750 F.2d 838 (11th Cir. 1985), 83-3707, Mercantile Bank & Trust Co., Ltd. v. Fidelity and Deposit Co.
|Citation:||750 F.2d 838|
|Party Name:||MERCANTILE BANK & TRUST CO., LTD., Plaintiff Counter-Defendant-Appellant, v. FIDELITY AND DEPOSIT COMPANY, etc., Defendant Counter-Claimant, v. UNITED STATES of America, Counter Defendant-Appellee, and International Energy Corporation, et al., Counter-Defendants.|
|Case Date:||January 15, 1985|
|Court:||United States Courts of Appeals, Court of Appeals for the Eleventh Circuit|
Michael J. Sheahan, Gene H. Godbold, Orlando, Fla., for plaintiff counter-defendant-appellant.
Kendall Wherry, Asst. U.S. Atty., Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Chief, Appellate Sec., Carleton D. Powell, Mary L. Fahey, John A. Dudeck, Jr., Tax Div., U.S. Dept. of Justice, Washington, D.C., for counter defendant-appellee.
Appeal from the United States District Court for the Middle District of Florida.
Before HATCHETT and CLARK, Circuit Judges, and STAFFORD [*], District Judge.
HATCHETT, Circuit Judge:
This case involves a dispute between parties as to the right of possession and ownership of a collateral deposit fund of $41,131.69. The district court, through summary judgment, awarded the fund to the United States. We affirm.
International Energy Corporation (IEC) is a Kentucky corporation engaged in strip mining in the Commonwealth of Kentucky. Sometime prior to July, 1975, Frank G. Finkbeiner agreed to sublease to IEC the Crabtree Lease located in St. Charles Quandrangle, Hopkins County, Kentucky. On July 23, 1975, IEC, John B. Hargis, Jr., Dell M. Hargis, and Dewitt F. Sadler entered into an agreement with Finkbeiner, as "trustee" for IEC, through which Finkbeiner agreed to furnish a reclamation bond as required by the Department of Reclamation, Commonwealth of Kentucky. The $50,000 reclamation bond would cover the initial 50 acres of land subjected to strip mining.
In exchange for Finkbeiner's promise, IEC agreed to use its "best efforts" to commence and maintain a successful strip mining operation. Moreover, IEC's stockholders, John B. Hargis, Jr., Dell M. Hargis, and Dewitt F. Sadler, agreed to place their stock in an escrow account for Finkbeiner's benefit until a minimum of 100,000 tons of coal had been stripped and sold from the Crabtree Lease. Prior to the sale of the coal, John B. Hargis and Sadler each agreed to receive compensation of no more than $1,000 per month. The written agreement provided that the duties and responsibilities of the parties were not assignable and would become null and void after sale of the first 100,000 tons of coal.
On July 25, 1975, IEC applied for a permit to strip mine the fifty acres of the Crabtree Lease. As a prerequisite to receiving the permit, the Commonwealth of Kentucky required IEC to post a reclamation bond of $50,000. To obtain the reclamation bond, IEC submitted an Application for Miscellaneous Bonds to Fidelity. The application listed John B. Hargis, Jr. as
president and Dewitt F. Sadler as secretary-treasurer of IEC. Hargis and Sadler signed the application on behalf of IEC and personally agreed to indemnify Fidelity. Frank G. Finkbeiner did not sign the application, but he was listed as a business reference.
As security for issuance of the reclamation bond, Fidelity required the deposit of $50,000. By order of Mercantile Bank and Trust Company (Mercantile), the First National Bank of Miami issued its letter of credit authorizing Fidelity to draw upon it "by order of Mercantile Bank and Trust, Freeport--under their credit number 2271 and for the account of International Energy Corp., St. Charles, Kentucky, up to an aggregate amount of * *Fifty Thousand and No/100 U.S. Dollars* * available by your drafts at sight * * *." The letter of credit was valid until July 22, 1976, and was subject to automatic renewal unless First National Bank of Miami notified Fidelity that it did not intend to renew the letter at least thirty days prior to the expiration date. On July 25, 1975, Fidelity issued the reclamation bond in favor of the Commonwealth of Kentucky securing the obligations of IEC in the strip mining operations.
On August 4, 1975, IEC and Fidelity executed a collateral agreement which specified that the aforementioned letter of credit was deposited as security for the reclamation bond. Under the agreement, Fidelity acknowledged receipt of the letter of credit for $50,000 from the First National Bank of Miami for the account of IEC. The agreement listed IEC as the owner and principal of the collateral. John B. Hargis, Jr., as president of IEC, and Frank G. Finkbeiner, as assistant secretary-treasurer, signed the collateral agreement on behalf of IEC.
Soon thereafter, the First National Bank of Miami (now Southeast First National Bank of Miami) informed Fidelity that the letter of credit would not be extended beyond the original expiration date of July 22, 1976. In accordance with this notification, Fidelity timely drew on the letter and received $50,000 from First National Bank of Miami.
While these banking activities were occurring, IEC was strip mining the Crabtree Lease, but failed to pay its federal social security and unemployment taxes. The Internal Revenue Service (United States), therefore, assessed IEC for $63,190 in social security and unemployment taxes. Subsequently, the United States served on Fidelity a Notice of Levy which stated that all property, right to property, monies, credits, and bank deposits in Fidelity's possession belonging to IEC were levied upon and seized by the United States.
In 1977, IEC completed the strip mining of the Crabtree Lease, and, in accordance with the reclamation bond, Fidelity, as surety for IEC, paid the Commonwealth of Kentucky $9,000. Fidelity retained the balance of $41,131.69.
Earlier, in November, 1976, Finkbeiner signed an affidavit stating that he was the subleaser of the property mined by IEC and that under an agreement with Hargis, Sadler, and IEC, Finkbeiner, through his efforts alone, secured the reclamation bond. Finkbeiner also stated that the assets of IEC were pledged to him and that he had always been the true and lawful owner of any and all collateral pledged for the issuance of the reclamation bond.
Later, Finkbeiner entered into an agreement with Mercantile under which Finkbeiner assigned all claims, demands, actions, or rights of actions he had against Fidelity to Mercantile. In doing so, Finkbeiner stated that Mercantile "actually funded $50,000 in cash which is being held by Fidelity * * * as security for said Reclamation Bond, which funds, or any part thereof remaining, are the property of the Assignee." Fidelity received a copy of this affidavit.
The United States, thereafter, determined that President Hargis was the official responsible for the payment of IEC's social security and unemployment taxes. In an effort to pay IEC's expenses and taxes, Hargis assigned his interest in the proceeds of the reclamation bond, individually
and as president of IEC, to the United States.
These proceedings were initiated by Mercantile in the Circuit Court of the Ninth Judicial Circuit for Orange County, Florida. Mercantile sought a court order for possession and ownership of the collateral deposit fund which was in the original principal amount of $50,000. This lawsuit was removed to the United States District Court, and Fidelity filed its answer and a counterclaim for interpleader. Fidelity joined as counter-defendants Mercantile, IEC, the United States of America, Finkbeiner, and the Commonwealth of Kentucky. All of these counter-defendants were claimants to the collateral deposit.
In response to the interpleader action, Finkbeiner filed a disclaimer of interest. In this pleading, Finkbeiner disclaimed all interest in the collateral deposit fund and affirmed that his interest in said fund was for and on behalf of Mercantile. The other parties filed responsive pleadings. The Clerk of the United States District Court entered a default against IEC. Subsequently, the court discharged Fidelity as a party to this action.
Thereafter, IEC and John B. Hargis moved to intervene and to file an answer to Mercantile's initial complaint. In response, the district court entered an order permitting the intervention of Hargis. Both Mercantile and the United States of America filed motions for summary judgment. The district court entered a Memorandum Opinion granting the United States's (government's) motion for summary judgment and ordering that the interpleaded funds be paid to the United States. From this adverse ruling, Mercantile appeals.
The sole issue on appeal is whether the district court erred in granting the government's motion for summary judgment.
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