Court Opinion

ID: 9637666
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:14:45.206792+00
Date Added: 2024-06-11T18:09:58.908816
License: Public Domain

SIBLEY, Circuit Judge.
Two insurance corporations of Connecticut owed W. D. Sanders, a citizen of Texas, *903insurance money for loss by fire of property in Texas which had constituted part of his homestead. They were served in Illinois as garnishees on proceedings in foreign attachment brought there by Armour Fertilizer Works, a corporation of Illinois, against Sanders on notes held against him which contained a waiver of all homestead and exemption rights. The garnishees by amended answers admitted liability, but set up that the money was claimed by Sanders to be his homestead and not liable to garnishment. Judgment by default after the published notice required by Illinois law was rendered against Sanders that the attachment be sustained and that Armour Fertilizer Works recover of him its debt fixed at $7,589.81 and costs, and that execution issue. Before trial of the answers of tho garnishees they, claiming to be mere stakeholders, filed under 28 USCA § 41 (26) as rewritten by Act of May 8, 1926', an interpleader proceeding in the District Court in Texas where Sanders was domiciled, naming him and Armour Fertilizer Works as the adverse claimants, paid the money into court, and obtained an interlocutory injunction against further proceedings in Illinois. A dismissal at the instance of Armour Fertilizer Works of tho bill for interpleader was reversed on appeal, National Fire Ins. Co. v. Sanders, 38 F.(2d) 212, 215, this court saying: “Tho District Court had jurisdiction to grant relief to appellants and to determine which of the claimants is entitled to the fund deposited in court, neither of which parties can lose anything by the filing of the bill. If a lien attached to tho funds, by virtue of the garnishment, it followed them into the registry of the District Court and may he given full force and effect. On the other hand, if the exemption claimed by Sanders is superior, judgment may be awarded to him.”
Upon the trial a decree was given in favor of Sandei-s, and Armour Fertilizer Works appeals.
The appellant renewed its motion to dismiss, making the same contentions that were overruled on the former appeal. The questions then decided stand as the law of the case. Richardson v. Ainsa, 218 U. S. 289, 31 S. Ct. 23, 54 L. Ed. 1044; Ames v. Quimby, 106 U. S. 342, 1 S. Ct. 136, 27 L. Ed. 100. If within our power, we have no disposition to review them. Wolff Packing Co. v. Court of Industrial Relations, 267 U. S. 552, 45 S. Ct. 443 , 69 L. Ed. 785; Messingcr v. Anderson, 225 U. S. 436, 32 S. Ct. 739, 56 L. Ed. 1152. But a contention not before presented is that the Act of May 8, 1926, as here applied is unconstitutional because invading the reserved rights of the state of Illinois to try cases in its courts, and because denying full faith and credit to the proceedings had there. The first objection is answered by the grant of judicial power in article 3 of the Constitution. Suits for interpleader in which actions in other courts are enjoined were familiar to equity when the Constitution was adopted, and are one of the forms of controversy to which, when arising between citizens of different states, the federal judicial power was extended. The act enlarges the processes of the District Court to cover a broad territory, but otherwise authorizes only an ordinary form of equitable relief. The second objection goes not to the act itself but to the decision of this controversy. The District Court, of course, is hound on an interpleader to give full faith and credit to the garnishment proceedings in Illinois. Cooper v. Newell, 173 U. S. 567, 19 S. Ct. 506, 43 L. Ed. 808. What that full credit is and whether it has been afforded, it is our duty to determino on this appeal.
The statutes of Illinois (see SmithHurd Rev. St. Ill. 1931, c. 11, § 1 et seq.) permit suit by the attachment of a nonresident’s property, including a garnishment of debts due him, if sufficient leviable property is not found. Tho defendant is to be served personally if possible, and, if not, by four weeks’ published notice, a eopy being mailed to his last known address. If he does not appear, and is served only by publication, default judgment may bo entered on the plaintiff’s affidavit of the am'ount due and execution issued but only against tho property or debts attached. All judgments against the same defendant rendered at the same term, whether on attachment or summons, share pro rata in the fund raised. It is stipulated that the proceedings here in question were according to the statutes, and that by the settled law of Illinois, on a trial of the answers to the garnishment, the claim of exemption of the insurance would have been overruled. It is held generally that exemption laws are a part of the remedy of the forum, and have no force beyond the bounds of the state enacting them. Chicago, Rock Island & P. R. Co. v. Sturm, 374 U. S. at page 717, 19 S. Ct. 797, 43 L. Ed. 1344; Bynum v. Johnston (C. C. A.) 222 F. 659; Bristol v. Brent, 38 Utah, 58, 110 P. 356; Penn R. Co. v. Rogers, 52 W. Ya. 450, 44 S. E. 300, 62 L. R. A. 178; Person v. Williams-Echols Dry Goods Co., 113 Ark. 467, 169 S. W. 223. But for the injunction of the federal court the state court would have compelled the payment *904óf the money into court to satisfy such creditors as might have obtained, judgments against Sanders. We cannot agree that, because final judgment had not gone against the garnishees, the proceeding was due no faith and credit.' The full faith and credit clause of the Constitution, Const, art. 4, § 1, speaks 6f judicial proceedings, not judgments merely. By a valid exercise of jurisdiction over the persons of the garnishees there present, the Illinois court was in process of compelling payment of the insurance into court, and had on service sufficient to that end adjudged Sanders’ indebtedness to Armour Fertilizer Works and the sufficiency of the attachment process. There had arisen as against him a right to detain the debt as a prospective fund ¡and to apply it to the demands of plaintiff and other creditors, which may aptly be termed á lien. It dates from the service of the writ of garnishment. Though inchoate and subject tq defeat if final judgment fails either as to the main debtor or the garnishee, it is á substantial legal right. National Surety Co. v. Medlock, 2 Ga. App. 665, 58 S. E. 1131; Florida E. C. R. Co. v. Consolidated Engineering Co., 95 Fla. 99, 116 So. 19. It is treated as a lien obtained by operation of law under the Bankruptcy Act (11 USCA), and stands or falls according as the service of garnishment was more or less than four months before bankruptcy, without any reference to the date of final judgment. Anderson v. Ashford & Co., 44 Ga. App. 177, 160 S. E. 804; Globe & Rutgers Fire Ins. Co. v. Brown D. C.) 52 F.(2d) 164; Cohn & Co. v. Drenhan (D. C.) 19 F.(2d) 642; In re Phillips & Co. (D. C.) 224 F. 628; In re Maher (D. C.) 169 F. 997.
 The garnishment is in fact a seizure at law of equitable assets not otherwise subject to execution for administration to- all creditor's who establish their debts in the forum. It is comparable to the seizure of assets under a creditor’s bill, where it is settled that such seizure establishes a lien, inchoate and subject to like defeats as is a‘ garnishment until final deeree, but good against a bankruptcy begun after four months. Metcalf v. Barker, 187 U. S. 165, 23 S. Ct. 67, 47 L. Ed. 122; Blair v. Brailey (C. C. A.) 221 F. 1. In an Illinois ease, National Bank of America v. Indiana Banking Co., 114 Ill. 483, 2 N. E. 401, 403, where, after service of garnishment, but before judgment against the garnishees, the debt was partially assigned by cheeks drawn against it, and it became necessary to determine when the garnishment lien arose, the court said:
“The principle of the former decisions has been recently restated by this court in the ease of -Reeve v. Smith, 113 Ill. 47, where it was said, in construing the Thirty-Seventh section of the attachment act (Rev. St. 1874,) ‘that property, real and personal, attached, and funds in the hands of the garnishee, are placed on the same footing; that is, when attached, such property or funds are appropriated from that time to the payment of a certain class of judgment creditors specially enumerated. From the time of the levy or service of the writ, the property or funds are held by virtue of the statute for the benefit of all creditors of the attachment debtor, who shall obtain judgments against him within the time and in the manner specified in the statute. It is the whole property or funds attached, and not any specific part or portion, that is held until it shall be ascertained who or.what creditors are entitled to share in the proceeds.’ ”
In National Fire Ins. Co. v. Chambers, 53 N. J. Eq. 468, 32 A. 663, Justice Pitney, then Vice Chancellor, examined a garnishment lien before final judgment which had been obtained in Pennsylvania, a state not the domicile of the garnishee or of the main debtor as in the ease at bar, and upheld the lien in an interpleader in New Jersey as against an assignment of the garnished debt made subsequent to the service of garnishment. The case is cited with approval in Chicago, Rock Island & P. R. Co. v. Sturm, 174 U. S. 710, 19 S. Ct. 797, 43 L. Ed. 1144. In the Sturm Case the garnishment had issued in Iowa, before the main debtor sued the garnishee in Kansas. Final judgment had not been rendered against the garnishee. The garnishment was not held to be without effect in Kansas for lack of a final judgment, but it was adjudged that full faith and credit required that it be held a good ground either to postpone the trial or to abate the suit of the main debtor in Kansas, because a good defense if the garnishee should be finally held liable in Iowa. Again in King v. Cross, 175 U. S. 396, 20 S. Ct. 131, 44 L. Ed. 211, the priority of a garnishment served but not gone to judgment in one state was upheld against proceedings on an assignment of the garnished debt in another state. In the two cases last cited the garnishment was in the state of the garnishee’s domicile, but that equally effective jurisdiction over the debt may be obtained by a lawful personal service on the garnishee elsewhere, whether an individual or a corporation, is established in Harris v. Balk, 198 U. S. 215, 25 S. Ct. 625, 49 L. Ed. 1023, 3 Ann. Cas. 1084, and Louisville & Nashville *905R. Co. v. Deer, 200 U. S. 176, 26 S. Ct. 207, 50 L. Ed. 426. Turning to the older eases in Wallace v. McConnell, 13 Pet. 136, 10 L. Ed. 95, a suit upon a note was filed in the federal court, and afteiwards the debt was garnished in a state court, the garnishee admitting indebtedness, but the ease not having reached final judgment. The pending garnishment was pleaded in the federal court, and the plea overruled. The insufficiency of it was uphold in the Supreme Court on the sole ground that the jurisdiction of the federal court over the debt had attached first. It was said (page 150 of 13 Pet.): “If the attachment had been conducted to a conclusion and the money recovered of the defendant before the commencement of the present suit, there can be no doubt, that it might have been set up as a payment upon the note in question. And if the defendant would have been protected pro tanto, under a recovery had by virtue of the attachment, and could have pleaded such recovery, in bar, the same principle would support a plea in abatement, of an attachment pending prior to the commencement of the present suit. The attachment of the debt, in such ease, in the hands of the defendant, would fix it there, in favor of the attaching-creditor, and the defendant could not afterwards pay it over to the plaintiff. The attaching-creditor would, in such ease, acquire a lien upon the debt, binding upon the defendant, and which the courts of all other governments, if they recognize such proceedings at all, would not fail to regard. If this doctrine be well founded, the priority of suit will determine the right.” It was so held, citing, among other cases, Embree v. Hanna, 5 Johns. (N. T.) 101. In that ease Chief Justice Kent maintained that the first garnishment served fixed a lien which the courts of other states were bound to respect.
In Mooney v. Buford & George Mfg. Co. (C. C. A. 1896) 72 F. 32, 38, Justice Woods for the court said: “It is notice to the debtor [garnishee] that gives the plaintiff in garnishment a lien upon the debt * * * as effectually as, upon like notice by publication, it may dispose of a chattel seized in attachment. * * * 'Full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state.’ The proceedings and judgments of the courts of the United States are entitled to equal respect, and it follows that a proceeding in garnishment, begun in any court of competent jurisdiction against a corporation doing business and subject to process in two or more states, would be entitled to precedence of any suit for the same cause commenced later in another district or state, and that the sup*posed inconvenience of different suits in different jurisdictions, and danger of debtors being compelled to discharge their obligar tions more than once, is more imaginary than real. No court can rightfully disregard the lien upon the debt which is established by the service of process in garnishment upon the debtor.” The danger of double payment threatened in Lancashire Ins. Co. v. Corbetts (1897) 165 Ill. 592, 46 N. E. 631, 36 L. R. A. 640, 56 Am. St. Rep. 275, and led the Illinois court to refuse a judgment against the garnishee, although process of garnishment was first served in Illinois because the first judgment had been gotten by a later garnishing creditor in Wisconsin. The Illinois court saw no way to prevent the Wisconsin court from enforcing its judgment. The remedy pointed out in Mooney v. Buford & George Mfg. Co., supra, in 1896 was upheld as correct in the Sturm Case in 1899. The later garnishment in Wisconsin should have been, defended by pleading the former one in Illinois as ground for continuance or abatement, carrying the question to the Supreme Court of the United States, if necessary. See also Solomon v. Continental Ins. Co., 261 Mass. 360, 158 N. E. 774. Priority of garnishment rather than priority of judgment is the practicable, as well as logical, test. The impasse resulting from the latter test is illustrated in note to Becker v. Ill. Cent. R. Co., 250 Ill. 40, 95 N. E. 42, in 35 L. R. A. (N. S.) 1155. The difficulty of double judgment does not arise here; the Federal Inter-pleader Act providing another remedy against it. The federal cases are controlling,, and establish that the incomplete garnishment proceeding in Illinois has tho effect of a lien! and, that full faith and credit in other states, and in the federal courts require that like effect be given it in them.
According to Texas law insurance on burned homestead property stands in its place, and is exempt from garnishment, although the homesteader may dispose of it voluntarily as he sees fit. Chase v. Swayne, 88 Tex. 218, 30 S. W. 1049, 53 Am. St. Rep. 742; Sorenson v. City Nat. Bank (Tex. Com. App.) 49 S.W. (2d) 718; Russell v. Hamilton (Tex. Civ. App.) 174 S. W. 705. There is no limit as to amount, unless furnished by the conscience of a court of equity. $60,-000 of insurance was held exempt in Chase v. Swayne. The insurance is not really the homestead, nor the proceeds of it, for it is bought by and produced from the premiums paid for it. There is merely a judicial, or in some states a statutory, exemption of it from. *906seizure to permit if the insured chooses a repair of the damaged homestead. But the exemption has no'force' outside of Texas. Sanders had before this interpleader was filed only a chose in action against debtors domiciled in Connecticut. He had taken no step to reduce it to possession and to make it property in Texas. It still had its situs for purposes of enforcement where the person of the debtor might be found. Vogel v. New York Life Ins. Co. (C. C. A.) 55 F.(2d) 205. The debt was attached first in Illinois, where the Texas exemption from garnishment was without force. ' This is not a case in which a creditor domiciled in the same state with his debtor seeks to evade the laws of his own state by going into another state to attach an exempt debt. Such a fraud on its own laws by its own citizen the state of his domicile may by injunction prevent. Cole v. Cunningham, 133 U. S. 107, 10 S. Ct. 269, 33 L. Ed. 538; Moton v. Hull, 77 Tex. 80, 13 S. W. 849, 8 L. R. A. 722. Here the creditor at his own domicile invokes the processes of his own state to. subject properly within their reach to the payment of an u'ndenied debt, and injunction will not be granted against his doing'so. Griffith v. Langsdale, 53 Ark. 71, 13 S. W. 733, 22 Am. St. Rep. 182; Person v. Williams-Echols Dry Goods Co., 113 Ark. 467, 169 S. W. 223. By its statute Illinois mow protects against garnishments there the "wages of nonresident laborers. Jackson & Co. v. Republic Iron & Steel Co., 141 Ill. App. 453. Without such a statute courts have by construction extended their local exemptions as laws of the forum to cover foreign laborers. Mineral Point R. Co. v. Barron, 83 Ill. 365; Wabash R. Co. v. Dougan, 142 Ill. 248, 31 N. E. 594, 34 Am. St. Rep. 74; Goodwin v. Claytor, 137 N. C. 224, 49 S. E. 173, 67 L. R. A. 209, 107 Am. St. Rep. 479. Some courts have thought the exemption of wages inhered in the contract of employment, and followed the wages wherever "they were sought to be recovered, but this idea was. rejected in the Sturm Case. We have seen no decision in which the effort to protect insurance on a foreign homestead has succeeded. A number of cases refuse such protection. Person v. Williams-Echols Dry Goods Co., 113 Ark. 467, 169 S. W. 223; Roche v. Rhode Island Ins. Association, 2 Ill. App. 360; American Cent. Ins. Co., v. Hettler, 46 Ill. App. 416; Sexton v. Phœnix Ins. Co., 132 N. C. 1, 43 S. E. 479. The policy of the state of Illinois as set up in the garnishee’s answer is ■ to protect as homestead only $1,000 of value. The urban homestead in Texas, Rev. St. 1925, arts. 3832, 3833, exempts beside household and kitchen furniture $5,000 of value of .bare land, with an unlimited value of buildings thereon for a residence or a business or both. The homesteader here, -outside of his business homestead, has sold his residence lot for $2,000, and would exempt insurance of nearly $8,000 more. It is a stipulated and understandable fact that the eojirts of Illinois will not aid him to exempt this insurance.
We do not think the filing of the federal interpleader and the payment thereunder of the money into the District Court in Texas operated to bring it under the dominion of Texas law. The applicant for interpleader often has a choice of forum, and he cannot at his will subject the rights of the contesting claimants to one set of laws rather than another. The purpose of the interpleader statute was to give the stakeholder protection, but in nowise to change the rights of the claimants by its operation. The interpleader is a suit in equity, and equitable principles and procedure are the same throughout the federal jurisdiction. The court is to weigh the right or title of each claimant under the law of the state in which it arose, and determine which according to equity is the better. The decision should be the same whether the interpleader is filed in Illinois or in Texas. No one’s rights are intended to he altered by paying the fund into the court, which as an impartial neutral is to determine them. Vogel v. New York Life Ins. Co. (C. C. A.) 55 F.(2d) 205. The garnishment in Illinois was a detention in that state of the insurance debt good there against Sanders’ claim of exemption, and the fund now representing it must be held incumbered by the same lien. Full faith and credit so require. Chicago, Rock Island & P. R. Co. v. Sturm, 174 U. S. 710, 19 S. Ct. 797, 43 L. Ed. 1144; Missouri, K. & T. R. Co. v. Swartz, 53 Tex. Civ. App. 389, 115 S. W. 275. The enforcement of the lien in Illinois, though to the detriment of a Texas exemption, we have shown not to be in itself inequitable so as to be enjoined. The federal injunction for purposes of interpleader ought not to have ulterior consequences. The garnishment lien might by a modification of the federal injunction be allowed to be perfected by a final judgment in Illinois; the fund being held to await the decision., See City Nat. Bank v. Lummus Cotton Gin Sales Co. (Tex. Civ. App.) 297 S. W. 563; Peck v. Jenness, 7 How. 612, 12 L. Ed. 841; Hill v. Harding, 130 U. S. 699, 9 S. Ct. 725, 32 L. Ed. 1083. But since by stipulation judgment there is certain, it can be adequately administered at once. We treat the *907burned property as unabandoned homestead, though there is a contest of the fact. Sanders cannot repair his damaged home with this money, for he has sold it. Creditors are favored in the court of conscience. There is no inequity in requiring the payment of a just debt. Compare Cole v. Young, 24 Kan. 435, by Brewer, J. The foreign garnishment was put ahead of the exemption right in the state which created it in the Sturm Case. We think this fund should be applied first to the extinguishment of the judgment rendered against Sanders in the garnishment proceeding, and the remainder, if any, paid over to him. The cause is reversed, with direction to enter a decree accordingly.
Reversed and rendered.