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Law Offices of David Efron P.C. v. Candelario

United States Court of Appeals, First Circuit

December 2, 2016

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. Jose A. Fuste, U.S. District Judge]

          Charles A. Cuprill-Hernández on brief for appellant.

          Michelle Pirallo-Di Cristina on brief for appellee.

          Before Howard, Torruella, and Dyk, [*] Circuit Judges.

          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.

         The present controversy concerns funds allegedly owned by Efron[1] 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 [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 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 would be "without jurisdiction to enforce [its] liens . . . [if] the ...


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