Bell & Beckwith v. U.S., I.R.S.

• Citation: 766 F.2d 910
• Decision Date: 26 March 1985
• Docket Number: No. 83-3582,83-3582
• Parties: -6232, 85-2 USTC P 9813, 2 Fed.R.Serv.3d 96 BELL & BECKWITH, Plaintiff, v. UNITED STATES of AMERICA, INTERNAL REVENUE SERVICE, Defendant-Appellee, Donna D. Cannon, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 910

766 F.2d 910

56 A.F.T.R.2d 85-6232, 85-2 USTC P 9813,

2 Fed.R.Serv.3d 96

BELL & BECKWITH, Plaintiff, v. UNITED STATES of AMERICA, INTERNAL REVENUE SERVICE, Defendant-Appellee, Donna D. Cannon, Defendant-Appellant.

No. 83-3582.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 17, 1984.

Decided March 26, 1985.

Thomas P. Kurt, argued, Toledo, Ohio, for defendant-appellant.

Robert B. Gosline, Shumaker, Loop & Kendrick, Patrick J. Foley, Asst. U.S. Atty., Toledo, Ohio, Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Carleton D. Powell, argued, Douglas G. Coulter, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellee.

Before KEITH, MARTIN and CONTIE, Circuit Judges.

KEITH, Circuit Judge.

This is an appeal from a judgment of the United States District Court for the Northern District of Ohio, distributing an interpleaded fund, less certain expenses, to the United States. For reasons stated below, we reverse the decision of the district court and remand with instructions to dismiss for lack of jurisdiction.

Facts

This case stems from an effort to collect the tax liabilities of Dr. Alan E. Zimmer. On August 28, 1981, the Internal Revenue Service (IRS) levied a tax lien on an investment account in the name of the appellant, Donna D. Cannon, and managed by plaintiff, Bell & Beckwith, a stock brokerage partnership. The government contends that Ms. Cannon is merely acting as the nominee of Dr. Zimmer, who provided the funds to set up the account. On September 1, 1981, the IRS demanded that Bell & Beckwith turn over the property in the investment account. On September 9, Bell & Beckwith received a letter from Cannon claiming ownership of the property and demanding full payment. Bell & Beckwith deposited $129,620.22 with the clerk's registry and brought an interpleader action to resolve adverse claims to the property. The complaint invoked jurisdiction under 28 U.S.C. Secs. 1331, 1340, 1346, 2410 and Rule 22 of the Federal Rules of Civil Procedure.

On December 10, 1981, the government filed a request for admissions and served its first set of interrogatories on Donna Cannon. One week later the parties consented to have the case heard and judgment entered by a United States Magistrate pursuant to 28 U.S.C. Sec. 636. Cannon repeatedly ignored, postponed, and evaded the government's discovery requests until September 1, 1982, when Cannon filed her response to the government's interrogatories. Subsequently, the government unsuccessfully attempted to depose Cannon. Cannon never appeared for scheduled depositions and never offered any explanation for her absences. Based on these repeated failures to comply with discovery, the government moved for a default judgment against Cannon, and for its expenses pursuant to Rules 37(b) and (d) of the Federal Rules of Civil Procedure. Also pursuant to Rule 37, Bell & Beckwith subsequently moved to dismiss Cannon's counterclaim and to recover its expenses in connection with the case.

A pretrial conference was held regarding the motions for sanctions against Cannon. As a result of the conference, the court ordered that judgment be granted to the United States, that the government withdraw its application for attorney's fees and costs, and that the balance of the fund, after payment of Bell & Beckwith's expenses, be transferred to the United States. On May 17, 1983, the court issued an order distributing the remainder of the fund to the government. On the same day, judgment was entered by the United States Magistrate. Cannon appealed, asserting three claims for the removal of the district court judgment:

1) The district court judgment should be remanded because the basis for the judgment cannot be discerned;

2) The Magistrate Act, 28 U.S.C. Sec. 636, is unconstitutional;

3) The district court judgment should be vacated because the court lacked jurisdiction to rule on Bell & Beckwith's interpleader claim.

The Basis for the District Court Judgment

Initially we address Cannon's contention that the district court judgment should be remanded because the basis for the judgment cannot be discerned. This argument must be rejected. The district court clearly disposed of this case in response to a Rule 37(b) motion seeking sanctions against appellant for her failure to comply with discovery. This ruling may be reversed only if there has been an abuse of discretion. National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976); Hubbard v. Baltimore & Ohio Railroad, 249 F.2d 885 (6th Cir.1957). Given Cannon's repeated, unexplained failures to appear for depositions, the basis of the decision is clear. Accordingly, pursuant to Rule 37 of the Federal Rules of Civil Procedure, we find that the disposition of the case was proper, and not an abuse of discretion.

The Magistrate Act

Next, we analyze Cannon's assertion that the Magistrate Act is unconstitutional. We also find this argument to be without merit. The parties consented to have the case heard and judgment entered by a magistrate pursuant to 28 U.S.C. Sec. 636. Cannon now contends that under Northern Pipeline Construction Co. v. Marathon Pipeline, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), this procedure was unconstitutional because the magistrate was not authorized to exercise the power of an Article III Judge. However, the reasoning of Northern Pipeline does not apply in situations, such as this one, where the magistrate is acting with the consent of the parties. See Pacemaker Diagnostic Clinic v. Instromedix, Inc., 725 F.2d 537 (9th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 100, 83 L.Ed.2d 45 (1984); Wharton-Thomas v. United States, 721 F.2d 922 (3d Cir.1983); see also KMC Co. v. Irving Trust, 757 F.2d 752 (6th Cir.1985) (holding the Magistrate Act constitutional).

Federal Question Jurisdiction

Finally, we address Cannon's contention that the district court judgment should be vacated because the court lacked jurisdiction to rule on the plaintiff-appellee's interpleader claim. The parties agree that if jurisdiction is proper in this case, the only basis for jurisdiction is the general federal question jurisdiction statute, 28 U.S.C. Sec. 1331. That statute provides federal jurisdiction in civil actions that "aris[e] under the Constitution, laws, or treaties of the United States." The difficulty with finding jurisdiction under Section 1331 is that Bell and Beckwith has asserted a federal claim against neither the United States nor Cannon.

Nevertheless, federal question jurisdiction exists in those cases in which the plaintiff's claim, though itself not raising a federal question, asserts a defense to a claim that would raise a federal question and that defendant could have asserted in a coercive action. The prototypical action in which this principle is invoked is a patent case in which a supposed infringer seeks a declaratory judgment that he has not interfered with the rights of the patentee. See, e.g., Cold Metal Products Co. v. E.W. Bliss Co., 285 F.2d 244 (6th Cir.1960); Technical Tape Corp. v. Minnesota Mining & Mfg. Co., 200 F.2d 876 (2d Cir.1952); E. Edelmann & Co. v. Triple A. Specialty Co., 88 F.2d 852 (7th Cir.1937). If the supposed infringer had not sought anticipatory relief, the patentee could have sued to enjoin infringement. Because the infringer's suit merely anticipates a coercive action by the patentee and the patentee's action would have arisen under the patent laws, the anticipatory action by the infringer likewise "arises under" federal law. E. Edelmann & Co., 88 F.2d at 854; Milwaukee Gas Specialty Co. v. Mercoid Corp., 104 F.2d 589, 592 (7th Cir.1939). The suit by the alleged infringer raises the same issue that could have been raised by the patentee, and therefore federal question jurisdiction exists.

The principle established in patent cases is consistent with the dictum in Public Service Commission v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242, 97 L.Ed. 291 (1952), in which the Court stated, "Where the complaint in an action for declaratory judgment seeks in essence to assert a defense to an impending or threatened state court action, it is the character of the threatened action, and not of the defense, which will determine whether there is federal question jurisdiction in the District Court." The courts have not limited application of the principle to patent cases and have applied the principle in a wide variety of cases. See e.g., Thomas v. Shelton, 740 F.2d 478, 485 (7th Cir.1984) (federal question jurisdiction exists in suit that anticipates coercive action under Medical Care Recovery Act); Wisconsin v. Baker, 698 F.2d 1323, 1328-29 (7th Cir.), cert. denied, 463 U.S. 1207, 103 S.Ct. 3537, 77 L.Ed.2d 1388 (1983), (federal question jurisdiction exists in suit that anticipates coercive action under federal Indian treaties); Serio v. Liss, 300 F.2d 386, 389 (3d Cir.1961) (federal question jurisdiction exists in suit that anticipates coercive action under Labor-Management Reporting and Disclosure Act). The principle has been approved in dicta in many other cases. See, e.g., City of Saginaw v. Service Employees International Union, Local 446-M, 720 F.2d 459, 461 (6th Cir.1983); Superior Oil Co. v. Pioneer Corp., 706 F.2d 603, 607 (5th Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 706, 79 L.Ed.2d 171 (1984); Illinois v. Archer Daniels Midland Co., 704 F.2d 935, 940 (7th Cir.1983); Nuclear Engineering Co. v. Scott, 660 F.2d 241, 253 (7th Cir.1981), cert. denied, 455 U.S. 993, 102 S.Ct. 1622, 71 L.Ed.2d 855 (1982). Moreover, the Supreme Court recently noted that federal courts have regularly taken original jurisdiction over declaratory judgment suits where the declaratory judgment defendant could bring a coercive action that would necessarily present a federal question. Cf. Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 5-7, 103 S.Ct. 2841, 2844-2845, 77 L.Ed.2d 420 (19...