (the garnishee) in order
to obtain property of White (the debtor), which had come into the
custody of the court. The reason for the filing of the
interpleader action, however, was that the stakeholder was unable
to determine which of the claimants was rightfully entitled to the
fund. Thus, any attempt to garnish property which is the subject
of an action in interpleader begs the question which is the reason
for the interpleader action—that is, which claimant is rightfully
entitled to the fund.
This is not to say that one can never garnish funds which are
the subject of an interpleader action.12 But only that interest
which the debtor retains in the interpleader fund, as of the date
of the initiation of the interpleader action, may be the subject of
11
Millard v. U.S., 916 F.2d 1, 3 (Fed.Cir.1990) (citing
Harris v. Balk, 198 U.S. 215, 226, 25 S.Ct. 625, 628,
49 L.Ed. 1023 (1905)); and In re Olivas, 129 B.R. 122,
124 (W.D.Tex.1991).
12
"Any attempt to attach funds deposited in the registry of
a federal district court is subject to the doctrine of
custodia legis." U.S. v. Rubenstein, 971 F.2d 288, 294
(9th Cir.1992); see also U.S. v. Van Cauwenberghe, 934
F.2d 1048, 1062 (9th Cir.1991). "[U]nder the doctrine
of custodia legis, funds deposited in the registries of
federal courts may not be attached "except by order of
the judge or judges of said courts.' " Van
Cauwenberghe, 934 F.2d at 1062 (quoting The Lottawanna,
87 U.S. (20 Wall.) 201, 225, 22 L.Ed. 259 (1874).
8
the writ of garnishment. In the present case, any interest which
White had in the interpleader funds as of the date of the
initiation of the interpleader action was subject to the security
interests of the Appellants. Likewise, any lien13 which may have
been created after the initiation of the interpleader action would
be inferior to the claims which existed as of the date of the
action. An objective of the interpleader action, like that of any
civil action, is to determine the respective and relative rights of
the parties asserting claims as of the date of the action was
commenced. Allowing one party to enhance his claim while the other
claimants patiently await a determination from the court would be
inequitable, as well as inconsistent with this objective.
In sum, when an action in interpleader is brought, the court
should, absent extraordinary circumstances, determine the relative
priorities of all claimants as of the time that the interpleader
was initiated. NCNB, the FDIC's predecessor in interest, was not
a lien creditor of White as of the date of Southwest's original
interpleader action. Thus, any claim that the FDIC may have as a
lien creditor of White can not be asserted against the interpleader
fund. At the time that the interpleader action was initiated, NCNB
(now the FDIC) was merely a judgment creditor. Thus, any claim
that the FDIC has against the interpleader fund must be evaluated
13
Although the earlier panel did not the reach the merits of
whether NCNB was in fact a lien creditor, it noted that
the record would have had to have been "augmented
significantly to sustain [such] a judicial
determination...." White, 958 F.2d at 85 n. 17. While
we too do not reach the merits of this issue, we concur
in the earlier panel's observation.
9
in accordance with its status as an unsecured judgment creditor.
III.
CONCLUSION
For the foregoing reasons, the judgment of the district court
is REVERSED, and we REMAND this case to the district court for
proceedings consistent with the terms of this ruling.
* * * * * *
* * * * * *
10