FIRST TENN. NAT. BANK v. Federal Deposit Ins. Corp.

• Decision Date: 08 September 1976
• Docket Number: No. CIV-1-76-112.,CIV-1-76-112.
• Citation: 421 F. Supp. 35
• Parties: FIRST TENNESSEE NATIONAL BANK, CHATTANOOGA, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

421 F. Supp. 35

FIRST TENNESSEE NATIONAL BANK, CHATTANOOGA, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants.

No. CIV-1-76-112.

United States District Court, E. D. Tennessee, S. D.

September 8, 1976.

Brian C. Smith, Thomas, Leitner, Mann, Warner & Owens, Chattanooga, Tenn., for plaintiff.

Raymond R. Murphy, Jr., Miller, Martin, Hitching, Tipton, Lenihan & Waterhouse, Chattanooga, Tenn., for FDIC.

Weill, Ellis, Weems & Copeland, Chattanooga, Tenn., for Kyle Weems, Trustee.

Swift, Currie, McGhee & Heirs, Atlanta, Ga., for Kyle Weems, Trustee.

Edward T. M. Garland, Atlanta, Ga., for Morgan, Adams & Singleton.

MEMORANDUM

FRANK W. WILSON, Chief Judge.

This is an interpleader action commenced by First Tennessee National Bank, Chattanooga pursuant to Federal Rule Civil Procedure 22 and 28 U.S.C. § 1335. The defendants are the Federal Deposit Insurance Corporation, a government corporation, Kyle Weems, Trustee in Bankruptcy of Hamilton Mortgage Company, Inc. (hereinafter referred to as Trustee), and three individuals, Donald Morgan, James Adams, and William Singleton, who are all residents of Atlanta, Georgia.

First Tennessee succeeded to certain assets of Hamilton National Bank of Chattanooga by virtue of a Purchase and Assumption Agreement of February 16, 1976, among which were certain certificates of deposit which constitute the disputed fund in this action. The certificates were being held by Hamilton National for the individual defendants, who have made demand on First Tennessee for delivery of the certificates. F.D.I.C. and the Trustee have notified First Tennessee that they also claim an interest in the certificates. First Tennessee, having no knowledge of who is rightfully entitled to the certificates and being a mere stakeholder, brought this action in interpleader and tendered the certificates into the registry of the court.

All the defendants have, in their answers to the bill of interpleader, claimed the certificates of deposit. Both the Trustee and the individual defendants state that the certificates were being held as security for a real estate loan made by Hamilton Mortgage Company, Inc. to the individual defendants. The individuals allege that Hamilton Mortgage never satisfied certain conditions precedent to an effective security interest in the certificates and has breached its loan agreement by failing to disburse funds to them and that they are therefore entitled to the certificates. The Trustee alleges that the individual defendants have defaulted on the loan agreement by failing to pay certain real estate taxes and that the entire loan has become due and payable by reason of such default. The Trustee claims that he is therefore entitled to the certificates and in addition has filed a cross-claim pursuant to F.R.C.P. 13(g) against the individual defendants for the balance of the loan. The case is presently before the Court upon motions by the individual defendants to dismiss the cross-claim for lack of jurisdiction over the person, improper venue, and insufficiency of process. The motions are supported by briefs and opposed by brief of the Trustee.

In order for an interpleader action to be brought under F.R.C.P. 22 there must be complete diversity of the parties. In this case both the plaintiff, First Tennessee, and the defendant Trustee are residents of Tennessee. Therefore this action can only be maintained under 28 U.S.C. § 1335 which only requires that two or more claimants be of diverse citizenship. For actions brought pursuant to § 1335, nationwide service of process is authorized by 28 U.S.C. § 2361 and therein lies the problem in this case.

The individual defendants contend that since service of process was had upon them in Atlanta pursuant to § 2361 (Atlanta being outside the normal territorial limits of jurisdiction of this Court), they are subject to the jurisdiction of this Court only insofar as necessary to decide the question of entitlement to the interpleaded certificates. They contend that since the Court could not have obtained in personam jurisdiction over them without § 2361, which can be used only for § 1335 actions, that the Court lacks jurisdiction to hear the cross-claim. The Trustee, on the other hand, contends that since F.R.C.P. 22(1) states that actions under § 1335 are to be conducted in accordance with the Federal Rules of Civil Procedure, then F.R.C.P. 13(g) is fully applicable. Rule 13(g) allows a cross-claim to be brought as long as it arises out of the transaction or occurrence that is the subject matter of the original action. He contends that the issues which will decide the cross-claim are exactly the same as those necessary to decide entitlement to the certificates.

The question of whether a defendant may be subjected to in personam liability on a cross-claim when he is before the Court by way of extra-territorial service of process under § 2361 is as yet unsettled. See 17 A.L.R.2d 741. The question brings two judicial policies into conflict, that of not enlarging jurisdiction beyond the extent which Congress has authorized and that of hearing all related claims in one action in order to further judicial efficiency and economy. Cases which have allowed such a cross-claim include Coastal Air Lines, Inc. v. Dockery, 180 F.2d 874 (8th Cir. 1950); Jefferson Standard Insurance Co. v. Craven, 365 F.Supp. 861 (M.D.Pa.1973); Fidelity and Casualty Company of New York v. Wilson, 105 F.Supp. 454 (E.D.S.C.1952) and Bank of Neosho v. Colcord, 8 F.R.D. 621 (W.D.Mo.1949). Cross-claims were not allowed in Hagan v. Central Avenue Dairy, 180 F.2d 502 (9th Cir. 1950); Great Lakes Auto Insurance Group of Chicago v. Shepherd, 95 F.Supp. 1 (W.D.Ark.1951); Stitzel-Weller Distillery v. Norman, 39 F.Supp. 182 (W.D.Ky.1941) and Marine Bank & Trust Co. v. Hamilton Brothers, Inc., 55 F.R.D. 505 (M.D.Fla.1972). Neither the Supreme Court nor the Sixth Circuit Court of Appeals have ruled on the question.

The issue might be decided by classifying an interpleader action as either one in personam or one in rem. If in personam then service under § 2361 would give the Court jurisdiction over the person of the defendants and the cross-claim would lie. If in rem then the Court would have jurisdiction only to the extent of the funds which are the subject of the interpleader action and the cross-claim could not be heard. Here, too, however, the question is unsettled. While there is broad language implying that interpleader is an action in personam in New York Life Insurance Co. v. Dunlevy, 241 U.S. 518, 60 L.Ed. 1140, 36 S.Ct. 613 (1916), the effect of the holding has been diminished by later Supreme Court decisions taking a due process approach to jurisdiction and service of process and blurring the distinctions between actions in personam and actions in rem. See, Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950) and International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). This unclarity is noticeable in the lower courts' decisions where interpleader has been held to an action in personam, Cordner v. Metropolitan Life Insurance Co., 234 F.Supp. 765 (S.D.N.Y.1964), an action in rem, United States v. Estate of Swan, 441 F.2d 1082 (5th Cir. 1971), and an action in personam only as to the disposition of the funds deposited into court. Knoll v. Downey Mobil Oil Co., 369 F.2d 425 (10th Cir. 1966). For other cases taking all of these positions, see 17 A.L.R.Fed. 447. It would thus appear as a noted commentator has stated that:

". . . insofar as modern notions of jurisdiction require only that due process be satisfied to enable an action to proceed, the characterization of interpleader as in personam or in rem has little validity." Wright and Miller, Federal Practice and Procedure § 1711, p. 421.

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