Watson v. Cartee, 15–5556.

Citation817 F.3d 299
Decision Date21 March 2016
Docket NumberNo. 15–5556.,15–5556.
Parties Glen C. WATSON, III, Trustee, Plaintiff, v. Diana L. Day CARTEE; Alan Cartee, Defendants–Appellants, Regions Bank; Henry Preston Ingram, Defendants–Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

ARGUED:Thomas I. Bottorff, Bottorff & Kavin, PLC, Brentwood, Tennessee, for Appellants. David M. Anthony, Bone McAllester Norton PLLC, Nashville, Tennessee, for Appellee Ingram. Aaron J. Nash, Evans Petree PC, Franklin, Tennessee, for Appellee Regions Bank. ON BRIEF:Thomas I. Bottorff, Bottorff & Kavin, PLC, Brentwood, Tennessee, John A. Barney, Barney Law Firm, Franklin, Tennessee, for Appellants. David M. Anthony, Bone McAllester Norton PLLC, Nashville, Tennessee, for Appellee Ingram.

Before: GILMAN, WHITE, and STRANCH, Circuit Judges.

OPINION

RONALD LEE GILMAN

, Circuit Judge.

This is an unusual case in which former homeowners assert the potential claim of one of their creditors in a misguided bid to challenge the foreclosure sale of their home, even though the creditor in question has itself declined to raise the claim. For the reasons set forth below, we AFFIRM the district court's judgment that ruled against the homeowners.

I. BACKGROUND
A. Factual background

In February 2002, Diana and Alan Cartee placed a deed of trust (the Citizens Deed of Trust) on their Nashville home (the Property) to secure a loan from Citizens Bank and Savings Company (Citizens) to refinance the Property. The deed was recorded with the Davidson County Register of Deeds (the Register's Office) that same month. Although the acknowledgement on this deed declares that it was acknowledged in Alabama, the parties do not dispute that the deed was in fact executed and acknowledged in Tennessee.

In April 2002, the Citizens Deed of Trust was rerecorded with the Register's Office. The acknowledgment on the rerecorded deed was revised to change "Alabama" to "Tennessee" and to add "Davidson" into the previously blank space for the name of the county. This rerecorded deed also included a note on the first page declaring that "THIS DOCUMENT IS BEING RERECORDED TO ADD THE DERIVATION CLAUSE AND TO CORRECT THE NOTARY ACKNOWLEDGMENT." But the rerecorded Citizens Deed of Trust was not reexecuted or acknowledged by the Cartees, nor did they have any knowledge of the rerecording.

In January 2004, the Cartees and AmSouth Bank—now Regions Bank—entered into a credit agreement secured by a second deed of trust (the Regions Deed of Trust) on the Property. The Regions Deed of Trust was recorded in the Register's Office in February 2004. Subsequent to 2005, various other liens on the Property were recorded with the Register's Office: specifically, four federal tax liens, three judgment liens, and one mechanic's and materialman's lien.

Several years later, the Cartees defaulted on their mortgage loan with Citizens. This caused Citizens and the Cartees to enter into several forbearance agreements over the course of 2011 and 2012 in an attempt to remedy the default. The Cartees, however, ultimately defaulted on their forbearance-agreement obligations, and Diana Cartee filed for bankruptcy. Following the conclusion of Diana Cartee's bankruptcy case, Glen Watson, acting as Substitute Trustee under the Citizens Deed of Trust, scheduled a foreclosure sale of the Property for July 2013. The foreclosure sale was continued several times as a result of the Cartees filing an action in state court to prevent the foreclosure sale.

In November 2013, the Cartees' state-court lawsuit was dismissed. Watson then conducted a foreclosure sale of the Property in December 2013. At the foreclosure sale, Henry P. Ingram submitted the highest bid and, after he paid Watson $1,513,000, Watson conveyed the Property to him in the form of a Substitute Trustee's Deed. The proceeds from the foreclosure sale satisfied the Cartees' debt to Citizens and also resulted in a surplus of $281,632.74.

B. Procedural background

In January 2014, to determine the appropriate allocation of the surplus proceeds, Watson filed the instant interpleader action in Tennessee state court against the Cartees and the various lienholders having an interest in the Property, including Regions and the United States. The United States timely removed this action to the United States District Court for the Middle District of Tennessee. After paying the surplus proceeds into the district court, Watson was dismissed from the interpleader action in May 2014.

Later in May, Regions filed a motion for summary judgment, arguing that it had the highest priority claim to the surplus proceeds. The Cartees subsequently filed a third-party complaint against Ingram, alleging that he did not hold valid title to the Property because of the defect in the acknowledgment of the Citizens Deed of Trust. They also filed a response to Regions's motion, raising almost identical arguments to those advanced in their third-party complaint. In December 2014, Ingram filed a motion for summary judgment on the third-party complaint, and the Cartees filed their own motion for summary judgment on the third-party complaint in January 2015.

The next month, the district court (1) granted Regions's motion for summary judgment and awarded the surplus proceeds to Regions, (2) granted Ingram's motion for summary judgment, (3) denied the Cartees' motion for summary judgment, and (4) declined the Cartees' request to certify a state-law, statutory-interpretation question to the Tennessee Supreme Court. In March 2015, the Cartees filed a motion to alter the judgment, arguing—for the first time—that the court lacked jurisdiction over their own third-party complaint. The court denied the Cartees' motion the following month. This timely appeal followed.

II. ANALYSIS
A. Standards of review

We review de novo the existence of subject-matter jurisdiction. Ammex, Inc. v. Cox, 351 F.3d 697, 702 (6th Cir.2003)

. A district court's grant of summary judgment is also reviewed de novo. Keith v. County of Oakland, 703 F.3d 918, 923 (6th Cir.2013). Summary judgment is proper when no genuine dispute of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A genuine dispute of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Finally, the decision to certify a question of state law to the state's highest court "lies within the sound discretion of the district court." Pennington v. State Farm Mut. Auto. Ins. Co., 553 F.3d 447, 449–50 (6th Cir.2009) (internal quotation marks omitted).

B. The district court possessed subject-matter jurisdiction over the Cartees' third-party complaint against Ingram

Before grappling with the Cartees' substantive claims, we must first deal with a procedural issue. The Cartees allege in their reply brief that the district court lacked subject-matter jurisdiction over their own third-party complaint, and that the third-party complaint violated Rule 14 of the Federal Rules of Civil Procedure

. This is of course contrary to the position asserted in their third-party complaint. Concerning the Rule 14 claim, the Cartees are now in the ironic posture of advocating a position that Ingram raised before the district court.

A party ordinarily "waives an issue when he fails to present it in his initial briefs." LoCoco v. Med. Sav. Ins. Co., 530 F.3d 442, 451 (6th Cir.2008)

(internal quotation marks omitted). There is an exception to this general rule in the present case, however, because "parties cannot waive the requirement of subject matter jurisdiction." Ammex, 351 F.3d at 702 (internal quotation marks omitted). "If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action." Fed.R.Civ.P. 12(h)(3)

.

The existence of subject-matter jurisdiction over claims in a third-party complaint is a separate inquiry from whether impleader was proper under Rule 14

. See Dery v. Wyer, 265 F.2d 804, 808 (2d Cir.1959) ("A rule of procedure, of course, however convenient and salutary it may be, is without efficacy to extend the jurisdiction of a court. But Rule 14 does not extend jurisdiction. It merely sanctions an impleader procedure...." (citations omitted)); Gunnell v. Amoco Oil Co., 490 F.Supp. 67, 69 (W.D.Mich.1980) ( "Rule 14 does not, in and of itself, confer subject matter jurisdiction to third-party claims."); Fed.R.Civ.P. 82 ("These rules do not extend or limit the jurisdiction of the district courts...."). Accordingly, although the Cartees' argument regarding subject-matter jurisdiction cannot be waived, their Rule 14 argument can and was. See LoCoco, 530 F.3d at 451.

Turning to the jurisdictional question, we conclude that the district court possessed supplemental jurisdiction over the third-party complaint. Supplemental jurisdiction under 28 U.S.C. § 1367

"allows a plaintiff to include claims over which a federal court would not normally have jurisdiction." Voyticky v. Vill. of Timberlake, Ohio, 412 F.3d 669, 675 (6th Cir.2005). A district court's exercise of supplemental jurisdiction is proper so long as the original "complaint properly invokes the district court's jurisdiction and ... the other claims[ ] ‘are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.’ " Id. (quoting 28 U.S.C. § 1367 ). For the purposes of § 1367, "[c]laims form part of the same case or controversy when they derive from a common nucleus of operative facts." Harper v. AutoAlliance Int'l, Inc., 392 F.3d 195, 209 (6th Cir.2004) (internal quotation marks omitted).

1. The district court had subject-matter jurisdiction over the interpleader action under 28 U.S.C. §§ 1335

and 1441

We must first determine whether the district court possessed subject-matter...

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