Armour Fertilizer Works v. Sanders

• Decision Date: 01 April 1933
• Docket Number: No. 6796.,6796.
• Parties: ARMOUR FERTILIZER WORKS v. SANDERS et al.
• Court: U.S. Court of Appeals — Fifth Circuit

63 F.2d 902 (1933)

ARMOUR FERTILIZER WORKS v. SANDERS et al.

No. 6796.

Circuit Court of Appeals, Fifth Circuit.

March 10, 1933.

Dissenting Opinion March 22, 1933.

Rehearing Denied April 1, 1933.

Alfred McKnight and Warren Scarborough, both of Fort Worth, Tex., and Walter C. Kirk, of Chicago, Ill., for appellant.

Rollin W. Rodgers, of Texarkana, Tex., and Alvin H. Lane and Robert Lee Guthrie, both of Dallas, Tex., for appellees.

Before BRYAN, SIBLEY and HUTCHESON, Circuit Judges.

SIBLEY, Circuit Judge.

Two insurance corporations of Connecticut owed W. D. Sanders, a citizen of Texas, insurance money for loss by fire of property in Texas which had constituted part of his homestead. They were served in Illinois as garnishees on proceedings in foreign attachment brought there by Armour Fertilizer Works, a corporation of Illinois, against Sanders on notes held against him which contained a waiver of all homestead and exemption rights. The garnishees by amended answers admitted liability, but set up that the money was claimed by Sanders to be his homestead and not liable to garnishment. Judgment by default after the published notice required by Illinois law was rendered against Sanders that the attachment be sustained and that Armour Fertilizer Works recover of him its debt fixed at $7,589.81 and costs, and that execution issue. Before trial of the answers of the garnishees they, claiming to be mere stakeholders, filed under 28 USCA § 41 (26) as rewritten by Act of May 8, 1926, an interpleader proceeding in the District Court in Texas where Sanders was domiciled, naming him and Armour Fertilizer Works as the adverse claimants, paid the money into court, and obtained an interlocutory injunction against further proceedings in Illinois. A dismissal at the instance of Armour Fertilizer Works of the bill for interpleader was reversed on appeal, National Fire Ins. Co. v. Sanders, 38 F.(2d) 212, 215, this court saying: "The District Court had jurisdiction to grant relief to appellants and to determine which of the claimants is entitled to the fund deposited in court, neither of which parties can lose anything by the filing of the bill. If a lien attached to the funds, by virtue of the garnishment, it followed them into the registry of the District Court and may be given full force and effect. On the other hand, if the exemption claimed by Sanders is superior, judgment may be awarded to him."

Upon the trial a decree was given in favor of Sanders, and Armour Fertilizer Works appeals.

The appellant renewed its motion to dismiss, making the same contentions that were overruled on the former appeal. The questions then decided stand as the law of the case. Richardson v. Ainsa, 218 U. S. 289, 31 S. Ct. 23, 54 L. Ed. 1044; Ames v. Quimby, 106 U. S. 342, 1 S. Ct. 116, 27 L. Ed. 100. If within our power, we have no disposition to review them. Wolff Packing Co. v. Court of Industrial Relations, 267 U. S. 552, 45 S. Ct. 441, 69 L. Ed. 785; Messinger v. Anderson, 225 U. S. 436, 32 S. Ct. 739, 56 L. Ed. 1152. But a contention not before presented is that the Act of May 8, 1926, as here applied is unconstitutional because invading the reserved rights of the state of Illinois to try cases in its courts, and because denying full faith and credit to the proceedings had there. The first objection is answered by the grant of judicial power in article 3 of the Constitution. Suits for interpleader in which actions in other courts are enjoined were familiar to equity when the Constitution was adopted, and are one of the forms of controversy to which, when arising between citizens of different states, the federal judicial power was extended. The act enlarges the processes of the District Court to cover a broad territory, but otherwise authorizes only an ordinary form of equitable relief. The second objection goes not to the act itself but to the decision of this controversy. The District Court, of course, is bound on an interpleader to give full faith and credit to the garnishment proceedings in Illinois. Cooper v. Newell, 173 U. S. 567, 19 S. Ct. 506, 43 L. Ed. 808. What that full credit is and whether it has been afforded, it is our duty to determine on this appeal.

The statutes of Illinois (see Smith-Hurd Rev. St. Ill. 1931, c. 11, § 1 et seq.) permit suit by the attachment of a nonresident's property, including a garnishment of debts due him, if sufficient leviable property is not found. The defendant is to be served personally if possible, and, if not, by four weeks' published notice, a copy being mailed to his last known address. If he does not appear, and is served only by publication, default judgment may be entered on the plaintiff's affidavit of the amount due and execution issued but only against the property or debts attached. All judgments against the same defendant rendered at the same term, whether on attachment or summons, share pro rata in the fund raised. It is stipulated that the proceedings here in question were according to the statutes, and that by the settled law of Illinois, on a trial of the answers to the garnishment, the claim of exemption of the insurance would have been overruled. It is held generally that exemption laws are a part of the remedy of the forum, and have no force beyond the bounds of the state enacting them. Chicago, Rock Island & P. R. Co. v. Sturm, 174 U. S. at page 717, 19 S. Ct. 797, 43 L. Ed. 1144; Bynum v. Johnston (C. C. A.) 222 F. 659; Bristol v. Brent, 38 Utah, 58, 110 P. 356; Penn R. Co. v. Rogers, 52 W. Va. 450, 44 S. E. 300, 62 L. R. A. 178; Person v. Williams-Echols Dry Goods Co., 113 Ark. 467, 169 S. W. 223. But for the injunction of the federal court the state court would have compelled the payment of the money into court to satisfy such creditors as might have obtained judgments against Sanders. We cannot agree that, because final judgment had not gone against the garnishees, the proceeding was due no faith and credit. The full faith and credit clause of the Constitution, Const. art. 4, § 1, speaks of judicial proceedings, not judgments merely. By a valid exercise of jurisdiction over the persons of the garnishees there present, the Illinois court was in process of compelling payment of the insurance into court, and had on service sufficient to that end adjudged Sanders' indebtedness to Armour Fertilizer Works and the sufficiency of the attachment process. There had arisen as against him a right to detain the debt as a prospective fund and to apply it to the demands of plaintiff and other creditors, which may aptly be termed a lien. It dates from the service of the writ of garnishment. Though inchoate and subject to defeat if final judgment fails either as to the main debtor or the garnishee, it is a substantial legal right. National Surety Co. v. Medlock, 2 Ga. App. 665, 58 S. E. 1131; Florida E. C. R. Co. v. Consolidated Engineering Co., 95 Fla. 99, 116 So. 19. It is treated as a lien obtained by operation of law under the Bankruptcy Act (11 USCA), and stands or falls according as the service of garnishment was more or less than four months before bankruptcy, without any reference to the date of final judgment. Anderson v. Ashford & Co., 44 Ga. App. 177, 160 S. E. 804; Globe & Rutgers Fire Ins. Co. v. Brown (D. C.) 52 F.(2d) 164; Cohn & Co. v. Drennan (D. C.) 19 F.(2d) 642; In re Phillips & Co. (D. C.) 224 F. 628; In re Maher (D. C.) 169 F. 997.

The garnishment is in fact a seizure at law of equitable assets not otherwise subject to execution for administration to all creditors who establish their debts in the forum. It is comparable to the seizure of assets under a creditor's bill, where it is settled that such seizure establishes a lien, inchoate and subject to like defeats as is a garnishment until final decree, but good against a bankruptcy begun after four months. Metcalf v. Barker, 187 U. S. 165, 23 S. Ct. 67, 47 L. Ed. 122; Blair v. Brailey (C. C. A.) 221 F. 1. In an Illinois case, National Bank of America v. Indiana Banking Co., 114 Ill. 483, 2 N. E. 401, 403, where, after service of garnishment, but before judgment against the garnishees, the debt was partially assigned by checks drawn against it, and it became necessary to determine when the garnishment lien arose, the court said:

"The principle of the former decisions has been recently restated by this court in the case of Reeve v. Smith, 113 Ill. 47, where it was said, in construing the Thirty-Seventh section of the attachment act (Rev. St. 1874,) `that property, real and personal, attached, and funds in the hands of the garnishee, are placed on the same footing; that is, when attached, such property or funds are appropriated from that time to the payment of a certain class of judgment creditors specially enumerated. From the time of the levy or service of the writ, the property or funds are held by virtue of the statute for the benefit of all creditors of the attachment debtor, who shall obtain judgments against him within the time and in the manner specified in the statute. It is the whole property or funds attached, and not any specific part or portion, that is held until it shall be ascertained who or what creditors are entitled to share in the proceeds.'"

In National Fire Ins. Co. v. Chambers, 53 N. J. Eq. 468, 32 A. 663, Justice Pitney, then Vice Chancellor, examined a garnishment lien before final judgment which had been obtained in Pennsylvania, a state not the domicile of the garnishee or of the main debtor as in the case at bar, and upheld the lien in an interpleader in New Jersey as against an assignment of the garnished debt made subsequent to the service of garnishment. The case is cited with approval in Chicago, Rock Island & P. R. Co. v. Sturm, 174 U. S. 710, 19 S. Ct. 797, 43 L. Ed. 1144. In the Sturm Case the garnishment had issued in Iowa, before the main debtor sued the garnishee in Kansas. Final judgment had not been rendered against the garnishee. The garnishment was not held to be...