Law Offices of David Efron, PC v. Candelario

Filing

OPINION issued by Jeffrey R. Howard, Chief Appellate Judge; Juan R. Torruella, Appellate Judge and Timothy Belcher Dyk,* Appellate Judge. Published. *Of the Federal Circuit, sitting by designation. [16-1010]

Case: 16-1010

Document: 00117087460

Page: 1

Date Filed: 12/02/2016

Entry ID: 6051884

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.

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Entry ID: 6051884

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

retained

by

for

legal

fees

our

Clerk,

be

to

Mr.

Efron,

disbursed

to

which

the

we

Court

ordered

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.
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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

1

to

disburse

those

moneys

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.
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[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
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incurred

by

the

ship

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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
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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 99100.
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

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order

of

the

judge[,

the

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appellant] must obtain court approval before she can access the
funds in the court registry.” Id. at 695 (internal quotation
marks
1990),

omitted).
the

In

Landau

Second

Circuit

v.

Vallen,

cited

895

F.2d

Lottawanna

888

Cir.

explain

to

(2d

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
district

next

court

turn

had

to

the

authority

issue
to

of

whether

transfer

the

the

funds

federal
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

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Puerto

Rico

for

breach

of

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contract.

The

parties

Page: 8

settled,

Date Filed: 12/02/2016

and

Reintjes

and

Entry ID: 6051884

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
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improperly
Efron

ordered

Firm’s

Page: 9

precisely

funds

in

its

such

Date Filed: 12/02/2016

a

registry

“naked

Entry ID: 6051884

transfer”

without

the

of

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

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[the]

original

suit

without

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adjudication

of

the

Page: 10

matters

Date Filed: 12/02/2016

raised”

in

the

Entry ID: 6051884

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.
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REVERSED AND REMANDED. Costs to appellant.

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Entry ID: 6051884