1District Judge of the Western District of Louisiana,

sitting by designation. 

1

United States Court of Appeals,

Fifth Circuit.

No. 93-2041.

Charles W. WHITE, et al., Plaintiffs,

v.

FEDERAL DEPOSIT INSURANCE CORPORATION, As Receiver for Texas

American Bank-Galleria, et al., Defendants.

FEDERAL DEPOSIT INSURANCE CORPORATION, As Successor in Interest

to NCNB Texas National Bank, Defendant-Appellee,

v.

Toni Y. KOZAK, Trustee of Black Family Trust, Howard R. Block,

Porter & Clements and John E. O'Neill, Intervenors-Appellants.

April 27, 1994.

Appeal from the United States District Court for the Southern

District of Texas.

Before DUHÉ, and EMILIO M. GARZA, Circuit Judges and STAGG,1

District Judge.

STAGG, District Judge:

Intervenors-Appellants, Toni Y. Kozak, Howard R. Block, Porter

& Clements and John E. O'Neill (the "Appellants"), appeal from a

summary judgment rendered in favor of Defendant-Appellee, the FDIC.

Finding that the district court erred in granting summary judgment,

we reverse.

I.

FACTS AND PROCEEDINGS

This matter comes to the court for the second time. An

earlier panel reversed summary judgment in favor of NCNB Texas
 

2See White v. Texas American Bank/Galleria, 958 F.2d 80 (5th

Cir.1992). 

 

3Id. at 85 n. 17. 

2

National Bank (NCNB) on the ground that the Appellants had not been

given an opportunity to present their respective oppositions to

NCNB's motion for summary judgment.2 To the factual summary

contained in this earlier decision—which we will not repeat here—we

add the following.

While this matter was pending on appeal for the first time,

NCNB transferred to the FDIC, inter alia, all of its interests in

this matter. On remand, therefore, the district court ordered that

the FDIC, in its corporate capacity, be substituted as a party

defendant for NCNB. The appellants filed briefs in opposition to

the FDIC's motion for summary judgment (formerly NCNB's motion for

summary judgment), as well as cross motions for summary judgment.

After exhaustive briefing by all parties, the district court

granted summary judgment in favor of the FDIC. The Appellants

timely appealed the final judgment.

II.

ANALYSIS

As noted by the earlier panel, the FDIC (as successor in

interest to NCNB) is either an unsecured judgment creditor or a

lien creditor of White, and the Appellants have either valid

assignments of, or merely unperfected security interests in,

White's share of the proceeds of the Southwest note.3 The district

court found that the documents relied upon by the Appellants did
 

4Tex.Bus. & Com.Code § 9.301. In relevant part the statute

provides:

(a) Except as otherwise provided in Subsection (b), an

unperfected security interest is subordinate to the rights

of

(2) a person who becomes a lien creditor before

the security interest is perfected;

(c) A "lien creditor" means a creditor who has acquired

a lien on the property by attachment, levy or the like and

includes an assignee for benefit of creditors from the time

of assignment, and a trustee in bankruptcy from the date of

the filing of the petition or a receiver in equity from the

time of appointment. 

3

not create valid assignments under Texas law, but that the

documents were sufficient to create unperfected security interests

on behalf of the Appellants in White's portion of the Southwest

note. The district court also concluded that the FDIC was a lien

creditor of White because the actions of NCNB subsequent to the

initiation of the interpleader action were of sufficient quality

and quantity to create a lien on the proceeds of the Southwest

note. Under Texas law, an unperfected security interest is

subordinate to the rights of a lien creditor.4

Appellants argue that the district court erred in concluding

that the FDIC was a lien creditor. Alternatively, the Appellants

argue that the documents executed by White were sufficient to

constitute an assignment under Texas law. The district court's

conclusion that the FDIC's claim is superior to that of the

Appellants is premised upon the court's implicit assumption that

activity subsequent to the time that the interpleader fund has been

deposited into the registry of the district court can affect the
 

5 Under Texas law, no lien is created by the mere rendition

of a judgment. Citicorp Real Estate, Inc. v. Banque

Arabe Internationale D'Investissement, 747 S.W.2d 926,

929 (Tex.Ct.App.1988) (citing Burton Lingo Co. v.

Warren, 45 S.W.2d 750, 751-52 (Tex.Civ.App.—Eastland

1931, writ ref'd)). 

4

relative rights of the potential claimants to that fund. Finding

that the rights of claimants to an interpleader fund should

normally be determined as of the time that the fund was created,

this court does not reach the issue of whether the actions of NCNB

were sufficient to create a lien under Texas law. Further, we need

not address Appellants' assertion that they were assigned White's

interests in the note proceeds.

In this case, Southwest Airlines filed a counter-claim and a

cross-claim in interpleader and deposited the 1989 and 1990

installments on the note into the registry of the district court

because there was a genuine dispute among a number of parties as to

who was entitled to the funds. Southwest filed its original claims

in interpleader on September 22, 1989, and deposited the 1989 note

installment on September 25, 1989. In September of 1990, Southwest

amended its claims in interpleader and deposited the 1990 note

installment into the court's registry. NCNB, and thus the FDIC,

became a judgment creditor of White in December of 1989.5

Subsequently, NCNB moved for a writ of garnishment against the

interpleader fund. In January of 1990, the district court denied

this motion. In May of 1990, NCNB moved for a charging order,

which was also denied by the district court. NCNB never sought a

writ of garnishment against Southwest Airlines.
 

6 Gaines v. Sunray Oil Co., 539 F.2d 1136, 1141 (8th

Cir.1976); U.S. v. Estate of Swan, 441 F.2d 1082, 1085

(5th Cir.1971); Wittry v. Northwestern Mutual Life

Ins. Co., 727 F.Supp. 498, 499 (D.Minn.1989); and 3A

Moore's Federal Practice ¶ 22.02[1] (1993). 

 

7 853 F.2d 140 (2nd Cir.1988). 

5

 Interpleader is a procedural device which entitles a person

holding money or property, concededly belonging at least in part to

another, to join in a single suit two or more persons asserting

mutually exclusive claims to the fund.6 The issue presented by

this case—which is one of first impression in this circuit—is

whether activity subsequent to the initiation of an interpleader

action can give one claimant a right to the interpleader fund which

is superior to that which he had at the time the interpleader was

initiated. Today, we join with our brethren of the Second Circuit

to hold that activity subsequent to the initiation of an

interpleader action is normally immaterial in determining which

claimant has a superior right to the interpleader fund.

In Avant Petroleum, Inc. v. Bangue Paribas,7 Crysen Trading

and Marketing, Inc. ("Crysen") gave Banque Paribas ("Paribas") a

general security interest in all Crysen assets, including its

accounts receivable. Paribas perfected its security interest by

filing U.C.C. financing statements, which were effective for five

years. Approximately four and one-half years later, BP North

America Petroleum Inc. ("BP") instituted suit against Crysen and

obtained an order for a writ of garnishment against Avant

Petroleum, Inc. ("Avant"). At the time, Avant owed Crysen

approximately $16,000,000. The writ provided, inter alia, that
 

8Id. at 144. 

6

Avant, the garnishee, was not to pay any of its debts to Crysen

pending further orders of the court. Avant then filed an

interpleader action, asking that the court resolve the competing

claims of Paribas, BP and Crysen.

While the interpleader action was pending, the five year

U.C.C. financing statements filed by Paribas lapsed, and Paribas

failed to file new financing statements for two months. BP moved

for summary judgment, arguing that the filing lapses had caused

Paribas's security interest to become subordinate to BP's

judicially created lien. Paribas filed a cross-motion for summary

judgment, which the district court granted. On appeal, the

judgment was affirmed.

The Avant Petroleum court held that the retroactive

unperfection of a security interest which takes place subsequent to

the date that the interpleader action was initiated and the funds

were deposited does not divest the secured creditor of his superior

interest in the funds. In so holding, the court concluded "that

where an interpleader action is brought to have the court determine

which of two parties has priority with respect to the interpleader

fund, the court should normally determine priority as of the time

the fund was created."8 In Avant Petroleum, the issue before the

court was whether the failure of a secured creditor to file

continuation statements after the initiation of the interpleader

action would result in the subordination of his interests to those

of a lien creditor, whose rights were indisputably inferior to
 

9 Id. at 145 (quoting Avant Petroleum, Inc. v. Banque

Paribas, 652 F.Supp. 542, 547 (S.D.N.Y.1987)). 

 

10 Avant Petroleum, 853 F.2d at 145 (quoting Avant Petroleum,

652 F.Supp. at 547). 

7

those of the secured creditor at the time the interpleader action

was initiated. In the instant case, the issue is whether the

affirmative actions of an unsecured judgment creditor after the

initiation of the interpleader action can give the judgment

creditor a claim superior to that of a secured creditor, whose

rights were indisputably superior to those of the judgment creditor

when the interpleader action was initiated. Although Avant

Petroleum is factually distinguishable from the present case, the

ratio legis of that case is clearly applicable.

Once money is deposited into the court's registry, the money

is held by the court pending a determination of which party's claim

is superior. In other words, "[t]he court can be said to have

taken custody of the money for the benefit of the rightful owner,

creating a trust for the purpose of preserving the funds and

thereby securing the rightful owner's claim to them."9 Further,

while the money remains in the custody of the court, a secured

creditor is prevented from taking any action to enforce his claim.

If we were to allow one claimant to obtain an advantage over the

others while the interpleader action is pending, we "would create

the bizarre result that the very act of setting up the "trust' in

order to protect and preserve the property for the benefit of its

rightful owner would be the indirect cause of that rightful owner

losing its rights in the property."10
 

11 Millard v. U.S., 916 F.2d 1, 3 (Fed.Cir.1990) (citing

Harris v. Balk, 198 U.S. 215, 226, 25 S.Ct. 625, 628,

49 L.Ed. 1023 (1905)); and In re Olivas, 129 B.R. 122,

124 (W.D.Tex.1991). 

 

12 "Any attempt to attach funds deposited in the registry of

a federal district court is subject to the doctrine of

custodia legis." U.S. v. Rubenstein, 971 F.2d 288, 294

(9th Cir.1992); see also U.S. v. Van Cauwenberghe, 934

F.2d 1048, 1062 (9th Cir.1991). "[U]nder the doctrine

of custodia legis, funds deposited in the registries of

federal courts may not be attached "except by order of

the judge or judges of said courts.' " Van

Cauwenberghe, 934 F.2d at 1062 (quoting The Lottawanna,

87 U.S. (20 Wall.) 201, 225, 22 L.Ed. 259 (1874). 

8

In the instant case, NCNB (now the FDIC) sought a writ of

garnishment against the interpleader funds. Garnishment is a

statutory proceeding brought by a creditor (the garnishor) of a

person (the debtor) against a third party in order to satisfy a

debt owed to the garnishor.11 NCNB, the garnishor, moved for a writ

of garnishment against the district court (the garnishee) in order

to obtain property of White (the debtor), which had come into the

custody of the court. The reason for the filing of the

interpleader action, however, was that the stakeholder was unable

to determine which of the claimants was rightfully entitled to the

fund. Thus, any attempt to garnish property which is the subject

of an action in interpleader begs the question which is the reason

for the interpleader action—that is, which claimant is rightfully

entitled to the fund.

This is not to say that one can never garnish funds which are

the subject of an interpleader action.12 But only that interest

which the debtor retains in the interpleader fund, as of the date

of the initiation of the interpleader action, may be the subject of
 

13 Although the earlier panel did not the reach the merits of

whether NCNB was in fact a lien creditor, it noted that

the record would have had to have been "augmented

significantly to sustain [such] a judicial

determination...." White, 958 F.2d at 85 n. 17. While

we too do not reach the merits of this issue, we concur

in the earlier panel's observation. 

9

the writ of garnishment. In the present case, any interest which

White had in the interpleader funds as of the date of the

initiation of the interpleader action was subject to the security

interests of the Appellants. Likewise, any lien13 which may have

been created after the initiation of the interpleader action would

be inferior to the claims which existed as of the date of the

action. An objective of the interpleader action, like that of any

civil action, is to determine the respective and relative rights of

the parties asserting claims as of the date of the action was

commenced. Allowing one party to enhance his claim while the other

claimants patiently await a determination from the court would be

inequitable, as well as inconsistent with this objective.

In sum, when an action in interpleader is brought, the court

should, absent extraordinary circumstances, determine the relative

priorities of all claimants as of the time that the interpleader

was initiated. NCNB, the FDIC's predecessor in interest, was not

a lien creditor of White as of the date of Southwest's original

interpleader action. Thus, any claim that the FDIC may have as a

lien creditor of White can not be asserted against the interpleader

fund. At the time that the interpleader action was initiated, NCNB

(now the FDIC) was merely a judgment creditor. Thus, any claim

that the FDIC has against the interpleader fund must be evaluated
10

in accordance with its status as an unsecured judgment creditor.

III.

CONCLUSION

For the foregoing reasons, the judgment of the district court

is REVERSED, and we REMAND this case to the district court for

proceedings consistent with the terms of this ruling.

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