Commercial Nat. Bank of Chicago v. Demos

• Decision Date: 21 June 1994
• Docket Number: No. 92-3839,92-3839
• Citation: 18 F.3d 485
• Parties: -1542, 28 Fed.R.Serv.3d 661 COMMERCIAL NATIONAL BANK OF CHICAGO, Plaintiff-Appellee, v. William DEMOS, Mary Demos, Gus Demos, et al., Defendants-Counter Defendants-Appellants, and United States of America, and Jeffrey Strange, Defendants-Counter Plaintiffs-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 485

18 F.3d 485

73 A.F.T.R.2d 94-1542, 28 Fed.R.Serv.3d 661

COMMERCIAL NATIONAL BANK OF CHICAGO, Plaintiff-Appellee, v. William DEMOS, Mary Demos, Gus Demos, et al Defendants-Counter Defendants-Appellants and United States of America, and Jeffrey Strange Defendants-Counter Plaintiffs-Appellees.

No. 92-3839.

United States Court of Appeals Seventh Circuit.

Argued Sept. 24, 1993.

Decided March 10, 1994.

Rehearing Denied June 21, 1994.

Teresa McLaughlin, John A. Nolet (argued), Dept. of Justice, Tax Div., Appellate Section, Washington, DC, Joel C. Solomon, Grossman, Solomon & Feilkow, Lincolnwood, IL, for Commercial Nat. Bank of Chicago.

James C. Reho (argued), Chicago, IL, for William Demos and Mary Demos.

George B. Collins, Gregory A. Bedell, Collins & Bargione, James C. Reho Chicago, IL, for Gus Demos, Jimmy Demos and Harry Demos.

Barry R. Elden, Asst. U.S. Atty., Chicago, IL, Gary R. Allen, Teresa McLaughlin, Randolph L. Hutter, John A. Nolet, Dept. of Justice, Tax Div., Appellate Section, David S. Newman, Dept. of Justice, Tax Div., Washington, DC, for U.S.

Teresa McLaughlin, John A. Nolet, Washington, DC, Michael S. Hyman (argued), Jeffrey Strange, Strange & Associates, Wilmette, IL, for Jeffrey Strange.

Before BAUER, EASTERBROOK, and KANNE, Circuit Judges.

BAUER, Circuit Judge.

The Commercial National Bank of Chicago brought this interpleader action to determine the rights of several claimants to $67,847.13 on deposit in certain accounts at the bank. The district court conducted a trial and awarded the money in the accounts to certain of the defendants. Because we find that the district court lacked subject matter jurisdiction, we reverse the district court's decision and remand the case with instructions to dismiss the action.

I. Facts

The names on these accounts are, in varying combinations, William and Mary Demos and their children. William and Mary Demos had disagreed with the Internal Revenue Service as to the nature and amount of their federal tax liability; this disagreement resulted in litigation in the United States Tax Court and the subsequent filing by the Service of a notice of levy on the accounts in the amount of $79,395.41. ¹ In addition, the Demoses failed to pay their attorney, Jeffrey Strange, for his representation in the tax litigation and related matters. As a result, Strange had served on the bank a notice of attorney's lien on the accounts for the unpaid legal bills in the amount of $38,649.50. Confronted with these liens and the contention by William and Mary Demos that the accounts actually belonged to their children, the bank initiated this action.

The bank alleged no claim to the money in the accounts. Further, it alleged that it was unable to determine, without hazard to itself, which of the defendants was entitled to the funds and had no means, other than this interpleader action, to protect itself against the threat of multiple liability from the defendants' claims. The bank sought a judgment from the district court pursuant to Rule 22 of the Federal Rules of Civil Procedure so that it could insulate itself from personal liability in distributing the funds in the accounts. The government and Strange then filed cross-claims against the members of the Demos family for the amounts each party claimed it was owed. In addition, the government and Strange entered into an agreement that determined the priorities of their competing claims; they agreed that if both parties prevailed with respect to their cross-claims, Strange would be entitled to the first $15,000 from the accounts, then the government would be entitled to the full amount owed it, and Strange would be entitled to the rest of the funds in the accounts up to the full amount he was owed.

The district court conducted a trial and, on the merits, found for the government and Strange and against the Demos family. The Demoses appealed the district court's decision. At oral argument, this court asked several questions regarding the district court's jurisdiction over the action for which we did not receive satisfactory responses. We then ordered the parties to brief the issue so that we could determine whether the district court had subject matter jurisdiction to hear this case. We determine that it did not.

II. Analysis

The bank, in its complaint, claimed jurisdiction pursuant to Rule 22 and 28 U.S.C. Secs. 1331, 2410. ² It did not elaborate on the federal question presented by the complaint. The district court also stated that it had jurisdiction pursuant to 28 U.S.C. Sec. 1331, by way of 28 U.S.C. Sec. 2410, again without elaborating on the exact nature of the federal question. It determined that it had jurisdiction over the government's cross-claim pursuant to 26 U.S.C. Secs. 7402(a), 7403 ³ and 28 U.S.C. Secs. 1340, 1345. ⁴ The issue of jurisdiction over this action was never raised by any of the parties, either in this court or in the court below. Further, the district court did not consider the issue in depth. Apparently, little thought was given to the issue until we demonstrated our concern about the issue at oral argument.

That the parties have not contested, nor the district court considered jurisdiction does not impede our inquiry. "We are required to satisfy ourselves not only of our own jurisdiction, but also the jurisdiction of the district court." Stearnes v. Baur's Opera House, Inc., 3 F.3d 1142, 1144 (7th Cir.1993) (citing Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 165, 79 L.Ed. 338 (1934); Krueger v. Cartwright, 996 F.2d 928 (7th Cir.1993)). Further, we must consider the issue sua sponte when it appears from the record that jurisdiction is lacking. Id.

Rule 22(1) states that "[p]ersons 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." This permits the bank, the stakeholder who has no claim to the money in the accounts and is willing to release it to the rightful claimant, "to put the money ... in dispute into court, withdraw from the proceeding, and leave the claimants to litigate between themselves the ownership of the fund in court." Commercial Union Ins. Co. v. United States, 999 F.2d 581, 583 (D.C.Cir.1993) (citations omitted). Rule 22(1) provides a procedural framework for interpleader actions, but it does not confer subject matter jurisdiction on federal courts. General Ry. Signal Co. v. Corcoran, 921 F.2d 700, 705 (7th Cir.1991) (citing Gelfgren v. Republic Nat'l Life Ins. Co., 680 F.2d 79, 81 (9th Cir.1982)). Where diversity is lacking in Rule 22(1) interpleader actions, jurisdiction must arise from a federal statute. ⁵ Id. Therefore, for the federal courts to have jurisdiction over this action, the bank must demonstrate the existence of a federal question. See id.

In determining federal question jurisdiction, we adhere to the "well-pleaded complaint" doctrine. Under this doctrine, federal law must create the cause of action, or some substantial, disputed question of federal law must be an element in the plaintiff's claim. Napoleon Hardwoods, Inc. v. Professionally Designed Benefits, Inc., 984 F.2d 821, 822 (7th Cir.1993) (citing Franchise Tax Bd. v. California Laborers Vacation Trust, 463 U.S. 1, 27-28, 103 S.Ct. 2841, 2855-56, 77 L.Ed.2d 420 (1983)). The consequence of this rule is that the plaintiff must state the federal question in his own claim and cannot rely on the anticipation of defenses on which it believes the defendant will rely. Franchise Tax Board, 463 U.S. at 9-10, 103 S.Ct. at 2846-47 (citing Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 724-25, 58 L.Ed. 1218 (1914)). The bank has alleged nothing in its complaint that, on its face, indicates the existence of a federal question. (We suppose it is the complaint's reference to the tax lien filed by the Internal Revenue Service that leads the bank to believe there is jurisdiction here.) The absence of a federal question on the bank's complaint might indicate that our inquiry is at end, considering our firm adherence to the "well-pleaded complaint" doctrine. We cannot be so quick to conclude that jurisdiction is absent, however, because the interpleader action is an unusual procedural animal.

In Franchise Tax Board, 463 U.S. at 9, 103 S.Ct. at 2846, the Supreme Court noted that "[f]ederal courts have regularly taken original jurisdiction over declaratory judgment suits in which, if the declaratory judgment defendant brought a coercive action to enforce its rights, that suit would necessarily present a federal question." Thus, the Court held that jurisdiction is proper in "only those cases in which a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial federal question." Id. at 27-28, 103 S.Ct. at 2856. Subsequently, many courts, noting the similar procedural posture maintained by both interpleader and declaratory judgment actions, have construed the principles of Franchise Tax Board to mean that federal courts may exercise jurisdiction over interpleader actions that do not state a federal question on the face of a well-pleaded complaint, provided that the stakeholder's right to relief necessarily depends on the resolution of a substantial question of federal law. See General Ry. Signal Co. v. Corcoran, 921 F.2d 700 (7th Cir.1991) (finding federal question jurisdiction); Commercial Union Ins. Co. v. United States, 999 F.2d 581 (D.C.Cir.1993) (finding federal question jurisdiction); Morongo Band of Mission Indians v. California State Bd., 858 F.2d 1376 (9th Cir.1988) (finding no federal question jurisdiction), cert. denied, 488 U.S. 1006, 109 S.Ct. 787, 102 L.Ed.2d 779 (1989); Bell & Beckwith v. United States, 766 F.2d 910 (6th Cir.1985) (finding no federal question jurisdiction). We follow Corcoran and the lead of those other...