Tennessee ex. rel. v. Surety Bank, 98-11377

Citation200 F.3d 373
Decision Date25 January 2000
Docket NumberNo. 98-11377,98-11377
Parties(5th Cir. 2000) State of Tennessee ex. rel. DOUGLAS SIZEMORE, Commissioner of Commerce and Insurance of the State of Tennessee on behalf of policyholders and other third-party claimants of Anchorage Fire and Casualty Insurance Company a/k/a Global Capitol Assurance Company, Ltd. Plaintiff-Appellant, v. SURETY BANK, formerly known as Texas Bank, N.A., Defendant-Appellee
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

[Copyrighted Material Omitted] Appeal from the United States District Court For the Northern District of Texas, Dallas Division

Before DAVIS, JONES, and MAGILL1, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

This case arises out of the insolvency of Anchorage Fire & Casualty Insurance Company ("Anchorage"), an Antiguan company engaged in the insurance business throughout California, Texas, Tennessee, and Georgia. Plaintiff Sizemore ("the Receiver") is the Commissioner of Commerce and Insurance for the State of Tennessee and is the appointed Conservator and Liquidator of all Anchorage assets. He brought this cause of action against Surety Bank, a Texas Bank that maintained several bank accounts in Anchorage's name. The Receiver alleged that Surety Bank violated the Liquidation and Conservation Orders of the Tennessee Chancery Court, primarily by failing to turn Anchorage assets over to the Receiver. The district court granted summary judgment on Surety Bank's behalf, holding that the Bank was not bound by the orders because the Chancery Court lacked jurisdiction over Anchorage assets located outside of Tennessee. For reasons that follow, we agree with the district court that the Tennessee court lacked jurisdiction and affirm.

I.

In January 1993, Anchorage was either insolvent or on the verge of becoming insolvent. By March, the states of Texas and Tennessee had each initiated independent insolvency proceedings against Anchorage. As the interplay of these proceedings forms the crux of this lawsuit, we will discuss each in some detail.

Tennessee Proceedings

In early March 1993, a federal district court in Tennessee entered a temporary restraining order enjoining several financial institutions, including Surety Bank, from transferring, disbursing, or in any way interfering with accounts held under the Anchorage name.

One week later, the Tennessee Chancery Court placed Anchorage into receivership pursuant to the Tennessee Insurers Rehabilitation and Liquidation Act, Tenn. Code Ann. 56-9-101 et seq. The court found that Anchorage was "in such condition that further transaction of business would be hazardous to its policyholders, creditors, and the public." Accordingly, it entered a Conservation Order enjoining "all persons, firms, and associations" from transferring, wasting, or dissipating Anchorage bank accounts or interfering with the Conservator and the Conservatorship. The court further directed the Tennessee Commissioner of Commerce and Insurance to take possession of Anchorage's assets and to administer them under court supervision. In May, the Chancery Court converted the temporary injunction into a permanent injunction and the conservation proceedings into liquidation proceedings. The court entered a liquidation order authorizing the Receiver to take possession of "all property assets, and estate . . . wheresoever located, whether within or without the state of Tennessee and belonging to Anchorage."

Texas Proceedings

In April 1993, Surety Bank filed a motion to intervene in a Texas lawsuit involving some Anchorage assets. Surety Bank then moved for interpleader, arguing that among the assets at issue in the lawsuit were funds that had been deposited in the same Surety Bank accounts as those involved in the Tennessee proceedings against Anchorage. Surety Bank named Anchorage and the Receiver as defendants, paid approximately $600,000 into the registry of the court pending resolution of the conflicting claims, and asked the court to discharge the Bank from all liability with respect to the claims.

In response, the Receiver moved to stay or dismiss the interpleader suit, claiming that the Tennessee liquidation court had exclusive jurisdiction over Anchorage's property regardless of where it was located, and that the Texas court should give full faith and credit to the Tennessee liquidation order. The court denied the Receiver's motion and entered summary judgment, awarding the impleaded funds to United Shortline.

The Texas Court of Appeals affirmed the district court in part and reversed in part. Bryant v. United Shortline Inc. Assurance Services N.A., 984 S.W.2d 292 (Tex. App. 1996)("Bryant I"). The court held that the Tennessee Chancery Court "exceeded its statutory jurisdiction when it ordered liquidation of assets outside Tennessee" and that the district court did not err in refusing to give the liquidation order full faith and credit. 984 S.W.2d at 298. The court concluded that the parties had yet to resolve ownership of the funds adequately and therefore remanded the case for further factual development.

In May 1998, the Texas Supreme Court affirmed the decision but used a different rationale than the court of appeals. Bryant v. United Shortline Inc. Assurance Services N.A., 972 S.W.2d 26, 29 & n.1 (Tex. 1998)("Bryant II"). The court declined to decide whether the Tennessee court had jurisdiction over Anchorage assets located in Texas. The court stated that "we neither approve nor disapprove of the court of appeals' finding that [the Tennessee statute] precludes the Tennessee chancery court from exercising jurisdiction over Anchorage assets located outside Tennessee." Id. Instead, the court held that the Tennessee court order did not affect the Texas impleader action. The court explained that because the Tennessee court order, by its express terms, applied only to funds belonging to Anchorage, it had no effect on the Texas action, which was designed to address the antecedent question of whether the funds at issue actually belonged to Anchorage, rather than to another party.

The Present Action

The Receiver filed the present action in May 1995, in the court below, seeking title to a number of accounts allegedly belonging to Anchorage, which were on deposit with Surety Bank. The Receiver alleged that the Tennessee Chancery Court vested him with title to the Texas deposits and that Surety Bank intentionally violated the orders of the Tennessee courts, committed fraudulent transfers, common law conversion, common law fraud, negligence, and bad faith. He alleges that Surety Bank withdrew assets from the Anchorage accounts and transferred them to third parties or to other accounts that the Bank maintained for their own purposes.

The district court entered summary judgment for Surety Bank, holding that the Tennessee Chancery Court lacked jurisdiction to issue the Conservation and Liquidation Orders. The court explained that because the Receiver's claims arose solely from the rights obtained in the Tennessee court orders, enforcement of those rights depended upon whether the Tennessee orders were entitled to full faith and credit. Whether the Tennessee orders were entitled to full faith and credit, in turn, depended on whether the Tennessee court had jurisdiction to issue the orders.

In determining whether the Tennessee court had jurisdiction to issue the orders, the district court stated that it would interpret the Tennessee jurisdictional statute as a Texas state court would interpret it. The district court concluded that the Texas Court of Appeals' decision in Bryant I demonstrated that Texas courts would find that the Tennessee statute did not authorize Tennessee courts to exercise jurisdiction over Texas property. Accordingly, the district court refused to grant full faith and credit to the Tennessee Liquidation and Conservation Orders.

Sizemore appeals, arguing that: (1) the district court erred in concluding that the Tennessee Chancery Court lacked jurisdiction to enter the Liquidation and Conservation Orders; (2) the district court should have granted full faith and credit to the Tennessee Chancery Court's own determination that it possessed subject matter jurisdiction, and; (3) Surety Bank is estopped from challenging the Conservation and Liquidation Orders. We review each of these arguments de novo. Gardemal v. Westin Hotel Co., 186 F.3d 588, 592 (5th Cir. 1999).

II.

A court need not grant full faith and credit to a judgment rendered in another state unless that state had jurisdiction to render the judgment. Underwriters Nat'l Assurance Co. v. N.C. Life & Accident & Health Ins. Guar. Ass'n., 455 U.S. 691, 705 (1982); Restatement (Second) of Judgments 81 (1982). As the Supreme Court explained in Underwriters Nat'l Assurance Co.: "before a court is bound by the judgment rendered in another State, it may inquire into the jurisdictional basis of the foreign court's decree. If that court did not have jurisdiction over the subject matter or the relevant parties, full faith and credit need not be given." Id. at 705. Thus, the critical question presented to us is whether the Tennessee Chancery Court possessed jurisdiction to issue the Liquidation and Conservation Orders with regard to assets located outside the State of Tennessee. If the Tennessee court had jurisdiction to issue the orders, then the district court must give full faith and credit to the orders. If not, then the orders cannot serve as the basis for a cause of action in Texas courts.

A.

We must first consider whether to apply Texas or Tennessee law to determine whether the Tennessee court acted within the scope of its jurisdiction.

The district court applied Texas law, reasoning that because jurisdiction was a question of substantive state law, the Erie doctrine compelled it to apply the substantive law of the forum state -- Texas. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).

The Receiver counters that this...

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