Court Opinion

ID: 2996706
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:30:52.798106+00
Date Added: 2024-06-11T12:03:40.721978
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                         ____________

No. 02-4052
GP CREDIT CO., LLC,
                                                 Plaintiff-Appellee,
                                v.

ORLANDO RESIDENCE, LTD.,
                                             Defendant-Appellant.
                         ____________
            Appeal from the United States District Court
               for the Eastern District of Wisconsin.
              No. 01-C-693—Lynn Adelman, Judge.
                         ____________
  ARGUED SEPTEMBER 15, 2003—DECIDED NOVEMBER 18, 2003
                         ____________

  Before POSNER, KANNE, and ROVNER, Circuit Judges.
   POSNER, Circuit Judge. Section 1655 of the Judicial Code
confers in rem jurisdiction on the federal courts by directing
the district court, in a suit “to enforce any lien upon or claim
to, or to remove any incumbrance or lien or cloud upon the
title to, real or personal property within the district,” to
order a defendant who cannot be served within the state
and will not appear voluntarily to appear and plead. The
principal question that we are asked to decide is whether
personal property that consists of an interest in a claim that
is being prosecuted in a lawsuit shall be deemed to be
“within the district” in which the owner of the interest
resides.
2                                                 No. 02-4052

  The question arises in a context of daunting complexity;
we’ll simplify ruthlessly. Back in 1992, the defendant,
Orlando, sued the Nashville Lodging Company (NLC) in a
Tennessee state court in a dispute over a hotel. After a
protracted proceeding, a judgment for $800,000 was entered
in Orlando’s favor in September 2000. The previous year
NLC had granted a security interest to the plaintiff in the
present case, GP Credit, in “any and all personal property”
owned by NLC. (It had done that to secure a $1 million loan
that it had obtained from GP Credit.) NLC’s personal
property included a lawsuit that it had brought against a
company called Metric, coincidentally involving the same
hotel as Orlando’s suit against NLC. NLC’s suit against
Metric was and is pending in a Tennessee state court, which
when GP Credit obtained its security interest had deter-
mined Metric’s liability to be at least $5 million but had not,
and still has not, rendered a final judgment, for reasons that
are unclear.
   In May 2001, which is to say after Orlando had obtained
its judgment against NLC in the Tennessee court, GP Credit,
claiming that NLC had failed to repay the $1 million loan,
foreclosed its security interest in NLC’s personal property
and at the foreclosure sale bought all that property, includ-
ing, therefore, NLC’s suit against Metric. Three months
later, Orlando persuaded the Tennessee trial judge who had
rendered judgment in its favor against NLC to appoint a
receiver to collect and hold, pending the final resolution of
the Metric suit, any proceeds of the suit that GP Credit, as
NLC’s successor in interest, might receive, so that there
would be money available to satisfy Orlando’s judgment.
And by this time Orlando had registered the judgment in
the county in which it had been rendered, served on NLC a
writ of execution of the judgment, and moved under Tennes-
see’s postjudgment collection statute to subject NLC’s assets
No. 02-4052                                                     3

to satisfaction of the judgment, a motion that the Tennessee
trial judge denied, however.
  Meanwhile, GP Credit had brought the present suit in the
federal district court for the Eastern District of Wisconsin,
which is its domicile, under section 1655 to clear its title to
the Metric proceeds. Federal jurisdiction was predicated on
diversity of citizenship; section 1655 confers in rem jurisdic-
tion on the federal courts only in cases that would be within
federal jurisdiction if brought as in personam suits. Dluhos
v. Floating & Abandoned Vessel, Known as “New York,” 162
F.3d 63, 72 (2d Cir. 1998); Georgia Central Credit Union v.
Martin G.M.C. Trucks, Inc., 622 F.2d 137 (5th Cir. 1980) (per
curiam); 14 Charles A. Wright et al., Federal Practice and
Procedure § 3631, p. 4 (3d ed. 1998). The difference between
the two types of jurisdiction corresponds to the difference
between subject-matter jurisdiction and personal jurisdic-
tion. A court must have jurisdiction over subject matter but
also over the person of the defendant. Section 1655 enables
a federal court that has subject-matter jurisdiction to obtain
a jurisdiction over a thing as distinct from a person.
  Two old cases of ours are sometimes thought (see, e.g., id.,
§ 3632, pp. 33-34), to dispense with the requirement of
establishing diversity, or some other basis of federal subject-
matter jurisdiction, in a case brought under section 1655.
Graff v. Nieberg, 233 F.2d 860, 862-63 (7th Cir. 1956); Huntress
v. Estate of Huntress, 235 F.2d 205, 208 (7th Cir. 1956). This
cannot be; and it seems that all the two cases meant to hold
is that a suit under section 1655, being in rem, need not
always be brought in a district in which either the plaintiff
or the defendant resides, though it must be brought in the
district in which the res (the property at issue) is located. Id.;
Graff v. Nieberg, supra, 233 F.2d at 862-63.
4                                                 No. 02-4052

  While GP Credit’s suit in the Eastern District of Wisconsin
was pending, NLC appealed the $800,000 judgment in
Orlando’s suit against it, and the Tennessee appellate court
reversed. It agreed, however, with everything in the trial
judge’s decision except her rejection of NLC’s statute of
limitations defense, and it remanded the case for a trial on
that issue alone. The trial has not yet been conducted, or
even scheduled. So Orlando still does not have a final,
enforceable judgment against NLC; nevertheless it contends
that the Tennessee proceedings bar GP Credit’s quiet-title
suit.
  In that suit, the suit out of which the present appeal arises,
the district judge, disagreeing with Orlando, after satisfying
himself that he had in rem jurisdiction because the res—the
lawsuit against Metric—is located in the Eastern District of
Wisconsin, held in a subsequent opinion that GP Credit has
a clean title. The judge found that Orlando had not acquired
a lien in the Metric suit by virtue of the later-reversed
judgment of the Tennessee state trial court, the issuance of
a writ of execution of the judgment, the motion to subject
NLC’s assets to payment of the judgment, the motion to
appoint and appointment of the receiver to hold any
proceeds of the suit, or the ruling by the Tennessee appellate
court that Orlando describes as upholding the trial judge’s
judgment conditional on the resolution of the statute of
limitations issue in Orlando’s favor on remand.
   So we have two issues to decide—the district court’s
jurisdiction and, if we find that it had jurisdiction, whether
GP Credit is entitled to a clear title to the proceeds of the
Metric suit. The second issue divides into two as well,
because GP Credit might lack title even if Orlando has no
lien.
  The general rule is that intangible personal property is
“located” in its owner’s domicile, In re Lambert, 179 F.3d 281,
285 (5th Cir. 1999); Robertson v. Robertson, 803 F.2d 136,
No. 02-4052                                                     5

137 (5th Cir. 1986); Gordon v. Holly Woods Acres, Inc., 328
F.2d 253, 255 (6th Cir. 1964), although there are exceptions,
such as where the documents of title are in a state that is not
the owner’s domicile. First Trust Co. of St. Paul v. Matheson,
246 N.W. 1, 3 (Minn. 1932); Restatement (Second) of Conflict of
Laws § 63 (1971); 4A Wright et al., supra, § 1071, pp. 295-96.
We have put “located” in scare quotes because intangibles,
having no “body,” have no spatial location. But creditors
who want to file liens against intangible personal property
have to file their liens in a place, or places, so the property
has to be given a fictitious location. The owner’s location is
the sensible choice and the one made by the Uniform
Commercial Code § 9-301(1); see Tenn. Code Ann. § 47-9-
103, Official Comments on the UCC, § 5(a) (2000); Wis. Stat. §
409.103, Official Comments on the UCC, § 5(a) (2000). The
owner’s location is physical, not metaphysical, and is easily
determined.
   One form of intangible property is a “chose in action,”
which in its classic sense is a legal claim, that is, something
on which an “action” (a lawsuit) might be founded, such as
a right to recover a debt. Applied Medical Technologies, Inc. v.
Eames, 44 P.3d 699, 701 (Utah 2002); Prodigy Centers/Atlanta
v. T-C Associates, 501 S.E.2d 209, 212 (Ga. 1998); Can Do, Inc.
Pension & Profit Sharing Plan v. Manier, Herod, Hollabaugh &
Smith, 922 S.W.2d 865, 866-67 (Tenn. 1996); United States v.
Central Bank, 843 F.2d 1300, 1304 (10th Cir. 1988); United
States v. Goldberg, 362 F.2d 575, 577 (3d Cir. 1966). GP
Credit’s interest in the Metric suit is a classic chose in action;
GP Credit stepped into NLC’s shoes by virtue of its pur-
chase at the foreclosure sale of NLC’s property and so
became the claimant in that suit. There are dark hints of
collusion in the acquisition and foreclosure of GP Credit’s
security interest in NLC’s claim against Metric, arising from
the fact that the principals of the respective companies (GP
6                                                   No. 02-4052

Credit and NLC) happen to be married to each other, but
they are merely hints and can play no role in our decision.
  The Wisconsin supreme court has held, in an oldish case
but one that has not been overruled or undermined by
subsequent decisions, that a chose in action is to be treated
for locational purposes the same as other intangible prop-
erty and thus as having its location in the state of the
owner’s domicile. Florida Realty Finance & Security Co. v.
Chris. Schroeder & Sons Co., 272 N.W. 38, 39-40 (Wis. 1937).
But we agree with Orlando that whether a particular form
of personal property is “within” a given federal district for
purposes of determining federal jurisdiction under 28 U.S.C.
§ 1655 is a question of federal law (as assumed in Kohagen v.
Harwood, 185 F.2d 276, 277-80 (7th Cir. 1950), and various
earlier cases, yet never so far as we can determine actually
held), rather than being governed by the law of the state
where the case is filed (Wisconsin in this case), or perhaps
by some other state’s law. GP Credit seems to think it can
sue to quiet title in any federal district that is in a state that
would deem the property sought to be cleared of encum-
brances to be located there. That approach would make it
unnecessarily difficult for lien creditors to know where they
might have to defend against a quiet-title action. It would
also make it difficult for the owners of choses in action to
know where they might have to defend against a suit to
impose a lien on such property.
  There is no settled federal rule defining the site of a chose
in action for purposes of section 1655, and we are reluctant
to rely on cases in which the site of intangible property is
determined for unrelated purposes, such as taxation.
Looking beyond Wisconsin for cases bearing directly on our
issue, we discover that most cases do hold in agreement
with the Wisconsin supreme court that the location of the
legal claim is the domicile of the claim’s owner. See, e.g., In
No. 02-4052                                                   7

re Howard Marshall Charitable Remainder Annuity Trust, 709
So. 2d 662, 668-69 (La. 1998); In re Estate of Coleman, 98
N.W.2d 784, 788 (N.D. 1959); In re Guardianship of
Fleckenstein, 589 S.W.2d 788, 790 (Tex. App. 1979). That
seems to us indeed the best rule and the one therefore that
should govern suits under section 1655. Unless there is to be
a free for all, the alternative to the owner’s domicile would
presumably be where the suit had been filed. But that
would work only if a suit had been filed, and it might not
have been—a cause of action arises, obviously, before suit
is brought and often, depending on the statute of limita-
tions, long before. Or the suit might have been filed but then
transferred to another jurisdiction, or dismissed without
prejudice and refiled in another jurisdiction. We can
imagine creditors chasing the suit all over the country.
There is no reason for the courts to set sail on this sea of
troubles. Nor would it be a tenable position that while
creditors should for the reasons just explained sue in the
domicile of the claim’s owner to impose a lien, owners of
claims have to sue elsewhere to clear title. The statute treats
suits to impose and to clear liens identically.
   So the district court had jurisdiction over the res. This is
true even though the Tennessee court asserted jurisdiction
first, when the Tennessee judge created the receivership to
protect Orlando, and notwithstanding the principle that
whatever court, federal or state, first obtains possession of
the res can enjoin any other court from wresting possession
away from it. Kline v. Burke Construction Co., 260 U.S. 226,
229 (1922); Knaefler v. Mack, 680 F.2d 671, 675 (9th Cir. 1982).
(The common sense behind the rule is apparent.) When GP
Credit filed its quiet-title action in Wisconsin, the Tennessee
court indicated that it would abide by the result of that
action, in effect ceding at least concurrent jurisdiction to the
district court in Wisconsin. Cf. Fischer v. American United Life
8                                                No. 02-4052

Ins. Co., 314 U.S. 549, 555 (1942). Hence the district court
was not interfering with the Tennessee proceeding when it
determined who owned the res. Lydick v. Fischer, 135 F.2d
983, 985 (5th Cir. 1943). But in any event the order of the
Tennessee court appointing a receiver was void under
Tennessee law, because issued after the trial judge had lost
jurisdiction by NLC’s filing its notice of appeal. Gentry v.
Gentry, 924 S.W.2d 678, 680 (Tenn. 1996); First American
Trust Co. v. Franklin-Murray Development Co., 59 S.W.3d 135,
141-42 and n. 7 (Tenn. App. 2001). So the Tennessee court
did not obtain jurisdiction over the res after all.
  Having resolved the jurisdictional issue, we can proceed
now to the merits, and thus consider whether the district
court was right to extinguish Orlando’s lien. Orlando claims
to have a judgment lien. But it cannot, because it has no
judgment. It has a ruling from the Tennessee appellate court
that constitutes the law of the case on the violation of
Orlando’s rights by NLC and the damages that Orlando
sustained as a result of that violation. Ladd by Ladd v. Honda
Motor Co., 939 S.W.2d 83, 90-91 (Tenn. App. 1996). But
under Tennessee law, which determines the effect of a
Tennessee judgment on a case in a federal court, Marrese v.
American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380
(1985), an interlocutory ruling is not a judgment. Frank Rudy
Heirs Associates v. Sholodge, Inc., 967 S.W.2d 810, 813 (Tenn.
App. 1997). The trial court’s judgment having been re-
versed, there is no judgment. The entry of a judgment in
Orlando’s favor depends on a favorable outcome of the yet
to be scheduled trial on NLC’s statute of limitations defense.
Orlando has at most the probablistic expectation of obtain-
ing a favorable judgment eventually, and such an expecta-
tion is not a judgment and does not create a lien.
  A reversed judgment, moreover, does not have res
judicata (thus including collateral estoppel) effect under
No. 02-4052                                                 9

Tennessee law, Cook v. Great West Casualty Co., No. 13, 1991
WL 30185, at *1 (Tenn. Mar. 11, 1991); McIntyre v. Traughber,
884 S.W.2d 134, 138 (Tenn. App. 1994); Merchants & Mfrs.
Transfer Co. v. Johnson, 403 S.W.2d 106, 107 (Tenn. App.
1966); Restatement (First) of Judgments § 41, Comment d
(1942), and so cannot affect the district court’s ruling in GP
Credit’s favor. And while the Tennessee trial court’s
judgment was entered before GP Credit bought rights to the
Metric lawsuit along with NLC’s other property at the
foreclosure sale, any lien that such a judgment might have
created would (in light of the subsequent reversal) have
been a lien created by mistake, a premature lien (the ex-
pectation we referred to earlier), and nothing on which
Orlando could found a claim to the property.
   Nor did the writ of execution or the motion to subject
NLC’s property to payment of the later-reversed judgment
create a lien. The appeals court in Tennessee reversed the
judgment in Orlando’s favor before the district court in the
present case had determined whether GP Credit had a clear
title to the Metric proceeds. With that reversal, Orlando lost
any right it might have had to satisfy its judgment out of
assets of NLC or NLC’s successor, GP Credit. The writ of
execution and the motion to subject presupposed a judg-
ment, Tenn. Code Ann. §§ 25-5-103, 26-4-101(a), 102; Keep
Fresh Filters, Inc. v. Reguli, 888 S.W.2d 437, 443 (Tenn. App.
1994), and the judgment had gone by the boards, as we have
been repeating at tireless length. Even if Orlando gets a
judgment tomorrow, it won’t be able to attach a lien now to
the chose in action (the suit against Metric) because the
chose is no longer in NLC’s hands; it has been bought by GP
Credit at a public sale.
  The last question we have to decide is whether, if we put
to one side any lien possessed by Orlando, GP Credit really
10                                                No. 02-4052

did acquire title to the Metric chose in action when, having
foreclosed against NLC, it bought all of NLC’s property at
the foreclosure sale. Orlando argues that GP Credit did not
acquire a good title, and if this is right then presumably the
chose belongs to NLC still and Orlando may be able to grab
it if it finally wins its suit against NLC. Its principal argu-
ment is that the description of GP Credit’s security inter-
est—the interest that secured the loan to NLC on which GP
Credit foreclosed—was too vague to satisfy the UCC. The
description was “any and all personal property.” We need
not decide whether this language was really too vague. The
purpose of the security agreement in a UCC-governed
secured transaction, as distinct from the financing state-
ment, is to define the rights of the parties to the security
agreement, not to confer rights on third parties. Milwaukee
Mack Sales, Inc. v. First Wisconsin National Bank, 287 N.W.2d
708, 713 (Wis. 1980). So only subsequent creditors who have
actually read the security agreement and been misled by a
vague description in it can challenge the sufficiency of the
description. National Bank of Fulton County v. Haupricht Bros.,
Inc., 564 N.E.2d 101, 114 (Ohio App. 1988) (per curiam).
Even a vague description in the financing statement, a
statement that is designed for the protection of third parties,
creates rights only in persons misled by it, for example
persons lending money to NLC without knowing that NLC
had granted a security interest in its major asset. See UCC §
9-401(2) (rev. 1972); Brown v. Yousif, 517 N.W.2d 727, 729-30
and n. 10 (Mich. 1994); Thompson v. Danner, 507 N.W.2d 550,
560-61 (N.D. 1993); First State Bank v. United Dollar Stores,
571 P.2d 444, 447-48 (Okla. 1977); United States v. Newcomb,
682 F.2d 758, 762 (8th Cir. 1982). Orlando was not misled.
 There are other issues, but none that deserves discussion.
The judgment for GP Credit is
                                                   AFFIRMED.
No. 02-4052                                             11

A true Copy:
       Teste:

                       _____________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                USCA-02-C-0072—11-18-03