Lummis v. White

• Decision Date: 27 October 1980
• Docket Number: No. 79-2898,79-2898
• Citation: 629 F.2d 397
• Parties: William Rice LUMMIS, Texas Temporary Administrator of the Estate of Howard R. Hughes, Jr., Deceased, Plaintiff-Appellant Cross Appellee, v. Mark WHITE, Bob Bullock, Kenneth Cory, H. B. Alvord, et al., Defendants-Appellees. Kenneth Cory, H. B. Alvord, Defendants-Appellees Cross Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 397

629 F.2d 397

William Rice LUMMIS, Texas Temporary Administrator of the Estate of Howard R. Hughes, Jr., Deceased Plaintiff-Appellant Cross Appellee, v. Mark WHITE, Bob Bullock, Kenneth Cory, H. B. Alvord, et al Defendants-Appellees Kenneth Cory, H. B. Alvord, Defendants-Appellees Cross Appellants.

No. 79-2898.

United States Court of Appeals Fifth Circuit.

Oct. 27, 1980.

Andrews, Kurth, Campbell & Jones, O. Clayton Lilienstern, Houston, Tex., Pat Stevenson, Graves, Dougherty, Hearon, Moody & Garwood, R. James George, Jr., Austin, Tex., James W. Moore, New Haven, Conn., for plaintiff-appellant cross-appellee.

Paul J. Van Osselaer, Austin, Tex., M. Carr Fersugson, Asst. Atty. Gen., Gilbert E. Andrews, Chief, Appellate Sec., Richard Farber, Atty., Tax Div. Dept. of Justice, Washington, D.C., Brown, Maroney, Rose, Baker & Barber, Charlie D. Dye, William D. Deaderick, Asst. Atty. Gen., Taxation Div., Austin, Tex., Jerome B. Falk, Steven L. Mayer, Jerome B. Falk, Jr., San Francisco, Cal., Gibson, Dunn & Crutcher, Ronald E. Gother, Los Angeles, Cal., McGinnis, Lochridge & Kilgore, Rick Harrison, Clark, Thomas, Winters & Shapiro, Donald S. Thomas, Austin, Tex., for defendants-appellees.

Appeals from the United States District Court for the Western District of Texas.

Before VANCE and SAM D. JOHNSON, Circuit Judges, and THOMAS, District Judge ^*.

VANCE, Circuit Judge:

Howard Robard Hughes, Jr. died on April 5, 1976, leaving an estate that state taxing authorities estimate at $1.1 billion and the administrators estimate at $167 million. ¹ Hughes' assets primarily consisted of the stock of Summa Corporation, a wholly-owned Delaware corporation. Administrators were appointed in each of the five states where the estate's property is located: Texas, California, Nevada, Delaware, and Louisiana. ² The claimants include twenty-one heirs who have entered a settlement agreement, about 386 other alleged heirs who have appeared in various state administration proceedings, twelve law firms, two states, an alleged wife, and a medical institution. Numerous purported wills have been offered for probate.

Both Texas and California claim Hughes as a domiciliary and assert their rights to levy state death taxes on his estate. ³ The administrators, however, allege that Hughes was domiciled in Nevada, and it is not surprising that Nevada has no state inheritance taxes. If both Texas and California levy death taxes, the total of those taxes and the federal estate tax might equal over 100 percent of Hughes' estate. ⁴ Because of this impossibility the administrators seek a binding determination of Hughes' domicile.

After an eleven-week trial, a jury in a Texas probate court rejected the "Mormon will," which had been offered for probate, and determined that Hughes was domiciled in Texas at the time of his death. Three days before the Texas trial began, California, seeking a determination that Hughes was not domiciled in Texas, petitioned the United States Supreme Court for leave to file a complaint against Texas under the Court's original jurisdiction. See U.S.Const. Art. III, § 2, cl. 2; Texas v. Florida, 306 U.S. 398, 59 S.Ct. 563, 83 L.Ed. 817 (1939) (involving Hetty Green's fortune). In California v. Texas, 437 U.S. 601, 98 S.Ct. 3107, 57 L.Ed.2d 464 (1978), however, the Court unanimously denied California's motion. In concurring opinions, four members of the Court suggested that the administrators might obtain a domicile determination binding on both Texas and California under the federal interpleader statute, 28 U.S.C. § 1335, because Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974), had undermined the rationale of Worcester County Trust Co. v. Riley, 302 U.S. 292, 58 S.Ct. 185, 82 L.Ed. 268 (1937).

William Rice Lummis, the Texas temporary administrator, then filed this interpleader action under 28 U.S.C. §§ 1335 and 1397 in district court and named state and local taxing officials of California, state taxing officials of Texas, the California special administrator of the Hughes estate, and the Nevada administrators of the estate as defendants. The court realigned the defendant administrators with the plaintiff administrators because it found that they were working in unison toward a common goal. See City of Dawson v. Columbia Avenue Saving Fund, Safe Deposit, Title & Trust Co., 197 U.S. 178, 180-81, 25 S.Ct. 420, 421, 49 L.Ed. 713 (1905). It then dismissed the action because it found that the diversity requirement of section 1335 was not satisfied. Lummis now appeals the dismissal by the district court.

The Texas taxing officials assert that Worcester County Trust Co. bars Lummis' suit and that the parties to the suit do not fulfill the section 1335 diversity requirement. The California officials contend that the district court has jurisdiction to grant relief under section 1335 only if the asserted heirs are joined as parties-plaintiff and their citizenship is considered for purposes of diversity. ⁵ Although we find that the asserted heirs need not be joined, we conclude that the district court erred in denying Lummis the remedy of interpleader.

I

Interpleader enables a person holding a fund to compel persons asserting conflicting claims to that fund to adjudicate their rights to the fund in a single action. State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523, 534, 87 S.Ct. 1199, 1205, 18 L.Ed.2d 270 (1967); Texas v. Florida, 306 U.S. at 405-06, 59 S.Ct. at 567; F. James, Civil Procedure § 10.21 (1965); 3A Moore's Federal Practice P 22.02(1), at 22-4 (2d ed. 1979). The remedy developed in equity and is governed by equitable principles. Fulton v. Kaiser Steel Corp., 397 F.2d 580, 583 (5th Cir. 1968); see Texas v. Florida, 306 U.S. at 406-07, 59 S.Ct. at 567-568. ⁶

The common law history of this remedy begins with detinue actions and continues with the equitable strict bill of interpleader. Under the traditional strict bill of interpleader, the stakeholder did not assert an interest in the fund or contest the extent of the liability. Hazard & Moskovitz, An Historical and Critical Analysis of Interpleader, 52 Calif.L.Rev. 706, 735-49 (1964); 3A Moore's Federal Practice, supra P 22.03; 7 C. Wright & A. Miller, Federal Practice and Procedure § 1701 (1972); see 4 J. Pomeroy, Equity Jurisprudence § 1322 (5th ed. S. Symons 1941). The stakeholder simply brought the money or property into court and was discharged, leaving the rival claimants to litigate their entitlement to the fund. See Texas v. Florida, 306 U.S. at 406, 59 S.Ct. at 567; 3A Moore's Federal Practice, supra P 22.02(1). Because the strict bill of interpleader did not afford relief to all stakeholders, courts gradually developed the bill in the nature of interpleader. Texas v. Florida, 306 U.S. at 406, 59 S.Ct. at 567; Chafee, Modernizing Interpleader, 30 Yale L.J. 814, 839 (1921); Hazard & Moskovitz, supra at 745-47. Through a bill in the nature of interpleader, a stakeholder that asserted an interest in the fund or denied liability to one or more of the claimants called "upon the court to exercise its jurisdiction to guard against the risks of loss from the prosecution in independent suits of rival claims." Texas v. Florida, 306 U.S. at 406-07, 59 S.Ct. at 568. Accord, Hazard & Moskovitz, supra at 745, 747; see generally D. Louisell & G. Hazard, Pleading and Procedure 760-64 (3d ed. 1973); A. Scott & R. Kent, Civil Procedure 917-18 (2d rev. ed. 1967). Both remedies, strict bills of interpleader and bills in the nature of interpleader, were embodied in the Federal Interpleader Act of 1936, 28 U.S.C. § 1335, ⁷ and in the form of interpleader provided in 1938 by Rule 22(1) of the Federal Rules of Civil Procedure. Haynes v. Felder, 239 F.2d 868, 871 (5th Cir. 1957); 3A Moore's Federal Practice, supra P 22.07, at 22-47; 7 C. Wright & A. Miller, supra § 1701, at 357, 360. ⁸

Presently there are two types of interpleader in federal courts: statutory interpleader under section 1335 and traditional equitable interpleader governed by Rule 22. See generally F. James, supra at 513-14; C. Wright, The Law of Federal Courts 362-63, 365-66 (3d ed. 1976). The salient difference is that section 1335 interpleader enjoys more liberal procedural rules: the statute reduces the jurisdictional amount to $500, requires only minimal diversity among the claimants, authorizes venue in any district where any claimant resides, and affords nationwide service of process. 28 U.S.C. §§ 1335, 1397, 2361. By contrast, Rule 22 interpleader falls under the usual rules for civil actions: a jurisdictional amount of $10,000, complete diversity between the stakeholder and the claimants (unless there is a federal question), venue where all plaintiffs or all defendants reside or where the claim arose, and statewide service of process. Id. §§ 1332(a)(1), 1391(a); Fed.R.Civ.P. 4. See generally M. Green, Basic Civil Procedure 92-93 (2d ed. 1979).

Lummis' action, brought under section 1335, is a bill in the nature of interpleader to determine Hughes' domicile at the time of his death. California v. Texas, 437 U.S. at 610-11, 98 S.Ct. at 3113 (Stewart, J., concurring); cf. Texas v. Florida, 306 U.S. at 401, 59 S.Ct. at 565. As administrator of Hughes' estate, Lummis disputes the extent of the estate's liability to the taxing authorities of Texas and California, asserting that Hughes was domiciled in Nevada when he died. Through the equitable remedy of statutory interpleader, Lummis and the other administrators joined with him as plaintiffs seek "to require litigation of the inconsistent tax claims in a single forum in order to avert the risk of loss to the estate that would result from separate adjudications." California v. Texas, 437 U.S. at 611, 98 S.Ct. at 3113 (Stewart, J., concurring) (emphasis in original).

II

In Worcester County Trust Co. v. Riley, 302 U.S. 292, 58 S.Ct. 185, 82 L.Ed. 268 (1937), as in this case, the executor of an estate threatened with the...