In Re: Craig's Store ( 2005 )

  •                                                       United States Court of Appeals
                                                                   Fifth Circuit
                                                                 F I L E D
                         REVISED MARCH 18, 2005
                                                                  March 4, 2005
                          FOR THE FIFTH CIRCUIT             Charles R. Fulbruge III
                                 No. 03-20888
             In The Matter of:    CRAIG’S STORES OF TEXAS INC.
                           - - - - - - - - - -
                      CRAIG’S STORES OF TEXAS INC.,
                           BANK OF LOUISIANA,
              Appeal from the United States District Court
                   for the Southern District of Texas
    Before REAVLEY, JONES and DENNIS, Circuit Judges.
              This case involves a court’s obligations regarding money
    deposited into the court’s registry for a proceeding over which
    that court had no jurisdiction. During the course of litigation in
    bankruptcy court between Craig’s Stores of Texas, Inc. (“Craig’s”)
    and Bank of Louisiana (“the Bank”), Craig’s deposited the sum of
    $252,440.49 into the court’s registry. This court decided in In re
    Craig’s Stores of Texas, Inc., 
    266 F.3d 388
     (5th Cir. 2001),
    however, that the bankruptcy court lacked jurisdiction over the
    adversary proceeding between Craig’s and the Bank.                      The district
    court   released   the   deposited      funds       to    the    Bank    because   it
    determined that the funds had been placed in the registry to secure
    the Bank’s account claim.      We hold that the district court’s dis-
    bursement order results in the transfer of funds to which the Bank
    has never proven entitlement before a court of competent juris-
    diction.   We must reverse the district court’s Order Disbursing
    Funds and remand this case with instructions to disburse the funds
    to the party that deposited them.
               Pursuant   to    Rule   67   of    the    Federal      Rules    of   Civil
    Procedure, a party may deposit a sum of money with the court.                   Once
    funds are deposited, the court should determine ownership and make
    disbursements.     Gulf States Utils. Co. v. Alabama Power Co., 
    824 F.2d 1465
    , 1474 (5th Cir. 1987).             The conclusion that the funds
    must be returned to Craig’s flows from the Agreed Order by which
    Craig’s deposited the money in the registry and from the circum-
    stances surrounding this transaction.
               In   mid-1996,    eighteen       months       after   the    approval   of
    Craig’s Chapter 11 reorganization plan, Craig’s filed an adversary
    proceeding against the Bank in bankruptcy court alleging that the
    Bank failed to perform under a charge account contract.                     At this
    time, the Bank filed its own adversary proceeding, seeking an
    injunction to prevent Craig’s from disposing of funds within its
    possession, requesting the bankruptcy court to convert Craig’s
    confirmed Chapter 11 plan to a Chapter 7 liquidation, and seeking
    to recover money that the Bank contended was owed under the
    contract between them.   Shortly thereafter, the bankruptcy court
    entered an Agreed Order whereby Craig’s would deposit the sum of
    $252,440.49 into the Bankruptcy Court’s registry.
               Craig’s asserts that it made this deposit for the purpose
    of discouraging the Bank from attempting to convert Craig’s bank-
    ruptcy proceedings into Chapter 7 liquidation.    Craig’s deposited
    the money in escrow in order to reassure the Bank that Craig’s
    would not transfer or dispose of its liquid funds before the Bank
    could litigate and liquidate any underlying claim the Bank might
    have against Craig’s.
               The Bank urges a different understanding of this deposit.
    According to the Bank, Craig’s deposit represented a concession
    that it owed the Bank $252,440.49 under the contract.      In other
    words, Craig’s was relinquishing its claim to the funds, and the
    Agreed Order functioned as a kind of “settlement agreement” whereby
    Craig’s recognized its liability to the Bank under the contract.
    Instead of paying the money directly to the Bank, the Bank made the
    accommodation that the funds would be deposited in the registry
    pending Craig’s litigation of its state-law claims against the
    Bank.   The money would be released back to Craig’s only in the
    event that Craig’s won a judgment against the Bank.
               The Agreed Order supports the understanding advanced by
    Craig’s.   There are no representations or concessions in this
    escrow order that the money actually belonged to the Bank.           The
    Bank’s argument that the Agreed Order constituted an enforceable
    “settlement agreement” fails because the Agreed Order treats these
    funds as disputed.     For example, on the first page of the Agreed
    Order, the Bankruptcy Court noted:       “Ordered that on or before
    Oct. 11, 1996, the Debtor shall deposit . . . into the registry of
    this   Court   (the   “Court’s   Registry”)   $252,440.49,   which   BOL
    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.”      (Emphasis
               The Agreement is neutral on the ultimate recipient of the
    deposited funds, as evidenced by a paragraph providing for dis-
    bursement of accumulated interest “upon further order of the
    court.”    Likewise, the order authorizes holding the deposited
    balance in the registry “pending further order of this Court.”        In
    neither paragraph is there a reference to a settlement agreement or
    to any certainty as to which party will be entitled to the funds.
               Finally, the Agreed Order expressly contemplated and
    permitted the Bank to assert claims against Craig’s — claims that
    would be unnecessary if the Agreed Order constituted a settlement.
    On the fifth page of the Agreed Order, the bankruptcy court stated:
    “ORDERED that leave is hereby granted to BOL to file (I) an amended
    answer and (ii) a counterclaim against the Debtor in the Adversary
    Proceeding No. 96-4354.”1
                  According to the terms of the Agreed Order, ownership of
    the money in the court’s registry was at all times disputed and the
    funds were not deposited pursuant to a “settlement agreement.”2
    The funds could be disbursed to the Bank only if there had been a
    judgment on the merits in its favor by a court of competent
    jurisdiction.        After the underlying litigation was dismissed,
    however, the Bank never filed an independent lawsuit in state or
    federal court to adjudicate any contractual breach.                  Craig’s may
    well be liable to the Bank for contract damages; unfortunately for
    the   Bank,    no   such   decision   has   been   made   in   the    course   of
    litigation before a court possessing jurisdiction.
                  For these reasons, when the underlying litigation was
    dismissed for lack of jurisdiction, the disputed registry funds
    should have been disbursed back to the party that deposited them in
    the registry — Craig’s.3
                In fact, the Bank actually re-asserted its breach of contract claim
    immediately after the Agreed Order was entered by the bankruptcy court. The
    bankruptcy court ultimately granted relief to both parties on their respective
    contract claims, concluding that Craig’s was entitled to a net recovery against
    the Bank. This judgment was, of course, subsequently vacated and the adversary
    proceeding dismissed because the bankruptcy court lacked jurisdiction. See In
    re Craig's Stores of Texas, Inc., 
    266 F.3d 388
     (5th Cir. 2001).
                If Craig’s had, indeed, agreed to settle with the Bank, the Agreed
    Order does not memorialize such a settlement.
                The power described in Northwestern Fuel Co. v. Brock, 
    139 U.S. 216
    11 S. Ct. 523
     (1891), and United States v. Morgan, 
    307 U.S. 183
    59 S. Ct. 795
    (1939), “to correct that which has been wrongfully done by virtue of its
    process,” Morgan, 307 U.S. at 197, 59 S. Ct. at 802, is different from the
    dissent’s concept of an equitable power to determine ownership of funds
                Accordingly,      we   REVERSE    the   district    court’s    Order
    Disbursing Funds and REMAND with instructions to the district court
    that the funds be disbursed to Craig’s.
    voluntarily placed in the registry of a court lacking jurisdiction. Northwestern
    Fuel describes the power “to correct by its own order that which, according to
    the judgment of its appellate court, it had no authority to do in the first
    139 U.S. 219
    11 S. Ct. 524
    ; it does not describe an equitable power
    to determine the merits of property ownership.
                 In the case before us, there is no order that has been executed under
    the compulsion of an incorrect or unauthorized court judgment, and thus the
    inherent equitable power to order restitution for the error does not come into
    play. See Restatement (First) of Restitution § 74 (1973). No compulsory order
    stands in need of rectification, remediation or restitution; instead, there is
    only a sum of money voluntarily deposited by Craig’s in the registry of a court
    lacking jurisdiction. Lacking jurisdiction to receive money into its registry,
    the district court’s authority is limited to returning the money to the depositor
    — this is the only means by which Craig’s original deposit can be “undone,” to
    use the terminology of Northwestern Fuel and Morgan. Because the $252,440.49
    belonged only to Craig’s Stores when and as it was voluntarily deposited, and the
    court had no jurisdiction to decide the relative merits of the underlying
    dispute, it still belongs to Craig’s Stores.
                 We also disagree with the dissent’s reading of 28 U.S.C. § 2042.
    This code section governs the disbursement of registry funds that have languished
    “for at least five years unclaimed,” and have thereby been forfeited to “the
    Treasury in the name and to the credit of the United States.” Id. It is only
    “such” forgotten funds that the district court, “upon notice to the United States
    attorney” as representative of the United States, its new nominal owner, is
    duty-bound under this code section to determine entitlement, upon “full proof of
    the right thereto.”      Id.   A straightforward reading of this code section
    indicates that it has a specific and narrow application that is not relevant to
    this case. Additionally, neither the language of Rule 67 or 28 U.S.C. § 2041
    create the statutory duty to disburse funds only to persons judicially determined
    to be the rightful owners.
    DENNIS, Circuit Judge, concurring in the decree insofar as it
    reverses the district court’s judgment and remands the case to that
    court, but otherwise dissenting.
          The bankruptcy and district courts were retroactively deprived
    of bankruptcy jurisdiction by an intervening change-of-law decision
    by this court. See In re Craig’s Stores of Texas, Inc.,
    266 F.3d 388
    , 391 (5th Cir. 2001)(“adopt[ing a] more exacting theory of
    post-confirmation bankruptcy jurisdiction.”).           Nevertheless, in my
    opinion, the district court continues to have the jurisdiction or
    inherent judicial power, and the statutory duty, to determine the
    rightful ownership of funds within its possession and to distribute
    them accordingly. Consequently, the district court’s decision that
    it   did   not   have   authority    to   make   that   determination   and
    distribution was based on a legal error.         Therefore, I agree that
    the district court’s judgment must be reversed and that the case
    should be remanded, but I disagree with the majority’s peremptory
    instruction that the district court must distribute the funds to
    one of the parties without making a determination of whether that
    party is the rightful owner.        The district court should, instead,
    be instructed to determine rightful ownership and to distribute the
    funds accordingly pursuant to Federal Rule of Civil Procedure 67
    and 28 U.S.C. §§ 2041 and 2042.
          The district court has the jurisdiction or inherent judicial
    power to undo the wrongs done by the bankruptcy court’s process and
    distribute the funds in the court’s registry to the rightful owners
    according to law and equity pertinent to this limited purpose.4
    Anglo-American courts in general, including the Supreme Court and
    this court, have long held that, after a reversal of a district
    court’s judgment, for either lack of jurisdiction or legal error,
    the district court has the inherent judicial power, with respect to
    the parties before it, to distribute funds in its custody, or to
    order restitution of property wrongly obtained because of its
    erroneous or void judgment, according to equitable principles.5
          The   right   of   restitution       of   what   one   has   lost   by   the
    enforcement of a judgment subsequently reversed was recognized from
    a very early period in the law of England and early in our history
    by the United Supreme Court.6        In Northwestern Fuel Co. v. Brock,7
                This case is similar to “numerous other cases involving ‘jurisdiction
    to determine jurisdiction’ and presenting situations in which the determination
    of the jurisdictional question involves essentially the same analysis as the
    determination of the case on the merits.” ECEE, Inc. v. FERC, 
    611 F.2d 554
    , 555
    n.4. (5th Cir. 1980)(citing United States v. United Mine Workers, 
    330 U.S. 258
    (1957); Nestor v. Hershey, 
    425 F.2d 504
     (D.C. Cir. 1969); Means v. Wilson, 
    383 F. Supp. 378
     (D. S.D. 1974), modified on other grounds, 
    522 F.2d 833
    , cert.
    424 U.S. 958
                See, e.g., Northwestern Fuel Co. v. Brock, 
    139 U.S. 216
    , 219
    (1891)(citing Mayor v. Cooper, 6 Wall 247, 250; Hornthal v. Collector, 
    9 Wall. 560
    , 566; Mansfield, Coldwater & Lake Mich. Ry. Co. v. Swan, 
    111 U.S. 379
    , 387
    (1884)); W.F. Potts Co. v. Coltrane, 
    59 F.3d 375
     (5th Cir. 1932).
                See Northwestern Fuel Co., 139 U.S. at 219 and 220 (citing Bank of
    the United States v. Bank of Washington, 
    6 Pet. 8
    , 17 and 2 Salk. 587, 588; Tidd,
    Pr. 936, 1137, 1138).
    139 U.S. 216
    the Supreme Court again recognized that right and further held
    that, when the judgment of a court of origin is reversed for lack
    of jurisdiction, that court has the inherent power, to “correct by
    its own order that, which, according to the judgment of its
    appellate court, it had no authority to do in the first instance,”
    while the parties are before it and the subject matter of the
    controversy is in its custody.8              “Jurisdiction to correct what had
    been wrongfully done must remain with the court so long as the
    parties and the case are properly before it, either in the first
    instance       or     when   remanded   to   it   by   an    appellate    tribunal.”9
    Moreover, the original court has this inherent corrective power
    even        though    the    mandate    of   reversal       fails   to   provide   for
    restitution.10         The Supreme Court explained:
           The gist of the whole complaint is that the reversal by
           this court being for want of jurisdiction in the Circuit
           Court. . .that court had no authority to act further in
           the matter than as directed by the mandate; and that that
           went only to the reversal of its judgment and the
           collection of the costs incurred in the appellate court.
           . . .But here the jurisdiction exercised by the court
           below was only to correct by its own order, that which,
           according to the judgment of its appellate court, it had
           no authority to do in the first instance; and the power
           is inherent in every court, whilst the subject of
           controversy is in its custody, and the parties are before
           it, to undo what it had no authority to do originally,
           and in which it, therefore, acted erroneously, and to
                    Id. at 219-220.
                    Id. at 219.
         restore, as far as possible, the parties to their former
         The   inherent    power     of   courts     to       enforce    the   right   of
    restitution after appellate reversals discussed by the Supreme Court
    in Northwestern Fuel Co. is now accepted generally.                    For example,
    the Restatement (First) of Restitution demonstrates that virtually
    all reported court decisions have adhered to the principles that
    Northwestern Fuel Co. articulates.             Section 74, which states the
    right of restitution when a judgment is subsequently reversed,
    provides: “A person who has conferred a benefit upon another in
    compliance with a judgment, or whose property has been taken
    thereunder, is entitled to restitution if the judgment is reversed
    or set aside, unless restitution would be inequitable or the parties
    contract that payment is to be final; if the judgment is modified,
    there is a right of restitution of the excess.”12                   Comment b. under
    § 74 reflects the general view that a court has inherent power to
    enforce the right of restitution in this situation even when the
    judgment is void because the court lacked jurisdiction.                      It, in
    pertinent part, states: “The rule is applicable whether the judgment
    reversed was originally valid or was void.”13                The reporters’ notes
    to § 74 demonstrate the courts’ general reliance on the principles
               Id. at 219-20 (emphasis added).
               Id. at cmt. b.
    of Northwestern Fuel Co..            Citing Northwestern Fuel Co. and other
    cases        consistently   following    that   decision,   they   state:   “The
    tribunal reversed can direct restitution on its own initiative.”14
    And further that: “An action lies although the judgment reversed was
    ‘void,’ the court having power to remedy its own mistake[.]”15
         In United States v. Morgan16 the Supreme Court reaffirmed the
    principles discussed in Northwestern Fuel Co. and held that a
    district court, to the extent not governed by law or guided by
    regulatory order, should apply equitable principles in distributing
    funds in that court’s custody resulting from its injunction of the
    secretary of agriculture’s order reducing scheduled rates                    for
    stockyard services.17            In its opinion, the Court summarized those
    principles18 and concluded that, when a court has compelled payments
    into its registry of amounts which may be found not to have been
    due, justice requires ultimate distribution of the funds to those
                    Id. at notes cmt. a.
    307 U.S. 183
                    Id. at 197-98.
                See id. (stating “[i]t is a power ‘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.’” and
    citing Arkadelphia Milling Co. v. St. Louis S.W. Ry. Co., 
    249 U.S. 134
    Northwest Fuel Co.,139 U.S. at 219); id. (stating “[w]hat has been given or paid
    under the compulsion of a judgment the court will restore when its judgment has
    been set aside and justice requires restitution.” and citing Northwestern Fuel
    Co., 139 U.S. at 219; Ex parte Lincoln Gas & Electric Light Co., 
    257 U.S. 6
    , 7
    (1921); Baltimore & Ohio Ry. Co. v. United States, 
    279 U.S. 781
    , 786 (1929)).
    persons entitled to them.19       “[T]he district court sits as a court
    of equity,” the Court also said, “and...assumes the duty of making
    dispositions of the fund in conformity to equitable principles.”20
    It is also self-evident that a court’s inherent power to require
    restitution of property in a party’s possession, rather than in the
    registry of the court, after a reversal of its erroneous or void
    judgment, necessarily includes the power after such a reversal to
    make equitable distribution, to persons entitled to them, of funds
    on deposit pending the litigation of the parties controversy.
         Further, the Supreme Court, in Northwestern Fuel Co. and
    Morgan, established the procedures and standards to be applied by
    a district court in making restitution or distribution of funds
    under equitable principles.         In Northwestern Fuel Co. the Court
         We are of opinion that the proceeding to enforce the
         restitution in the cases mentioned is under the control
         of the court, and that all needed inquiry can be had to
         guide its judgment in a summary proceeding, upon motion
         of the parties; the only requisite being that the
         opposite part[y] shall be heard, so that in directing
         restitution   no  further   wrong   be  committed.   The
         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.21
                 Id. at 198.
                 Id. at 191.
                 139 U.S. at 220.(emphasis added).
         In Morgan, the Court stated that the district court, “[i]n
    taking the payments into custody...acted as a court of equity,
    charged both with...the responsibility of protecting [and] disposing
    of it according to law, and free in the discharge of that duty to
    use broad discretion in the exercise of its avoid an
    unjust or unlawful result.”22        The Morgan Court recognized that a
    district court is not bound by any contract or understanding with
    the litigants; its duty is in distributing the funds in its custody
    as “prescribed by the applicable principles of law and equity[.]”23
         The Fifth Circuit, in W. F. Potts & Co. v. Cochrane,24 applying
    the Northwestern     Fuel   Co.   principle,25 approved       of   a   district
    court’s undoing of its erroneous assertion of jurisdiction in taking
    custody of property and appointing a receiver,26 but disapproved of
    that court’s decision in making restitution because it was “not in
    accordance with the equitable principles applicable in the case.”27
    In Potts, this court indicated that, under Northwestern Fuel Co.,
    “the District Court should have...fully canvassed the situation from
    the standpoint of determining where the equities lay to adjudge
                307 U.S. at 193-94.
                Id. at 194.
    59 F.2d 375
                Id. at 377 (citing, inter alia, Northwestern Fuel Co., 
    139 U.S. 216
    Arkadelphia Milling Co., 
    249 U.S. 134
    ; Baltimore & Ohio R. Co., 
    279 U.S. 781
                W.F. Potts, 59 F.2d at 377 (“[T]he appointment of a receiver is at
    last the court’s appointment; the administration, its administration.”).
    accordingly.   Such a proceeding is purely equitable; it should have
    been decided upon equitable grounds.”28
         In direct conflict with the foregoing Supreme Court precedents,
    the majority follows a rule of its own creation, viz., that
    “disputed registry funds should [be] disbursed back to the party
    that deposited them in the registry” when it is later determined
    that the depositary court lacked subject matter jurisdiction.
    However, the majority not only fails to cite any authority for its
    rule, it does not even attempt to reconcile the rule with the duty
    imposed on depositary courts’ to decide claims to registry funds on
    equitable grounds by the Supreme Court decisions, Rule 67 and 28
    U.S.C. §§ 2041 and 2042.
         Under the principles articulated by the Supreme Court in
    Northwestern Fuel and other decisions, the district court has
    inherent power to undo any wrong done by the bankruptcy court’s
    decree    which,   unknowingly   without   jurisdiction,   consented   to
    adjudicate the parties’ claims over disputed funds to be deposited
    in court pending the outcome of its decision; and the district court
    has the power to distribute the funds in its custody according to
    equitable principles, including those provided by 28 U.S.C. §§ 2041
    & 2042 for deposits in court, in such manner as to avoid an
    unlawful, unjust or inequitable result.        Consequently, I believe
    that both the majority and the district court here are in error in
                Id. at 378.
    failing to recognize the district court’s judicial power and duty
    to undo any wrong done by the bankruptcy court’s process and to
    distribute the funds in accordance with 28 U.S.C. §§ 2041-2042 and
    equitable principles.
         Of course, as the Supreme Court’s cases make clear, this does
    not mean that the district court should adjudicate the civil action
    or review the bankruptcy court’s decision on the merits.               Instead,
    pursuant to Rule 67 and 28 U.S.C. §§ 2041-2042, the district court,
    and not this court, must determine rightful ownership of the funds
    and disburse the funds to the owner.
         Under Rule 67, the disbursement of funds is governed by 28
    U.S.C. §§ 2041 and 2042; these statutory provisions assign the power
    and duty of approving disbursements exclusively to the depositary
    court; and §§ 2041 & 2042 require that the depositary court disburse
    the funds only to persons judicially determined to be rightful
    owners.   The purpose of a deposit under Rule 67 is to relieve the
    depositor of responsibility for the money or thing in dispute while
    the parties litigate their differences with respect to the res.29
         Once the deposit is made, the funds can be withdrawn only by
    order of the depositary court.        Rule 67 specifically states that 28
    U.S.C. §§ 2041 and 2042 provide the rules that must be followed by
                Cajun Elec. Power Coop. Inc. v. Riley Stoker Corp., 
    901 F.2d 441
    , 444
    (5th Cir. 1990). Once the deposit is made, the depositor is no longer liable for
    interest on the fund. See 13 MOORE’S FED. PRAC. 3D § 67.03 (citing authorities).
    the court and the parties with respect to orders of withdrawal or
    disbursement.       “Money paid into court under [Rule 67] must be
    deposited and withdrawn in accordance with the provisions of Title
    28, U.S.C., §§ 2041 and 2042...or any like statute.”30                    Funds
    deposited in court are held only for those persons judicially found
    by the court to be entitled to them as rightful owners.31                      The
    burden is on the claimant to establish his right to withdraw money
    deposited with the court.32            The right to recover from a fund
    deposited in court must be based on the strength of the title of the
    claimant and not on the weakness of the title or another claimant.33
    Rule 67 providing for deposit in court, generally, continues in
    effect similar special provisions contained in statutes and rules
    pertaining    to   bills    of     interpleader,   bills   in   the   nature    of
                 FED. R. CIV. P. 67.
                See 12 WRIGHT & MILLER, FED. PRAC. & PROC. § 2992. Title 28, U.S.C. §
    2041 provides, in relevant part, that “[a]ll moneys paid into any court of the
    United States. . .in any case pending or adjudicated in such court, shall be
    deposited with the Treasurer of the United States or a designated depositary. .
    . .[t]his section shall not prevent delivery to the rightful owners upon
    security, according to agreement of parties, under the direction of the court.”
    Section 2042 also provides, in relevant part, that “[n]o money deposited under
    section 2041 of this title shall be withdrawn except by order of court. In every
    case in which the right to withdraw has been adjudicated or is not in dispute and
    such money has remained so deposited for at least five years unclaimed by the
    person entitled thereto, such court shall cause the money to be deposited in the
    Treasury. . . .[a]ny claimant entitled to any such money may, on petition to the
    court...and full proof of the right thereto, obtain an order directing payment
    to him.”
                Hansen v. United States, 
    340 F.2d 142
    , 144 (8th Cir. 1965); United
    States v. Beach, 
    113 F.3d 188
    , 191 (11th Cir. 1997)(citing United States v. Kim,
    870 F.2d 81
    , 84-85 (2d Cir. 1989)(applying preponderance of the evidence
                United States ex. rel. Home Indem. Co. v. Am. Employers’ Ins. Co.,
    192 F. Supp. 873
    , 876 (D. N.D. 1961)(citing United States v. Chapman, 
    281 F.2d 862
    , 867 (10th Cir. 1960)).
    interpleader, and admiralty.34           Proceedings for disbursement of
    funds deposited in court are equitable in nature and in the nature
    of interpleader.35
         Here, the district court disregarded or was unaware of its duty
    under 28 U.S.C. §§ 2041 and 2042 to determine the persons who were
    entitled to the funds on deposit and to disburse them only to the
    rightful owners.      The district court did not take evidence on or
    inquire into rightful ownership in accordance with 28 U.S.C. §§ 2041
    and 2042.     Instead, the district court acted as if it had no
    jurisdiction to inquire into equitable entitlement and summarily,
    without giving any clear reasons, disbursed the funds first to
    Craig’s, but, after reversing itself, to BOL.               Consequently, the
    district court did not perform its duty under §§ 2041 and 2042 to
    determine    the   rightful     owner    of   the    deposited    funds    by   a
    preponderance of the evidence before delivering them.
         Furthermore, 28 U.S.C. §§ 2041 and 2042 provide that funds
    deposited in court may be disbursed only by order of the depositary
    court to persons judicially determined to be entitled to them.36
    Appellate   courts    are    not   vested     with   original    jurisdiction,
                See 13 MOORE’S FED. PRAC. & PROC. § 67 App.01 (citing former statutes,
    admiralty rules, and committee note.)
                See, e.g., United States v. Beach, 113 F.3d at 191 (quoting United
    States v. $17,400 In Currency, 
    524 F.2d 1105
    , 1108 (10th Cir. 1975) (Doyle, J.,
    dissenting) (describing petition for withdrawal of funds pursuant to 28 U.S.C.
    § 2042 as “[b]eing in the nature of an interpleader action”)).
                See 28 U.S.C. § 2041-42.
    authorized by rule or law to make this determination, or permitted
    to render disbursement orders.    Hence, the majority has fallen into
    error by instructing the district court to disburse the funds to
    Craig’s without first making a determination under     Rule 67 and §§
    2041 & 2042 of who is the rightful owner of the money.
         Besides, as a purely practical matter, this court is ill-
    equipped to perform this function since we cannot easily inquire
    into or elicit evidence on the pertinent issues. That is especially
    so in the present case.   The district court and the parties did not
    proceed to inquire into rightful ownership under Rule 67 and §§ 2041
    and 2042; apparently they were unaware of these provisions or
    mistakenly thought the district court lacked judicial power to
    determine rightful ownership.     Therefore, the present record does
    not contain sufficient evidence on these issues to enable us to
    decide them initially, even if it were permissible for us to do so.
    Accordingly, I would vacate the district court’s judgment and remand
    the case to the depositary court for it to determine how the funds
    on deposit shall be distributed according to 28 U.S.C. §§ 2041 and
         Ultimately, the majority’s disposition of this case does not
    comply with law, equity or justice and does not return the parties
    to their original positions.     As the majority notes, “ownership of
    the money in the court’s registry was at all times disputed. . .
    .”37   Thus, the majority’s transfer of all of the funds to Craig’s
    simply because Craig’s initially deposited most of the funds into
    court overlooks the basic fact that neither party had a clear right
    to the money.       Instead, both parties had claims to the money and
    this is reason that the funds had been deposited into court.
           The majority’s peremptory transfer of funds to Craig’s also
    disregards    the    significant   changes     in     position   by   BOL    in
    consideration of the deposit and the parties’ agreement to litigate
    over the money within the court’s registry.             Before the parties
    agreed to the consent decree establishing ground rules for the
    bankruptcy    court’s   adjudication     of   their    claims,   Craig’s    had
    possession of most of the funds, but BOL had several viable claims
    or actions against Craig’s, i.e., an objection to the bankruptcy
    court’s jurisdiction, an injunction action against Craig’s, a
    counterclaim against Craig’s, and a claim to have the proceedings
    converted to a Chapter 7 proceeding.
           The bankruptcy court, upon agreement of the parties, entered
    a consent decree which provided, inter alia, that (1) Craig’s shall
    deposit and the clerk shall accept into the registry of the court
    $251,440.40 being the funds in dispute; (and BOL was later required
    to deposit $10,058 into the court) (2) the adversary proceedings
    were consolidated; (3) BOL’s objection to the bankruptcy court’s
    jurisdiction was withdrawn; (4) BOL’s motion to convert Craig’s
                 Maj. Op. at 5.
    bankruptcy proceeding to a Chapter 7 proceeding was withdrawn; (5)
    BOL allowed its injunction action become moot; (6) BOL was allowed
    to file its counterclaim; and,(7) the parties stipulated that the
    deposited funds would remain in the court’s registry pending their
    litigation over the deposit and the bankruptcy court’s adjudication
    of their claims.      Thus, both parties significantly changed their
    positions and gave and received benefits from their agreement to
    litigate over the disputed funds deposited in the bankruptcy court.
         The bankruptcy court adjudicated the claims pursuant to the
    parties’ agreement, which it had approved.             But the bankruptcy
    court’s decision and judgment were voided by the decision of this
    court that the bankruptcy court did not have jurisdiction to decide
    the civil action on the merits.              The purpose of the parties’
    agreement,   to    submit   their   claims   against   the    disputed    funds
    adjudicated by the bankruptcy court, was frustrated and its full
    performance made impossible by the jurisprudential development that
    deprived the bankruptcy court of jurisdiction.
         Consequently, a disbursement of the funds to Craig’s free and
    clear of BOL’s claims, without compensating BOL for the loss of its
    claims   against    the   funds   and   against   Craig’s    personally   will
    unjustly enrich Craig’s and be detrimental to BOL.           BOL will suffer
    the unjust penalty and hardship of being deprived of its claims to
    ownership of the funds without a hearing. The result will be highly
    inequitable   and   will   not   return   the   parties   to   their   former
         For all of these reasons, this case should be remanded to the
    district court with instructions that it perform its statutory duty
    under Rule 27 and 28 U.S.C. §§ 2041 and 2042, to determine rightful
    ownership of the funds in the court’s registry and distribute those
    funds accordingly.