Law Offices of David Efron, P.C. v. Candelario , 842 F.3d 780 ( 2016 )

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.
- 2 -
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.
- 3 -
[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
- 4 -
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
- 5 -
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
- 6 -
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
- 7 -
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
- 8 -
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
- 9 -
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.
- 10 -
REVERSED AND REMANDED. Costs to appellant.
- 11 -