Sanders v. Armour Fertilizer Works

• Decision Date: 30 April 1934
• Docket Number: No. 106,106
• Parties: SANDERS v. ARMOUR FERTILIZER WORKS et al. *
• Court: U.S. Supreme Court

292 U.S. 190

54 S.Ct. 677

78 L.Ed. 1206

SANDERS

v ARMOUR FERTILIZER WORKS et al.^*

No. 106.

Submitted Feb. 5, 1934.

Decided April 30, 1934.

Mr. Thomas D. Gresham, of Dallas, Tex., for petitioner.

[Argument of Counsel from pages 191-194 intentionally omitted] Messrs. Mark McMahon, of Fort Worth, Tex., and Charles J. Faulkner, for respondent Armour Fertilizer Works.

Mr. George S. Wright, of Dallas, Tex., for respondent National Fire Ins. Co.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

New York Life Insurance Company v. Dunlevy (1916) 241 U.S. 518, 36 S.Ct. 613, 60 L.Ed. 1140, exhibited the serious problems encountered by insurance companies when conflicting demands are made by residents of different States. There two individuals, residents of California and Pennsylvania, claimed the surrender value of a life policy. The insurer unsuccessfully sought through interpleader proceedings in Pennsylvania to secure release from all liability.

In order to mitigate the difficulties, Congress, by the Act of February 22, 1917, 39 Stat. 929, authorized insurance companies to file bills of interpleader in District Courts of the United States. An amendment followed February 25, 1925, 43 Stat. 976, USCA 28, § 41(26). And the Act of May 8, 1926, 44 Stat. 416, USCA 28 § 41(26) (in the margin¹), rewrote and amplified the provisions of the earlier enactments.

National Fire Insurance Company and Hartford Fire Insurance Company, Connecticut corporations, under policies issued to him, became indebted to W. D. Sanders, resident of the Eastern District of Texas, for loss by fire (July 3, 1927) of property located therein and part of his homestead. Texas statutes exempt from execution the proceeds of such insurance. The indebtedness of the two insurers respectively was adjusted at $3,400 and $4,250; these sums they agreed to pay. Both Companies were garnished in a foreign attachment proceeding against Sanders instituted July 18, 1927, in an Illinois court by Armour Fertilizer Works, a corporation of that State. This proceeding was based upon his notes which undertook to waive homestead and exemption rights. The garnishees admitted liability to Sanders but gave notice of his claim that the proceeds of the policies were exempt from garnishment under Texas laws. He did not appear. After proper publication, judgment was entered against him September 19, 1927. This sustained the attachment and awarded recovery against him in favor of the Fertilizer Works for the amount due upon the notes, $7,589.81; also directed execution. It is in the margin.²

Before final trial in the Illinois court under their answers, as permitted by the Act of May 8, 1926, the Insurance Companies, claiming to be mere stakeholders, filed separate interpleader proceedings in the District Court, Eastern District of Texas, June 12, 1928. Sanders and Armour Fertilizer Works, alleged adverse claimants, were made defendants. The sums admitted to be due under the fire policies were paid into court. An injunction restrained the Armour Fertilizer Works from proceeding further in the Illinois court. Answers by both defendants followed. The causes were consolidated. The District Court awarded the fund to Sanders; the Circuit Court of Appeals held that it should go to Armour Fertilizer Works and reversed the trial court. National Fire Ins. Co. v. Sanders (D.C.) 33 F.(2d) 157; National Fire Ins. Co. v. Sanders (C.C.A.) 38 F.(2d) 212. Certiorari, granted upon Sanders' petition, brings the matter here.

The facts are not in dispute. The parties agree that the proceedings in Illinois were according to her statutes; and that under the settled law there Sanders' claim of exemption would have been denied and judgment given against the garnishees if the cause had followed the ordinary course.

The Circuit Court of Appeals overruled objections to the jurisdiction of the District Court and affirmed the latter's authority to consider and determine the rights of the claimants.

It concluded that the Texas statutes did not control; that the Act of May 8, 1926, was intended to afford protection to stakeholders, not to alter the rights of adverse claimants; that the rights of each claimant under the law of the State where they arose should be considered; and that equitable principles commonly accepted in federal courts should be applied.

It held that by the Illinois garnishment the money payable by the Companies to Sanders was sequestrated and that this was good against his claim of exemption; that the lien so obtained followed the fund paid into court. And it directed that the Illinois judgment against him should be satisfied.

Upon the first hearing the District Court dismissed the bill for lack of jurisdiction; the Circuit Court of Appeals reversed. Judgment went for San- ders on the second trial, the Circuit Court of Appeals again reversed.

Objection to jurisdiction of the District Court is now made upon the theory that the defendants are not adverse claimants within the intendment of the interpleader Act since one admits the attached debt is payable primarily to the other and seeks to recover because of his indebtedness to it. The court below (38 F.(2d) 212, 214) adequately answered this contention: 'We think that the facts in this case show that the District Court is mistaken in concluding that the claims of Armour and Sanders are not adverse. Each is claiming the proceeds of the policies to the exclusion of the other. Armour claims by virtue of its Illinois judgment against Sanders and the attachment, and Sanders, while not disputing his obligation to Armour, claims the proceeds, notwithstanding, by virtue of the exemption under the laws of Texas. The statute is remedial and to be liberally construed. It is broad enough to cover any adverse claims against the proceeds of the policies, no matter on what grounds urged. Its terms are not to be interpreted as meaning only adverse claims of those pretending to be beneficiaries of the insured.'

The general purpose and effect of the Act of May 8, 1926, were also well stated below (63 F.(2d) 902, 903):

'Suits for interpleader in which actions in other courts are enjoined were familiar to equity when the Constitution was adopted (see Spring v. South Carolina Ins. Co., 8 Wheat. 268, 5 L.Ed. 614), and are one of the forms of controversy to which, when arising between citizens of different states, the federal judicial power was extended. The act enlarges the processes of the District Court to cover a broad territory, but otherwise authorizes only an ordinary form of equitable relief. * * * The District Court, of course, is bound on an interpleader to give full faith and credit to the garnishment proceedings in Illinois. Cooper v. Newell, 173 U.S. 567, 19 S.Ct. 506, 43 L.Ed. 808. * * *

'We do not think the filing of the federal interpleader and the payment thereunder of the money into the District Court in Texas operated to bring it under the dominion of Texas law. The applicant for interpleader often has a choice of forum, and he cannot at his will subject the rights of the contesting claimants to one set of laws rather than another. The purpose of the interpleader statute was to give the stakeholder protection, but in nowise to change the rights of the claimants by its operation. The interpleader is a suit in equity, and equitable principles and procedure are the same throughout the federal jurisdiction. The court is to weigh the right or title of each claimant under the law of the state in which it arose, and determine which according to equity is the better. The decision should be the same whether the interpleader is filed in Illinois or in Texas. No one's rights are intended to be altered by paying the fund into the court, which as an impartial neutral is to determine them.'

Assertion by the complainant of entire disinterestedness is essential to a bill of interpleader. Groves v. Sentell, 153 U.S. 465, 485, 14 S.Ct. 898, 38 L.Ed. 785. 'In such a bill it is necessary to aver that the complainant has no interest in the subject-matter of the suit; he must admit title in the claimants and aver that he is indifferent between them, and he cannot seek relief in the premises against either of them.' Killian v. Ebbinghaus, 110 U.S. 568, 571, 4 S.Ct. 232, 233, 28 L.Ed. 246.

The situation here is unlike that presented where one voluntarily subjects himself to its jurisdiction and seeks the aid of a court to enforce his claim. See Story on Conflict of Laws (8th Ed.) § 598. The Armour Fertilizer Works asks nothing under any Texas law. Brought into the District Court against its will, it was held there against its protest and enjoined from proceeding further in Illinois. It now claims priority of right and only asks what it would have secured but for the injunction. Under such circumstances, to hold that the statutes of Texas control would destroy rights duly obtained in Illinois; would permit the Insurance Companies by interpleader proceedings to change the positions of defendants; and, in effect, seriously interfere with the impartial adjustment of existing equities. We think Congress had no intention to permit such destruction of acquired rights, if indeed it had power so to do.

By his answer Sanders thus stated his claim to the fund in court: 'That by reason of the fact that the property which was the subject of insurance covered by said insurance policy was the homestead of the defendant, W. D. Sanders, the proceeds of the same which have been tendered into court by the plaintiff herein are exempt to the defendant, W. D. Sanders, under the laws and Constitution of the State of Texas, and his rights therein are superior and prior to the rights of the defendant, Armour Fertilizer Works.'

Armour Fertilizer Works asserted: 'On or about the 18th day of July, 1927, it filed a suit in the Municipal Court of Chicago, Cook County, Illinois, styled Armour Fertilizer Works, a corporation, trading as the Planters Fertilizer and...