Court Opinion

ID: 19788
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:27:50+00
Date Added: 2024-06-11T14:55:04.117052
License: Public Domain

Revised February 10, 2000

                    UNITED STATES COURT OF APPEALS

                         For the Fifth Circuit

                      ___________________________

                              No. 98-11377
                      ___________________________

  State of Tennessee ex. rel. DOUGLAS SIZEMORE, Commissioner of
Commerce and Insurance of the State of Tennessee on behalf of
policyholders and other third-party claimants of Anchorage Fire and
Casualty Insurance Company a/k/a Global Capitol Assurance Company,
Ltd.

                                                   Plaintiff-Appellant,

                                 VERSUS

SURETY BANK, formerly known as Texas Bank, N.A.

                                                    Defendant-Appellee.

          ___________________________________________________

              Appeal from the United States District Court
          For the Northern District of Texas, Dallas Division
        ___________________________________________________
                            January 25, 2000

Before DAVIS, JONES, and MAGILL1, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

        This case arises out of the insolvency of Anchorage Fire &

Casualty Insurance     Company   (“Anchorage”),   an   Antiguan   company

engaged in the insurance business throughout California, Texas,

  1
      Circuit Judge of the Eighth Circuit, sitting by designation.

                                    1
Tennessee, and Georgia. Plaintiff Sizemore (“the Receiver”) is the

Commissioner of Commerce and Insurance for the State of Tennessee

and is the appointed Conservator and Liquidator of all Anchorage

assets.     He brought this cause of action against Surety Bank, a

Texas Bank that maintained several bank accounts in Anchorage’s

name.     The   Receiver   alleged    that   Surety   Bank   violated   the

Liquidation and Conservation Orders of the Tennessee Chancery

Court, primarily by failing to turn Anchorage assets over to the

Receiver.    The district court granted summary judgment on Surety

Bank’s behalf, holding that the Bank was not bound by the orders

because the Chancery Court lacked jurisdiction over Anchorage

assets located outside of Tennessee.         For reasons that follow, we

agree with the district court that the Tennessee court lacked

jurisdiction and affirm.

                                     I.

     In January 1993, Anchorage was either insolvent or on the

verge of becoming insolvent.         By March, the states of Texas and

Tennessee had each initiated independent insolvency proceedings

against Anchorage. As the interplay of these proceedings forms the

crux of this lawsuit, we will discuss each in some detail.

Tennessee Proceedings

     In early March 1993, a federal district court in Tennessee

entered a temporary restraining order enjoining several financial

institutions, including Surety Bank, from transferring, disbursing,

or in any way interfering with accounts held under the Anchorage

                                      2
name.

     One week later, the Tennessee Chancery Court placed Anchorage

into receivership pursuant to the Tennessee Insurers Rehabilitation

and Liquidation Act, Tenn. Code Ann. § 56-9-101 et seq.                         The court

found   that      Anchorage     was   “in       such     condition       that    further

transaction of business would be hazardous to its policyholders,

creditors, and the public.” Accordingly, it entered a Conservation

Order   enjoining      “all     persons,       firms,    and   associations”        from

transferring, wasting, or dissipating Anchorage bank accounts or

interfering with the Conservator and the Conservatorship.                               The

court further directed the Tennessee Commissioner of Commerce and

Insurance    to      take   possession         of    Anchorage’s     assets       and    to

administer them under court supervision.                    In May, the Chancery

Court   converted       the    temporary        injunction        into    a     permanent

injunction     and    the     conservation          proceedings    into       liquidation

proceedings. The court entered a liquidation order authorizing the

Receiver to take possession of “all property assets, and estate .

. . wheresoever located, whether within or without the state of

Tennessee and belonging to Anchorage.”

Texas Proceedings

     In April 1993, Surety Bank filed a motion to intervene in a

Texas lawsuit involving some Anchorage assets.                     Surety Bank then

moved for interpleader, arguing that among the assets at issue in

the lawsuit were funds that had been deposited in the same Surety

Bank accounts as those involved in the Tennessee proceedings

                                           3
against Anchorage. Surety Bank named Anchorage and the Receiver as

defendants, paid approximately $600,000 into the registry of the

court pending resolution of the conflicting claims, and asked the

court to discharge the Bank from all liability with respect to the

claims.

     In   response,   the   Receiver       moved   to    stay    or   dismiss   the

interpleader suit, claiming that the Tennessee liquidation court

had exclusive jurisdiction over Anchorage’s property regardless of

where it was located, and that the Texas court should give full

faith and credit to the Tennessee liquidation order.                    The court

denied the Receiver’s motion and entered summary judgment, awarding

the impleaded funds to United Shortline.

     The Texas Court of Appeals affirmed the district court in part

and reversed in part.       Bryant v. United Shortline Inc. Assurance

Services N.A., 984 S.W.2d 292 (Tex. App. 1996)(“Bryant I”).                     The

court   held   that   the   Tennessee      Chancery      Court    “exceeded     its

statutory   jurisdiction    when   it      ordered      liquidation    of   assets

outside Tennessee” and that the district court did not err in

refusing to give the liquidation order full faith and credit. 984
S.W.2d at 298.    The court concluded that the parties had yet to

resolve ownership of the funds adequately and therefore remanded

the case for further factual development.

     In May 1998, the Texas Supreme Court affirmed the decision but

used a different rationale than the court of appeals.                   Bryant v.

United Shortline Inc. Assurance Services N.A., 972 S.W.2d 26, 29 &

                                       4
n.1 (Tex. 1998)(“Bryant II”). The court declined to decide whether

the Tennessee court had jurisdiction over Anchorage assets located

in Texas. The court stated that “we neither approve nor disapprove

of the court of appeals’ finding that [the Tennessee statute]

precludes the Tennessee chancery court from exercising jurisdiction

over Anchorage assets located outside Tennessee.”    Id.   Instead,

the court held that the Tennessee court order did not affect the

Texas impleader action.    The court explained that because the

Tennessee court order, by its express terms, applied only to funds

belonging to Anchorage, it had no effect on the Texas action, which

was designed to address the antecedent question of whether the

funds at issue actually belonged to Anchorage, rather than to

another party.

The Present Action

     The Receiver filed the present action in May 1995, in the

court below, seeking title to a number of accounts allegedly

belonging to Anchorage, which were on deposit with Surety Bank.

The Receiver alleged that the Tennessee Chancery Court vested him

with title to the Texas deposits and that Surety Bank intentionally

violated the orders of the Tennessee courts, committed fraudulent

transfers, common law conversion, common law fraud, negligence, and

bad faith.   He alleges that Surety Bank withdrew assets from the

Anchorage accounts and transferred them to third parties or to

other accounts that the Bank maintained for their own purposes.

     The district court entered summary judgment for Surety Bank,

                                 5
holding that the Tennessee Chancery Court lacked jurisdiction to

issue the Conservation and Liquidation Orders. The court explained

that because the Receiver’s claims arose solely from the rights

obtained in the Tennessee court orders, enforcement of those rights

depended upon whether the Tennessee orders were entitled to full

faith and credit.    Whether the Tennessee orders were entitled to

full faith and credit, in turn, depended on whether the Tennessee

court had jurisdiction to issue the orders.

     In determining whether the Tennessee court had jurisdiction to

issue the orders, the district court stated that it would interpret

the Tennessee jurisdictional statute as a Texas state court would

interpret it. The district court concluded that the Texas Court of

Appeals’ decision in Bryant I demonstrated that Texas courts would

find that the Tennessee statute did not authorize Tennessee courts

to exercise jurisdiction over Texas property.      Accordingly, the

district court refused to grant full faith and credit to the

Tennessee Liquidation and Conservation Orders.

     Sizemore appeals, arguing that: (1) the district court erred

in concluding that the Tennessee Chancery Court lacked jurisdiction

to enter the Liquidation and Conservation Orders; (2) the district

court should have granted full faith and credit to the Tennessee

Chancery Court’s own determination that it possessed subject matter

jurisdiction, and; (3) Surety Bank is estopped from challenging the

Conservation and Liquidation Orders.      We review each of these

arguments de novo.   Gardemal v. Westin Hotel Co., 186 F.3d 588, 592

                                  6
(5th Cir. 1999).

                                 II.

     A court need not grant full faith and credit to a judgment

rendered in another state unless that state had jurisdiction to

render the judgment. Underwriters Nat’l Assurance Co. v. N.C. Life

& Accident & Health Ins. Guar. Ass’n., 455 U.S. 691, 705 (1982);

Restatement (Second) of Judgments § 81 (1982).      As the Supreme

Court explained in Underwriters Nat’l Assurance Co.: “before a

court is bound by the judgment rendered in another State, it may

inquire into the jurisdictional basis of the foreign court’s

decree.   If that court did not have jurisdiction over the subject

matter or the relevant parties, full faith and credit need not be

given.”   Id. at 705.   Thus, the critical question presented to us

is whether the Tennessee Chancery Court possessed jurisdiction to

issue the Liquidation and Conservation Orders with regard to assets

located outside the State of Tennessee. If the Tennessee court had

jurisdiction to issue the orders, then the district court must give

full faith and credit to the orders.      If not, then the orders

cannot serve as the basis for a cause of action in Texas courts.

                                 A.

     We must first consider whether to apply Texas or Tennessee law

to determine whether the Tennessee court acted within the scope of

its jurisdiction.

     The district court applied Texas law, reasoning that because

                                  7
jurisdiction was a question of substantive state law, the Erie

doctrine compelled it to apply the substantive law of the forum

state -- Texas.          See Erie R. Co. v. Tompkins, 304 U.S. 64, 78

(1938).

     The Receiver counters that this is not an Erie question, but

rather a full faith and credit question: what effect would a

Tennessee court give to a state court judgment that was rendered in

excess    of    its    jurisdiction?     Because       full      faith   and   credit

questions are matters of federal constitutional and statutory law,

Durfee v. Duke, 375 U.S. 106 (1963); 28 U.S.C. § 1738, the Receiver

concludes that the district court need not apply the law of the

forum state.2         We agree.

     Although district courts need not give foreign state court

judgments      full    faith   and   credit       unless   the   state   court   had

jurisdiction to render the judgment, this inquiry flows from the

Full Faith and Credit Clause itself.                  As the Supreme Court has

explained:

               This limitation flows directly from the principles
               underlying the Full Faith and Credit Clause. It is
               axiomatic that a judgment must be supported by a
               proper showing of jurisdiction over the subject
               matter and over the relevant parties. One State’s
               refusal to enforce a judgment rendered in another
               State when the judgment is void for lack of
               jurisdiction merely gives to that judgment the same
               ‘credit, validity, and effect’ that it would

    2
      See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)(“Except
in matters governed by the Federal Constitution or by acts of
Congress, the law to be applied in any case is the law of the
state.”).

                                              8
             receive in a court of the rendering state.

Underwriters, 455 U.S. at 705 n.10; Cf. A.L.T. Corp. v. Small

Business Admin., 801 F.2d 1451, 1456 (5th Cir. 1986)(“As part of

full faith and credit analysis we look to [rendering] state law to

determine how much credit the state judgement deserves.”). Because

this inquiry is a question of federal constitutional law, the

district court need not apply the law of the forum state.                  See

Erie, 304 U.S. at 708.

      Indeed, this Court has previously applied the law of the

rendering state, rather than that of the forum state, to determine

whether to grant full faith and credit to a foreign state judgment.

Hazen Research, Inc. v. Omega Minerals, Inc., 497 F.2d 151, 154 &

n.1 (5th Cir. 1974)(applying Colorado law to determine whether

Colorado state court acted without jurisdiction).               Other circuits

have also followed this approach.           For example, in Clyde v. Hodge,

413 F.2d 48   (3d   Cir.   1969),   the   Third   Circuit    held   that   a

Pennsylvania district court must give an Ohio state court judgment

“the same force and effect in this action as it would have been

accorded by Ohio courts.”         Id. at 50.      The court explained that

“Ohio law controls the effect to be given the Ohio judgment

notwithstanding the fact that the district court was sitting in

diversity in Pennsylvania.”        Id. at 50 n.2.      See also Restatement

(Second) of Conflicts of Laws § 105 cmt. b (“When recognition or

enforcement of a judgment rendered in one state is resisted in a

                                        9
second state on the ground of the alleged incompetence of the court

to render the judgment, the statutes and decisions of the courts in

the state in which the judgment was rendered are controlling.”).

      Accordingly, we look to Tennessee law to determine what effect

to   give     to   the   Tennessee    Chancery    Court’s   Liquidation   and

Conservation Orders.

                                       B.

      Tennessee law limits the circumstances under which a party may

collaterally       challenge   a   court’s    subject   matter   jurisdiction.

Although Tennessee law permits parties to attack collaterally an

order on the ground that the court exceeded the powers conferred

upon it by law, Guy v. American Federation of Govt. Employees Local

2501, 1987 WL 5168, *2 (Tenn. Ct. App. Jan. 9, 1987), that party

must demonstrate that the court did not simply err in exercising a

power that it possessed, but rather, that the court usurped power

where none existed, Brown v. Brown, 281 S.W.2d 492, 499 (Tenn.

1955).      As the Tennessee Supreme Court explained:

              While it is well settled that a judgment cannot be
              questioned collaterally for an error committed in
              the exercise of jurisdiction, the rule is equally
              well established that a judgment may be attacked in
              a collateral proceeding for error in assuming
              jurisdiction. . . . One form of usurpation of power
              on the part of a court in rendering a judgment is
              where   it  attempts   to   disregard   limitations
              prescribed by law restricting its jurisdiction.
              Where a court is authorized by statute to entertain
              jurisdiction in a particular case only, and it
              undertakes to exercise the power and jurisdiction
              conferred in a case to which the statute has no
              application, in so doing it will not acquire

                                             10
            jurisdiction and its judgment will be a nullity and
            subject to collateral attack.

Chickamauga Trust Co. v. Lonas, 201 S.W. 777, 778-79 (Tenn. 1918).

      With this distinction in mind, the Receiver cites a number of

Tennessee cases suggesting that although Surety Bank may attack the

Chancery Court’s subject matter jurisdiction to appoint a receiver,

it   may   not   collaterally   attack   the   scope   of   the   receiver’s

authority.       See, e.g., Slaughter v. Louisville & Nashville R.R.

Co., 143 S.W. 603, 605 (Tenn. 1911)(holding that “the scope of [the

receiver’s] authority prescribed in the order of his appointment,

cannot be questioned in another tribunal, unless the order or

decree was void”); Robertson v. Davis, 90 S.W.2d 746, 752 (Tenn.

1936)(“Where the court appointing a receiver has jurisdiction of

the subject-matter and of the parties, a collateral attack upon the

appointment of the receiver or a collateral attack questioning the

power conferred upon the receiver will not be entertained.              Such

appears to be the universal rule.”).

      While the rule cited by the Receiver appears to have been

controlling authority at one time, more recent Tennessee case law

leads us to conclude that present-day Tennessee courts would allow

a collateral attack on the scope of the Receiver’s authority.            For

example, in Brown v. Brown, 281 S.W.2d at 614, the Tennessee

Supreme Court entertained a collateral attack upon the validity of

a divorce decree despite the fact that the lower court had subject

matter and personal jurisdiction.        The court explained that:

                                    11
            The Circuit Court in this case had the general
            jurisdiction of the subject matter of divorce and
            alimony; but it could make no valid adjudication
            with reference thereto which was not within the
            powers granted to it by law. A distinction must be
            made between the mere erroneous exercise of a power
            granted, and the usurpation of power where none
            exists. . . . The Circuit Court in this case
            exceeded the powers conferred upon it by law. Its
            judgment awarding the wife alimony after granting
            the husband a divorce is not only beyond the powers
            conferred upon it by statute, but is also directly
            contrary to the mandate of the applicable statute.

Id. at     613-14    (internal   citations   omitted).3      Similarly,      our

analysis of Tennessee’s insurer liquidation statutes leads us to

conclude that the Tennessee Chancery Court exercised jurisdiction

in a manner “not only beyond the powers conferred upon it by

statute”    but     also   “directly   contrary   to   the   mandate    of   the

applicable statute.”

     We now turn to an analysis of Tennessee’s insurer liquidation

statutes as they apply to the facts of this case.

     A Tennessee court has no jurisdiction to grant a receiver any

power or authority except in accordance with Chapter 9, Title 56 of

the Tennessee Code.          Tenn. Code Ann. § 56-9-104(b).            Although

Section 402 of Title 56 permits the Chancery Court to “issue an

order to liquidate in whatever terms it deems appropriate” if “it

     3
       See also Maddron v. Maddron, 1991 WL 135467, *4 (Tenn. Ct.
App. July 25, 1991)(holding that a judgment “is subject to
collateral attack where . . . the judgment is void for want of
jurisdiction with respect to the power of the court to render the
particular judgment or decree, as where the court . . . exceeds the
powers conferred on it by constitutional or statutory provisions”).

                                       12
appears   to    the   court   that   the      best   interests    of   creditors,

policyholders and the public so require,” Section 402 also imposes

clear territorial limits on the jurisdiction of the chancery court.

See Tenn. Code Ann. § 56-9-402(b),(c)(1998).              Unlike Section 307,

the domestic insurer liquidation provision, which permits the

chancery court to appoint a receiver to liquidate assets “wherever

located,” Section 402 provides only that “the commissioner may

apply to the chancery court . . . for an order directing the

commissioner to liquidate the assets found in this state of a

foreign insurer or alien insurer not domiciled in this state... .”

Tenn. Code Ann. § 56-9-402(a) (1998)(emphasis added).4

     Anchorage was an alien non-domiciliary insurer and as such the

Chancery Court lacked jurisdiction to order the liquidation of any

Anchorage assets located outside of Tennessee.                   In ordering the

liquidation     of    Anchorage    Assets     “wheresoever   located,     whether

within or without the state of Tennessee,” Order of Liquidation and

Permanent      Injunction     at   ¶d,      the   Chancery   Court     exercised

     4
       In his reply brief, the Receiver points to a June 14, 1999
amendment to Section 401 of Title 56 that permits the Commissioner
to issue conservation orders “to conserve the property [of a non-
domiciliary insurer] found in this state or any other state.”
Tenn. Senate Bill 1080 § 4. The Chancery Court, however, rendered
the Liquidation Order pursuant to Section 402, which governs
liquidations and which was not amended in this manner. See Tenn.
Code. Ann. § 56-9-402 (1999). Moreover, although the amendment
purports to have retroactive effect, the retroactivity provision
states that the amendment applies only “for the purpose of
conducting the proceeding henceforth.” Tenn. Senate Bill 1080 § 5.
Because our review takes place after the completion of the
Tennessee proceedings, we conclude that the amendment does not have
retroactive effect in this case.

                                         13
jurisdiction in a manner “directly contrary to the mandate of the

applicable         statute,”         Brown    v.      Brown. 281 S.W.2d    at    499.

Accordingly, the district court did not err in permitting Surety

Bank to attack collaterally the judgment of the Chancery Court.

Moreover,          we hold that under Tennessee law, the Chancery Court

lacked jurisdiction to enter the Liquidation and Conservation

Orders against Anchorage assets located outside of Tennessee.5

                                                 C.

     The Receiver also argues that the district court should have

given       full    faith      and    credit       to   the     Chancery    Court’s   own

determination that it possessed subject matter jurisdiction over

Anchorage assets located outside of Tennessee.                           Although Surety

Bank was not a party to the Chancery proceedings and none of the

parties to the proceedings litigated the question of the Chancery

Court’s      jurisdiction,           the     Receiver       nevertheless    argues    that

principles         of   full    faith      and     credit     preclude   the   Bank   from

challenging in a Texas court the jurisdiction of a Tennessee court.

     A state court judgment is “entitled to full faith and credit

– even as to questions of jurisdiction – when the second court’s

inquiry discloses that those questions have been fully and fairly

litigated and finally decided in the court which rendered the

        5
        Accord Bryant v. United Shortline, 984 S.W.2d at 297-98
(holding that Tennessee court exceeded its statutory jurisdiction
when it ordered liquidation of assets outside Tennessee).

                                                 14
judgment.”     Durfee v. Duke, 375 U.S. 106,111 (1963); Underwriters

Nat’l Assurance Co., 455 U.S. at 707.              Similarly, where a party has

had an opportunity to litigate the question of jurisdiction but

fails to do so, the second court must give full faith and credit to

the first court’s determination of jurisdiction.                         Sherrer v.

Sherrer, 334 U.S. 343, 352 (1948); Felhaber v. Felhaber, 681 F.2d
1015, 1031 & n.27 (5th Cir. 1986).

        In each of these cases, however, either the party challenging

the jurisdiction of the state court was actually involved in the

original state court litigation or the previous parties had fully

litigated the question of jurisdiction.               See Sherrer, 334 U.S. at

352; Durfee, 375 U.S. at 107-08; Underwriters Nat’l Assurance Co.,
455 U.S. at 707-08; Fehlhaber, 681 F.2d 1015 at 1018-19.                     Surety

Bank,   in   contrast,   was   a    party     to    neither   of   the    Tennessee

proceedings.      Moreover, the parties to the Tennessee proceedings

never litigated the issue of jurisdiction.              To bind Surety Bank to

such a judgment would contravene both the general rule that                       a

person cannot be bound by a judgment in litigation to which he is

not made a party or in which he is not served with process,                  Zenith

Radio Corp. v. Hazeltine Research Inc., 395 U.S. 100,110 (1969),

and the rule that a court cannot command a person to become an

intervenor in a suit in which the person is neither a party nor is

served, Baker v. General Motors Corp., 522 U.S. 222 (1998).                     The

constitutional command of full faith and credit does not compel

Texas    courts   to   defer   to    a    Tennessee      court’s    exercise     of

                                         15
jurisdiction where the issue was neither fully and fairly litigated

nor involved the same parties as the Texas litigation.

                                         D.

       Finally, the Receiver argues that Surety Bank is estopped from

attacking the Conservation and Liquidation Orders because: (1) the

Bank   failed   to    challenge    the    orders    in   Texas   domestication

proceedings and (2) the Bank’s parent corporation, Surety Capital,

represented to the S.E.C. that the Receiver had authority to

liquidate assets outside of Tennessee.

       The domestication orders, which were filed under the Texas

Uniform Enforcement of Foreign Judgments Act (“UEFJA”), cannot

serve as the basis for estoppel. As a non-party, Surety Bank could

not have challenged the domestication order under the UEFJA. While

the UEFJA allows a judgment debtor to seek a stay of enforcement

from the foreign judgment, it does not provide similar procedures

for non-parties.          See Tex. Civ. Prac. & Rem. Code § 35.006.

Similarly, while Texas courts have found that debtors have an

implied    right     to   bring   proceedings      challenging    the   foreign

judgment, courts have not suggested that third parties enjoy the

same right.     See Schwartz v. FMI Properties Corp., 714 S.W.2d 97

(Tex. App. 1986). Because Texas law afforded Surety no opportunity

to challenge the domestication of the Tennessee orders, Surety is

not estopped on the basis of these proceedings.

       Surety Capital Corporation’s February 22, 1996, S-1 S.E.C.

                                         16
Registration Statement also cannot serve as a basis for estoppel.

Although    the     Registration     Statement       declared   that   Surety   was

selling 174,939 shares of Surety Capital Corporation common stock

“pursuant to the Liquidation Order, which authorizes liquidation of

all assets of Anchorage Fire & Casualty Insurance Company,” the

Receiver,     not     the    Bank,   made      the    representations     in    the

Registration Statement concerning the Liquidation Order.

     Judicial estoppel prevents a party from taking a position that

is “contrary to a position previously taken in the same or earlier

proceeding.”       Ergo Science, Inc. v. Martin, 73 F.3d 595, 598 (5th

Cir. 1996).       Because the S.E.C. representations were neither made

by Surety Bank nor made in judicial proceedings, they cannot serve

as the basis for estopping the Bank.

                                        III.

     The district court did not err in refusing to give full faith

and credit to the Tennessee judgment. The judgment of the district

court is therefore          AFFIRMED.

                                         17