Underwriters at Lloyd's v. Nichols

• Decision Date: 30 June 1966
• Docket Number: No. 18313.,18313.
• Citation: 363 F.2d 357
• Parties: UNDERWRITERS AT LLOYD'S and Orion Insurance Co., Ltd., et al., Appellants, v. R. H. NICHOLS et al., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

363 F.2d 357 (1966)

UNDERWRITERS AT LLOYD'S and Orion Insurance Co., Ltd., et al., Appellants, v. R. H. NICHOLS et al., Appellees.

No. 18313.

United States Court of Appeals Eighth Circuit.

June 30, 1966.

R. A. Eilbott, of Reinberger, Eilbott, Smith & Staten, Pine Bluff, Ark., for appellants. Reinberger, Eilbott, Smith & Staten, Pine Bluff, Ark., was on the brief.

William S. Arnold, of Arnold & Hamilton, Hamburg, Ark., submitted brief for appellees, Nichols, Cotton, Selby and Montrose Gin Co., without oral argument.

Before VOGEL, Chief Judge, MEHAFFY, Circuit Judge, and McMANUS, District Judge.

VOGEL, Chief Judge.

The sole issue involved in this appeal is whether the District Court erred in determining that it did not have jurisdiction over the subject matter of the complaint for interpleader filed in this case. The complaint was dismissed with prejudice by the District Court. We reverse.

Plaintiffs-appellants, all British insurance companies, issued certain policies of liability insurance to one Roy H. Sheffield, Jr., doing business as Dixie Flyers, which policies purported to indemnify Sheffield against liability from crop spraying operations which he carried on in the State of Arkansas. Appellants alleged that for the policy period beginning June 22, 1965, and ending on June 22, 1966, the aggregate coverage provided to Sheffield by them was $20,000 subject to a $750 deductible for each and every property damage claim entered against Sheffield.

During the policy period, Dixie Flyers, through its employees, caused certain rice crops, on several occasions, to be sprayed with an herbicide which was dangerous to broad-leafed plants, including cotton. It is claimed that some of the herbicide fell or drifted onto cotton crops growing in fields adjacent to or in the vicinity of the rice fields that were sprayed. The growing cotton was allegedly damaged as a result. Because of the spraying operations, as found by the District Court,

"* * * About 18 claims of cotton farmers for damages have been or will be made against Sheffield; the total claims are expected to amount to more than $50,000."

At the time of the filing of the instant cause of action two separate suits had already been commenced against Sheffield in the state courts of Arkansas because of the alleged damages caused by Sheffield's crop spraying activities. The aggregate of the amounts demanded in those two suits exceed $25,000.

The actual and potential claimants for damages from Sheffield, all citizens of Arkansas, are defendants-appellees herein. Further defendants-appellees include Sheffield, Sheffield's employees and the owners of the rice lands to which the offending herbicide was applied.

Appellants sought to determine their liability, if any, on all claims and potential claims arising out of the crop spraying incidents by tendering $20,000, the alleged amount of their insurance liability to Sheffield, into the registry of the District Court and by attempting to proceed in an interpleader action under Rule 22 of the Federal Rules of Civil Procedure, 28 U.S.C.A.¹ Appellants, desiring to compel the litigation of all claims against Sheffield in this single action, also sought to enjoin the further prosecution of the two pending Arkansas state court suits and the initiation of additional state court actions. Appellants deny any liability on the part of Sheffield to the cotton growers and, alternatively, allege that if there was liability in excess of the policy coverages, that recovery should be prorated among the successful claimants from the $20,000 tendered into court.

It is obvious that without the intervention of the appellants there would not be the requisite diversity of citizenship needed for federal court jurisdiction. Sheffield, all claimants and the other appellees are clearly citizens of Arkansas. It is also apparent that appellants would have no standing in the Arkansas state courts to assert their policy limitation defense until after individual judgments had been rendered against Sheffield exceeding the $20,000 policy limits, since Arkansas has no direct action statute — i. e., a statute giving an injured party the right to proceed directly against the alleged tort feasor's insurance company. Only where there is an unsatisfied judgment can the injured party proceed against the insurance company. Ark. Stat. Ann. §§ 66-4001, 66-4002 (1966 Replacement). Appellants fear that unless all claims are disposed of in this one federal action, they will perhaps be required to pay sums in excess of policy limits. Appellants' reasoning is that after paying off initial successful claimants from the state courts and exhausting the available funds under the policy, they could possibly still be forced to pay later successful claimants on the theory that they, appellants, should have prorated the available funds among all claimants. Appellees do not dispute appellants' assertion that it is an open question under Arkansas law as to whether such additional liability would ensue when there are multiple claims growing out of the same coverage.

The District Court, in denying appellants' application for a preliminary injunction and in dismissing appellants' claims with prejudice, held that the court did not have jurisdiction over the instant dispute under Rule 22, set out at fn.n. 1, supra, there being unliquidated tort claims involved. Since the claims were unliquidated, the lower court felt appellants were in no immediate danger of facing multiple liability so as to make Rule 22 applicable. This appeal followed.

Under interpleader, as most simply defined at 48 C.J.S. Interpleader § 2, p. 38 (1947), one

"* * * who owes or is in possession of money or property in which he disclaims any title or interest but which is claimed by two or more persons, prays that the claimants be compelled to state their several claims, so that the court may adjudge to whom the matter or thing in controversy belongs. The office or function of the remedy is to protect one against conflicting claims and double vexation with respect to one liability."

It might be beneficial at this point to briefly summarize the federal law of interpleader as it has developed over the past fifty years. On this subject see generally 2 Barron and Holtzoff, Federal Practice and Procedure, §§ 551 et seq. (Rev. Ed., 1961); 3 Moore's Federal Practice, par. 22.01 et seq. (2d Ed., 1964); 6 Nichols, et al., Cyclopedia of Federal Procedure, §§ 22.01 et seq. (3d Ed., 1951); and the excellent series of articles written by Professor Zechariah Chaffee, Jr.² See, also, the scholarly discussion of the law of interpleader by then District Judge J. Skelly Wright in Pan American Fire & Cas. Co. v. Revere, E.D.La., 1960, 188 F.Supp. 474.³

Interpleader first originated in the old common law of interpleader but the primary development and principles of interpleader occurred in equity where the use of interpleader was most common. As the late Judge John Sanborn stated for this court in Klaber v. Maryland Cas. Co., 8 Cir., 1934, 69 F.2d 934, 936-937, 106 A.L.R. 617:

"The essential elements of the equitable remedy of interpleader are: (1) The same thing, debt, or duty must be claimed by both or all the parties against whom the relief is demanded. (2) All their adverse titles or claims must be dependent, or be derived from a common source. (3) The plaintiff must not have nor claim any interest in the subject-matter. (4) He must have incurred no independent liability to either of the claimants and must stand perfectly indifferent between them, in the position merely of a stake-holder. Pomeroy\'s Equity Jurisprudence (4th Ed.) vol. 4, § 1322; Wells, Fargo & Co. v. Miner (C.C.) 25 F. 533. See, also, Calloway v. Miles (C.C.A. 6) 30 F.(2d) 14; Connecticut General Life Ins. Co. v. Yaw (D.C.) 53 F. (2d) 684."

These requisites, often given lipservice by the courts but frequently avoided as such, hampered the utility of the interpleader device.

Beginning in 1917 the United States Congress enacted the first of a series of interpleader acts. 39 Stat. 929 (1917). The initial act was amended in 1925⁴ and was repealed and replaced in 1926. 44 Stat. 416 (1926). In 1936 a new interpleader act was passed. 49 Stat. 1096 (1936). The 1936 act was last amended in 1948 by the Judicial Code and Judiciary Act at the time when 28 U.S.C. was enacted into positive law. 62 Stat. 869 (1948). The act now appears in 28 U.S. C. §§ 1335, 1397 and 2361. These different acts varied from each other in certain respects but the culmination of these acts "* * * extended the jurisdiction of the federal courts with respect to interpleader actions." 2 Barron and Holtzoff, supra, § 551, at p. 229. In certain respects the 1926 act was narrower than the earlier 1917 act and later acts, but discussion of this point will be deferred until relevant, infra. It is not necessary to set out the full text of these acts since they are only collaterally relevant to this appeal.

Rule 22 of the Federal Rules of Civil Procedure, 28 U.S.C.A., set out at f.n. 1, supra, was promulgated in 1937 and stands as promulgated except that subparagraph (2) was amended, effective October 20, 1949, to reflect the passage of Title 28 U.S.C. into positive law. Professor Moore, in his treatise, notes that Rule 22 "* * * provides the most modern and liberal method of obtaining interpleader to be found." 3 Moore, supra, par. 22.04 at p. 3007. By its own terms Rule 22 is intended to be "in addition to" statutory interpleader "and in no way supersedes or limits" remedies provided under statutory interpleader.

As already noted, the instant case arises under Rule 22 rather than under the 1948 statutory interpleader act. The 1948 act requires as a jurisdictional prerequisite "Two or more adverse claimants, of diverse citizenship", 28 U.S.C. § 1335(a) (1). Herein all actual and potential claimants are from Arkansas, defeating jurisdiction of the instant controversy under the 1948 act....