United States Court of Appeals
For the First Circuit
No. 06-2043
HUDSON SAVINGS BANK,
Plaintiff, Appellee,
v.
GEORGE C. AUSTIN, III, ETC., ET AL.,
Defendants, Appellees,
UNITED STATES OF AMERICA,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]
Before
Howard, Circuit Judge,
Selya, Senior Circuit Judge,
and Shadur,* Senior District Judge.
Randolph L. Hutter, Attorney, Tax Division, United States
Department of Justice, with whom Eileen J. O'Connor, Assistant
Attorney General, Thomas J. Clark, Attorney, Tax Division, and
Michael J. Sullivan, United States Attorney, were on brief, for
appellant.
Thomas A. Barnico, Assistant Attorney General, with whom
Thomas F. Reilly, Attorney General (Commonwealth of Massachusetts),
and Eileen Ryan McAuliffe, Counsel, Department of Revenue, were on
brief, for state appellee.
*
Of the Northern District of Illinois, sitting by designation.
March 5, 2007
-2-
SELYA, Senior Circuit Judge. We are asked, in effect, to
referee a turf war between the Commonwealth of Massachusetts and
the United States. This is the latest in a series of cases in
which those two sovereigns have asserted conflicting claims against
a limited fund that is to be disbursed by interpleader. In those
cases, each has endeavored to have the relative priority of its
claims determined in its own courts, and each has mustered a
plausible argument that it should not be forced to litigate this
question in the other's forum. A number of district courts have
attempted to untangle this Gordian knot, but the divergence in
their decisions illustrates the implacability of the constitutional
quandary that has arisen. Compare, e.g., Horizon Bank & Trust Co.
v. Flaherty, 309 F. Supp. 2d 178 (D. Mass. 2004), with, e.g., First
Mass. Bank v. Daoust, 214 F. Supp. 2d 79 (D. Mass. 2002), and Cape
Ann Sav. Bank v. Johnson, Nos. 02-10032, 02-10036, 2002 WL 1839248
(D. Mass. Aug. 12, 2002).
Before us, both sovereigns invite the announcement of a
categorical rule spelling out a protocol for litigating such cases
in the future. We decline the invitation to speak categorically.
Rather, while leaving unresolved the most difficult aspect of the
underlying constitutional question, we chart a course that suffices
to dispose of the case at bar. Although we envision that this
roadmap will be appropriate for other similarly configured cases,
-3-
we do not address what changes in the contours of the dispute might
render this solution inutile.
With that preface, we turn to specifics. Despite the
enigmatic nature of the constitutional question, the relevant facts
are remarkably straightforward.
At the times material hereto, Hudson Savings Bank (the
Bank) held a first mortgage on a condominium (the Property) owned
by George C. Austin, Jr. Austin owed money, arising out of tax
delinquencies, to both the Commonwealth of Massachusetts and the
federal government. The Commonwealth recorded two tax liens against
the Property in the amounts of $29,376 and $27,087, respectively.
The United States filed two tax liens against the Property for
$207,547 and $97,307, respectively.
In due course, Austin defaulted on the mortgage note. The
Bank foreclosed and sold the Property. After satisfying its
mortgage debt and defraying expenses associated with the
foreclosure, it retained a surplus of nearly $100,000. The surplus
was manifestly insufficient to satisfy all the tax liens and, unsure
of the priorities, the Bank filed an interpleader action in a
Massachusetts state court. Because Austin had died, the Bank named
as defendants Austin's executor, the Massachusetts Department of
Revenue, and the United States. The Bank made no claim as of right
to any portion of the surplus, asking only that the court (i)
resolve the relative payment priorities as among the named
-4-
defendants, (ii) discharge it from any liability with respect to the
avails of the foreclosure, and (iii) award it, out of the surplus
funds, the costs of bringing the action (including its attorneys'
fees).
Pursuant to 28 U.S.C. § 1444, which confers upon the
federal government an absolute right to remove to federal court
interpleader actions in which it is named as a defendant, the United
States removed the case to the United States District Court for the
District of Massachusetts. The executor of Austin's estate neither
contested the removal nor filed a claim to the surplus. The
Commonwealth, however, invoked the Eleventh Amendment and asserted
that it was immune from the Bank's action if that action was to be
prosecuted in a federal court. The Commonwealth further argued that
it was both a necessary and an indispensable party to the
interpleader action, see Fed. R. Civ. P. 19(b), and that, therefore,
its Eleventh Amendment immunity required dismissal of the entire
action.
The United States rejoined on several fronts. To begin,
it offered two alternate theories as to why the Eleventh Amendment
did not apply. For one thing, it characterized interpleader as an
in rem or quasi in rem proceeding and, thus, outside the ambit of
the Eleventh Amendment under the reasoning of Tennessee Student
Assistance Corp. v. Hood, 541 U.S. 440 (2004), and California v.
Deep Sea Research, Inc., 523 U.S. 491 (1998). For another thing,
-5-
it argued that since it, not the Bank, had removed the action to a
federal court, it was the federal government, not a private party,
that was invoking federal jurisdiction. As a fallback, the United
States argued that even if Eleventh Amendment immunity applied, the
Commonwealth was not an indispensable party and, therefore, the
district court should at the very least adjudicate the federal
government's claims.
The district court rejected the arguments advanced by the
United States. See Hudson Sav. Bank v. Austin, No. 05-11604, slip
op. (D. Mass. Mar. 29, 2006) (unpublished). It determined that
maintenance of the interpleader action, insofar as it related to the
Commonwealth, was barred by the Eleventh Amendment. Id. at 2.
Proceeding to conclude that the Commonwealth was an indispensable
party, the court dismissed the action in its entirety. Id. at 5.
This timely appeal followed.
The right of a state to litigate a private party's claims
against it in its own courts is constitutionally assured. In the
absence of special circumstances — consent, waiver, and
congressional override are paradigmatic examples — the Eleventh
Amendment prohibits the exercise of federal judicial power over "any
suit in law or equity, commenced or prosecuted against one of the
United States by Citizens of another State . . . ." U.S. Const.
amend. XI. This language has been authoritatively interpreted (with
exceptions not relevant here) to bar all suits brought by a private
-6-
party in a federal court against an unconsenting state. See
Seminole Tribe v. Florida, 517 U.S. 44, 54 (1996).
The United States, however, is not a private party. Thus,
the prohibition contained in the Eleventh Amendment does not extend
to suits brought against a state by the federal government. See
Employees of Dep't of Pub. Health & Welfare v. Dep't of Pub. Health
& Welfare, 411 U.S. 279, 286 (1973). Moreover, Congress has
conferred upon the federal sovereign a virtually absolute right to
litigate claims brought either by or against it in the federal,
rather than the state, courts. See, e.g., Bank of New Engl. Old
Colony v. Clark, 986 F.2d 600, 602 (1st Cir. 1993) (noting that
"Congress would not have denied the federal government access to
federal courts without a clear statement to that effect"); Hood v.
United States, 256 F.2d 522, 525 (9th Cir. 1958) ("The cardinal
concern of the United States is that all cases in which the
interests of the government are involved may be tried in federal
fora.").
In light of this background, it is readily evident that
tensions may arise between the sovereign interests of the state and
federal governments. Those tensions make cases such as this one
problematic. See, e.g., Horizon Bank & Trust Co. v. Massachusetts,
391 F.3d 48, 50 (1st Cir. 2004). When, as a result of those
tensions, an intractable constitutional question looms, courts ought
to approach that question with great reticence. The lack of any
-7-
obvious answer to such a question suggests that, if a particular
case can be disposed of on some narrower, less contentious ground,
a court should avoid making a constitutional judgment. See
Ashwander v. TVA, 297 U.S. 288, 346-48 (1936) (Brandeis, J.,
concurring) (introducing the concept of constitutional avoidance);
El Dia, Inc. v. Hernandez Colon, 963 F.2d 488, 494 (1st Cir. 1992)
("Uncertain questions of constitutional law should be addressed only
when absolutely necessary."); see generally United States v.
Gertner, 65 F.3d 963, 973 (1st Cir. 1995) ("The judicial task,
properly understood, should concentrate on those questions that must
be decided in order to resolve a specific case.").
This is such a case. The question of whether the
Commonwealth invariably is entitled to Eleventh Amendment immunity
from interpleader suits brought by private parties is highly
ramified, the arguments advanced by the United States concerning
both the nature of interpleader and its role in bringing the case
to federal court are sophisticated, and the ultimate answer to the
Eleventh Amendment question is freighted with uncertainty. Equally
as important, the facts of this case permit us to accept and act
upon Justice Brandeis's sage counsel, resolving the main controversy
while reserving the most difficult aspect of the constitutional
question.
The logical starting point for further analysis is a
recognition of the idiosyncratic nature of Eleventh Amendment
-8-
immunity. The Supreme Court has cautioned that, when Eleventh
Amendment concerns are at stake, form should not be exalted over
substance. See Idaho v. Coeur d'Alene Tribe, 521 U.S. 261, 270
(1997) ("The real interests served by the Eleventh Amendment are not
to be sacrificed to elementary mechanics of captions and
pleadings."). For that reason, a court's appraisal of a claim of
Eleventh Amendment immunity must focus on the "practical effect" of
the suit as opposed to its abstract posture. Hood, 541 U.S. at 454;
see In re New York, 256 U.S. 490, 500 (1921) (explaining that courts
ought to look beyond the "mere names of the titular parties" to "the
essential nature and effect of the proceeding").
This focus is particularly valuable here. In
interpleader, the plaintiff ordinarily is a mere stakeholder who
solicits the assistance of a court in order to avoid potentially
inconsistent liabilities. See 4 James Wm. Moore et al., Moore's
Federal Practice § 22.02[1] (3d ed. 2006). The stakeholder-
plaintiff names as defendants those who are potential claimants to
the stake. See id. Typically, the defendants are not antagonistic
to the plaintiff but, rather, are pitted against one another. That
circumstance follows ineluctably from the principle that
interpleader is not available unless the defendants' claims are
"adverse" to each other. 7 Charles Alan Wright, Arthur R. Miller
& Mary Kay Kane, Federal Practice & Procedure § 1705 (3d ed. 2001).
-9-
It follows that, in an interpleader action in which the
stakeholder does not assert a claim to the stake, the stakeholder
should be dismissed immediately following its deposit of the stake
into the registry of the court. See, e.g., Comm'l Union Ins. Co.
v. United States, 999 F.2d 581, 583 (D.C. Cir. 1993). That
dismissal should take place without awaiting an adjudication of the
defendants' competing claims. See 4 Moore et al., supra §
22.03[2][a].
The case at bar is a classic interpleader action. For our
purposes, three features are especially important: (i) the Bank, a
pure stakeholder, has not asserted any entitlement to the stake and
is seeking nothing beyond a discharge from further liability; (ii)
no private party has asserted any claim of entitlement to the stake
(the only non-governmental defendant — the executor of Austin's
estate — has manifested total indifference to the outcome of the
interpleader action); and (iii) the sum of the sovereigns' claims
exceeds the dollar value of the stake.1 A straightforward dispute
between two sovereigns unquestionably would fall outside the purview
of the Eleventh Amendment, and given these three features this case
appears much the same, in practical effect, as a straightforward
dispute between the Commonwealth and the United States.
1
We emphasize that if any of these three features were not
present (if, say, the stakeholder or some other private party was
asserting a claim to the stake), that would present a different set
of considerations. Our opinion is limited accordingly.
-10-
Of course, there is a rub: the Bank's continuing presence
in the interpleader action. Stripped of rhetorical flourishes, the
Bank's presence furnishes the sole basis for the Commonwealth's
invocation of the Eleventh Amendment. Yet, the fact that the Bank
remains in the litigation is serendipitous; the thirty-day window
for removal, see 28 U.S.C. § 1446, did not permit the action to
mature in state court to the point at which the stakeholder normally
would have been dismissed. That being so, it is hard to see the
continuing involvement of the Bank as anything more than a fiction
of "the elementary mechanics of captions and pleadings" — a fiction
of the type that the Supreme Court has suggested we ignore for
Eleventh Amendment purposes. Coeur d'Alene Tribe, 521 U.S. at 270.
To cinch matters, giving weight to a pragmatic appraisal
of the case is consistent with our existing interpleader
jurisprudence. We previously have treated an interpleader action
as a de facto suit between the claimants to the stake (even though,
nominally, they were the defendants in the action). See United
States v. Palmer, 956 F.2d 3, 7 (1st Cir. 1992) (noting that the
claimants "were at once plaintiffs and defendants, [each] seeking
a share of the fee disputed by the other"). Similarly, we have
refused to subordinate substance to form by engaging in an
"elaborate game of ring-around-the-rosy" when resolving an
interpleader action. Equitable Life Assur. Soc'y v. Porter-
Englehart, 867 F.2d 79, 84 n.3 (1st Cir. 1989). At bottom,
-11-
interpleader is an equitable mechanism, and courts should not
hesitate to "eliminat[e] those technical restraints on the device
that are not founded on adequate policy considerations." 7 Wright,
Miller & Kane, supra § 1704, at 541.
Turning a blind eye to the practical effect, the
Commonwealth resists any characterization of this case as a contest
between sovereigns. Its argument is built around the Bank's role
in bringing the interpleader action and its effort to obtain
substantive relief — relief that, if ordered by a federal court,
would impinge on state sovereignty. In this regard, the
Commonwealth points to the Bank's prayer that the defendants
(including the Commonwealth) be "restrained from instituting any
action against [it] for recovery of the net proceeds of the
foreclosure sale."2 The Commonwealth's reliance on this boilerplate
language seems overblown: at most, this relief is tangential to the
goal of the action, which is to settle the validity and relative
priority of the various tax liens.3
2
The Commonwealth at no point contends that the Bank's
standard request for reimbursement of the costs of bringing the
interpleader action (including attorneys' fees), out of the funds
deposited, gives rise to a claim of Eleventh Amendment immunity.
Any such claim is, therefore, deemed to be abandoned. See United
States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
3
Indeed, the Bank's complaint in interpleader specifically
prayed that the defendants "be required to interplead and settle
between themselves their right to the net proceeds of the
foreclosure sale."
-12-
We need not resolve the difficult constitutional question
that attends the Commonwealth's attempt to hinge a claim of Eleventh
Amendment immunity on this prayer for relief. The district court
had the authority to avoid this question by the simple expedient of
staying the Bank's request for relief vis-à-vis the Commonwealth
and, following its adjudication of the main dispute between the two
sovereigns, remanding what was left of the interpleader action to
the state court for resolution. That court, unencumbered by the
Eleventh Amendment, could then determine whether to grant the Bank's
prayer for exculpation from any further claims that might be pressed
against it by the Commonwealth with respect to the foreclosure
proceeds.4 In our view, the district court's failure to follow that
course and its choice, instead, to dismiss the interpleader action
constituted reversible error.
We add, moreover, that the decision to dismiss was not
only unnecessary (given the available alternative) but also beyond
the district court's lawful authority. After all, the pertinent
provision of the remand statute, 28 U.S.C. § 1447(c), instructs that
"[i]f at any time before final judgment it appears that the district
court lacks subject matter jurisdiction, the case shall be remanded"
to the state court. This command is obligatory and does not afford
4
It is entirely possible, of course, that such a remand would
prove unnecessary, for the Commonwealth might at that point be
willing to release the Bank from any further claims.
-13-
district courts leeway to dismiss rather than remand.5 See Mills v.
Harmon Law Offices, 344 F.3d 42, 45 (1st Cir. 2003).
The command embodied in section 1447(c) applies in
circumstances in which a federal court, by virtue of the Eleventh
Amendment, finds itself unable to adjudicate all or part of a
removed case. While the Supreme Court has declined to state
definitively whether the Eleventh Amendment is a doctrine of subject
matter jurisdiction, see Wis. Dep't of Corr. v. Schacht, 524 U.S.
381, 391 (1998), there is ample authority for the proposition that
an Eleventh Amendment bar to the maintenance of an action or a claim
is precisely the type of shortfall that requires remanding a removed
case to the state court. See Fent v. Okla. Water Res. Bd., 235 F.3d
553, 559 (10th Cir. 2000); Roach v. W. Va. Reg'l Jail & Corr.
Facility Auth., 74 F.3d 46, 49 (4th Cir. 1996); Smith v. Wis. Dep't
of Agric., Trade & Consumer Prot., 23 F.3d 1134, 1140 (7th Cir.
1994); Henry v. Metro. Sewer Dist., 922 F.2d 332, 338 (6th Cir.
1990). Construing the remand statute in this way makes eminently
good sense; in such circumstances, outright dismissal would unfairly
penalize a plaintiff who brings a viable cause of action in a proper
5
We note that the probable exercise by the United States of
its own sovereign immunity following a remand does not alter this
calculus. In the final analysis, remand is mandatory unless the
federal court can "say with absolute certainty that remand would
prove futile." Me. Ass'n of Interdep. Neighborhoods v. Comm'r, Me.
Dep't of Human Servs., 876 F.2d 1051, 1054 (1st Cir. 1989).
-14-
forum, only to have it hijacked by powers beyond his or her control.
See Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 351-52 (1988).
This conclusion is not at odds with our holding in Parella
v. R.I. Employees' Ret. Sys., 173 F.3d 46 (1st Cir. 1999). There,
we ruled that the ban on hypothetical jurisdiction does not always
require that Eleventh Amendment immunity questions be answered prior
to the adjudication of merits questions. See id. at 55. Our
holding today, which recognizes that Eleventh Amendment immunity has
some attributes of subject matter jurisdiction but not others, is
consistent with that stance. Cf. Maysonet-Robles v. Cabrero, 323
F.3d 43, 50 n.5 (1st Cir. 2003) (explaining that "the hybrid nature"
of the immunity renders it "sui generis").
Let us be perfectly clear. In concluding that remand,
rather than dismissal, is the appropriate way to assuage the
lingering Eleventh Amendment concerns raised by this case, we do not
pretend to have crafted a perfect solution. Conducting a single
lawsuit in two complementary court systems is inefficient and
burdensome. Yet, given the uncertain constitutional terrain, the
half-measure of interpleader in a federal court followed by possible
remand to a state court seems preferable to any of the alternatives.
Here, as elsewhere in the real world, half a loaf often is better
than none.
At this juncture, a succinct summary seems sensible. We
hold that, on the facts of this case, the Eleventh Amendment will
-15-
not be offended by allowing a federal court to determine the
relative priority of the federal and state tax liens. Only the
particular claim giving rise to potential Eleventh Amendment
concerns — the Bank's claim for relief that would bind the
Commonwealth — need be reserved.
This disposition renders moot the Rule 19(b) issue raised
by the Commonwealth and resolved by the district court. Because we
give "practical effect" to the Eleventh Amendment claim, Hood, 541
U.S. at 454, and visualize this interpleader action primarily as a
suit between the Commonwealth and the United States, it becomes
academic whether the Commonwealth, if wholly immune from any further
proceedings in the federal court, would be an indispensable party.
We need go no further. For the reasons elucidated above,
we reverse the judgment of dismissal and return the matter to the
district court for further proceedings consistent with this opinion.
Thereafter, if any issue remains to be resolved between the
Commonwealth and the Bank, see supra note 4, the remainder of the
case should be remanded to the state court.
Reversed and remanded.
-16-