309 F.Supp.2d 178 (2004) | Cited 3 times | D. Massachusetts | February 5, 2004



The plaintiff, Horizon Bank and Trust Company ("Horizon"), brought thisaction in interpleader in the Massachusetts Superior Court sitting in andfor the County of Norfolk to determine the proper disposal of surplusfunds available after a foreclosure sale of real property owned by CustomHouse Associates Realty Trust ("Custom House"). Among the defendants whohave an interest in the funds are the United States Internal RevenueService (the "United States"), the Commonwealth of MassachusettsPage 2Department of Revenue (the "Commonwealth"), and the law firm ofGiarrusso, Norton, Cooley & McGlone, P.C. ("Giarrusso"). Followingremoval to this Court, the Commonwealth moved to dismiss the entire case,Mot. to Dismiss [Doc. No. 5], and Giarrusso has moved for summaryjudgment, Mot. for Summ. J. [Doc. No. 20].

A. Undisputed Facts

On August 6, 1998, Custom House granted Giarrusso a mortgage (the"Mortgage") encumbering a parcel of real property (as well as anyimprovements, equipment, appliances, furnishings, and fixtures situatedthereon) located at 125 Sea Street, Quincy, Massachusetts (the"Property"). Compl. ¶ 10, Ex. B (attached to the Notice of Removal[Doc. No. 1]). The Mortgage, recorded at the Norfolk County Registry ofDeeds, secured repayment of a promissory note in the original principalamount of $255,960 — the outstanding balance of attorneys' feesowed to Giarrusso. Giarrusso's Mem. in Supp. [Doc. No. 21] at 3.Subsequently, Custom House extended a second mortgage on the Property tothe plaintiff Horizon as security for a loan (the "Loan") in the originalprincipal amount of $395,000. See Compl. ¶ 9. Shortlythereafter Giarrusso subordinated its Mortgage to Horizon. Giarrusso'sMem. in Supp. at 3.

In the following two years, both the United States and the Commonwealthfiled tax liens against Custom House's solePage 3beneficiary, Custom House Associates Limited Partnership. Compl.

¶¶ 12-13, Ex. D, E. Specifically, the United States filed tax lienson February 10, 2000, July 18, 2000, and September 14, 2001, in theamounts of $40,850.65, $40,078.53, and $131,635.28 respectively, and theCommonwealth filed three liens on December 13, 2002, in the amounts of$101,670.35, $70,100.75, and $85,976.67. Id.

On or about January 1, 2003, Custom House defaulted on its payments toHorizon, and, as a result, Horizon accelerated all outstanding amountsowed under the Loan. Id. ¶ 14. Ultimately, Horizonforeclosed its mortgage and sold the Property at public auction for$800,000.00. Id. ¶ 15.

B. Procedural Posture

On May 30, 2003, after satisfying its own debt, Horizon filed thisinterpleader action in the Norfolk County Superior Court to determine howto disburse the remaining proceeds from the foreclosure sale, in theamount of $303,153.27, to the subordinate interest and lien holders.Id. ¶ 16. Pursuant to 28 U.S.C. § 1444 and 2410, theUnited States timely removed the case to this Court. Notice of Removal.The Commonwealth now seeks to dismiss the entire case on grounds that:"(1) the Eleventh Amendment to the United States Constitution bars thisaction against the Commonwealth in [federal] Court and (2) theCommonwealth is an indispensable party to this case." Mot. toPage 4Dismiss. Also at this time, the defendant Giarrusso moves forsummary judgment. Mot. for Summ. J.


A. The Commonwealth's Motion To Dismiss

1. Eleventh Amendment Immunity as a Bar to Suit in FederalCourt

The Eleventh Amendment affirms that "the fundamental principle ofsovereign immunity limits the grant of judicial authority in [Article IIIof the United States Constitution]." Pennhurst State School &Hosp. v. Halderman, 465 U.S. 89, 98 (1984). The Amendmentreads: The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.U.S. Const, amend. XI. As the Supreme Court has recently stated:"Although the text of the Amendment would appear to restrict only theArticle III diversity jurisdiction of the federal courts, 4we haveunderstood the Eleventh Amendment to stand not so much for what it says,but for the presupposition . . . which it confirms.'" SeminoleTribe of Florida v. Florida, 517 U.S. 44, 54 (1996) (quotingBlatchford v. Native Vill. of Noatak, 501 U.S. 775, 779(1991)) (alteration in original); see Hans v. Louisiana,134 U.S. 1, 13 (1890); The Federalist No. 81, p. 487 (AlexanderPage 5Hamilton) (C. Rossiter ed. 1961).1 Thus, the Eleventh Amendmenthas been interpreted to constitute a general bar to suit by privateindividuals against unconsenting states in any tribunal, regardless ofthe relief sought or the legal source (federal or state) of the claim.See Fed. Mar. Comm'n v. South Carolina State PortsAuth., 535 U.S. 743, 747 (2002) (holding that, absent the state'sconsent, a federal administrative agency could not adjudicate a privatecitizen's claim that a state-run port had violated the Shipping Act of1984); Alden v. Maine, 527 U.S. 706, 712 (1999)(holding that Congress could not, in exercise of its powers under ArticleI of the Constitution, subject a nonconsenting state to private suits fordamages in state court); Seminole Tribe, 517 U.S. at 47(holding that Congress cannot, pursuant to its powers under the IndianCommerce Clause, U.S. Const, art. I, § 8, cl. 2, subject anunconsenting state to suitPage 6by an Indian tribe for injunctive relief in federal court);id. at 58 (stating that "the relief sought by a plaintiff suinga state is irrelevant to the question whether the suit is barred by theEleventh Amendment"); Cory v. White, 457 U.S. 85, 90(1982) ("It would be a novel proposition indeed that the EleventhAmendment does not bar a suit to enjoin the State itself simply becauseno money judgment is sought."). See generally Boe Morgan,The Eleventh Amendment Reinterpreted: Will It Erode NationalAuthority?, in Federal Court Judicial Forum 33 (MCLE 2003).

Nonetheless, the Supreme Court has recognized at least twocircumstances in which an individual may sue a state in federal court(beyond the obvious and well-settled examples of appealing state courtjudgments to the Supreme Court and challenging state court convictionsthrough habeas corpus petitions in federal court).2 First, Congressmay authorize such a suit in thePage 7exercise of its power to enforce the Fourteenth Amendment. U.S.Const, amend. XIV, § 5; Fitzpatrick v. Bitzer,427 U.S. 445, 456 (1976). Second, a state may waive its sovereignimmunity by consenting to suit in federal court, either through a clearstatement of intent to submit to federal court jurisdiction, or throughunequivocal litigation conduct demonstrating such submission in aparticular case. See, e.g., College Sav. Bank v.Page 8Florida Prepaid Postsecondary Educ. Expense Bd.,527 U.S. 666, 675-76 (1999).

In light of this decisional law, the United States makes the followingarguments in opposition to the Commonwealth's Motion To Dismiss:3First, the United States argues that because it is the federal governmentitself (rather than a private party) that is responsible for removingthis case to federal court, and the federal government has the power tosue states, the Commonwealth cannot invoke the Eleventh Amendment in thiscase. United States' Mem. Opp'n [Doc. No. 14] at 8-9. Relatedly, theUnited States argues that the federal removal statutes applicable in thiscase have abrogated the Commonwealth's sovereign immunity. Seeid. at 6-7. In the alternative, the United States argues that theCommonwealth has waived its sovereign immunity. Id. at 13-15.

a. Invoking the Eleventh Amendment

The United States argues that since it, and not the private citizenplaintiff, removed the case to federal court, the Commonwealth's EleventhAmendment immunity is not implicated here. United States' Mem. Opp'n at8-10. In support, the United States analogizes the case at bar toopinions that have ruledPage 9that states cannot invoke the Eleventh Amendment when sued by theUnited States or impleaded as a third-party defendant by the UnitedStates in a suit brought by a private citizen. Id. at 9 (citingUnited States v. Texas, 143 U.S. 621, 642-46 (1892),Barrett v. United States, 853 F.2d 124 (2d Cir.1988), Parks v. United States, 784 F.2d 20, 23-24(1st Cir. 1986), and United States v. California,328 F.2d 729, 732-34 (9th Cir. 1964)). Judge Keeton, however, recentlyaddressed — and rejected — the same analogy in FirstMassachusetts Bank v. Daoust, 214 F. Supp.2d 79 (D. Mass2002) (Keeton, J.): The United States' attempt to characterize both removal and third-party impleader as situations in which the United States "brings the state into federal court" blurs a crucial distinction. In the removal situation, the Commonwealth continues to find itself defending against the private citizen who commenced the suit; in the impleader situation, the Commonwealth must defend itself, as a third-party defendant, only against the United States. The fact that courts have held that the Eleventh Amendment does not apply in the latter situation cannot be used as justification for the contention that it should not apply in the former.Id. at 82. See also Cape Ann Sav. Bank v.Johnson, No. 02-10032, 2002 U.S. Dist. LEXIS 15282, at *4 (D.Mass. Aug. 12, 2002) (O'Toole, J.) ("[T]he proposed analogies assume thatthe Commonwealth is subject only to claims by the United States. In theinterpleader, however, there will also be claims by interested privateparties, including a claim by [the plaintiff] to be released from anyobligation to the Commonwealth beyond thePage 10payment of the surplus amount into court for appropriatedisbursement").

This Court agrees with the reasoning set forth in Daoust.Therefore, the United States' removal does not extinguish theCommonwealth's immunity from suit by a private party in federal court.Accordingly, the Commonwealth has properly invoked its Eleventh Amendmentimmunity here, although as the Court explains later in this opinion, thatfact does not dispose of the Commonwealth's Motion To Dismiss.

b. Abrogation of Sovereign Immunity

In its brief, the United States argues that it has an absolute right tohave cases involving federal tax liens determined in a federal forum,see United States' Mem. Opp'n at 4-6, and in oral argument wentso far as to say that the Commonwealth's invocation of the EleventhAmendment must give way to that right. Although the United States,pursuant to 28 U.S.C. § 1444 and 2410, properly removed this actionto federal court, its right to remove does not — and cannot —preclude the Commonwealth from raising its assertion of EleventhAmendment protection. See Daoust, 214 F. Supp.2d at 82.

It is well settled that congressional intent to abrogate a state'sEleventh Amendment sovereign immunity must be "unmistakably clear in thelanguage of the statute." College Savings Bank, 527 U.S. at 670(citing Seminole Tribe, 517 U.S. atPage 1156). The removal statutes at hand, however, do not rise to thisrequired level of unmistakable clarity. Judges Tauro, Keeton, Zobel, andO'Toole, all in very similar cases, have agreed. See, e.g.,First Fed. Sav. Bank of Am. v. Ward, No. 03-10168 (D.Mass. Oct. 7, 2003) (O'Toole, J.) (granting motion to dismiss, on groundsthat 28 U.S.C. § 1444 and 2410 do not abrogate the Commonwealth'ssovereign immunity) (appeal pending); Fleet Nat'l Bank v.Kaplan, No. 02-11175, 2002 U.S. Dist. LEXIS 22781, at *2 (D.Mass. Oct. 11, 2002) (Zobel, J.) (holding that the federal government'srights under 28 U.S.C. § 1444 and 2410 do "not present a situation inwhich the Commonwealth's sovereign immunity has been abrogated with"unequivocal statutory language' or waived"); Chase Bank of Tex.Nat'l Ass'n v. Brockman, No. 02-11253, 2002 U.S. Dist.LEXIS 22780, at *2 (D. Mass. Oct. 10, 2002) (Zobel, J.) (same); CapeAnn Savings Bank, 2002 U.S. Dist. LEXIS 15282, at *4 (holding that28 U.S.C. § 1444 and 2410 do not abrogate state sovereign immunitybecause they "fail[] to surmount the hurdle erected by SeminoleTribe"); Daoust, 214 F. Supp.2d at 82 (holding that28 U.S.C. § 1444 and 2410 lacked the requisite clarity, and therefore,"these statutes cannot be read as trumping the Commonwealth's immunity");EMC Mortgage Corp. v. Stadelmann, 127 F. Supp.2d 249,251-53 (D. Mass. 2000) (Tauro, J.) (noting that "sections [1444 and2410, as well as 26 U.S.C. § 7403] do not, explicitly or implicitly,discuss the abrogation of states' sovereign immunity in suits brought byPage 12private parties," and holding that "the "structural interplay' ofthe various code sections cited . . . does not rise to the requiredlevel of unmistakable clarity").4 There is, therefore, no basis toconclude that the removal statute abrogated the Commonwealth's statesovereign immunity in this case.

The United States seeks to bolster its argument by pointing out thatCongress has expressly conditioned the federal government's waiver ofimmunity in cases like this one on the power to remove. United States'Mem. Opp'n at 6-7 (citing 28 U.S.C. § 2410, Hood v.United States, 256 F.2d 522, 526 (9th Cir. 1958), E.G.Robinson Lumber Co. v. Hughes, 355 F. Supp. 1363, 1367-68(E.D. Mo. 1972) (collecting cases), and Hamlin v.Hamlin, 237 F. Supp. 299, 300 (N.D. Miss. 1964)). There is noavenue, however, from this uncontroversial proposition to the abrogationof the Commonwealth's sovereign immunity.

If this Court can dismiss the Commonwealth as a party and stilladjudicate the interpleader action, then no violence has been done to theUnited States' right to have this case adjudicated in federal court. If,on the other hand, federal courts are unable to adjudicate interpleaderactions where a nonconsenting state is a necessary party, and the UnitedStates is thus effectively precluded from removing interpleader actionsPage 13where the Commonwealth is a necessary party, the United States canstill exercise its rights. Specifically, under such circumstances, if theUnited States were sued in interpleader in the Commonwealth's courts (orif a federal court were compelled to remand to state court), the UnitedStates could itself assert sovereign immunity, and the state court wouldlikely have to dismiss the United States as a party (assuming no waiver,etc.). In other words, if the condition precedent for the United States'waiver of immunity is not present, then the waiver is inoperative, andthe United States may simply exercise its prerogative not to consent tosuit.

It could be imagined that, in circumstances where an interpleaderaction involving both the United States and the Commonwealth cannotproceed in federal court, the result would be that a private individualcannot resolve the status of property in its possession throughinterpleader. The Court does not in fact so hold, but if it were to doso, that unfortunate consequence of sovereign immunity would hardly beunprecedented. In Cory v. White, 457 U.S. at 90, forexample, the plaintiff sought a determination of Howard Hughes's domicileto resolve which of two states was entitled to levy certain taxes on hisestate, but the Supreme Court held that the Eleventh Amendment prohibitedthe Hughes estate from doing so.

c. Waiver of Sovereign ImmunityPage 14

Lastly, the United States contends that the Commonwealth, by waivingits immunity to be sued in state court interpleader actions,has waived its Eleventh Amendment immunity in federal court.See United States' Mem. Opp'n at 13; id. at 15(arguing that "where the Superior Court had jurisdiction in the firstinstance to adjudicate claims against the Commonwealth, removal by theUnited States . . . neither alters nor revises the underlyingstate-law waiver of the Commonwealth's immunity"). The Court notes thatthe question whether a state's laws or conduct have waived its sovereignimmunity is one of federal law. Lapides v. Bd. of Regentsof the Univ. Sys. of Georgia, 535 U.S. 613, 622-23 (2002). TheUnited States appears to approach its waiver argument in two ways,neither of which this Court finds convincing.

First, the United States appears to argue that the Commonwealth, byconsenting without limitation to state court interpleader suits, whichwould obviously sometimes include the United States as a party, and inwhich the United States has the right to remove, has consented to removalof such actions to federal court. The argument is circular, however. Itmaintains that the Commonwealth has waived its immunity because it knewor should have known that, once it consented to suit in state court, itwould be precluded from invoking its sovereign immunity should the UnitedStates be a co-defendant and remove the case to federal court. Yet theCommonwealth's ability to invoke itsPage 15sovereign immunity in such circumstances is precisely the questionthat needs to be answered here. The United States cannot circumvent thisdifficult question by assuming what it seeks to prove, and then arguingthat the Commonwealth waived its immunity from suit in federal court bywaiving state court immunity.

Indeed, even if this Court had concluded that 28 U.S.C. § 1444 and2410 have abrogated the Commonwealth's immunity, that result would nothave been sufficiently obvious and predictable to justify application ofthe United States' first waiver theory.5 The Supreme Court has heldthat states can only waive their immunity through unequivocal statementsor conduct. A statute specifically consenting to federal court suit wouldsuffice, as would a state's voluntary invocation of federal courtjurisdiction. See College Savings Bank, 527 U.S. at 675-76(noting that a state cannot waive its federal court immunity by merelyconsenting to suit in state court, stating an intention to "sue and besued," or authorizing suit against it "in any court of competentjurisdiction") (citations and internal quotation marks omitted);Edelman v. Jordan, 415 U.S. 651, 673 (1974) ("[W]ewill find waiver only where stated by the most express language or bysuch overwhelming implications from the text as [will] leave no room forany other reasonable construction."Page 16(quoting Murray v. Wilson Distilling Co.,213 U.S. 151, 171 (1909)) (alteration in original) (internal quotation marksomitted)). Lapides, which the United States cites, provides anexample of unequivocal waiver through litigation conduct: when a statejoined in a petition to remove a case to federal court, it could notlater invoke the Eleventh Amendment to bar federal court adjudication ofthat particular case, because it had clearly consented to federal courtjurisdiction. 535 U.S. at 624.6 The Commonwealth's consent to statecourt jurisdiction, under circumstances where the law governing itsamenability to suit in an action removed to federal court by the UnitedStates was murky at best, hardly rises to the level of unequivocalconsent that the Supreme Court requires.

The United States not only believes that a less-than-clear statementcan waive sovereign immunity; it goes further. It argues that theCommonwealth would have to make a clear statement refusing toconsent to federal jurisdiction before it could invoke sovereignimmunity. See United States' Mem. Opp'n at 13Page 17(noting that there is "no such limitation expressly set forth inany statute waiving the Commonwealth's immunity," and arguing thatconsent to federal jurisdiction is "the necessary implication of theCommonwealth's waiver [of state court immunity in interpleaderactions]. . ., in the absence of an express statutory limitation on theCommonwealth's waiver"). This Court's discussion of the Supreme Court'swaiver jurisprudence has already established that this is not the law.

In a second waiver argument, the United States offers a variation onthe principle of "derivative jurisdiction," that is, the principle that acase is only properly removable if the state court from which it isremoved had personal and subject matter jurisdiction, and that whenremoved cases involve only state law claims, the court must apply thestate's substantive law. Id. at 14. The United States citesArizona v. Manypenny, 451 U.S. 232 (1981), andMinnesota v. United States, 305 U.S. 382 (1939), tosupport its arguments. Manypenny involved a federal officerwho, when the State of Arizona commenced a state-law criminal prosecutionagainst him in state court, removed to federal court under28 U.S.C. § 1442(a)(1). See Manypenny, 451 U.S. at 233. The SupremeCourt held that, in such circumstances, "the invocation of removaljurisdiction . . . does not revise or alter the underlying[substantive] law to be applied." Id. at 242. InMinnesota, a state brought a condemnation proceeding in statecourt, involving property in which the United States had anPage 18interest. 305 U.S. at 386. The state court lacked subject matterjurisdiction, because such cases had to include the United States aparty, and the United States had only consented to such suits in federalcourt. Id. at 387-88. The case was removed to federal court.Id. at 384. The Supreme Court held that the removal court hadto dismiss the case, even though it would have had jurisdiction had theaction been filed in federal court, because the removal court'sjurisdiction was "derivative" of the state court's jurisdiction.7

The United States argues that under Manypenny, "where. . . relevant state-court jurisdiction is found to exist and thequestion is whether the federal court in effect loses such jurisdictionas a result of removal," the answer is "no." See United States'Mem. Opp'n at 14-15 & n.8 (citing Manypenny, 451 U.S. at242 n.17). As support for this reading, it cites InternationalPrimate Protection League v. Administrators of Tulane Educ.Fund, 500 U.S. 72 (1991), which reserved for anotherPage 19day the question whether a federal court in an action removed under28 U.S.C. § 1442(a)(1) could require plaintiffs to meet the federalConstitution's standing requirements with respect to state law claims.United States' Mem. Opp'n at 15 n.8 (citing InternationalPrimate at 78 n.4). Thus, the argument goes, if Massachusettssubstantive law permits the Commonwealth's courts to adjudicateinterpleader actions against the Commonwealth, a federal court can andmust apply that substantive law upon removal, and the Commonwealth can nomore assert its sovereign immunity here than it could in its own courts.

The most obvious problem with this argument is that it proves far toomuch. The Supreme Court has made quite clear that a state may consent tosuit in its own courts without extending that consent to federal courts.See College Savings Bank, 527 U.S. at 675-76. Yet, in virtuallyany class of cases for which the Commonwealth might consent solely tosuit in its own courts, removal will be possible, and by the UnitedStates' argument, that possibility will transform consent to state courtsuit into consent to federal court suit. College Savings Bankand the cases it cites thus demonstrate that the United States' argumentcannot be right.

There are at least two ways to look at why the United States' argumenthere does not work. First, the Court could look to the rationale ofManypenny. The only purpose of permitting the federal defendantto remove was to ensure a hearing in aPage 20federal forum (not to undermine or preempt state criminal law) andto enforce the federal statute with as little prejudice to the state'sprerogatives as possible. Manypenny, 451 U.S. at 241-42. Here,adjudicating the dispute in the same way as in the state court would notpreserve the Commonwealth's prerogatives, but rather destroy them. TheUnited States relies on a decision showing great solicitude for therights of a state in a federal system for its argument that this Courtshould simply disregard those rights.

Second, and more important, even if the appropriate course is blindlyto apply Manypenny to state sovereign immunity cases, with noconsideration of the special aspects of Eleventh Amendment jurisprudence,the Commonwealth's substantive law in fact holds that while interpleadersuits against it can proceed in state court, they cannot in federalcourt. A federal court that dismissed the Commonwealth as a party wouldthus still be applying Massachusetts law, as Manypenny requiresit to do. Dismissing the Commonwealth as a party would be quite differentfrom the lower court's actions in Manypenny, where the federalcourt sought to deny a state a right it would have had in the state courtsystem because the federal court wished to apply federal law.

Manypenny and Minnesota are more about choice oflaw than about judicial power. It is true that the powers of state courtsPage 21and removal courts were congruent in those cases, but that wasbecause state substantive law produced the same result, regardless ofwhich forum applied it. In neither case was there any relevant federaljurisdictional bar. Assuming removal is proper, there are exceptionallyfew cases where a state court could exercise personal jurisdiction andsubject matter jurisdiction, but where upon removal, a federal courtcould not exercise them. Eleventh Amendment cases like this one, however,are among those few.

The Eleventh Amendment's limitation on the power of federal courts isapparently a hybrid of a personal jurisdictional bar (insofar as statescan consent to jurisdiction or waive objections thereto, and a court neednot raise an objection sua sponte) and a subject matterjurisdictional bar (insofar as a sovereign immunity defense can be raisedat any point in the proceedings). See Wisconsin Dept. of Corr.v. Schacht, 524 U.S. 381, 394-95 (1998) (Kennedy, J.,concurring) (describing these aspects of the Supreme Court's EleventhAmendment jurisprudence and suggesting that the Court should perhapsrevise its Eleventh Amendment doctrine more closely to mirror personaljurisdiction practice); see also Caleb Nelson, SovereignImmunity as a Doctrine of Personal Jurisdiction, 115 Harv. L. Rev.1561 (2002) (arguing that the Eleventh Amendment was in fact intendedpurely to be a personal jurisdictional bar, not a subject matterPage 22jurisdictional bar). But see Schacht, 524 U.S. at 391(asserting in dicta that the Supreme Court has not decided whether"Eleventh Amendment immunity is a matter of subject-matterjurisdiction").8 The law is migrating in the direction of treatingthe Eleventh Amendment more purely like a personal jurisdiction doctrine.See Lapides, 535 U.S. at 623 (partially overruling FordMotor Co. v. Department of Treasury of Indiana, 323 U.S. 459(1945), to the extent that it permitted a state to raise an EleventhAmendment defense after it had authorized its attorney general to invokefederal court jurisdiction). It does appear, given Justice Kennedy'sarticulated concerns, Justice Stevens's views (see Federal MaritimeCommission, 535 U.S. at 770-72 (Stevens, J., dissenting)), and theobvious desire of Justices Stevens, Souter, Ginsburg, and Breyer to placelimits on the Eleventh Amendment (see, e.g., Alden, 527 U.S. at760-814 (Souter, J., dissenting, joined by Justices Stevens, Ginsburg,and Breyer)), that therePage 23are now five Supreme Court justices just waiting for the right caseto complete the migration.

Whatever the mix of personal and subject matter jurisdictional elementsin the Eleventh Amendment, cases where a state has consented to privatesuit in state court, but not in federal court, present a uniquecircumstance in which removal introduces a subject-matter/personaljurisdictional bar applicable to the federal court, but not to the statecourt from which the case was removed. The addition of this element makesManypenny distinguishable in an important way, and thusdestroys the congruence that would otherwise exist between the powers ofa state court and of a federal court hearing a case removed from statecourt.

The International Primate footnote is consistent with thisconception. The rationale behind applying the state law of standing tostate-law claims asserted in a case removed to

federal court was that a defendant should not be able to use removal toprevent adjudication of claims that a state intended to have adjudicated.In this case, however, the Commonwealth does not intend to have privateinterpleader claims against it adjudicated, if adjudication takes placein federal court. Thus, the federal court does no violence to state lawby refusing to do something that an identically situated state courtwould do.Page 24

2. The Commonwealth as an Indispensable Party

The Commonwealth claims that it is an "indispensable party" underRule 19(b) of the Federal Rules of Civil Procedure, and that because theEleventh Amendment requires the Court to dismiss the Commonwealth as aparty, Rule 19(b) mandates dismissal of the entire action for "failure tojoin an indispensable party." Mot. to Dismiss.9

a. Standards Under Rule 19

The question whether the Commonwealth is an indispensable party isgoverned by Rule 19 of the Federal Rules. Fed.R.Civ.P. 19(a)-(b). Asthen-Judge Breyer said: "In applying Rule 19 — a Rule that comesfreighted with history — we must keep in mind the fact that thisRule seeks to accomplish a practical objective." Puiol v.Shearson Am. Exp., Inc., 877 F.2d 132, 134Page 25(1st Cir. 1989) (citing Provident Tradesmens Bank & TrustCo., 390 U.S. 102, 106-07, 120-25 (1968), Pulitzer-Polsterv. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 1986), Schutten v.Shell Oil Co., 421 F.2d 869, 874 (5th Cir. 1970), Charles AlanWright, The Law of the Federal Courts 458-61 (4th ed. 1983),and Geoffrey C. Hazard, Jr., Indispensable Party: The HistoricalOrigin of a Procedural Phantom, 61 Colum. L. Rev. 1254 (1961))(internal citations omitted). The Rule 19 inquiry is thus a pragmatic,case-specific examination of whether resolution of a case in the absenceof a particular party comports with the Federal Rules' twin goals offairness and efficiency. See id. at 134-35, and cases andsources cited therein.

This is a two prong inquiry. First, the Court must determine whetherthe parties to be joined are necessary and whether their joinder isfeasible. Fed.R.Civ.P. 19(a). Rule 19(a) requires the Court to join aperson10 in a legal proceeding if:

(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest, or (ii) leave any of the persons already parties subject to a substantial risk of incurringPage 26double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.


Then, if a person is a necessary party, but her joinder is notfeasible, the Court must use the four "gestalt" factors listed inRule 19(b) to "determine whether in equity and good conscience the actionshould proceed among the parties before it, or should be dismissed, theabsent person being thus regarded as indispensable."Id. at 19(b) (emphasis added). The factors to be considered bythe Court are: [f]irst, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.Id.

b. Application of Rule 19

The Commonwealth is a necessary party in that any disposition in itsabsence could possibly subject Horizon — and any recipient11 ofthe proceeds of the foreclosure sale at issue here — to asubstantial risk of "incurring double, multiple or otherwise inconsistentobligations." See Commonwealth's Mem. Supp. [Doc. No. 6] at 6(arguing that "[i]f this action were to continue without theCommonwealth, the parties would proceed atPage 27their own peril because the state tax liens would not[] necessarilybe discharged, leaving both the plaintiff and any recipient of theinterpleader funds potentially liable to the Commonwealth"). The questionremains, though, whether the Commonwealth is an indispensable party,without whom this action cannot proceed.

Judges Zobel and Keeton, confronting virtually identical scenarios,refused to dismiss the entire action for failure to join theCommonwealth. According to Judge Zobel, "[t]his Court can lessen or avoidany prejudice to the Commonwealth by giving it notice of furtherproceedings and an opportunity to file briefs as amicus.Moreover, [the plaintiff] will not have an adequate remedy if the actionis dismissed for nonjoinder." Fleet National Bank, 2002 U.S.Dist. LEXIS 22781, at *2-3

(internal citation omitted); accord Chase Bank, 2002 U.S.District LEXIS 22780, at *3; Daoust, 214 F. Supp.2d at 83-84.

Judge O'Toole, on the other hand, held that this conundrumdoes warrant dismissal of the entire action. Seee.g., Cape Ann, 2002 U.S. District LEXIS 15282, at *4-5.In a recent order, Judge O'Toole ruled that:

[T]o permit the Commonwealth to intervene or participate as amicus — is simply to pressure thePage 28Commonwealth to do what it objects to doing (rightly under the Eleventh Amendment), that is, to participate in the adjudication of the claims in a federal court. If the Commonwealth is justified in invoking the Eleventh Amendment to opt out of federal adjudication of claims touching its interests, it is hardly an "accommodation" to the Commonwealth to say that it can participate if it wants to. The Commonwealth has already said it does not want to. To threaten to adjudicate the claims without the Commonwealth, that is, to say that it may come out the loser unless it surrenders its sovereign immunity objection and "volunteers" to participate in some way, seems to me a way of coercing the Commonwealth out of its Eleventh Amendment right to resist adjudication of claims against it in a federal court.

First Federal Savings, No. 03-10168. There is much to besaid for this reasoning. This Court has determined, however, that it isin fact possible to address the concerns expressed in the FirstFederal Savings order without dismissing this entire case. The Courtwill thus attempt to lay out a framework for analyzing cases of thissort, which as the citations in this opinion make clear, arise with somefrequency in this district.

(1) The Gestalt Factors

Under the first "gestalt" factor, the Court must determine "to whatextent a judgment rendered in the [Commonwealth's] absence might beprejudicial to the person or those already parties." Fed.R.Civ.P.19(b). This inquiry is especially complex when the necessary party is astate invoking its sovereign immunity, because it is by no means obviouswhatPage 29preclusive effect a judgment rendered in its absence would have.This Court must therefore explore this somewhat abstract legal questionin order to determine what the practical consequences of a judgment onthe merits would be. The Court will first explore issues of preclusion asbetween the Commonwealth and the United States, and will then exploresuch issues as between the Commonwealth and the other parties.

The Commonwealth and the United States have a unique relationship ininterpleader actions naming both of them as defendants. This Court hasalready determined that Horizon's interpleader claim against theCommonwealth cannot proceed in federal court, regardless of the UnitedStates' actions. The distinction between the interpleader context and thecases where the federal government was permitted to implead anonconsenting state makes the latter inapplicable.

There is no question, however, that the federal government can suestate governments to vindicate its interests. See, e.g., UnitedStates v. Mississippi, 380 U.S. 128, 140 (1965);United States v. Texas, 143 U.S. at 641-45.12 TheSupreme Court has given no indication that it intends to extend itsrecent Eleventh Amendment decisions so far as to chip away at oreliminate the longstanding rule that the Eleventh Amendment does notpreventPage 30sovereigns in our federal system from suing one another tovindicate their interests. See Kansas v. Colorado,533 U.S. 1, 7 (2001) (reaffirming that a state may sue another state formoney damages without violating the Eleventh Amendment, so long as thestate is not "merely acting as an agent or trustee for one or more of itscitizens").

It is clear, therefore, that were the Commonwealth not a party to thisaction in the first place, the United States could join the Commonwealthas a party, solely for the purpose of resolving the relative right thetwo parties have to the funds in question (assuming no justiciabilitybars, etc.). See 26 U.S.C.

§§ 7401-03 (describing the broad powers of the United States and offederal courts in tax-related cases). Were the United States to bring theCommonwealth into the action in such a way, the only aspect of anyjudgment that would have preclusive effect against the Commonwealth wouldbe a determination as to the relative priority of the two sovereigns. TheCommonwealth would remain free to sue the interpleader plaintiff or anyinterpleader defendants other than the United States.

Similarly, there is no reason why the United States could notcross-claim against the Commonwealth in this interpleader action, seekingresolution of the question of the sovereigns' relative entitlement to thefunds. See id. Neither cross-claims of this sort nor thejoinder discussed above would be meaningfully distinguishable from thecases where the federalPage 31government was permitted to implead a state otherwise entitled toinvoke its sovereign immunity. There, as here, the only question regardsan economic dispute between two sovereigns.13

The United States has not in fact cross-claimed in this case, but theCourt does not consider it appropriate to require the United States tofile such a cross-claim. Given the unsettled nature of the law governingcases like this one and the novelty of filing cross-claims ininterpleader, the Court did not expect the United States to file across-claim in this case. Cross-claims regarding the central matter of aninterpleader case are obviously rare, if not unheard of, preciselybecause a judgment in the case typically will resolve any claims asbetween any two parties. Instances where a court has jurisdiction toresolve some claims involving a particular interpleader defendant, butnot others, are similarly rare.

It is conceivable that the United States might not be required to filea cross-claim against the Commonwealth to obtain interpleader relief,even in future similar cases. The idea of interpleader is that allparties with a possible claim to property resolve their relative claimsvis-a-vis one another.Page 32Although there are, strictly speaking, interpleader plaintiffs anddefendants, in reality each party is both a defendant against the otherparties' claims to the property and a plaintiff seeking to assertsuperior title as against all the other parties. Thus, it might bereasonable to regard interpleader cases like this one as a web of claims,with strands connecting each party to all of the others. A court couldperhaps sever all of the strands leading to the Commonwealth except forthe one connecting it and the United States, and resolve that claimwithout the United States' having to file a cross-claim.14

In any case, now that the United States is on notice as to how thisCourt intends to treat cases like this one, it may obviously determinefor itself whether it wishes to present the question of the necessity ofa cross-claim in a future case, or instead to avoid the questionaltogether by filing cross-claims against the Commonwealth as a matter ofcourse.

Now that the Court has determined that it can properly resolve claimsas between the United States and the Commonwealth, the question remainsas to what preclusive effect a judgment would have as between theCommonwealth and the other parties. If the Court were to decide theentire case here, there wouldPage 33presumably be no preclusion as between the Commonwealth and thenongovernmental parties. Any other result would be inconsistent with theEleventh Amendment. Granting the Commonwealth's request to be dismissedas a party and then giving preclusive effect (as between the Commonwealthand any of the nongovernmental parties) to any judgment resulting fromthis case would be no different from permitting private individuals toobtain default judgments against the Commonwealth.15Page 34

If a judgment in this case does not preclude the Commonwealth frompursuing its rights against the private party plaintiff and defendants inits own courts, and if the United States has a right to judgment in thisCourt, it is difficult to see how any prejudice could result to theCommonwealth, should the Court proceed to judgment in this case. Indeed,it seems that generally, in interpleader actions involving property inwhich the federal government and a state government both claim aninterest, proceeding to judgment in the state's absence will notprejudice the state's interests, at least in any way that the state isentitled to avoid.

There remains the question of prejudice to the other parties. The Courtexpects they would all agree that a federal court judgment that leavesthem open to later claims by the Commonwealth is undesirable. The Court,however, cannot find a less prejudicial option. In this case, proceedingto judgment is in fact the least prejudicial option.

One alternative to federal court adjudication, remand to state courtfor a final judgment there, produces virtually the same problems as woulda federal court judgment. A remand would in essence constitute a holdingthat the United States cannot remove the interpleader action. Because theUnited States hasPage 35conditioned its waiver of sovereign immunity on the right toremove, the United States would presumably be entitled to invoke its ownsovereign immunity and get itself dismissed as a party. Seesupra at 12-13. Admittedly, the sovereign immunity analysis for thefederal government and for states is not always identical.Lapides, 535 U.S. at 623. Still, it is fairly clear thatgranting a state court interpleader judgment preclusive effect againstthe United States is no more consistent with the concept of sovereignimmunity than would be enforcement of a similar federal court judgmentagainst the Commonwealth. Even assuming (without deciding) that theCommonwealth has the same power to compel resolution of its claimsagainst the United States that the United States has against theCommonwealth, it still cannot be said that federal court adjudication islikely to produce a less adequate judgment than remand.

The other option is to dismiss the case. This option is plainlyinferior to a judgment in one court (federal or state), which wouldresolve the private parties' relative claims as against one another andas against one of the sovereigns, and would clarify the comparativeclaims of the two sovereigns. Out of the manifold combinations ofrelative claims, the only ones remaining unresolved in such a judgmentwould be those between the private individuals and one of the sovereigns.At worst, there might be a second lawsuit in that sovereign's courts. Inthe case of dismissal, however, no claims whatsoever can bePage 36resolved. Each party acts at its peril, subject to lawsuits by anyone of the other parties. Whatever evils proceeding to judgment orremanding might produce, dismissal of the entire case multiplies themseveral-fold. This is clearly a case where incomplete relief is betterthan no relief at all.

Analysis of the second factor in cases like this thus comes down to adetermination whether judgment should issue from a federal court or froma state court. Although, as an abstract matter, the state and federalfora are equivalent, there may well be cases where resolution in oneforum would be more adequate. Examples may include cases where one or theother sovereign's claim is disproportionately larger than the other's, orwhere one sovereign's claim is particularly easily resolved. In thiscase, the facts and law are sufficiently clear that proceeding tojudgment in this Court will likely produce no prejudice to any party.Moreover, because the United States has priority over the Commonwealth,see infra at 45-47, resolving the United States' claim may wellmake it difficult for the Commonwealth to subject the private individualsin this case to inconsistent obligationsPage 37in later proceedings.16 Were the order of priority similarlyclear, but reversed, this factor might weigh in favor of remand.

The second factor this Court must consider is "the extent to which, byprotective provisions in the judgment, by the shaping of relief, or othermeasures, the prejudice can be lessened or avoided." Fed.R.Civ.P.19(b). The Court has already determined that no undue prejudice to theCommonwealth is apt to result. The Court can only reemphasize itsunderstanding of the limits on the preclusive effect that any judgmentwould have in future proceedings by the Commonwealth against thenongovernmental parties and state again that the partial relief affordedis better than nothing.

The Court must next consider the third factor, that is "whether ajudgment rendered in the [Commonwealth's] absence will be adequate." Fed.R. Civ. P. 19(b). This factor involves "the interest of the courts andthe public in complete, consistent, and efficient settlement ofcontroversies." See Provident Bank, 390 U.S. at 111. In caseslike this one, the public interest aligns with the private parties'interests. In particular, proceeding to judgment in this case providesthe most completePage 38and efficient resolution of the controversy that is possible, withless danger of inconsistency than any other available course of action.

Similarly, under the fourth factor, "whether the plaintiff will have anadequate remedy if the action is dismissed for nonjoinder," Fed.R. Civ.P. 19(b), this Court has determined that dismissal will leave Horizonwith no adequate remedy. Should this Court dismiss or remand, the onlyoption left to Horizon is to proceed in state court. Particularly giventhis Court's determination that federal court can provide more completeresolution than state court in this case (because of the United States'priority over the Commonwealth), a Massachusetts court might refuse toproceed to judgment. Massachusetts Rule of Civil Procedure 19(b) followsthe federal rule, although its relation to earlier state law equitypractice may occasionally lead to results different than the federalrule. See Mass. R. Civ. P. 19 Reporters' Notes (1973). If thisCourt were to determine that the equities weighed against proceeding tojudgment, the equities would weigh even more heavily against a statecourt judgment. If neither state nor federal courts were willing to issuean interpleader judgment, Horizon would have to disburse the funds atissue at its own risk, potentially subjecting itself to multiplesubsequent lawsuits and inconsistent judgments.Page 39

It is true that interpleader is sometimes simply not available toprivate citizens seeking to resolve two sovereigns' conflicting claims toproperty in his possession. See, e.g., Cory, 457 U.S. at 90.Indeed, it is important for the Court to determine why Corydoes not prevent the Court from ruling on the relative priority of theUnited States and the Commonwealth, and on the rights of all partiesother than the Commonwealth vis-a-vis each other. Put another way, whydid the Supreme Court refuse to resolve the relative claims of Californiaand Texas to entitlement to levy certain taxes against the Hughes estate?

The first answer is that the Supreme Court in fact permitted the statesto resolve their relative claims through a suit filed under the SupremeCourt's original jurisdiction. See California v.Texas, 457 U.S. 164, 165 (1982) (granting California's motionfor leave to file a complaint). The Supreme Court has original andexclusive jurisdiction over "controversies between two or more States,"28 U.S.C. § 1251, so the lower courts lacked jurisdiction to considerthe claim between the two states. That meant that the only claims thelower courts could consider would be those between the Hughes estate andeach of the states, and such claims are obviously barred by the EleventhAmendment. Although the Supreme Court did have original jurisdiction toconsider interstate controversies, it could not properly award reliefbased on such a controversy in a case over which the courts below neverproperly had jurisdiction.Page 40

In this case, the two disputing sovereigns are the federal governmentand a state government, and district courts have authority to adjudicatecontroversies between the federal government and a state government.Interpleader in this case thus does not constitute an end run aroundjurisdictional limitations on federal district courts. In Cory,there were no claims that the district court could properly resolvewithout violating the Eleventh Amendment, but in this case, the Court canresolve all the claims except those between the Commonwealth and privateindividuals without violating the Eleventh Amendment.

An additional factor that distinguishes this case from Coryis the diminished relevance of the Eleventh Amendment as a guide toaction. Like other constitutional provisions, the Eleventh Amendment cansometimes serve as a guide to interpretation or to exercise ofdiscretion, even in cases where it does not mandate a particular action.See, e.g., Gregory v. Ashcroft, 501 U.S. 452, 460(1991) (holding that a federal statute should not be interpreted to"upset the usual constitutional balance of federal and state powers,"unless Congress has clearly expressed an intent to do so).Gregory was arguably something more than a special case of theconstitutional avoidance canon. See Ashwander v. TennesseeValley Auth., 297 U.S. 288, 346-48 (1936) (Brandeis, J., concurring)(providing the most famous statement of the constitutional avoidancecanon). Gregory suggests that its clear-statement rule involveselements of respect forPage 41Congress (who would not lightly alter a balance so central to theconstitutional design), and a desire to weight the scales a little bitagainst the federal government, which "holds a decided advantage in [the]delicate balance" between state and federal powers. Id. at459-60.

In this case the federal interest is much greater than inCory, and provides a countervailing consideration to theobvious importance of state governments' prerogatives. Coryinvolved no violations of federal law or of the United StatesConstitution — it was simply a dispute between two states and anindividual who was both a United States citizen and a citizen of at leastone of those states. See Cory, 457 U.S. at 91. Here, the UnitedStates is itself a party, seeking to vindicate its own rights. In suchcases, the force of the Eleventh Amendment as a guide to action isdiminished, to say the least.

Because the gestalt factors weigh in favor of proceeding to judgment,and because the case law supports such a course of action, the Courtholds that judgment can be entered in this case, but that the judgmenthas no preclusive effect on the Commonwealth's claim's against partiesother than the United States, except to the extent that those parties areable to make use of the Court's determination that the United States haspriority over the Commonwealth.Page 42

B. Giarrusso's Motion for Summary Judgment

As indicated above, the defendant Giarrusso — asserting apriority interest in $264,942.00 of the surplus foreclosure proceeds— has moved for summary judgment. Mot. for Summ. J.

1. Standard of Review

Summary judgment is warranted if, after reviewing the facts in thelight most favorable to the nonmoving party, Anderson v.Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (citingAdickes v. S.H. Kress & Co., 398 U.S. 144, 158-59(1970)), "the pleadings, depositions, answers to interrogatories, andadmissions on file, together with the affidavits, if any, show that thereis no genuine issue as to any material fact and that the moving party isentitled to a judgment as a matter of law." Fed.R.Civ.P. 56. A"genuine" issue of fact is one that a reasonable jury, on the recordbefore the court, could resolve in favor of either party.Anderson, 477 U.S. at 255.

The movant has the initial burden of production, which it can meeteither by offering evidence to disprove an element of the non-movant'scase or, in cases where the non-movant bears the burden of proof, byshowing the absence of evidence to support the non-movant's case.Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).Once the movant has met this burden, the non-moving party must "go beyondthe pleadings and . . . designate specific facts showing that there isa genuine issue for trial." Id. at 324 (internal quotationmarks omitted).Page 43

2. Entitlement to the Foreclosure Proceeds

Federal law governs the priority of federal tax liens, even as againsta state government's tax liens. See 26 U.S.C. § 6323(governing the "[v]alidity and priority [of federal tax liens] againstcertain persons"); United States v. Security Trust &Sav. Bank of San Diego, 340 U.S. 47, 49 (1950); see also UnitedStates v. Rodgers, 461 U.S. 677, 683 (1983) (citing withapproval the Security Trust line of cases); cf. ClearfieldTrust Co. v. United States, 318 U.S. 363, 366 (1943)(holding that federal law governs the rights and duties of the UnitedStates with regard to commercial paper that it issues).17Massachusetts law governs the relative priority of the nongovernmentalparties vis-a-vis one another. As it happens, Massachusetts and federallaw are in agreement on all relevant points here.

Under both Massachusetts and federal law, the surplus proceeds of aforeclosure sale pass by equitable lien to junior lienors. SeePioneer Credit Corp. v. Bloomberg, 323 F.2d 992, 993-94(1st Cir. 1963) (citing, inter alia, Markey v.Langley, 92 U.S. 142 (1875), Pilok v. Bednarski,230 Mass. 56 (1918), AndrewsPage 44v. Fiske, 101 Mass. 422 (1869)); First Colonial Bankfor Sav. v. Bergeron, 38 Mass. App. Ct. 136, 138 (1995).Furthermore, priority among the lienors is determined by the common andoft-repeated principle: "first in time is first in right."Middlesex Sav. Bank v. Johnson, 777 F. Supp. 1024,1027 (D. Mass 1991) (Woodlock, J.) (citing United States v.New Britain, 347 U.S. 81, 85-86 (1954)); East Boston Sav.Bank v. Ogan, 428 Mass. 327, 329 (1998).

Giarrusso is the priority junior lienholder — its mortgage wasrecorded well before the United States and the Commonwealth ever filedtheir liens. See Giarrusso's Mem. in Supp.; Compl.

¶¶ 10, 12-13, Ex. B, D, E. Giarrusso's priority is sufficientlyclear that the United States has in fact consented to the Motion forSummary Judgment. United States' Response [Doc. No. 25]. Accordingly,Giarrusso's Motion for Summary Judgment is allowed.

3. The Remaining Funds

"[D]istrict courts are widely acknowledged to possess the power toenter summary judgments sua sponte, so long as the losing partywas on notice that she had to come forward with all her evidence."Celotex, 477 U.S. at 326 (citing Charles Alan Wright, Arthur R.Miller & Mary Kay Kane, Federal Practice and Procedure§ 2720, at 28-29 (1983)). In this case, Giarrusso has filed a Motionfor Summary Judgment, demanding most of the funds at issue. This placedthe parties on notice that they needed toPage 45provide such evidence as would be necessary to survive summaryjudgment. Based on the records of the United States' and theCommonwealth's tax liens that have already been submitted to the Court,it is difficult to imagine what other evidence any of the parties couldsubmit to create a genuine issue of material fact.

This Court therefore holds, on the undisputed record before it, thatthe tax liens in favor of the United States arose prior to those of theCommonwealth. On the date of assessment of unpaid internal revenue taxes,a lien arises in favor of the United States in that amount and attachesto all real and personal property and rights to property of the taxpayer,assuming that a notice of the assessment and a demand for payment havebeen given, coupled with lack of payment in full. 26 U.S.C.

§§ 6321 & 6322; United States v. Murray,217 F.3d 59, 60 (1st Cir. 2000). Similarly, liabilities owed to theCommonwealth for unpaid income taxes, taxes withheld from employees'salaries and wages, and meals and sales taxes, give rise to liens infavor of the Commonwealth, following assessment, notice and demand and afailure of payment, as of the date of assessment. Mass. Gen. Laws ch.62C, § 50(a); Luchini v. Comm'r of Revenue,436 Mass. 403, 406 (2002) (observing that the language and meaning of theMassachusetts tax lien statute are virtually identical to those of thefederal Internal Revenue Code); Middlesex Savings Bank,77 F. Supp. at 1027 (holding that the Commonwealth's lien arises on thedate of assessment).Page 46

The rule of "first in time, first in right," determines the priority ofthese competing tax liens, City of New Britain, 347 U.S. at 85,and "the priority of each statutory lien contested here must depend onthe time it attached to the property in question and became choate,"id. at 86. For both the United States and the Commonwealth,upon assessment a tax lien becomes choate, because assessment establishesthe identity of the lienor, the property subject to the lien (namely, allof the taxpayer's property), and the amount of the lien are established.See id. at 84.

Here, the Commonwealth made its first assessment on February 17, 1998,see Compl. Ex. E, whereas the United States made its firstthree assessments on January 23, 1997, February 6, 1997, and June 24,1997, respectively. Compl. Ex. D & E. As of the Notice of Tax Lienfiled on September 14, 2001, the unpaid assessed balances for the UnitedStates' three earliest liens (exclusive of accrued and accruing interestand penalties) were $25,802.51, $3,422.53, and $23,446.76, respectively,for a total of $52,671.80. Compl. Ex. D. As a result, the United Stateshas priority over the remaining surplus funds in the amount of$38,211.67. These funds, however, are insufficient to satisfy the UnitedStates' first three liens (particularly when penalties and interest aretaken into account), let alone any of the Commonwealth's liens. Thus, anyconcerns over dismissing thePage 47Commonwealth as a party — rather than the entire action— are further minimized.

The funds deposited by Horizon in the registry of the Court may thus bedisbursed to Giarrusso in the amount of $264,942.00. The remainder of thefunds may be disbursed to the United States. Judgment will enterdeclaring that, upon such disbursements, Horizon shall have no furtherobligation arising out of this foreclosure sale to any of theinterpleader defendants (most relevantly the United States andGiarrusso), other than the Commonwealth. Because this Court has dismissedthe Commonwealth as a party to claims involving the nongovernmentalparties, nothing herein is in any way binding on it with respect to thoseparties, except to the extent those parties are able to make use of thisCourt's holding that the United States has priority over theCommonwealth. The Commonwealth thus remains free to pursue whateverrights it may have in its own courts.

III. Conclusion

For the reasons stated above, the Commonwealth's Motion To Dismiss[Doc. No. 5] is ALLOWED, but only to the extent that the Commonwealth isdismissed as a party relative to the nongovernmental parties. The MotionTo Dismiss is otherwise DENIED. Giarrusso's Motion for Summary Judgment[Doc. No. 20], however, is ALLOWED. The remaining funds are to bedisbursed to the United States, as detailed above.Page 48


1. The Eleventh Amendment was in fact passed in response to theSupreme Court's decision in Chisholm v. Georgia, 2U.S. (2 Dall.) 419 (1793), which permitted a South Carolina citizen tobring a state law assumpsit suit against Georgia as an original action inthe Supreme Court based solely on diversity of citizenship. SeeHans, 134 U.S. at 11. But see John J. Gibbons, TheEleventh Amendment and State Sovereign Immunity: A Reinterpretation,83 Colum. L. Rev. 1889, 1926 (1983) (stating that "Congress's initialreaction to the Chisholm decision hardly demonstrates the sort of outrageso central to the profound shock thesis"). For an argument for the"diversity jurisdiction" interpretation of the Eleventh Amendment, underwhich federal courts can adjudicate private suits against states, so longas subject matter jurisdiction is not based solely on diversity,see Atascadero State Hospital v. Scanlon,473 U.S. 234, 258-302 (1985) (Brennan, J., dissenting, joined by JusticesMarshall, Blackmun, and Stevens).

2. There a number of areas where the law is unsettled, but privatesuit against unconsenting states in some court may well bepermitted. First, it may be that if a state failed to provideany remedy against taxes levied in violation of federal law orunconstitutional takings of property, the individual could sue, ifnowhere else, in state court, invoking the due process protections of theFourteenth Amendment, U.S. Const, amend XIV, § 1, even absent afederal statute purporting to abrogate state sovereign immunity. SeeReich v. Collins, 513 U.S. 106, 110 (1994) (stating indicta that the Constitution requires states to provide a remedy for taxescollected in violation of federal law, notwithstanding "the sovereignimmunity States traditionally enjoy in their own courts"); FirstEnglish Evangelical Lutheran Church of Glendale v. County ofLos Angeles, 482 U.S. 304, 316 & n.9 (1987) (rejecting, indicta, an argument that sovereign immunity would bar private suit formoney damages, based on an unconstitutional taking, against anunconsenting sovereign); see also City of Monterey v. DelMonte Dunes at Monterey, Ltd., 526 U.S. 687, 714 (1999) (pluralityopinion) (suggesting that it is unsettled whether "the sovereign immunityrationale retains its vitality" in just compensation cases);cf. Henry M. Hart, Jr., The Power of Congress To Limit theJurisdiction of Federal Courts: An Exercise in Dialectic, 66 Harv.L. Rev. 1362, 1372 (1953) (stating that it is "a necessary postulate ofconstitutional government . . . that a court must always be availableto pass on claims of constitutional right to judicial process, and toprovide such process if the claim is sustained"). But seeAlden, 527 U.S. at 740 (characterizing Reich as standingfor no more than the proposition that, if state law appears to provide aremedy against unlawfully levied taxes, and a taxpayer pays taxes inreliance on that law, the state must in fact provide the remedy itpromised). Second, under Testa v. Katt, 330 U.S. 386 (1947),states cannot discriminate against plaintiffs based on the source of lawon which they rely (federal versus state). Id. at 389. TheAlden majority dismissed a Testa-based argument(which it described as a "waiver" argument), stating that "there is noevidence that the State has manipulated its immunity in a systematicfashion to discriminate against federal causes of action."Alden, 527 U.S. at 757-58. This suggests, although it does notrequire as a matter of logic, that such manipulation might sufficientlyoffend the Supremacy Clause, U.S. Const, art. VI, to permit overriding ofstate sovereign immunity. Still, the facts of Alden aredifficult to distinguish from those in Testa: in both cases,parallel state and federal statutes existed, and state courts enforcedthe former but would not (Testa) or could not (Alden) enforce the latter.Thus, it may be that the Supreme Court was indirectly saying thatTesta does not apply in cases where a state's invocation of itssovereign immunity is the source of the state's discrimination againstfederal rights.

3. Horizon does not dispute the Commonwealth's claim that theEleventh Amendment requires that it be dismissed as a party, although itdisagrees with the Commonwealth as to what action this Court should takethereafter. Horizon's Mem. Opp'n [Doc. No. 9] at 2.

4. The EMC Mortgage case, although commenced in the UnitedStates district court rather than being removed to it, was also aninterpleader action brought by a private individual, with both theCommonwealth and the United States as defendants.

5. Obviously, had the Court so decided, it would not have needed toreach the question of waiver.

6. See also Gardner v. New Jersey, 329 U.S. 565,574 (1947) (holding that a state had waived its immunity regardingadjudication of a claim it had filed in a bankruptcy proceeding);Gunter v. Atlantic Coast Line R. Co., 200 U.S. 273,284 (1906) ("where a state voluntarily becomes a party to a cause, andsubmits its rights for judicial determination, it will be bound thereby,and cannot escape the result of its own voluntary act by invoking theprohibitions of the 11th Amendment"); Clark v.Barnard, 108 U.S. 436, 447 (1883) (holding that a state'svoluntary appearance in federal court as an intervener avoided anyEleventh Amendment inquiry).

7. The result in Minnesota has been effectively mooted bythe 1986 amendment of 28 U.S.C. § 1441 to add subsection (e), whichprovides that upon removal in diversity and federal question cases, thefederal court will have jurisdiction, even if the state court did not.This statutory amendment did nothing to impact the continuing vitality ofthe Supreme Court's derivative jurisdiction jurisprudence, however.See International Primate Protection League v. Administrators ofTulane Educ. Fund, 500 U.S. 72, 78 n.4 (1991)(assuming that this jurisprudence was still applicable). Rather, as theUnited States correctly asserts, Section 1441(e) merely expands thefederal courts' jurisdiction to erase one restrictive result of thatjurisprudence.

8. Several Supreme Court cases have treated the Eleventh Amendmentmore as a doctrine of subject matter jurisdiction. See Edelmanv. Jordan, 415 U.S. 651, 678 (1974) (awarding a state relieffrom the portion of a district court judgment requiring retroactivepayment of benefits wrongfully withheld, based on an Eleventh Amendmentdefense that the state did not assert until it was actually before theSupreme Court); Ford Motor Co. v. Dept. of Treasury ofIndiana, 323 U.S. 459, 467 (1945) ("The Eleventh Amendment declaresa policy and sets forth an explicit limitation on federal judicial powerof such compelling force that this Court will consider the issue arisingunder this Amendment in this case even though urged for the first time inthis Court."); see also Calderon v. Ashmus,523 U.S. 740, 745 n.2 (1998) (noting that an Eleventh Amendment defense may beraised at any stage of the proceedings). As the Court notesinfra at 22-23, Lapides has eroded the vitality ofthese cases.

9. Another possible route to remand was recently rejected inSchacht. In that case, the state argued that because theEleventh Amendment is at least partially a subject matter jurisdictionalbar, 28 U.S.C. § 1447(c), which requires remand of removed cases "ifat any time before final judgment it appears that the district courtlacks subject matter jurisdiction," mandates remand of any case where oneof the claims is against a state that has properly objected to suit infederal court. Schacht, 524 U.S. at 391. Refusing to reach thequestion whether and to what extent the Eleventh Amendment is a doctrineof subject matter jurisdiction, the Supreme Court interpreted thisprovision to require remand only when a court lacks subject matterjurisdiction over the entire case, not merely over one of the claims.Id. at 391-92.

10. It is beyond question that the term "person" in the FederalRules includes governments. See, e.g., Idaho ex. rel. Evans v.Oregon, 444 U.S. 380, passim (1980) (assuming tacitlythat the term "person" in Rule 19 applies to the federalgovernment).

11. Except for the United States. See infra at 29-31.

12. This Court need not delve into questions regarding the extent towhich the United States may bring actions to recover on behalf of privatecitizens, as the interest involved in this case is purely the UnitedStates' own.

13. One can see the equivalence between the cross-claim and joindersituations by imagining what would happen if the Court were to dismissthe Commonwealth as a party, rather than keeping it in the action for thesole purpose of resolving a United States cross-claim against it. TheUnited States could then simply join the Commonwealth after the Courtdismissed it as a party, and thus reach the exact same proceduralposture.

14. Even if a court refused to afford the federal government reliefin the absence of a cross-claim, it might well have to permit the federalgovernment an opportunity to join the Commonwealth as a party (for thelimited purpose of determining the two sovereigns' priority).

15. The apparent fate of 11 U.S.C. § 106, which governs theapplication of sovereign immunity in bankruptcy cases, suggests that theCourt's preclusion analysis is correct. Bankruptcy is in many waysanalogous to interpleader, seeking to resolve in one case all claims toan interest in property (the bankruptcy estate, in the bankruptcycontext). At one point, a plurality of the Supreme Court assumed that abankruptcy court's discharge of a debtor's debts, including unpaid taxes,would bind states that had failed to file a proof of claim.Hoffman v. Connecticut Dept. of Income Maint.,492 U.S. 96, 102 (1989) (plurality opinion) (stating as much while holdingthat the Bankruptcy Code did not authorize monetary recovery fromunconsenting states). This was before the Seminole Tribedecision, and at least one of the Justices dissenting in that decisionassumed that it made that portion of Hoffman obsolete. SeeSeminole Tribe, 517 U.S. at 90 & n.12 (Stevens, J., dissenting).If Congress has no power under Article I to subject a state to defaultjudgments, even when such judgments would not diminish the state'streasury, this Court cannot see how the Eleventh Amendment can permit itto accomplish the same result by other means. Even if that portion of Hoffman does survive, it is mostlikely because, to the extent that the Eleventh Amendment is a personaljurisdiction doctrine, a state that had notice of the proceedings butfailed to file a notice of claim would have waived any objection todischarge, whereas an objection to the bankruptcy court's jurisdictionwould insulate the state from any binding effect of the discharge. TheSixth Circuit recently went even further, holding that Congress canabrogate state sovereign immunity under the Bankruptcy Clause, because itconstitutes a constitutional compact between the states authorizingCongress to make a "uniform" bankruptcy law. Hood v.Tennessee Student Assistance Corp., 319 F.3d 755, 758 (6th Cir.2003), petition for cert. filed, 71 U.S.L.W. 3724(U.S. May 2, 2003) (No. 02-1606). Even if Hood is correct,however, there is no equivalent compact for interpleader cases.

16. This speculation is not inconsistent with the Court's earlierdetermination that proceeding to judgment would not prejudice theCommonwealth. The United States has a right to obtain a federal courtdetermination of its rights relative to the Commonwealth in the funds atissue here. The Commonwealth has no right to avoid whatever preclusiveeffect such a judgment would have, whether it occurs in a bilateralproceeding or as a result of judgment in this case.

17. Under the modern approach to federal common law questions, acourt must first determine whether federal or state law governs, andthen, if federal law governs but no federal statute exists, determinewhether the court should incorporate state law as the rule of decision.United States v. Kimbell Foods, Inc., 440 U.S. 715,718 (1979) (applying state commercial law to determine precedence offederal governmental liens under government loan programs over privateliens).Page 1

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