In Continental Indem. Co. v. BII, Inc., N. 23-1648 (7th Cir. June 12, 2024), the Seventh Circuit affirms dismissal of an action filed under Fed. R. Civ. P. 69 by an insurer against an alleged garnishee, holding that it fell outside the court’s ancillary enforcement jurisdiction. The panel, though, reserves for future consideration whether the standard of review of such dismissals ought to be for abuse of discretion, rather than de novo.
“Ancillary enforcement jurisdiction” exists as a matter of federal common law. Enforcement actions under Rule 69 fall within a court’s ancillary jurisdiction as part of the court’s “inherent power to enforce its judgments.” Peacock v. Thomas, 516 U.S. 349, 356 (1996). This extra burst of extra-statutory jurisdiction “enable[s] a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees.” Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 379–80 (1994). But that power, without specific Congressional sanction, is carefully circumscribed: “exercise of ancillary enforcement jurisdiction in a particular case [must be] ‘essential to the conduct of federal-court business.’”
“In early June 2016, Linn-Mathes, a general contractor, had contracted with BII to perform post-construction cleaning work at the Maplewood Street site. The contract between Linn-Mathes and BII required BII to maintain insurance, including workers’ compensation coverage, because it was responsible for the safety of its employees at the Maplewood Street site.”
It was everybody’s misfortune that for the date an employee named Lumpkins suffered an injury at the site, BII had allowed its workers’ compensation coverage to lapse. So Linn-Mathes’s insurer, plaintiff Continental, stepped in to pay the claim. Continental then sued BII – based on diversity of citizenship, 28 U.S.C. § 1332 – to recover what It paid to Lumpkins. “In July 2021, the district court entered a default judgment in favor of Continental [and against BII] in the amount of $607,712.12, comprising the $588,978.59 principal claim plus prejudgment interest and costs.”
Continental followed up with a collection action in federal court under Fed. R. Civ. P. 69, “adding appellee Starr Indemnity & Liability Company to the action as a garnishee using Illinois state law procedures under Federal Rule of Civil Procedure 69(a).” Starr was not a party to the original action. It “denied that its insurance contract with BII covered the workers’ compensation claim that was the subject of Continental’s default judgment against BII.”
“After the parties completed summary judgment briefing, Chief Judge Pallmeyer ordered Continental to ‘show cause … why the garnishment proceeding it filed against [Starr] should not be dismissed for lack of subject matter jurisdiction.’” Ultimately, the district court did dismiss the action as against Starr. “The court explained that it lacked subject matter jurisdiction over the garnishment proceeding because it fell outside the scope of the court’s ancillary jurisdiction when proceeding under Rule 69 . . . . Because the record showed complete diversity of citizenship between Continental and Starr, the court explained that Continental’s ‘proper course of action is to file a complaint against Starr.’”
Rather than file a fresh action against Starr, though, Continental appealed the jurisdictional ruling. The Seventh Circuit panel comments at this tactical decision. “We must confess some uncertainty about the purpose of this appeal. As the district court explained, if Continental wants a federal forum to litigate this dispute with Starr, that forum is available for the price of filing one new civil action in the Northern District of Illinois. Still, Continental had the right to appeal, and we are obliged to decide it.”
Accepting its duty to decide the appeal, the Seventh Circuit affirms.
It begins, though, with questioning the standard of review for orders declining to exercise ancillary enforcement jurisdiction. it may well be that a district court’s decision on whether to exercise ancil lary enforcement jurisdiction involves elements of case-by case judgment that are close cousins to decisions about whether to exercise supplemental jurisdiction under 28 U.S.C. § 1367 or jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201. We review such decisions not de novo but for an abuse of discretion. “We typically assess de novo a district court’s decision to dismiss a claim for lack of subject matter jurisdiction . . . . [Yet] it may well be that a district court’s decision on whether to exercise ancil lary enforcement jurisdiction involves elements of case-by case judgment that are close cousins to decisions about whether to exercise supplemental jurisdiction under 28 U.S.C. § 1367 or jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201. We review such decisions not de novo but for an abuse of discretion.”
“A district court will ordinarily be better situated to deter mine whether and to what extent the post-judgment ancillary proceedings would depend on new legal and factual issues, and we should ordinarily give deference to such judgment calls about mixed questions of fact and law,” citing Salve Regina College v. Russell, 499 U.S. 225, 233 (1991).”
The panel ultimately finds it unnecessary to address the standard-of-review issue. “Here, the garnishment proceeding exceeded the scope of federal ancillary enforcement jurisdiction under Rule 69, whether we review de novo or for abuse of discretion. The garnishment added a new party, Starr, to the underlying suit between Continental and BII, and it raised new factual and legal issues necessary to adjudicate the terms and extent of coverage in the insurance policy between Starr and BII.”
“The central issue in the garnishment proceeding— whether the Starr-BII insurance policy even covered the worksite where Lumpkins was injured—is a new issue. It was not raised in, let alone central or material to, the prior proceedings . . . . [And] Continental seeks to hold a new party lia ble on a new theory. This is the type of dispute that courts have found to fall outside their ancillary enforcement jurisdiction.”
Paul Mollica's Federal Courts Blog 