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McKee-Berger Inc. v. Board of Education

decided*fn*: July 23, 1982.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 77-C-1708 -- Joseph Sam Perry, Judge.

Swygert, Senior Circuit Judge, Cudahy and Posner, Circuit Judges.

Author: Cudahy

CUDAHY, Circuit Judge.

This case commenced in 1977 as a breach of contract action filed in the district court by McKee-Berger-Mansueto, Inc. ("MBM") against the Board of Education of the City of Chicago (the "Board"). After trial, the district court entered a substantial money judgment in MBM's favor. In this appeal we are asked to review certain district court orders which enforced that judgment and disbursed the fund created by the judgment among various competing claimants. We affirm.


MBM filed its complaint in the district court on May 13, 1977, seeking recovery from the Board for an alleged breach of a written contract for professional construction management services. Jurisdiction was based on diversity of citizenship. On January 24, 1979, the court entered judgment in favor of MBM and awarded it a principal amount of $413,976.54 plus interest. The judgment, except for the award of pre-judgment interest, was affirmed by this court on July 16, 1980. McKee-Berger-Mansueto, Inc. v. Board of Education, 626 F.2d 559 (7th Cir. 1980). After a petition for rehearing en banc was denied, our mandate issued on September 11, 1980. Following this apparent termination of the litigation, counsel for MBM on September 17, 1980, served on the Board's attorney a notice of attorneys' lien, in conformity with the procedural requirements of the Illinois Attorneys' Lien Act, ILL. REV. STAT. ch. 13, ยง 14 (1982). The notice asserted a claim to one-third of the proceeds of the judgment obtained by MBM, a share agreed upon by MBM and its attorneys in a contingent fee agreement, dated May 5, 1977, and filed in the district court.

Meanwhile, during the long gestation period of the district court judgment, several creditors of MBM as well as the United States (the "government") were asserting their own claims against MBM's assets. The government filed four notices of tax lien against MBM in New York, the location of MBM's principal executive office. These notices, recorded on May 24, 1977, August 3, 1977, November 15, 1977, and April 25, 1978, respectively, represented unpaid tax assessments in an amount exceeding $600,000. Three other creditors of MBM also perfected liens on MBM's property. Monticello Realty Corporation became a judgment lien creditor on June 21, 1978, when it commenced citation proceedings against MBM in state court, seeking $90,340.67 in satisfaction of four judgments it had obtained against MBM. World Express, Inc., achieved judgment lien creditor status on August 23, 1978, the date on which it served a garnishment summons on the Board. World Express seeks payment of a $102,859.05 judgment against MBM. The third creditor is C.F. Industries, Inc., which filed its state court citation proceedings on May 16, 1979, and seeks satisfaction of a $7,226.61 judgment against MBM.

On September 29, 1980, MBM instituted further proceedings in the district court to enforce its judgment. Its motion, styled as a Supplemental Plea of Interpleader, recited that the Board was prepared to satisfy the judgment against it by depositing the necessary funds with the clerk of the district court. The Board was reluctant to do so, the motion continued, because of certain injunctions entered in state court on behalf of Monticello Realty and C.F. Industries. These injunctions prohibited the Board from paying any money directly to MBM. In view of these conflicting claims, including the tax lien of the government, MBM's Supplemental Plea requested the district court (1) to order the Board to deposit funds in satisfaction of the judgment with the clerk of court, (2) to award $166,478.62 in fees to MBM's attorneys as provided in the contingent fee agreement, and (3) to disburse the remainder of the fund among the various claimants. The Supplemental Plea was served on the government, Monticello Realty, World Express and C.F. Industries, naming all of them as interpleader defendants. On October 3, 1978, the district court granted the first part of MBM's request, issuing an order directing the Board to pay over to the clerk of court the sum of $413,976.54 together with post-judgment interest. The district court in addition scheduled hearings to determine the relative priorities of the competing claimants to the fund. Monticello Realty and C.F. Industries filed answers to the Supplemental Plea; World Express filed no responsive pleading.

The motion was heard by the district court on December 19, 1980. After the court heard argument concerning jurisdiction and relative priorities, it granted MBM's request to treat the Supplemental Plea alternatively as a motion for the disposition of funds deposited with the court. The district court also granted the government's motion to be dismissed as an interpleader defendant and granted it leave to file an intervenor's complaint asserting its tax lien. During the afternoon session of the hearing, the government was permitted to introduce copies of its tax lien notices and certificates of assessments and payments, all of which established the validity of the tax lien. Copies of the notices of tax lien had been attached to MBM's Supplemental Plea and thus had been served on all parties. At the conclusion of the hearing, the district court announced that the government appeared to enjoy a lien superior to all claimants except MBM's attorneys. It then scheduled a further hearing for December 22, 1980, at which the other creditors would be allowed to prove their claims.

At the December 22 hearing, Monticello Realty and C.F. Industries introduced evidence documenting their claims on MBM's assets. Counsel for World Express did not appear and no evidence of its lien was introduced. At the close of the hearing, the district court awarded MBM's attorneys $166,478.62 (plus a portion of the accrued interest), representing the full amount of their claim. The balance of the fund on deposit with the court ($289,576.07 plus accrued interest) was awarded to the government in partial satisfaction of its tax lien.

On December 24, 1980, World Express belatedly moved to introduce documents establishing its lien on MBM's assets. The district court granted this motion but, on January 2, 1981, denied World Express' post-trial motion. From these orders of the district court disbursing the deposited funds, only World Express appeals.


We are confronted at the outset of this complicated appeal with a challenge to the district court's jurisdiction to take control of the fund created by the January 24, 1979, judgment and to adjudicate the conflicting claims to that fund. World Express contends that its garnishment suit in state court, initiated prior to the entry of judgment in the district court, conferred on the state court exclusive jurisdiction to disburse the proceeds of the judgment, thereby divesting the district court of authority to enforce its judgment. In addition, World Express argues that MBM's Supplemental Plea of Interpleader was defective because MBM was not the proper party to initiate an interpleader. We reject these contentions and sustain the jurisdiction of the district court.

We note first that there can be little doubt that the district court, having had jurisdiction over the original diversity suit between MBM and the Board, possessed jurisdiction to enforce the judgment it rendered. The Supreme ...

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