Hatch v. Reliance Ins. Co.
| Citation | 758 F.2d 409 |
| Decision Date | 16 April 1985 |
| Docket Number | No. 84-1967,84-1967 |
| Parties | Robert C. HATCH and Claudia R. Hatch; and Trustors of Heritage Trust Company, Plaintiffs-Appellants, v. RELIANCE INSURANCE COMPANY and Walter C. Madsen, Receiver for Heritage Trust Company, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Robert B. Cumming, Camano Island, Wash., for plaintiffs-appellants.
Jack R. Cunningham, Phoenix, Ariz., for defendants-appellees.
Appeal from the United States District Court for the District of Arizona.
Before DUNIWAY, HUG, and SKOPIL, Circuit Judges.
This matter is before the court on a number of issues. A recitation of the procedural history of this case will aid in an understanding of the court's resolution of the issues.
In 1972 appellee Reliance Insurance Co. ("Reliance") issued a fidelity bond to Heritage Trust Co. ("Heritage"). The bond, under which Reliance agreed to indemnify Heritage for losses it incurred due to fraud by its employees, was canceled in 1974. By its terms, the bond did not indemnify or run to the benefit of any trustor or investor of Heritage. This is a fact appellants continue to dispute.
In 1975 appellants Robert and Claudia Hatch, trustors of Heritage, brought suit in Galveston County, Texas against Heritage and various Heritage employees alleging inter alia fraud. Reliance was not a party to this action. The Hatches had the summons and complaint served on the Texas Secretary of State, and obtained a default judgment against Heritage and its members for more than $129,000.00.
Thereafter, in an unrelated proceeding, the Superior Court of Arizona ("receivership court") appointed a Receiver to take possession and control of the assets of Heritage.
In July 1976 the Receiver filed an action on behalf of Heritage in Superior Court of Arizona seeking to recover on the fidelity bond. The Receiver's action alleged fraud by Heritage employees. It also alleged that Reliance negligently issued the bond and negligently failed to discover that Heritage misrepresented the nature of the bond to prospective investors.
After the Receiver instituted the action, the Hatches instituted a garnishment action against Reliance in Galveston County, Texas seeking to recover the amount of their previously entered default judgment from the proceeds of the fidelity bond.
Reliance, faced with potentially inconsistent claims (i.e., the Receiver's action and the Hatches' garnishment action), instituted an interpleader action and deposited the full amount of the bond in the United States District Court for the District of Arizona. The Receiver filed an answer requesting a judgment in its favor on the bond. A further request was asserted that the court decline jurisdiction over the claim alleging Reliance's negligence in issuing the bond. The Hatches filed an answer alleging a priority claim to the bond proceeds based on the default judgment and the Galveston garnishment action.
In March 1978 the district court in Arizona entered an order which inter alia (1) permanently enjoined all parties from instituting or proceeding in any suit pertaining to Reliance's liability on the bond, and (2) ordered the interpleader defendants, the Receiver and the Hatches, to litigate all claims pertaining to the bond in the interpleader action in federal district court in Arizona.
The Receiver sought and obtained leave of the district court to amend its answer to add a counterclaim asserting a negligence claim against Reliance. The counter-claim asserted that Reliance was liable to the Receiver, because Reliance knew or should have known of the fraud by Heritage employees, specifically, the employees' misrepresentations to the public concerning the terms of the bond. The Receiver alleged that Heritage investors, like the Hatches, relied on the false representations to their detriment.
In 1980 the Hatches filed a declaratory judgment motion claiming priority in the bond proceeds. The motion was denied. The Hatches' motion for a new-trial was also denied. The Hatches appealed to this court. A memorandum disposition was issued affirming the district court. Reliance v. Koeb, 665 F.2d 1053 No. 80-5277 (9th Cir.1981) (unpublished disposition). Appellants' petition for rehearing was denied and the suggestion for rehearing en banc was rejected. The Hatches' petition for a writ of certiorari was similarly denied.
Reliance and the Receiver moved to terminate further participation by the Hatches in the interpleader action. Appellants' counsel opposed the motion and sought to litigate additional claims based on Reliance's alleged negligence in issuing the bond.
In January 1982 judgment was entered terminating appellants' participation in the interpleader action. No appeal was taken from that judgment.
The Receiver and Reliance reached a settlement resolving the remaining claims in the interpleader action. As required by state law, the settlement was submitted to the state receivership court which in turn submitted the settlement to all interested parties. The Hatches filed objections to the settlement. The receivership court denied the Hatches' objections and directed the Receiver to effect the settlement. No appeal was taken from this order. The settlement was consummated and the interpleader action was dismissed with prejudice.
After the denial of their petition for a writ of certiorari from the Ninth Circuit's ruling, the Hatches returned to Galveston County and filed a second state action against Reliance. The Hatches again sought recovery on the bond and further sought to have the Texas court declare the interpleader proceedings null and void. The Hatches specifically requested the state court to declare that rulings of the federal court were "based on gross errors of law by the U.S. District Court for Arizona" which were "compounded by the U.S. Court of Appeals for the Ninth Circuit." The Hatches further maintained that by denying certiorari the "U.S. Supreme Court denie[d] full judicial review" and that "the only available remedy for such injustices on the federal level is for the courts of the sovereign states of the union to reassert jurisdiction."
Reliance sought to have appellants and their counsel held in contempt of the prior order of the district court of Arizona. Reliance further sought removal of the second Galveston County, Texas action to federal district court for the Southern District of Texas. Appellants opposed removal and sought remand. The Texas district court upheld the removal and further ordered the case transferred, pursuant to 28 U.S.C. Sec. 1404(a), to the district court in Arizona. Finally, the Texas district court denied appellants leave to amend their complaint to add additional parties but granted leave to amend to remove the contemptuous claims.
The Hatches sought relief from the orders of the Texas district court by filing a petition for a writ of mandamus in United States Court of Appeals for the Fifth Circuit. The petition was denied. Appellants' petition for a writ of certiorari was also denied.
The contempt matter pending in the district court of Arizona was proceeding. Following a show cause hearing and a sanction hearing in the contempt action, appellants were told by the judge that the second Galveston County action was in contempt of prior court orders. Appellants' attorney was told by the judge to withdraw all claims in the Texas court which were contemptuous. Appellants advised the federal district court in Arizona that the Texas court pleadings had been amended in conformance with the court's contempt order. In light of the appellants' attorney's representations that "[he had] done what he could to comply with orders of this Court," the federal district court in Arizona found that appellants' attorney had purged himself of contempt.
Meanwhile, the transferred action made its way to the district court in Arizona. It showed that despite appellants' attorney's representations to the contrary, appellants had failed to amend their pleadings to remove claims found to be contemptuous.
At a March 1984 status conference held in the transferred action, appellee Reliance contended that all appellants' claims should be dismissed. The court directed Reliance "to file a motion to dispose of this case." As directed, appellee filed a motion to dismiss. Appellants filed a motion for class certification and a motion to produce documents. After a hearing on the motions, the district court denied appellants' discovery and class certification motions and granted appellee's motion to dismiss. A judgment was entered. This appeal followed.
Appellants initially claim this court lacks jurisdiction over the appeal because this case was improperly removed from Texas state court and improperly transferred from Texas federal court to Arizona federal court.
There is no indication that this argument was presented to the district court. Matters relating to the subject matter jurisdiction of this court and the district court are nonetheless freely reviewable. Clayton v. Republic Airlines, Inc., 716 F.2d 729, 730 (9th Cir.1983).
Appellee contends that the propriety of the removal from Texas state court to Texas federal court, and the transfer from Texas federal court to Arizona federal court has been adjudicated by Texas federal district court, by the Fifth Circuit, and by the United States Supreme Court. Whether our consideration of these issues is barred by res judicata or on some other ground is a question of law freely reviewed on appeal. See United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.1984) (en banc ).
Whether appellants may attempt to collaterally attack the propriety of removal and transfer where, as here, prior to transfer, appellants obtained review of the removal and transfer issues by seeking a writ of mandamus from the Fifth Circuit and thereafter a writ of...
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