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Reedsburg Bank v. Apollo

decided: January 7, 1975.

THE REEDSBURG BANK, PLAINTIFF-APPELLEE,
v.
APOLLO, DEFENDANT-APPELLEE, V. HERBERT R. NICHOLLS AND JOAN S. NICHOLLS, PROPOSED INTERVENORS-APPELLANTS



Appeal From Order of the United States District Court for the Western District of Wisconsin Denying Motion For Intervention - No. 73 C 113 James E. Doyle, Judge.

Sprecher and Tone, Circuit Judges, and Perry, Senior District Judge.*fn*

Author: Tone

TONE, Circuit Judge.

This is an appeal from an order denying a motion to intervene in an in rem foreclosure proceeding under the Ship Mortgage Act, 46 U.S.C. ยง 911, et seq.

Between July 1970 and December 1972, plaintiff Reedsburg Bank made loans to Western River Steamboat Co., Ltd., to finance the construction of the Apollo, a stern-wheel vessel being built for use in the Wisconsin Dells as a sightseeing vessel, and to provide operating capital for Western River's tourist operations in the Dells. The loans were in part secured by personal guarantees of Herbert R. Nicholls and Joan S. Nicholls, stockholders of Western River, who seek to intervene in this action.

In August 1972 Western River and the bank entered into a term loan agreement covering advances that had been made up to that time, and Western River gave the bank new promissory notes in the principal amounts of $75,000, $45,000, and $20,000, secured by a first preferred mortgage on the Apollo. An earlier note for $30,000, which intervenors had guaranteed, was incorporated into the $75,000 note. Whether intervenors guaranteed the full amount of the $75,000 note is in dispute.

When Western River defaulted, the bank commenced this action in admiralty against the vessel to foreclose the mortgage. Neither Western River nor the Nicholls were named as defendants. The bank exercised the option afforded by the Ship Mortgage Act to proceed in rem solely against the vessel. Western River did not appear. The Nicholls filed a motion to intervene, seeking a declaratory judgment that their guarantees were void or, in the alternative, an adjudication that the proceeds of the foreclosure be allocated to the amounts they had guaranteed and that the bank be precluded from later obtaining a deficiency judgment against them. The Nicholls, who, like the bank, were residents of Wisconsin, had no property interest in the vessel and were not parties to the ship mortgage.

Gerald Matthews, an officer of Western River and also a guarantor of its indebtedness to the bank, filed a claim in the amount of $20,625.58 against the vessel for labor and services rendered to Western River. Pursuant to a stipulation between the parties and the proposed intervenors, the vessel was sold by the marshal at a public sale, the bank bidding it in at $70,000. The proceeds were deposited with the clerk to await resolution of the competing claims of the bank and Matthews.

After hearing, the District Court denied the motion for intervention and confirmed the sale of the vessel. The only issues still pending before the District Court concern the validity and priority of Matthews' maritime lien. After the denial of intervention in this case the bank commenced an action in the Wisconsin state court against Western River, the Nicholls, and other guarantors to obtain a deficiency judgment and enforce the guarantees.

The District Court did not hold, and the appellee bank does not argue, that the Ship Mortgage Act precludes intervention. The right to intervene depends upon Rule 24, FED. R. CIV. P.

The Nicholls sought alternatively to intervene as of right under clause (2) of paragraph (a) of Rule 24 and by permission of the court under clause (2) of paragraph (b) of that rule. The District Court held that the Nicholls did not satisfy the requirements for intervention of right and that they failed to establish the existence of an independent ground of federal jurisdiction for their claims, which the court held to be required for permissive intervention.

Appealability

Although appellee has not challenged the appealability of the order denying intervention, it is appropriate to observe that we find the order appealable. Under the traditional rule, an order denying intervention of right is unconditionally appealable, but an order denying permissive intervention is appealable only if the district court has abused its discretion. 3B J. Moore, Federal Practice para. 24.15 (2d ed. 1974). This distinction, which means that the court of appeals must consider the merits of the discretionary intervention to determine whether the order is appealable, has no practical significance. Its only effect is to require that, if we agree with the district court on the merits, we dismiss the appeal instead of affirming. The Second Circuit, in reviewing a denial of intervention of right, has taken the position that the distinction should be eliminated:

"Commentators seem to agree that requiring appealability of an order to turn on the merits serves no useful purpose. They would prefer to consider all denials of intervention final orders and therefore appealable, but would reverse only when a party is entitled to intervention as of right or the trial court abused its discretion in denying permissive intervention. See Shapiro, Some Thoughts on Intervention Before Courts, Agencies, and ...


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