Horizon Bank and Trust Co. v. Flaherty, No. CIV.A.03-11524-WGY.

• Decision Date: 05 February 2004
• Docket Number: No. CIV.A.03-11524-WGY.
• Citation: 309 F.Supp.2d 178
• Parties: HORIZON BANK AND TRUST COMPANY, Plaintiff, v. Paul FLAHERTY and Susan Manning, Trustees of Custom House Associates Realty Trust, Custom House Associates Limited Partnership, the United States Internal Revenue Service, the Commonwealth of Massachusetts Department of Revenue, Giarrusso Norton Cooley & McGlone, P.C., and Eastern Bank Defendants.
• Court: U.S. District Court — District of Massachusetts

309 F.Supp.2d 178

HORIZON BANK AND TRUST COMPANY, Plaintiff, v. Paul FLAHERTY and Susan Manning, Trustees of Custom House Associates Realty Trust, Custom House Associates Limited Partnership, the United States Internal Revenue Service, the Commonwealth of Massachusetts Department of Revenue, Giarrusso Norton Cooley & McGlone, P.C., and Eastern Bank Defendants.

No. CIV.A.03-11524-WGY.

United States District Court, D. Massachusetts.

February 5, 2004.

COPYRIGHT MATERIAL OMITTED

Edward C. Cooley, Giarusso, Norton, Cooley & McGlone, Quincy, MA, for Giarrusso, Norton, Cooley, and McGlone, P.C., Defendant.

William J. Donahue, Devine, Millimet & Branch, Andover, MA, for Horizon Bank and Trust Company, Plaintiff.

Robert J. Hundertmark, Devine, Millimet & Branch, P.A., Andover, MA, for Horizon Bank and Trust Company, Plaintiff.

Martin Jacobs, Brody & Jacobs, Boston, MA, for Eastern Bank, Defendant.

Kevin J. Madden, Quincy, MA, for Paul Flaherty, Defendant.

Eileen Ryan McAuliffe, Massachusetts Department of Revenue Litigation Bureau, Boston, MA, for Susan Manning, Commonwealth of Massachusetts (Department of Revenue), Defendants.

George R. Moore, Devine, Millimet & Branch, PA, Andover, MA, for Horizon Bank and Trust Company, Plaintiff.

Barbara Healy Smith, United States Attorney's Office, Boston, MA, for United States of America (Internal Revenue Service), Defendant.

Stephen J. Turanchik, U.S. Department of Justice, Trial Attorney, Tax Division, Washington, DC, for United States of America (Internal Revenue Service), Defendant.

MEMORANDUM AND ORDER

YOUNG, Chief Judge.

I. INTRODUCTION

The plaintiff, Horizon Bank and Trust Company ("Horizon"), brought this action in interpleader in the Massachusetts Superior Court sitting in and for the County of Norfolk to determine the proper disposal of surplus funds available after a foreclosure sale of real property owned by Custom House Associates Realty Trust ("Custom House"). Among the defendants who have an interest in the funds are the United States Internal Revenue Service (the "United States"), the Commonwealth of Massachusetts Department of Revenue (the "Commonwealth"), and the law firm of Giarrusso, Norton, Cooley & McGlone, P.C. ("Giarrusso"). Following removal to this Court, the Commonwealth moved to dismiss the entire case, Mot. to Dismiss [Doc. No. 5], and Giarrusso has moved for summary judgment, Mot. for Summ. J. [Doc. No. 20].

A. Undisputed Facts

On August 6, 1998, Custom House granted Giarrusso a mortgage (the "Mortgage") encumbering a parcel of real property (as well as any improvements, equipment, appliances, furnishings, and fixtures situated thereon) located at 125 Sea Street, Quincy, Massachusetts (the "Property"). Compl. ¶ 10, Ex. B (attached to the Notice of Removal [Doc. No. 1]). The Mortgage, recorded at the Norfolk County Registry of Deeds, secured repayment of a promissory note in the original principal amount of $255,960 — the outstanding balance of attorneys' fees owed to Giarrusso. Giarrusso's Mem. in Supp. [Doc. No. 21] at 3. Subsequently, Custom House extended a second mortgage on the Property to the plaintiff Horizon as security for a loan (the "Loan") in the original principal amount of $395,000. See Compl. ¶ 9. Shortly thereafter Giarrusso subordinated its Mortgage to Horizon. Giarrusso's Mem. in Supp. at 3.

In the following two years, both the United States and the Commonwealth filed tax liens against Custom House's sole beneficiary, Custom House Associates Limited Partnership. Compl. ¶¶ 12-13, Ex. D, E. Specifically, the United States filed tax liens on February 10, 2000, July 18, 2000, and September 14, 2001, in the amounts of $40,850.65, $40,078.53, and $131,635.28 respectively, and the Commonwealth filed three liens on December 13, 2002, in the amounts of $101,670.35, $70,100.75, and $85,976.67. Id.

On or about January 1, 2003, Custom House defaulted on its payments to Horizon, and, as a result, Horizon accelerated all outstanding amounts owed under the Loan. Id. ¶ 14. Ultimately, Horizon foreclosed its mortgage and sold the Property at public auction for $800,000.00. Id. ¶ 15.

B. Procedural Posture

On May 30, 2003, after satisfying its own debt, Horizon filed this interpleader action in the Norfolk County Superior Court to determine how to disburse the remaining proceeds from the foreclosure sale, in the amount of $303,153.27, to the subordinate interest and lien holders. Id. ¶ 16. Pursuant to 28 U.S.C. §§ 1444 and 2410, the United States timely removed the case to this Court. Notice of Removal. The Commonwealth now seeks to dismiss the entire case on grounds that: "(1) the Eleventh Amendment to the United States Constitution bars this action against the Commonwealth in [federal] Court and (2) the Commonwealth is an indispensable party to this case." Mot. to Dismiss. Also at this time, the defendant Giarrusso moves for summary judgment. Mot. for Summ. J.

II. DISCUSSION

A. The Commonwealth's Motion To Dismiss

1. Eleventh Amendment Immunity as a Bar to Suit in Federal Court

The Eleventh Amendment affirms that "the fundamental principle of sovereign immunity limits the grant of judicial authority in [Article III of the United States Constitution]." Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 98, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984). The Amendment reads:

The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

U.S. Const. amend. XI. As the Supreme Court has recently stated: "Although the text of the Amendment would appear to restrict only the Article III diversity jurisdiction of the federal courts, `we have understood the Eleventh Amendment to stand not so much for what it says, but for the presupposition ... which it confirms.'" Seminole Tribe of Florida v. Florida, 517 U.S. 44, 54, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996) (quoting Blatchford v. Native Vill. of Noatak, 501 U.S. 775, 779, 111 S.Ct. 2578, 115 L.Ed.2d 686 (1991)) (alteration in original); see Hans v. Louisiana, 134 U.S. 1, 13, 10 S.Ct. 504, 33 L.Ed. 842 (1890); The Federalist No. 81, p. 487 (Alexander Hamilton) (C. Rossiter ed.1961).¹ Thus, the Eleventh Amendment has been interpreted to constitute a general bar to suit by private individuals against unconsenting states in any tribunal, regardless of the relief sought or the legal source (federal or state) of the claim. See Fed. Mar. Comm'n v. South Carolina State Ports Auth., 535 U.S. 743, 747, 122 S.Ct. 1864, 152 L.Ed.2d 962 (2002) (holding that, absent the state's consent, a federal administrative agency could not adjudicate a private citizen's claim that a state-run port had violated the Shipping Act of 1984); Alden v. Maine, 527 U.S. 706, 712, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999) (holding that Congress could not, in exercise of its powers under Article I of the Constitution, subject a nonconsenting state to private suits for damages in state court); Seminole Tribe, 517 U.S. at 47, 116 S.Ct. 1114 (holding that Congress cannot, pursuant to its powers under the Indian Commerce Clause, U.S. Const. art. I, § 8, cl. 2, subject an unconsenting state to suit by an Indian tribe for injunctive relief in federal court); id. at 58, 116 S.Ct. 1114 (stating that "the relief sought by a plaintiff suing a state is irrelevant to the question whether the suit is barred by the Eleventh Amendment"); Cory v. White, 457 U.S. 85, 90, 102 S.Ct. 2325, 72 L.Ed.2d 694 (1982) ("It would be a novel proposition indeed that the Eleventh Amendment does not bar a suit to enjoin the State itself simply because no money judgment is sought."). See generally Boe Morgan, The Eleventh Amendment Reinterpreted: Will It Erode National Authority?, in Federal Court Judicial Forum 33 (MCLE 2003).

Nonetheless, the Supreme Court has recognized at least two circumstances in which an individual may sue a state in federal court (beyond the obvious and well-settled examples of appealing state court judgments to the Supreme Court and challenging state court convictions through habeas corpus petitions in federal court).² First, Congress may authorize such a suit in the exercise of its power to enforce the Fourteenth Amendment. U.S. Const. amend. XIV, § 5; Fitzpatrick v. Bitzer, 427 U.S. 445, 456, 96 S.Ct. 2666, 49 L.Ed.2d 614 (1976). Second, a state may waive its sovereign immunity by consenting to suit in federal court, either through a clear statement of intent to submit to federal court jurisdiction, or through unequivocal litigation conduct demonstrating such submission in a particular case. See, e.g., College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 675-76, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999).

In light of this decisional law, the United States makes the following arguments in opposition to the Commonwealth's Motion To Dismiss:³ First, the United States argues that because it is the federal government itself (rather than a private party) that is responsible for removing this case to federal court, and the federal government has the power to sue states, the Commonwealth cannot invoke the Eleventh Amendment in this case. United States' Mem. Opp'n [Doc. No. 14] at 8-9. Relatedly, the United States argues that the federal removal statutes applicable in this case have abrogated the Commonwealth's sovereign immunity. See id. at 6-7. In the alternative, the United States argues that the Commonwealth has waived its sovereign immunity. Id. at 13-15.

a. Invoking the Eleventh Amendment

The United States argues that since it, and not the private citizen plaintiff, removed the case to federal court, the Commonwealth's Eleventh Amendment immunity is not implicated here. United States' Mem. Opp'n at 8-10. In support, the United States analogizes the case at bar to opinions that have ruled that states cannot invoke the Eleventh...