Hussain v. Boston Old Colony Ins. Co., 01-152.

• Decision Date: 13 September 2001
• Docket Number: No. 01-152.,01-152.
• Citation: 170 F.Supp.2d 663
• Parties: Javaid HUSSAIN, individually and d/b/a Sheik's Oriental Rugs and Sheik's Oriental Rugs, Inc. v. BOSTON OLD COLONY INSURANCE COMPANY
• Court: U.S. District Court — Eastern District of Louisiana

170 F.Supp.2d 663

Javaid HUSSAIN, individually and d/b/a Sheik's Oriental Rugs and Sheik's Oriental Rugs, Inc. v. BOSTON OLD COLONY INSURANCE COMPANY

No. 01-152.

United States District Court, E.D. Louisiana.

September 13, 2001.

Steven Joseph Rando, Law Offices of Steven J. Rando, New Orleans, LA, Glen Alan Woods, New Orleans, LA, for plaintiffs.

David Edward Walle, John William Waters, Jr., Bienvenu, Foster, Ryan & O'Bannon, New Orleans, LA, for Boston Old Colony Ins. Co., defendant.

John M. Bilheimer, U.S. Department of Justice, Tax Division, Washington, DC, for U.S., defendant.

James Calvin Young, Heather M. Valliant, Chaffe, McCall, Phillips, Toler & Sarpy, LLP, New Orleans, LA, for Hibernia Nat. Bank, movant.

Shone T. Pierre, Louisiana Department of Revenue, Baton Rouge, LA, for Cynthia Bridges, movant.

OPINION

PORTEOUS, District Judge.

Before the Court is a Motion to Determine Amount and Distribution of Funds filed on behalf of the defendant, Boston Old Colony Insurance Company, and a Motion to Tax Costs filed on behalf of the plaintiff, Javaid Hussain, individually and d/b/a Sheik's Oriental Rugs and Sheik's Oriental Rugs, Inc. The parties, having waived oral argument, submitted these motions for the Court's consideration on June 29, 2001, following the submission of all supplemental memoranda. The Court, having considered the arguments of counsel, the Court record, the law and applicable jurisprudence, is fully advised in the premises and ready to rule.

ORDER AND REASONS

I. BACKGROUND:

On September 10, 1991, a fire damaged the inventory of Javaid Hussain d/b/a Sheik's Oriental Rugs and Sheik's Oriental Rugs, Inc. ("Hussain"). Hussain was insured by Boston Old Colony Insurance Company ("Boston Old"). Boston Old denied Hussain's claim on the grounds of arson. Hibernia National Bank ("Hibernia") filed suit in state court on September 9, 1992, as the loss payee. Hussain filed suit over a year later on September 29, 1993.

On March 15, 1999, judgment was rendered in favor of Javaid Hussain, individually and d/b/a Sheik's Oriental Rugs and in favor of Hibernia National Bank as loss payee, against Boston Old Colony Insurance Company in the amount of $500,000.00, the policy limits, "as their interests appear in the Policy". An amended judgment was entered awarding legal interest from the date of judicial demand until paid and all costs and expenses incurred.

The judgment was appealed and affirmed by the Fourth Circuit on November 13, 2000. The Louisiana Supreme Court denied writs. In preparing to pay the judgment, Boston Old discovered several tax liens filed by the United States of America and State of Louisiana. FNBC (now Bank One) also asserted a lien on the proceeds of the judgment. Additionally, a dispute arose over how the interest was to be calculated, as well as, how much Hussain is entitled to for costs. Boston Old offered to deposit the sums owed in the Court's registry but Hibernia objected. Boston Old filed a motion in state court seeking a declaration on these questions. Plaintiff, Hussain, moved to tax costs. The United States then removed the matter to this Court before either motion could be heard.

MOTION TO DETERMINE AMOUNT AND DISTRIBUTION OF FUNDS

II. ARGUMENTS OF THE RESPECTIVE PARTIES:

Boston Old asks the Court to declare: (1) the amount owed under the judgment including the amounts of interest and costs; (2) who should be paid, in what amounts, and in what order; and, (3) upon payment of the funds, that the judgment be considered paid and satisfied and the bond posted cancelled. Boston Old questions the jurisdiction of this Court as the United States, who removed this action, was not a defendant or intervenor in the state court action. The United States had merely been ruled into court to show cause, if it had any, how Boston Old should pay the judgment against it in light of the government's tax lien. Next, Boston Colony contends that the Judgment splits the $500,000.00 between Hussain and Hibernia "as their interest appear" in the policy. Hibernia filed suit on September 9, 1992, while Hussain filed suit September 29, 1993. As such, Boston Colony contends that Hibernia is entitled to the amount it was owed on the day of the fire plus interest from the date it filed suit, September 9, 1992. While Hussain is owed the balance of the principal plus interest from the date of his judicial demand, September 29, 1993.

The United States of America ("United States") submits that it was issued a show-cause order by the state court requiring it to set forth its claims to the proceeds. 28 U.S.C. § 2410 authorizes a party to bring an action in interpleader or "in the nature of interpleader" against the United States, and to do so in state court, which is precisely what Boston Old did. As a condition of the waiver of sovereign immunity, the United States has a corresponding absolute right to remove an interpleader proceeding to a federal district court from the state court in which it was brought. Therefore, it does not matter that the United States was not formally named as a party.

Moreover, the United States argues when other creditors compete with the United States for property encumbered by a federal tax lien, such as the insurance proceeds here, federal law controls the priority of the competing claims to that property. In general, the rights of the competing parties are governed by the Federal Tax Lien Act, 26 U.S.C. 6323. As to Hussain's claims, any right Hussain may have in the proceeds are subordinate to the tax lien as the government's claim clearly outrank his. Additionally, it is asserted that any attorney's fees plaintiff is entitled to should be calculated on the portion of the judgment recoverable by Hussain only, in the amount of 33 1/3%, pursuant to the original contingency fee contract. Finally, the United States argues that its tax lien primes that of the State as the date of assessment for the federal taxes were 1992 and 1994, while the State's lien did not become effective until 1995.

The State of Louisiana asserts that a state tax lien was filed on April 6, 1995, for an outstanding liability in the amount of $17.834.70. R.S. 47:1577 provides for the tax lien and further provides that said lien affects third parties from the date of recordation. Louisiana, as a state taxing agency is not bound by the Federal Tax Lien Act.

The State further submits that Hibernia's claims are derived from a judgment it was specifically awarded which provided that "the proceeds shall be paid to Hussain and to Hibernia `as their interests appear in the Policy and in accordance with the Amended Judgment entered herein in favor of Hibernia and against Javaid Hussain'." As such, the question is whether Hibernia possesses an independent claim or a claim through the plaintiffs in this matter. Bank One, however, obtained its lien in an unrelated judgment. Finally, the State contends Hussain's claim should fall to that of the State. The State's lien attaches to all of Hussain's movable and immovable property priming any right he may have in the proceeds.

Hibernia contends that its judgment against Boston Old is unaffected by any other claims or lien holders because Hibernia, as the only named loss payee under the policy, primes any other interest in the proceeds of the Judgment. First, it is asserted that Louisiana law provides that when a mortgagor (Hussain) takes out insurance for the benefit of the mortgagee (Hibernia), or when the insurance is made payable to the mortgagee as his interest may appear in the policy, the loss payee-mortgagee is entitled to the proceeds of the policy to the extent of his mortgage debt, with any surplus then payable to the insured-mortgagor. Accordingly, any liens held by creditors of Hussain or Sheik's Oriental Rugs are secondary to Hibernia's interest in the policy proceeds as loss-payee. Debts owed to other creditors, including the state and federal government, are limited to the balance of the judgment due to Hussain after payment of Hibernia's interest as loss payee. Only the amount that remains after Hibernia's Judgment has been fully satisfied becomes divisible among Hussain and his other creditors. Moreover, Hibernia in no way has waived its interest in the policy proceeds as loss payee.

Next, Hibernia submits that Boston Old owes interest on the $500,000.00 policy limits from the date of judicial demand by Hibernia, September 9, 1992. The interest that is insured is the debtor's interest in the mortgaged property. Thus, courts have recognized that when an insured loss occurs, the insurer is liable for the value of the loss to the extent of the policy limits. Boston Old was liable from the date of the fire for the value of the loss sustained to the extent of the policy limits, $500,000.00. Hussain did not have to file a separate claim against Boston Old, and if he had not, he nonetheless would have been entitled, as the named insured, to the remainder of the policy proceeds after Hibernia's debt was satisfied. For purposes of calculating judicial interest from the date of judicial demand, September 9, 1992, the date Hibernia filed suit would be the appropriate date. Judicial interest from September 9, 1992 to January 31, 2001 amounts to $331,388.59. Accordingly, Boston Old owes Hibernia, as loss payee, the full balance due on the Note, including contractual interest, costs, and attorney's fees, as evidenced by Hibernia's Judgment against Hussain which totals $393,479.09. Finally, Hibernia submits that any attorney's fees due plaintiff's attorneys would be recoverable out of Hussain's portion of the judgment only and would not apply to Hibernia's recovery of the judgment

First, the plaintiff contends that the United States lacks standing to participate in these proceedings. Next, the plaintiff and attorneys Steven Rando and Glen Woods suggest that their attorney's fees, expert costs, court costs, and administrative expenses in the sum of...