Opinion
Civil Action No. 00-2181, SECTION: E/4
October 18, 2001
RULING ON MOTION
Defendant Norwel Equipment Company Limited Partnership ("Norwel") filed a motion styled Motion to Recognize State Court Garnishment under Writ of Fieri Facias. The motion came before the Court for oral argument on October 17, 2001. Afer consideration of the facts, the law, the evidence and the parties' arguments, and for the reasons that follow, the motion is GRANTED.
Facts and Procedural Background
Pursuant to a complaint for interpleader under 28 U.S.C. § 1335(a)(1), filed on July 24, 2000, plaintiff National American Insurance Company ("National American") deposited the sum of $109,452.91 into the registry of the Court. National American is a surety company in the business of providing bonds f or selected contractors on public and private construction projects. P.R. Contractors ("P.R.") purchased a bond from National American, which named P.R. as the principal and the United States Army Corps of Engineers as obligee, in connection with a contract between P.R. and the Corps of Engineers for construction of a federal project. The interpleader fund is the remaining contract funds for that construction project.
P.R. Contractors was the prime contractor on the project, Diamond C Trucking Construction, Inc., ("Diamond C") was the primary subcontractor. Diamond C entered into subcontracts with various suppliers, materialmen, etc., for work on the project. A dispute arose between P.R. and Diamond C as to how much Diamond C was owed on the contract. P.R. stopped paying Diamond C, who in turn did not pay a number of its subcontractors, several of whom filed claims to the interpleader funds.
On February 23, 2000, prior to the filing of the interpleader action, Norwel, one of Diamond C's unpaid subcontractors, secured a default judgment in state court (32nd Judicial District in Terrebonne Parish) in the principal amount of $38,792.84 plus interest, costs and attorney fees, based on its unpaid invoices for work on the construction project at issue. The judgment was not appealed and is final. On August 29, 2001, Norwel filed a petition in Civil District Court in Orleans Parish to make its judgment executory and for garnishment under a Writ of Fieri Facias. Judge Landrieu signed the judgment on August 30, and on September 6, Norwel served the writ on the Clerk of Court in this interpleader proceeding seizing any money held by the Clerk in the registry of the court belonging to Diamond C. Record Doc. #64. The writ states the estimated total of sums due by Diamond C to Norwel in satisfaction of its judgment to be $55,660.64.
Meanwhile, a settlement conference was held before Magistrate Judge Roby on August 31, 2001, attended by all parties claiming any of the interpleader funds. The following claimants settled their claims against the interpleader funds as follows:
1) Norwel Equipment Co. — $35,000.00
2) M L Industries, Inc. — $9,106.00
3) CityWide Testing, Inc. — $2,565.70
4) Fleetman, Inc. — $3,039.49
Norwel agreed to release its claims against the fund, but specifically reserved its rights to the amount necessary to satisfy its judgment in full from any money to be distributed to Diamond C from the fund.
At a second settlement conference on September 13, 2001, attended only by P.R., Diamond C and National American, the following settlement was reached:
1) P.R. Contractors — $24,593.87
2) National American — $13,242.85 (as assignee of 35% of any amount due to P.R.)
3) Diamond C — $20,000.00
4) Diamond C — $ 1,905.00 (as assignee of any amount due to Al's Trucking)
There are no other claimants to any funds in the registry of the Court arising out of the underlying construction contract.
The sole issue before the Court is the propriety of Norwel's garnishment of funds held in the registry of the court belonging to Diamond C. Diamond C does not dispute the validity or amount of Norwel's judgment against it, or that the unpaid invoices on which the judgment was based were due on the underlying construction contract. Nor has Diamond C challenged the validity of the Writ of Fieri Facias. Diamond C argues that federal sovereign immunity bars garnishment of funds held in the registry of the court.
LAW
A duly authenticated record of the judgment of a state court is entitled to the same full faith and credit in every Court within the United States as it has by law or usage in the Courts of the state in which it was rendered. U.S. Const. Art. IV, § 1; 28 U.S.C.A. § 1738.Revies V. Loyd, 205 F. Supp. 441, 448 (E.D. La, Monroe Div., 1962) (Dawkins, Chief Judge); Armour Fertilizer Works v. Sanders, 63 F.2d 902, 903 (5th Cir. 1933), aff'd 292 U.S. 190, 54 S.Ct. 677, 78 L. Ed. 1206 (1934) (A district court is bound in an interpleader action to give full faith and credit to the garnishment proceedings of a state court). The full faith and credit clause applies to "judicial proceedings" as well as judgments. Armour Fertilizer Works, 63 F.2d at 904. An inchoate lien on the "prospective funds" arises on the date the garnishment is served, and it is a substantial legal right. Id. However, only the interest that the debtor retains in the interpleader fund may be subject to the writ of garnishment, not the interpleader fund in general to the detriment of other claimants. White v. F.D.I.C., 19 F.3d 249, 253 (5th Cir. 1994); Texaco v. Ponsoldt, 118 F.3d 1367 (9th Cir. 1997).
ANALYSIS
The cases cited by Diamond C in support of its position are inapposite to this case. Each involves a creditor's attempt to directly garnish or seize funds held in the registry of the court pursuant to criminal bail bonds or other cost bonds. In this interpleader action, the fund is merely held in the registry of the Court in trust until a determination is made as to the rightful owners of the fund. The United States has no independent interest in the interpleader fund, no funds will be distributed from the United States Treasury, and the garnishment will not interfere with the public administration. See U.S. v. Van Cauwenberghe, 934 F.2d 1048, 1063 (9th Cir. 1991) (Writ of attachment issued in a civil case to attach property in the registry of the district court in a criminal case pending in the same district was valid because the doctrine of sovereign immunity did not bar attachment when neither the United States nor the court had any interest in that property.)
Norwel did not garnish the interpleader fund itself to the detriment to other claimants to that fund, but only the portion of the interpleader fund owned by Diamond C. Norwel was a judgment creditor of Diamond C at the time the interpleader action was filed. Its garnishment of only those funds belonging to Diamond C in no way prejudiced the rights of any other claimant at the time the fund was created.
Finally, Diamond C argues that it has other creditors to pay from the proceeds it receives from the fund, but none of those unnamed creditors brought claims against the interpleader fund, and there is no evidence that those debts are related to the underlying construction contract. All claims arising out of the underlying contract dispute have been satisfied by the settlement. Norwel is entitled to have its garnishment against its judgment debtor, Diamond C, recognized and enforced.
Accordingly, and for the above and foregoing reasons,
IT IS ORDERED that Norwel's motion is GRANTED; and
IT IS FURTHER ORDERED that judgment be entered distributing the interpleader fund pursuant to the settlement agreement reached by the claimants as itemized in this Court's Minute Entry dated September 25, 2001 at Record Doc. #75; except that
IT IS FURTHER ORDERED, and after the time for an appeal is past, that the Clerk of Court shall pay to the Civil Sheriff of Orleans Parish the sum of $20,660.64 out of the funds owned by Diamond C in satisfaction of Norwel's Writ of Fieri Facias.