Dakota Livestock Co. v. Keim

• Decision Date: 13 April 1977
• Docket Number: No. 76-1823,76-1823
• Citation: 552 F.2d 1302
• Parties: DAKOTA LIVESTOCK COMPANY and Farmers Union Marketing & Processing Association, Appellants, v. Gary KEIM et al., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1302

552 F.2d 1302

DAKOTA LIVESTOCK COMPANY and Farmers Union Marketing &amp Processing Association, Appellants, v. Gary KEIM et al., Appellees.

No. 76-1823.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 16, 1976.

Decided April 13, 1977.

James H. Turk, Mankato, Minn., for appellants; Bailey W. Blethen, Mankato, Minn., on brief.

Brian F. Leonard, St. Paul, Minn., for appellees.

Gale E. Fisher, Sioux Falls, S. D., filed brief for appellee, Arthur Zurcher d/b/a A & Z Cattle Co.

Before STEPHENSON and HENLEY, Circuit Judges, and MEREDITH, ^* District Judge.

HENLEY, Circuit Judge.

Plaintiffs-appellants, Dakota Livestock Company (Dakota) and Farmers Union Marketing & Processing Association (Farmers), appeal from an order of the United States District Court for the District of Minnesota dismissing with prejudice an interpleader action commenced by plaintiffs against a number of defendants and directing that the sums of money deposited by the respective plaintiffs in the registry of the court be turned over summarily to the defendant Brian F. Leonard, trustee of the estates of the defendants, Gary Keim, John Keim, d/b/a John Keim & Sons, and G-M Grain Company, Inc. (G-M), bankrupts.

Plaintiffs predicated their claim of federal jurisdiction on the federal interpleader statute, 28 U.S.C. § 1335. That statute provides in substance that a stakeholder may maintain in a federal district court a bill of interpleader or in the nature of interpleader if the amount at stake is in excess of $500.00, and if two or more adverse claimants of the fund or property in question are of diverse citizenship as that term is defined in 28 U.S.C. § 1332. The statute also provides that the conflicting claims do not have to have a common origin or to be identical; it is sufficient if they are adverse to and independent of each other.

There are ten defendants in the case. All but two of them are for jurisdictional purposes citizens of Minnesota. One of those two defendants is Arthur Zurcher of Rugby, North Dakota, who does business as A & Z Cattle Company; the other is Olsen-Frankman Livestock Marketing Service, Inc. (Olsen-Frankman) which jurisdictionally is a citizen of South Dakota, but which has no interest in the moneys deposited by the plaintiffs in the registry of the district court or any claim against either plaintiff.

Both plaintiffs are public auctioneers of livestock. Dakota is a South Dakota corporation with its place of business in Sioux Falls in that State. Farmers is a Minnesota corporation which operates in South Saint Paul, Minnesota.

In late July, 1975 Dakota sold certain cattle that had been consigned to it by the Citizens National Bank of Madelia, Minnesota, one of the defendants herein; those cattle had originally belonged to the defendant, Zurcher, and he had sold them to either John Keim & Sons or to G-M. He has never been paid for the cattle. The cattle were delivered originally by Zurcher to Olsen-Frankman, a cattle broker, and had been placed on the lot of John Keim in Madelia. They were taken over by the Bank under a financing statement evidencing an obligation of G-M to the Bank. The net proceeds of the sale of those cattle amounted to about $54,000.00.

At about the same time as that at which Dakota sold the cattle just mentioned, Farmers sold a substantial number of cattle which had been consigned to it by or on behalf of the Keim interests. ¹ Those may or may not have included animals that the Keims had acquired from Zurcher and for which he had not been paid. ² The net proceeds of the sales effected by Farmers totalled somewhat more than $24,000.00.

Immediately prior to the filing of this suit on April 19, 1976 the net proceeds of the sales that have been mentioned were still in the hands of the respective plaintiffs. The reason for the retention of the proceeds by the plaintiffs was that shortly after the sales were made, plaintiffs learned of the probable insolvency of the Keims and their corporation and that there were conflicting claims to the moneys in the hands of the plaintiffs.

On August 12, 1975 Zurcher filed a suit in federal court in Minnesota against the Bank and John Keim seeking to recover from them about $96,000.00 on a theory of fraud, deceit and conversion. On August 20, 1975 Zurcher filed a suit against Dakota in the Circuit Court of Minnehaha County, South Dakota, alleging that Dakota was liable to him as a converter of the cattle that had been consigned to Dakota by the Bank. On the same day involuntary petitions in bankruptcy were filed against Gary Keim, John Keim and G-M in the federal district court in Minnesota. They were adjudicated bankrupts in November, 1975, and the defendant, Leonard, was named trustee in January, 1976.

In their complaint in interpleader plaintiffs alleged that the funds in their hands were being claimed respectively by Zurcher of North Dakota, and by the Bank, the Trustee and certain other parties, all citizens of Minnesota. Contemporaneously with the filing of their complaint plaintiffs paid into the registry of the district court the sales proceeds remaining in their hands. Plaintiffs disclaimed any interest in the funds and sought appropriate relief in interpleader including injunctive relief to protect them from litigation in other courts involving the same sums of money.

Zurcher moved to dismiss the complaint as to him for alleged failure to state a claim upon which relief could be granted. The Trustee moved for dismissal on the ground that the controversies about the funds were within the exclusive jurisdiction of the bankruptcy court and were not within the jurisdiction of the interpleader court. ³ Plaintiffs moved for a preliminary injunction restraining litigation in other courts involving the sums that had been deposited in the registry.

On July 16, 1976 the district court held a hearing on the motions pending before it. Plaintiffs, the Trustee, the Bank and certain other parties appeared; the motions were argued and submitted. Apparently, in the course of the hearing Zurcher through his attorneys asserted that he was not seeking to recover any part of the funds that had been deposited in the registry, and that he was simply standing on his conversion suit against Dakota that was pending in the South Dakota state court. The record does not indicate that he asserted any claim against Farmers.

On August 26 the district court filed findings of fact and conclusions of law and entered the order from which plaintiffs appeal. Evidently accepting the assertions of Zurcher, the district court found that the funds in court were not being claimed adversely by claimants of diverse citizenship, and that the district court had no jurisdiction of the interpleader suit. Going further, the district court found that as of November, 1975 the funds in question were in the constructive possession of the bankrupts, and ordered that they be turned over by the clerk of the district court to the Trustee to be held in a segregated interest bearing account.

After notice of appeal had been filed, the plaintiffs moved for injunctive relief pending the appeal. That motion was granted, and in that connection the Trustee was enjoined from disbursing any of the funds that had been turned over to him until the appeal should be disposed of, and Zurcher was enjoined pending the appeal from proceeding further in his state court action. However, in general the bankruptcy proceedings involving the Keims and G-M were permitted to go forward.

For reversal, plaintiffs contend that the district court erred in finding that there was an absence of what may be called "claimant diversity" and dismissing the complaint on that basis. Alternatively, plaintiffs say that if the district court was correct in its ruling that it had no jurisdiction of the interpleader suit, it erred in ordering the deposited funds turned over to the Trustee rather than returned to the respective plaintiffs.

Zurcher and the Trustee seek to uphold the ruling of the district court. Both contend that Zurcher was not an adverse claimant within the meaning of § 1335, and the Trustee renews here his contention that from the beginning the controversy was within the exclusive jurisdiction of the bankruptcy court.

We think that the contention of the Trustee last mentioned presupposes that Zurcher was not and is not an adverse claimant. In our view if a party is in the actual possession of money or property the ownership of which is disputed, his right to interplead the funds is not affected by the fact that one of the claimants is a trustee in bankruptcy who contends that the funds belong to the estate that he is administering. Cf. Massachusetts Mut. Life Ins. Co. v. Grossman, 4 F.Supp. 990 (S.D.N.Y.1933).

While plaintiffs have seen fit to join their claims for relief in one complaint, we actually have two separate claims and two separate funds. And there is some difference between the two claims since Zurcher has not yet asserted any claim of liability on the part of Farmers.

The requirement of § 1335 that there be adverse claimants of diverse citizenship is jurisdictional, and if claimant diversity hinges upon the citizenship of one party, and if that party is not an adverse claimant, the interpleader court has no jurisdiction and must dismiss the complaint. Here, jurisdiction depends upon the status of Zurcher as an adverse claimant.

The interpleader statute and Fed.R.Civ.P. 22, which permits federal interpleader in certain cases not covered by the statute, are designed to protect stakeholders not only from double or plural liability but also from duality or plurality of suits, and both the statute and the rule are to be construed liberally. Gaines v. Sunray Oil Co., 539 F.2d 1136 (8th Cir. 1976); Underwriters at Lloyd's v. Nichols, 363 F.2d 357 (8th Cir. 1966).

The argument that Zurcher is not an adverse claimant with respect to the funds deposited by the plaintiffs actually invokes...