Court Opinion

ID: 4104198
Source: CourtListenerOpinion
Date Created: 2016-12-02 21:02:26.534865+00
Date Added: 2024-06-11T07:46:04.933310
License: Public Domain

United States Court of Appeals
                       For the First Circuit
No. 16-1010

                  LAW OFFICES OF DAVID EFRON, P.C.

                             Appellant,

                                 v.

                        MADELEINE CANDELARIO,

                              Appellee.

            APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF PUERTO RICO

              [Hon. José A. Fusté, U.S. District Judge]

                               Before

                     Howard, Torruella, and Dyk,*
                           Circuit Judges.

     Charles A. Cuprill-Hernández on brief for appellant.
     Michelle Pirallo-Di Cristina on brief for appellee.

                          December 2, 2016

     *   Of the Federal Circuit, sitting by designation.
              DYK, Circuit Judge. The Law Offices of David Efron,

P.C. (“Efron Firm”) appeals from an order of the United States

District Court for the District of Puerto Rico directing that

“the    moneys     for   legal    fees   to      Mr.   Efron,    which     we   ordered

retained      by   our   Clerk,    be    disbursed      to    the    Court    of   First

Instance, Superior Part of San Juan.” ECF No. 55. We conclude

that Puerto Rico courts cannot garnish funds deposited in a

federal district court’s registry, and that the district court

cannot     transfer      registry        funds     without       transferring        the

concomitant case. Because the appellee, Madeleine Candelario,

has no right to intervene in the federal action, we reverse and

direct    that     the   funds     be    paid     pursuant      to   the     provisions

originally governing the funds’ disposition.

                                            I.

              David Efron (“Efron”) and Madeleine Candelario were

involved in two proceedings before the Superior Court of Puerto

Rico: a divorce proceeding that concluded in 2000, and a pending

marital property division proceeding. David Efron is the sole

owner of the Efron Firm. In the divorce proceeding, the Superior

Court    of   Puerto     Rico     ordered     payment    of     $5,473,627.98      plus

interest from Efron to Candelario. Candelario alleges that Efron

has refused to pay as ordered by the Superior Court, which has

forced her to resort to garnishing funds owned by Efron.

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              The present controversy concerns funds allegedly owned

by Efron1 and deposited in the federal district court registry.

In the case of Juan Carlos Torres Rivera v. Hospital Menonita

Caguas,   Inc.,     No.    15-1231    (D.P.R.      Aug.   31,   2015),    in   the

district court, the Efron Firm represented the plaintiffs and

secured a settlement for its clients. In accordance with the

settlement agreement, the defendants deposited the Efron Firm’s

attorney’s fees with the district court clerk. Meanwhile, in the

divorce   proceeding       in   Puerto     Rico   Superior   Court,   the   court

issued an order garnishing amounts owed to Efron (not specific

to these funds) to satisfy the Superior Court judgment.

              On September 14, 2015, Candelario served the district

court clerk with a certified translation of the Superior Court’s

garnishment order and requested that the district court transfer

the amounts deposited in the district court registry pursuant to

the Rivera settlement.          On December 8, 2015, the district court

ordered that “the moneys for legal fees to Mr. Efron, which we

ordered retained by our Clerk, be disbursed to the Court of

First Instance, Superior Part of San Juan, . . . for that court

to   decide    to   who,    when,    and    how   to   disburse   those     moneys

1 The parties dispute whether Efron, the individual, can be
treated as owning funds belonging to the Efron Firm. For the
purposes of this opinion, we treat the funds in the district
court registry as belonging to Efron, the individual, without
deciding the question of their ownership.
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[because the] Superior Court is in the best position to consider

all    the    equities,       rights,      and        obligations    arising        from    its

judgment and orders for execution of judgment.” ECF No. 55.

Efron appealed. The district court order is a final order, see

Alstom Caribe, Inc. v. Geo. P. Reintjes Co., 484 F.3d 106, 113

(1st Cir. 2007), over which we have jurisdiction under 28 U.S.C.

§ 1291.      We    stayed    the       district       court   transfer     order     pending

appeal.

                                                II.

              The    first        issue   is     whether      the   Superior        Court    of

Puerto Rico could garnish funds deposited in the registry of the

federal      district     court.          Supreme       Court    authority        establishes

that it cannot: funds in federal court registries are protected

under     the      doctrine       of    custodia        legis    from    garnishment         or

attachment by a state court.

              In    The     Lottawanna,         87    U.S.    (20   Wall.)    201     (1873),

owners of a steamship were sued in a federal district court

sitting in admiralty for failure to pay wages. The owners sold

the steamship in order to pay the claims, and deposited the sale

proceeds in the federal court registry for disbursement to the

wage    claimants.          Id.    at     211.        After   the    deposit       occurred,

additional parties attempted to garnish the funds based on state

court     judgments       relating        to    expenses        incurred     by    the     ship

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owners. Id. at 214. The district court ordered the funds in the

registry        to    be     paid    over     to     these    state   court    judgment

claimants. Id. at 215-16. On appeal, the Supreme Court held that

the federal court registry “fund, from its very nature, is not

subject     to        attachment      either       by   the    process    of      foreign

attachment or of garnishment, as it is held in trust by the

court to be delivered to whom it may belong.” Id. at 224. The

Court thus ordered the return of the incorrectly disbursed funds

from the state court judgment claimants. Id. at 225-26. This

doctrine of custodia legis is “based on the desirability of

avoiding    a        clash   between       judicial     jurisdictions     which    would

result from any attempt to use the process of one to seize

assets     in    the       control    of     another    judicial      authority    . . .

[especially] where the judicial departments belong to different

sovereignties.” In re Quakertown Shopping Ctr., Inc., 366 F.2d

95, 97 (3d Cir. 1966).

                The custodia legis principle has been reaffirmed in

subsequent       cases.       In    Osborn    v.     United   States,    91    U.S.   474

(1875), the Supreme Court held that the “power of the [district]

court over moneys belonging to its registry continues until they

are distributed pursuant to final decrees in the cases in which

the moneys are paid.” Id. at 479 (emphasis added). And Motlow v.

Missouri ex rel. Koeln, 295 U.S. 97 (1935), noted that a state

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would be “without jurisdiction to enforce [its] liens . . . [if]

the     property       was     in   custodia         legis      . . .      [because     of]

interference with the custody of the federal court.” Id. at 99-

100.

              While this circuit has not had occasion to address the

question of whether state courts can garnish funds deposited in

a     federal       court      registry,       other     circuits       have      followed

Lottawanna to reach the same result. In Bucher v. Vance, 36 F.2d

774 (7th Cir. 1929), the Seventh Circuit, citing Lottawanna,

held that the “fund, in the registry of the District Court, and

under its control, could not be subjected to seizure on behalf

of” a state court judgment. Id. at 776. In White v. FDIC, 19

F.3d    249     (5th    Cir.     1994),    the       Fifth     Circuit,     also    citing

Lottawanna, held that

        [a]ny attempt to attach funds deposited in the
        registry of a federal district court is subject to the
        doctrine of custodia legis. Under 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.

Id.     at    253     n.12     (internal       citations       and   quotation        marks

omitted). In Garrick v. Weaver, 888 F.2d 687 (10th Cir. 1989),

the     Tenth       Circuit,     quoting       Lottawanna,       held      that    because

“fund[s] in registry [are] not subject to attachment either by

foreign attachment or garnishment and no money deposited . . .

shall    be     withdrawn      except     by   the     order    of   the    judge[,    the
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appellant] must obtain court approval before she can access the

funds in the court registry.” Id. at 695 (internal quotation

marks    omitted).        In    Landau      v.    Vallen,       895    F.2d     888    (2d    Cir.

1990),    the     Second        Circuit     cited      Lottawanna        to     explain       that

custodia legis serves to bar garnishment that would “prevent the

court from disposing of the funds in accordance with the purpose

for which they were deposited.” Id. at 893-94. And in United

States v. Van Cauwenberghe, 934 F.2d 1048 (9th Cir. 1991), the

Ninth Circuit cited Lottawanna for the proposition that “[i]t

has long been asserted that property and funds in the registries

of federal courts are not, as a general rule, subject to writs

of    attachment     or    garnishment.”           Id.     at    1062.       Like     the    other

circuits, we agree that Lottawanna prevents a state court, such

as the Puerto Rico Superior Court, from garnishing funds in a

federal court registry.

                                             III.

             We    next        turn    to   the    issue    of        whether    the    federal

district     court    had        authority        to   transfer        the    funds     to     the

Superior Court. Case law from this circuit bans such transfers

unless accompanied by the concomitant transfer of the case.

             In Alstom Caribe, Inc. v. Geo. P. Reintjes Co., 484

F.3d 106, 110 (1st Cir. 2007), Alstom Inc. sued Reintjes Co. and

St.   Paul   Co.     in    the        District    of   Puerto         Rico    for     breach    of

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contract.     The    parties    settled,        and   Reintjes     and   St.    Paul

disputed whether Reintjes owed monies to St. Paul in connection

with the settlement expenses. Thereafter, St. Paul sued Reintjes

in the Western District of Missouri to recover these amounts.

Meanwhile,    in     the   Puerto   Rico       district   court,    Reintjes    had

asserted counterclaims against Alstom. These were also settled,

and Alstom deposited the funds to be paid to Reintjes with the

Puerto Rico district court registry pursuant to the settlement.

Id. at 110-11. The district court of Puerto Rico transferred

these settlement funds deposited in its registry to the Western

District of Missouri for it to “determine what to do with the

funds.” Id. at 115.

             On appeal, the Alstom court noted that “[t]he most

glaring defect in the order is the transmittal of the deposited

funds to the Western District of Missouri without a concomitant

transfer of any case or cause of action.” Id. at 114. “[T]here

is no statute, rule, or legal precedent that authorizes a court

to effect a non-consensual transfer of [court-deposited] funds

to   a   different    court    without     a    concomitant   transfer     of   the

entire case (or, at least, some cause of action). Because the

monetary transfer here was unaccompanied by a shifting of either

the case or a cause of action within it, that transfer was

legally insupportable.” Id. at 115. Here too, the district court

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improperly    ordered      precisely      such    a    “naked    transfer”       of    the

Efron   Firm’s     funds    in    its   registry       without     the   accompanying

transfer of any of the claims. See id. at 114.

                                          IV.

             We    finally        consider       the     question        of     further

proceedings. The Alstom court ultimately remanded the case and

“direct[ed] the Puerto Rico district court to consider . . . the

question[]    of    intervention.”        Id.    at    116.   No    such      remand    is

appropriate here because Candelario never sought to intervene

and has no right to intervene.

             Rule 24(b)(1) provides that “[o]n timely motion, the

court may permit anyone to intervene who . . . has a claim or

defense that shares with the main action a common question of

law or fact.” Whether federal courts have ancillary jurisdiction

over intervenor claims “will depend on whether the claim of the

would-be intervenor is so related to the original action that it

may properly be regarded as ancillary to it.” 7C Charles Alan

Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and

Procedure § 1917, at 586 (3d ed. 2007) (emphasis added). This

circuit has found that ancillary jurisdiction exists only when

the issues “are so inextricably entangled with one another that

full    justice    cannot    be    done   in     [the]   original        suit   without

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adjudication          of    the   matters    raised”        in    the    ancillary       claim.

Walmac Co. v. Isaacs, 220 F.2d 108, 114 (1st Cir. 1955).

             Here, Candelario concedes that she has no right to

intervene        to    assert      a    right    to    the       funds   in   the    federal

registry. She states that she “could not seek intervention as of

right because she had no interest in the underlying case, and

[could not seek] . . . permissive intervention . . . because the

underlying case was over.” Appellee Br. At 8-9. But even if she

had made a request to intervene, it is clear that Candelario’s

claim does not share with the underlying Rivera litigation any

“common question of law or fact.” Moreover, all of the questions

of   law    or    fact      in    the   Rivera       litigation      have     already      been

settled. Candelario’s claim is a post-judgment claim unrelated

to the original dispute. There is no right to intervene.

                                                V.

             We conclude that the Superior Court of Puerto Rico

cannot garnish funds deposited in the registry of a federal

district court, that the district court cannot transfer registry

funds      without         transferring     the       concomitant        case,     and    that

Candelario has no right to intervene to assert a claim to the

funds.     We     reverse         and   remand       with    directions       to    pay     the

deposited funds pursuant to the provisions originally governing

the funds’ disposition.

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REVERSED AND REMANDED. Costs to appellant.

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