Gp Credit Co., LLC v. Orlando Residence, Ltd.

• Decision Date: 18 November 2003
• Docket Number: No. 02-4052.,02-4052.
• Parties: GP CREDIT CO., LLC, Plaintiff-Appellee, v. ORLANDO RESIDENCE, LTD., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

349 F.3d 976

GP CREDIT CO., LLC, Plaintiff-Appellee, v. ORLANDO RESIDENCE, LTD., Defendant-Appellant.

No. 02-4052.

United States Court of Appeals, Seventh Circuit.

Argued September 15, 2003.

Decided November 18, 2003.

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Gary A. Ahrens (argued), Michael, Best & Friedrich, Milwaukee, WI, for Plaintiff-Appellee.

Eugene N. Bulso, Jr. (argued), Boult, Cummings, Conners & Berry, Nashville, TN, for Defendant-Appellant.

Before POSNER, KANNE, and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

Section 1655 of the Judicial Code confers in rem jurisdiction on the federal courts by directing the district court, in a suit "to enforce any lien upon or claim to, or to remove any incumbrance or lien or cloud upon the title to, real or personal property within the district," to order a defendant who cannot be served within the state and will not appear voluntarily to appear and plead. The principal question that we are asked to decide is whether personal property that consists of an interest in a claim that is being prosecuted in a lawsuit shall be deemed to be "within the district" in which the owner of the interest resides.

The question arises in a context of daunting complexity; we'll simplify ruthlessly. Back in 1992, the defendant, Orlando, sued the Nashville Lodging Company (NLC) in a Tennessee state court in a dispute over a hotel. After a protracted proceeding, a judgment for $800,000 was entered in Orlando's favor in September 2000. The previous year NLC had granted a security interest to the plaintiff in the present case, GP Credit, in "any and all personal property" owned by NLC. (It had done that to secure a $1 million loan that it had obtained from GP Credit.) NLC's personal property included a lawsuit that it had brought against a company called Metric, coincidentally involving the same hotel as Orlando's suit against NLC. NLC's suit against Metric was and is pending in a Tennessee state court, which when GP Credit obtained its security interest had determined Metric's liability to be at least $5 million but had not, and still has not, rendered a final judgment, for reasons that are unclear.

In May 2001, which is to say after Orlando had obtained its judgment against NLC in the Tennessee court, GP Credit, claiming that NLC had failed to repay the $1 million loan, foreclosed its security interest in NLC's personal property and at the foreclosure sale bought all that property, including, therefore, NLC's suit against Metric. Three months later, Orlando persuaded the Tennessee trial judge who had rendered judgment in its favor against NLC to appoint a receiver to collect and hold, pending the final resolution of the Metric suit, any proceeds of the suit that GP Credit, as NLC's successor in interest, might receive, so that there would be money available to satisfy Orlando's judgment. And by this time Orlando had registered the judgment in the county in which it had been rendered, served on NLC a writ of execution of the judgment, and moved under Tennessee's postjudgment collection statute to subject NLC's assets to satisfaction of the judgment, a motion that the Tennessee trial judge denied, however.

Meanwhile, GP Credit had brought the present suit in the federal district court for the Eastern District of Wisconsin, which is its domicile, under section 1655 to clear its title to the Metric proceeds. Federal jurisdiction was predicated on diversity of citizenship; section 1655 confers in rem jurisdiction on the federal courts only in cases that would be within federal jurisdiction if brought as in personam suits. Dluhos v. Floating & Abandoned Vessel, Known as "New York," 162 F.3d 63, 72 (2d Cir.1998); Georgia Central Credit Union v. Martin G.M.C. Trucks, Inc., 622 F.2d 137 (5th Cir.1980) (per curiam); 14 Charles A. Wright et al., Federal Practice and Procedure § 3631, p. 4 (3d ed.1998). The difference between the two types of jurisdiction corresponds to the difference between subject-matter jurisdiction and personal jurisdiction. A court must have jurisdiction over subject matter but also over the person of the defendant. Section 1655 enables a federal court that has subject-matter jurisdiction to obtain a jurisdiction over a thing as distinct from a person.

Two old cases of ours are sometimes thought (see, e.g., id., § 3632, pp. 33-34) to dispense with the requirement of establishing diversity, or some other basis of federal subject-matter jurisdiction, in a case brought under section 1655. Graff v. Nieberg, 233 F.2d 860, 862-63 (7th Cir.1956); Huntress v. Estate of Huntress, 235 F.2d 205, 208 (7th Cir.1956). This cannot be; and it seems that all the two cases meant to hold is that a suit under section 1655, being in rem, need not always be brought in a district in which either the plaintiff or the defendant resides, though it must be brought in the district in which the res (the property at issue) is located. Id.; Graff v. Nieberg, supra, 233 F.2d at 862-63.

While GP Credit's suit in the Eastern District of Wisconsin was pending, NLC appealed the $800,000 judgment in Orlando's suit against it, and the Tennessee appellate court reversed. It agreed, however, with everything in the trial judge's decision except her rejection of NLC's statute of limitations defense, and it remanded the case for a trial on that issue alone. The trial has not yet been conducted, or even scheduled. So Orlando still does not have a final, enforceable judgment against NLC; nevertheless it contends that the Tennessee proceedings bar GP Credit's quiet-title suit.

In that suit, the suit out of which the present appeal arises, the district judge, disagreeing with Orlando, after satisfying himself that he had in rem jurisdiction because the res—the lawsuit against Metric —is located in the Eastern District of Wisconsin, held in a subsequent opinion that GP Credit has a clean title. The judge found that Orlando had not acquired a lien in the Metric suit by virtue of the later-reversed judgment of the Tennessee state trial court, the issuance of a writ of execution of the judgment, the motion to subject NLC's assets to payment of the judgment, the motion to appoint and appointment of the receiver to hold any proceeds of the suit, or the ruling by the Tennessee appellate court that Orlando describes as upholding the trial judge's judgment conditional on the resolution of the statute of limitations issue in Orlando's favor on remand.

So we have two issues to decide—the district court's jurisdiction and, if we find that it had jurisdiction, whether GP Credit is entitled to a clear title to the proceeds of the Metric suit. The second issue divides into two as well, because GP Credit might lack title even if Orlando has no lien.

The general rule is that intangible personal property is "located" in its owner's domicile, In re Lambert, 179 F.3d 281, 285 (5th Cir.1999); Robertson v. Robertson, 803 F.2d 136, 137 (5th Cir.1986); Gordon v. Holly Woods Acres, Inc., 328 F.2d 253, 255 (6th Cir.1964), although there are exceptions, such as where the documents of title are in a state that is not the owner's domicile. First Trust Co. of St. Paul v. Matheson, 187 Minn. 468, 246 N.W. 1, 3 (1932); Restatement (Second) of Conflict of Laws § 63 (1971); 4A Wright et al., supra, § 1071, pp. 295-96. We have put "located" in scare quotes because intangibles, having no "body," have no spatial location. But creditors who want to file liens against intangible personal property have to file their liens in a place, or places, so the property has to be given a fictitious location. The owner's location is the sensible choice and the one made by the Uniform Commercial Code § 9-301(1); see Tenn.Code Ann. § 47-9-103, Official Comments on the UCC, § 5(a) (2000); Wis. Stat. § 409.103, Official Comments on the UCC, § 5(a) (2000). The owner's location is physical, not metaphysical, and is easily determined.

One form of intangible property is a "chose in action," which in its classic sense is a legal claim, that is, something on which an "action" (a lawsuit) might be founded, such as a right to recover a debt. Applied Medical Technologies, Inc. v. Eames, 44 P.3d 699, 701 (Utah 2002); Prodigy Centers/Atlanta v. T-C Associates, 269 Ga. 522, 501 S.E.2d 209, 212 (1998); Can Do, Inc. Pension & Profit Sharing Plan v. Manier, Herod, Hollabaugh & Smith, 922 S.W.2d 865, 866-67 (Tenn.1996); United States v. Central Bank, 843 F.2d 1300, 1304 (10th Cir.1988); United States v. Goldberg, 362 F.2d 575, 577 (3d Cir.1966). GP Credit's interest in the Metric suit is a classic chose in action; GP Credit stepped into NLC's shoes by virtue of its purchase at the foreclosure sale of NLC's property and so became the claimant in that suit. There are dark hints of collusion in the acquisition and foreclosure of GP Credit's security interest in NLC's claim against Metric, arising from the fact that the principals of the respective companies (GP Credit and NLC) happen to be married to each other, but they are merely hints and can play no role in our decision.

The Wisconsin supreme court has held, in an oldish case but one that has not been overruled or undermined by subsequent decisions, that a chose in action is to be treated for locational purposes the same as other intangible property and thus as having its location in the state of the owner's domicile. Florida Realty Finance & Security Co. v. Chris. Schroeder & Sons Co., 224 Wis. 186, 272 N.W. 38, 39-40 (1937). But we agree with Orlando that whether a particular form of personal property is "within" a given federal district for purposes of determining federal jurisdiction under 28 U.S.C. § 1655 is a question of federal law (as assumed in Kohagen v. Harwood, 185 F.2d 276, 277-80 (7th Cir.1950), and various earlier cases, yet never so far as we can determine actually held), rather than being governed by the law of the state where the case is filed (Wisconsin in this case), or perhaps by some other state's law. GP...