Aetna Insurance Company v. Hartshorn, 72-1193.

• Decision Date: 01 May 1973
• Docket Number: No. 72-1193.,72-1193.
• Citation: 477 F.2d 97
• Parties: AETNA INSURANCE COMPANY, Plaintiff, v. Wallis HARTSHORN, d/b/a Hartshorn Enterprises, et al., Defendants-Appellees, Claims, Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

477 F.2d 97 (1973)

AETNA INSURANCE COMPANY, Plaintiff, v. Wallis HARTSHORN, d/b/a Hartshorn Enterprises, et al., Defendants-Appellees, Claims, Inc., Defendant-Appellant.

No. 72-1193.

United States Court of Appeals, Fifth Circuit.

May 1, 1973.

Sam Gross, San Antonio, Tex., Caplan & Barsky, Detroit, Mich., for defendant-appellant.

Joel H. Klein, San Antonio, Tex., for Outlet Co.

Sylvan Alter, San Antonio, Tex., for Atlas Rand, Ampex, Trans Am.

Edward V. Dylla, San Antonio, Tex., for Greentree.

Leslie J. Bretz, San Antonio, Tex., for Monarch and Modern Elec.

Les Mendelsohn, San Antonio, Tex., for Mercury Rec.

Marvin C. Beck, San Antonio, Tex., for Sherman Elec.

Leo E. Eickhoff, Jr., Marlin L. Gilbert, San Antonio, Tex., for Bell.

John J. Clayton, San Antonio, Tex., for Barco.

Philip F. Benson, San Antonio, Tex., for Allied Rec.

Joe Warren Jones, San Antonio, Tex., for Mikado and Central Dist.

William S. Frank, Houston, Tex., for Santone Sales.

Henry Valdespino, Asst. U.S. Atty., San Antonio, Tex., for Internal Revenue.

Earle J. Cobb, Jr., San Antonio, Tex., for Hartshorn, Durflinger & J. Andrews Smith.

Edward E. DeWees, Jr., San Antonio, Tex., for Adell Corp., Les Ferguson & AVCO Broadcasting & Texas Star Broadcasting.

Richard C. Keene, San Antonio, Tex., for Aetna Ins. Co.

Before TUTTLE, WISDOM and SIMPSON, Circuit Judges.

SIMPSON, Circuit Judge:

Because a busy district judge considered and disposed of the merits of cases which were properly before him for the single function of ruling on a Motion to Consolidate several pending actions without first affording appellant Claims, Inc. (Claims) prior notice that such disposition might take place we are constrained to reverse and remand. The due process requirements of the Fifth Amendment of notice and opportunity to be heard were simply ignored in the rush to take final action.

On November 1, 1969, defendant-appellee Hartshorn, d/b/a Hartshorn Enterprises, a Texas corporation, suffered a fire loss which was insured under insurance policies issued by plaintiff Aetna Insurance Company for damage to property, and Aetna Fire Underwriters Insurance Company for loss of business due to fire (collectively hereinafter, Aetna). Hartshorn brought suit in Texas state court against Aetna to collect the $50,725.46 allegedly due under the fire damage policy. A number of Hartshorn's creditors also instituted suits in state court and in federal court against Aetna to recover claimed portions of the insurance proceeds.

In view of the multiplicity of suits instituted and threatened against Aetna, Aetna paid a total of $52,601.05 due under both policies ($50,725.46 fire damage, $1,875.59 for business loss) into the Registry of the court below and filed an interpleader action under 28 U.S.C. Section 1335 to determine which claimants were entitled to receive the money. Aetna also sought a temporary restraining order pursuant to 28 U.S.C. Section 2361 enjoining creditors with claims against Hartshorn from perfecting any actions against Aetna pending determinations of entitlement to the proceeds. Among the twenty-one defendants named in Aetna's complaint was defendant-appellant Claims, a Michigan corporation, whose claim against Hartshorn was for $5,072.55. This represented 10% of the fire damage loss, and was a fee claimed by Claims for investigating the claims against Hartshorn arising as a result of the fire.

Aetna filed its Motion to Consolidate all of the pending actions below on September 7, 1971, and a Motion in Opposition of Consolidation was filed the next day by Hartshorn Enterprises, Inc., one of the named defendants to the interpleader suit. The court thereupon sent notice to counsel for all parties, including Claims' attorney, a Mr. Seymour Caplan of Detroit, Michigan, that a "hearing on pending motions" was to be conducted on October 7, 1971, before the presiding judge in San Antonio, Texas.

Upon receipt of the court's notice, Mr. Caplan telephoned Mr. Earle Cobb, Jr., the San Antonio attorney who represented Hartshorn Enterprises, to inquire as to the nature of the pending motions referred to in the court's notice. Mr. Cobb accurately indicated that the reference was to the Motion to Consolidate the actions then on file and the Motion in Opposition thereto. Upon being so informed, Mr. Caplan concluded that since he did not oppose consolidation of the pending claims, his presence at the hearing was unnecessary. He so stated his position to Mr. Cobb.

Starting October 7 and continuing until the following morning, a hearing was held in San Antonio pursuant to the court's notice. Although not entirely clear the record indicates that the attorneys for all other parties were present, but Mr. Caplan, Claims' attorney, was absent. His absence was explained to the court by Mr. Cobb or at least an explanation was attempted, to which the trial judge paid scant heed. (see Note 1, infra).

The proceedings on October 7 quickly passed the consolidation motion stage and turned informally into a general conference between court and the attorneys present as to settlement of all pending suits and claims. Counsel were directed to work up a schedule of settlement and a proposed judgment, as well as preparing necessary preliminary orders. Adjournment was taken to October 8 to permit preparation of papers. Final disposition resulted by agreement of all matters in controversy between those present and represented. The entire insurance proceeds before the court were divided by the final judgment between these parties, the claim of Claims, Inc. being expressly disallowed. The judgment found that Claims' interest in the Registry funds was subordinate to the judgments, liens and assignments of the other creditors, ordered the clerk of the court to disburse the monies to these priority creditors, and adjudged that Aetna had fully satisfied its obligations to defendant-appellee Hartshorn under both insurance policies. The judgment directed that Claims take nothing.

Defendant-appellant Claims appeals alleging the district court erred in dismissing its claim against the funds with prejudice because it had no notice of final hearing or opportunity to be heard.¹

The Due Process clause of the Fifth Amendment shields the individual against arbitrary exercise of governmental power by its guarantee that fundamental principles of justice and fair play not be violated. Two such fundamental principles, or minimal requirements, are adequate notice and opportunity to be heard or to defend. One thing that is clear from this sketchy record is that Claims was never on notice that the merits of its claim would be decided on October 7. The notice of the hearing limited its scope to hearing of "pending motions". The Motion to Consolidate and the Motion in Opposition thereto were the only motions then pending before the court.

Certainly, by failing to attend the hearing or otherwise interpose an objection defendant-appellant Claims waived any objections it may have had as to those motions. F.R.Civ.P. 12(h). Indeed, such was its intention as expressed by its attorney to Mr. Cobb. It was not opposed to the Motion to Consolidate. We express no view whatever as to the merits. This reversal may produce nothing for Claims since it may well be proper in a hearing on the merits to deny Claims access to any portion of the insurance proceeds. But Claims is entitled to its day in court, which it has never had. This means it is entitled to try to prove up and to argue the merits of its claim, after notice and opportunity to be heard.

Because defendant-appellant Claims, Inc., was misinformed and...