American Fidelity F. Ins. Co. v. Paste-Ups Unlimited, Inc., 73 Civ. 617(MP).

Citation368 F. Supp. 219
Decision Date07 January 1974
Docket NumberNo. 73 Civ. 617(MP).,73 Civ. 617(MP).
PartiesAMERICAN FIDELITY FIRE INSURANCE COMPANY, Plaintiff, v. PASTE-UPS UNLIMITED, INC., et al., Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Boyle, Feller & Hirsch, New York City, for plaintiff; by Leo H. Hirsch, Jr., New York City, of counsel.

Morrison, Paul, Stillman & Beiley, New York City, for defendant Harwyn Litho, Inc.; by Charles A. Stillman and Julian W. Friedman, New York City, of counsel.

Leibowitz, Platzer & Fineberg, New York City, for defendant Paste-Ups Unlimited, Inc.; by Ephriam K. Leibowitz, New York City, of counsel.

Arkin & Horan, New York City, for defendant Trustees; by John R. Horan, New York City, of counsel.

DECISION AND OPINION

POLLACK, District Judge.

This is a federal interpleader suit arising under 28 U.S.C. § 1335 to determine the conflicting claims to the proceeds of a $50,000 certificate of deposit issued by a Florida bank to Deductible (Deductible Coverage Agency, Inc.), an insurance agency.

Deductible pledged the certificate of deposit with a New York based insurer, American (American Fidelity Fire Insurance Company) as security for the former's liabilities under a contract between those companies.

While the certificate of deposit was still in American's possession in New York, Deductible was sued in the State of Washington by certain Trustees (named as defendants-claimants in this interpleader suit) on alleged obligations due them. Pending determination of the merits, the Washington Court issued a writ of garnishment at the instance of Trustees directed to American. The writ was served by delivery of it to the Washington State Insurance Commissioner whom American had designated as its agent for service of legal process when it qualified to do business as a foreign corporation in Washington. No steps were taken in the Washington proceedings to reduce any asset of Deductible to possession under this writ of garnishment.

While the Washington lawsuit remained unresolved, certain New York creditors of Deductible, viz., Paste-Ups and Harwyn, claimants herein, sued Deductible in New York and obtained money judgments in their favor. Executions were issued and levied under these judgments on the certificate of deposit held by American in New York. Faced with the conflicting claims thereto, American then brought the proceeds of the certificate to this Court and interpleaded the Washington Trustees and the New York creditors so that the ownership of the fund could be resolved among these rival claimants.

A hearing has been held and proofs were submitted in support of the claims asserted to the fund. For the reasons appearing hereafter, the rights of the New York attaching creditors, in the chronological order of their attachments, are entitled to satisfaction out of the fund, in priority to the claim of the Washington Trustees.

The undisputed facts in more detail are as follows:

On February 8, 1971, American and Deductible entered into a written insurance agency agreement. As security for Deductible's liabilities to American under this agreement the latter endorsed to and delivered to the former, in New York, a $50,000 certificate of deposit issued by the First American Bank of North Palm Beach, Florida, due July 13, 1972. This certificate of deposit remained located physically at American's home office in New York at all relevant times.

The agency agreement between American and Deductible was terminated December 23, 1971, effective March 31, 1972.

On February 18, 1972, G. O. Medack, R. W. Bishop, Jr., and Willis Serr, as Trustees for the Selling Shareholders of Modern Home Builders, Inc. ("Trustees") commenced an action for a monetary recovery, against Deductible and another, in the Superior Court of the State of Washington. On March 10, 1972, the defendants having failed to appear or plead, the Trustees obtained a default judgment against Deductible in the amount of $930,675.00. A Writ of Garnishment thereon was issued on March 27, 1972 addressed to and served on American as garnishee by service upon its local agent to receive service of process, the State Insurance Commissioner.

On April 21, 1972 the default judgment against Deductible was vacated by the Washington Court, which nonetheless directed American to "retain in its possession and under its control subject to further order of the Court or stipulation of the parties, all funds, credits and other property in its possession and subject to the Writ of Garnishment issued hereon on March 27, 1972, in which the defendants . . . have any ownership or interest . . . with the same force and effect as such funds and properties are now subject to under said Writ of Garnishment."

On April 26, 1972 American answered the Writ, alleging that, at the time of service thereof, it owed Deductible $1,223.89, representing commissions due Deductible based upon premiums recorded to that date. In response to a direction on the form answer to "list all personal property or effects of defendant in the garnishee's possession or control when the Writ was served," American further stated that it owned by assignment and was in possession of the aforementioned certificate of deposit,1 pursuant to the agency agreement.

On June 16, 1972 Paste-Ups Unlimited, Inc. ("Paste-Ups") recovered a judgment against Deductible in New York Supreme Court in the sum of $12,480.25 and, on September 28, 1972, caused the Sheriff to serve on American an Execution with Notice to Garnishee based thereon. Similarly, Harwyn Litho, Inc. ("Harwyn") recovered a judgment against Deductible in New York Supreme Court in the sum of $22,741.06 on January 22, 1973, and caused the Sheriff to serve an Execution with Notice to Garnishee on American on February 6, 1973.

In the interim, on August 31, 1972, American had received the sum of $50,625.00 from First American Bank of North Palm Beach, Florida, as proceeds of the certificate of deposit, including interest. American thereafter held these proceeds in New York.

On February 8, 1973, American commenced the instant action by filing an interpleader complaint with the Clerk of the Court and simultaneously therewith depositing the sum of $33,625.00 into the registry of this Court.2 An order of interpleader was entered on March 13, 1973.

I.

An action of statutory interpleader depends on diversity of citizenship, 28 U.S.C. § 1335(a)(1), and thus, under the rule of Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), this Court must apply the substantive law of the forum state—i. e., New York. See Royal School Laboratories, Inc. v. Town of Watertown, 358 F.2d 813 (2d Cir. 1966) (by implication). This applies to the choice of law rules of the forum as well. Griffin v. McCoach, 313 U.S. 498, 61 S.Ct. 1023, 85 L. Ed. 1481 (1941); cf. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). However, the law applied must not be inconsistent with the United States Constitution, in particular article IV, section 1 thereof—the full faith and credit clause.

The Supreme Court has stated that "the full faith and credit Clause does not make a sister-State judgment a judgment in another State. . . . `To give it the force of a judgment in another State, it must be made a judgment there , and can only be executed in the latter as its laws may permit.' McElmoyle v. Cohen, 13 Pet. 312, 325, 10 L.Ed. 117." Williams v. North Carolina, 325 U.S. 226, 229, 65 S.Ct. 1092, 1094, 89 L.Ed. 1577 (1945); see Riley v. New York Trust Co., 315 U.S. 343, 349, 62 S. Ct. 608, 86 L.Ed. 805 (1942); Lynde v. Lynde, 181 U.S. 183, 21 S.Ct. 555, 45 L. Ed. 810 (1901).3 Recognition—e. g., the affirmative defense of res judicata—is what the Constitution requires, subject only to such exceptions as a lack of jurisdiction in the rendering State (not applicable here).

A foreign judgment is recognized . . . when it is given the same effect that it has in the State where it was rendered with respect to the parties, the subject matter of the action and the issues involved. A foreign judgment is enforced when, in addition to being recognized, a party is given the affirmative relief to which the judgment entitles him. Recognition of a judgment is a condition precedent to its enforcement. Restatement (Second) of Conflict of Laws, ch. 5, Topic 2, at 277 (1969).

The general rule is that "the local law of the forum determines the methods by which a judgment of another state is enforced." Restatement (Second) of Conflict of Laws § 99 (1969); accord, Cole v. Cunningham, 133 U.S. 107, 112, 10 S.Ct. 269, 33 L.Ed. 538 (1890). This is subject to the qualification that they cannot be made so complex and expensive as to make the enforcement of a sister state judgment unduly difficult. Restatement (Second) of Conflict of Laws § 99, comment a (1969); see Broderick v. Rosner, 294 U.S. 629, 55 S.Ct. 589, 79 L.Ed. 1100 (1935); cf. Hughes v. Fetter, 341 U.S. 609, 71 S.Ct. 980, 95 L.Ed. 1212 (1951).

New York provides three alternative methods for the enforcement of sister state judgments. A judgment creditor holding a foreign judgment which is entitled to full faith and credit in New York may enforce his judgment (1) by bringing an action on the judgment, see N.Y. C.P.L.R. § 5406; (2) by moving for summary judgment in lieu of complaint under C.P.L.R. § 3213; or (3) by proceeding under the registration provisions of Article 54 of the CPLR. The method utilized is optional with the judgment creditor. N.Y.C.P.L.R. § 5406. See Restatement (Second) of Conflict of Laws § 99, comment b (1969). Furthermore, the judgment creditor may also utilize the provisional remedy of attachment in New York in proceeding on his foreign judgment. N.Y.C.P.L.R. § 6201(7).

At no time did the Washington Trustees lodge with any enforcement officer in New York copies of any of the following documents: (1)...

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