Cherokee Ins. Co. v. Koenenn

• Decision Date: 04 August 1976
• Docket Number: No. 75-1038,75-1038
• Citation: 536 F.2d 585
• Parties: CHEROKEE INSURANCE COMPANY et al., Plaintiffs, v. L. A. KOENENN, Jr., and Holton D. Turnbough, et al., Defendants-Appellants, v. William E. SEATON and Gladys M. Seaton, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 585

536 F.2d 585

CHEROKEE INSURANCE COMPANY et al., Plaintiffs, v. L. A. KOENENN, Jr., and Holton D. Turnbough, et al., Defendants-Appellants, v. William E. SEATON and Gladys M. Seaton, Defendants-Appellees.

No. 75-1038.

United States Court of Appeals, Fifth Circuit.

Aug. 4, 1976.

Larry L. Lenoir, Gulfport, Miss., for L. A. Koenenn, H. Turnbough & Captain's Table.

Fred A. Ross, James A. Phyfer, Jackson, Miss., for Wm. E. & Gladys M. Seaton.

Eldon L. Bolton, Jr., Gulfport, Miss., for Hemenway Contract Furnisher, etc.

Appeal from the United States District Court for the Southern District of Mississippi.

Before GEWIN, COLEMAN and GOLDBERG, Circuit Judges.

GOLDBERG, Circuit Judge.

On October 6, 1973, fire completely destroyed the Captain's Table restaurant of Gulfport, Mississippi. Three insurance companies Cherokee Insurance Company, Federal Insurance Company, and Fidelity & Casualty Insurance Company had issued a total of $30,000 in policies covering potential fire losses at Captain's Table. Asserting that L. A. Koenenn, Jr., Holton D. Turnbough, William E. Seaton, Gladys M. Seaton, Captain's Table, Inc., and Hemenway Contract Furnishers had all made claims against the insurance proceeds, the three companies filed an interpleader action naming these claimants as defendants, and deposited the $30,000 into the registry of the district court. The defendants filed answers and other pleadings, and the case was tried to the court. The judge ordered (1) the payment of $19,025.67 to Hemenway Contract Furnishers, (2) an equal division of the remaining proceeds ¹ between L. A. Koenenn, Jr. and Holton Turnbough on the one hand and Gladys M. Seaton on the other hand, and (3) the cancellation of a promissory note issued by Gladys and William Seaton and made payable to Koenenn and Turnbough. No one has appealed the disposition of the trial court's order with respect to Hemenway, and Hemenway is not a party to this appeal. Koenenn and Turnbough, however, contest the division of the proceeds and the cancellation of the note. After carefully reviewing the record and the law, we have decided that the trial court lacked jurisdiction to cancel the note. With regard to the division of the remaining insurance funds, we find that the district court's conclusion is based at least in part on an erroneous factual determination and, in addition, that the legal analysis supporting the court's conclusion requires further clarification. Therefore we vacate the district court's order extinguishing liability on the note and remand the remaining issues for consideration in the light of this opinion.

I. Background

Until November 17, 1972, L. A. Koenenn and Holton Turnbough owned 100% of the stock of Captain's Table, Inc. On that date, they entered into a contract with Gladys M. Seaton and William E. Seaton in which Koenenn and Turnbough agreed to sell their stock to the Seatons for $27,000 $12,000.00 to be paid to the sellers upon execution of the agreement, with the balance of the purchase price to be evidenced by a promissory note for $15,000 due November 17, 1975. The agreement provided that the sellers would retain the actual stock certificates until they had received the full purchase price. According to the seller's brief on appeal, "(o)n November 17, 1972, the Seatons took possession of the business of Captain's Table, Inc. and the management thereof."

Six months after the consummation of the purchase and sale agreement discussed above, Koenenn and Turnbough had the local insurance agent issue in their names a standard form loss payable clause on the Captain's Table's insurance policies. The clause simply provided that "any loss ascertained and proven to be due to the insured (Captain's Table, Inc.) under this policy shall be held payable to L. A. Koenenn and Holton B. Turnbough . . . as interest may appear." Koenenn and Turnbough obtained this clause without first informing the Seatons. On October 6, 1973, the building rented by Captain's Table burned, destroying the restaurant's furniture and equipment. The insurance companies, admitting liability but not certain of the proper beneficiary under the policies, brought this interpleader action.

After ordering the $19,025.67 payment to Hemenway not objected to here, the trial judge issued two opinions. The first opinion, finding that Turnbough and Koenenn "simply acted personally and individually and exclusively for their own interest and protection in securing these three loss payable clauses. . . . " and that they "accomplished nothing thereby" ordered the remaining registry funds paid pro rata to the creditors of Captain's Table, Inc. In a supplemental opinion issued two weeks later, the trial court noted that because "the parties are in irreconcilable conflict as to a proper disbursement of the proceeds . . . it now becomes the unpleasant duty of the Court to divide this insurance money equitably and fairly . . . ." The judge then ordered the payment of one-half the funds to Mrs. Seaton and the other half to Koenenn and Turnbough. In addition, stating that the stock of the corporation had become worthless, the trial court cancelled the not yet matured $15,000 note from the Seatons to Koenenn and Turnbough. From these orders, Koenenn and Turnbough have appealed.

II. The Note

The trial court erred in relieving the Captain's Table purchasers of their $15,000 obligation because that court lacked jurisdiction over the issue of whether or not the note was still binding. The question of the Seatons' promissory duties initially arose from their somewhat jumbled answer to the interpleader complaint. In their response, the Seatons seemingly asserted that the corporate sellers' failure to fulfill a purported contractual obligation to transfer to the Seatons certain alcoholic permits required cancellation of the note.

We observe preliminarily that the buyers introduced no evidence to support their claim. ² Moreover, the district court's decision to abrogate the buyers' remaining liability was not premised on the Seatons' claim that the sellers did not fulfill their obligation to transfer liquor licenses but rather on the court's own determination that "the stock of this corporation is now worthless." The basis of this finding of worthlessness is not clear from the trial court's opinion, and even if the stock of Captain's Table, Inc. was "worthless" at the time of trial we are skeptical of the conclusion that the buyers would, for that reason alone, be relieved of their prior duties to the sellers. We need not decide these issues, however, since we conclude that jurisdiction to consider the issues relating to the promissory note did not exist.

Viewing the buyers' theory most favorably, we treat their contentions as stating a cross-claim against their fellow interpleader defendants, Koenenn and Turnbough. There is, however, no jurisdictional basis for the trial court's consideration of such a cross-claim. First, no Federal question or diversity ³ jurisdiction appears with respect to the cross-claim.

Second, the absence of a "common nucleus of operative fact," United Mineworkers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218, 228 (1966), defeats any argument that pendent jurisdiction exists over the cross-claim. See generally, 13 C. Wright & A. Miller, Federal Practice & Procedure: Civil § 3567 (1975). The facts which might support the assertion that Koenenn and Turnbough failed to transfer a liquor license at best would relate only tangentially to the facts underlying the interpleader question of the validity of the loss payable clause and consequently the proper distribution of the insurance funds.

Third, the differences in the properties and transactional occurrences which are the subject matter of the cross-claim on the one hand and the interpleader action on the other hand preclude any resort to ancillary jurisdiction. A number of courts have held that ancillary jurisdiction will sustain jurisdiction over a cross-claim pled as part of an interpleader suit if the requirements of Federal Rule of Civil Procedure 13(g) are met. See, e. g., Jefferson Standard Insurance Co. v. Craven, 365 F.Supp. 861 (M.D.Pa.1973); Beaufort Transfer Co. v. Fischer Trucking Co., 357 F.Supp. 662 (E.D.Mo.1973); Degree of Honor Protective Ass'n v. Charles T. Bisch & Son, Inc., 194 F.Supp. 614 (D.Mass.1961); Great Lakes Auto Ins. Group of Chicago v. Shepherd, 95 F.Supp. 1 (W.D.Ark.1951); Hallin v. Pearson, 34 F.R.D. 499 (N.D.Cal.1963); Bank of Neosho v. Concord, 8 F.R.D. 621 (W.D.Mo.1949); Cf. Coastal Air Lines v. Dockery, 8 Cir. 1950, 180 F.2d 874. Federal Rule of Civil Procedure 13(g) states in pertinent part:

A pleading may state as a cross-claim any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein or relating to any property that is the subject matter of the original action.

Concerning the relationship between Rule 13(g) and an interpleader suit, Wright and Miller have written:

When interpleader is brought under Rule 22 . . . there is no difficulty in allowing the claimants to assert cross-claims against each other . . . assuming, of course, the requirements of Rule 13(g) are met. Normally, the addition of a cross-claim will not pose any difficulties or unduly complicate the action because Rule 13(g) requires the claim to arise out of the transaction or occurrence or relate to the property that is the subject matter of the original interpleader action. The cross-claim will be considered ancillary for subject matter jurisdiction purposes.

7 C. Wright & A. Miller, Federal Practice & Procedure: Civil § 1715 at 449-50.

See also 3A J. Moore, Federal Practice § 22.15. Here, the cross-claim and interpleader claim lack sufficient congruency with respect to both the property involved and the transactions from which they arose to come within rule 13(...