Hussain v. Boston Old Colony Ins. Co.

• Decision Date: 31 October 2002
• Docket Number: No. 01-31322.,01-31322.
• Citation: 311 F.3d 623
• Parties: Javaid HUSSAIN, Etc.; et al., Plaintiffs, Steven J. Rando and Glenn A. Woods, Appellants, v. BOSTON OLD COLONY INSURANCE COMPANY; et al., Defendants, United States of America, Defendant-Appellee, Hibernia National Bank, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

311 F.3d 623

Javaid HUSSAIN, Etc.; et al., Plaintiffs Steven J. Rando and Glenn A. Woods, Appellants, v. BOSTON OLD COLONY INSURANCE COMPANY; et al., Defendants United States of America, Defendant-Appellee Hibernia National Bank, Appellee.

No. 01-31322.

United States Court of Appeals, Fifth Circuit.

October 31, 2002.

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Steven Joseph Rando (argued), Law Offices of Steven J. Rando, New Orleans, LA, pro se.

Glenn Alan Woods, New Orleans, LA, pro se.

Michael J. Haungs (argued), David I. Pincus, U.S. Dept. of Justice, Tax Div., Washington, DC, for United States of America.

James C. Young (argued), Heather M. Valliant, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, LA, for Hibernia National Bank.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before WIENER, EMILIO M. GARZA,^* and PARKER, Circuit Judges.

WIENER, Circuit Judge:

This case arrives at our doorstep after a procedural odyssey through both the state and federal court systems. It began as a suit in a Louisiana state court by an insured and his secured lender to recover policy proceeds from the insurance company, and has ended with a protracted multi-party dispute among the insured ("Hussain"), his attorneys (collectively "Rando"), the lender/mortgagee ("Hibernia"), the defendant insurance company (Boston Old Colony or "BOC") and the defendant-appellee United States of America (the "government") over the proper distribution of an insurance proceeds fund that is insufficient to satisfy all claims in full. Central to this appeal is Rando's challenge to federal subject matter jurisdiction, as well as the rulings of the district court on the priority and amounts of distribution of the insurance fund among the several claimants. We affirm the district court in all respects except for its assessment of costs for Hussain's expert fees.

I. Facts and Proceedings

This case was sparked by a 1991 fire that destroyed the inventory of Sheik's Oriental Rugs, Inc., owned by Hussain. He was insured up to $500,000 by BOC. Hibernia was named on the BOC insurance policy (the "Policy") as a loss payee, under a 1989 loan of $177,699.02 to Hussain who had secured his promissory note by a chattel mortgage on his inventory (the "covered property"). Although the Policy appears to contain two different provisions governing the relationship between Hussain and Hibernia, a close reading suggests that only one — the "Loss Payable" provision — applies: The other, by its terms, envisions Hibernia as the putative buyer of the covered property, which it does not appear ever to have been. The Policy's "Loss Payable" provision reads as follows:

A. Loss Payable

For covered property in which both you and a Loss Payee ... have an insurable interest, we will:

...

2. Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may appear.

In signing the Hibernia loan documents, Hussain warranted that he alone owned the mortgaged property, "free and clear from any adverse claim, mortgage, lien, security interest, privilege, or encumbrance."

After the fire, Hussain defaulted on the Hibernia promissory note and litigation commenced. In 1992, as holder of the secured note, Hibernia sued Hussain, and in 1994 obtained a state court default judgment against him which recognized Hibernia's continuing security interest in the covered property. Also in 1992, Hibernia, as loss payee under the Policy, filed a separate state court action against Hussain and BOC to recover a portion of the policy proceeds.

In 1993, Hussain sued BOC on the Policy in state court. This suit was consolidated with Hibernia's suit as loss payee. In 1995, Hussain retained Rando as new counsel, and in doing so, executed a contingency-fee agreement that assigned one-third of any recovery to his new attorneys. Rando asserted before the district court that he has since spent $368,449.72 in prosecuting this case.¹

BOC denied liability under the Policy's arson exclusion. The state court rejected that defense in a directed verdict, ruling that BOC owed Hussain and Hibernia $500,000 in policy proceeds, plus interest, costs, and fees. BOC appealed to the higher Louisiana courts; but once the Louisiana Supreme Court denied certiorari on November 13, 2000, the judgment as to BOC's liability became final.

On December 8, 2000, the Internal Revenue Service of the Department of the Treasury ("IRS") notified BOC of federal tax liens against Hussain's property. On the same day, Hussain executed a new fee agreement giving Rando a 39% interest "in and to any gross recovery I/we may have in this matter." Rather than institute concursus (interpleader) proceedings, BOC — still in the context of the consolidated suits against it, and despite the finality of the judgment in that case — filed a motion to have the court determine the amounts and priority of distribution of funds. As part of that motion, BOC also secured and served on the IRS an order to show cause why it should not be excluded from any distribution. This prompted the IRS first to file a notice of its tax lien in the records of Orleans Parish on January 9, 2001, and then, on January 17, 2001 to remove the case to the Eastern District of Louisiana.²

After briefing, the district court ruled that (1) Hibernia takes first priority, as loss payee; (2) second in line, Rando takes as attorneys' fees pursuant to the state court litigation, one-third of the amount remaining after Hibernia's claim is fully paid; and (3) third in line, the government takes the remainder of the policy proceeds, ahead of all other creditors of Hussain.³ Also, on motion by Hussain, the court taxed costs of $5,000, which was one-fifth of the amount that Hussain had sought, in payment for his expert witness, John Theriot, CPA.⁴

On appeal Rando has raised several issues, in essence contending that he should be paid an additional $196,377.48, an amount determined by applying his claimed contingent fee percentage (39%) to the entire amount payable from the Policy and awarded by the court.

II. Analysis

A. Standard of Review

This court reviews de novo a district court's determination of its subject-matter jurisdiction.⁵ On the merits, statutory construction is reviewed de novo,⁶ with factual findings reviewed for clear error.⁷ An award of attorney's fees is reviewed for abuse of discretion.⁸

B. Subject-Matter Jurisdiction

Section 2410(a) waives the sovereign immunity of the federal government, enabling private parties to hale the government into court to determine the priority of outstanding liens on real or personal property.⁹ As a trade off for the waiver of sovereign immunity, section 1444 permits the government to remove to federal district court any such case initiated in state court.¹⁰ In light of this conditional relationship between §§ 2410(a) and 1444, we have held that § 1444 "confers a substantive right to remove, independent of any other jurisdictional limitations."¹¹

Thus, to find subject matter jurisdiction in this case we had to resolve initially whether § 2410(a) applies in this case. For us to conclude that jurisdiction was proper at the time of judgment, not only must we justify the presence of the United States in the dispute, but we must also demonstrate how § 2410(a)(5), which covers actions in interpleader or in the nature of interpleader, applies to the parties' actions in this dispute. Once the applicability of § 2410(a) is established, federal subject matter jurisdiction is present on the basis of § 1444.

1. General Construction of § 2410(a)

The law is well settled that the government is not subject to suit unless it has waived its sovereign immunity.¹² As noted, § 2410 was specifically passed to waive the sovereign immunity of the United States so that private parties could get the government into court when necessary to quiet title or resolve priority of liens or mortgages.¹³ Such waiver, however, must be narrowly construed to comport precisely with congressional intent.¹⁴ Thus, "no suit may be maintained against the United States unless the suit is brought in exact compliance with the terms of a statute under which the sovereign has consented to be sued."¹⁵

In conformity with this strict construction, we have found at least three instances in which waiver of sovereign immunity does not exist under § 2410(a). There is no waiver (1) when a taxpayer seeks to challenge the validity of any underlying tax assessment,¹⁶ (2) when the government is claiming a title interest in property rather than a lien interest,¹⁷ or (3) when the government no longer has a mortgage on, or other security right in, the property in dispute.¹⁸

Even so, such strict compliance with the statute does not imply that literal interpretation of § 2410's every word is required. Standing together, the cases noted above simply reiterate that § 2410(a) applies only when the issue concerns the priority of an existing government mortgage or other security interest. On this issue, the determination of sovereign immunity is strict. In contrast, we and other courts have taken a more inclusive approach to the types of underlying relief, such as quiet title and interpleader suits, to which § 2410(a) expressly applies. Specifically, when the priority of a presently existing lien interest of the government is in dispute, and the question is whether § 2410(a) applies to the type of relief sought, the statute has been read much more expansively.

In explaining the application of § 2410(a), we have found that "jurisdiction does not depend on the specific relief sought, [e.g.] foreclosure. Rather it rests on the existence of the traditional controversy in which a private party asserts an ownership which is superior to the claimed lien of the United States Government."¹⁹ Informing this approach is our recognition of Congress's conviction "that a means be available to determine such disputes lest the...