Hudson Savings Bank v. Austin

• Decision Date: 05 March 2007
• Docket Number: No. 06-2043.,06-2043.
• Parties: HUDSON SAVINGS BANK, Plaintiff, Appellee, v. George C. AUSTIN, III, Etc., et al., Defendants, Appellees, United States of America, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

479 F.3d 102

HUDSON SAVINGS BANK, Plaintiff, Appellee, v. George C. AUSTIN, III, Etc., et al., Defendants, Appellees, United States of America, Defendant, Appellant.

No. 06-2043.

United States Court of Appeals, First Circuit.

Heard January 9, 2007.

Decided March 5, 2007.

Randolph L. Hutter, Attorney, Tax Division, United States Department of Justice, with whom Eileen J. O'Connor, Assistant Attorney General, Thomas J. Clark, Attorney, Tax Division, and Michael J. Sullivan, United States Attorney, were on brief, for appellant.

Thomas A. Barnico, Assistant Attorney General, with whom Thomas F. Reilly, Attorney General (Commonwealth of Massachusetts), and Eileen Ryan McAuliffe, Counsel, Department of Revenue, were on brief, for state appellee.

Before HOWARD, Circuit Judge, SELYA, Senior Circuit Judge, and SHADUR,^* Senior District Judge.

SELYA, Senior Circuit Judge.

We are asked, in effect, to referee a turf war between the Commonwealth of Massachusetts and the United States. This is the latest in a series of cases in which those two sovereigns have asserted conflicting claims against a limited fund that is to be disbursed by interpleader. In those cases, each has endeavored to have the relative priority of its claims determined in its own courts, and each has mustered a plausible argument that it should not be forced to litigate this question in the other's forum. A number of district courts have attempted to untangle this Gordian knot, but the divergence in their decisions illustrates the implacability of the constitutional quandary that has arisen. Compare, e.g., Horizon Bank & Trust Co. v. Flaherty, 309 F.Supp.2d 178 (D.Mass.2004), with, e.g., First Mass. Bank v. Daoust, 214 F.Supp.2d 79 (D.Mass.2002), and Cape Ann Sav. Bank v. Johnson, Nos. 02-10032, 02-10036, 2002 WL 1839248 (D.Mass. Aug.12, 2002).

Before us, both sovereigns invite the announcement of a categorical rule spelling out a protocol for litigating such cases in the future. We decline the invitation to speak categorically. Rather, while leaving unresolved the most difficult aspect of the underlying constitutional question, we chart a course that suffices to dispose of the case at bar. Although we envision that this roadmap will be appropriate for other similarly configured cases, we do not address what changes in the contours of the dispute might render this solution inutile.

With that preface, we turn to specifics. Despite the enigmatic nature of the constitutional question, the relevant facts are remarkably straightforward.

At the times material hereto, Hudson Savings Bank (the Bank) held a first mortgage on a condominium (the Property) owned by George C. Austin, Jr. Austin owed money, arising out of tax delinquencies, to both the Commonwealth of Massachusetts and the federal government. The Commonwealth recorded two tax liens against the Property in the amounts of $29,376 and $27,087, respectively. The United States filed two tax liens against the Property for $207,547 and $97,307, respectively.

In due course, Austin defaulted on the mortgage note. The Bank foreclosed and sold the Property. After satisfying its mortgage debt and defraying expenses associated with the foreclosure, it retained a surplus of nearly $100,000. The surplus was manifestly insufficient to satisfy all the tax liens and, unsure of the priorities, the Bank filed an interpleader action in a Massachusetts state court. Because Austin had died, the Bank named as defendants Austin's executor, the Massachusetts Department of Revenue, and the United States. The Bank made no claim as of right to any portion of the surplus, asking only that the court (i) resolve the relative payment priorities as among the named defendants, (ii) discharge it from any liability with respect to the avails of the foreclosure, and (iii) award it, out of the surplus funds, the costs of bringing the action (including its attorneys' fees).

Pursuant to 28 U.S.C. § 1444, which confers upon the federal government an absolute right to remove to federal court interpleader actions in which it is named as a defendant, the United States removed the case to the United States District Court for the District of Massachusetts. The executor of Austin's estate neither contested the removal nor filed a claim to the surplus. The Commonwealth, however, invoked the Eleventh Amendment and asserted that it was immune from the Bank's action if that action was to be prosecuted in a federal court. The Commonwealth further argued that it was both a necessary and an indispensable party to the interpleader action, see Fed.R.Civ.P. 19(b), and that, therefore, its Eleventh Amendment immunity required dismissal of the entire action.

The United States rejoined on several fronts. To begin, it offered two alternate theories as to why the Eleventh Amendment did not apply. For one thing, it characterized interpleader as an in rem or quasi in rem proceeding and, thus, outside the ambit of the Eleventh Amendment under the reasoning of Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 124 S.Ct. 1905, 158 L.Ed.2d 764 (2004), and California v. Deep Sea Research, Inc., 523 U.S. 491, 118 S.Ct. 1464, 140 L.Ed.2d 626 (1998). For another thing, it argued that since it, not the Bank, had removed the action to a federal court, it was the federal government, not a private party, that was invoking federal jurisdiction. As a fall-back, the United States argued that even if Eleventh Amendment immunity applied, the Commonwealth was not an indispensable party and, therefore, the district court should at the very least adjudicate the federal government's claims.

The district court rejected the arguments advanced by the United States. See Hudson Sav. Bank v. Austin, No. 05-11604, slip op., 2005 WL 2454926 (D.Mass. Mar.29, 2006) (unpublished). It determined that maintenance of the interpleader action, insofar as it related to the Commonwealth, was barred by the Eleventh Amendment. Id. at 2. Proceeding to conclude that the Commonwealth was an indispensable party, the court dismissed the action in its entirety. Id. at 5. This timely appeal followed.

The right of a state to litigate a private party's claims against it in its own courts is constitutionally assured. In the absence of special circumstances—consent, waiver, and congressional override are paradigmatic examples—the Eleventh Amendment prohibits the exercise of federal judicial power over "any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State. . . ." U.S. Const. amend. XI. This language has been authoritatively interpreted (with exceptions not relevant here) to bar all suits brought by a private party in a federal court against an unconsenting state. See Seminole Tribe v. Florida, 517 U.S. 44, 54, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996).

The United States, however, is not a private party. Thus, the prohibition contained in the Eleventh Amendment does not extend to suits brought against a state by the federal government. See Employees of Dep't of Pub. Health & Welfare v. Dep't of Pub. Health & Welfare, 411 U.S. 279, 286, 93 S.Ct. 1614, 36 L.Ed.2d 251 (1973). Moreover, Congress has conferred upon the federal sovereign a virtually absolute right to litigate claims brought either by or against it in the federal, rather than the state, courts. See, e.g., Bank of New Engl. Old Colony v. Clark, 986 F.2d 600, 602 (1st Cir.1993) (noting that "Congress would not have denied the federal government access to federal courts without a clear statement to that effect"); Hood v. United States, 256 F.2d 522, 525 (9th Cir.1958) ("The cardinal concern of the United States is that all cases in which the interests of the government are involved may be tried in federal fora.").

In light of this background, it is readily evident that tensions may arise between the sovereign interests of the state and federal governments. Those tensions make cases such as this one problematic. See, e.g., Horizon Bank & Trust Co. v. Massachusetts, 391 F.3d 48, 50 (1st Cir. 2004). When, as a result of those tensions, an intractable constitutional question looms, courts ought to approach that question with great reticence. The lack of any obvious answer to such a question suggests that, if a particular case can be disposed of on some narrower, less contentious ground, a court should avoid making a constitutional judgment. See Ashwander v. TVA, 297 U.S. 288, 346-48, 56 S.Ct. 466, 80 L.Ed. 688 (1936) (Brandeis, J., concurring) (introducing the concept of constitutional avoidance); El Dia, Inc. v. Hernandez Colon, 963 F.2d 488, 494 (1st Cir.1992) ("Uncertain questions of constitutional law should be addressed only when absolutely necessary."); see generally United States v. Gertner, 65 F.3d 963, 973 (1st Cir.1995) ("The judicial task, properly understood, should concentrate on those questions that must be decided in order to resolve a specific case.").

This is such a case. The question of whether the Commonwealth invariably is entitled to Eleventh Amendment immunity from interpleader suits brought by private parties is highly ramified, the arguments advanced by the United States concerning both the nature of interpleader and its role in bringing the case to federal court are sophisticated, and the ultimate answer to the Eleventh Amendment question is freighted with uncertainty. Equally as important, the facts of this case permit us to accept and act upon Justice Brandeis's sage counsel, resolving the main controversy while reserving the most difficult aspect of the constitutional question.

The logical starting point for further analysis is a recognition of the idiosyncratic nature of Eleventh Amendment immunity. The Supreme Court has cautioned that, when Eleventh Amendment concerns are at stake, form should not be exalted over substance. See Idaho v. Coeur d'Alene Tribe, 521 U.S. 261, 270, 117 S.Ct. 2028, 138 L.Ed.2d 438 (1997) ("The real interests served by the...