Banco de Ponce v. Hinsdale Supermarket Corp.

• Decision Date: 26 June 1987
• Docket Number: No. 86 C 1988.,86 C 1988.
• Citation: 663 F. Supp. 813
• Parties: BANCO DE PONCE, Plaintiff, v. HINSDALE SUPERMARKET CORP., and New York State Department of Health, Defendants.
• Court: U.S. District Court — Eastern District of New York

663 F. Supp. 813

BANCO DE PONCE, Plaintiff, v. HINSDALE SUPERMARKET CORP., and New York State Department of Health, Defendants.

No. 86 C 1988.

United States District Court, E.D. New York.

June 26, 1987.

Eduardo F. Lopez, P.C., New York City, for plaintiff.

Figueredo & Fabian, Jackson Heights, N.Y. (Manuel Fabian, of counsel), for Hinsdale Supermarket Corp.

Robert Abrams, Atty. Gen., State of N.Y., New York City (Joel Graber, Asst. Atty. Gen., of counsel), for New York State Dept. of Health.

MEMORANDUM AND ORDER

NICKERSON, District Judge.

Plaintiff, Banco de Ponce ("Banco"), brings this interpleader action pursuant to Federal Rule of Civil Procedure 22, providing, in pertinent part, that persons "having claims against the plaintiff may be joined as defendants and required to interplead when their claims are such that the plaintiff is or may be exposed to double or multiple liability."

Banco asks the court to determine the ownership of $70,885.10 in food coupon proceeds generated under the Special Supplemental Food Program, 42 U.S.C. § 1786. That program, sometimes called the WIC Program because it benefits women, infants and children, is part of the Child Nutrition Act, 42 U.S.C. § 1771, et seq., and is administered by the United States Department of Agriculture's Food and Nutrition Service pursuant to federal regulations. See 7 C.F.R. Part 246.

Under the WIC Program, state and local agencies receive federal grants to fund the distribution of food coupons to pregnant, postpartum and breastfeeding women, infants and young children from low-income families. Defendant New York State Department of Health ("Health Department") distributes the coupons in New York and authorizes retailers to accept the coupons in exchange for certain foods.

Authorized retailers, or vendors, can redeem the coupons by depositing them into their bank accounts using a special WIC number. The bank conditionally credits the retailer's account until the proceeds are cleared through the distributing agency. Defendant Hinsdale Supermarket Corp. ("Hinsdale") maintained such an account at Banco. The interpleaded fund represents the contents of that account and consists solely of WIC coupon proceeds.

The dispute began when, by letter dated March 27, 1986, the Health Department notified Banco that Hinsdale was using a fraudulent WIC number and demanded that Banco freeze the account and turn over its contents to the extent of about $30,000. Banco responded by freezing the entire account, but did not remit any proceeds to the Health Department. On April 15, 1986, Banco received a letter from Hinsdale's attorneys demanding release of the funds and threatening suit.

Banco maintained the freeze until June 12, 1986, when it deposited the $70,885.10 in this court and commenced this interpleader action against Hinsdale and the Health Department. The complaint also named the United States Department of Agriculture as a defendant. By stipulation the action has since been discontinued as against it.

Hinsdale's answer claims the funds and counterclaims for damages, alleging that Banco's freezing of the account constitutes conversion. The Health Department's answer challenges Hinsdale's claim to the funds, asserts a cross-claim, and questions the court's subject matter jurisdiction.

Banco has moved for an order dismissing the Health Department's jurisdictional defense and Hinsdale's counterclaim, discharging Banco from this action, and awarding it attorney's fees.

Hinsdale crossmoves for judgment declaring its right to the funds, awarding damages on its counterclaim against Banco, dismissing the Health Department's crossclaim, and denying Banco's request for attorney's fees.

The Health Department opposes Hinsdale's motion, contending that there is an issue of fact as to Hinsdale's right to any of the funds, and also opposes Banco's application for attorney's fees as excessive.

I

The first issue is whether the court has subject matter jurisdiction. Plaintiff contends that there is both diversity of citizenship jurisdiction under 28 U.S.C. § 1332 and federal question jurisdiction under 28 U.S.C. § 1331.

Unlike statutory interpleader, 28 U.S.C. § 1335, which establishes federal court jurisdiction where two or more adverse claimants are of diverse citizenship, Federal Rule of Civil Procedure 22 provides no independent jurisdictional basis. A Rule 22 interpleader action based on diversity must satisfy the requirements of 28 U.S.C. § 1332, namely, the plaintiff or stakeholder must be of diverse citizenship from each defendant or claimant. See 7 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 1710, at 538-40 (1986).

Here, there is no diversity jurisdiction. All parties are New York citizens. To show diversity Banco appears to rely on its incorporation in Puerto Rico. But, as the complaint states on its very face, its principal place of business is in New York. Banco is thus both a citizen of Puerto Rico and New York, see 28 U.S.C. § 1332(c).

Banco also claims that there is federal question jurisdiction under 28 U.S.C. § 1331 because the interpleaded funds were established and dispensed pursuant to the federal WIC Program.

To base jurisdiction on 28 U.S.C. § 1331, the action must be one "arising under the Constitution, laws, or treaties of the United States." The deceptively simple words "arising under" mask a variety of issues often making it difficult to determine whether an action falls within or without the court's jurisdiction. Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 8, 103 S.Ct. 2841, 2845, 77 L.Ed.2d 420 (1983). Over the years since the first version of section 1331 was enacted in 1875, Act of March 3, 1875, ch. 137, § 1 et seq., 18 Stat. 470, the Supreme Court has articulated two standards to determine whether an action is one "arising under" federal law. West 14th Street Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 192 (2d Cir.1987). One looks to whether federal law "creates the cause of action." American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 586, 60 L.Ed. 987 (1916) (per Holmes, J.). Where state law creates the cause of action, the other standard asks whether a "substantial" question of federal law is a necessary element of that cause of action. Franchise Tax Board, supra, 463 U.S. at 9, 13, 103 S.Ct. at 2846, 2848; Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 199-202, 41 S.Ct. 243, 245-246, 65 L.Ed. 577 (1921).

In applying both these standards one useful doctrine that the Supreme Court has adopted is the so-called "well-pleaded" complaint rule, under which "`what necessarily appears in the plaintiff's statement of its own claim'" determines whether or not an action arises under federal law. Franchise Tax Board, supra, 463 U.S. at 10, 103 S.Ct. at 2846 (quoting Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 724-725, 58 L.Ed. 1218 (1914)). Thus generally a federal question "must appear on the face" of the complaint. 13B C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3566, at 83 (1984). A complaint that anticipatorily challenges a federal defense that a defendant may raise, or asserts that federal law deprives defendant of a possible defense, is insufficient to invoke jurisdiction. Franchise Tax Board, supra, 463 U.S. at 10, 103 S.Ct. at 2846-2847.

The effect of this rule is that few interpleader complaints have been found to qualify for federal question jurisdiction. See 7 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 1710, at 547 (1986). Interpleader is a procedural device available to a stakeholder to resolve a dispute that exists primarily between the defendant claimants. The stakeholder's claim is typically one seeking discharge and is difficult to characterize as asserting either federal or state rights.

A few courts have accepted interpleader actions based on federal question jurisdiction. See, e.g., Gelfgren v. Republic National Life Insurance Co., 680 F.2d 79 (9th Cir.1982); St. Louis Union Trust Co. v. Stone, 570 F.2d 833 (8th Cir.1978). But only one has engaged in a thorough analysis of the rationale, analogizing an interpleader action to one for a declaratory judgment. See Bell & Beckwith v. United States (IRS), 766 F.2d 910 (6th Cir.1985).

In declaratory judgment actions, federal question jurisdiction may exist if the character of the defendant's threatened action necessarily involves a claim of federal right. See Franchise Tax Board, supra, 463 U.S. at 19 & n. 19, 103 S.Ct. at 2851 & n. 19; Public Service Commission v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242-243, 97 L.Ed. 291 (1952) (dictum); West 14th Street Commercial Corp., supra, 815 F.2d at 194; Bell & Beckwith, supra, 766 F.2d at 913, and cases cited. An interpleader stakeholder threatened by conflicting claims asks the court to determine which of several disputed claims should prevail. A declaratory judgment action seeking that determination would serve as well, although in an interpleader action the stakeholder can obtain a discharge. In effect the stakeholder's pleading provisionally draws into question the validity of the threatened claims against it of each of the claimants. If at least one of these claims arises under federal law, there is no apparent reason in policy to reject federal question jurisdiction because the stakeholder has asked for a discharge in addition to a declaration.

This court therefore holds that federal question jurisdiction exists if at least one of the threatened actions fairly alleged in the interpleader complaint arises under federal law. Application of this holding requires scrutiny not only of the threatened claims of both Hinsdale and the Health Department against Banco, but also of the dispute between the defendants. This follows because both defendants' claims against Banco seek title to the interpleaded funds to the exclusion of the other. Cf. Bell & Beckwith, ...