* Judge Garza concurs in judgment only. IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________________

No. 01-31322

__________________________

JAVAID HUSSAIN, Etc; ET AL

Plaintiffs,

STEVEN J. RANDO and GLENN A. WOODS,

Appellants,

versus

BOSTON OLD COLONY INSURANCE COMPANY; ET AL

Defendants,

UNITED STATES OF AMERICA,

Defendant-Appellee,

HIBERNIA NATIONAL BANK,

Appellee.

___________________________________________________

Appeal from the United States District Court

For the Eastern District of Louisiana

___________________________________________________ October 31, 2002

Before WIENER, EMILIO M. GARZA, * and PARKER, Circuit Judges.

WIENER, Circuit Judge:2

This case arrives at our doorstep after a procedural odyssey

through both the state and federal court systems. It began as a

suit in a Loui siana state court by an insured and his secured

lender to recover policy proceeds from the insurance company, and

has ended with a protracted multi-party dispute among the insured

(“Hussain”), his attorneys (collectively “Rando”), the

lender/mortgagee (“Hibernia”), the defendant insurance company

(Boston Ol d Colony or “BOC”) and the defendant-appellee United

States of America (the “government”) over the proper distribution

of an insurance proceeds fund that is insufficient to satisfy all

claims in fu ll. Central to this appeal is Rando’s challenge to

federal subject matter jurisdiction, as well as the rulings of

the district court on the priority and amounts of distribution of

the insurance fund among the several claimants. We affirm the

district court in all respects except for its assessment of costs

for Hussain’s expert fees.

I. Facts and Proceedings

This case was sparked by a 1991 fire that destroyed the

inventory of Sheik’s Oriental Rugs, Inc., owned by Hussain. He

was insured up to $500,000 by BOC. Hibernia was named on the BOC

insurance policy (the “Policy”) as a loss payee, under a 1989

loan of $177,699.02 to Hussain who h ad secured his promissory

not e by a chattel mortgage on his inventory (the “covered3

property”). Although the Policy appears to contain two different

provisions governing the relationship between Hussain and

Hibernia, a close reading suggests that only one

—— the “Loss

Payable” provision

—— applies: The other, by its terms,

envisions Hibernia as the putative buyer of the covered property,

which it does not appear ever to have been. The Policy’s “Loss

Payable” provision reads as follows:

A. Loss Payable

For covered property in which both you and a Loss

Payee...have an insurable interest, we will:

... 2. P ay any claim for loss or damage join tly to you

and the Loss Payee, as interests may appear.

In signing the Hibernia loan documents, Hussain warranted that he

alone owned the mortgag ed property, “free and clear from any

adverse claim, mortgage, lien, securit y interest, privilege, or

encumbrance.”

After the fire, Hussain defaulted on the Hibernia promissory

note and litigation commenced. In 1992, as holder of the secured

note, Hibernia sued Hussain, and in 1994 obtained a state court

default judgment against him which recognized Hibernia’s

continuing security interest in the covered property. Also in

1992, Hibernia, as loss payee under the Policy, filed a separate

state court action against Hussain and BOC to recover a portion

of the policy proceeds.1 Hussain v. Boston Old Colony Ins. Co. , 170 F. Supp 2d. 663,

667 (E.D. La. 2001).

4 In 1993, Hussain sued BOC on the Policy in state court.

This suit was consolidated with Hibernia’s suit as loss payee.

In 1995, Hussain retained Rando as n ew counsel, and in doing so,

executed a contingency-fee agreement that assigned one-third of

any recovery to his new attorneys. Rando asserted before the

district court that he has since spent $368,449.72 in prosecuting

this case. 1

BOC denied liabili t y under the Policy’s arson exclusion.

The state court rejected that defense in a direct ed verdict,

ruling that BOC owed Hussain and Hibernia $ 500,000 in policy

proceeds, plus interest, costs, and fees. BOC appealed to the

higher Louisiana courts; but once the Louisiana Supreme Court

denied certiorari on November 13, 2000, the judgment as to BOC’s

liability became final.

On December 8, 2000, the Int ernal Revenue Service of the

Department of the Treasury (“IRS”) notified BOC of federal tax

liens against Hussain’s property. On the same day, Hussain

executed a new fee agreement giving Rando a 39% interest “in and

to any gross recovery I/we may have in this matter.” Rather than

institute concursus (inter pleader) proceedings, BOC —— still in

the context of the consolidated suits against it, and despite the

finality of the judgment in that case

—— filed a motion to have2 See 28 U.S.C. § 1444 (2000). In this case the point at which

the IRS filed i ts lien does not affect the priority of claims

adjudicated here. The law provides that a federal tax lien arises

upon assessment of the tax, and thus does not impose any filing

requirement. S ee United States v. McDermott

, 507 U.S. 447, 448

(1993). Nonetheless, provisions of the Internal Revenue Code

provide that both the holders of secu rity interests, such as

Hibernia, and attorneys who obtain judgments or settlements for

their clients, such as Rando, have priority over the federal tax

lien. See 26 U.S.C. §§ 6323(a), (b)(8) (2000). While holders of

security interests may only have priority if such interests arise

before notice of the federal tax lien is filed, Hibernia became

loss payee in 1990 and the fire triggering its rights occurred in

1991, well before the federal government filed notice of any tax

lien.

3 Hussain , 170 F. Supp 2d. at 671-73.

5 the court d etermine the amounts and priority of distribution of

funds. As part of that motion, BOC also secured and served on

the IRS an order to show cause why it should not be excluded from

any distribution. This prompted the IRS first to file a notice

of its tax lien in the records of Orleans Parish on January 9,

2001, and then, on January 17, 2001 to remove the case to the

Eastern District of Louisiana. 2

After briefing, the district court ruled that (1) Hibernia

takes first priority, as loss payee; (2) second in line, Rando

takes as attorneys’ fees pursuant to the state court litigation,

one-third of the amount remaining after Hibernia’s claim is fully

paid; and (3) third in line, the government takes the remainder

of the policy proceeds, ahead of all other creditors of Hussain. 3

Also, on motion by Hussain, the court taxed costs of $5,000,4 Id. at 675.

5 Your Insurance Needs Agenc y Inc. v. United States , 274 F.3d

1001, 1003 (5th Cir. 2001) (“[W]e exercise plenary, de novo review

of a district court’s assumption of subject matter jurisdiction.”).

6 Kemp v. G.D. Searl & Co.

, 103 F.3d 405, 407 (5th Cir. 1997)

(“Questions of statutory interpreta tion are questions of law and

thus reviewed de novo”).

7 Jason D.W. v. Houston Indep. Sch. Di st. , 158 F.3d 205, 208

(5th Cir. 1998).

8 Id.

6 which was one-fifth of the amount that Hussain had sought, in

payment for his expert witness, John Theriot, CPA. 4

On appeal R ando has raised several issues, in essence

contending that he should be paid an additional $196,377.48, an

amount determined by applying h is claimed contingent fee

percentage (39%) to the entire amount payable from the Policy and

awarded by the court.

II. Analysis

A. Standard of Review

This court reviews de novo a district court ’s determination

of its subject-matter jurisdiction. 5 On the merits, statutory

const ruction is reviewed d e novo

, 6 with factual findings reviewed

for clear error. 7 An award of attorney’s fees is reviewed for

abuse of discretion. 89 28 U.S.C. § 2410(a) (2000). Section 2410(a) provides,

(a) Under conditions prescribed in this section and section 1444

of this title for the protection of the United States, the United

States may be named a party in any civil action or suit in any

district court, or in any State court having jurisdiction of the

subject matter -

(1) to quiet title to,

(2) to foreclose a mortgage or other lien upon,

(3) to partition,

(4) to condemn, or

(5) of interpleader or in the nature of interpleader with

respect to,

real or personal property on which the United States has or

claims a mortgage or other lien. Id.

10 28 U.S.C. § 1444. Section 1444 provides, “[a]ny action

brought under section 2410 of this title against the United

States in any State court may be removed by the United States to

the district court of the United States for the district and

division in which the action is pending.” Id.

11 City of Miami Beach v. Smith

, 551 F.2d 1370, 1374 n.5 (5th

Cir. 1977).

7 B. Subject-Matter Jurisdiction

Section 2410(a) waives the sovereign immunity of the federal

government, enabling private parties to hale the government into

court to determine the priority of outstanding liens on real or

personal property. 9 As a trade off for the waiver of sovereign

immunity, section 1444 permits the government to remove to

federal district court any such case initiated in state court. 10

In light of this conditional relationship between §§ 2410(a) and

1 444, we have held that § 1444 “confers a substantive right t o

remove, independent of any other jurisdictional limitations.” 1112 See United States v. Testan , 424 U.S. 392, 399 (1976).

13 See Estate of Johnson v. United Sta tes , 836 F.2d 940, 943

(5th Cir. 1988); 28 U.S.C. § 2410(a).

14 See Estate of Johnson , 836 F.2d at 943.

8 Thus, to find subject matter jurisdiction in this case we

had to resolve initially whether § 2410(a) applies in this case.

For us to conclude that jurisdiction was proper at the time of

judgment, not only must we justify the presence of the United

States in the dispute, but we must also demonstrate how §

2410(a)(5), which covers actions in interpleader or in the nature

of interpleader, applies to the parties’ actions in this dispute.

Once the applicabili ty of § 2410(a) is established, federal

subject matter jurisdiction is present on the basis of § 1444.

1. General Construction of § 2410(a)

The law is well settled that the government is not subject

to su it unless it has waived its sovereign immunity. 1 2 As noted,

§ 2410 was specifically passed to waive the sovereign immunity of

the United States so that p rivate parties could get the

government into court when necessary to quiet title or resolve

priority of liens or mortgages. 13 Such waiver, however, must be

narrowly construed to comport precisely with congressional

intent. 14 T hus, “no suit may be maintained against the United

States unless the suit is brought in exact compliance with the15 Koehler v. United States

, 153 F.3d 263, 265-66 (5t h Cir.

1998).

16 Montgomery v. United States

, 933 F.2d 34 8, 349 (5th Cir.

1991).

17 Cummings v. United States

, 648 F.2d 289, 292 (5th Cir. 1981).

18 See Koehler , 153 F.3d at 266-67.

9 t erms of a statute under which the sovereign has consented to be

sued.” 15

In conformity with this strict c onstruction, we have found

at least three instances in which waiver of sovereign immunity

does not exist under § 2410(a). There is no waiver (1) when a

taxpayer seeks to challenge the validity of any underlying tax

assessment, 16 (2) when the government is claiming a title

interest in property rather than a lien interest, 1 7 or (3) when

the government no longer has a mortgage on, or other security

right in, the property in dispute. 18

Even so, such strict compliance with the statute does not

imply that literal interpretation of § 2410's every word is

required. Standing together, the cases noted above simply

reiterate that § 2410(a) applies only when the issue concerns the

priority of an existing government mortgage or other security

interest. On this issue, the determination of sovereign immunity

is strict. In contrast, we and other courts have taken a more

inclusive approach to the types of underlying relief, such as19 United States v. Morrison

, 247 F.2d 285, 290 (5th Cir. 1957).

20 Estate of Johnson , 836 F.2d at 945.

21 See Progressive Consumer Fed. Credit Union v. United States

, 79 F.3d 1228, 1231-32 (1st Cir. 1996) (hailing the substance over

the form of relief sought because Congress “was concerned not with

the niceties of common law pleading, but with practical problems

facing owners whose property was encumbered by government liens”);

City of New York v. Evigo Corp. , 121 F. Supp. 748, 750 (S.D.N.Y.

1954) (ignoring the technical procedures used by the City of New

York and finding jurisdiction under §§ 2410(a) and 1444 because the

“purpose and effect of the action” concerned “priority for the

satisfaction of the respective tax claims out of the property

seized”). S ee also United States v. Coson

, 286 F.2d 453, 457 (9th

10 q uiet title and interpleader suits, to which § 2410(a) expressly

applies. Specifically, when the priority of a presently existing

lien interest of the government is in dispute, and the question

is whether § 2410(a) applies to the type of relief s ought, the

statute has been read much more expansively.

In explaining the application of § 2410(a), we have found

that “jurisdiction does not depend on the specific relief sought,

[e.g.] foreclosure. Rather it rests on the existence of the

traditional con troversy in which a private party asserts an

ownership which is superior to the claimed lien of the United

States Government.” 19 Informing this approach is our recognition

of Congress’s conviction “that a m eans be available to determine

such disputes lest the absence of judicial recours e depress the

marke tability of property subject to federal tax liens.” 2 0 Other

courts have found the applicability of § 2410(a) to underlying

actions equally capacious. 21Cir. 1961) (interpreting the words “quiet title” broa dly in

conformity with the text and the history of the statute).

11 In the instant case, the government maintains an outstanding

tax lien on Hussain’s property. Thus, § 2410(a) appears

applicable. Although the applicability of § 2410(a)(5) to the

suit as a whole remains to be discuss ed, our prior holdings and

our understanding of congressional intent predispose us to accept

the government’s presence in this case despite its unique mode of

entrance.

2. Breadth of Interpleader Actions under § 2410(a)(5)

Given the expansive approach to determining the kinds of

relief for which § 2410(a) is available, we next consider whether

§ 2410(a)(5) covers the state court motion practice instituted by

BOC after the judgment against it and in favor of Hussain and

Hibernia had become final and no longer appealable. Even though

establishing the applicability of this statute in terms of the

g overnment’s interest and its waiver of sovereign immunity h a s

been accomplished, we are nevertheless required to decide whether

the post-judgment proceed ings in this case come within the scope

of § 2410 (a)(5). Specifically, we must determine (1) whether

BOC’s Motion to Determine Amount and Distribution of Funds

constitutes an action in interpleader within the contemplation of

§ 2410(a)(5 ), and (2) whether the government’s presence as22 28 U.S.C. § 2410(a).

23 See Gen. Elec. Credit Corp. v. Grubbs

, 447 F.2d 286, 288 (5th

Cir. 1971), rev’d on other grounds , 405 U.S. 699, 705-06 (1972).

24 Texas v. Florida , 306 U.S. 398, 412 (1939).

25 See id. at 405-06; Grubbs

, 447 F.2d at 288. In Grubbs , we

found that the plaintiff failed to assert a “viable” interpleader

because he had never shown that he would be multiply liable on the

same fund. Rather, we noted that the record suggested that he was

individually liable to each of his judgment holders. See Grubbs

,

447 F.2d at 289-90. The Supreme Court ultimately reversed because

12 respondent under a show cause order satisfies the s tatutory

requirement that the government be “named a party in any civil

action or suit.” 22

a. Whether There Is an Action in Interpleader

Section 2410(a)(5) expressly covers both interpleader

actions and actions in the nature of interpleader. A traditional

in terpleader suit is an equitable action available to a

plaintiff-stakeholder who is, or may be, exposed to multiple

liability or multiple litigation, usually when two or more claims

are brought that are mutually inconsistent. 23 The purpose of

interpleader is to enable the plaintiff-stakeholder to avoid “the

burden of unnecessary litigation or the risk of loss by the

establishment of multiple liability when only a single obligation

is owing.” 24 Thus, traditionally the claims of the defendant

claimants must be mutuall y exclusive and adverse to one another

such that one claimant’s gain in the stake would be another

claimant’s loss. 25 In contrast to the subsequently evolved billeven though removal may have been defective (because the

int erpleader was not viable), the district court would have had

jurisdiction of the a ction had it been brought there originally.

See Grubbs , 405 U.S. at 702, 705-06.

26 See Texas , 306 U.S. at 406.

27 See id. , at 406-07.

28 See Hussain v. Boston Old Colony Ins. Co.

, 170 F. Supp 2d.

663, 669 (E.D.La. 2001) (finding that BOC’s motion was in the

nature of interpleader because it was “intended to rank priority to

the real or personal property to which the United States (and

others) has a claim, which brings it squarely within the scope and

purpose of § 2410").

13 in the nature of interpleader, the stakeholder in a strict bill

of interpleader maintains no claim or interest in the stake. 26

An “action in the nature of inte rpleader” is a term of art

that refers to those a ctions in which an interpleading plaintiff

asserts an interest in t he subject matter of the dispute. 2 7 In

all other respects, actions in the nature of inter pleader are

identical to traditional interpleader suits. It is §

2410(a)(5)’s reference to suits in the nature of interpleader

that the district court appears to have relied on in finding

jurisdiction. 28 The district court was incorrect in this

reading, however, because BOC had already disclaimed all interest

in the insurance proceeds when it filed its motion to determine

distribution of funds. Thus, BOC did not have the requisite

claim or interest in the fund that is required for the29 See In re Bohart , 743 F.2d 313, 324-25 (5th Cir. 1984).

30 See General Electric Credit Corp. v. Grubb s , 447 F.2d 286,

289 (5th Cir. 1971).

31 Mackay 229 U.S. at 176.

14 plaintiffs’ action to constitute one in the nature of

interpleader.

Even though we have not previously determined the precise

scope of an interpleader action under § 2410(a)(5), two primary

factors convince us that this provision applies to the facts of

this case. First, as noted above, we have taken an expansive

approach to determining the types of relief to which § 2410(a)

applies. Second, the equitable purpose of interpleader to

protect stakeholders from multiple liability and multiple

litigation has led us to construe its requirements liberally. 2 9

In addition to the more traditional interpleader requirement that

two or more claimants have competing, mutually exclusive claims

to the stake, we have recognized that a plaintiff-stakeholder may

employ interpleader when its liability is limited and the

combined claims are in excess of s uch limited liability, even

though not mutually exclusive. 30 Further, the Supreme Court has

counseled that when removal has occurr ed and jurisdictional

requirements otherwise have been met, any problems with party

labels are immaterial because the parties could have been

“realigned” by the court. 3132 192 F. Supp. 104 (S.D.N.Y. 1961).

33 See id. at 104-05.

34 See id. at 105.

35 I d.

15 In like manner, other courts at both the federal and state

levels have interpreted broadly which actions c onstitute an

interpleader. One older district court case in the Second

Circuit addressed a fa ctual situation similar to the instant

case. In U nited States v. Webster Record Corp.

, a chemical

company was a state court judgment creditor of Web ster Record

Corporation (Webster), which in turn was a depositor in (and thus

a cred itor of) Bankers Trust Company (Bankers). 3 2 To collect its

state judgment against Webster, the chemical company initiated

supplemental proceedings in state court against Bankers to

acquir e the deposit that Bankers was holding for Webster. 3 3

During these supplemental proceedings, the IRS served a notice of

levy on Bankers, demanding the deposit to satisfy a tax lien

against Webster. 3 4 Instead of appearing in the supplemental

proceedings to determine lien priority over this deposit, the

government su ed directly in federal district court to foreclose

on the lien. 35

The district court recognized that any order directed at

Bankers to turn over the Webster deposit to the chemical company36 I d.

37 Id.

38 Damson Oil Corp. v. Sarver

, 346 So. 2d 1304, 1307 (La. Ct.

App. 3d Cir. 1977); Asian Int’l, Ltd. v. Merrill Lynch, Pierce,

Fenner & Smith, Inc.

, 435 So . 2d 1064, 1066-67 (La. Ct. App. 1st

16 would not bind the government, and thus would lead to further

litigation. 36 Without using the label “interpleader,” the court

also recognized that there was a substantial dispute as to

priority of the claimants’ entitlement to the deposi ted funds.

As such, the appropriate action would be to join the government

as defendant in a state court suit to determine lien priorities;

yet, recognized the cour t, such an action undoubtedly would

provoke the government to remove the action to federal court

under the authority of § 2410(a). Thus, concluded the court, “it

would be an idle gesture to permit [the chemical company] to

proceed in the State Court, since its action would eventually be

removed to this Court.” 37

In sum, the equitable purpose of interpleader to protect the

stake holder from multiple litigation and liability (expressed in

Webster as the desirability of avoiding unnecessary litigati o n

later) and the purpose of § 2410 of resolving outstanding

government liens, outweighed any defects in the procedural

history. Louisiana courts have also recognized that a concursus

proceeding (Louisiana’s version of interpleader) “should be

construed liberally and given a broad application.” 38 In short,Cir. 1983) (recognizing that statutes governing concursus “are to

be construed liberally,” and thus holding that alternative

procedural devices may be used to invoke a concursus proceeding if

its substantive requireme nts are met). B ut see Hampton v.

Greenfield

, 602 So. 2d 327, 329 (La. Ct. App. 4th Cir. 1992), rev’d

on other grounds

, 618 So. 2d 859 (La. 1993) (fin ding that a

concursus proceeding may not be used to relitigate the issue of

liability). Under Louisiana law, “[a] concursus proceeding is one

in which two or more persons having competing or conflicting claims

to money, property or mortga ges or privileges on property are

impleaded and required to assert the ir respective claims

contradictorily against all other parties to the proceeding.” La.

Code Civ. Proc. Ann. art. 4651 (West 2002).

39 Although the Supreme Court has indi cated that defensive

interpleader under Rule 22 must be framed as either a cross-claim

or counter-claim, its emphasis on the form of pleadings was meant

to reiterate that rule interpleader is only proper when there is

“some nexus with a party already in the case.” G rubbs

, 405 U.S. at

705 n.2. Thus, as in other areas of pleading, we construe the

pleading liberally according to its substance rather than its form

or label. S ee Indus. Dev. Bd. v. Fuqua Indus., Inc. , 523 F.2d

1226, 1235 (5th Cir. 1975) (relying on the liberal pleading

standard of the federal rules to construe a complaint to include

request for relief on a theory of subrogation, even though the

complaint was not clear); 5 Charles Alan Wright & Arthur R. Miller,

Federal Practice & Procedure, § 1286, n.10 (2d Ed. 1990); 7 Wright

& Miller, Federal Practice & Procedure, § 1715.

17 the broad approach toward determination of the types of relief

available under § 2410(a) generally , in combination with the

equitable nature of interpleader to protect a stakeholder from

multip l e liability and vexatious litigation, indicates that §

2410(a)(5) encompasses BOC’s actions.

It is true here that the motion practice of the parties did

not use the same labels as actions taken to initiate an

interpleader proceeding. 39 Regardless of the misleading case

caption, however, the substantive posture of the parties mirrored40 As noted, it is well settled that claims to the stake need

not be mutually exclusive. See 4 Moore’s Federal Practice §

22.03[1][d] (Matthew Bender 3d ed.). We and other courts have

also found that adversity of claims is satisfied when additional

claims to a fund are derivative of one particular claimant’s

right to the fund. See Bricks Unlimited, Inc. v. Agee , 672 F.2d

1255, 1257-58 (5th Cir. 1982). See generally 4 Moore’s Federal

Practice § 22.03[1][d], n.13.

18 the substance of an action in interpleader. By the time of

judgment in federal court, the parties had taken several

procedural steps that produced a situation in which BOC had

brought Hussain, Hiber nia, Rando, and the government together to

contest the priority of liens and distribution of payments from

the insurance fund possessed by BOC.

Although BOC did not refer to “interpleader” or “concursus,”

and did not deposit the fund in the registry of the court, it

possessed an insurance proceeds fund of $500,000 in which it

claimed no interest and to which there were several claimants.

BOC had been found liable to Hussain and Hibernia under the

Policy; the IRS had served not ice of a tax levy on BOC for the

money; and Hussain’s attorney, Rando, had asserted a right to

recover his contingent fee from the proceeds. In addition, those

four claimants sought satisfaction from the insurance proceeds

and, in the aggregate, their claims (1) exceeded the total amount

available in the fund, and (2) were adverse to each other. 4 041 28 U.S.C. § 2410(a).

19

Consequently, BOC had a genuine fear of multiple and vexatious

litigation.

To avoid that, BOC filed its Motion to Determine Amount and

Distribution of Funds with the Louisi ana trial court, and asked

that court to order the IRS to show cause as to its interest in

the insurance proceeds fund. Similarly, in the federal district

court, BOC’s Motion to Determine Amount and Distribution of Funds

was an attempt to bring in all who claimed an interest in the

stake so that BOC would not be liable for an amount greater than

the limits of the insurance policy or have to defend multiple

suits. Thus, in conformity with the expansive approach taken

toward this form of the equitable relief, the actions of BOC were

sufficie nt in fact to constitute interpleader against the

government under the requirements of § 2410(a)(5).

b. Whether the Presence of the United States Pursuant

to § 2410(a) is Satisfied by the Order to Show Cause

The second interpretation issue presented is whether the

government’s presence in this suit by virtue of the state court’s

order to show cause satisfies § 2410(a)’s requirement that the

United States be “named a party in any civil action or suit.” 4 1

We are aware of no case law, either in this circuit or elsewhere,

interpreting this particular phrase from § 2410(a). Furthermore,20

the statutory construction of other language in § 2410 that we

have undertaken points in different directions. As described

above, we have narrowly construed th e language waiving sovereign

immunity, but we have broadly interpreted the types of relief to

which this statute applies. As the requirement that the

government be “named a party in any civil action” relates more to

th e form of relief sought in the underlying state court

proceedings than to the waiver of so vereign immunity, we

interpret “any civil action or suit” broadly to include the

instant orders to show cause because their purpose is to

determine the priority of claims to money or property.

The c ases narrowly interpreting the waiver of sovereign

immunity are less applicable here because the nature of the

government’s interest, which triggers (or prevents) the waiver of

immunity, is not at stake. Rather, at issue here is simply the

procedure by which the government was brought into an action to

determine the ranking of its lien.

Additio nally, applying § 2410 to these orders to show cause

comports with the statute’s purpose. On two occasions, Congress

has broa dened the original section 2410(a), each time allowing

waiver of sovereign immunity in additional types of cases, so as

to enhance the ability of private parties to resolve issues of

ranking or priority when government liens are involved. The 194242 United States v. Perry

, 473 F.2d 643, 645 (5th Cir. 1973).

43 See Sen. Rep. No. 89-1708, at 1966 U.S.C.C.A.N. 3722, 3754-

55.

44 Id. at 3755.

21 amendment, which exte nded the statute’s ambit to include quiet

title actions, “was in response to the recognized n eed for a way

to force disputes over government tax liens to resolution, rather

than leaving the United States in complete control of the

timing.” 4 2 S imilarly, in 1966, Congress wanted to expand the

waiver of sovereign immunity to cover more types of litigation so

that private parties could bring the governmen t into those

additional kinds of cases. 43 We discern a pattern over time in

Congress’s broadening of the applicabilit y of § 2410(a) to

include more and more instances in which it was “desirable for

the Government to be a party in order to assert its interest.” 4 4

Congress has clearly wanted the government to be amenable to suit

in an increasing va riety of actions. In keeping with this trend

towar d inclusiveness, we conclude that the government’s presence

in a suit, by virtue of an order to show cause as to t he ranking

of its lien in a specific fund, comes within the statute’s

coverage; inclusion facilitates the statutory purpose of

resolving the priorities of those liens on property in which the

government has a security interest.45 Progressive Consumer Fed. Credit Union

, 79 F.3d at 1231-32.

46 City of Miami Beach , 551 F.2d 1374 n.5. Even if § 1444

did not create independent federal subject matter jurisdiction,

or this case had been brought directly in federal court, this

interpleader-like action would appear to meet the requirements

for federal jurisdiction under § 1332. See 28 U.S.C. §

1332(a)(1). Section 1332 jurisdiction under Rule 22 (rule

interpleader) requires: (1) complete diversity of citizenship,

which is met when the stakeholder is diverse from all the

claimants, even if citizenship of the claimants is not diverse ;

and (2) an amount-in-controversy that exceeds $75,000 exclusive

of interest and costs. See 4 Moore’s Federal Practice §

22.04[2][a]. In this case, complete diversity was present: BOC

22 In combination, a more expansive approach to determining the

kinds of relief covered by § 2410(a) and the intent of Congress

to address the “practical problems facing owners whose property

was encumbered by government liens” i nstead of the “niceties of

common law plea ding,” 4 5 dictates § 2410(a)’s inclusion of an

order to show cause that brings the government into court to

answer a stakeholder’s call to determine lien priorities.

In sum, the district had federal subject matter jurisdiction

b ecause this case met the requirements of § 2410(a) as well a s

those of § 1444. Section 2410(a) only waives sovereign immunity

a nd does not create a basis for federal subject matter

jurisdiction. But, once it is deemed applicable in a state court

action, such as the one here, it makes available to the

government § 1444, which we have held creates a substantive right

of removal to federal cou rt, regardless of other jurisdictional

limitations. 46is a Massachusetts corporation, and Hussain, Hibernia, and Rando

are Louisiana citizens. As the government is not a citizen of

any state, it is not considered in the complete diversity

calculus. See 4 Moore’s Federal Practice § 22.08[1], n.9. As

for the second prong of the test for diversity jurisdiction,

amount-in-controversy, the principal amount at stake of the

insurance fund is $500,000, well in excess of the $75,000

threshold. Thus, subject matter jurisdiction on the basis of

diversity would have been met.

47 See Migra v. Warren City Sch. Di st. Bd. of Educ. , 465 U.S.

75, 81 (1984); A.L.T. Corp. v. Small Bus. Admin.

, 801 F.2d 1451,

1455 (5th Cir. 1986).

23 C

. Effect of a Final State Court Judgment

There is one remaining complication that we must resolve

before addressing to the merits of this appeal. Unlike any of

the cases discussed above, BOC’s inte rpleader-like actions were

not initiated until after the state court judgment (in a case

that the government was not involved in, as a party or otherwise)

that required BOC to pay the insurance proceeds to Hussain and

Hibernia “as their interests appe ar in the policy” had become

final and no longer subj ect to appeal. The Supreme Court has

interpreted the Full Faith and Credit Act to require that federal

courts grant the same preclusive effect to a state court judgment

as the state court would have give n to it. 47 Therefore, whether

the Louisiana court judgment is considered final, in that sense,

is a matter of state law.

The Louisiana Code of Civil Procedure provi des that “[n]o

claimant may be impleaded in a concursus proceeding whose claim48 La. Code Civ. Proc. Ann. art. 4652 (West 2002).

49 La. Code Civ. Proc. Ann. art. 4652, cmt. b.

50 See Am. Sur. Co. of N.Y. v. Ryan

, 170 So. 34, 40 (La. 1936);

Am. Sur. Co. of N.Y. v. Brim , 144 So. 727, 730 (La. 1932).

24 h as been prosecuted to judgment.” 4 8 The purpose of this rule is

to protect the claimant, “who has prosecuted his claim to

judgment, and otherwise would be forced to relitigate the matter,

not only with the obligor, but with all other adverse

claimants.” 49 In conformity with this language, the Louisiana

Supreme Court has held that when claims have been “establ ished,”

they may no t be impleaded in a later interpleader suit. 5 0

Although the statutory language was adopted after the period

during which the court tackled these cases, its decisions give

contextual meaning to the provision. Review of the cases,

however, demonstrates that the requirements to preclude

subsequent interpleader by an “established” claim are neithe r

completely clear nor met in this instance.

In Victor v. Lewis

, Louisiana’s highest cour t stated that

the law is well-settled that a “claimant who has been put to the

test of a trial by a surety, and has established his claim, may

not be impleaded later by the surety in an interpleader suit, and

compelled to prove his claim again with other adverse51 Victor v Lewis , 161 So. 597, 598 (La. 1935) (emphasis

added).

52 See id.

53 Id.

54 Id.

25 claimants.” 51 In V ictor

, a plaintiff had successfully sued a

real estate broker and an insurance company, as the broker’s

surety, for damages. 5 2 The state court of appeal affirmed the

surety’s liability, but reversed and remanded for a determination

of quantum because the surety was entitled to offset its

liability by the value to the plaintiff of the use of som e land.

The appellate court denied a rehearing requested by the surety,

and the Louisiana Supreme Court denied certiorari. On remand in

district cour t, the surety instituted a concursus (interpleader)

action and deposited the full amount of the bond with the court.

Rejecting th is attempt at interpleader, the state supreme court

found that the plaintiff’s claim had been “finally and definitely

established” because three courts had reviewed the issue; 5 3 the

remaining issue relating to the value of the land during the time

occupied by plaintiff was not enough to alter the conclusion that

the judgment was final. 54

The same court rejected a plaintiff’s attempt at

interpleader under an almost identical set of facts in American55 144 So. 727 (La. 1932).

56 Id. at 730.

57 170 So. 34 (La. 1936).

58 Id. at 39.

26 Surety Co. of New York v. Brim

. 55 The court reasoned that a

party who is aware of its ability to initiate concursus but

chooses not to bring such an action cannot do so after losing the

original suit. The court concluded that allowing interpleader

under those conditions w ould increase the amount of litigation,

thus working against the purpose of interpleader, and would force

a successful claimant to “accept a pro rat a part of a fund...and

thereby largely cause her to lose the benefits of her

judgment.” 56

In American Surety Co. of New York v. Ryan

, yet another

factually similar case, the Louisian a Supreme Court rejected

American Surety’s attempt to recoup awards it had paid to

individual claimants after it had institute d a concursus

action. 57 Apparently relying on the doctrine of novation, the

court characterized those plaintif f s as judgment creditors of

Amer ican Surety, no longer being claimants to a fund. 5 8 The

factors on which the court relied were (1) the claims had been

reduced to judgment before American Surety made any deposit into

the registry of the court, (2) the judgments were executory59 Id.

60 I d. at 40.

61 The original suit was brought against the ancillary

receiver of Home Accident Insurance Company. The litigation,

according to the court, only consisted of a set of

interrogatories that the receiver answered, in which he

essentially admitted to liability if Howland’s proffered exhibits

were correct. It was on this basis that the court found in favor

of Howland, who then used the judgment to obtain a judgment

against American Surety. See id.

62 Id. at 37-38.

27 against any property or fund owned by American Surety, and (3)

American Surety had paid the judgments from other funds and

without reference to the court-deposited fund. 59

In contrast to those conclusions, it was also in Ryan that

the court finally allowed interpleader against one claimant whose

claim the court determined was not “established.” 60 This

claimant, Howland & Co (“Howland”), had won a judgment against a

different company, Home Acci dent Insurance Company, by suing its

ancillary receiver in a process that was more summary than

adversarial. 61 Howland then successfully sued American Surety,

as surety of Home Accident Insurance Company, for payment on the

unpaid judgment. 62 That judgment, however, was apparently never

signed, and American Surety filed a motion for rehearing and an

order for Howland to show cause why th e rehearing should not be63 Id.

64 Id.

65 See id. at 40.

66 See id. at 40-41.

67 Id.

28 granted. 63 The proceedings stopped there because American Surety

filed its interpleader action at about the same time. 64

I n rejecting Howland’s assertion that its claim was

established, the court found that Howland’s prior judgment was

based on insufficient proof; that it was never signed; and that

the motion for rehearing was never adju dicated. 6 5 The court also

based its conclusion on the fact that the prior judgment was

executory only against American Surety for no more than the

amount of the bond it held, thereby restricting recovery to the

available proceeds from an insurance bond. 66 The court surmised

that these facto rs prevented Howland’s claim from being

“established,” thereby freeing the stakeholding plaintiff to

bring Howland into a subsequent concursus proceeding. 67

These Louisiana cases suggest that any plaintiff who has

prosecuted his case throu gh the appellate levels and achieved a

judgment for which there is no further avenue of litigation

cannot later be b rought into a suit in interpleader. And, at

first glance, the facts of our case suggest that Hussain and68 161 So. at 598.

69 La. Code Civ. Proc. Ann. art. 4652.

29 Hibernia had indeed established their claims through a final,

executory judgment, thus blocking their being interpled

subsequently by BOC: Hussain and Hibernia had prevailed at the

trial and appellate co urt levels, and BOC’s writ application had

been denied by the Louisiana Supreme Court, before the government

ever asserted its tax lien and, necessarily, befor e BOC could

have responded by filing its show cause motion. Thus, as

described in Victor

, “th[e] matter was passed upon by three

courts in definitive judgments.” 68

Closer scrutiny reveals, howeve r, that this case is

distin guishable from prior decisions. The positions of the

parties in this case are factually different from past examples

of “established” claims such that this case does not come within

the scope of article 4652 of the Louisiana Code of Civil

Procedure prohibiting concursus (interpleader) against claimants

who have already prosecuted their claims to judgment. 69

Like H owland, the unestablished claimant in R yan

, Hussain

and Hibernia’s aggr egate recovery is limited to the policy

proceeds, and thus is not a general judgment against BOC itself.

The initial state court judgment held BOC liable to Hussain and

Hibernia for 500,000, “the policy limits under Business Owner’s70 Brim , 144 So. at 730.

30

Xtra Policy...as their interests appear in the Policy.” In fact,

the trial c ourt specifically rejected all other claims brought

against BOC, including those for pen alties for arbitrary failure

to pay claims under th e policy. Thus, as in R yan

, the trial

court specifically restr icted the judgment to the amount of the

policy (plus interest and costs), and prohibited any recovery

against the insurance company in excess of that amount.

Furthermore, this case is unlike Bri m , because it is not

clear that BOC had “knowledge of all the facts” s uch that it

could have chosen to proc eed in concursus originally. 7 0 During

the liability stage of this litigation, only Hussain and Hibernia

had made claims to the insurance proceeds. Although a situation

in which two parties sue for the same funds is often ripe for

concu rsus, such is not the case when the combined claims fail to

exceed the fund and are not mutually exclusive. As Hibernia’s

claim was derivative of Hussain’s and as the cases were

consolidated relatively early in the litigation, there was

apparently no fear of multiple liability or multipl e litigation

to prompt BOC to file a concursus proceeding. In fact, notice of

the IRS lien on Hussain’s property and its threatened legal

action did no t appear until December 2000, which was subsequent

to the Louisiana Supreme Court’s denial of certiorari.31

It is also evident that further proceedings in this instance

likely would not increase litigation. Regardless of whether the

government remains a party, the merits of this case indicate that

Rando and Hibernia wou ld continue to dispute the priority of

their claims in the fund : A court would still have to sort out

which contin gency fee percentage Rando was entitled to receive,

and whether the demand for expert fees was proper. Thus, even if

a concursus or interpleader were not allowed in this case,

additional litigation would still arise.

Neither would Hussain lose the benefits of his judgment if

interpleader were allowed. State court litigation ensured that

BOC was liable to Hussain and Hibernia for the full policy

proceeds plus interest and costs. Further litigation would not

alter the judgmen t against BOC. If future litigation should

force Hussain to accept a reduced recovery, it will be because

the governmen t partially satisfies its tax lien against Hussain

through the inter p leader proceeding; but the government would

have obtained this result regardless. Without interpleader,

Hussain would have taken the remaining policy proceeds, and would

have been forced to pay these proceeds in separate li tigation

with the government to satisfy tax arrearages. Allowing

interpleader simp ly skips this unnecessary step, and enables the

government to collect without engaging in duplicative litigation.32

Finally, this case is unlike Victor v. Lewis because of the

remaining substantive l e gal issues requiring resolution. The

Victor court f ound that factual determination of the value of

land occupancy did not upset the “est ablished” character of the

plainti ff’s claim. Here, in contrast, the parties will continue

to advance substantive legal disputes after the f inding of

liability. Such issues do not call into question the final

judgment against BOC, but they ar e significant enough, in our

view, to allow litigation to continue through interpleader.

In conclusion, even though Hussain and Hibernia’s judgment

against BOC is a final, unalterable state court judgment, it is

not “established” in the sense of Louisiana jurisprudence and

does not preclude a subsequent interpleader-like ac t ion under

these unique facts. The state court judgment was specifically

limited to the insurance polic y proceeds and it was not

practical, or expected, for BOC to attempt an interpleader-like

action until it became awar e of the government’s lien.

Furthermore, none of the dangers that accompany subsequent

interpleader are present. The remaining issues concern

substantive questions of priority, and would h ave arisen even in

the absence of this interpleader-like action. If Hussain’s award

is reduced, it will be because of Hussain’s own tax liabilities

and not because of an independent clai m to the fund. Allowing71 Hussain

, 170 F. Supp 2d. at 670 ( c iting J.B. Durbin v.

Allstate Ins. Co.

, 267 So. 2d 779, 781 (La. Ct. App. 2d Cir.

33 this action may actually bring a benefit to Hussain, because it

preempts separate litigation between him and the go vernment and,

as a result, saves him attorney fees in such an action. Thus,

because these proceedings do not threaten relitigation or the

reconsiderat ion of BOC’s liability, but instead provide a

potential benefit to Hussain, we see no reason why an

interpleader-like action should not have proceeded in this

particular case.

D

. Amount of Attorney Fees

Having resolved jurisdictional and final judgment

ambiguities, the first merits issue is whether Rando was entitled

to have attorneys’ fees calcul ated on Hussain’s net recovery

under the insurance policy, as the district court held, or on his

gross recovery, as Rando argues. An alternative way of viewing

the question is: Does Hibernia, as a named loss-payee mortgagee,

prime the secured claim of Rando, the insured’s attorney, in the

distribution of insurance proceeds from BOC?

The district court gave priority to Hibernia over Rando,

reasoning that “the loss payee-mortgag ee (Hibernia) is entitled

to the proceeds of the policy to the extent of the mortgage debt,

with any surplus then payable to the insured-mort g agor

(Hussain).” 71 Rando argues on appeal that (1) Hibernia is a loss1972)). 34

payee under a simple or open loss-payable clause, not a standard

or union clause; (2) under an open loss-payable clause, the loss

payee recovers only if the insured r ecovers; ergo (3) Hibernia’s

right to recover is contingent on, an d derivative of, Hussain’s

right to recover. In Rando’s view, this is the reason that the

state court awarded judgment in the insurance suit for Hussain

and Hibernia “jointly”

—— as the Policy’s Loss Payable provision

required. Hence, Rando concludes, the contingency-fee rate

should apply to Hussain’s gross recovery from BOC, not to his

recovery net of BOC’s payment to Hibernia.

Hibernia cou nters that (1) Louisiana law clearly ranks the

loss-payee ahead of the insured; (2) there is no basis for

applying Rando’s co ntingency fee to Hibernia’s recovery; and (3)

Rando’s distinction between types of loss payees is irrelevant in

this case. Hibernia also emphasizes that it has independently

prosecuted this suit, having been the first to sue, thereby

interrupting prescription and commencing the accrual of judicial

interest.

Rando’s argument that he has priority over Hibernia has

little support in either statutory or case law. The relevant

state statute, La. Rev. Stat. § 9:5001(A), states:

A special privilege is hereby granted to attorne ys at

law for the amount of their professional fees on all

j udgments obtained by them, and on the proper t y72 La. Rev. Stat. Ann. § 9:5001(A) (West 2002).

73 Walter v. Marine Office of Am.

, 537 F.2d 89, 98 (5th Cir.

1976) (citing Diaz v. Cherokee Ins. Co. , 275 So. 2d 922, 925 (La.

Ct. App. 1973)). W alter turned on whether there should be an

exception to this general rule when the mortgagor makes repairs

after an accident damaging the mortgaged property, and this Court

held in the negative. Id. at 97-99.

74 Id. at 99.

35 recovered thereby, either as plaintiff or defendant, to

take rank as a first privilege thereon superior to all

other privileges and security interests under Chapter 9

of the Louisiana Commercial Laws. 72

Even from the statute alone, one might conclude that “judgment

obtained by them,” in a consolidated case, refers to the judgment

an attorney obtains for his client, and not any amount obtained

by ano ther party. This view is reflected both by our decisions

and those of the Louisiana courts.

On several occasions, we have recognized that “when a

mortgagee is designated as the loss payee, the insured in effect

appoints him to receive payment under the policy.” 73

It is well established as the law of Louisian a that

where insurance is taken o ut by the mortgagor for the

benefit of mortgagee, or is made payable to the

mortgagee as his interest may appear, the mortg agee is

entitled to the proceeds of the policy to the extent of

his mortgage debt, holding the surplus, i f any, after

the extinguishment of his debt for the benefi t of the

mortgagor. Adams v. Allan , La. App., 19 So.2d 578 (1st

Cir. 1944). 74

We have gone so far as to apply this principle to create an

equitable lien in favor of the mortgagee, entitling it to recover75 Am. Gen’l Fire & Cas. Co. v. Reese

, 853 F.2d 370, 373-74 (5th

Cir. 1988) (“Of course, the general law in Louisiana is that where

an insurance policy is taken out by a mortgagor for the benefit of

a mortgagee, the mortgagee is entitled to the proceeds of the

p olicy to the extent of the mortgage debt due at the t ime of

loss.”).

76 796 F.2d 807 (5th Cir. 1986).

77 Id. at 808.

78 Id. ; id. at 811 (“It is crucial in this connection that State

Farm did not ‘pay off’ the mortgage; it bought the mortgage.

Consequently, if there had been a judgment in State Farm’s favor

[on the arson issue], Lazlo could have been sued under the

mortgage....”).

36 insurance p roceeds, even when the insurance policy did not name

the mortgagee as a loss payee. 75

Rando cites Lazlo v. State FarmFire & Casualty Co.

, 76 for

the proposition that he should recover on the gross amount BOC

paid out, not merely the net amount. But, as Hibernia and the

government assert, Lazlo is distinguishable. In that case, fire

consumed a house that was insured and mortgaged; and, as here,

the mortgagee was a named loss payee in the insura nce policy. 7 7

Unlike this case, however, the insurance company in Lazlo

purchased the mortgage from the mortga gee. 78 Litigation over the

arson issue resulted in cancellation of the mortgage. We held

that the mortgage became property “recovered” for the homeowner

through the arson litigation; the value of the mortgage, under79 Id. at 812 (“It is clear for fee privilege purposes that such

cancellation at least comprises ‘property recovered’ by counsel for

Lazlo.”) (emphasis in original).

80 Another difference, as noted by the district court, is that

the fee agreements themselves differed because Lazlo’s payment plan

assigned to his attorney “(40%) per centum $60,000 plus interest

and costs any and all sums collected or rights and/or interest

obtained,” Lazlo

, 796 F.2d 810 n.3, while Hussain’s fee agreements

with Rando spoke in terms of “any recovery” and “gross recovery”.

Hussain , 170 F. Supp 2d. at 671-72. It is not apparent that this

difference should have any legal ramifications, however.

37 La. Rev. Stat. § 9:5001, was thus to be included in the

attorneys’ fees privilege. 79

At first glance, it does appear difficult to distinguish

Lazlo meaningfully from this case: Both plaintiffs had losspayee provisions in their mortgag es directing the insurance

company to pay the mortgagee in the event of loss e s to the

mortgaged property. The most significant difference is that the

insurance company bought the mortgage from the mortgagee in Lazlo

and cancelled it after litigation. 80 This difference, however,

in no way increa sed the insured’s recovery beyond the surplus

after satisf action of the mortgage; neither does it reflect any

greater professional effort on the part of Lazlo’s attorney.

Irrespective of whe ther the mortgage was bought and cancelled,

the loss-payee provision made certain that the profe ssional

efforts of Lazlo’s lawyer would never have produced a recovery of

more than the surplus policy funds. If the mortgage had not been

cancelled, then the insurance company likely would have paid38

itself the funds due under the loss-payee provision, thereby

paying off Lazlo’s mortgage. Thus, if Lazlo’s reduced recovery

was a foregone conclusion because of the loss-payee provision, it

is hard to see why Rando should be deprived of the fees on the

total policy when the loss payee provisions similarly reduced

Hussain’s recovery.

Nonetheless, Lazlo remains distinguishable. Assigning the

mortgage to the insurer may seem like a procedural technicality

as far as the insured’s ultimate recovery is concerned, but it

did have the practical effect of covering the mortgagee’s

interest in the mortgage. Unlike the mortgagee in L azlo

, the

mortgagee in this case, Hibernia, did not convey or assign the

mortgage to BOC. Instead, it pursued litigation on its own to

protect the amoun t it was entitled to receive as loss-payee.

Although Rando is correct that to recover Hibernia needed

Huss ain, that statement is only correct insofar as Hussain’s

action may have been a technical prerequisite to recovery from

BOC.

The law is clear that even un der an open or simple loss

payab le provision, such as the one in operation here, the

mortgagee has a direct claim to the insurance proceeds up to the

a mount necessary to cover the outstanding balance on the81 See Ingersoll-Rand Fin. Corp. v. Employers Ins. of Wausau

,

771 F.2d 910, 913 & n.3 (5th Cir. 1985) (noting the differ ence

between standard and simple clauses by explaining that “[t]he

latter simply provides that the proceeds of the policy shall first

be paid to the mortgagee as his interest appears, but it does not

provide a separate undertaking that the mortgagee’s interest shall

not be impaired by any act or neglect of the insured-mortgagor.”);

Whitney Nat’l Bank of New Orleans v. State Farm Fire & C as. Co.

,

518 F. Supp. 359, 361-62 & n.2 (E.D.La. 1981) (quoting insurance

treatise language to explain the difference).

39 obligation secured by that mortgage. 8 1 The only drawback with

this type of provision, as opposed to a standard or union clause,

is that the mortgagee cannot recover if the insured is somehow at

fault for the loss. Thus, if Hussain’s presence in the suit was

necessa ry at all, it was merely to allow a defense against arson

allegations. As Hibernia notes, it initiated litigation itself a

year before Hussain sued; and Hibernia obtaine d a judgment

against Hussain which liquidated the amount due to it under the

loss-payable provision.

This difference from L azlo is material. Unlike L azlo

, the

mortga gee’s financial interest was not satisfied through an

as signment. Instead, the mortgagee litigated to ensure its

receipt of the amount outstanding on the note. Thus, Rando

cannot alone claim credit for recovering the amount that was due

directly to Hibernia as a result of the loss payee provision;

neither was he the only lawyer —— or even the first one ——

presumably working to refute the arson allegation. In light of82 See Walter

, 537 F.2d at 99 (recognizing that the mortgagee’s

rights vested at the time of the accident) ( citing Wray-Dickinson

Co. v. Commercial Credit Co. , 192 So. 2d 769 (La. Ct. App. 1939);

Pearson v. Rapstine

, 203 F.2d 313, 315 (5th Cir. 1953); Durbin

, 267

So. 2d at 781.

83 Rando’s reliance on Lerner Stores Corp. v. Elec. Maid Bake

Shops is similarly misplaced: There we held that a mortgagee was

not entitled to priority for the mortgagee’s own attorneys’ fees,

and the case did not adjud ge the relative priorities of a loss

payee-mortgagee and the insured-mortgagor. 24 F.2d 780, 781 (5th

Cir. 1928).

40 t he well-established character of Hibernia’s right to the money,

and the work of its counsel in the litigation, Rando is not

entitled to an award of fees on that portion of the recovery.

Finally, despite any remaining similarities between Lazlo

and thi s case, the weight of authority both in our precedent and

under Louisiana’s indicates that a mortgagee’s rights under a

loss-payee provision vest automatically when a loss-causing

incident occurs. 82 As a result, any amount ultimately recovered

by Hussain was certain to be, from the outset, net of the

outstanding balance on his mortgage to Hibernia. 83

Simply stated, then, Rando’s contentions that (1) he has

priority over Hibernia, and (2) his fee should be calculated on

the gross amount paid out by BOC rather than the net amount

recovered by Hussain, are wrong. Thus, we affirm the district

court’s allowance of the net amount only.

E

. Appropriate Contingency Fee Percentage84 Hussain , 170 F. Supp 2d. at 672.

41 Rando also contends that the district court erred in

applying as his contractual contingency fee percentage the 33

1/3% figure from his 1995 fee agreement with Hussain rather than

the 39% figure from their 2000 fee agreement. The district court

concluded that Rando’s s uper-priority for attorney’s fees under

26 U.S.C. § 6323(b)(8) only applied to his success in having BOC

held liable for the insurance proceeds, not his post-judgment

effort to collect the monies

. 84 Thus, reasoned the court, Rando

only deser ved fees under this provision for the work done

pursuant to the 1995 agreement, which specified a contingency fee

of 33 1/3%. On appeal, Rando chiefly argues that under Louisiana

law, “the highest reasonable contingency fee controls.”

N o party disputes that Rando’s effort to achieve a judgm ent

against BOC for the insurance fund entitles him to a superpriority ranking for his fees over the federal tax lien. Rather,

the issue is whether Rando can substitute a higher contingency

fee percentage a fter the adjudication of BOC’s liability but

before any of the funds are actually distributed. Stated

differently, we must determine whether § 632 3(b)(8)’s superpriority ranking attaches when BOC’s is found liable, or when the

prop er distributions from the insurance fund are actually85 26 U.S.C. § 6321 (2000).

86 See Tex. Commerce Bank-Fort Worth, N.A. v. United States

, 896

F.2d 152, 161 (5th Cir. 1990); Centex-Landis Constr. Co. v. United

States , No. CIV.A.99-1968, 2000 WL 1039475, at *2 (E.D.La. May 9,

2000).

87 26 U.S.C. § 6323(b)(8) (2000).

88 See Reed & Stev en v. HIP Health Plan of Fla., Inc. , 81 F.

Supp 2d. 1335, 1338 (S.D.Fla. 1999); S. Rep. No. 89-1708, at 1966

42 determined. To answer this question, we must first determine the

scope of the term “judgment” as used in the relevant statute.

Section 6321 of the Internal Revenue Code establishes “a

lien in favor of the United States up on all property and rights

to property, whether real or pers onal” against a delinquent

taxpayer. 8 5 This lien attaches at the time of assessment and to

all property owned o r subsequently acquired by the taxpayer. 8 6

Section 6323(b)(8) creates a n exception to this federal tax lien

priority. In part, it provides that a previously filed federal

tax lien shall n ot be valid, “[w]ith respect to a judgment or

other amount in settlement of a claim or of a cause of action, as

against an attorney who, under loc al law, holds a lien upon or a

contract enforcible [sic] against such judgment or amount, to the

extent of his reasonable compensation for obtaining such judgment

or procuring such settlem ent.” 8 7 The announced purpose of this

provision is to provide an incentive to attorneys to enhance the

value of a taxpayer’s property, which would ultimately increase

the government’s revenue collection. 88U.S.C.C.A.N. 3722, 3727 (“An attorney’s fee in such a case can be

thought of as similar in concept to the repairman’s charge in that

it can be expected to enhance the value of the taxpayer’s

property.”).

89 26 U.S.C. § 6323(b)(8).

90 See Reed & Steven

, 81 F. Supp 2d. at 1338; United States v.

McGaughey

, No. 93-CV-196-WDS, 93-30173, 90-3475-WDS, 1999 WL

282780, at *3 (S.D. Ill. March 24, 19 99). S ee also Rosenman &

Colin v. Richard , 850 F.2d 57, 61 (2d Cir. 1988) (interpreting a

similar New York statute to limit the attorney’s lien to the fund

created or property obtained in a judgment won on behalf of her

client)

.

43 We have already determined that, because of con tinuing

disputes about the proper distributions from the in surance fund,

the adjudication of BOC’s liability constituted a final state

court judgment, but did not preclude a subsequent interpleaderlike action. This portion of the case asks, as a question of

law, whether the “judgment” of which § 6323(b)(8) speaks requires

ac tual distribution of the fund or merely a determination of

liability. As such, the issue requires our de novo review.

We have not had the opportunity to interpret § 6323(b)(8) in

the context of the specific issue we review today. Other courts

have concluded that “obtaining such judgment” 89 means that an

attorney must have created a fund which increases the taxpayer’s

taxable property. 90 Thus, it is fairly well-settled t hat the word

“judg ment” as used in § 6323(b)(8), must be read in light of the

statute’s purpose; that is, the creation of a fund that increases

the taxpayer’s property for the ultimate benefit of the IRS.91 Warner v. United States

, No. J-C-94-210, 1995 WL 693188, at

*4 (E.D. Ark. Sept. 19, 1995) (citing Markham v. Fay

, NO. 91-10821-

Z, 1993 WL 160604, at *7 (D. Mass. May 5, 1993) and Chicago Title

Ins. Co. v. Kern , 81-2 U.S.T.C. (CCH) ¶ 9696 (D.D.C. 1981)).

92 See United States v. N.Y. State Dep’t of Taxation and Fin.

, 138 F. Supp 2d. 392, 398-399 (W.D.N.Y. 2001).

93 See Blimpie Int’l, Inc. v. Peacox Ventures, L.L.C.

, No. C-00-

1510 VRW, 2001 WL 1155076, at *3 (N.D. Cal. Sept. 19, 2001).

94 McGinley v. United States

, 94 2 F. Supp. 1239, 1244 n.3 (D.

Neb. 1996).

44 Wha t is required to c reate such a fund is much less clear.

Although to our knowledge no court has addressed the precise fact

pattern that is now before us, other courts have confronted this

general question in slightly differen t contexts. For instance,

some courts have taken “a more expansive view of what constitutes

the creation of such a fund.” 91 These fora have found that both

recovery of seized funds from the government 92 and efforts to

obtain confirmation of an arbitra tion award 9 3 constitute fund

creation within the intendment of § 6323(b)(8). Another court

has concluded that “judgment” in the statute “refers both to the

judicia l act and that which in whole or in part satisfies the

‘judgment’,” suggesting that fees charged for efforts to collect

a judgment deserve super-priority treatment as well. 94

In contrast, appearing more restrictive, several courts have

h eld that such other activities fail to create a fund and th u s

fail to const itute a judgment under the statute. One court has95 See Centex-Landis Constr. Co. , 2000 WL 1039475, at *2.

96 See McGaughey

, 1999 WL 282780, at *3-4 (stating that even if

an interim compensation order created new funds and was procured by

the attorney, such interim orders are “not the type of ‘judgment’

to which the statute refers”); McGinley

, 942 F. Supp. at 1245

(finding that an interlocutory decision does not constitute a

“judgment” because it “lacks the fundamental character of finality

that distinguishes the common understanding of the word ‘judgment’

from other court orders”).

45 found, for example, that the filing of a suit against a party who

responds by interpleading the plaintiff and deposit ing an amount

into the court registry is not enough to constitute creating a

fund and thereby a “judgment” from which attorney fees are

warranted. 95 Similarly, courts have concluded that interlocutory

decisions, even if creating new funds, do not come within the

statutory meaning of “judgment.” 96

These cases provide little clear guidance for us because

they neither establish a uniform inte rpretation nor address the

particular circumstances of this case. We face a situation here

in which the issue of BOC’s liability has been exhausted in state

courts and accepted as final in federal court. The final

resolution of this case, however, is still open because some of

the parties continue to compete for priority and quantum of the

limited insurance proceeds. Even though the judgment here may

not be final in terms of all distributio n issues, however, it is

final in that, in the end, BOC cannot avoid or reduce its46

obligation to pay out all the insurance fund proceeds and

interest.

If we were to conclude that creation of a fund, and thus the

term “judgment,” requires actual distribution, § 6323(b)(8) would

give super-priority to all the fees charged, from t he very

beginning through the very last distribution from the fund. The

renegotiation of the contingency fee, as a result, would appear

to apply to whatever is the final distribution. The problem with

t his interpretation is that the outcome it dictates undermine s

the purpose of § 6323(b)(8), i.e., increasing the value of the

taxpayer’s property to better satisf y outstanding tax liens.

Once BOC is found liable, the fund is created; any subsequent

effort cannot increase the amount of the insurance proceeds or

the government’s recovery. Indeed, because there is a limited

fund available for distri bution, the outcome advocated by Rando

would increase his fees but decrease Hussain’s p otential

recovery. Reducing Hussain’s potential recovery to add to

Rando’s t ake would, in turn, reduce the property available to

satisfy the tax lien. Such a result is diametrically opposed to

that intended by Congress in enacting § 6323(b)(8).

In contrast, applying § 6323(b)(8) only to Rando’s effort in

securing BOC’s liability comports with the purpose of the

statute. The point at which BOC is held liable is the point at47

w hich a fund is created in the taxpayer’s favor. Any litigation

subsequent to this point, albeit necessary to bring the case to

its final conclusion, does nothing to increase the value of the

taxpayer’s property. Indeed, as indicated above, negotiation of

a higher contingency fee would actually reduce Hussain’s

theoretical recovery and thereby diminish the val ue of the

property available to satisfy the federal tax lien.

Furthermore, this conclusion is not likely to lessen the

incentive of attorneys i n cases of this nature as it does not

preclude super-priority treatment of attorn ey fees. For his

effort in finding BOC liable, Rando will still receive fees

equaling 33-1/3% of Hussain’s reco very. Thus, lawyers in future

cases will still have an incent ive to represent delinquent

taxpayers.

We conclude that only the fees earned in litigating BOC’s

liability deserve super-priority under § 6323(b)(8 ), and these

fees are assessed pursuant to the original 33 1/3% contingent fee

agreement. As this is the approach taken by the district court,

we affirm its ruling on the issue.

F

. Award of Expert

The final substantive issue concerns whether the district

court erred in reducing the expert fee of John Theriot, CPA, from

$24,509.50

—— the amount he billed, which the court described as97 Hussain , 170 F. Supp. 2d at 675.

98 See id.

99 Viator v. Liverpool & London S.S. Prot. and Indem. Ass’n

, 97-

262,(La. App. 3 Cir. 10/8/97), 701 So. 2d 487, 497.

48 “obscene”

—— to $5,000, and awarding that reduced amount. 9 7 On

appeal Rando simply argues that the attorney’s priv ilege to fees

under La. Rev. Stat. 9:5001 extends to all court costs and

litigation expenses advanced by the attorney for the client’s

benefit. The government, on the other hand, contends that Rando

was entitled to no expert fee for Theriot because he never

te stified; and in the alternative, that the district court’s

assessment was reasonable.

The district co urt accepted Rando’s contention that Theriot

would have been called had the case gone to trial instead of

being concluded by directed verdict, and therefore reasoned that

some fee was appropriate. 98 The court justified the reduced fee

by applying Louisia na’s balancing test for allocating experts’

fees, which weighs such factors as (1) the amount of time the

expert spends in preparin g for trial; (2) the amount of time he

spends in court; (3) his expertise; (4) the amount he charges;

(5) the amount involved in the award; and (6) the de gree to which

the opinion of his experts aid the court. 99

Our review of the district court’s opinion is conducted

under the very deferential abuse of discretion standard. Even100 See United States v. Logan , 861 F.2d 859, 866 n.5 (5th

Cir. 1988) (“abuse of discretion is a phrase which sounds worse

than it really is; it is simply a legal term of art which carries

no pejorative connotations”) (citation and internal quotation

marks omitted).

101 See State Dep’t of Highways v. Salemi

, 193 So. 2d 252, 254

(La. 1966) (“Since they were not called to testify in court, we are

of the view that the amount of the fee paid these experts cannot

properly be considered an item of the costs awarded in the

compromise judgment.”); Moran v. Harris

, 93 -2227, *3 (La. App. 1

Cir. 11/10/94), 645 So. 2d 1248, 1249-50; Allstate Ins. Co. v.

Aetna Cas. and Sur. Co.

, 93-0588 (La. App. 1 Cir. 3/11/94), 634 So.

2d 49, 50 (holding th at award of fee for expert in case that was

involuntarily dismissed before trial was an abuse of discretion);

Haas v. Ledoux’s Estate

, 427 So. 2d 12 (La. Ct. App. 3d Cir. 1983)

(upholding denial of fees).

102 See Moran , 645 So. 2d at 1249-50.

49 under this standard, however, we must con clude that, in this

instance, t he district court abused its discretion by granting

any fee whatsoever. 100

It is well settled under Louisiana law that, because costs

can be awarded pursuant to statute only, and because Louisiana

has no statute that provides costs for the fees of experts who do

not testify, any taxation for such fees as costs is an error of

law and thus an abuse of dis cretion. 1 01 This is consistent with

Louisiana’s rule that, if a deposition is not used as evidence at

trial, the costs in procuring it cannot be taxed as costs. 102

The district court acknowle dged the rule that fees of

experts who do not testify cannot be taxed as costs, but

concluded that because Rando intended to call Theri ot and was103 See id. at 1249 (explaining that the expert was unable to

testify because of an injury); Parish of Jefferson v. Harimaw,

Inc.

, 297 So. 2d 694, 698 (La. Ct. App. 4th Cir. 1974) (holding

that “the defendant cannot recover the fees paid experts in

preparation for expropriation litigation who give no testimony via

depositions nor who are 'used on the trial' when suit is properly

dismissed by the plaintiff without prejudice”).

50 onl y prevented from doing so by the court’s rendering of a

directed verdict, some such costs should be awarded. Louisiana

precedent indicates, however, that t he reason an expert does not

or is unable to testify is irrelevant. Courts have held in

particular that such costs should be denied even when a n expert’s

inability to testify arises involuntarily. 103

Regardless of the court’s role in preventing Theriot’s

testifying, the fact remains that he never testified in person

and never had a report or other testimony, such as deposition or

affidavit testimony, entered into evide nce. Louisiana law

dictates une q uivocally that, under these circumstances, none of

Theriot’s charges can be taxed as costs.

III. Conclusion

For the reasons stated herein, we affirm the district

court’s holdings as to (1 ) subject matter jurisdiction, and (2)

the priority and amount of BOC’s distributions from the insurance

proceeds fund to Hibernia, Rando, and the United States,

including the court’s ruling on the appropriate con tingency fee51

percentage used in calculating Rando’s recovery and the principal

sum to which that percentage should be applied. We reverse,

however, the district court’s taxation of any par t of Theriot’s

expert fee as costs. We therefore vacate the court’s original

judgment and remand with instructions for the district court to

enter a new judgment with updated and corrected distribution

amounts, and with no award of expert witness fee.

AFFIR MED in part; REVERSED in part; and REMANDED with

instructions.