Dean Witter Reynolds Inc. v. Fernandez, 79-112-CIV-CA.

• Decision Date: 10 December 1979
• Docket Number: No. 79-112-CIV-CA.,79-112-CIV-CA.
• Citation: 489 F. Supp. 434
• Parties: DEAN WITTER REYNOLDS INC., Plaintiff, v. Marilyn Kay FERNANDEZ, etc., et al., Defendants, and Gilbert McDonald and Peter Paul, Additional defendants on Cross-Claim.
• Court: U.S. District Court — Southern District of Florida

489 F. Supp. 434

DEAN WITTER REYNOLDS INC., Plaintiff, v. Marilyn Kay FERNANDEZ, etc., et al., Defendants and Gilbert McDonald and Peter Paul, Additional defendants on Cross-Claim.

No. 79-112-CIV-CA.

United States District Court, S. D. Florida.

December 10, 1979.

COPYRIGHT MATERIAL OMITTED

Fine, Jacobson, Block, Klein & Colan, P. A., Miami, Fla., for Peter Paul.

Irving Weinsoff, Miami, Fla., for Fernandez.

Mercer K. Clarke, Miami, Fla., for plaintiff.

Michael Krinsky, New York City, co-counsel w/Ira Kurzban, Miami, Fla., for Banco Nacional de Cuba and Cubaexport.

Shelby Highsmith, Miami, Fla., for Karl Fessler and Gilbert McDonald.

Martin R. Raskin, Sp. Atty. (Treasury Office of Foreign Assets), U. S. Dept. of Justice, S. E. Regional Strike Force, Hirschhorn & Freeman, P. A., Miami, Fla., for Art Castro.

MEMORANDUM OPINION AND ORDER ON MOTIONS TO DISMISS CROSS-CLAIM AND TO SET ASIDE DEFAULT

ATKINS, District Judge.

THIS CAUSE came before the Court on several related motions challenging the validity of "cross-claims" asserted by two defendants, Banco Nacional de Cuba and Empresa Cubana Exportadora de Alimentos y Productos Varios. Peter Paul, named an "additional defendant" on cross-claim, moves to dismiss the cross-claim for lack of subject matter jurisdiction. Gilbert Lee McDonald, also named as an "additional defendant," moves to set aside the default which has been entered against him, and also moves to dismiss the cross-claim for reasons substantially similar to those raised by Peter Paul.

Having reviewed the record, and being otherwise duly informed, it is hereby

ORDERED AND ADJUDGED that the default entered against McDonald be set aside for good cause shown. It is further

ORDERED AND ADJUDGED that the motions by Paul and McDonald to dismiss the cross-claims against them be denied. The reasons for this ruling follow.

I. FACTUAL BACKGROUND

In December, 1978, defendant on interpleader, Karl Fessler, deposited approximately eight hundred forty-five thousand dollars ($845,000.00) with Dean Witter Reynolds. These funds are the subject of a blocking order issued by the United States Department of Treasury pursuant to the Cuban Assets Control Regulations, 31 C.F.R. Part 515. On January 10, 1979, Dean Witter Reynolds, as plaintiff, commenced this interpleader action against various defendants, alleging jurisdiction under Rule 22, 28 U.S.C. § 1335, and 28 U.S.C. § 1332(a)(2). Defendants Karl Fessler, Marilyn Kay Fernandez, Banco Nacional de Cuba (hereafter Banco Cuba or Cuban party) and Empresa Cubana Exportadora de Alimentos y Productos Varios (hereafter Cubaexport or Cuban party) have filed answers to the interpleader complaint. On April 6, 1979, the Cuban parties filed their "cross-claim and complaint" against Karl Fessler, Tanvest N.V., and two "additional defendants," Gilbert McDonald and Peter Paul. The record indicates that service of process of the cross-claims was returned executed in Florida as to Karl Fessler and Peter Paul. Fessler, who is a citizen of the Federal Republic of Germany, was served while in the custody of the United States Marshal on criminal charges.

The cross-claim alleges four counts: Count I alleging fraud, Count II alleging unjust enrichment, money had and received, conversion and constructive trust, and Count IV alleging breach of warranties. These three counts name Fessler, Paul, McDonald and Tanvest N.V. as parties in opposition. Count III, alleging breach of contract involves only Fessler, McDonald, and Tanvest N.V. The counts arise out of an allegation that the Cuban parties were defrauded of some eight million, seven hundred seventy five thousand dollars ($8,775,000.00) on a letter or letters of credit used to finance a purchase of coffee which was never delivered. The pleadings and memoranda allege that the $845,000 deposited by Fessler with Dean Witter Reynolds is a portion of the more than eight million allegedly misappropriated.

Jurisdiction over the cross-claim is generally alleged to exist by virtue of 28 U.S.C. §§ 1330, 1331, 1332(a) and 1335.

Defaults were entered by the Clerk of the Court against McDonald and Paul on June 19, 1979. Upon motion by Paul, his default was vacated. Paul has now filed a motion to dismiss the cross-claim; McDonald filed a similar motion, accompanied by a motion to set aside the entry of default.

II. THE ARGUMENTS PRESENTED BY THE PARTIES

The respective memoranda of the Cuban parties, McDonald, and Paul show extensive confusion as to the jurisdictional basis of the cross-claims. Both Paul and McDonald devote a portion of their arguments to the proposition that if the cross-claims are based on a Rule 14 (Federal Rules of Civil Procedure) impleader theory, no jurisdiction exists because there has been no allegation of contingent-third party liability. The Cuban defendants wisely concede this argument, recognizing that their separate allegations of Paul's and McDonald's liability, unrelated to their own liability, are not within the scope of Rule 14. See United States v. Joe Grasso & Son, 380 F.2d 749 (5th Cir. 1967); James Talcott, Inc. v. Allahabad Bank Ltd., 444 F.2d 451 (5th Cir. 1971), cert. denied, 404 U.S. 940, 92 S.Ct. 280, 30 L.Ed.2d 253.

A second proposition expressed in the motions to dismiss is that the present interpleader action is based on 28 U.S.C. § 1335 and that case law interpreting the statute has limited the jurisdictional scope to the amount or res interplead. In support of this theory, Paul cites State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 87 S.Ct. 1199, 18 L.Ed.2d 270 (1967) where the Supreme Court stated that a statutory interpleader action could not be used to solve all problems arising out of a vehicle collision and therefore an injunction of pending state proceedings must be modified so as not to exceed the scope of the insurance policy proceeds interplead.

As a third point, Paul assets that jurisdiction over the cross-claim cannot rest on a notion of ancillary jurisdiction because the cross-claim and interpleader lack the required similarity in either transactions or property. In support of this, Paul relies on the recent case of Cherokee Insurance Company v. Koenenn, 536 F.2d 585 (5th Cir. 1976).

The Cuban parties' reply memoranda urge jurisdiction over the cross-claim is obtained under Rule 13(g) and (h) (Federal Rules of Civil Procedure). They allege that the plaintiff's action against the original defendants was maintained without resort to 28 U.S.C. § 2361, the special service of process provision for statutory interpleader actions. Therefore, they maintain, Rule 22 (and not 28 U.S.C. § 1335) is the appropriate basis of the original action's jurisdiction, and case law interpreting Rule 22 has permitted the assertion of cross-claims. Davis v. Prudential Insurance Co., 331 F.2d 346 (5th Cir. 1964). The Cuban parties urge the full scope of Rule 13(g) is available in interpleader actions where Section 2361 has not been used to gain in personam jurisdiction, and their conclusion is that ancillary jurisdiction over the cross-claim does exist.¹ Once ancillary jurisdiction over the cross-claims asserted against Fessler and Tanvest N.V. is found to exist, argue the Cuban parties, it is a simple matter to determine that Paul and McDonald have been properly joined as "defendants" on cross-claim pursuant to Rule 13(h).

III. ANALYSIS

On February 9, 1979, this Court entered an order of interpleader, granting a motion for temporary injunctions as to any other pending proceedings. In doing so, the Court endeavored to satisfy both the equitable requirements of Rule 22 and the statutory requirements of Section 1335 and its related provisions. The injunction was found to be necessary to perfect the Court's equity jurisdiction over the interpleader action under Rule 22.² While a requirement that the "fund" be deposited with the Court is normally associated with statutory interpleader, the Court has discretion to make such an order under Rule 22. See e. g., Emmco Insurance Co. v. Frankford Trust Co., 352 F.Supp. 130 (D.C.Pa.1972). Dean Witter Reynolds raised no objection. Thus, the interpleader action has come to this point without a specific finding that jurisdiction rests solely on either Rule 22 or statutory interpleader. The party alignment is capable of satisfying the diversity requirements of either statutory interpleader (requiring "minimal diversity" as between any two claimants to the fund) or Rule 22 (requiring "complete diversity" between the interpleader-plaintiff on one side and on the other, all of the defendants brought in by interpleader).

At this point it is important to note the limited scope of the present analysis. Inquiry into the record shows that local service of the original interpleader action was effected and an answer filed by Marilyn Kay Fernandez.³ Fessler filed an answer to the interpleader complaint. Hava/Cu Enterprises, Turnbull Associados, S.A., and Tanvest N.V. were named as defendants in summons issued to the Secretary of the State of Florida pursuant to Florida statutes providing for substitute service on nonresidents. Although Tanvest N.V. was also the subject of substitute service of the cross-claim, and the record discloses that the summons was returned executed by serving Fessler (under prison custody in Florida) as president of the corporation, no answer has been filed nor default taken. Thus, this opinion does not address the validity of the cross-claim as to Tanvest N.V., except to note that the record indicates that the provision for nationwide service of process in statutory interpleader actions was not utilized. Upon learning that Gilbert L. McDonald was described as a fugitive by the Miami, Florida Field Office of the Federal Bureau of Investigation, the Cuban parties served their cross-claim on the Secretary of the State of Florida and sent a copy of such process to McDonald's last known Florida address. The memorandum accompanying McDonald's...