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GREAT LAKES AUTO INS. GROUP OF CHICAGO v. SHEPHERD

February 3, 1951

GREAT LAKES AUTO INS. GROUP OF CHICAGO, ILL.
v.
SHEPHERD ET AL.



The opinion of the court was delivered by: John E. Miller, District Judge.

Plaintiff filed its complaint November 16, 1950, setting forth a civil action of interpleader under Section 1335 of 28 U.S.C.A. It appears from the allegations of the complaint that:

Defendant, Roland Shepherd, is a citizen of Arkansas. Defendants, Kracow and Gerber, are citizens of Illinois. (Residence is alleged, but the court will treat the allegations as meaning citizenship, since it appears that this was intended and is in accordance with the true facts.) On April 5, 1950, plaintiff issued a policy of insurance in which Broadway Car Company was named as assured, insuring a 1950 Cadillac automobile and a 1950 Chevrolet automobile against collision loss, subject to a fifty dollar deductible clause on each car. The Ace Insurance Agency, Chicago, Illinois, agent for plaintiff, advised the defendant, Roland Shepherd, that the policy covered any interest which the latter might have in the automobiles. While en route from Chicago, Illinois, to Arkadelphia, Arkansas, the automobiles were involved in a collision near Neelyville, Missouri, resulting in total damage to both in the sum of $2818.79, which, less the $50.00 deductible provision on each automobile, resulted in total liability under the policy in the sum of $2718.79. The defendant, Roland Shepherd, has filed a suit in the Circuit Court of Clark County, Arkansas against the plaintiff to recover the proceeds of said policy. Defendant, Leon Dinkelspiel, as Trustee in Bankruptcy for Roland Shepherd, is claiming the proceeds for the benefit of the bankrupt's estate and the creditors of the bankrupt. And, plaintiff alleges that defendants, Kracow and Gerber, d/b/a Broadway Car Company, claim the proceeds and have filed suit against Roland Shepherd in Municipal Court of Chicago, Illinois, and summoned plaintiff as garnishee, and are threatening to bring a suit against plaintiff directly for the proceeds. Plaintiff admits that it is liable in the sum of $2718.79 and has deposited that sum in the registry of the Court, pending the adjudication by this court of the adverse claims of defendants. Plaintiff prays that it be discharged from further liability; that it have its costs and a reasonable attorney's fee; and that the defendants be restrained from instituting or proceeding with any action against plaintiff involving said policy of insurance.

Defendants, Shepherd and Dinkelspiel, filed answer alleging that the said policy of insurance was purchased and paid for by Shepherd, and if he was not named as assured that the policy should be reformed to this effect and that said Shepherd is entitled to the proceeds of the policy. Also, the resident defendants have filed a cross-claim against the other defendants, Kracow and Gerber, in which it is alleged that Shepherd from time to time purchased from Broadway Car Company sundry automobiles; that through error he paid Broadway Car Company twice for a certain Chevrolet Pickup, for which said defendants, Shepherd and Dinkelspiel, are entitled to be reimbursed in the sum of the overpayment, $1150.00; that on July 1, 1950, defendants, Kracow and Gerber, wrongfully took three automobiles of the value of $4650.00 from Shepherd's lot in Arkadelphia and converted them to their own use, and by reason of the alleged overpayment and conversion, defendants, Shepherd and Dinkelspiel, are entitled to recover $5800.00 from said cross-defendants.

Defendants, Shepherd and Dinkelspiel, in effect contend that jurisdiction of the person of cross-defendants is present. As the court understands said defendants' position, they contend that the subject matter of the cross-claim arose "out of the transaction or occurrence that is the subject matter * * * of the original action"; that this being so, the cross-claim properly qualifies as such under Rule 13(g), Federal Rules of Civil Procedure, 28 U.S.C.A.; and that the cross-claim may be asserted and adjudicated in the interpleader proceeding, since service of process under the interpleader statute is sufficient to bring cross-defendants into court.

In view of defendants', Kracow and Gerber, default and statement that they make no claim on the proceeds of the insurance policy involved, the only question left in the case is whether the court has jurisdiction to entertain the cross-claim of the defendants, Shepherd and Dinkelspiel, against the non-resident defendants, Kracow and Gerber.

The problem is not readily resolved by an examination of the available decisions on the point. In Bank of Neosho v. Colcord, D.C.W.D.Mo., 8 F.R.D. 621, 623, the defendants in an interpleader action, citizens of Illinois and Oklahoma, had entered into a written contract for the sale of certain ranch property in Oklahoma, by the terms of which claimants Waite, proposed purchasers from Illinois, deposited $5000.00 with plaintiff, disinterested stakeholder, "to apply upon the purchase price consideration upon the final closing of this transaction." The parties failed to consummate the contract and each made demand upon the plaintiff stakeholder for payment of the fund deposited, whereupon plaintiff stakeholder brought the interpleader action in a district which was not the district of the residence of any of defendants. In addition to claiming the fund on deposit claimants Colcord and Hutchinson filed a cross-claim seeking specific performance of the contract under which the fund was deposited. A motion to strike the cross-claim, on the ground that cross-claims between adverse claimants in a strict interpleader proceeding could not be maintained, was overruled by the court. The court held that Rule 13(g) was applicable in an interpleader proceeding and concluded that the cross-claim asserted could properly be maintained as such since there was a direct connection between the subject matter of the original action and that of the cross-claim. And, over the objection of the Illinois claimants that they had entered a limited appearance in the interpleader action and were not subject to the jurisdiction of the court for any other purpose, the court held that it had acquired general jurisdiction of the subject matter and the parties, which enabled it to resolve all issues between the parties including the cross-claim under Rule 13(g). It should be noted that all claimants appeared and asserted their claims against the fund.

In Hagan v. Central Avenue Dairy, Inc., 9 Cir., 180 F.2d 502, an interpleader action filed in the Southern District of California, service was had on one claimant, Central Dairy, in Arizona. It filed no answer and made no appearance in the interpleader action, and the court awarded the sum to the other claimant, Hagan. Hagan, in the meantime, had filed a cross-claim against Central Dairy alleging that the claim grew out of the same contract which was the subject matter of the escrow deposit. Central Dairy appeared specially and objected to the court's jurisdiction over it with regard to the cross-claim, which objection was upheld and the cross-claim dismissed. On appeal the Court of Appeals affirmed, stating, 180 F.2d at page 503:

"We think the District Court of California did not have personal jurisdiction over the absent non-consenting Arizona corporation except to the extent of that corporation's interest in the escrow fund. That the court had jurisdiction that far is clear from the statute. Furthermore, if Congress had so provided, we think there is no reason why process from the United States District Court could not run country-wide. But Congress has not so provided, generally, and a District Court's power to hear and decide cases involving personal liability of an individual is limited to those served within the state where the court sits. The absentee defendant was not personally before the court here. The court could adjudicate rights in the fund, but could affect no other interest of the absentee.

"It would be a startling conclusion, we think, to give to Rule 13(g) and the Interpleader statute the effect of enlarging the jurisdiction of a court to create rights going beyond those to the fund which is the subject of the interpleader action. Such a construction would go far beyond the situation which called for the Interpleader statute in the first place. Situations of considerable hardship could result. In this case, for instance, suppose Central Dairy to be a Delaware corporation not engaged in business in California. Is it to be held subject to personal liability in the District Court for California because an interpleader plaintiff says it claims an interest in an escrow fund? That would indeed be going pretty far, and we cannot think that any such result was intended by Congress when it passed the Interpleader statute or the Supreme Court when it promulgated the Federal Rules of Civil Procedure."

The Bank of Neosho v. Colcord case, supra, was distinguished, footnote 6, 180 F.2d on page 504, on the ground that in that case the claimant against whom a cross-claim was asserted had already appeared to claim the fund deposited by the stakeholder.

However, the court observed, "But the court in that case gave broader scope to Rule 13(g) than we think proper." Also, it is interesting to note that Hall, District Judge, in a concurring opinion stated: "Nor does the record in this case call upon this court to say, the ingenuity of man being what it is and the Interpleader Statute and Federal Rules of Civil Procedure being as broad as they are, that a situation cannot arise in an interpleader action, or one in the nature of interpleader, where one of the defendant-claimants may or may not lawfully cross-claim therein against another defendant-claimant, or even a third party, concerning benefits or obligations arising out of the terms of the instrument which may be required to be construed in the interpleader suit, or out of the transactions or occurrences relating to such instrument, although such cross-claim as an independent action would fail because the court in which the suit was brought could not obtain personal jurisdiction over the non-resident defendant."

In Coastal Air Lines v. Dockery, 8 Cir., 180 F.2d 874, 877, the Court of Appeals affirmed the action of the lower court in taking jurisdiction to adjudicate a cross-claim, and distinguished the above case on the ground that the out of state defendant "not only interposed no objection to the jurisdiction of the court on the cross-claim, but, by stipulating that the question presented in the cross-claim was before the court for decision, waived any objection it might have raised to the venue of the action on the cross-claim or to the personal jurisdiction of the Arkansas Federal Court over it." It found that the cross-claim was proper under Rule 13(g) since it arose "out of the transaction or occurrence" which was "the subject matter * * * of the original action", and pointed out that a proper cross-claim is ancillary to the principal claim and need not be supported by independent jurisdictional grounds. It is, of course, a matter of speculation what the holding would have been had there been no waiver, and, therefore, in so far as a binding precedent from the Court of Appeals for this Circuit is concerned, the question remains open. However, the court did quote copiously and with apparent approval from the opinion in Hagan v. Central Avenue Dairy, Inc., supra. See, also, Stitzel-Weller Distillery, Inc., v. Norman, D.C.W.D.Ky., 39 F. Supp. 182.

Certain principles involved in the consideration of the question are clear. Unless otherwise provided by statute all process may be served only within the territorial limits of the state in which the district court is held. Rule 4(f), Federal Rules of Civil Procedure. As to civil actions of interpleader there is a statute so providing. Section 2361, 28 U.S.C.A., authorizes service of process in the district where the "claimants reside or may be found". Clearly, therefore, this court acquired jurisdiction of the person of the defendants, Kracow and Gerber, by virtue of the service on them in Illinois, at least for purposes of adjudicating their claim, if any, to the fund deposited in court. Also, it is clear that "Actions under [that section] (interpleader) shall be conducted in accordance with these rules." Rule 22(2), Federal Rules of Civil Procedure. Presumably this would include Rule 13(g). At least it may be said that a proper cross-claim may be considered when the cross-defendant is subject to service in the state where the district court sits or when the cross-defendant submits to the jurisdiction of the court or waives the right to object to the jurisdiction of his or its person. The Court of ...


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