Bank of Louisiana

1. Did the court of appeals nullify this Court's decision in Northwestern Fuel Co. v. Brock, 139 U.S. 216(1891) and usurp the primary jurisdiction of the district court when it ordered the disbursement of funds held in the district court's registry without allowing the lower court to determine the funds' rightful owner consonant with principles of restitution?

2. Where there is no affirmative statutory grant of power allowing the court of appeals to order the disbursement of funds held in another federal court's depositary, has the appellate court exceeded its Article III powers, invoking this Court's duty of superintendence over the federal judiciary?

3. Does the court of appeals' decision ordering the district court to disburse its depositary funds to one of the parties without a hearing violate due process and deprive the affected party of the opportunity to show its right to the funds as a matter of restitution?

Questions Presented For Review..................................................................................................... i

Table of Contents............................................................................................................................ii

Table of Authorities.........................................................................................................................iii

Citations of Opinions and Orders.....................................................................................................1

Basis for Jurisdiction in this Court.....................................................................................................1

Constitutional and Statutory Provisions Involved...............................................................................1

Statement of the Case......................................................................................................................

Argument Supporting Allowance of the Writ....................................................................................

Conclusion.....................................................................................................................................

Appendix..................................................................................................................................... post

The published opinion of the court of appeals for the Fifth Circuit in In the Matter of Craig's Stores of Texas, Inc., Debtor; Craig's Stores of Texas, Inc. v. Bank of Louisiana , 402 F.3d 522, C.A. No. 03-20888, filed March 4, 2005, reversing in a majority decision the district court's Order Disbursing Funds, is set forth in the Appendix hereto(App. 1-20).

The unpublished Order of the United States District Court for the Southern District of Texas, Houston Division, in In Re: Craig's Stores of Texas, Inc., Debtor; Craig's Stores of Texas, Inc. v. Bank of Louisiana (Civil Action No. H-97-3753 and Adversary Proceeding No. 96-4541), dated September 11, 2003, disbursing funds to the Bank of Louisiana, is set forth in the Appendix hereto (App. 21-22).

The unpublished order of the court of appeals for the Fifth Circuit in In the Matter of Craig's Stores of Texas, Inc., Debtor; Craig's Stores of Texas, Inc. v. Bank of Louisiana , C.A. No. 03-20888, filed May 2, 2005, denying the Bank of Louisiana's timely filed petition for rehearing en banc , is set forth in the Appendix hereto(App. 23-24).

The Agreed Upon Order Regarding Request For Preliminary Injunction in In the Matter of Craig's Stores of Texas, Inc., Debtor; Bank of Louisiana v. Craig's Stores of Texas, Inc., and the Official Committee of Unsecured Creditors , Bankruptcy Case No. 93-48674-H3-11, Adversary Proceeding No. 96-4541, dated October 2, 1996, in the Bankruptcy Court for the Southern District of Texas, Houston Division, is set forth in the Appendix hereto(App. 25-31).

The majority decision of the United States Court of Appeals for the Fifth Circuit reversing the district court's Order Disbursing Funds was entered on March 4, 2005; and its order denying the Petitioner Bank of Louisiana's timely filed petition for rehearing en banc was filed on May 2, 2005 (App.1;23-24).

This petition for writ of certiorari is filed within ninety (90) days of the date of the court of appeals' denial of the Petitioner's timely filed petition for rehearing en banc . 28 U.S.C. Section 2101(c). Revised Supreme Court Rule 13.3.

The jurisdiction of this Court is invoked pursuant to the provisions of 28 U.S.C. Section 1254(1).

In November of 1989, the Petitioner Bank of Louisiana (“the Bank”) contracted with the Respondent Craig's Stores of Texas, Inc. (“Craig's”) to administer Craig's private-label credit cards and to buy Craig's accounts receivables generated through the use of its credit card. This made it possible for every sale made by Craig's to be a “cash sale;” and Craig's did not have to fund, service, bill or collect its accounts receivables. The benefit to the Bank was that it would collect 18% on the outstanding balances.

The contract made Craig's responsible for all bad debts and delinquencies. It gave the Bank recourse against Craig's so that Craig's was required to buy back from the Bank any accounts receivables which failed to pay or were charged off by the Bank. In order to assure the Bank of Craig's repurchase of these nonperforming accounts, Craig's maintained with the Bank a reserve account equal to 5% of the outstanding accounts or 100% of the accounts which were over 90 days past due. To maintain this reserve, Craig's deposited 2% of every sale it made into this reserve account with the Bank.

The parties' contractual arrangement continued after Craig's sought protection in the United States Bankruptcy Court for the Southern District of Texas, Houston Division, under Chapter 11 of the Bankruptcy Code in 1993; and the contract was assumed as part of Craig's reorganization plan confirmed in December of 1994. The confirmation order retained jurisdiction of the bankruptcy court but only to the extent of matters regarding confirmation and the completion of Craig's plan to reorganize.

In May of 1995, Craig's began to close its stores, dramatically eliminating sales and diminishing its credit cardholders' interest in paying outstanding charges. Ongoing sales were the lifeblood of the reserve account which Craig's was obligated to maintain with the Bank under its contract. With the dramatic drop in sales, the reserve account was soon completely depleted.

Craig's failure to maintain an adequate reserve was a material breach of the contract which was assumed as part of Craig's reorganization plan; and on July 29, 1996, the Bank, having discovered that Craig's was about to dispose of funds as the result of a court-approved settlement with Norwest Bank, demanded that Craig's first replenish the reserve account. It brought a motion in bankruptcy court to cure defaults and to provide adequate assurance of future performance of the confirmed plan or, in the alternative, to convert the case to a Chapter 7 proceeding.

On the same day, July 29, 1996, the Bank also filed a complaint against Craig's in the federal district court for the Southern District of Texas, Houston Division, seeking to enjoin Craig's from disposing of these funds which it claimed should have been dedicated to Craig's reserve account with the Bank incident to the contract to administer Craig's credit cards. Although jurisdiction was vested in the federal district court pursuant to 28 U.S.C. Section 1334, the Bank's complaint against Craig's was automatically referred to the bankruptcy court as Adversary Proceeding No. 96-4541.

By this time, Craig's had brought its own adversary proceeding against the Bank in bankruptcy court asserting state law claims for damages of over $600,000.00(Adversary Proceeding No. 96-4354). Craig's alleged that in 1994 and 1995, the Bank mishandled its customers' credit accounts resulting in excessive charge-backs of the accounts and the eventual closing of its stores. Neither the Bank nor Craig's questioned the jurisdiction of the bankruptcy court to hear and decide their claims against each other in these independent adversary proceedings.

At a hearing in the bankruptcy court on August 7, 1996, on the Bank's Adversary Proceeding No. 96-4541, Craig's stipulated that no distribution of the Norwest Bank settlement would be made pending a hearing on the Bank's request for a preliminary injunction. On September 11, 1996, counsel for both parties informed the bankruptcy court that an agreement had been reached whereby Craig's would pay the sum of $252,440.49 in order to cure the deficiency in the reserve account it maintained with the Bank for its handling of Craig's credit cards. However, because Craig's separate Adversary Proceeding No. 96-4354 sought damages from the Bank for a sum greater than $252,440.49, it was agreed that this sum would not be paid to the Bank as a direct deposit----as required by their contract----but instead would be deposited in the registry of the court pending the outcome of Craig's damage suit against the Bank.

On October 2, 1996, the bankruptcy court entered an Agreed Upon Order Regarding Request for a Preliminary Injunction in the Bank's Adversary Proceeding No. 96-4541(App. 25-31). The Order stipulated that this $252,440.49 deposited by Craig's in the court's registry is the amount “which [the Bank] represents is the sum of the balances that are 90 days or more past due on the credit card accounts as of August, 30, 1996, and not previously charged back to [Craig's] by [the Bank]..., as provided for in [their contract]...”(App. 25-26 ). In addition, a formula was put in place to augment this deposited amount “as necessary,” depending on the number of Craig's accounts which were 90 days or more past due after August 30, 1996(App. 26).

In return for Craig's deposit of this money into the court's registry, the Bank agreed to withdraw its motion to dismiss Craig's Adversary Proceeding No. 96-4354 because of improper venue; agreed to consolidate Craig's Adversary Proceeding with its own Adversary Proceeding; and agreed to withdraw without prejudice its motion to cure defaults and to provide adequate assurance of future performance of the confirmed plan or, in the alternative, to convert the case to a Chapter 7 proceeding(App. 28). In addition, Craig's did not have to file an answer to the Bank's complaint in its Adversary Proceeding No. 96-4541(App. 29). However, the Bank was allowed to file an amended answer and counterclaim against Craig's in Craig's Adversary Proceeding No. 96-4354 which had yet to be tried(App. 28).

The parties further stipulated that Craig's was prohibited from paying dividends or making distribution to its shareholders without the bankruptcy court's permission “and after notice to all parties and opportunity for hearing”(App. 27). The monies deposited into the registry by Craig's was to remain there “until written agreement of all parties or further order of [the bankruptcy court] after notice to all parties and opportunity for hearing...”(App. 26). On October 17, 1996, Craig's deposited $252,440.49 into the court's registry under the Bank's Adversary Proceeding No. 96-4541.

Adversary Proceeding No. 96-4354, Craig's damage suit against the Bank for its alleged mismanagement of the credit card accounts, eventually culminated in an 11-day trial in bankruptcy court during March and April of 1997. On September 30, 1997, the bankruptcy judge, Clark, J., issued a memorandum opinion finding for Craig's and awarding it damages in the amount of $449, 315.02.

In its final assessment of damages due Craig's, the bankruptcy judge found that the Bank “is initially entitled to the amount [then] in the Court's Registry, in the amount of $303,872.52” under the Bank's Adversary Proceeding No. 96-4541. Thus she concluded that “[b]ecause the total amount of the setoff and the judgment in favor of [Craig's] exceeds the amount in the Registry, the result is a net recovery for [Craig's] in the amount of $145,442.50, subject to adjustment based upon the parties' accounting.” Further accounting led to an order that Craig's was entitled to $27,803.27 more from the funds in the Registry which with interest totaled $29,602.59. When Craig's sought even more money from the registry, the bankruptcy judge denied its motion.

Craig's never appealed the bankruptcy judge's determination that the Bank was entitled to a setoff in the damage award for the monies Craig's had deposited into court; it never appealed her computation of damages based upon the determination that the Bank was entitled to the money deposited into court; and it never appealed the ruling that it was entitled to no more than $29,602.59 in further disbursements upon the parties' further accounting.

The Bank was required to file a supersedeas bond pending its appeal to the district court of the finding in Craig's favor in Adversary Proceeding No. 96-4354. Because the damage award in that proceeding was based on the fact that the money in the court's registry under Adversary Proceeding No. 96-4541 belonged to the Bank , it was required to post only the net sum between the total judgment and the money belonging to it in the registry. The bankruptcy court subsequently ordered the Bank to file an amount which was 125% of this net amount or $243,276.78. Craig's did not object to this computation of the Bank's supersedeas bond, one which gave the Bank credit for the monies in the court's registry held under Adversary Proceeding No. 96-4541. In fact, Craig's never claimed that these monies in the registry did not belong to the Bank.

The Bank's appeal to the district court raised several points, none of which touched on the issue of the bankruptcy court's jurisdiction to decide these post-confirmation, state-law claims by Craig's about the way the Bank serviced Craig's credit card accounts. At a pre-appeal conference, the district court, Hughes, J., sua sponte raised the jurisdictional issue and then dismissed the entire dispute for lack of federal jurisdiction to entertain the controversy. In the alternative, the district judge reversed the finding in Craig's favor because the bankruptcy court had erroneously admitted expert opinion and because Craig's had failed to prove that its losses were caused by the Bank.

Upon Craig's appeal, the court of appeals for the Fifth Circuit affirmed the district court's dismissal on the grounds that the bankruptcy court lacked jurisdiction to decide Craig's post-confirmation state-law claims which comprised Adversary Proceeding No. 96-4354. In re Craig's Stores of Texas, Inc. , 266 F. 3d 388(5th Cir. 2001).

The Bank then moved in bankruptcy court for the release of the funds held in the court's registry. In response, Craig's— for the first time —asserted that it now was entitled to the funds because it had deposited them into the registry. The bankruptcy judge, noting her lack of jurisdiction to decide Craig's state-law claims which comprised Adversary Proceeding No. 96-4354, incorrectly reasoned that she also lacked jurisdiction to decide the disposition of the funds deposited by Craig's incident to the Bank's Adversary Proceeding No. 96-4541. She denied the Bank's motion without prejudice to the Bank seeking such relief “...in a court of competent jurisdiction....”

Upon the Bank's appeal from this ruling, the district court, on September 12, 2003, after first ordering the money be returned to Craig's, then ordered the funds be disbursed to the Bank(App. 2122). As it found from the record, this money was placed in the court's registry to secure the Bank's account with Craig's while the parties litigated their claims(App. 21). Once it determined that it did not have jurisdiction “over [those] claims,” a decision subsequently affirmed by the court of appeals in In re Craig's Stores of Texas, Inc. , 266 F. 3d 388 (5th Cir. 2001), the district judge reasoned that “[n]o other litigation pends”(App. 21). He concluded:

In a per curiam opinion, a majority of the court of appeals for the Fifth Circuit reversed the district judge's disbursement order and directed the district court to disburse the funds to Craig's (App. 1-20).

The majority, clearly confusing the two distinct Adversary Proceedings which the parties had brought in bankruptcy court, thought the Agreed Upon Order entered in the Bank's Adversary Proceeding No. 96-4541 which authorized Craig's deposit of money into the court's registry was not evidence of any admission by Craig's that it owed the Bank these funds consistent with its conceded obligation to maintain a reserve account with the Bank under its credit card servicing agreement (App. 2-4). Instead, it characterized the deposit as hinged to Craig's independent Adversary Proceeding No. 96-4354 against the Bank which was a disputed state-law claim having nothing to do with Craig's admitted obligation to maintain the reserve account with the Bank and having nothing to do with its deposit of the funds into the court's registry in Adversary Proceeding No. 96-4541(App.3-4).

It further read the Agreed Upon Order as implying that the funds only could be disbursed to the Bank when there was a judgment “on the merits” in the Bank's favor by a court of competent jurisdiction(App. 4). Continuing to confuse the two Adversary Proceedings, it reasoned that since it had earlier ruled that the bankruptcy court lacked the jurisdiction to decide Craig's post-confirmation state-law claims against the Bank (Adversary Proceeding No. 96-4354), the Bank could not follow up its own Adversary Proceeding No. 96-4541 against Craig's by seeking the money Craig's deposited into the registry incident thereto. Rather, the majority indicated that the Bank was bound to begin another civil action in state or federal court in order to vindicate its contractual claims against Craig's, claims to which Craig's had already acceded when it deposited the funds into the court's registry in Adversary Proceeding No. 96-4541.

Because the “underlying litigation” was dismissed for lack of jurisdiction, the majority of the court of appeals concluded that the registry funds should have been returned to the party who deposited these funds into the registry(App. 4-5). Accordingly, it reversed the lower court's Order Disbursing Funds and remanded with instructions to the district court “that the funds be disbursed to Craig's”(App. 5).

In so ruling, the majority failed to address the fact that Craig's never appealed the bankruptcy judge's finding that the Bank was entitled to the money Craig's had already deposited in court in Adversary Proceeding No. 96-4541; and it never appealed the ruling that it was entitled to no more than $29,602.59 in further disbursements from this fund upon the parties' accounting. At this juncture, Craig's had waived any rights to claim the funds as its own.

Nor did the majority address Craig's failure to appeal the bankruptcy court's determination of the amount of the Bank's supersedeas bond, one which gave the Bank credit for the monies Craig's had already deposited into the court's registry in Adversary Proceeding No. 96-4541. Finally, it ignored the fact that Craig's had never claimed that these deposited monies in Adversary Proceeding No. 96-4541 did not belong to the Bank until it lost its appeal from the dismissal of its state-law claims against the Bank in Adversary Proceeding No. 96-4354 on jurisdictional grounds and for its failure to prove that the Bank had caused it any injury.

Circuit Judge Dennis dissented from this ruling(App. 5-14). He concluded that even though the bankruptcy court and the district court were retroactively deprived of subject matter jurisdiction by an intervening change-of-law decision by the court of appeals in In re Craig's Stores of Texas, Inc. , 266 F. 3d 388 (5th Cir. 2001), the district court continued to have jurisdiction or the inherent judicial power, as well as the statutory duty, to determine the rightful owner of funds within its possession and then to distribute them accordingly(App. 5-6). While he agreed with the majority that the district court's judgment must be reversed, he disagreed with the majority's “peremptory instructions” that the district court must distribute the funds to Craig's without making a determination of whether Craig's is the rightful owner(App. 5-6). According to Judge Dennis, the lower court should be instructed to determine rightful ownership and then distribute the funds pursuant to Fed. R. Civ. P. 67 and 28 U.S.C. Sections 2041 and 2042(App. 5-6;14).

As the dissent reasoned, under the principles enunciated by this Court in Northwestern Fuel Co. v. Brock , 139 U.S. 216(1891) and its progeny together with the procedure described in Fed. R. Civ. P. 67 and 28 U.S.C. Sections 2041 and 2042, the district court possesses the inherent power as a court of equity to undo the wrong done by the bankruptcy court acting without jurisdiction by distributing the funds held in its registry to the rightful owner according to the equitable principles of restitution(App. 6-9). Moreover, this restitution by the district court “is not made to depend at all upon the question whether or not the court rendering the judgment reversed acted within or without its jurisdiction”(App. 9 quoting Northwestern , 139 U.S. at 220).

As Judge Dennis noted, instead of recognizing this law and remanding the matter to the district court for such an equitable disposition, the majority without any citation of authority “follows a rule of its own creation,” i.e., that whenever it is determined that a depositary court lacked subject matter jurisdiction, the registry funds should always be disbursed back to the party that deposited them in the registry(App. 10). As he concluded,

The dissent thought this Court's decisions as well as the relevant statutes and rule establish original jurisdiction in the district court— not an appellate court—to make this equitable determination(App. 10-12). As it observed, “[a]ppellate courts are not vested with original jurisdiction, authorized by rule or law to make this determination, or permitted to render disbursement orders”(App. 12). Instead of usurping the district court's authority, Judge Dennis would have vacated the lower court's judgment and remanded the case “to the depositary court for it to determine how the funds on deposit shall be distributed....”(App. 12)(emphasis supplied).

Finally, considering all of the circumstances which led Craig's to deposit the funds into the court's registry in the first place, especially the Bank's detrimental changes of position concerning its claims against Craig's in Adversary Proceeding No. 96-4541, the dissent perceived a denial of due process in the outcome directed by the majority:

(App. 14). Judge Dennis therefore would have remanded the matter to the district court with instructions that “it perform its statutory duty under Rule 67 and 28 U.S.C. Sections 2041 and 2042, to determine rightful ownership of the funds...and distribute those funds accordingly”(App. 14).

On May 2, 2005, the court of appeals for the Fifth Circuit denied the Bank's timely filed petition for rehearing en banc (App. 23-24).

The Bank has now brought to this Court its petition seeking a writ of certiorari to the United States Court of Appeals for the Fifth Circuit.

1. The Decision Below Is In Conflict With Northwestern Fuel Co. v. Brock, 139 U.S. 216(1891), Which Recognizes The Primary Jurisdiction Of The District Court As The Depositary Court To Determine Whether The Bank Was Entitled To Restitution After the Court Of Appeals Found There Was No Subject Matter Jurisdiction To Hear This Controversy.

In Northwestern , the plaintiff, a Minnesota corporation as the assignee of contract rights of an Iowa company, brought suit in a circuit court in Iowa invoking its original jurisdiction and seeking damages from the defendants, also citizens of Iowa, for breach of contract. Judgment was recovered in the amount of $1402.47 but it was later reversed by this Court for lack of subject matter jurisdiction in light of 18 Stat. 470, the Act of 1875, which provided that neither the circuit court nor the district court shall “have cognizance of any suit founded on contract in favor of an assignee, unless a suit might have been prosecuted in such court...if no assignment had been made....” Brock v. Northwestern Fuel Co. , 130 U.S. 341, 342(1889). Since under the Act, the parties were all citizens of Iowa, there was no diversity of citizenship and it did not affirmatively appear that the federal court possessed jurisdiction to hear the controversy. Id .

Awarding the defendants their costs, the Court remanded the matter to the lower court “for further proceedings in accordance with law.” Id. at 342-343. Once the mandate issued, the defendants, alleging that $629.23 had already been collected by the plaintiff on the judgment, moved in the lower court for the return of these sums with interest “unless the plaintiff should...show a cause of action of which the court had jurisdiction.” The plaintiff failed to make this showing and the lower federal court issued a judgment “in restitution” awarding the defendants this sum with interest and dismissing the cause for lack of subject matter jurisdiction.

In affirming the judgment, this Court rejected the notion that after it had determined that the lower court lacked subject matter jurisdiction, that tribunal had no further power “to render judgment for restitution of the money collected on the reversed judgment.” Northwestern Fuel Co. v. Brock , 139 U.S. 216, 218-219(1891). Speaking through Justice Field, the Court stated:

The matter was to proceed “under the control of [lower court],” acting as a court of equity and applying principles of restitution in this calculus “so that...no further wrong be committed.” Id . at 220. Moreover, the Northwestern Court made clear that “[r]estitution is not made to depend at all upon the question whether or not the court rendering the judgment reversed acted within or without its jurisdiction.” Id. (emphasis supplied) .

In reaching this result, the Court relied upon Bank of the United States v. Bank of Washington , 31 U.S. (6 Pet.) 8, 17;19(1832). There debtors who had collected on a judgment used the funds for their own purposes even though the case had been appealed. When the decision in favor of the debtors was later reversed by this Court, they were subject to a writ of restitution by the other party in the lower court “because the law raises an obligation in the party to the record, who has received the benefit of the erroneous judgment, to make restitution to the other party for what he has lost.” Id . at 17. The Court concluded:

Since Northwestern , this Court has reaffirmed the principle that where a judgment is eventually rendered void on appeal for lack of subject matter jurisdiction or for some other defect in the proceedings below and where property or funds have passed between the parties in the course of this defective judgment, the law recognizes a right in the party who has sustained a loss thereby to restitution from the other party; and it is the duty of the district court and only the district court to decide this issue , sitting as a court of equity and addressing “these converging equities with all their cumulative power.” Atlantic Coast Line v. Florida , 295 U.S. 301, 313-314 (1935)(Cardozo, J.).

In B. & O. R. Co. v. United States , 279 U.S. 781, 786-787(1929), the Court explicitly identified the district court as the appropriate forum to determine the restitution due certain railroad carriers in St. Louis after this Court reversed the rates charged them by the Interstate Commerce Commission. Id . at 783. As the Court saw it, until it invalidated the fees charged them, payment by these railroad carriers benefitted their competitors “just as if made directly to them.” Id. at 786. It was the duty of the lower court even without a remand by an appellate court “to retain jurisdiction of the case, enter a decree that the appellants are entitled to restitution and refer the case to a master...” Id . at 786-787(emphasis supplied). Accord, Arkadelphia Co. v. St. Louis S. W. Ry. Co. , 249 U.S. 134, 145-146(1919)(Restitution “is one of the equitable powers, inherent in every court of justice so long as it retains control of the subject matter and of the parties, to correct that which has been wrongfully done by virtue of its process.”).

Similarly, in Atlantic Coast Line v. Florida , 295 U.S. at 314, a case addressing the fairness of freight fees charged by a railroad carrier under an Interstate Commerce Commission order, the Court stated that the “ district court whose decree we are reviewing was organized to pass upon the question whether the challenged order of the Commission should be vacated or upheld....[and] [w]hatever power it has to compel restitution by the carrier of items subsequently collected derives from that primary jurisdiction and is ancillary thereto.” Id .(emphasis supplied). In order to prevail, the claimant “must show that the money was received in such circumstances that the possessor will give offense to equity and good conscience if permitted to retain it.” Id . at 309.

Finally, in Morgan v. United States , 304 U.S.1, 23;26(1938), the Court invalidated an order of the Secretary of Agriculture fixing stockyard rates in Kansas City because it was not accompanied by fair hearings. In refusing to reconsider its ruling, the Court also refused to instruct the district court on remand concerning the disposition of the monies impounded by the lower court representing charges paid in excess of the rates fixed by the Secretary. Id. As the Court observed,

Soon thereafter, in United States v. Morgan , 307 U.S. 183, 193-194;197-198(1939), the Court revisited the district court's duties as a depositary court when the district judge decided to release the impounded funds before the Secretary had issued new rates. Id . at 187. In reversing his decision, the Morgan Court reiterated the principle that the district court sits as a court of equity and

Northwestern and its progeny, then, stand for the proposition that even if the district court does not have subject matter jurisdiction of the controversy and even without a remand from the appellate court which decided the jurisdictional question, where the parties are properly before it and where the fund deposited into the court's registry by one or both of the parties is still within the its custody, the district court has the primary jurisdiction or inherent power, indeed the duty, to determine the fund's rightful owner under equitable principles of restitution. The core inquiry in such a proceeding, one which must conform with due process, is whether a party's claim to the fund in the circumstances will give offense to equity and good conscience. The court of appeals here exceeded its jurisdictional ambit by deciding title to the funds by way of “...peremptory instructions ....”

Restitution “is not made to depend at all upon the question whether or not the court rendering the judgment reversed acted within or without its jurisdiction.” Northwestern , 139 U.S. at 220 (emphasis supplied). Nor does the power in the district court to dispose equitably of the money it holds in its registry hinge on the terms of a remand from its own appellate court. B. & O. R. Co. v. United States , 279 U.S. at 786-787. See Northwestern , 139 U.S. at 319. The power is inherent in the district court itself and its right—indeed its duty—to undo wrongs caused the parties before it by a failure of its own process. Northwestern , supra . See Restatement of Restitution Section 74, comments a., b. and c. , Illustration 7.

The majority's order on remand contravenes all of this law. After failing to distinguish the Bank's core Adversary Proceeding No. 96-4541 which required Craig's to deposit $252,440.49 into the court's registry from Craig's non-core, independent Adversary Proceeding No. 96-4354 for which there was no jurisdiction in the bankruptcy court, the majority bundled them together, declared a lack of subject matter jurisdiction to decide either of these proceedings and directed the district court to disburse the funds back to Craig's, the party who had deposited the money into the registry, even though Craig's deposit had nothing to do with Craig's non-core Adversary Proceeding which was justifiably dismissed(App. 4-5).

Under the majority's remand order, the district court is left with no latitude under its primary jurisdiction to determine the rightful owner of the funds it holds; it is deprived of its fundamental power to act as a court of equity and to fashion an appropriate order of restitution in the unique circumstances of this case; and it is left with no duty except ministerially to carry out the (mistaken)

wishes of the appellate court in order to dispose of this case. However, at least in federal court, the district judge is more than a mere moderator of events occurring before him. He must not only avoid error before it takes place, he must also undo error that has already taken place as a result of the court's own process. Carlisle v. United States , 517 U.S. 416, 437-438 & n.1(1996) (Stevens, J., dissenting) citing Brown v. Walter , 62 F. 2d 798, 799(2nd Cir.1933)(Hand, L., J.).

The majority usurps the primary jurisdiction of the district court to make this equitable determination and nullifies this Court's decision in Northwestern Fuel Co. v. Brock , 139 U.S. 216(1891) as well as those decisions of the Court which have followed it. A writ of certiorari is therefore warranted to review the majority decision of the court of appeals for the Fifth Circuit.

2.The Court of Appeals Acted Beyond Its Jurisdiction And Usurped The Primary Jurisdiction of The District Court When It Directed The Lower Court To Disburse To Craig's The Money Held In Its Depositary.

“It is well settled that...jurisdiction of a Circuit Court of the United States is limited in the sense that it has no other jurisdiction than that conferred by the Constitution and the laws of the United States.” Hanford v. Davies , 163 U.S. 273, 279(1896). Like a district court, the court of appeals is an Article III inferior court, created by Congress in 1891, and possesses only such power as is conferred by statute. Owen Equipment & Erection Co. v. Kroger , 437 U.S. 365, 371-372(1978). Insurance Corp. v. Compagnie Des Bauxites , 456 U.S. 694, 701-702(1982).

A corollary principle is that the affirmation by an Act of Congress of appellate jurisdiction in the court of appeals implies the negation of all such jurisdiction not so affirmed. Ex parte McCardle , 74 U.S. (7 Wall.) 506, 513(1868). It is “almost a necessary consequence that acts of Congress, providing for the exercise of jurisdiction, should come to be spoken of as acts granting jurisdiction, and not as acts making exceptions to the constitutional grant of it.” Id . The Mayor v. Cooper , 73 U.S. (6 Wall.) 247, 252(1867). In fact, there is a presumption that a federal court lacks jurisdiction to decide a matter until it has been affirmatively demonstrated that jurisdiction over the subject matter exists through some statutory grant of power. Hornthall v. The Collector , 76 U.S. (9 Wall.) 560(1869). Turner v. Bank of North America , 4 U.S. (4 Dall.) 8, 9-10(1799).

Without jurisdiction, the court cannot proceed in any cause; jurisdiction is power to declare the law and when it ceases to exist, “the only function remaining to the court is that of announcing the fact and dismissing the cause.” Ex parte McCardle , 74 U.S. (7 Wall.) at 514. The Mayor v. Cooper , 73 U.S. (6 Wall.) at 250. Every federal court, including the court of appeals, therefore has the duty sua sponte to reaffirm the statutory grant which gives it the jurisdiction or power to dispose of the controversy before it so that it “shall [not] use the judicial power of the United States in a case to which the Constitution and laws of the United States have not extended that power.” M.C. & L.M. Railway Co. v. Swan , 111 U.S. 379, 384(1884). The Dred Scott Case , 60 U.S. (19 How.) 393, 567 (1856)(Curtis, J., dissenting).

If the majority had performed this necessary function, it would have concluded that there is no affirmative statutory grant of power by any Act of Congress which allows it to order disbursement to a party of funds held in another federal court's depositary. 28 U.S.C. Section 2041 provides that when monies are paid into “any court of the United States,” that “court”---- the court which holds the money ----may deliver those funds “to the rightful owners upon security, according to agreement of parties....” Section 2042 of Title 28 further provides in its first paragraph that no money so deposited in court under Section 2041 may be withdrawn “except by order of court,” i.e., the court authorized under Section 2041 to accept the deposit and the court which holds the money . See also Fed. R. Civ. P. 67 (Deposit in Court).

Accordingly, the jurisdiction of a federal appellate court or a district court to disburse funds held in a federal court depositary is made entirely to depend upon whether that court is the depositary court holding the money which is sought to be disbursed. See Northwestern , 139 U.S. at 219. If it is not, it lacks jurisdiction to dispose of such funds in any manner, much less peremptorily and without a hearing as the majority has done. On the other hand, if it is the depositary court, it can proceed to disburse the funds as a matter of restitution consistent with the standards of Northwestern and its progeny. This district court, as the depositary court, is the only federal court possessing the jurisdiction to make this determination under Northwestern and the relevant statutes. The majority of the court of appeals has exceeded its jurisdiction in ordering that the funds held in the district court's depositary now be disbursed to Craig's.

When the court of appeals acts in disregard of the statutory limits on its own jurisdiction, usurping the jurisdiction of the district court in the process, this Court's power of superintendency over the federal judiciary is rightly invoked. After the majority of the court of appeals determined that the bankruptcy court lacked subject matter jurisdiction over the case, its “only function remaining...[was] that of announcing the fact and dismissing the cause,” Ex parte McCardle , 74 U.S. (7 Wall.) at 514, leaving to the district court the task of exercising its primary jurisdiction as the depositary court to disburse the funds it holds consistent with principles of restitution.

3. The Court Of Appeals' Order Denied the Bank A Fair Hearing On Its Claims That The Money Deposited By Craig's In The District Court's Registry As A Matter Of Restitution Should Be Disbursed To the Bank.

Because restitution is a creature of equity, whether the district court should disburse to the Bank the funds in its registry will turn on whether the Bank can show that it will offend “equity and good conscience” if Craig's is permitted to retain the funds. Atlantic Coast Line v. Florida , 295 U.S. at 309. It is a matter of “converging equities with all their cumulative power” and depends on the particulars of each individual case. Id . at 313-314.

The Bank , if given the opportunity in the district court, will assert that Craig's deposit of the money into the court's registry was not disputed; that it was placed there by Craig's in order to cure its admitted deficiency in the reserve account it maintained with the Bank for its handling of Craig's credit cards; and that it remained in the court's registry not because of any “dispute” about whether Craig's owed the Bank this sum—even Craig's admitted that it did---but rather because Craig's had its own far greater claim against the Bank and if Craig's prevailed, the Bank agreed that the monies deposited into court would apply against this judgment. The monies deposited into court by Craig's always were regarded by the parties as belonging to the Bank and were subject for use by the Bank to offset any sums eventually found due from the Bank on Craig's claims against it.

The Bank would also assert that Craig's never appealed the bankruptcy judge's finding in Adversary Proceeding No. 96-4354 that the Bank was entitled to the money Craig's had already deposited in court in Adversary Proceeding No. 96-4541; and it never appealed the ruling that it was entitled to no more than $29,602.59 in further disbursements from this fund upon the parties' accounting. Nor did Craig's appeal the bankruptcy court's determination of the amount of the Bank's supersedeas bond, one which gave the Bank credit for the monies Craig's had already deposited into the court's registry in Adversary Proceeding No. 96-4541. In fact, Craig's never claimed that these deposited monies in Adversary Proceeding No. 96-4541 did not belong to the Bank until it lost its state-law claims against the Bank in Adversary Proceeding No. 96-4354 on jurisdictional grounds and for its failure to prove that the Bank had caused it any injury.

Finally, as found by Judge Dennis in his dissent, the Bank would argue that not compensating it for the loss of its claims against the funds and against Craig's personally, claims which it gave up in return for Craig's depositing these monies in the court's registry, will unjustly enrich Craig's and impoverish the Bank to its detriment.

However, none of these considerations attendant to an equitable disbursement of the monies as a matter of restitution can be realized without a hearing addressing these matters. The Bank's equitable right to the deposited funds is a valuable property right and is entitled to due process protection. Board of Regents v. Roth , 408 U.S. 564, 571-572(19972). The Bank cannot be denied the opportunity to adduce argument in support of its equitable right to these funds without notice and a hearing. Id. Matthews v. Eldridge , 424 U.S. 319, 333(1976). Armstrong v. Manzo , 380 U.S. 545, 552(1965). See United States v. Morgan , 307 U.S. at 193;198. To rule, as the majority has, that Craig's deserves to have the monies returned to it, without any hearing in the district court, is to deny the Bank due process and a fair hearing on its claims that the funds deposited by Craig's in the district court's registry as a matter of restitution should be disbursed to the Bank.

For all of the reasons identified herein, a writ of certiorari should issue to review the decision of the United States Court of Appeals for the Fifth Circuit and, ultimately, to reinstate the judgment of the district court entered below disbursing the funds to the Bank; or to declare that the district court possesses the primary jurisdiction to determine the ownership of the funds it holds in its registry as a matter of restitution; to remand the matter to the district court for further proceedings; or to provide the Bank with such other relief as is fair and just in the circumstances.