State Ex Rel. Sizemore v. Surety Bank , 200 F.3d 373 ( 2000 )

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
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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,
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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
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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
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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
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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:
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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”).
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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.
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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