U.S. v. Zima

Decision Date11 July 1985
Docket NumberNo. 84-1429,84-1429
Citation766 F.2d 1153
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Bettie L. ZIMA, Defendant-Appellant, v. HOBART FEDERAL SAVINGS AND LOAN ASSOCIATION; First National Bank, Valparaiso; First Federal Savings and Loan Association of Gary; Sanitation Services, Inc.; State of Indiana; and Treasurer's Office of Lake County, Indiana, Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

David A. Willis, Nine E. Lincolnway, Valparaiso, Ind., for defendant-appellant.

Richard E. Anderson, Theodoros, Anderson & Tauber, Merrillville, Ind., for defendants-appellees.

Before WOOD and FLAUM, Circuit Judges, and PELL, Senior Circuit Judge.

PELL, Senior Circuit Judge.

In early 1981, the United States brought suit in federal court to foreclose a lien on property owned by appellant, Bettie L. Zima, and named as additional defendants other creditors with liens on appellant's property. The primary lienholder, Hobart Federal Savings and Loan Association, filed a cross-claim against appellant and the other lienholders to establish its priority and to foreclose the mortgage. There was no independent federal jurisdictional basis for the cross-claim because Hobart's claim did not involve a federal question and no diversity existed among the defendants. The parties consented to having the proceedings held before a magistrate.

The magistrate granted, by default, Hobart's motion for summary judgment on its cross-claim against appellant. The judgment established the amount of Hobart's lien against appellant, ordered foreclosure of the mortgage, and established priorities among other lienholders for the disposition of the balance of the proceeds of the foreclosure sale. In the same judgment, the magistrate dismissed with prejudice the Government's claim. The principal question presented on appeal is whether the magistrate abused his discretion by denying appellant's rule 60(b)(4) motion to vacate judgment, which alleged that the judgment was void because the magistrate retained jurisdiction over the ancillary claim despite the disposition of the principal, and only federal, claim prior to trial.

I. THE FACTS

The United States sued appellant and the other lienholders in federal district court in Indiana, where all defendants were residents. All the lienholders filed answers to the Government's complaint. In addition, Hobart filed a cross-claim against appellant and the other lienholders and a counterclaim against the Government, to which all parties, except appellant, filed answers. In their answers to the Government's complaint and Hobart's cross-claim, the other lienholders set forth information to establish the amount of their liens and the circumstances that demonstrated that appellant was in default. Appellant never filed an answer to any of the pleadings. In the district court proceeding, appellant also changed her counsel three times for undisclosed reasons.

Several proposed settlement attempts failed to resolve the controversy. In February 1983, the Government filed a motion for summary judgment against appellant, with affidavits setting forth the amount of her indebtedness. In June 1983, Hobart filed a motion for summary judgment on its cross-claim, in response to which the other lienholders filed no objection, although they did request the court to determine the priorities of their liens.

The magistrate set a hearing date on the motions for summary judgment for December 1, 1983. On that morning, prior to the hearing, one of the other lienholders, the First National Bank of Valparaiso, satisfied the Government's claim of approximately $20,000 against appellant. Counsel for appellant did not attend the hearing pursuant to appellant's express instructions. At the hearing, counsel for Hobart represented to the magistrate, on behalf of itself and all lienholders, that the Government would file a motion to dismiss and a release that morning, disclaiming any interest in the property. Counsel proceeded to ask for judgment against appellant on its cross-claim, maintaining that it had first priority among lienholders. The amount that Hobart requested in principal, interest, and attorney's fees was about $31,000. Counsel also represented to the magistrate that appellant owed the other lienholders various sums, ranging from $5,600 owed to the State to over $260,000 allegedly owed to the First National Bank of Valparaiso. Counsel then requested ten days to prepare a default judgment against appellant, setting forth the foregoing information. The Government then confirmed to the magistrate that it had executed a release of mortgage and intended "this morning" to file a disclaimer of interest and a motion to dismiss.

At this point, the following colloquy took place, with Mr. Brattain representing the Government and Mr. Anderson representing Hobart:

THE COURT: You are going to submit that basically simultaneously with Mr. Anderson's proposed judgment?

MR. BRATTAIN: I am prepared to file a disclaimer and motion to dismiss today, your Honor.

THE COURT: My only reservation is that if the federal government gets out, that does not necessarily deprive me of jurisdiction, does it?

MR. ANDERSON: Probably. I think it would be better to put them in at the same time.

MR. BRATTAIN: I have no problems with that, your Honor.

THE COURT: I believe the only reason this is here is because the United States is a party.

MR. BRATTAIN: That is correct.

MR. ANDERSON: That is correct.

THE COURT: Why don't we do it simultaneously then so it's part of the same disposition?

....

THE COURT: All right. Mr. Anderson, you say ten days would be enough to submit a judgment?

MR. ANDERSON: Yes, your Honor.

THE COURT: All right. I will get that entered as soon as I receive it.

In the discussion portion of the magistrate's decision, entered on December 9, 1983, the magistrate first took the Government's motion to dismiss under advisement. It then set out the amounts due to the various lienholders. The judgment portion of the decision, however, was more limited. The judgment held that Hobart was entitled to judgment by default in the amount of $31,325.28, with interest running from December 1, 1983. The judgment also declared that the mortgage was foreclosed and ordered the marshal to sell the property. Although the magistrate directed the marshal to apply any proceeds remaining after satisfaction of Hobart's judgment and payment of sale expenses to the debts owed to the other lienholders for "the full balance then still owing," the judgment did not reduce to a fixed sum the amounts owed to any lienholder except Hobart. The judgment then concluded by "approving" the Government's "request" to dismiss its complaint with prejudice.

Entry of judgment finally elicited a response from appellant, who nonetheless failed to file a direct appeal from the magistrate's judgment. Instead, eighteen days after the judgment, appellant filed a motion to vacate, pursuant to rule 60(b)(4) of the Federal Rules of Civil Procedure, which grants relief from void judgments. The bases for the motion were, first, that the Government's announced intention to file a disclaimer and motion to dismiss on December 1 immediately divested the court of jurisdiction and, second, that appellant had no notice that the validity, amount, and priority of the liens of creditors other than the Government and Hobart would be adjudicated, nor was there any evidence to support the judgment as to the amounts of these liens. The magistrate requested briefing on the jurisdictional issue. After briefing, the magistrate determined that he had properly retained jurisdiction. He noted that the suit had been pending for almost three years, that Hobart's motion for summary judgment was pending for six months, and that the Government did not actually file its motion to dismiss until December 9, 1983. The magistrate further noted: "All interested parties, with the exception of [appellant], appeared for the scheduled hearing in anticipation of concluding this matter." Moreover, the magistrate observed that the case presented no novel or complex issue of state law but, rather, involved a straightforward foreclosure issue to which appellant failed to raise either a factual or a legal defense. Finally, the magistrate was also concerned by the fact that Hobart would be prejudiced by dismissal of the cross-claim because it could not have received "prompt relief" in state court; under Indiana law, there could be no decree of sale until at least three months after Hobart refiled its claim in state court. Ind.Code Sec. 32-8-16-1.

On appeal, appellant claims that the magistrate abused his discretion by denying appellant's motion to vacate the judgment. She raises the same issues on appeal as she raised in support of her motion before the magistrate.

II. DISCUSSION

Preliminarily, we question the actions that the magistrate took to attempt to retain jurisdiction after the Government indicated its readiness to file a motion to dismiss its complaint at the outset of the hearing on December 1, 1983. The magistrate expressed a reservation as to whether he would necessarily be deprived of jurisdiction in that event and was advised by Hobart that he "probably" would, but that it would be better to put the Government disclaimer and the summary judgment in at the same time. The parties being agreeable to this procedure, the magistrate concurred in so doing. As we shall demonstrate, the magistrate was mistaken in questioning that divestiture of jurisdiction would occur upon dismissal of the sole federal claim. Actually, he retained authority to determine, as a matter of discretion, whether to retain jurisdiction of the cross-claim. We question, however, the magistrate's agreeing to the delay procedure if it were done simply to preserve jurisdiction. Consequently, we shall examine the case as if the Government had filed its ...

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