Petition — Cory v. White

8 0 x ] 5&@ .. Court, U.S.

No.

In THE

7s & OD

MAR 42 1981

ALEXANDER ws TEVAS,

Ox

OcTOBER TERM, 1980

CONTROLLER OF THE STATE OF CALIFORNIA AND

COUNTY TREASURER OF THE COUNTY OF LOS ANGELES,

Petitioners,

vs.

ATTORNEY GENERAL OF THE STATE OF TEXAS, ef al.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Of Counsel: JEROME B. FALk, Jr.*

MarTIN R. GLICK

MyrRON SIEDORF STEVEN L. MAYER

Chief Inheritance Tax HowakrbD, Prim, RICE,

Attorney NEMEROVSKI, CANADY &

Division of Inheritance POLLAK

& Gift Tax A Professional Corporation

107 South Broadway 650 California Street, Suite 2900

Los Angeles, CA 90012 San Francisco, California 94108

(415) 434-1600

DONALD Scott THOMAS

RHONDA H. BRINK

Paut J. VAN OSSELAER

CLarRK THOMAS,

WInTerS & SHAPIRO

Capital National Bank Building

Post Office Box 1148; 12th Floor

Austin, Texas 78767

(512) 472-8442

Attorneys for Petitioners

*Counsel of Record

i

QUESTIONS PRESENTED

1. Whether a dispute between states as to which state was

the domicile of a decedent for death tax purposes is a “con-

trovers[y] between two ... States” within the Court’s original

and exclusive jurisdiction under 28 U.S.C. § 1251(a), so as to

preclude such a dispute from being entertained by a federal

district court pursuant to the Federal Interpleader Act.

2. Whether the Federal Interpleader Act grants district

courts jurisdiction to resolve controversies between two states

concerning their conflicting domicile-based inheritance tax

claims, notwithstanding the fact that neither states nor their

taxing Officials are “citizens of a state” for purposes of diversity

and interpleader jurisdiction.

3. Whether an interpleader claimant with an interest in the

fund at issue is a “claimant” within the meaning of the Federal

Interpleader Act, so as to establish federal jurisdiction with a

$500 jurisdictional minimum (and nationwide service of pro-

cess) in cases where the only parties to the action are the

stakeholder plaintiff and one claimant defendant who is a

citizen of a diverse state.

4. Whether the Court of Appeals erred in summarily

refusing to consider the effect of a change in state law rendered

after its decision which deprived the federal courts of jurisdic-

tion over this action, in violation of the rule enunciated in

Huddleston v. Dwyer, 322 U.S. 232 (1944).

5. Whether, in a controversy between two states over their

conflicting domicile-based inheritance tax claims, venue should

be transferred so that the action may be heard in a forum

whose residents have no personal interest in the cause of one of

the claimant states.

PARTIES

There are two petitioners, each appearing in his official

capacity: Kenneth Cory, the Controller of the State of Califor-

nia, and H. B. Alvord, the County Treasurer of the County of

Los Angeles. Respondents include Mark White, the Attorney

General of the State of Texas; Bob Bullock, the Comptroller of

the State of Texas; William Rice Lummis, as Texas Adminis-

trator of the Estate of Howard R. Hughes, Jr. (the Estate), as

Nevada Co-Special Administrator of the Estate, as Louisiana

Provisional Administrator of the Estate, and as Delaware

Ancillary Administrator of the Estate; Richard Gano, the

California General Administrator of the Estate; the First Na-

tional Bank of Nevada, the Nevada Co-Special Administrator

of the Estate; and the United States of America.

TABLE OF CONTENTS

PAGE

eI ITTY ssi scccinsechinicsinnnnnnierennsnabigavananmbeninaianenelbs 2

ET ciiiitionitpinitcneatcicncenesvscninineniaeiibdsieianicbietiines 2

ee sii sscaiisctsnsniniesiinuiientindnlicpinanininadtilinsini 2

SA Dre eR BREE CAE crcccccccescscsscerccccvscsscesnecccssessees 3

REASONS FOR GRANTING THE WRIT...............0.0000006+ 6

I. THE WRIT SHOULD BE GRANTED SO THAT

THE COURT CAN DETERMINE THE APPRO-

PRIATE FORUM TO RESOLVE INTERSTATE

DEATH TAX CONTROVERSIBS ...........ccccccccceeseeeee

A. The Federal Interpleader Act Cannot Give a Dis-

trict Court Jurisdiction to Consider Death Tax

Domicile Controversies Between States Because

Such Cases Ave Within This Court’s Original

LEE TEEN AE EDR TN OL

B. Jurisdiction Cannot Be Invoked Under the Federal

Interpleader Act to Resolve Death Tax Domicile

Controversies Between States Because States

Are Not “Citizens of a State” for Purposes of

Diversity and Interpleader Jurisdiction ................

C. Interpleader Should Not Be Used to Resolve

Death Tax Domicile Controversies Between

States Because It Requires States to Submit

Their Tax Claims to Jurors Who Will Be Citi-

zens of a Rival Claimant State...............:c0:0sceeeess

Il. CERTIORARI SHOULD BE GRANTED TO RE-

VIEW THE COURT OF APPEALS’ HOLDING

THAT THE CITIZENSHIP OF A STAKEHOLD-

ER SHOULD BE CONSIDERED _ IN

DETERMINING WHETHER INTERPLEADER

JURISDICTION EXISTS, A RULING WHICH

RADICALLY EXPANDS FEDERAL JURISDIC-

9

12

iv

PAGE

Ill. THE WRIT SHOULD ISSUE BECAUSE THE

COURT OF APPEALS’ FINDING OF JURISDIC-

TION HAS BEEN SUPERSEDED BY CHANGES

Se Spt IS BOF siststnnesiseeisscnsssinsserrnveseevenraseens 18

IV. THE WRIT SHOULD ISSUE TO REVIEW THE

COURT OF APPEALS’ DECISION REQUIRING

CALIFORNIA, A SOVEREIGN STATE, TO SUB-

MIT ITS TAX CLAIM TO A JURY COMPOSED

OF CITIZENS OF TEXAS, A RIVAL STATE.......... 23

CP MITT csnscenscscnconsnssiunsccsssncesnenneenssenenevnnsscnsemnesoasosenes 30

Vv

TABLE OF AUTHORITIES

CASES PAGES

Adams Express Co. v. Denver & Rio Grande Railway, 16 F. 712

(C.C.D. Colo. 1883) 20

Alderman v. Elgin, J. & E. Ry. Co., 125 F.2d 971 (7th Cir.

OEE RS EES Ene ae en 20

Allen v. Flournoy, 26 Cal. App. 3d 774, 103 Cal. Rptr. 275

STITUTE Tiicnesiidiedesinhsinsicsmenpensiansaupdnisnnacbedhabineustinenebeenendiaaticciniuntinteianeaiess 23

Allstate Insurance Co. v. Lumbermen’s Mutual Casualty Co., 204

Be NS UP CU ERIN) BINNIE D ccssctedconsensessstesccnnsnisedsessscnsestonsssnates 20

Arizona v. New Mexico, 425 U.S. 794 (1976) .......ccccsccesseesseesseseees 8

Bry-Man’s, Inc. v. Stute, 312 F.2d 585 (5th Cir. 1963)................ 24

Builders & Developers Corp. v. Manassas Iron & Steel Co., 208

A MIMI UIE HIIEIET D xassecnsesesnsosessctsvevcaveniesvcnsccsnessanecesiounecé 17

California v. Texas, 437 U.S. 601 (1978) ...........0000 4629

Chance v. County Board of School Trustees, 332 F.2d 971 (7th

ST TIT sctadeadehc dn iietadsinedaassdnclenbaitistviunatanashaaneioiuntactinnddeddooesomennantens 20

Chisholm v. Georgia, 2 Dall. (2 U.S.) 419 (1793) ...cccccceesceeseees 13

Clarkson Co., Ltd. v. Shaheen, 544 F.2d 624 (2d Cir. 1976)........ 20

Connally v. Georgia, 429 U.S. 245 (1977) ......cccccccssecssecseerseeeeeneenee 26

Craig v. Southern Natural Gas Co., 125 F.2d 66 (Sth Cir.

TInt iis tisscactahdandeeeniep ph lcbeadiehnighameieialannopbniianhheenicaindameienitnativiiinns 10

Dakota Livestock v. Keim, 552 F.2d 1302 (8th Cir. 1977)............ 19

DeMiglio v. Paez, 189 N.Y.S. 2d 593, 18 Misc. 2d 914 (1959)..... 8

Drumright v. Texas Sugarland Co., 16 F.2d 657 (Sth Cir. ), cert.

denied, 274 U.S. 749 (1927) v.cccccecssseseesesees 20

Edelman v. Jordan, 415 U.S. 651 (1974) 4, 6

Epperson v. United States, 490 F.2d 98 (7th Cir. 1973) .........c000 25

Fetzer v. Cities Service Oil Co., 572 F.2d 1250 (8th Cir. 1978) .... 20

Finn v. American Fire & Casualty Co., 207 F.2d 113 (Sth Cir.

1953), cert. denied, 347 U.S. 912 (1954) 20

Forest Oil Co. v. Crawford, 101 F. 849 (3d Cir. 1900) ........... 20, 21

Friedberg v. Santa Cruz, 86 N.Y.S. 2d 369, 274 App. Div. 1072

(1949) 8

Fryer v. Weakley, 261 F. 509 (8th Cir. 1919) .........ccccsccsesseeeesseees 20

Gaddis v. Junker, 27 F.2d 156 (E.D. Tex. 1928) ..........:ccccsceesseeseee 20

Grady v. Irvine, 254 F.2d 224 (4th Cir. 1958), cert. denied, 358

U.S. 819 (1958) 21

Haas v. Jefferson National Bank, 442 F.2d 394 ( Sth Cir. 1971)... 20

Hoffman v. Blaski, 363 U.S. 335 (1960) 13, 14

Huddleston v. Dwyer, 322 U.S. 232 (1944) 22

Humble Oil & Refining Co. v. Sun Oil Co., 190 F.2d 191 (Sth Cir.

1951), cert. denied, 342 U.S. 920 (1952) - 21

CASES PAGES

Hunt Tool Co. v. Moore, Inc., 212 F.2d 685 (Sth Cir. 1954)......... 21

Johnson v. Riverland Levee District, 117 F.2d 711 (8th Cir.

SITTIN isa asiieisinlaineenatahidisdiisindantpeueeabgitnnbeidadenensinnneenbsnessendnnesde 21

Kansas City Southern R.R. Co. v. Morley, 88 F. Supp. 300 ( W.D.

Ark. 1950) 10

Kendrick v. Kendrick, 16 F. 2d 744 (Sth Cir. 1926), cert. denied,

TnL RTT TTT carla aldlsciianedenomncaninngnsatannecenientinninagiaabaptinnssess 20

Kennametal, Inc. v. International Union, 161 F. Supp. 362

STI aI SUITE sctnietichsistinndatcieienendineeanteunminnéunesnstasonatiiossnannsinssaten 19

Kentucky Natural Gas Corp. v. Duggins, 165 F.2d 1011 ( 6th Cir.

RSENS Se a 20

Lipscomb v. Lipscomb, 265 F.2d 822 (D.C. Cir. 1959).........cccc000 13

Marshall v. Jerrico, Inc., —U.S.—, 48 U.S.L.W. 4485 (April 28,

STE iiisdaseshsehlialiehdnieideaettaidiiiapiitanbicnepnncatensasenssdonempnicnbisdassndnennsinsss 26

In re Murch:son, 349 U.S. 133 (1955) ....cccccccscccsesscessesseeceeseeseensenes 29

Ohio v. Wyandotte Chemicals Corp., 401 U.S. 493 (1971) ........000 13

Pan American Fire & Casualty Co. v. Revere, 188 F. Supp. 474

SITE CTI echcninientiiaasnsinbedeinnnasineenbaiapebiatinnscenne 17

Pennsylvania v. New York, 407 U.S. 206 (1972) ....cccccccsecseeseesseeee 9

People ex rel McColgan v. Bruce, 129 F.2d 421 (9th Cir. ), cert.

denied, 317 U.S. 678 (1942) 10

Postal Telegraph Cable Co. v. Alabama, 155 VU. S. “483 ( 1894) sinia 10

Preiser v. Rodriguez, 411 U.S. 475 (1973) .......cccccccccsssssssssesseeesenees 8

Publicker Industries, Inc. v. Roman Ceramics Corp., 603 F.2d

IIIT, TUTTI nic hesinlenanbscasticssaniinibenhinnehiecbichsbenininenendaeinse 20

Query v. 206 Cases of Assorted Liquor, 49 F. Supp. 693

(W.D.S.C. 1943) 10

Ralli-Coney, Inc. v. Gates, 528 F.2d 572 (Sth ere 20

Reynolds v. Wabash R.R. Co., 236 F.2d 387 (8th Cir. 1956)........ 20

Riley v. Worcester County Trust Co., 89 F.2d 59 (Ist Cir. 1936),

aff'd on other grounds, 302 U.S. 292 (1937) viccccsccsecseeseeseccescseees 10

Rippey v. Denver United States National Bank, 42 F.R.D. 316

(D. Colo. 1967) 21

Robertson v. Ingram-Day Lumber Co., 271 F. 1023 (5th Cir.

1921) 10

Robertson v. Jordan River Lumber Co., 269 F. 606 (5th Cir.

1921) 10

Ross v. Bernhard, 396 U.S. 531 (1970).. 13

Shafer v. Children’s Hospital Society, 265 F.2d 107 (D.C. Cir.

1959) 13

Smith v. Allwright, 321 U.S. 649 (1944) 15

Standard Oil Co. v. New Jersey, 341 U.S. 428 (1951) ...cccccceeseseee 8

CASES PAGES

State Highway Commission v. Utah Construction Co., 278 U.S.

194 (1929) 10

State Water Control Board v. Washington Suburban Sanitary

Commission, 61 F.R.D. 588 (D.D.C. 1974).......cccccceccecseeseee 8, 9

Texas v. Florida, 306 U.S. 398 (1939).......... 3

Texas v. New Jersey, 379 U.S. 674 (1965) .....ccccscccsssssesseeereseesenres 9

Treines v. Sunshine Mining Co., 308 U.S. 66 (1939) ......ccccsceseeees ll

Tumey v. Ohio, 273 U.S. 510 (1927) ....ccccseseeseerees 26

United States v. Will, — U.S. —, 49 U.S.L.W. 4045 (December

ne 26

Wallace v. Knapp-Monarch Co., 234 F.2d 853 (8th Cir. 1956) .... 20

Ward v. Village of Monroeville, 409 U.S. 57 (1972) ..ccccescesseeseerees 26

Western Union Telegraph Co. v. Pennsylvania, 368 U.S. 71

(1961) 8

Wisconsin v. Pelican Insurance Co., 127 U. S. 265 (1888) ............ 13

Worcester County Trust Co. v. Riley, 302 U.S. 292 (1937)....... 4, 6

Wormley v. Wormley, 8 Wheat. (21 U.S.) 421 (1823) .....ccecceseeees 10

STATUTES

A.B. 2092, Cu. 634, Cac. Stats. 1980 3, 6, 18

Cat. Rev. & Tax. Cove § 14104 3, 6, 19

Sl, GRU, Ge TAM: CORI © CFG sntccnentncsnssnccsncercnscntccsnesiznsecs 3, 6, 18

Cad, TV, Be Fae, COS BGT ccceccecscnsscessssncnnsevnencssscses 3, 6, 18

28 U.S.C. 1251(a).......... ‘iad . 2 7, §

Be ee Ee Rciciciohchbtstaneinneinnninieancniniiiitin 4

es OOD scticictnpiaticnsencimnsen 16

28 U.S.C. 1335....... scishesianenhasemasninetaniininuagueahs 3, 6

28 U.S.C. § 1335(a).......... és 2, 15

28 U.S.C. § 1346(a)(1) 13

28 U.S.C. § 1397 12, 13, 16, 24

28 U.S.C. § 1401(a) 13, 23, 24

28 U.S.C. § 2361 in 16

28 U.S.C. § 2402 13

OTHER AUTHORITIES

2 J. Story, COMMENTARIES ON THE CONSTITUTION OF THE

UNiTeD States § 1681 (4th ed. 1873)....... 13

6 C. WraiGut & A. MILLer, Feperat Practice & PROCEDURE

Civit § 1556 (1971) 9, 10

3A Moore’s FEDERAL Practice J 1704 (1979) 10

STATE OF Texas 1977 ANNUAL FINANCIAL Report 18-19............. 25

No.

In THE

Supreme Court of the United States

OctToser Term, 1980

CONTROLLER OF THE STATE OF CALIFORNIA AND

COUNTY TREASURER OF THE COUNTY OF LOS ANGELES,

Petitioners,

VS.

ATTORNEY GENERAL OF THE STATE OF TEXAS, 2¢ al.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Petitioners, the Controller of the State of California ( Ken-

neth Cory) and the County Treasurer of the County of Los

Angeles (H. B. Alvord), respectfully pray that a writ of certior-

ari issue to review the judgment and opinion of the United

States Court of Appeals for the Fifth Circuit entered in this

action on October 27, 1980.1

' This Petition is intended to be considered together with the Motion for

Leave to File Complaint in California v. Texas, No. _.____, Original, filed

concurrently with this Petition.

2

OPINIONS BELOW

The Court of Appeals opinion is reported at 629 F.2d 397

(Sth Cir. 1980) and is reprinted as Appendix “A” in the

separately bound volume of appendices filed herewith (here-

after cited as “App.”). The order denying a petition for

rehearing is noted at 634 F.2d 630 (Sth Cir. 1980), and is

reprinted as Appendix “B”. The order denying Petitioners’

Motion for Leave to File Petition for Rehearing Out of Time is

unreported and appears as Appendix “C”.

The opinion of the District Court is reported at 491 F.

Supp. 5 (W.D. Tex. 1979) and appears as Appendix “D”. The

District Court’s prior orders denying Petitioners’ Motion to Add

Defendants and their Motion to Change Venue are unreported

and are reprinted as Appendices “E” and “F”, respectively.

The District Court’s order and judgment dismissing the action

are reprinted as Appendices “G” and “H”.

JURISDICTION

The Court of Appeals rendered its decision in this case on

October 27, 1980. A timely petition for rehearing was denied

on December 12, 1980, and this Petition has been fiied within

ninety days of that date. This Court’s jurisdiction is invoked

under 28 U.S.C. § 1254(1).

STATUTES INVOLVED

The principal statutes involved in this case are 28 U.S.C.

§ 1251(a) and 28 U.S.C. § 1335(a). 28 U.S.C. § 1251(a)

provides:

“The Supreme Court shall have original and exclusive

jurisdiction of all controversies between two or more

States.”

28 U.S.C. § 1335(a) provides in relevant part:

“The district courts shall have original jurisdiction of

any civil action of interpleader or in the nature of inter-

pleader filed by any person . . . having in his . . . custody or

possession money or property of the value of $500 or more,

.. if... [t}wo or more adverse claimants, of diverse

citizenship as defined in section 1332 of this title, are

claiming or may claim to be entitled to such money or

property....”

° 3

This case also involves Sections 14104, 14791, and

14793-95 of the California Revenue and Taxation Code as well

as Chapter 634 of the 1980 California Statutes, which made

certain changes in these statutes. The relevant provisions of the

California Revenue and Taxation Code and of Cal. Stats. 1980,

Chap. 634 are set out in Appendix I.

STATEMENT OF THE CASE

This action was brought under the Federal Interpleader

Act (28 U.S.C. § 1335) by Respondent William Rice Lummis,

the Texas Administrator of the Estate of Howard R. Hughes, Jr.

(“the Estate”).2 The principal Defendants named in the

Complaint are the inheritance tax officials of California and

Texas. The First Amended Complaint asserts that these

officials are seeking to tax the Estate on the basis of inconsistent

claims that each of their respective states was Howard Hughes’

domicile at death and requests the District Court to adjudicate

the issue of domicile.

Before the present action was brought, California sued

Texas in this Court, invoking the Court’s original jurisdiction in

reliance upon Texas v. Florida, 306 U.S. 398 (1939). In June,

1978, California’s Motion for Leave To File Complaint was

denied. California v. Texas, 437 U.S. 601 (1978). The Court

gave no reason for denying the motion, but four Justices

2 At the time the Complaint was filed, there were two Administrators of

the Estate in Texas and both were named as Plaintiffs. Since that date,

however, one of the two Texas Administrators has died. The remaining

Administrator, Respondent William Rice Lummis, continues to serve as the

sole Texas Administrator of the Estate and the sole Plaintiff.

3 Also named as Defendants are the United States, the County Treasurer

of the County of Los Angeles, and the Administrators of the Estate in

Nevada, California, Louisiana, and Delaware. Because it found that all the

Administrators had identical interests, the District Court realigned all the

Administrators as Plaintiffs. App. 3d. Plaintiff did not appeal from this

determination nor did the Court of Appeals question this aspect of the District

Court's decision.

The County Treasurer of Los Angeles was samed as a Defendant

because, at the time the complaint was filed, California law provided that he

would receive a tiny percentage of the Estate if Hughes were determined to

have been a California domiciliary. Car. Rev. & Tax. Cope §§ 14104,14795,

These statutes” were later amended to remove the County Treasurer from

California's inheritance tax procedure. Ca. Stats. 1980, Cap. 634, § 15.2,

28-32; see App. 19i, 361. Because of this revision, the County Treasurer will

no longer receive any funds from the Estate, even if Hughes is adjudged to

have been a Ca! ifornia domiciliary.

4

suggested in concurring opinions that resort to the original

jurisdiction was unnecessary inasmuch as a determination of

Hughes’ domicile might be obtained in a federal district court

pursuant to the Federal Interpleader Act.

Three weeks after the decision in California v. Texas, the

Estate filed the present action in the United States District

Court for the Western District of Texas. Soon after the

complaint was filed, the District Court entered a temporary

restraining order prohibiting California and Texas from

pursuing domicile-based inheritance tax claims in the courts of

their own states or in any other forum. This injunction was

later continued by the Fifth Circuit.

Petitioners made two related motions in the fall of 1978.

First, they asked the District Court to enter an order adding as

defendants some twenty-two persons whom Respondent

Lummis himself had recognized as the heirs of Howard

Hughes. Second, they moved for an order transferring the

action to a neutral forum—the District of Colorado—which all

parties concede was not the domicile of Hughes. Petitioners

urged this case should not be heard in a forum whose jurors

would have—through their residency and their interest in the

treasury of their state’s government—a personal interest in the

outcome. Both of these motions were denied by the District

Court in November, 1978.5

Following these decisions, Petitioners filed a Motion to

Dismiss, which was heard in tandem with a motion to dismiss

previously filed by the Texas taxing officials. In July, 1979, the

District Court issued an order granting the motions, finding that

subject-matter jurisdiction under the Federal Interpleader Act

had not been established. App. “D”. The court concluded that

4 Although the Court had previously ruled in Worcester County Trust Co.

vy. Riley, 302 U.S, 292 (1937) that such an action was barred by the Eleventh

Amendment, the concurring Justices in California v. Texas suggested that this

holding had been undercut by Edelman v. Jordan, 415 U.S. 651 (1974). See

California v. Texas, 437 U.S. at 601 (Brennan, J., concurring), at 608 n. 10

(Stewart. J., concurring), and at 615 ( Powell, J., concurring).

5 These orders were later withdrawn and reissued by the District Court,

with the revised orders adding a certification under 28 U.S.C. § 1292(b). The

Court of Appeals later held that this certification was unnecessary since these

orders were merged into the District Court's final order of dismissal; as a

result, the appellate court eventually reviewed the merits of these rulings. The

orders reprinted in Appendices F and G ave the revised orders.

5

although the First Amended Complaint named some ten

defendants, there was only one defendant—the County Trea-

surer of Los Angeles—who was both a “claimant” to property

in Plaintiff's custody or possession and a “citizen of a state” for

diversity purposes. Jd. 3d-Sd. The court thus held that the

jurisdictional prerequisites established by Section 1335 had not

been met. Respondent Lummis appealed from this order and

Petitioners cross-appealed, contending that the District Court's

denial of their motions to add parties and change venue was

erroneous.

On appeal, the Fifth Circuit reversed the District Court's

finding of lack of interpleader jurisdiction, but affirmed its

orders denying Petitioners’ motions. App. “A”. The court held

that Respondent Lummis, as Texas Administrator of the Estate,

is a “claimant” under the interpleader statute, and that “the

citizenship of an interested stakeholder [i.e. Lummis] may be

considered for purposes of establishing diversity under section

1335." Jd. lla. Since Respondent Lummis’ citizenship was

diverse to that of the County Treasurer of Los Angeles, the

court held that interpleader jurisdiction was established. Jd.

lla-12a. On the issues presented by California's cross-appeal,

the court held that joinder of the prospective heirs was unneces-

sary (id. 12a) and that the District Court did not “abuse its

discretion in denying the transfer of venue motion.” Jd. 4a n.5.

A timely Petition for Rehearing was denied on December 12,

1980. App. “B”.

On January 16, 1981, Petitioners filed a second Petition for

Rehearing, together with a motion for leave to file that petition

out of time. This petition was based on a recently enacted

California statute which, as part of a general overhaul of the

state’s inheritance tax law, eliminated the interest of the County

® Although the Texas taxing officials are also interpleader “claimants”,

the District Court held that they were not “citizens of a state” for purposes of

diversity jurisdiction. App. 4d; see pp. 9-10, infra. As to the remaining

defendants (see note 3, supra), the court found that the United States was

similarly not a “citizen of a state” for diversity purposes and held that the

Defendant Administrators were not “claimants” to money or property of the

Estate. App. 2d-3d.

6

Treasurer of Los Angeles in the Hughes estate.’ Petitioners

urged that this change in California law warranted dismissal of

the action. Since the Court of Appeals had determined that the

County Treasurer was one of the two adverse and diverse

claimants required for interpleader jurisdiction, Petitioners con-

tended that the court’s jurisdiction had been dissipated because

the County Treasurer was no longer an interpleader “claim-

ant,” leaving only one such claimant who was also a citizen of a

state (Respondent Lummis), Petitioners’ motion for leave to

file the out of time petition for rehearing was summarily denied

on January 23, 1981, App. “C”.

REASONS FOR GRANTING THE WRIT

I.

THE WRIT SHOULD BE GRANTED

SO THAT THE COURT CAN DETERMINE

THE APPROPRIATE FORUM TO RESOLVE

INTERSTATE DEATH TAX CONTROVERSIES.

The ultimate issue presented by this Petition is how

interstate controversies regarding multiple domicile-based

death tax claims shall be resolved. In California v. Texas, 437

U.S. 601 (1978), four Justices suggested that the Federal

Interpleader Act (28 U.S.C, § 1335) might provide a

jurisdictional basis for federal adjudication of such disputes

since the Eleventh Amendment bar to such actions created by

Worcester County Trust Co. v. Riley, 302 U.S, 292 (1937), had

been removed by Edelman v, Jordan, 415 U.S, 651 (1974),

California v. Texas, 437 U.S. at 601 (Brennan, J., concurring),

at 608 n. 10 (Stewart, J., concurring), and at 615 (Powell, J.,

concurring ).

Because the concurring opinions in California v, Texas

focused solely on whether interpleader jurisdiction was con-

sistent with the Eleventh Amendment, they did not consider

whether other jurisdictional problems would prevent federal

’ The statute (AB 2092) repealed Sections 14791-95 of the California

Revenue and Taxation Code ( which previously had provided for payment of

inheritance taxes in the first instance to the County Treasurer and retention by

him of a “commission” to cover expenses of collection) and amended Section

14104 of the California Revenue and Taxation Code to require payment of

the tax to the State controller, AB 2092, §§ 15.2, 28-32; see App. 19i, 36).

These provisions “apply to all estates, effective Axnuary 1, 1981." Jd, § 46; see

App. 38,

7

statutory interpleader from being used to resolve interstate

death tax controversies. Nor did they discuss the practical

problems which such an invocation of federal interpleader

jurisdiction would cause. This is hardly surprising, since both

parties to California v. Texas assumed the continuing validity

of Worcester County, and the problems which might be created

by using federal interpleader to resolve interstate death tax

controversies were neither briefed nor discussed at oral argu-

ment in that case.

The subsequent course of the Hughes estate litigation since

California v. Texas has made clear, however, that wholly apart

from the Eleventh Amendment, federal interpleader is neither

an available nor a suitable means of resolving such con-

troversies. It is not available (a) because such cases are

interstate controversies within this Court's exclusive original

jurisdiction; and (b) because the state taxing officials who

necessarily will be the principal defendants in such actions are

not citizens of a state under the diversity statute and thus are

not within the jurisdictional perimeters of the Federal Inter-

pleader Act. It is not suitable because federal interpleader will

in most cases force contending states to litigate their death tax

claims before jurors who are citizens of a rival claimant state.

A. The Federal Interpleader Act Cannot Give a District

Court Jurisdiction To Consider Death Tax Domicile

Controversies Between States Because Such Cases

Are Within This Court's Exclusive Original Jurisdic-

tion,

The use of federal interpleader to resolve the conflicting

domicile claims of two states conflicts with 28 U.S.C. § 1251(a)

which gives the Court “original and exclusive jurisdiction of all

controversies between two or more States.” (Emphasis

added). The very purpose of the interpleader actions envi-

sioned by the concurring opinions in California v. Texas is to

eliminate the possibility of multiple taxation. See California v.

Texas, 437 U.S. at 608 n.9 (Stewart, J., concurring). This

necessarily means that, if one state wins, the other loses.

Interpleader thus locks the competing states in an adversarial

position, and so creates an interstate controversy of the most

concrete kind, Since such controversies must, by law, be

resolved exclusively by this Court,® the use of interpleader

jurisdiction in a federal district court for that purpose is

improper.®

The escheat cases decided by the Court support this

proposition. In Standard Oil Co, v. New Jersey, 341 U.S, 428

(1951), the Court stated that one state's claim against another

for escheated property could only be maintained within the

original jurisdiction, /d. at 443, And, despite the unsupported

suggestion in Western Union Telegraph Co, v, Pennsylvania, 368

U.S. 71 (1961), that such controversies might “under some

circumstances” be referred to the district courts (/d. at 79), the

Court has consistently accepted jurisdiction of cases where

®The statutory grant of exclusive jurisdiction to the Court over “all

controversies between two or more States” (emphasis added) so obviously

precludes other courts from adjudicating such disputes that it is not surprising

to find a dearth of authority in this Court supporting the proposition that the

statute means what it says. When attempts have been made to file cases

within the Court's original and exclusive jurisdiction in the lower courts,

however, they have been unequivocally rejected. State Water Control Bd. v,

Washington Suburban Sanitary Comm'n, 61 F.R.D, 588 (D.D.C, 1974);

Friedberg v. Santa Cruz, 86 N.Y¥.8.2d 369, 274 App. Div, 1072 (1949);

DeMiglio v, Paez, 189 N.Y8.2d 593, 18 Mise, 2d 914 (1959),

Arizona v. New Mexico, 425 U.S, 794 (1976), is not to the contrary.

There the Court denied Arizona leave to file a bill of complaint seeking to

invalidate a tax imposed by New Mexico on the New Mexico generating

facilities of three Arizona utilities, The Court held that resort to the original

jurisdiction was unnecessary, because the issues which Arizona sought to

tender to the Court were being litigated in the New Mexico state courts by the

affected utilities, The Court also was “not unmindful that the legal incidence

of the electrical energy tax [was] upon the utilities” (/d, at 797-98), not the

state itself. A real interstate controversy thus probably was not present,

The present case is quite different, Here there is no doubt that it is the

state itself—and not a third party-—which is the real party in interest, since if

Texas prevails in the interpleader action, the money which California directly

receives by way of inheritance taxes will be adversely affected, Nor does

California have any surrogates—like the Arizona utilities in Arizona v, New

Mexico—to plead its case in some other forum, even if one were otherwise

available.

* Even if such cases met the jurisdictional prerequisites of the Federal

Interpleader Acta matter discussed in the next subsection—28 U.S.C,

§ 1251(a) would prevent the district court from entertaining them. The

specific jurisdictional statute-in this case, the one that reserves interstate

controversies to this Court—controls over the general, Preiser v. Rodriguez,

411 U.S, 475, 489 (1973),

9

several states sought to escheat the same property. Texas v.

New Jersey, 379 U.S. 674 (1965); Pennsylvania v. New York,

407 U.S. 206 (1972). If an interstate controversy within this

Court’s exclusive original jurisdiction is created when two states

attempt to escheat the same property, such a controversy is no

less present when two states are forced to litigate their domicile

claims against each other. '°

B. Jurisdiction Cannot Be Invoked Under the Federal

Interpleader Act to Resolve Death Tax Domicile

Controversies Between States Because States Are

Not “Citizens of a State” for Purposes of Diversity

and Interpleader Jurisdiction.

Even if such interstate disputes were not within the Court's

original and exclusive jurisdiction, they do not fit within the

Federal Interpleader Act. Federal interpleader requires that

the parties to the action include at least two “adverse claimants,

of diverse citizenship as defined in [28 U.S.C.] section 1332”

who are claiming money in Plaintiff's custody or possession.

The identity and citizenship of the “claimants” in turn depend

on the identity of the real parties in interest, since it is the

citizenship of the real parties, not that of the nominal ones,

which controls for diversity purposes."'

10 Justice Stewart's concurring opinion in California v. Texas states that

the real controversy in double domicile cases is between each taxing state and

the estate, not between the states themselves. 437 U.S. at 611-12. Whatever

the merits of this view before the invocation of an interpleader action, it surely

cannot be the case after interpleader is invoked. Once that occurs, the states

will necessarily be combatants vis-a-vis each other, since their claims are

mutually inconsistent and both cannot prevail. Indeed, in some cases of this

type (i.e, where the tax rates of the two states are the same), the only

controversy will be between the taxing states. See p. 11, infra.

Nor does the fact that the interstate controversy arises only in the

“second stage” of the interpleader action (i.e, when the interpleader

claimants litigate their claims against one another) remove the jurisdictional

bar against hearing such cases in a federal district court. The grant of

exclusive jurisdiction to this Court prohibits other forums from entertaining

“all” interstate controversies, regardless of the stage in the proceedings when

they arise. State Water Control Bd. v. Washington Suburban Sanitary

Comm'n, 61 F.R.D. 588 (D.D.C, 1974) (motion to intervene partially denied

where grant would create interstate controversy and oust the district court of

jurisdiction ).

Waiont & Miter, Feperat Practice & Procepure (hereafter

(footnote continued on following page)

10

While the Complaint in this action named as Defendants

the taxing officials of California and Texas, it is readily

apparent that the real parties in interest—and thus the true

interpleader “claimants”—are the taxing states themselves,

which will receive any taxes collected if they prevail or be

restrained from collecting taxes if they do not. States, however,

are not “citizens of a state” for diversity purposes ( Postal

Telegraph Cable Co. v. Alabama, 155 U.S. 482 (1894)), and

neither are state taxing officials sued in their stead.'2 The

District Court thus held that the Texas taxing officials named as

defendants in this action were not “citizens of a state” who

could support jurisdiction. App. 4d. This holding was not

questioned by the Court of Appeals.

Because of these jurisdictional principles, interpleader

jurisdiction can be successfully invoked in such cases only if the

plaintiff can show the existence of two parties other than state

taxing officials who are both adverse claimants to the fund at

issue, and also citizens of a state. This will rarely occur, since

the proper parties to such cases will normally include only the

estate (represented by an executor or administrator) and the

several claimant states. Thus, in the prototypical dispute of this

kind—between an executor and several states—interpleader

jurisdiction will be unavailable.

The Court of Appeals’ finding of interpleader jurisdiction

in this case was based on a combination of unlikely factual

circumstances and incorrect conclusions of law. Out of all the

(footnote continued from previous page)

“Wright”), Civil § 1556, p.710 (“The general rule is that the citizenship of

the real party in interest is determinative in deciding whether diversity

jurisdiction exists"); 3A Moore's Feperat Practice 917.04, pp.17-27.

Wormley v. Wormley, 8 Wheat. (21 U.S.) 421 (1823).

2 See State Highway Comm'n v. Utah Constr. Co., 278 U.S. 194 (1929)

(state commission held to be “alter ego” of state and thus not a citizen for

diversity purposes). As to taxing officials specifically, see People ex rel

McColgan v. Bruce, 129 F.2d 421 (9h Cir.), cert. denied, 317 U.S. 678

(1942); Craig v. S. Natural Gas Co., 125 F.2d 66 (Sth Cir. 1942); Riley v.

Worcester County Trust Co., 89 F.2d 59 (ist Cir. 1936), aff'd on other

grounds, 302 U.S. 292 (1937); Robertson v. Ingram-Day Lumber Co., 271 F.

1023 ( Sth Cir. 1921); Robertson v. Jordan River Lumber Co., 269 F. 606 ( Sth

Cir. 1921); Kansas City Southern R.R. Co. v. Morley, 88 F. Supp. 300 ( W.D.

Ark. 1950); Query v. 206 Cases of Assorted Liquor, 49 F. Supp. 693

(W.D.S.C. 1943).

parties named, it found only ¢wo which it regarded as “claim-

ants” who were also “citizens” of diverse states. It first held

that if a stakeholder is “interested” in the fund—that is, if it

also asserts an entitlement to it—then it is also a “claimant”

whose citizenship can be considered for jurisdictional purposes.

App. lla. The court concluded that Respondent Lummis, as

the Texas Administ) or, met these criteria. Jd. As for the

second of the two necessary diverse claimants, the court seized

upon Petitioner Alvord, the County Treasurer of Los Angeles.

Under the prior law of California, the death tax was paid to the

county treasurer, who retained a small percentage as a commis-

sion and remitted the balance to the State. See note 3, supra.

But, as we shall now show, the Court of Appeals’ analysis

certainly provides no basis for ever again utilizing the Federal

Interpleader Act as a means of resolving controversies of this

kind, and is seriously flawed even as applied to this case.

First, the Court of Appeals’ finding that the Texas

Administrator is an “interested” claimant rests on the fact that

since the applicable tax rates of California are higher than those

of Texas, the Estate has an interest in the determination of

domicile for death tax purposes. But if all the states seeking to

assert inheritance taxes against an estate would apply the same

tax rate, the estate would be a disinterested stakeholder whose

citizenship could not be considered in determining interpleader

jurisdiction. Treines v. Sunshine Mining Co., 308 U.S. 66

(1939). The same would be true if all the states were among

the many whose tax rates were equal to or below the amount

allowed as a credit against the federal estate tax. The only

claimants in such cases would be the states themselves and

interpleader jurisdiction could not be established. This case

was different only because the California tax rate (24%)

exceeds the Texas tax of 16%.

Second, the holding of the Court of Appeals that the

citizenship of an interested stakeholder can be considered for

purposes of establishing interpleader jurisdiction is incorrect,

and would lead to a radical and wholly unwarranted expansion

of federal jurisdiction. See Part II, infra. But unless the

citizenship of an interested stakeholder may be considered in

meeting the jurisdictional prerequisites of the Federal Inter-

pleader Act, that statute will not be available to resolve

interstate death tax controversies.

12

Third, even if the stakeholder is interested and may

properly be considered as a “claimant” for jurisdictional pur-

poses, a second diverse “claimant” must be found. The Court

of Appeals found such a claimant in this case due to the

happenstance that, at the time the Complaint was filed, the

County Treasurer of the County of Los Angeles stood to receive

a tiny percentage of the Hughes Estate if Hughes were ultimate-

ly determined to have been a California domiciliary. See note 3,

supra. But this feature of California law has now been

repealed. See note 7, supra. Thus, if a case identical to this one

arose tomorrow, interpleader jurisdiction would be unavailable.

And, for reasons fully explained in Part III, infra, that statutory

change destroyed any jurisdiction that may once have existed in

the present case.

It bears emphasis that each of these factors was necessary

to the Court of Appeals’ decision and that, without any of them,

jurisdiction would not have been established, even if the prior

California law giving the County Treasurer a share of the Estate

had not been repealed. If, in a future case, the estate is

disinterested or neither state happens to share its tax proceeds

with a local official, interpleader will not lie. Nor will

interpleader be proper in any such case if the Court were to

hold that the citizenship of an interested stakeholder may not

be considered for purposes of determining interpleader jurisdic-

tion. See Part II, infra. Interpleader will rarely, if ever, be an

available remedy for the resolution of death tax controversies

between states.

C. Interpleader Should Not Be Used to Resolve Death

Tax Domicile Controversies Between States Because

It Requires States to Submit Their Tax Claims to

Jurors Who Will Be Citizens of a Rival Claimant

State.

Interpleader is also an unsuitable means to resolve death

tax controversies between states because the inevitable effect of

provisions drafted without that use in mind is that such cases

will be decided by jurors who are citizens of one of the claimant

states. 28 U.S.C. §1397 provides that an interpleader action

may be brought in any judicial district where one or more

claimants reside. Ordinarily, a// the potential claimants will

13

reside in one or the other of the states which claims to be the

domiciliary state and no neutral forum will be available. In

such cases, venue will be proper—as far as the statute is

concerned—only in one of the claimant states. And the estate

which invokes interpleader will be able in all cases to lay venue

in the state with the lowest death tax rate, giving that state a

decided advantage over the other state.

Thus in most cases, as in this, interpleader will force one of

the competing states to submit its tax claim for judgment by

jurors of a rival state.'9 A greater affront to federalism is

difficult to imagine. Throughout our history it has been

regarded as inappropriate to compel a state to resort to the

tribunals of another state for redress. Cf. Ohio v. Wyandotte

Chemicals Corp., 401 U.S. 493, 500 (1971) (cataloguing

reasons behind grant of original jurisdiction for suits between

states and citizens of other states); Wisconsin v. Pelican Insur-

ance Co., 127 U.S. 265, 288 (1888) (same); Chisholm v.

Georgia, 2 Dall. (2 U.S.) 419, 475-76 (1793) (same); 2 J.

Story, COMMENTARIES ON THE CONSTITUTION OF THE UNITED

States, § 1681 (4th ed. 1873) (reasons for exclusive jurisdic-

tion of Supreme Court over interstate controversies). That

reluctance should be greatly intensified where, as in this case,

the dispute is between two states, and the tribunal sits in one of

them. California should not have to litigate its dispute with

Texas before a jury of Texas citizens. See Part IV, infra.

Unfortunately, a district judge persuaded that such a

controversy should be heard in a neutral forum will ordinarily

be unable to achieve that end. 28 U.S.C. § 1397 requires the

suit to be brought where one of the claimants resides. Except in

an unusual case in which other claimants, residing elsewhere,

are also joined, transfer under 28 U.S.C. § 1404(a) will not be

possible. That section allows transfer only to a district in which

the action “might have been brought.” See Hoffman v. Blaski,

19 Jury trial is quite likely to be available as of right in this action. Ross v.

Bernhard, 396 U.S. 531 n.15 (1970) (jury trial right may be applicable to

legal issues presented in interpleader action despite equitable nature of

remedy); Lipscomb v. Lipscomb, 265 F.2d 822 (D.C. Cir. 1959); Shafer v.

Children's Hosp. Soc, 265 F.2d 107 (D.C. Cir. 1959) (jury trial required to

decide issue of decedent’s domicile). Cf 28 U.S.C. §§ 1346(a)(1), 2402

(jury trial right available in action contesting federal taxes).

14

363 U.S. 335 (1960). This is yet another illustration of how

poorly suited is the Interpleader Act for the task of resolving

conflicting state death tax claims.

For these reasons, interpleader is the wrong remedy for

adjudicating multiple domicile-based death tax claims. The

proper remedy is the exercise of this Court’s original jurisdic-

tion. That jurisdiction is fully responsive to the delicate issues

of interstate comity inherent in the adjudication of such dis-

putes, since this Court is uniquely suited to provide a neutral

forum for resolving interstate controversies. Moreover, the

invocation of the original jurisdiction is not affected by chance

events which have no bearing on the justiciability of the

controversy, such as whether a state’s inheritance tax is shared

with a local official.'4 It is for these reasons that California has

filed, together with this Petition, a Motion for Leave to File

Complaint which we urge the Court to consider in tandem with

this Petition. See note 1, supra. Granting the Petition so that

argument on the merits would occur at the same time as

argument on the motion would afford the Court an opportunity

to settle once and for all the troublesome question of how these

disputes should be resolved. "5

4 To be sure, the invocation of the original jurisdiction under Texas v.

Florida depends on whether the competing states’ claims plus that of the

Federal Government threaten to deplete the estate's assets. But hinging this

Court's jurisdiction on the likelihood of depletion of the estate is quite logical.

Only if the competing tax claims exceed 100% of the estate does each state's

claim pose a threat to (and thus create a controversy concerning) the tax

claim of the other state. If both states can be satisfied from the estate's assets,

each state may collect and enforce a judgment and there is thus no interstate

controversy.

8 Conversely, denying certiorari may well send a misleading signal to

state taxing officials and executors and administrators of estates threatened

with multiple taxation, Because this is the first double domicile case following

California v. Texas and because of the publicity which proceedings involving

Howard Hughes seem to generate, the denial of certiorari will doubtless be

read by executors and state taxing officials, and their lawyers, as approval by

this Court of the use of federal interpleader to resolve interstate death tax

controversies. States may therefore fail to take actions which could pretermit

such cases, ¢.g., signing the Uniform Act on Interstate Arbitration of Death

Taxes, while attorneys doing premortem counseling may refrain from advis-

ing their clients to avoid living so as to create double domicile problems out of

a false sense of security that federal interpleader will be available to prevent

multiple taxation, For the reasons discussed in text, however, interpleader

will not be available to resolve these problems, except in the most unusual

cases,

15

To be sure, the Court of Appeals in this case found federal

interpleader jurisdiction to exist and thus at least superficially

solved the problem of providing a federal forum for resolution

of this interstate death tax controversy. For the reasons already

stated, however, the unique circumstances of this case which led

the Court of Appeals to find jurisdiction will not be repeated;

the decision below is thus an “adjudication[ } ... in[ ] the same

class as a restricted railroad ticket, good for this day and trip

only.” Smith v. Allwright, 321 U.S. 649, 669 (1944) ( Roberts,

J., dissenting). Moreover, as we shall now show, the price of

this result was the distortion of hitherto accepted principles of

federal jurisdiction, federalism, and orderly appellate proce-

dure. First, the Court of Appeals held that an interested

stakeholder is a “claimant” for purposes of the Federal Inter-

pleader Act, a result which, though seemingly innocuous, poses

an immediate threat of a radical and unwarranted expansion of

federal jurisdiction. See Part Il, infra. Second, the Court of

Appeals improperly refused to consider the effect on its decision

of a supervening change in California law which destroyed the

basis for federal jurisdiction of this action, in violation of a

decision of this Court. See Part Ill, infra. Third, the Court's

holding that the District Court did not abuse its discretion in

refusing to transfer this action to a forum whose residents

would have no interest in the outcome ensures that the com-

peting tax claims against this massive estate will occur in a

forum whose residents—and thus whose jurors—may not be

impartial and will certainly not appear to be so. See Part IV,

infra. These considerations warrant the grant of certiorari

whatever the ruling on the Motion for Leave to File Complaint.

CERTIORARI SHOULD BE GRANTED TO REVIEW THE

COURT OF APPEALS’ HOLDING THAT THE CITIZEN-

SHIP OF A STAKEHOLDER SHOULD BE CONSIDERED

IN. DETERMINING WHETHER ' INTERPLEADER

JURISDICTION EXISTS, A RULING WHICH RADI-

CALLY EXPANDS FEDERAL JURISDICTION.

The Court of Appeals sustained interpleader jurisdiction

because it found that Respondent Lummis’ citizenship (Ne-

vada) was diverse to that of the County Treasurer of Los

Angeles (California), and that both Lummis and the County

16

Treasurer were “claimants” under the Federal Interpleader Act.

App. lla-12a. In so holding, the court explicitly held that the

citizenship of an interpleader plaintiff who, in addition to being

a stakeholder, also claims an interest in the fund may be

considered for purposes of determining whether interpleader

jurisdiction exists. Jd. lla. Because jurisdiction under the

Federal Interpleader Act is premised upon the existence of at

least two adverse claimants of diverse citizenship, the decision

below necessarily means that the conflicting claims of just one

interested plaintiff and one defendant to a specific fund are a

sufficient basis for jurisdiction under the Act. This holding

would have a radical, and plainly undesirable, effect on

fundamental principles of federal jurisdiction, as several exam-

ples illustrate. ;

First, consider the case in which an insurance company or

other institution holds a sum of money which is claimed by X,

and X alone. The insurer, a citizen of State A, disputes the

claim of X, a citizen of State B. Under the Court of Appeals’

opinion, the insurer ( which is “interested in” the funds it holds

by virtue of its challenge to X’s claim) would be a “claimant”

of diverse citizenship to X, also a claimant, and could invoke

federal jurisdiction under the Federal Interpleader Act. Why

should this be permitted? These hypothetical facts describe a

garden-variety dispute between two parties which could be

settled in state court, or a federal court under general diversity

jurisdiction if the $10,000 jurisdictional minimum is satisfied.

But if interested stakeholders are “claimants,” then nearly every

bilateral dispute could be framed to invoke federal interpleader

jurisdiction, thereby obtaining for the plaintiff nationwide ser-

vice of process (28 U.S.C. § 2361) and a greatly reduced

jurisdictional minimum. Compare 28 U.S.C. § 1332(a) with id.

§ 1335(a)($500 jurisdictional minimum).

Second, if an interested stakeholder is a “claimant” for

purposes of Section 1335, it must also be a “claimant” for

purposes of venue under Section 1397, which provides that

statutory interpleader actions must be brought where one or

more claimants reside. By alleging an interest in the fund, the

stakeholder could bring the action in the place of its own

residence. Thus if a Delaware insurer who altogether denies

liability seeks to interplead a dozen claimants all residing in

17

California (or there, Washington and Oregon), it could compel

them to litigate their claims in Delaware, without regard to

their prior contacts with that state.

Third, as the first example demonstrates, the jurisdictional

minimum of Section 1332 would be largely frustrated. Vir-

tually every “rule interpleader” action, previously thought to

have been based on general diversity, could be recast under the

Federal Interpleader Act whenever the stakeholder is interested

in the fund.'® There is no indication that Congress intended

the Act wholly to displace interpleader actions brought under

the usual diversity jurisdiction of the district courts where the

$10,000 jurisdictional minimum is not present and where there

is no special need for a federal forum with nationwide service.

Yet that would be the inevitable result of the Court of Appeals’

reinterpretation of Section 1335,'7

These serious, adverse consequences of the lower court’s

holding would not be accompanied by any measurable benefits.

Even if the citizenship of the stakeholder administrators who

would ordinarily bring an interpleader action to resolve an

interstate death tax controversy could be considered for

jurisdictional purposes, interpleader jurisdiction could not be

successfully invoked unless the administrators also named a

defendant who was simultaneously both a “claimant” and a

“citizen of a state.” For the reasons discussed in Part I, supra,

the state taxing officials named as defendants will not be able to

fill this jurisdictional lacuna. While the Court of Appeals in this

case found that such an additional defendant existed in the

person of the County Treasurer of Los Angeles, this finding was

premised on California statutes, since repealed, which gave the

County Treasurer a tiny percentage of the Estate if Hughes

16 The prototypical rule interpleader case is one in which the plaintiff-

stakeholder is in State A and defendants-claimants are co-citizens of State B.

Such actions fall comfortably within Section 1332 so long as the $10,000

jurisdictional requirement is satisfied.

‘7 Neither the cases cited by the Court of Appeals ( Builders & Developers

Corp. v. Manassas Iron & Steel Co., 208 F. Supp. 485, 488 (D. Md. 1962) and

Pan Am. Fire & Cas. Co. v. Revere, 188 F. Supp. 474, 477 & n.8 (E.D. La.

1960) ), nor Professor Wright, upon whom the court below also relied ( App.

lla), appear to have considered most of these serious disruptions to the

federal jurisdictional scheme which would be caused by treating an inter-

pleader plaintiff as a claimant for jurisdictional purposes.

were adjudged ultimately to have been a California domici-

liary. But, as shown above, this “solution” to tis jurisdictional

problem will not be available in future disputes of this kind. See

pp. 11-12, supra. Thus, even if one assumed that the greatly

increased burdens on the federal judiciary created by the Court

of Appeals’ interpretation of the interpleader statute could be

justified in the interest of sparing this Court’s original jurisdic-

tion of the necessity to resolve interstate death tax disputes by

providing an alternative forum, no such benefit will in fact be

attained. Certiorari should therefore be granted to prevent the

radical and unwarranted expansion of federal jurisdiction

which the Court of Appeals opinion would cause, if left to

stand.

Hl.

THE WRIT SHOULD ISSUE BECAUSE THE

COURT OF APPEALS’ FINDING OF

JURISDICTION HAS BEEN SUPERSEDED

BY CHANGES IN CALIFORNIA LAW.

As noted above, the Court of Appeals found interpleader

jurisdiction to exist in this case because it found the requisite

minimal diversity between Respondent Lummis, the Texas

Administrator, and Petitioner Alvord, the County Treasurer of

the County of Los Angeles. Jurisdiction was thus found to exist

in this case solely because of the unusual circumstance that,

under California law at the time the Court of Appeals opinion

was rendered, the state death tax was collected by a county

treasurer, who retained a tiny fraction of the tax as com-

pensation for that administrative service and was required to

remit the balance to the State of California. Because the

citizenship of a county officer, unlike that of a state officer, may

be considered for diversity purposes, Petitioner Alvord was held

to be a claimant and a citizen of California, of diverse

citizenship with Respondent Lummis.

On January |, 1981, however, California law regarding

inheritance tax procedure was completely revised. On that

date, AB 2092 (Chapter 634 of the California Statutes of

1980), became effective. This statute repealed Sections

14791-95 of the California Revenue and Taxation Code (which

previously had provided for payment to the County Treasurer

19

of the inheritance tax, retention by him of a “commission” and

transmittal to the state of the balance) and amended Calif.

Rev. & Tax. Code §14104 to require payment of the tax to the

State Controller. See App. 19i, 36i. These statutory changes

eliminated Petitioner Alvord’s interest in the Hughes inher-

itance tax, as he is no longer entitled to receive a portion of any

inheritance tax paid after January |, 1981.'® Jd. 38i.

Whatever may have been the case when the Court of

Appeals rendered its original decision, it is now clear that

Alvord is no longer a claimant to any portion of the funds

which are the subject of the interpleader action, i.e., the Hughes

Estate. In the language of the Interpleader Act, Alvord is no

longer a person who is “claiming or may claim to be entitled to

. money or property” in the stakeholder’s custody or

possession. Because Alvord is no longer a “claimant,” he is not

a proper party and the action against him must be dismissed.

The required presence of at least two adverse claimants of

diverse citizenship does not now exist, and federal interpleader

jurisdiction thereby fails. See Kennametal, Inc. v. International

Union, 161 F.Supp. 362 (W.D. Pa. 1958)(abandonment of

claim by one of two claimants terminates jurisdiction under

§1335); Dakota Livestock v. Keim, 552 F.2d 1302, 1306 (8th

Cir. 1977).

It has long been settled that where the addition or deletion

of a party after the complaint has been filed affects the

existence of diversity of citizenship, jurisdiction must be re-

determined in light of that changed circumstance. This prin-

ciple has been applied in a wide variety of contexts:

(1) The joinder of additional defendants whose citizen-

ship is the same as the plaintiff will destroy diversity

jurisdiction. (Accordingly, the courts often state that such

18 Although legislative “motive” is irrelevant to any issue before this

Court, we nevertheless wish to assure the Court that the 1980 revision to

California’s inheritance tax law—and specifically the elimination of the

county treasurer’s participation in death tax collections—was entirely inde-

pendent of this case and made without any consideration (or even apprecia-

tion) of the effect it would have on federal interpleader jurisdiction here. As

can be seen from an examination of the legislation ( which is reprinted as

Appendix I) the revisions are extensive. The particular provisions concerning

the role of the county treasurers had been proposed for many years. Special

counsel for California played no role, direct or indirect, in the formulation of

this legislation.

20

joinder should not be allowed or required unless such

defendants are indispensable parties. )'®

(2) Similarly, the joinder of an additional plaintiff who is

a citizen of the same state as a defendant will oust the court

of jurisdiction,°

(3) Conversely, when after the filing of the complaint the

plaintiff undertakes to correct an absence of jurisdiction by

dismissing non-diverse defendants, jurisdiction will be re-

determined following such dismissal.?'

(4) Where the original complaint includes two or more

plaintiffs, of whom some are citizens of the same state as a

defendant, the jurisdictional defect can be eliminated by

dismissing the non-diverse plaintiff(s), following which

jurisdiction is re-determined,??

(5) Intervention of an indispensable party who is a citizen

of the same state as the intervenor’s opposing party

destroys diversity jurisdiction, as measured at the time of

intervention,?9

Bg, Clarkson Co,, Lid. v. Shaheen, $44 F.2d 624, 628-29 (2d Cir.

1976); Haas v. Jefferson Nat, Bank, 442 F.2d 394 (Sth Cir, 1971)( dismissal

after District Court had ordered joined an indispensable party whose presence

destroyed diversity); Reynolds v. Wabash R.R, Co., 236 F.2d 387 (8th Cir,

1956); Wallace v, Knapp-Monarch Co., 234 F.2d 853, 860 (8th Cir, 1956),

Eg, Adams Express Co. v. Denver & Rio Grande Ry., 16 F. 712

(C.C.D. Colo, 1883); of Gaddis v, Junker, 27 F.2d 156, 159 (B.D. Tex.

1928 )( treating intervenors who joined with the cooperation of plaintiffs as “in

the category of plaintiffs” and holding that their joinder destroyed diversity

jurisdiction); Forest Oil Co, v. Crawford, 101 F. 849 (3d Cir, 1900)( same),

*' B.g., Publicker Indus,, Inc, v. Roman Ceramics Corp., 603 F.2d 1065,

1068-69 (3d Cir, 1979); Fetzer v. Cities Serv, Oil Co,, $72 F.2d 1250, 1253 0.4

(8th Cir, 1978); Ralli-Coney, Inc. v, Gates, $28 F.2d $72, 575-76 (Sth Cir.

1976); Finn v. Am. Fire & Cas, Co,, 207 F.2d 113 (Sth Cir, 1953), cert.

denied, 347 U.S, 912 (1954), In Finn, this Court had determined on a prior

appeal after a trial that the District Court lacked diversity jurisdiction; on

remand, the District Court dismissed the non-diverse defendant and rein-

stated the judgment, The Court of Appeals held that by doing so, the District

Court cured the lack of jurisdiction.

2? E.g., Alderman v, Elgin, J. & B. Ry. Co., 125 F.2d 971 (7th Cir, 1942);

Drumright v. Texas Sugarland Co., \6 F.2d 657 (Sth Cir.), cert. denied, 274

U.S, 749 (1927); Allstate Ins. Co, v. Lumbermen's Mut, Cas. Co., 204 F.

Supp. 83 (D. Conn, 1962),

#3 Chance v. County Bd. of School Trustees, 332 F.2d 971 (7th Cir.

1964); Kentucky Natural Gas Corp. v, Duggins, 165 F.2d 1011, 1015 (6th Cir,

1948); Kendrick v. Kendrick, 16 F.2d 744, 745 (Sth Cir, 1926), cert. denied,

273 U.S, 758 (1927); Fryer v. Weakley, 261 F. 509 (8th Cir, 1919),

21

(6) Permissive intervention of a non-indispensable party

who is a citizen of the opposing party's state also destroys

jurisdiction,*4

In short, the presence or absence of diversity jurisdiction is

re-determined after there has been an addition or elimination

of a party.26 The Court of Appeals was therefore required, at

least, to consider the effect on its jurisdiction of the changes in

California statutory law which effectively removed Petitioner

Alvord’s interest in the litigation,

It did not do so, The California statute revising the state's

inheritance tax procedures had not been enacted at the time of

* Eg, Hunt Tool Co, v. Moore, Inc,, 212 F.2d 685, 688 (Sth Cir, 1954);

Humble Oil & Refining Co, v. Sun Oil Co., 190 F.2d 191, 197 (Sth Cir, 1951),

cert, denied, 342 U.S, 920 (1952)( allowing State of Texas to intervene was

error because it was not a “citizen of a state” and, if uncorrected, its “presence

would destroy the jurisdiction of the court"); Johnson v, Riverland Levee

Dist, 117 F.2d 711, 715 (8th Cir, 1941 (intervention with consent of plaintiff

by a party residing in same state as defendant “destroys the jurisdiction of the

court"); Forest Oil Co. v. Crawford, \0\ F, 849 (3d Cir, 1900),

A different rule exists where the suit is a class action and the intervenor

is a member of the class or where the controversy between the intervenor and

the opposing parties is “ancillary” to the main action (as when the inter-

vention is “as of right” under F.R, Civ, P, 24(a)), Neither of these rules is

applicable here, either directly or by analogy, This is not a class action, and

there is no “ancillary” dispute, the only issue before the Court being that of

the domicile of Hughes for inheritance tax purposes.

#6 A different rule applies when there is a pro forma substitution of one

party for another, as where a party dies and his or her executor is substituted

in, But even this rule does not govern where the substitution changes the

nature of the action or the nature of the right asserted therein, in which event

jurisdiction is re-determined as of the time of substitution, Grady v, Irvine,

254 F.2d 224 (4th Cir, 1958), cert. denied, 358 U.S, 819 (1958); see also

Rippey v. Denver U.S. Nat'l Bank, 42 F.R.D, 316 (D, Colo, 1967),

Professor Wright's Treatise states that “a change of parties, by

addition, substitution, or elimination . .. will not divest the court of jurisdic-

tion if the nature of the action remains the same... ." Wright, supra, § 3608,

pp. 656-57. A careful reading of this section suggests that Professor Wright is

referring here to the rules applicable to (1) pro forma substitution, as

discussed in the preceding paragraph (see 13 Wright, supra, at 659-60; and

(2) the addition of parties as a consequence of the defendant's action, as by

impleader, compulsory counter-claim or cross-claim, which is treated as

within the ancillary jurisdiction of the court, See id. at 657. Professor Wright

does not suggest that the rules outlined in text are any different than those

stated here.

22

briefing or oral argument in the Court of Appeals and did not

become effective until the court's decision had been rendered

and the time for rehearing had run. The revisions were

promptly brought to the attention of the court by means of a

petition for rehearing coupled with a motion for leave to file

that petition out of time, The motion, however, was summarily

denied. App. “C”. That summary denial “so far depart[s]

from the accepted and usual course of judicial decisions” and

from the teaching of this Court, so as “to call for an exercise of

this Court’s power of supervision.” Sup, Ct. R. 17.1(a),

The principle which should have guided the Court of

Appeals—in addition to the cases just cited —was efunciated in

Huddelston v, Dwyer, 322 U.S, 232 (1944), In that case, after

the Court of Appeals had issued its initial decision and denied a

timely petition for rehearing, the state supreme court overruled

the state law upon which the court of appeals decision had

relied, As in this case, Petitioners moved to file a second

petition for rehearing based on the intervening decision, which

the Court of Appeals denied, This Court granted certiorari and

vacated the Court of Appeals’ decision, holding that the change

in state law “at least raised such doubt as to the applicable...

law as to require its reexamination,...”. Jd. at 236-37. The

summary refusal by the Court of Appeals to consider the effect

of the change in California law brought about by AB 2092 was

thus in violation of this Court's teaching in Huddleston.

The Court of Appeals’ refusal to consider the recent

change in California law and its upholding of jurisdiction on the

ground that Alvord was a “claimant” when the complaint was

filed, is not only contrary to Huddleston and the cases summa-

rized above, but has also lead to a bizarre result:

jurisdiction has been sustained because of the happenstance

that, under the law as it stood on the date the complaint was

filed, Alvord held a tiny fraction of the California tax claim

even though (1) the law has subsequently changed, and Alvord

no longer holds any such claim or has the slightest interest in

this case; (2) there is now only one proper party—the Texas

Administrator—who could conceivably qualify as both a

“claimant” and a “citizen” of a state under the Interpleader Act

(and his citizenship may only be considered at the cost of

23

radically expanding federal jurisdiction); (3) if an identical

case arose tomorrow, it could not be brought in the district

court under the Interpleader Act; and (4) all of this became

clear before any final determination of the issue of jurisdiction

in a case which has not yet passed beyond the pleading stage.

The present posture of this case thus highlights the jurisdic-

tional barriers to the use of the Interpleader Act as a means of

resolving multi-state domicile-based death tax disputes.

IV.

THE WRIT SHOULD ISSUE TO REVIEW THE COURT

OF APPEALS’ DECISION REQUIRING CALIFORNIA, A

SOVEREIGN STATE, TO SUBMIT ITS TAX CLAIM TO A

JURY COMPOSED OF CITIZENS OF TEXAS, A RIVAL

STATE.

If, despite the arguments previously advanced, this case is

to be heard in a federal district court pursuant to the Federal

Interpleader Act, the procedures used must be responsive to the

unique characteristics of this dispute. In particular, the trial of

this case should occur in a forum whose citizens—and thus

whose veniremen—have no stake in the outcome of the con-

troversy and no emotional attachment to the interest of any

party. Such a “neutral forum” is available in this case: The

District of Colorado.?®

2 The ability of this Court to order the action transferred to Colorado is

dependent on the joinder as defendants of the twenty-two heirs whom the

Administrators themselves have recognized as having legitimate claims.

Under 28 U.S.C. § 1404(a), an action may only be transferred to a district

where it might have been brought. If the heirs were added, however, the

judicial districts in which they reside—which include the District of Colorado

—would become permissible transferee forums since the action as it would

then stand could have been brought in those districts in the first instance.

The heirs must be joined, in any event, in order to protect California

against relitigation of the domicile issue in the California state courts. Even if

California prevailed in the interpleader action, California law makes heirs

indispensable parties to inheritance tax proceedings (Allen v. Flournoy, 26

Cal. App. 3d 774, 103 Cal. Rptr. 275 (1972)), and the California courts

might well conclude that the heirs were not bound by the federal adjudication

since they were not parties thereto. Indeed, even if one accepted the view of

the Court of Appeals that the heirs need not be joined because they are in

privity with the Administrators who are parties, Rule 19(a)(2)(i) requires

(focinote continued on following page)

24

28 U.S.C. §1404(a) allows the transfer of a civil action to

any court in which the action “might have been brought” in

“the interest of justice.” The interest of justice requires that this

action be heard in a forum which no party contends was the

domicile of Howard Hughes.

The present action is based upon the conflicting tax claims

of two states; it is a controversy between Texas and California

over the domicile of Howard Hughes. Even if this case is held

not to be an interstate controversy within the Court's exclusive

original jurisdiction, the delicate nature of the adjudication the

Estate seeks is indisputable. Proceedings in the courts of

California and Texas have been enjoined. The collection of

taxes has been restrained. And two sovereign states are being

asked to adjudicate their conflicting tax claims in a single

proceeding in a federal trial court.

This ineluctable entrenchment on state sovereignty is

surely heightened by the fact that, unless overturned, the Court

of Appeals’ decision will force one state to litigate its claim

against another before a jury composed of citizens of the latter

state. As we have already shown (at page 13, supra), this result

is incompatible with the concern for state sovereignty and the

respect for each state's dignity which underscores the grant of

original and exclusive jurisdiction to this Court to resolve

controversies between states.

Acceptance of this argument would require transfer to a

neutral forum (if one were available under 28 U.S.C. §1397) in

every interstate interpleader brought to resolve multistate death

tax claims. But there are several additional factors specific to

this case which, taken together, show that even if a neutral

(footnote continued from previous page)

joinder of persons who are in privity with those already parties because their

interests will be affected by the outcome of the dispute. Bry-Man'’s, Inc. v.

Stute, 312 F.2d 585 (Sth Cir. 1963).

While we do not argue that the joinder issue, standing alone, is of

sufficient importance to be a separate ground for issuance of the writ, should

the Court grant certiorari, the heirs should be joined to permit transfer of the

action to a neutral forum and to insure that interpleader jurisdiction, if

upheld, will achieve its intended purpose of precluding multiple litigation of

the domicile issue. Because changing venue is dependent on joinder of the

heirs, the latter question is “fairly included” (Sup. Ct. R. 21.1(a)) within the

former and we therefore intend to brief and argue the joinder issue if

certiorari is granted.

25

forum is not required in all such cases, the Court of Appeals

abused its discretion and impermissibly violated Petitioners’

constitutional rights when it refused to order a transfer.

(a) Pecuniary Interest of Finders of Fact. The ultimate

fact-finders in this litigation, if citizens and taxpayers of Texas

(or, for that matter, California) will have a direct pecuniary

interest in the outcome. The California inheritance tax referee

has found the value of the Estate to be approximately $1.1

billion. If this value is accurate, the Texas death taxes would be

approximately $158 million. Because there are approximately

12.8 million residents of Texas according to the most recent

projections, each resident of Texas would stand to gain an

average of $12.34 if there were a finding of Texas domicile.

Moreover, because the funds generated by the Texas inher-

itance tax are maintained in the State’s “General Revenue

Fund” which is “the major state operating fund from which

most agencies are financed” (State of Texas 1977 Annual

Financial Report 18-19 (R.1., 99 and Exhibit E)), there is no

doubt that the taxes Texas seeks here will inure to the benefit of

its citizens, either through increased public services or a tax

reduction. The magnitude of this potential tax recovery is

underscored by the fact that it alone would represent approxi-

mately 7.9% of the $2.2 billion total tax revenues contributed to

the state’s general revenue fund in fiscal 1977. Indeed, the total

inheritance tax receipts for the State of Texas for the fiscal year

ending August 31, 1977 amounted to only $66.6 million, far less

than the tax at issue here.?7

2? Moreover, in the ordinary tax case, there are only two sides: the state

and the taxpayer. Jurors are both citizens and taxpayers. While they have an

interest in maximizing their state's revenue (and the courts have recognized

that appeals to the pecuniary interests of juries in tax cases are improper, see,

¢.g., Epperson v. United States, 490 F.2d 98 (7th Cir. 1973)), jurors may also

have sympathy as taxpayers for the individual or corporation against whom

the tax is being asserted. Hence jurors bring to the « dinary tax case no

preconceptions which might tip the scales of justice. But because this case is

at bottom an interstate controversy, there are three relevant parties, not two:

Texas, California and the Estate. A Texas juror might, as a Texan, be

sympathetic with the State of Texas and, as a taxpayer, have a countervailing

identification with the Estate. But he would be unlikely to feel empathy for

California's tax claim.

26

The jurors’ personal stake in the controversy makes a trial

by jury in Texas federal court inconsistent with the disinterested

trier of fact required by the Due Process Clause. Tumey v. Ohio,

273 U.S. 510 (1927) (village mayor who received $12 in costs

if defendant convicted has disqualifying self-interest); Ward v.

Village of Monroeville, 409 U.S. 57 (1972) (invalidating con-

viction by mayor’s court whereby mayor, in addition to judicial

functions, possessed executive responsibility for village finances

which were affected by fines levied in his court); Connally v.

Georgia, 429 U.S. 245 (1977) ($5 fee for issuing search

warrant disqualifies magistrate ).2°

(c) Effects of Regional Pride. Trial of this action in Texas

also runs the risk that the parochial effects of local and regional

pride could have an effect upon the jury. Howard Hughes was

a distinguished American who pioneered in aviation, film

production and business and—financial benefits aside—any

28 Of course, where the only fact-finders available to resolve a dispute all

have a direct or indirect interest in the outcome, the “rule of necessity” applies

and the case will be decided by the available judges or jurors. United States

v. Will, —U.S.—, 49 U.S.L.W. 4045 (December 15, 1980). But here a forum

in which disinterested citizens reside can be provided through a Section

1404(a) transfer. See note 26, supra. The rule of necessity is therefore

inapplicable.

The line of cases cited in text is underscored by the Court's recent

decision in Marshall v, Jerrico, Inc. —U.S.—, 48 U.S.L.W. 4485 (April 28,

1980). There the Court confronted an attack on the enforcement of the Fair

Labor Standards Act by the Employment Standards Administration (ESA) of

the Department of Labor, based on the fact that the ESA received civil

penalties assessed under the Act as reimbursement for the costs of determin-

ing violations and assessing penalties. Noting that the “requirement of

neutrality has been jealously guarded” (id. at 4486), the Court nonetheless

rejected the due process challenge, holding that “the strict standards of Tumey

and Ward” were not applicable to the ESA, which acted as a prosecutor

rather than a judge in Fair Labor Standards cases. Jd. at 4487. (The actual

determination of such cases was performed by the Office of Administrative

Law Judges, which received no funds whatever under the statutory scheme. )

But the clear intimation of the opinion is that if Twmey and Ward had been

applicable, the fact that the decision maker's agency would financially benefit

from a favorable decision would have violated the due process clause. It

follows that the same prohibition would prevent a juror from adjudicating a

case the result of which would be to cause a substantial benefit to accrue to

the juror’s home state unless, of course, no alternative forum were available.

27

state would be proud to claim him as its own. The determina-

tion of domicile in a death tax case inevitably involves conflict-

ing interpretations as to the decedent’s mental intent, that is,

where the decedent felt his “home” was. If this case were tried

in Texas, this subjective determination inherently would be

open to the risk that jurors would—despite instructions to the

contrary—use their personal feelings about their home state of

Texas as a guide to divining the feelings of the decedent.

Moreover, the pride and affection which each Texas juror

justifiably has for the State of Texas would make the jury

uncommonly receptive to evidence, such as Mr. Hughes’ past

statements about Texas,?9 which jurors drawn from other states

could view dispassionately.

29 For example, counsel for Texas made the following statement in his

closing argument to the jury in the previous state court trial:

“I think this is as good a time as any to explain that our chief

witness in this case has been Howard Hughes, and we have tried to

bring you what Mr. Hughes said, and I think that you all realize that

there are times in a man’s life or person's life ... where you say things

with more seriousness than you do at other times, and I believe we can

point out to you that when there was a really serious event, that Mr.

Hughes became a Texan and was a Texan and said he was a Texan for

the world to hear.

“And the first such event that I will speak to, now, is this 1938

reception. He is back here, at his boyhood home. He is at the Rice

Hotel, and I read to you from the paper what he said, . . . the paper said,

*Bashful as a schoolboy and just as captivating, Mr. Hughes dug down

in his pocket and brought out a wad of notes from which he spoke. ‘If

you don't believe I wrote this, myself, just try to read the handwriting,’

he said. ‘Coming from Texas, particularly if it’s a person flying around

the world,’ Mr. Hughes said, ‘there is nothing you can see anywhere that

you can't see in Texas. After you have flown across Texas, two or three

times the distance around the world doesn’t seem so great. We didn’t

see any mountains on our trip that were any steeper than the mountains

in West Texas. We didn't see any plains that were any broader than the

plains of Central Texas, and we didn’t see any swamps that were any

wetter than the swamps of Southeast Texas.’

“Now that is what Mr. Hughes said about his state, and he said it

here and he said it to people who were here welcoming him home; and I

want you to pay close attention as we bring you, today, a recap of all the

statements that Mr. Hughes ever made about Texas, because you are

going to be asked to believe by the Administrators that he declared

himself an ex-Texan, that he didn’t like Texas, that he left it in 1925 and

(footnote continued on following page)

28

(d) Publicity Concerning Prior State Verdict. The danger

that the decision in this action might be influenced by consid-

erations of local or regional pride if tried in Texas is ex-

acerbated by the substantial prior publicity accorded to a prior

state court domicile trial between Texas and the Estate. As with

everything Howard Hughes touched, the Hughes probate pro-

ceedings have engendered an enormous amount of publicity,

much of it generated by the prior domicile trial in the Texas

state courts. The record reveals that the Austin press has

devoted extensive coverage to the tangle of legal proceedings

which have developed since Howard Hughes’ death, with, of

course, particular emphasis on the domicile trial. See R.1., 105

and attached Exhibits. Should this action be tried to a jury in

Austin, it will doubtless be exceedingly difficult, if not impos-

sible, to find jurors who have not heard about—and been

influenced by—the prior state court proceedings relating to

Howard Hughes. While in the ordinary retrial of a case, the

members of the jury pool will be unaware that a prior verdict

was rendered, litigating this action in Texas minimizes the

chance that jurors will be found who are unaware of and

uninfluenced by the prior adjudication.%

(footnote continued from previous page)

never thought about it again. And J want you to listen closely and think

about all the statements that Mr. Hughes made about Texas, and I want

you to think as to whether or not you could refer to your state in the way

that he referred to Texas in 1938, here in Houston, if it didn't mean

something just a little special to him. And you are going to be asked to

believe that this Texas domicile is a fixation that exists only here in

Texas.” (Reporter's Transcript, February 15, 1978, at 22-24 (emphasis

added) ).

We do not suggest that any aspect of this argument was improper. But it

is self-evident that references to the jurors’ own feelings about their home-

state of Texas are inherently likely to have a special impact upon a Texas jury.

%© Of course, coverage of the Texas state court proceedings was not

confined to the Texas press. But the record reveals that it was far more

extensive. For example, the Austin paper had five times the number of such

stories than the Denver Rocky Mountain News. See R. Il, 244 and Exhibits B-

1 and D-1,

But more fundamentally, the impact that any given quantum of coverage

has on the average reader, or potential juror, surely depends to a large extent

on the individual’s own interest in the subject and, hence, on his or her

residence. It cannot be doubted that press coverage of the prior verdict by a

Texas jury finding a Texas domicile for Mr. Hughes has a greater impact in

Austin than in Denver.

29

(e) Appearance of Impartial Justice. Finally, transferring

this action to a forum without a domicile claim of its own would

serve not only the actuality of justice, but also the appearance

of it. A federal interpleader trial will surely generate as much

or more publicity as the prior Hughes probate litigation.

Should this action be tried in Austin and a finding of Texas

domicile result, the suspicion will inevitably be created—

despite most diligent efforts of the district court to assure a fair

trial—that the verdict was the result of the economic, emotional

and personal considerations discussed above, rather than a

product of careful deliberation on the evidence presented.

Certainly the citizens of California would not perceive that

justice had been done. Because the “stringent” rule against

decision makers who may not appear impartial “may some-

times bar trial by judges who have no actual bias and who

would do their very best to weigh the scales of justice equally

between contending parties” (Jn re Murchison, 349 U.S. 133,

136 (1955)), this factor would furnish an independent and

sufficient ground for compelling transfer even if the other

factors mentioned above did not exist.

Thus, each potential juror—no matter how well in-

tentioned and how carefully instructed by the District Court

—would face a host of obstacles in attempting to arrive at an

impartial verdict. He would know, because of the enormous

size of the Estate, that finding Texas domicile could result in a

personal tax saving or a substantial and costless increase in

public services. As a Texan, he might be drawn by his own

feelings about Texas in ways which would benefit one side of

the case to the detriment of the other. He would be aware that

a previous Texas jury had found Hughes to be a Texas

domiciliary. While each of these factors might be influential in

its own right, together they unconstitutionally jeopardize the

possibility of a fair trial.

For these reasons, the motion to change venue should have

been granted, and the Court of Appeals therefore erred in

holding that the district court did not abuse its discretion in

denying California’s motion. If, despite the arguments present-

ed earlier, controversies of this kind are to be heard in federal

district courts, it is of vital importance that this Court give

30

guidance on the question of venue so that a fair trial will be

afforded to both of the claimant states.

CONCLUSION

The petition for certiorari should be Granted.

DATED: March 12, 1980.

Respectfully submitted,

Of Counsel: JEROME B. FALK, Jr.*

; MarTIN R. GLICK

MYRON SIEDORF STEVEN L. MAYER

Chief Inheritance Tax Howarb, Prim, RICE,

Attorney NEMEROVSKI, CANADY &

Division of Inheritance POLLAK

& Gift Tax A Professional Corporation

107 South Broadway 650 California Street, Suite 2900

Los Angeles, CA 90012 San Francisco, California 94108

(415) 434-1600

DONALD SCOTT THOMAS

RHONDA H. BRINK

PauL J. VAN OSSELAER

CLARK, THOMAS,

WINTERS & SHAPIRO

Capital National Bank Building

Post Office Box 1148; 12th Floor

Austin, Texas 78767

(512) 472-8422

Attorneys for Petitioners

*Counsel of Record