# Petition — U. S. Industries, Inc. v. Gregg > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0587%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1977 - **Citation:** 433 U.S. 908 ## Text | ioeaaa | \ FILED seP 8 1976 IN THE Supreme Court of the UniteStates — October Term, 1976. No. 76-359 U. S. INDUSTRIES, INC. and DIVERSACON INDUSTRIES, INC., Petitioners, v. F. BROWNE GREGG, Respondent. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT. Davip A. DREXLER, P. O. Box 1347, 12th and Market Streets, Wilmington, Delaware. ‘19899 WiLuiaM F. SONDERICKER, 299 Park Avenue, New York, New York. 10017 Of Counsel: Morais, NicHOoLs, ARSHT & TUNNELL, P. O. Box 1347, 12th and Market Streets, Wilmington, Delaware. 19899 OLwineE, CONNELLY, CHASE, O’DONNELL & WEYHER, 299 Park Avenue, New York, New York. 10017 International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711 Os ER Oe re INDEX. EE cc Suc dukwadodkeGedbiehtaeceneeiceosageakes REASONS FOR GRANTING THE WRIT .............ecccceeeees I. The Decision Below Irreconcilably Conflicts With a Contemporaneous Decision of the Supreme Court of EE ib besdihsuwn cbeetiuetibesses onveeends II. The Decision Below Irreconcilably Conflicts With Decisions of Other Federal Courts ............... III. The Opinion Below Disregards the Controlling UN GE EE GAUIEE 6 cnc ccccccscccesescccees IV. The Decision Below Represents a Novel Expansion in an Important Area Which Requires the Definitive Ee WE so odeddncctecécdeksncededs AppENpix B—District Court Opinion (September 28, 1972) .. Appenpix C—District Court Opinion (February 2, 1973) .... AppeNpix D—District Court Memorandum Opinion and Order SE SED suddneateanaeents kacsensekuneesbece AppeNpix E—Court of Appeals Opinion (July 19, 1976) .... AppEenpix F—Supreme Court of Delaware Opinion in the Case of The Greyhound Corporation, et al. v. Heitner, et al. CREE Bi BUD. 266600 ec csccdngevectescecocsesbecs A60 A63 TABLE OF CITATIONS. Cases: Page Baker v. Gotz, affirmed en banc 492 F. 2d 1238 (3rd Cir. SUMED dcvcctudsbsvunsnncetdseosseecueses4aceoenseas ll Calero-Toledo v. Pearson Yacht Leasing Co., 416 U. S. 633 SEED sdentvadddnsconsccasewesscencacceuuaseunecsee 15 Carey v. Sugar, — U. S. —, 47 L. Ed. 2d 587 (1976) ........ 11,15 Connecticut General Life Ins. Co. v. Johnson, 303 U. S. 77 EE hnsad sdueucessesGhteeudeueed-easeduneuueees 13 Evans Theater Corp. v. Slaton, 180 S. E. 2d 712 (Ga. Sup.) cert. den. 404 U. §. G50 (1G71) ......ccccccccccccsess 10 Farrell v. Piedmont Aviation, Inc., 411 F. 2d 812 (2d Cir. SUE. dodbetednreisececeececosncusewesecuseucienees 13 Fauntleroy v. Lum, 210 U. S. 230 (1908) ................. 3, 16 Fuentes v. Shevin, 407 U. S. 67 (1972) .................. 5, 6, 15 The Greyhound Corporation et al. v. Heitner, Action No. 132, See CHD ER GEOG ocdvccocccccceses sikeacks 1, 2,8, 10, 11 Grosjean v. American Press Co., 297 U. S. 233 (1936) ...... 13 Hanson v. Denckla, 357 U. S. 235 (1958) .............. 16, 17, 18 Harris v. Balk, 198 U. S. 215 (1905) ..........ccccccceeees 15, 16 Hughes v. Fetter, 341 U. S. 609 (1951) ................05. 14 International Shoe Co. v. Washington, 326 U. S. 310 (1945) 3, 5, 6, 9, 10, 13, 14, 15, 16, 17, 18 Jellesxik ve Huron Copper Mining Co., 177 U. S. 1 (1900) ...12, 18 Jonnet v. Dollar Savings Bank, 530 F. 2d 1123 (3rd Cir. 1976) 13, 15, 16 Lebowitz v. Forbes Financing & Leasing Corporation, 456 F. Gee Ge canscncesadceceGnendnssendeseacenes 14, 15 Louis K. Liggett Co. v. Lee, 288 U. S. 517 (1933) ......... 13 McGee v. International Life Insurance Co., 355 U. S. 220 DEE -agcakeneascckaahaoneasaantackasessasaseeseks 16, 18 McKay v. McInnes, 279 U. S. 820 (1929) ................. 14 Mitchell v. W. T. Grant Company, 416 U. S. 600 (1974) .... 15 Minichiello v. Rosenberg, 410 F. 2d 106 (2d Cir. 1968) cert. den. 396 U. S. 844 (1969) ................ eyoreT 12, 13, 14 TABLE OF CITATIONS (Continued). Cases (Continued): Page Mullane v. Central Hanover Bank & Trust Co., 339 U. S. 306 DE UeteeUedecssebdSdddovdessdodevetevesecaseaes 17, 18 North Georgia Finishing Inc. v. Di-Chem, Inc., 419 U. S. 601 PT civeGid Shed RNECROSSREdNSRCOTS CESS EEsCCKECCeS 15 Occhino v. Illinois Liquor Control Commission, 329 N. E. 2d 353, 128 Ill. App. 3rd O67 (1975) ...........ceeeeeees 10 Ownbey v. Morgan, 256 U. S. 94 (1921) ............ 10, 14, 15, 16 Owsley v. Peyton, 352 F. 2d 805 (4th Cir. 1965) ........... 10 Pennoyer v. Neff, 95 U. S. 714 (1877) ............ 3, 10, 15, 16, 19 Rogers v. Guaranty Trust Company, 288 U. S. 123 (1932) ..12, 18 Rohr Aircraft Corp. v. County of San Diego, 336 P. 2d 521 (Cal. Sup. 1959), rev'd on other grounds 362 U. S. 628 PD: (ddiieeeike pesedanepededooepecoveseneesoess 10 Shaffer et al., appellants v. Heitner, appellee, Appeal No. ES ie de eet ic chee eESENEKSEOSSOeU NEON Seen 1 Watkins v. Conway, 358 U. S. 188 (1958) ................- 14 Miscellaneous: Delaware Code: ET 2 ee 2,4 SE 2 Te i i lund Cevesbenseeeeeeses 2,4 Delaware Court of Chancery, Rule 4(db) ................ 2,4 Federal Rules of Civil Procedure, Rule 4(e) .............. 2,11 ED cn ckecbodedenndceccecececccecsossvece 6 Supreme Court Rule 19(b) .............ceeeeeeeveeeeeees 14 EE cds cas¢osbbcssedouseseocoesesssenes 2 i scesceciecdudehoousd céceueeuseeteoretees 2 IN THE Supreme Court of the United States OcrosEer TERM, 1976. No. U. S. INDUSTRIES, INC. ann DIVERSACON INDUSTRIES, INC., Petitioners, v. F. BROWNE GREGG, Respondent. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT. Petitioners respectfully pray that a writ of certiorari issue to review the judgment of the United States Court of Appeals for the Third Circuit entered in this action on July 19, 1976. That judgment reversed a default judgment based upon quasi-in-rem jurisdiction in favor of the peti- tioner Diversacon Industries, Inc. which had been granted by the United States District Court for the District of Delaware and ordered that the action be dismissed for want of jurisdiction over respondent, even though no such jurisdiction had ever been claimed. The decision of the Court of Appeals conflicts di- rectly with a decision dated April 15, 1976 of the Supreme Court of Delaware in The Greyhound Corporation et al. v. Heitner, Action No. 132, 1975, from which an appeal to this Court is presently pending sub nom. Shaffer et al., appellants v. Heitner, appellee, Appeal No. 75-1812. Should this Court conclude that review is warranted, con- solidation of this case with Appeal No. 75-1812 may appear appropriate. 2 Petition for Writ of Certiorari CITATIONS TO OPINIONS BELOW. The United States District Court for the District of Delaware rendered three opinions relevant to the issues raised by this petition. The first, dated September 28, 1972 and reported at 348 F. Supp. 1004, is printed as Appendix B. The second, dated February 2, 1973 and reported at 58 F. R. D. 469, is printed as Appendix C. The third, an unreported Memorandum Opinion and Order dated April 24, 1975, is printed as Appendix D. The opinion of the United States Court of Appeals for the Third Circuit, dated July 19, 1976 and not yet officially reported, is printed as Appendix E. The opinion of the Delaware Supreme Court in The Greyhound Corporation v. Heitner (not yet officially reported ) No. 132, 1975 (April 15, 1976) with which the decision of the Court of Appeals herein directly conflicts is printed as Appendix F. JURISDICTION. The judgment of the Court of Appeals for the Third Circuit was entered on July 19, 1976. The jurisdiction of this Court is invoked pursuant to 28 U.S. C. § 1254(1). STATUTES AND RULES INVOLVED. Statutes involved in this appeal include § 8-317(1) of Title 6, Delaware Code, Sections 169 and 324 of Title 8, Delaware Code, and § 366 of Title 10 Delaware Code. Court Rules involved are Rule 4(db) of the Delaware Court of Chancery and Rule 4(e) of the Federal Rules of Civil Procedure. These statutes and rules are set out in Appendix A. Petition for Writ of Certiorari 3 QUESTION PRESENTED. Has the power of state courts to exercise quasi-in-rem jurisdiction over non-residents by seizure of their prop- erty or control over their debtors, as recognized in Pen- noyer v. Neff, ¥5 U. S. 714 (1877)—or to exercise in per- sonam jurisdiction by personal service of process as recognized in Fauntleroy v. Lum, 210 U. S. 230 (1908) —been limited or replaced by requirements of “minimal contacts’, as applied to “long-arm”, in personam jurisdic- tion over foreign corporations in International Shoe Co. v. Washington, 326 U. S. 310 (1945)? STATEMENT OF THE CASE. Review is sought of the reversal of a default judgment entered when the defendant elected not to answer after his challenges to the quasi-in-rem jurisdiction of the district court had been rejected. The amount of the judgment was the net value of the defendant’s property in Delaware realized upon its sale pursuant to an order of foreign at- tachment. The basis for reversal was the circuit court’s conclusion that, notwithstanding that defendant’s property had been lawfully attached, other sufficient “minimal con- tacts” affiliating the suit to the forum were lacking. The decision represents an unprecedented engrafting of prin- ciples enunciated in International Shoe Co. v. Washington, 326 U. S. 310 (1945), with respect to the presence of a defendant within a jurisdiction for purposes of in personam jurisdiction, upon foreign attachment and quasi-in-rem jurisdiction, as upheld in Pennoyer v. Neff, 95 U. S. 714 (1877). This action was commenced in the Court of Chancery in and for New Castle County, Delaware, on June 19, 1972, 4 Petition for Writ of Certiorari by plaintiffs U. S. Industries, Inc. (“USI”), a Delaware cor- poration, and its wholly owned subsidiary, Diversacon In- dustries, Inc., a Florida corporation, against F. Browne Gregg, who had in 1969 sold Diversacon to USI. As con- sideration for its purchase, USI had issued to Gregg 100,962 shares of its common stock and 8750 shares of Special Pref- erence Stock (Series M) and given Gregg a four-year em- ployment contract. As part of the transaction Gregg, among other things, gave to Diversacon a note for $500,000, payable in five equal annual installments. The complaint stated eight claims. Four claims al- leged that Gregg had made false representations to USI concerning the financial condition of his corporation con- stituting common law fraud, violations of federal securities law, and breaches of contract. Three claims dealt with breaches by Gregg of his employment contract. The final claim alleged that Gregg had defaulted on the second in- stallment of the $500,000 promissory note. Jurisdiction over Gregg, a resident of Florida, was sought by attachment of his property pursuant to 10 Del. C. § 366 (A4) and procedures set out in Chancery Court Rule 4(db) (A5-A7), a process denominated “sequestration” in Delaware. With the filing of the complaint plaintiffs moved to provide for notice to Gregg of the suit by certi- fied mail and publication, and to exercise control over his property, identified by affidavit as 68,210 shares of com- mon stock and 8750 shares of Special Preference Stock of USI, the shares still held by Gregg from the 1969 transac- tion. This intangible property had a situs in Delaware by virtue of 8 Del. C. § 169 (Al), and was subject to judicial control there by virtue of the court's control over the Delaware domiciliary, USI, which controlled the record transfer of its shares. The Court of Chancery on June 19, 1972 issued an Order of Sequestration which appointed a sequestrator to “seize” the shares of stock identified in the affidavit. Pur- Petition for Writ of Certiorari 5 suant to the Order, the sequestrator notified USI not to recognize any attempt to transfer the shares except in ac- cordance with the Order. The Order was duly published and a copy together with the summons and complaint sent to Gregg by certified mail. The Order in substance ad- vised Gregg that should he default the “seized” property could be sold in satisfaction of any judgment iv which plaintiffs might be entitled. The Order of Sequestration thus constituted a classic foreign attachment invoking quasi-in-rem jurisdiction. The Order required Gregg to appear and plead to the complaint by July 31, 1972. On July 25, the First National Bank of Leesburg, Florida (hereinafter “Intervenor Bank”) moved to intervene and quash, averring that, by reason of prior pledges by Gregg to it of all of the sequestered shares as security for loans totalling $1,635,000, it owned the whole of the interests in the shares and, hence, nothing owned by Gregg had been sequestered. On July 28, Gregg removed the case to the United States District Court for the District of Delaware, alleging diversity of citizenship, and on August 4, he too moved to quash the sequestration. He joined with the Intervenor Bank in claiming that nothing of his had been seized. Secondly, he claimed that the sequestration was unconstitutional. Gregg’s constitutional challenge was twofold. First, under principles established by International Shoe Co. v. Washington, 326 U. S. 310 (1945), he assertedly lacked sufficient “minimal contacts” with Delaware to permit its courts to claim jurisdiction over him. Second, under Fuentes v. Shevin, 407 U. S. 67 (1972), the sequestration constituted an impermissible seizure without prior notice or opportunity to be heard. On September 28, 1972, U. S. District Judge Walter K. Stapleton issued an opinion (Appendix B) in which he 6 Petition for Writ of Certiorari held that, notwithstanding the prior pledges, defendant Gregg owned an equity in the USI shares which had been validly attached,’ and that the sequestration statute and procedure were constitutional. His reasoning was, firstly, that International Shoe Co. v. Washington, supra, was not applicable to quasi-in-rem proceedings and, secondly, that Fuentes v. Shevin, supra, had expressly exempted from its strictures attachments to obtain jurisdiction. Thereupon, Gregg filed a further jurisdictional chal- lenge claiming the right to defend fully on the merits while limiting a prospective judgment to the value of his interest in the seized property. On February 2, 1973, after brief- ing and argument, Judge Stapleton denied this motion for limited appearance. His opinion (Appendix C) held that Delaware law, which requires a defendant to enter a general appearance as a condition of defending on the merits in a quasi-in-rem case, to be both applicable and constitutional. Gregg filed both a Notice of Appeai and Petition for Special Writ to the Third Circuit Court of Appeals. On February 28, 1973, that Court denied the petition and dismissed the appeal for want of jurisdiction, without prejudice to Gregg’s right to appeal from a final order. March 1, 1973 was finally the date for Gregg to answer. Upon his failure to do so, plaintiffs on March 6 directed the entry of his default in accordance with F. R. C. P. 55(a). Simultaneously they moved the Court to take the several steps necessary to reduce Gregg’s de- 1. Since Gregg’s Special Preference Stock was by its terms convertible into USI common stock at a ratio of 3.125 for one, Gregg’s 8750 preference shares were equivalent to 27,344 common shares. Thus, with the 68,210 shares of common stock seized, 95,554 common stock equivalents were subject to the Order of Sequestra- tion. At $23 per share, the bid price at the date of seizure, the total market value was approximately $2.2 million, $565,000 in ex- cess of the Bank’s $1,635,000 loan. Petition for Writ of Certiorari 7 fault to judgment. On March 16, the District Judge di- rected the Intervenor Bank to record the status of its lien” and fixed a date for inquest. On April 4, 1973, at inquest plaintiff Diversacon limited its proofs to establishing that Gregg had failed to pay the second installment of his $500,000 promissory note and that, as a consequence, it was entitled to a default judgment in the amount of $400,000 plus interest, costs and reasonable attorneys’ fees. Under quasi-in-rem principles, however, the amount of the judgment was limited to the value of the sequestered shares, as fixed by sale. On November 15, 1973, the District Judge ordered the _ sale of Gregg’s stock. He directed that, first, the remaining common shares be sold on the New York Stock Exchange and the proceeds applied to reduce the Bank’s lien. This was done November 16, reducing the lien to $44,406.84. The Order further directed public sale of the 2000 Special Preference shares, subject to the Intervenor Bank’s lien as it would then exist. However, the sale did not then occur. On December 13, 1973, Gregg filed a notice of appeal and moved for a stay of sale. Before this motion was heard, the Bank sold privately 800 Shares for $44,800, discharging in full its lien and generating a small excess ($123.44) which was deposited with the sequestrator. Thereafter, by mutual consent, sale of the remaining 1200 shares of > Stapleton had provided the Intervenor Bank with a non-judicial procedure for protecting its senior interest. The Bank was authorized to sell shares if sale was permitted by its loan agreements with Gregg. The only obligations imposed were to re- port any sales and to apply the pr to reduce the loans. Commencing in October, 1972, the market price of USI shares began a steady decline. Because of this, the Bank undertook a series of sales so that by March, 1973, the number of shares held subject to the Order of Sequestration had been reduced to 7547 shares of common stock and 2000 shares of Special Preference Stock, and the amount of the Bank's lien had been reduced from the original $1,635,000 to $102,499.21 plus interest. 8 Petiiion for Writ of Certiorari Special Preference Stock was stayed until disposition of Gregg’s appeal. On May 30, 1974 Gregg’s appeal was again dismissed as premature. After remand, Gregg twice moved to vacate his de- fault and quash the sequestration. Both motions were denied. With the second denial, entered April 24, 1975, Judge Stapleton issued a Memorandum Opinion dealing with the new authorities which Gregg had urged upon him (Appendix D). On May 28, 1975, the District Judge entered a re- newed order for sale of Gregg’s stock. On June 25, 1975, the 1200 shares of Special Preference Stock were sold in competitive bidding for $20,000, making the total amount received from sale of the sequestered property $20,123.44. The sale was confirmed on July 7, 1975. Thereafter, plain- tiff Diversacon moved for a default judgment. After allow- ing for costs totalling $1,642.24, the District Judge on August 20, 1975 directed entry of judgment for Diversacon in the amount of $18,481.20. Gregg again appealed, renewing all of the substantive and procedural arguments he had made in the district court. While the case was awaiting argument, the Dela- ware Supreme Court, confronted with virtually the iden- tical legal and constitutional arguments, on April 15, 1976 decided The Greyhound Corporation v. Heitner (Appendix F ), in which it held that the Chancery Court sequestration procedure as applied to the attachment of shares of Dela- ware corporations owned by non-residents was constitu- tional in all respects. The Delaware Supreme Court spe- cifically ruled that the “minimal contacts” approach to long-arm in personam jurisdiction enunciated by this Court in International Shoe Co. was not applicable to quasi-in- rem jurisdiction invoked by foreign attachment. The Third Circuit opinion (Appendix E), dated July 19, 1976, per Circuit Judges Aldisert and Weis and Senior iy enenee~ we Petition for Writ of Certiorari 9 Circuit Judge Kalodner, dealt with only two of. Gregg’s points. Firstly, it affirmed that Gregg had owned an at- tachable interest in the sequestered shares. Secondly, it held, contrary to the Supreme Court of Delaware and the district court, that foreign attachment and the exercise of quasi-in-rem jurisdiction were subject to the “minimal con- tacts” limitations of International Shoe Co. and that such minimal contacts were here lacking. Accordingly, judg- ment was reversed and dismissal ordered. 10 Petition for Writ of Certiorari REASONS FOR GRANTING THE WRIT. I. The Decision Below Irreconcilably Conflicts With a Contemporaneous Decision of the Supreme Court of Delaware. The crux of the holding below is that control over property lawfully subject to state power is not of itself enough to base an assertion of judicial power over such property for purposes of quasi-in-rem jurisdiction. There must be some additional “minimal contacts” or “affiliating circumstances” between the suit and the forum for such assertion of jurisdiction to be constitutionally permissible. In reaching this view, the Circuit Court expressly rejected the opinion of the Delaware Supreme Court in The Grey- hound Corp. v. Heitner, supra ( Appendix F ), which barely two months earlier had upheld the traditional rule that quasi-in-rem jurisdiction could be lawfully asserted by proper attachment of property subject to the control by the court. The instant case thus presents a classic instance of a conflict between jurisdictions interpreting decisions of this Court—here, principally, Pennoyer v. Neff, 95 U. S. 714 (1877), Ownbey v. Morgan, 256 U. S. 94 (1921) and In- ternational Shoe Co. v. Washington, 326 U. S. 310 (1945). State courts are not bound by decisions of the federal courts of appeals. See e.g., Evans Theater Corp. v. Slaton, 180 S. E. 2d 712 (Ga. Sup.) cert. den. 404 U. S. 950 (1971); Occhino v. Illinois Liquor Control Commission, 329 N. E. 2d 353, 128 Ill. App. 3rd 967 (1975); Rohr Air- craft Corp. v. County of San Diego, 336 P. 2d 521 (Cal. Sup. 1959), rev'd on other grounds 362 U. S. 628 (1960), Owsley v. Peyton, 352 F. 2d 805 (4th Cir. 1965). Hence, the courts of Delaware will continue to apply the law as Petition for Writ of Certiorari 11 declared by the Delaware Supreme Court. On the other hand, a plaintiff who seeks relief in the United States Dis- trict Court or whose case is removed to that court from the state courts will be subject to different rules. The problem is not peculiar to Delaware. Virtually every state has a foreign attachment statute, enabling plaintiffs to invoke quasi-in-rem jurisdiction by seizure of property within the jurisdiction. See e.g. Carey v. Sugar, — U.S. —, 47 L. Ed. 2d 587 (1976). Until the decision below, the presence of such property has been uniformly held of itself sufficient to permit invocation of such juris- diction. The conflict engendered by this case and Heitner will inevitably spread to other jurisdictions. Assuming federal courts adopt the Third Circuit’s approach, while state courts follow Delaware’s, not only will the results conflict, but also Rule 4(e) of the Federal Rules of Civil Procedure (A7-8), which promotes conformity between state and federal attachment procedures, will have been nullified. Moreover, in placing the limitations of “minimal con- tacts” upon constitutional invocation of foreign attach- ment, the court below raises numerous constitutional and practical questions. What constitutes a “minimal con- tact” or “affiliating circumstance”? Does the presence of a resident plaintiff meet the test?* Does ownership of realty, tangible personalty, or intangible personalty other than stock within the jurisdiction qualify? If Gregg’s stock certificates had been physically seized, would “minimal contacts” have been met?‘ Is the rule different in a case 3. The court below distinguished an earlier unreported case, Baker v. Gotz, affirmed en banc 492 F. 2d 1238 (3rd Cir. 1974), in which a panel of the Third Circuit initially upheld a sequestration under the Delaware procedure, by noting that, in the earlier case, the plaintiff railroad had substantial assets in Delaware (See Foot- note 10 at A88). 4. While the court below devoted many pages to questionin the precedents under which Delaware has declared the shares of 12 Petition for Writ of Certiorari purely in rem, where title to the property itself is to be adjudicated? Lastly, is the presence of defendant's debtor not enough and, if not, has not classic garnishment been abolished? Until the decision below, the answers to these questions were settled; now they are in doubt. The decision below thus puts at sea concepts utilized unquestioningly for centuries in the day-to-day adminis- tration of justice. We respectfully urge that this Court accept review in order to restore some balance and con- formity to the law of foreign attachment. Il. The Decision Below Irreconcilably Conflicts With Decisions of Other Federal Courts. Although the court below purported to distinguish it, the decision below is in irreconcilable conflict with the decision of the Second Circuit Court of Appeals~ in Minichiello v. Rosenberg, 410 F. 2d 106 (2d Cir. 1968) cert. den. 396 U. S. 844 (1969). In Minichiello, the court held that the most tenuous of property subject to the writ of a court—i.e., ownership of a liability insurance policy issued by an insurance company qualified to do business in New York and thereby subject to control by its courts— was sufficient as a constitutional matter to permit those courts to exercise quasi-in-rem jurisdiction by foreign at- tachment over the non-resident policyholder to the extent of the policy's value. The instant case holds that owner- ship of stock in a Delaware corporation, the transfer of 4. (Cont'd. ) its corporations to have a situs in Delaware (Jellenik v. Huron Copper Mining Co., 177 U. S. 1 (1900) and Rogers v. Guaranty Trust Company, 288 U. S. 123 (1932) ), the court did not invalidate those holdings. Nonethless, the attention devoted by the court to the particular property here involved—corporate shares—leaves open the questions of whether it would apply a different rule to other types of intangibles and, if so, why. Petition for Writ of Certiorari 13 which is controlled by a corporation which is subject to the writ of the Delaware courts, is not of itself sufficient as a constitutional matter to permit the Delaware courts to exercise such jurisdiction over the non-resident stockholder to the extent of the stock’s value.* The purported basis for distinguishing Minichiello is that in New York attachment of liability insurance is limited to resident plaintiffs (A89). This distinction can- not withstand analysis. First, it is not clear that the New York law is so limited. The case generally cited to sup- port that view, Farrell v. Piedmont Aviation, Inc., 411 F, 2d 812 (2d Cir. 1969), does not so hold. In Farrell the plaintiff in fact was a New York administrator. More importantly, whatever the rationale for its conclusion, Farrell did not impose International Shoe Co. concepts of “minimal contacts” upon use of foreign attachment; International Shoe Co. is not even cited in the opinion. But even if Minichiello be read as validating foreign attachment only where invoked by a domiciliary, still Minichiello cannot be reconciled. One of the plaintiffs herein, USI, is a Delaware domiciliary, albeit a corporate one. Denying corporate citizens remedies available to individuals is impermissible. See, e.g., Connecticut Gen- eral Life Ins. Co. v. Johnson, 303 U. S. 77 (1938); Louis K. Liggett Co. v. Lee, 288 U. S. 517 (1933); Grosjean v. American Press Co., 297 U. S. 233 (1936). Moreover, Judge John J. Gibbons’ concurring opinion in Jonnet v. Dollar Savings Bank, 530 F. 2d 1123, 1130 (3rd Cir. 1976), 5. There is a difference between the Delaware practice and the ractice approved in Minichiello with respect to the limits of lia- bility if the defendant appears. Delaware requires a general ap- ance; the rule approved in Minichiello does not. However, this ction raises questions not considered below which are not re- lated to the constitutionality of the basic exercise of quasi-in-rem jurisdiction. 14 Petition for Writ of Certiorari adopted by the court below, involved Pennsylvania plain- tiffs and is, on that™basis, indistinguishable from Minichiello. The purported distinction which the court below saw in Minichiello, moreover, raises serious questions about the extent to which states or state courts can constitu- tionally limit the access of non-resident plaintiffs to their courts unless dye on a case-by-case forum non conveniens basis. See, e.g., Watkins v. Conway, 358 U. S. 188 (1958); Hughes v. Fetter, 341 U.S. 609 (1951). Hence, the decision below conflicts squarely with Minichiello on the constitutional extent of quasi-in-rem jurisdiction. Other federal courts faced with the two con- flicting lines of authority could well reach inconsistent results. Hence, Supreme Court Rule 19(b) seems directly applicable, and this Court should grant review. III. The Opinion Below Disregards the Controlling Prece- dents of This Court. In Lebowitz v. Forbes Financing & Leasing Corpora- tion, 456 F. 2d 979 (1972), the Third Circuit invited this Court's review of quasi-in-rem jurisdiction. There it up- held the continuing validity of foreign attachment for quasi-in-rem jurisdiction, stating with respect to Ownbey v. Morgan, 256 U. S. 94 (1921) and McKay v. McInnes, 279 U. S. 820 (1929), cases which supported its conclu- sion: “Any reexamination of the continuing vitality of these cases must come from the Supreme Court” (456 F. 2d at 982) (emphasis added). In a concurring opinion, Circuit Judge John J. Gibbons expressed doubts concerning the continuing constitutionality of foreign attachment and quasi-in-rem jurisdiction. He noted that the cases uphold- ing such jurisdiction had preceded International Shoe Co., and he suggested some re-evaluation was warranted ee ee ee Oe Se ny ens Petition for Writ of Certiorari 15 (Ibid). Nonetheless, he too felt himself “bound by the [governing] precedents” (456 F. 2d at 983) and joined with the majority in upholding the attachment there in- volved. This Court twice declined to review Lebowitz (409 U. S. 843 and 409 U. S. 1049 (1972) ). Upon three sub- sequent occasions—Fuentes v. Shevin, 407 U. S. 67 (1972); Mitchell v. W. T. Grant Company, 416 U. S. 600 (1974); and Calero-Toledo v. Pearson Yacht Leasing Co., 416 U. S. 633 (1974)—this Court cited Ownbey v. Morgan with ap- parent approval, as upholding the continuing validity of foreign attachment and quasi-in-rem jurisdiction. In no case were the concepts even remotely questioned.* None- theless, thereafter, Circuit Judge Gibbons, in a concurring opinion in Jonnet v. Dollar Savings Bank, 530 F. 2d 1123, 1130 (3rd Cir. 1976), said that International Shoe Co. had indeed overruled Ownbey v. Morgan and, with it, the earlier landmark decisions of Pennoyer v. Neff, 95 U. S. 714 (1877) and Harris v. Balk, 198 U. S. 215 (1905). He concluded that foreign attachment and quasi-in-rem juris- diction were unconstitutional. Subsequent to Jonnet, supra, this Court again con- sidered the subject of foreign attachment. In Sugar v. Carey, supra, it reversed a Second Circuit opinion which had invalidated on procedural grounds New York's for- eign attachment law, describing that remedy as “one un- doubtedly of importance to the state” (47 L. Ed. 2d at 591). Nonetheless, disregarding virtually without comment these plain indications of this Court’s view of the continu- ing efficacy of foreign attachment, the court below ex- 6. There was, of course, controversy over the procedures for invoking such jurisdiction. Compare Mitchell v. W. T. Grant Com- pany, supra, with North Georgia Finishing Inc. v. Di-Chem, Inc., 419 U. S. 601 (1975). 16 Petition for Writ of Certiorari pressly adopted Judge Gibbons’ concurring opinion in Jonnet as its own, stating that Judge Gibbons had “de- velop[ed] a thesis to which we perceive no effective re- buttal” (A87). The thrust of every pronouncement by this Court be- fore and since International Shoe Co. has been to recog- nize the continuing vitality of foreign attachment and quasi-in-rem jurisdiction. Neither International Shoe Co., itself nor any other decision of this Court even remotely suggests International Shoe Co., was intended in any way to limit such jurisdiction.’ Yet, the Third Circuit has slipped in five years from respectful adherence to the ex- pressed views of this Court to utter disregard of them. Proper administration of justice requires that this Court put matters straight. IV. The Decision Below Represents a Novel Expansion in an Important Area Which Requires the Definitive Attention of This Court. Under our federal system, an important concern has historically been, and continues to be, the proper consti- tutional limitations upon exercise of jurisdiction by state courts. Pennoyer v. Neff, 95 U. S. 714 (1878); Harris v. Balk, 198 U. S. 215 (1905); Fauntleroy v. Lum, 210 U. S. 230 (1908); Ownbey v. Morgan, 256 U. S. 94 (1921); In- ternational Shoe Co. v. Washington, 326 U. S. 310 (1945); McGee v. International Life Insurance Co., 355 U. S. 220 (1957) and Hanson v. Denckla, 357 U. S. 235 (1958) are landmark decisions. Each deals with one or more facets of what has heretofore been recognized as three separate aspects of such jurisdiction: in personam, in rem, and quasi-in-rem. 7. International Shoe Co. itself cites Pennoyer v. Neff, ba approval—hardly an indication that the latter was + t. ee Se oe ee a ee Se ee Petition for Writ of Certiorari 17 The decision below forges a new rule expressly limit- ing quasi-in-rem jurisdiction; its implications, as a mat- ter of logical extension, read equally upon in personam and in rem bases of state court jurisdiction and, in effect, develop a new rationale and test for all assertions of juris- diction. The court below obliterated with a broad brush historical distinctions among the different kinds of juris- diction which have been recognized for centuries. Wholly new principles which demand careful scrutiny by this Court were written. The court below reached its novel conclusion by mis- applying three decisions of this Court. International Shoe Co., Hanson v. Denckla, 357 U. S. 235 (1958) and Mul- lane v. Central Hanover Bank & Trust Co., 339 U. S. 306 (1950). Regarding these opinions, the court below states as follows: “We can only understand Mullane and Hanson as establishing a constitutional limit to state court jurisdiction wholly independent of the label—in rem, quasi in rem, or in personam—that may be affixed to that jurisdiction. And whether it be called affiliating circumstances or minimum contacts, we must assume that ultimately the test of International Shoe is deter- minative: that there be sufficient connection with the forum ‘such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.”’ 326 U. S. at 316.” (A86) These authorities, individually or read together, do not support the conclusion asserted. Contrary to the court below, the “minimal contacts” test of International Shoe Co. is not a test of the contacts of a case to the forum. It is a test of presence of a corpo- rate defendant within a jurisdiction for in personam pur- 18 Petition for Writ of Certiorari poses. International Shoe Co. does not establish limits upon where transitory causes of action may be maintained; it deals only with where defendants can be sued by use of long-arm procedures. See Perkins v. Benguet Consolidated Mining Co., 342 U. S. 437 (1952). Secondly, the “affiliating circumstances” test of Han- son v. Denckla is whether there is a sufficient “affinity” be- tween a forum and an intangible res to support the forum’s assertion of in rem jurisdiction over such res. It is not a test of the “affinity” of a suit to the forum. In essence, it is a test of what intangibles can be lawfully attached. In the present case, the “affiliating circumstances” test is whether the relationship of shares of Delaware cor- porations to Delaware is sufficient to support a Delaware court's claim of in rem jurisdiction over them. We submit that it plainly is. See Jellenik v. Huron Copper Mining Co., supra, Rogers v. Guaranty Trust, supra. In all events it is a question which the court below did not address. Moreover, the statement (Footnote 8, A86) that Hanson v. Denckla used “minimum contacts” and “affiliating cir- cumstances’ interchangeably is, bluntly, incorrect. This Court carefully used each phrase to delineate two separate subjects of inquiry. Mullane is equally misused by the court below. It holds that a state court is not precluded from entertaining an essentially in rem proceeding involving a domestic trustee merely because in some aspects it may grant in personam relief. It is an expansion of, not a limitation upon, state court jurisdiction. It does not hold that the same constitutional test is applicable to the bringing of in personam, in rem and quasi-in-rem suits. In McGee v. International Life Insurance Co., 355 U. S. 220 (1957), this Court reviewed the authorities lead- ing up to International Shoe Co. and discerned “a trend . toward expanding the permissible scope of state Petition for Writ of Certiorari 19 jurisdiction over foreign corporations and other non- residents” (355 U. S. at 222). The decision below repre- sents a plain repudiation of this trend. By redefining “minimal contacts” to test something beyond the presence of a defendant in the jurisdiction, and “affiliating circum- stances” to test something other than the presence of an intangible res within the jurisdiction, it has created con- stitutional impediments to jurisdiction where none had heretofore been discerned. The court below reached its conclusion largely ipse dixit. Not only does it develop its own thesis by miscon- struction of the authorities relied upon, it gives back-of- the-hand treatment to the contrary views of the district court and the Supreme Court of Delaware, labelling them “cryptic” (A77) and “truncated” (A84). However, no- where does the court below come to grips with their rea- soning. For example, the District Judge developed a sig- nificant parallel between the constitutional reach of a state court over a non-resident defendant personally served and a non-resident defendant whose property is attached (A75-76). The District Judge also saw in the doctrine of forum non conveniens a utilitarian, non-constitutional method by which courts might deal with the potential of abuse which the circuit court perceived. The opinion is silent on both of these subjects. If the law of quasi-in-rem jurisdiction is to be changed and Pennoyer v. Neff, supra, is to be discarded after a century of heretofore uniform acceptability and prior centuries of usage, it is a change to be imposed by this Court after full consideration of all arguments. Peti- tioners submit that such consideration must inevitably lead to its reaffirmation. In all events, the subject is important enough in its broad implications to warrant such con- sideration, which, plainly, the court below failed to give it. 20 Petition for Writ of Certiorari CONCLUSION. For reasons set forth above, a writ of certiorari should issue to review the judgment and opinion of the United States Court of Appeals for the Third Circuit. Respectfully submitted, Davin A. DREXLER, P. O. Box 1347, 12th & Market Streets, Wilmington, Delaware. 19899 WILuiaM F. SONDERICKER, 299 Park Avenue, New York, New York. 10017 Of Counsel: Morais, NicHOLs, ARSHT & TUNNELL, P. O. Box 1347, 12th & Market Streets, Wilmington, Delaware. 19899 OLwInE, CONNELLY, CHASE, O’DONNELL & WEYHER, 299 Park Avenue, New York, New York. 10017 APPENDIX A. Statutes and Rules Involved. 6 Del. C. § 8-317. Effect on attachment and sequestration laws; attachment or levy upon security. (1) Nothing contained in this subtitle shall repeal, amend or in any way effect the provisions of sections 169 and 324, title 8, or sections 365 and 366, and chapter 35, title 10; and to the extent that any provision of this subtitle is inconsistent with such sections, sections 169 and 324, title 8, and 365 and 366 and chapter 35, title 10, shall be controlling. 8 Del. C. § 169. Situs of ownership of stock. For all purposes of title, action, attachment, garnish- ment and jurisdiction of all courts held in this State, but not for the purpose of taxation, the situs of the ownership of the capital stock of all corporations existing under the laws of this State, whether organized under this chapter or otherwise, shall be regarded as in this State. 8 Del. C. § 324. Attachment of shares of stock or any option, right or interest therein; procedure; sale; title upon sale; proceeds. (a) The shares of any person in any corporation with all the rights thereto belonging, or any person’s option to acquire the shares, or his right or interest in the shares, may be attached for debt, or other demands. So many of the shares, or so much of the option, right or interest therein (Al) A2 Appendix A may be sold at public sale to the highest bidder, as shall be sufficient to satisfy the debt, or other demand, interest and costs, upon an order issued therefor by the court from which the attachment process issued, and after such notice as is required for sales upon execution process. If the debtor lives out of the county, a copy of the order shall be sent by registered or certified mail, return receipt re- quested, to his last known address, and shall also be pub- lished in a newspaper published in the county of his last known residence, if there be any, 10 days before the sale; and if the debtor be a nonresident of this State shall be mailed as aforesaid and published at least twice for 2 suc- cessive weeks, the last publication to be at least 10 days before the sale, in a newspaper published in the county where the attachment process issued. (b) When shares of stock, or any option to acquire such or any right or interest in such, shall be so attached, a certified copy of the process shall be left in this State with any officer or director, or with the registered agent of the corporation. Within 20 days after service of the proc- ess, the corporation shall serve upon the plaintiff a cer- tificate of the number of shares held or owned by the debtor in the corporation, with the number or other marks distinguishing the same, or in the case the debtor appears on the books of the corporation to have an option to acquire shares of stock or any right or interest in any shares of stock of the corporation, there shall be served upon the plaintiff within 20 days after service of the proc- ess a certificate setting forth any such option, right or interest in the shares of the corporation in the language and form in which the option, right or interest appears on the books of the corporation, anything in the certificate of incorporation or bylaws of the corporation to the con- trary notwithstanding. Service upon a corporate registered Appendix A A3 agent may be made in the manner provided in § 321 of this title. (c) If the shares of stock or any of them or the option to acquire shares or any such right or interest in shares, or any part of them, be sold as provided in subsection (a) of this section, any assignment, or transfer thereof, by the debtor, after attachment so laid, shall be void. If, after sale made and confirmed, a certified copy of the order of sale and return be left with any officer or director or with the registered agent of the corporation, the purchaser shall be thereby entitled to the shares or any option to acquire shares or any right or interest in shares so purchased, and all income, or dividends which may have been declared, or become payable thereon since the attachment laid. Such sale, returned and confirmed, shall transfer the shares or the option to acquire shares or any right or interest in shares sold to the purchaser, as fully as if the debtor, or defendant, had transferred the same to him according to the certificate of incorporation or bylaws of the corpora- tion, anything in the certificate of incorporation or bylaws to the contrary notwithstanding. No order of sale shall be issued until after final judgment shall have been rendered in any case. The court which issued the levy and con- firmed the sale shall have the power to make an order compelling the corporation, the shares of which were sold, to issue new certificates to the purchaser at the sale and to cancel the registration of the shares attached on the books of the corporation upon the giving of an open end bond by such purchaser adequate to protect such corporation. (d) The money arising from the sale of the shares or from the sale of the option or right or interest shall be applied and paid, by the public official receiving the same, as by law is directed as to the sale of personal property in cases of attachment. A4 Appendix A 10 Del. C. § 366. Compelling appearance of nonresident defendant. (a) If it appears in any complaint filed in the Court of Chancery that the defendant or any one or more of the defendants is a nonresident of the State, the Court may make an order directing such nonresident defendant or defendants to appear by a day certain to be designated. Such order shall be served on such nonresident defendant or defendants by mail or otherwise, if practicable, and shall be published in such manner as the Court directs, not less than once a week for 3 consecutive weeks. The Court may compel the appearance of the defendant by the seizure of all or any part of his property, which property may be sold under the order of the Court to pay the demand of the plaintiff, if the defendant does not appear, or other- wise defaults. Any defendant whose property shall have been so seized and who shall have entered a general ap- pearance in the cause may, upon notice to the plaintiff, petition the Court for an order releasing such property or any part thereof from the seizure. The Court shall release such property unless the plaintiff shall satisfy the Court that because of other circumstances there is a reasonable possibility that such release may render it substantially less likely that plaintiff will obtain satisfaction of any judgment secured. If such petition shall not be granted, or if no such petition shall be filed, such property shall remain sub- ject to seizure and may be sold to satisfy any judgment entered in the cause. The Court may at any time release such property or any part thereof upon the giving of suf- ficient security. (b) The Court may make all necessary rules respect- ing the form of process, the manner of issuance and re- turn thereof, the release of such property from seizure and for the sale of the property so seized, and may require the Appendix A A5 plaintiff to give approved security to abide any order of the Court respecting the property. (c) Any transfer or assignment of the property so seized after the seizure thereof shall be void and after the sale of the property is made and confirmed, the purchaser shall be entitled to and have all the right, title and interest of the defendant in and to the property so seized and sold and such sale and confirmation shall transfer to the pur- chaser all the right, title and interest of the defendant in and to the property as fully as if the defendant had trans- ferred the same to the purchaser in accordance with law. (Code 1852, § 1938; 17 Del. Laws, c. 215; Code 1915, § 3850; 34 Del. Laws, c. 216, § 2; 35 Del. Laws, c. 217; 36 Del. DELAWARE CHANCERY COURT RULE 4 (db) Service by Publication and Seizure. (1) No order shall be entered under 10 Del. C. § 366 unless it appears in the complaint that the defendant or any one or more of the defendants is a nonresident of the State of Delaware and the application therefor is ac- companied by the affidavit of a plaintiff or other credible person stating: (a) As to each nonresident defendant whose ap- pearance is sought to be compelled, his last known address or a statement that such address is unknown and cannot with due diligence be ascertained. (b) The following information as to the property of each such defendant sought to be seized: (1) A reasonable description thereof. (2) The estimated amount and _ value thereof. A6 Appendix A ‘ (3) The nature of the defendant’s title or interest therein; and if such title or interest be equitable in nature, the name of the holder of the legal title. (4) The source of affiant’s information as to any of the items as to which the affidavit is made on information and belief. (5) The reason for the omission of any of the required statements. (2) Within 3 business days after the filing of such bond or bonds as may be required or within such other time as the Court may fix, the Register shall, in addition to making the required publication, send by registered or certified mail to each defendant whose appearance is sought to be compelled a certified copy of the order and a copy of the pleading asserting the claim. (3) After the filing of such bond or bonds as may be required by the order, but not later than 10 days after the date of the order of seizure, the sequestrator shall serve a certified copy of the order upon the person, persons or corporation having possession or custody of the property or control of its transfer, and shall seize the property. The sequestrator shall seize property which is, or appears, not to be susceptible of physical seizure within the State by serving a direction in writing that the person, persons or corporation having possessicn or custody of the property or control of its transfer, shall: (a) Retain the property and recognize no trans- fer thereof until further notice from the sequestrator or order of the Court; (b) Forthwith make a notation upon any records pertaining to the property that such property is held pursuant to the order of the Court; and Appendix A A7 (c) Within 10 days after the date of such service, deliver a certificate under oath to the sequestrator, specifying (i) such defendant's property, if any, of which it has possession, custody or control or control of its transfer; (ii) whether the title or interest of each such defendant is legal or beneficial; and (iii) if legal, the name and address of the holder of any equitable title or interest therein, if known, and, if beneficial, the name and address of the holder of the legal title thereto, if known. (4) Within 20 days after seizure, unless otherwise specially ordered, the sequestrator shall make his return to the Court, therein setting out all proceedings hereunder to the date of said return, including the date and hour of service and seizure pursuant to subdivision (3) hereof. (5) The Court may in its discretion and subject to statutory requirements dispense with or modify compli- ance with the requirements of any part of this Rule in any cause upon application to it stating the reasons therefor. FEDERAL CIVIL RULE 4(e) Summons: Service Upon Party Not Inhabitant of or Found Within State. Whenever a statute of the United States or an order of court thereunder provides for service of a summons, or of a notice, or of an order in lieu of sum- mons upon a party not an inhabitant of or found within the state in which the district court is held, service may be made under the circumstances and in the manner pre- scribed by the statute or order, or, if there is no provision therein prescribing the manner of service, in a manner stated in this rule. Whenever a statute or rule of court of the state in which the district court is held provides (1) for service of a summons, or of a notice, or of an order in A8 Appendix A lieu of summons upon a party not an inhabitant of or found within the state, or (2) for service upon or notice to him to appear and respond or defend in an action by reason of the attachment or garnishment or similar seizure of his property located within the state, service may in either case be made under the circumstances and in the manner prescribed in the statute or rule. Appendix B AQ APPENDIX B. U. S. INDUSTRIES, a CorporaTION AND DIvERSACON INpustTRIES, INC., A CORPORATION, Plaintiffs, v. F. BROWNE GREGG, Defendant. Civ. A. No. 4431. United States District Court, D. Delaware. Sept. 28, 1972. David A. Drexler, Morris, Nichols, Arsht & Tunnell, Wilmington, Del., and Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for plaintiffs. Thomas S. Lodge, and John R. Bowman, Connolly, Bove & Lodge, Wilmington, Del., and Bedell, Bedell, Dittmar, Smith & Zehmer, Jacksonville, Fla., for defendant. H. James Conaway, Jr., and Ben T. Castle, Young, Conaway, Stargatt & Taylor, Wilmington, Del., for inter- venor, First National Bank of Leesburg. Opinion. STAPLETON, District Judge. U. S. Industries, Inc., a Delaware corporation having its principal place of business in New York (“USI”), and Diversacon Industries, Inc., a Florida corporation having its principal place of business in Florida (“Diversacon” ), in- Al0 Appendix B stituted this action in the Court of Chancery of the State of Delaware against F. Browne Gregg, a citizen of the State of Florida. In the latter part of 1969 USI and Gregg en- tered into an Agreement and Pian of Reorganization (the “Agreement” ). In this Agreement USI committed itself to purchase from Gregg all of the issued and outstanding shares of capital stock of certain corporations controlled by Gregg (the “Gregg corporations”) in exchange for shares of USI voting common and special preference stock. The Agreement also provided for the execution of an em- ployment contract under which Gregg would commit him- self to USI to serve as an executive of the Gregg corpora- tions. Such a contract was entered into at the closing of the transaction on October 20, 1969. Subsequent to that closing and as contemplated by the Agreement, the busi- nesses formerly conducted by the Gregg corporations were transferred to the plaintiff Diversacon, a wholly owned subsidiary of USI. The complaint is divided into eight counts. Those counts set forth the following claims: 1. A common law deceit claim by USI against Gregg based on allegations that Gregg made representations of material facts which were false and misleading and omitted to state material facts necessary in order to make the state- ments made not misleading in order to induce USI to enter the Agreement. 2. A claim by USI against Gregg under Section 17(a) of the Securities Act of 1933 based on the same factual allegations stated in Count 1 plus the allegation that instru- mentalities of interstate commerce were utilized by Gregg. 3. A common law breach of warranty claim by USI against Gregg based upon the same factual allegations con- tained in Count 1. Appendix B All 4. A claim by USI against Gregg for the impressment of constructive trust upon Gregg’s USI stock based upon the foregoing factual allegations and an additional allega- tion that Gregg intends to sell, transfer or otherwise dispose of or encumber said stock and that this would irreparably damage USI by rendering judgment ineffectual. 5. A common law rescission claim by USI against Gregg based on the foregoing factual allegations and the assertion that USI was fraudulently induced to employ Gregg pursuant to the employment agreement. 6(a). A breach of contract claim by USI against Gregg based on an allegation that Gregg breached his com- mitment to devote his full business time and best efforts to the business of the Gregg corporations or any successor entity “by mismanaging Diversacon, as by, among other things, undertaking contracts on the basis of estimates of the corporation's ability to complete them which he knew or should have known to be erroneous, thereby committing the corporation to contracts on terms it could not meet.” (b). A breach of fiduciary duty claim by Diversacon against Gregg based on an allegation that the same “mis- management’ constituted a breach of duty owed by Gregg as an employee of Diversacon. 7. A breach of contract claim by USI against Gregg based on an allegation that Gregg breached a covenant not to compete “in that, while in the employ of USI, Gregg bid successfully against USI for the acquisition of Can Con- crete Rock Co., Inc., a Florida corporation, with actual or constructive knowledge of USI’s bid.” 8. A breach of contract claim by Diversacon against Gregg based on an allegation that Gregg has failed to pay Diversacon on a $500,000 note executed by Gregg in favor of the Gregg corporations, executed on October 20, 1969. Al2 Appendix B The complaint asks the following relief: (a) Claims 1, 2 and 3—$20,000,000, (b) Claim 4—the impressment of a trust, (c) Claim 5—return of the compensation paid Gregg, (d) Claims 6 and 7—unspecified compensatory damages, and (e) Claim 8—$400,000 plus interest. After filing its complaint, USI secured an order of the Court of Chancery purporting to sequester all shares of common and preferred stock of USI “owned, of record or beneficially, by said defendant.” The sequestrator was authorized “to seize and hold said property and any right, title or interest, legal or equitable, which” Gregg had therein. The First National Bank of Leesburg, Leesburg, Florida, intervened in the Chancery action and moved to quash the order of sequestration on the ground that it held the “equitable ownership” of the stock as a result of a pledge thereof in December of 1971 as security for a loan. The motion to quash was argued before the Court of Chancery, but the case was removed by Gregg before any decision on that motion was handed down. Following re- moval, the bank renewed its motion to quash the sequestra- tion ’ and plaintiffs moved to remand the case to the Court 1. Plaintiffs concede that the sequestration could not have seized any interest which Gregg did not ess at the time of sequestration in June of 1972 and that the bank's rights under its pledge agreement are senior. The Court has offered to amend the order of sequestration to permit the bank to exercise any of the rights given to it by ~4 oo _—~—_ including the right of sale subject to any right Gregg may have with respect to the —~ exceeding the amount of the loan. The bank has thus ar, however, asked for and received only an amendment to the order of sequestration permitting the transfer of the stock into the name of the bank on the records of the company as provided for in the pledge agreement. Appendix B Al3 of Chancery. Thereafter Gregg also moved to quash the sequestration and to dismiss this action. These motions present four issues for resolution. First, is this case properly removable under § 1441 of Title 28 of the United States Code? Second, if so, does the specific non-removal provision of the Securities Act of 1933, 15 U. S. C. § 77a et seq., prevent removal? Third, is the sequestration order, upon which the state court's jurisdic- tion was predicated and from whence our jurisdiction derives, valid? And, finally, if this Court has jurisdiction should any of the claims asserted be remanded to the state court? I. REMOvAL UNpER § 1441. In support of his removal, Gregg relies on § 1441(c) of Title 28 of the United States Code which provides: “Whenever a separate and independent claim or cause of action, which would be removable if sued upon alone, is joined with one or more otherwise non- removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction.” Plaintiffs, in support of remand, assert that there is no “separate and independent claim or cause of action” in their complaint, “which would be removable if sued upon alone.” They assert both that the complaint states no claim or cause of action which is separate and independent of the others, and, in the alternative, that if there is a separate and independent claim or cause of action its removal is barred either by want of complete diversity between adverse par- ties or by Section 22 of the Securities Act of 1933, 15 U. S. C. § 77v(a), which provides in part: Al4 Appendix B “. . . No case arising under this subchapter [the Secu- rities Act of 1933] and brought in any State court of competent jurisdiction shall be removed to any court of the United States... .” Plaintiffs’ initial argument stresses that all claims in the complaint arise as a result of USI’s acquisition of the Gregg corporations. Plaintiffs correctly assert that the diversity of legal theories supporting the various claims and the fact that each does not rest upon the identical factual allegations is not determinative.? Assuming, however, that all the claims here asserted do arise out of the same “inter- locked series of transactions” as that phrase is used in the relevant legal standard, plaintiffs’ analysis ignores another equally important element in that standard. In American Fire & Casualty Co. v. Finn, 341 U. S. 6, 14, 71 S. Ct. 534, 540, 95 L. Ed. 702 (1951), the Supreme Court held that “where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action under § 1441(c).” It is clear from this statement, the Finn opinion as a whole, and the subsequent cases applying its rationale that related transactions and common questions of law or fact are not alone enough to weld claims together for the purpose of applying § 1441(c). The circumstances and character of the impact upon the plaintiff or plaintiffs are also crucial.* Elsewhere in its 2. American Fire & Casualty Co. v. Finn, 341 U. S. 6, 71 S. Ct. 534, 95 L. Ed. 702 (1951). 3. See analysis in Mayflower Industries v. Thor Corp., 184 F. 2d 537 (3rd Cir. 1950); Twentieth Century Fox Film Corpora- tion v. Taylor, 239 F. Supp. 913 (S. D. N. Y. 1965); Pinto v. Maremont Corporation, 326 F. Supp. 165 (S. D. N. Y. 1971); Greenshields v. Warren Petroleum, 248 F. 2d 61 (10th Cir. 1957%° Unanue v. Caribbean Canneries, Inc., 323 F. Supp. 63 (D. Del. 1971); 1A Moore, Federal Practice, { 0.163[4-5], pp. 708, 712-713. Appendix B Al5 opinion the Supreme Court suggests that inquiry must be made of whether there was “a single wrongful invasion of a single primary right of the plaintiff’—“one actionable wrong for which plaintiff “was entitled to but one re- covery —damage arising from “a single incident.” 341 U. S. at 13, 16, 71 S. Ct. at 540. As will appear hereafter the second part of this test is important in the context of this case and precludes a finding that no claim asserted is separate and independent of the others. I accept plaintiffs’ argument that Claims 1 through 5 are not separate and independent. All of these claims al- lege facts occurring in connection with a single transaction and assert but a single invasion of a single right, i. e., UST's right to be free from deception in its business dealings with others. The alleged damage to USI resulted from a single incident, consummation of a fraudulently induced bargain. Korber v. Lehman, 221 F. Supp. 358 (S. D. N. Y. 1963). While the matter is not quite so clear, I agree with plaintiffs that Claims 6(a) and (b) are not separate and independent of each other. There is a split among the commentators as to whether plaintiffs who do not rely upon a right held jointly can ever be said to assert claims that are not separate and independent. The cases show a greater willingness to find separate and independent claims in situations where multiple plaintiffs have claims against a defendant or defendants than in situations where a single plaintiff asserts several multiple claims against a defendant or defendants. However, where the facts alleged arise out of the same transaction and damage to the respective plain- tiffs is similar in kind and arises from a single incident, nothing in the Finn rationale would appear to dictate a holding of separate and independent claims. While the claims of the respective plaintiffs may be “separate,” they Al6 Appendix B are not “independent.” Fugard v. Thierry, 265 F. Supp. 743 (N. D. Ill. 1967); Rosen v. Rozan, 179 F. Supp. 829 (D. C. Mont. 1960); Wright, Federal Courts, § 39, n. 18 (1972 Supp.); Note, 52 Columbia L. Rev. 101, 106-107 (1952). a While USI’s Claim 6(b) is for breach of contract and Diversacon’s 6(a) claim is for breach of fiduciary duty, both rest upon the same facts. Any injury to these plain- tiffs would result from a single invasion of a same interest and would “come from a single incident.” USI, as a sole stockholder of Diversacon, had an interest in the quality of the management of Diversacon which it sought to protect by contract. Any invasion of that interest would be a simultaneous invasion of an identical interest of Divers- acon’s. While USI might conceivably be entitled to some damage not recoverable by Diversacon, any damage would necessarily stem from injury to Diversacon and any damage for which Diversacon recovered would not be recoverable by USI. Since the claims stated in Claims 1 through 5 are not removable by reason of Section 22(a) of the Securities Act * and the claims stated in Claims 6(a), 6(b), and 8 are not removable for want of either complete diversity or a federal claim, the crucial question becomes whether Claim 7 states a claim separate and independent of the other claims in the complaint. Plaintiffs argue that, at a min- imum, Count 7 is not separate and independent of Claims 6(a) and (b). First, they suggest that Claim 7, fairly read, alleges an injury to USI through competition by Gregg with Diversacon, and that the interest allegedly in- vaded in that claim is the same as the common interest of USI and Diversacon allegedly invaded in Claim 6. Claim 4. Cf. Pate v. Standard Dredging Corp., 193 F. 2d 498 Cir. 1952). es Appendix B Al7 7 in plaintiffs’ view is only a particularization of the “mis- management of Diversacon, Inc.” alleged in Claims 6(a) and (b). Accordingly, plaintiffs conclude that Claim 7 is not a separate and independent claim. I do not agree with this conclusion. Assuming that competition with USI through appro- priation of a corporate opportunity of Diversacon could fairly be said to come within the conclusory allegation of “mismanagement of Diversacon,” * this does not answer the relevant question unless all claims against a single fiduciary for corporate mismanagement necessarily constitute non- separate, non-independent claims. I see no reason to so hold. Here as in other areas the question must be whether the facts relied upon by the pleader show separate and independent claims. Claim 6 alleges that Gregg committed Diversacon to contracts which he knew or should have known would be non-profitable to the detriment of USI and Diversacon.° Claim 7, liberally construed in the context of the attach- ments to the complaint, alleges a claim that Gregg damaged USI by bidding for a company which competes with Diversacon. I conclude that these are separate and independent claims. The only things which they have in common are that they arise in the context of relationships initially estab- lished in the USI acquisitions of the Gregg corporations, 5. This assumption, at the least, stretches the concept of mis- management beyond its commonly accepted scope. 6. The general allegation that Cregg has been guilty of “mis- managing” Diversacon to the extent it does more than characterize the facts alleged in this claim, is no more than a conclusion which can and should be disregarded for present purposes. “The subject matter of the controversy is whatever the plaintiff in good faith declares it to be in his pleadings, not by conclusions of law but by well-pleaded allegations of fact.” Edwards v. E. I. DuPont de Nemours & Co., 183 F. 2d 165, 168 (5th Cir. 1950). Al18 Appendix B and, that as to USI, they allegedly constitute breaches of the same employment contract. Except for this common background, the transactions from which these claims arise are neither similar in character nor otherwise related. The alleged injuries complained of in Claims 6 and 7 do not result from a single incident or invasion. Moreover, the impact on USI and Diversacon of the Diversacon contracts referred to in Claim 6 and the impact on them of the Con- crete Rock acquisition referred to in Claim 7 appear wholly unrelated in time or character. USI could recover damages for either wrong without recovering damages for the other or could recover for both without creating any problem of duplication of damages. In view of the otherwise distinct character of these claims, the question boils down to whether breach of con- tract claims based on the sare contract are necessarily non- separate, non-independent claims for purposes of Section 1441(c). Ihave found no case which directly passes upon this question. A negative response is dictated, however, by those authorities recognizing that the existence of common questions of law or fact are not alone enough to preclude removal under that section. The only remaining question is whether Claim 7 is separate and independent from Claims 1 through 5 and from Claim 8. I conclude that it is. As heretofore noted, the wrong to USI in Claims 1 through 5 flowed from the consummation of a fraudulently induced bargain. It is wholly unrelated to the wrong to USI flowing from the alleged breach of the covenant not to compete and the wrong to Diversacon flowing from the alleged default on the note. While it is perhaps true that USI could not re- cover on its fifth claim for rescission of the employment contract and on its seventh claim for breach of the cov- enant not to compete, this is because the claims are legally Appendix B Al9 inconsistent and not because a monetary recovery on one would compensate USI for the alleged injury arising from the other.’ II. Secrion 22(a) oF THE SECURITIES ACT. The conclusion that Claim 7 is a separate and inde- pendent claim which because of diversity of citizenship would be removable if sued upon alone necessitates an examination of the relationship between § 1441(c) of Title 28 and Section 22 of the Securities Act of 1933. 15 U.S.C. § 77v. Despite the separate and independent character of Claim 7, Claim 2, arising under the Securities Act, never- theless remains in the case. It can be argued that Section 22(a) precludes the removal of any action containing a claim under the Securities Act and that such a construc- tion of the relevant statutes comports with the general policy favoring strict construction of the removal provi- sions. 1A Moore, Federal Practice, {0.157 [1.3]. The question presented by this argument appears to be one of first impression although a few cases have considered sim- ilar questions arising under statutes similar to Section 22 (a) in language and purpose. Both the Jones Act, 46 U. S. C. § 688, and the Fed- eral Employers’ Liability Act, 45 U. S. C. §§ 51-56, sim- 7. Pinto v. Maremont Corporation, 326 F. Supp. 165 (S. D. N. Y. 1971) is the only case found which arguably supports a conclusion contrary to the one I here reach. That case does not go as far, in my judgment, as plaintiffs suggest. The nature of the misrepresentation in the Pinto case is not disclosed in the opinion. However, the court's observation that “recovery could not be had under both the Securities Act claim and the contract claims,” together with its reliance at this point on Korber v. Lehman, 221 F. Supp. 358 (S. D. N. Y. 1963) leads me to believe the damage to the plaintiff on the misrepresentation claims and those on the contract claims was identical and recovery on either would com- pensate plaintiffs for the same injury. A20 Appendix B ilarly prohibit removal of claims asserted thereunder. 28 U.S. C. § 1445(a). Since the 1948 revision of the Judicial Code and the expansive reading given to § 1441(c) by the Supreme Court in Finn, rarely has a court, faced with a possible conflict between § 1441(c) and the applicable nonremoval provision, found a “separate and independent” claim. The question is thus avoided in the overwhelming number of reported cases.* There are, however, a handful of vintage district court opinions which decide that the joinder of a state law cause of action with a F. E. L. A. claim makes the whole case removable in the presence of the requisite diversity. Strother v. Union Pac. R. Co., 220 F. 731 (W. D. Mo. 1915): Bedell v. Baltimore & O. R. Co., 245 F. 788 (Ohio 1917); Givens v. Wight, 247 F. 233 (N. D. Tex. 1918). The legal theory upon which the question is there resolved is that in joining removable claims to a statutorily nonremovable one the plaintiff “waived” his right to the forum of his choice. Other cases from the same period, however, refer to the statutory pro- visions restricting removability as “jurisdictional” and indi- cate that there are no circumstances under which a case falling thereunder could be removed. Mitchell v. South- ern Ry. Co., 247 F. 819 (N. D. Ga. 1917); Jones v. South- ern Ry., 236 F. 584 (N. D. Ga. 1916). Only one modern case has squarely decided the ques- tion. In Emery v. Chicago, B. & Q. R. Co., 119 F. Supp. 654 (S. D. Iowa 1954) plaintiff pleaded a cause of action 8. See e. g., Pate v. Standard Dredging Corp. 193 F. 2d 498 = Cir. 1952) (an action for negligence under the Jones Act and or unseaworthiness under general maritime law did not state separate and independent claims and was thus non-removable under the Jones Act). Accord, Gutierrez v. Pacific Tankers, 81 F. Supp. 278 (S. D. Tex. 1948); Greene v. United Fruit Co., 85 F. Supp. 81 (S. D. N. Y. 1949); McKee v. Merritt-Chapman & Scott . 144 F. Supp. 423 (N. D. Ill. 1956); Hall v. Illinois Cent. R. Co., 152 F. Supp. 549 (W. D. Ky. 1957). Appendix B AQ] based on the Federal Employers’ Liability Act and joined with it several claims based on breach of contract. The court held that the claims were “separate and independ- ent” and the entire case was removable under § 1441(c). The court there seemed to adopt the waiver rationale of the older cases cited above: “, .. It rested with (plaintiff) whether he should state a cause solely under the Act and therefor not remov- able, or unite it with causes of action which might be removed. When he adopted the latter course, de- fendant then became entitled to exercise the right of removal conferred upon it by the statutes as to the causes of action properly removable. . . .” Id. at 657. The commentators have spoken to the problem with something less than unanimity. Professor Moore in speak- ing of the non-removal provision of the Jones Act has said: “Finally, there is one situation where a literal ap- plication of the removal statute would effect the re- moval of a Jones Act claim. Under the provisions of § 1441(c) where there is a removable separate and independent claim joined with the nonremovable Jones Act claim, the entire suit can be removed .. .” (citing Emery) 1A Moore, Federal Practice {| 0.167 [3.2] Professor Cohen has taken a different view: “Thus, it is possible, in a case where two parties are of diverse citizenship to encounter the joinder of an unremovable claim with a totally disconnected claim which would otherwise be removable. Assuming that the nonremovable claim is sufficiently substantial to pass muster under the fraudulent joinder rules, the A22 Appendix B combined force of the policies generally precluding removal of the unremovable claim and those per- mitting joinder argue for leaving the entire litigation in the state court.” Cohen, Problems in the Removal of a “Separate and Independent Claim or Cause of Action,” 46 Minn. L. Rev. 1 (1961). I find the waiver rationale of the Emery case unper- suasive.” It assumes its own conclusion. The real question is whether Section 22 of the Securities Act and § 1441 re- flect a congressional intent to give a claimant under the Securities Act his choice of forum even though he joins a separate and independent claim. If Congress did so in- tend, a Securities Act plaintiff cannot be said to have waived his right to such a joinder. Neither do I find, as Professor Cohen suggests, that the policies underlying Section 22(a) and § 1441(c) clearly dictate an answer. Section 22(a) reflects a con- gressional solicitude for Securities Act claimants and grants them their choice of forum for litigating their claims. Conflicting with this policy is the apparent two- told purpose of § 1441(c): (a) to assure that a defendant entitled to a federal forum for the litigation of a federal claim or a claim by a citizen of a different state will not be deprived of that right by his adversary’s joinder of a nonremovable, separate and independent claim and (b) at the same time to assure that all claims which should be 9. While there is authc-ity for the proposition that an F. E. L. A. plaintiff may waive his right to a state forum by his failure to move for remand in the federal court, Bailey v. Texas Co., 47 F. 2d 153 (2nd Cir. 1931); Jacobson v. Chicago, M. St. P. & P. Ry. Co., 66 F. 2d 688 (8th Cir. 1933); Woodward v. D. H. Overmeyer Co., 428 F. 2d 880 (2nd Cir.), cert. denied, 400 U. S. 993, ." — = 27 ey 2d 441 (1970), such a waiver should clearly distinguished from a waiver predicated upon the joinder claims in the state court. 4 Appendix B A23 litigated together for reasons of judicial economy be liti- gated in the same forum. Because of this conflict, the problem resolves itself into drawing a line where Congress intended the right granted a Securities Act claimant to cease and the protection granted defendants to commence. Congress could reasonably have drawn the line either to include or to exclude this type of case from the removable class. The answer I believe is to be found in an analysis of § 1441." This statute contains two grants of removal jurisdiction. Subsection (a) grants the general right of removal to defendants in any case that could originally have been brought in a district court of the United States. The first clause of that subsection limits this authority to cases where a contrary result has not been “otherwise ex- pressly provided by Act of Congress.” This is a clear refer- 10. § 1441: “(a) Except as otherwise expressly provided by Act of any civil action brought in a State court of which the district courts of the United States have original jurisdic- tion, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending. (b) Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties. Any other such action shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought. (c) Whenever a ate and independent claim or cause of action, which would be removable if sued upon alone, is joi with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its dis- cretion, may remand all matters not otherwise within its on. A24 Appendix B ence to statutes like Section 22(a). Subsection (b) fur- ther limits this general removal jurisdiction in diversity cases to cases where no defendant is a resident.” Subsections (a) and (c) “refer to two completely different situations.” Port of New York Authority v. East- ern Air Lines, Inc., 259 F. Supp. 142, 145 (E. D. N. Y. 1966). Subsection (c) grants additional removal jurisdiction in a class of cases which would not otherwise be removable under the prior grant of authority. It assumes the existence of a separate and independent claim which would not be removable under that prior grant. A literal reading of Section 1441 demonstrates that Subsection (c) is not sub- ject to the restriction contained in the first clause of Sub- section (a). Moreover, nothing in the language of Sub- section (c) suggests a Congressional distinction between two classes of suits “otherwise non-removable” within the contemplation of that subsection, i. e., those non-remov- able because they fall completely without the original jurisdiction of the federal district courts and those which, although dealing with federal questions, are made non- removable by Congressional pronouncement. I, accordingly, conclude that Section 22(a) restricts the grant of general removal jurisdiction found in Subsec- tion (a). However, in a case where a separate and inde- pendent claim, which would be removable if sued upon alone, is joined with one or more otherwise removable claims, whether made non-removable by Section 22(a) or otherwise, Subsection (c) is the governing provision and authorizes removal of the entire case. 11. Because Subsection (b) is a limitation on the grant of authority contained in Subsection (a) and not a separate grant of authority, the absence of an “except as otherwise provided” claim in Subsection (b) is not significant for present purposes. Appendix B A25 III. THe VALIDITY OF THE SEQUESTRATION. The motions to quash the sequestration assert two arguments common to both: (1) Gregg owned no sequest- erable interest in the stock at the time of sequestration and (2) Delaware’s sequestration statute as here applied is violative of the Due Process Clause of the United States Constitution. Gregg executed a $1,500,000“demand note in favor of the Bank on December 28, 1971. The note reflected that the USI stock involved was pledged to secure this indebtedness and gave the Bank the right, among other things, (1) to pledge or transfer the note and collateral to any other pledgee, (2) to transfer all-of the collateral to its own name or to the name of its nominee, (3) to vote the stock, (4) to direct that any dividend payments on the stock be made to it, (5) to “demand, sue for, collect or make any compromise or settlement it deems desirable with reference to the collateral,” (6) to take control of any proceeds of the collateral and (7) to exercise the “remedies” of a secured party under the Uniform Com- mercial Code, if the Bank “deemed itself insecure or upon the occurrence of any default.” The sequestration order was served upon USI on or about June 19, 1972. The stock was then registered in the name of Gregg. As of July 27, 1972, the collateral was valued by the Bank at $2,066,333.62. The loan transaction was negotiated and closed in Florida. The law of Florida determines the nature and extent of Gregg’s interest, if any, in the stock.’"* The law of Delaware controls the question of whether any such interest may be sequestered under 10 Del. C. § 366. 12. The relevant portions of Florida’s version of the Uniform Commercial Code do not, however, differ from those of the Dela- ware version. A26 Appendix B Cheff v. Athlone Industries, Inc., 233 A. 2d 170 (Del. Sup. Ct. 1967); Nickson v. Filtrol Corporation, 265 A. 2d 425 (Del. Ch. 1970). An examination of Florida law reveals that Gregg had not transferred his entire interest in the stock to the Bank at the time of sequestration. The rights retained under Article 9 of Florida’s Unitorm Commercial Code by a debtor who has conveyed a security interest in collateral apply “whether title to collateral is in the secured party or in the debtor.” 19C Fla. Siat. Ann. § 679.9-202 (West 1966). These rights include the right of return of the collateral upon fulfillment of the debtor's obligations. Id. § 679.9-506. This right is expressly recognized in the Gregg note; it is, in any event, unwaivable. Id. § 679.9-501. The rights reserved to the debtor under Article 9 are rights in the collateral itself and may be transferred voluntarily or involuntarily. Jd. § 679.9-311 provides: “The debtor's rights in collateral may be volun- tarily or involuntarily transferred (by way of sale, creation of a security interest, attachment, levy, garnishment or other judicial process) notwithstand- ing a provision in the security agreement prohibiting any transier or making the transier constitute a de- fault.” Stock in a Delaware corporation is personal property having its situs in Delaware. 8 Del. C. § 169. Accord- ingly, interests therein coming within the scope of 10 Del. C. § 366 are sequesterable in Delaware for the pur- pose of compelling the appearance of non-resident de- fendants. Hodson v. The Hodson Corporation, 32 Del. Ch. 76, 80 A. 2d 180 (1951). Somewhat surprisingly there is no reported Delaware case directly ruling on whether one in Gregg’s position has an interest sequesterable under BEST COPY AVAILABLE Appendix B A27 10 Del. C. § 366." I am convinced, however, that a Dela- ware court confronted with the question would rule in the affirmative. Section 366 authorizes the Court of Chancery to “com- pel the appearance of the defendant by the seizure of all or any part of his property.” The word “property” as here used has “a broad and comprehensive meaning, including legal and equitable interest in both real and personal prop- erty,” and is not limited to property interests seizable by foreign attachment at law. Blumenthal v. Blumenthal, 28 Del. Ch. 1, 35 A. 2d 831, 836 (1944), affd 28 Del. Ch. 448, 59 A. 2d 216 (1945); Sands v. Lefcourt Realty Corp., 35 Del. Ch. 340, 117 A. 2d 365 (1955). With this under- standing as a base, Delaware courts, confronted with ques- tions of whether interests in stock were sequesterable, have asked whether the specified interest was cognizable at law or equity, whether it was susceptible of sufficient identi- fication to permit seizure, and whether it was saleable. Blumenthal v. Blumenthal. supra; Green v. Johnston, 34 Del. Ch. 115, 99 A. 2d 627 (Sup. Ct. 1953). Here Gregg’s interest is so cognizable, so identifiable and so alienable. Accordingly, I conclude that it is sequesterable."* Dela- 13. There have been a number of cases where pledged stock has been sequestered, but in all to which this Court has been referred, the pledgee has apparently been content with modifica- tion of the sequestration order in a manner which recognized its senior rights. 14. “Bare legal title” (i.e., registered ownership) is sequester- able, the property being subject to release only upon a showing that its retention or sale would defeat or interfere with equitable interests therein. Rebstock v. Lutz, 39 Del. Ch. 25, 158 A. 2d 487 (Sup. Ct. 1960). Equitable interests of limited scope have been held to be sequesterable. In the Blumenthal case the plaintiff creditor had dened that there had been a fraudulent conveyance of stock by the defendant Blumenthal to his sister, Miriam Rogers. The court held: “. . Miriam Rogers is the legal owner of the stock, and Blumenthal has no equitable rights therein, as between them; A28 Appendix B wares Uniform Commercial Code confirms this conclu- sion. Section 9-311 of Title 5A of the Delaware Code, like its Florida counterpart quoted above, provides that a “debtor's rights in collateral may be . . . involuntarily trans- ferred (by way of sale . . . attachment, levy, garnishment or other judicial process ).” ” Winitz v. Kline, 288 A. 2d 456 (Del. Ch. 1971) does not dictate a contrary conclusion. In that case an order of sequestration had been entered directing the seizure of shares of a Delaware corporation “registered in the name of” the defendant Kline. Prior to the seizure, Kline and the other twenty-nine holders of the corporation’s outstanding stock had entered a voting trust agreement. The certifi- cates were surrendered by the five voting trustees to the corporation for cancellation and eight new certificates had been issued in the name of the voting trustees. Under the voting trust agreement the depositing stockholders were issued voting trust certificates. The certificates evidenced the holder’s right upon termination of the trust to receive a specified number of “fully paid and nonassessable shares of the capital stock” and his right to “receive payments equal 14. (Cont'd. ) but it appears that the complainant is a defrauded creditor who stands in a very different position. As between her and Blumenthal, the latter had property rights in the stock, subject to seizure under the statute, which enabled valid substituted service to be had on him. ...” 35 A. 2d p. 836. The fact that an interest is contingent or unmatured does not make it non-sequesterable. Weinress v. Bland, 31 Del. Ch. 269, 71 A. 2d 59 (1950). 15. Section 8-317 of Delaware’s Uniform Commercial Code provides that nothing in the Code shall “amend or in any way effect” the provisions of Section 366 and that to the extent that any such provision is inconsistent with Section 366, it shall control. Arguably this might preclude reference to Section 9-311 for the purpose of defining property under Section 366. As the Study Comment on Section 9-311 indicates, however, that Section is a reflection of pre-existing Delaware law. Appendix B A29 to the cash dividends received by the . . . [trustees] upon a like number of shares of capital stock of . . . [the corporation], less the amount of any expense chargeable to the holder.” The Chancellor noted initially that the case was not identical to earlier Delaware cases which had held that a trustee holds the entire interest in corporate stock con- stituting the corpus of the trust and that the beneficiaries of the trust, while possessing an equitable interest in the trust, had no interest in the stock itself. E.g., Nickson v. Filtrol Corporation, supra. The reason for this observation was a line of Delaware cases which state that a stockholder who deposits his stock in a voting trust retains “beneficial” ownership of the stock for some purposes. Sundlun v. Executive Jet Aviation, Inc., 273 A. 2d 282 ( Del. Ch. 1970); Clarke Memorial College v. Monaghan Land Co., 257 A. 2d 234 (Del. Ch. 1969); Smith v. Biggs Boiler Works Co., 33 Del. Ch. 183, 91 A. 2d 193 (1952); Chandler v. Bellanca Aircraft Corporation, 19 Del. Ch. 57, 162 A. 63 (1932). The Chancellor held, nevertheless, that the holders of the voting trust certificates in the case before him did not have a sequesterable interest in the corporate stock held by the trustees as a trust corpus. Two reasons were cited by the Chancellor for his con- clusions: (1) the order directed seizure only of common stock registered in the name of Kline and at the time of the seizure no shares were so registered and (2) any interest which Kline had in the stock was neither capable of effec- tive seizure nor capable of being sold. In connection with the second point the Chancellor pointed out that effective seizure requires that the stock in which the defendant has an interest must be readily identifiable. Greene v. Johnston, 34 Del. Ch. 115, 99 A. 2d 627 (Sup. Ct. 1953). He observed that in the case before him any beneficial in- A30 Appendix B terest of Kline could not “be related to specific blocks of stock or lots of shares held by the trustees.” The Chan- cellor further found that any such interest could not be sold without disregard of the rights of third parties in the voting trust. In this connection he pointed out that while the interest evidenced by the voting trust certificates might be effectively transferred, seized and sold, the sequestration had been directed to the corporate shares and not to the voting trust certificates. None of the deficiencies present in the Winitz case are present here. The sequestration order directed the seizure of shares held in the name of Gregg and shares held in the name of Gregg were seized. As indicated above, Gregg has an interest in all of those identifiable shares which is expressly made transferable, either voluntarily or invol- untarily, by Section 9-311. That interest can be sold with- out “disregard to the rights” of the Bank. Both Gregg and the Bank attack Delaware’s sequestra- tion statute as here applied on constitutional grounds. Gregg’s attack is two-pronged. First he asserts that the sequestration of property of a non-resident defendant in a case having no substantial contact with Delaware violates due process. Additionally both Gregg and the Bank assert that the sequestration of property without prior notice and an opportunity to be heard violates due process. Delaware's sequestration statute, 10 Del. C. § 366, au- thorizes the Court of Chancery, after the filing in that court of a complaint against a non-resident, to enter an order directing the defendant “to appear by a day certain to be designated.” It then provides: “The Court may compel the appearance of the defendant by the seizure of all or any part of his prop- erty, which property may be sold under the order of the Court to pay the demand of the plaintiff, if the Appendix B A31 defendant does not appear, or otherwise defaults. Any defendant whose property shall have been so seized and who shall have entered a general appearance in the cause may, upon notice to the plaintiff, petition the Court for an order releasing such property or any part thereof from the seizure. The Court shall release such property unless the plaintiff shall satisfy the Court that because of other circumstances there is a reasonable possibility that such release may render it substan- tially less likely that plaintiff will obtain satisfaction of any judgment secured. If such petition shall not be granted, or if no such petition shall be filed, such property shall remain subject to seizure and may be sold to satisfy any judgment entered in the cause. The Court may at any time release such property or any part thereof upon the giving of sufficient security.” Rule 4(db) of the Rules of the Court of Chancery, Del. C. Ann., which implements the provisions of the sequestration statute provides in part as follows: “(db) Service by Publication and Seizure. (1) No order shall be entered under 10 Del. C. § 366 unless it appears in the complaint that the defendant or anv one or more of the defendants is a non-resident of the State of Delaware and the application therefor is accompanied by the affidavit of a plaintiff or other credible person stating: 16. Subsection (c) of Section 366 provides as follows: “Any transfer or assignment of the ry so seized after the seizure thereof shall be void and after the sale of the property is made and confirmed, the purchaser shall be entitled to and have all the right, title and interest of the defendant in and to the property so seized and sold and such sale and confirmation shall transfer to the purchaser all the right, title and interest of the defendant in and to the property as fully as if the defendant had transferred the same to the in accordance with law.” A32 Appendix B (a) As to each non-resident defendant whose appearance is sought to be compelled, his last known address or a statement that such ad- dress is unknown and cannot with due diligence be ascertained. (b) The following information as to the property of each such defendant sought to be seized: (1) A reasonable description thereof. '(2) The estimated amount and _ value thereof. (3) The nature of the defendant's title or interest therein; and if such title or interest be equitable in nature, the name of the holder of the legal title. (4) The source of affiant’s information as to any of the items as to which the affidavit is made on information and belief. (5) The reason for the omission of any of the required statements. (2) Within three business days after the filing of such bond or bonds as may be required or within such other time as the court may fix, the Register shall, in addition to making the required publication, send by registered or certified mail to each defendant whose appearance is sought to be compelled a certified copy of the order and a copy of the pleading asserting the claim. (3) After the filing of such bond or bonds as may be required by the order, but not later than 10 days after the date of the order of seizure, the sequestrator shall serve a certified copy of the order upon the person, persons or Appendix B A33 corporation having possession or custody of the property or control of its transfer, and shall seize the property. (5) The court may in its discretion and subject to statutory requirements dispense with or modify compli- ance with the requirements of any part of this rule in any cause upon application to it stating the reasons therefor.” Gregg’s first argument is based upon International Shoe v. Washington, 326 U. S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945) and its progeny. He asserts that “under mod- ern concepts of due process, a court cannot assert juris- diction unless either the defendant or the subject matter of the action had at least minimal contacts with the forum.” The “minimal contacts” doctrine to which Gregg re- fers is not applicable where, as here, the plaintiff invokes the quasi in rem jurisdiction of the court. While a con- trary view has been urged as the wiser one,’ the courts have accepted the view of Justice Holmes that the “foun- dation of jurisdiction is physical power.” ** Just as a court may exercise in personam jurisdiction in a suit on a transi- tory cause of action where the only contact with the forum state is personal service upon the defendant within that state,"® so also may a court exercise jurisdiction over prop- , Ehrenzweig, The Transient Rule of Personal Jurisation 1 e “Power” Myth and Forum Non Conveniens, 65 ale L. Rev. 289 (1956); Carrington, The Modern Utility of Quasi In Rem Jurisdiction, 76 Harv. L. Rev. 303 (1962). se com- mentators, however, recognize the prevailing view. 18. McDonald v. Mabee, 243 U. S. 90, 91, 37 S. Ct. 343, 61 Y ios). 608 (1915). See also Goodrich, Conflicts of Law, § 73 (1 19. E. ooo & Lum, 210 U. S. 230, 28 S. Ct. 641, 52 Ed. 1039 (1908); Restatement, Conflict of Laws, §§77, 78; Goodrich, Conflict of Laws, §73 (1964). A34 Appendix B erty within its control regardless of the presence or absence of other contacts with the forum state.*” Where the court has either of these foundations for the exercise of its power, it may constitutionally proceed, though the absence of substantia] contacts with the forum may lead it to decline to do so under the familiar principles underlying the doc- trine of forum non conveniens*' and the federal transfer provisions of 28 U.S.C. § 1404. The state of a corporation’s domicile may constitu- tionally provide, as Delaware has done, that the situs of its capital stock is in its home state.” Thus, where the stock of a domestic corporation is brought before the court, this provides a sufficient basis for the exercise of its quasi in rem jurisdiction even though the defendant may be a non- resident who has had no prior contacts with the forum state. Breech v. Hughes Tool Co., 41 Del. Ch. 128, 189 A. 2d 428 (Del. Sup. Ct. 1963); Ownbey v. Morgan, 256 U. S. 94, 41 S. Ct. 433, 65 L. Ed. 837 (1920).” Gregg attempts to distinguish the relevant authorities by saying that this is not in reality a quasi in rem action. He correctly points out that an avowed purpose of Dela- 20. Cf. Hanson v. Denckla, 357 U. S. 235, 246, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1957); Beal, Conflicts of Laws, §§ 106.3, 107.3 (1935); Goodrich, Conflicts of Law, §70 (4th Ed. Scoles 1964). 21. E.g., Gulf Oil > rn Sr oS SS 839, 91 L. Ed. 1055 (1947); General Foods Corp. v —_. Inc., 41 Del. Ch. 474, 198 A. 2d 681 (Del. Sup. Ct. 19 _ me ~ cases relied — by soategts o arise because of the difficulty ing traditiona in personam jurisdiction over indivi nf in suits against t foreign corporations. Even in such cases if the corporation’s activities in a state are substantial enough it is ordi- narily subject to suit there on causes of action unrelated to the business conducted in the forum state. See e.g., Restatement -_ Conflict of Laws, § 47 (1971). Ge (1008), Jellent Trust Co., 288 U. S. 123, 53 S. Ct. 295, 77 L. ed (1932); ik v. Huron Copper Mining Co., 177 U. S. 1, 20 S. Ct. 30 44 Ed. 647 (1899). 23. See note 26 infra. Appendix B A35 ware’s sequestration statute is to compel a general appear- ance and thereby produce a basis for in personam jurisdiction. While the statute is concededly designed to produce this result, it does not follow that the action is not one governed by the rules applicable to quasi in rem juris- diction. Unless and until the non-resident defendant elects to enter a general appearance, the power of the court is limited to the application of the property before the court to the plaintiffs’ claim.” The second attack on the constitutionality of Dela- ware’s sequestration procedure is grounded on Fuentes v. Shevin, 407 U. S. 67, 92 S. Ct. 1983, 32 L. Ed. 2d 556 (1972). The reliance upon that case is misplaced. In Fuentes the Supreme Court struck down Pennsyl- vania and Florida replevin statutes under which personal property had been seized without notice or an opportunity to be heard. The court's holding was not, however, as broad as Gregg and the Bank contend. It is significant that the court noted: “There are ‘extraordinary situations that justify postponing notice and opportunity for a hearing. Bod- die v. Connecticut, supra, 401 U. S. 371, at 379, 91 S. Ct. 780, 28 L. Ed. 2d 113. These situations, how- ever, must be truly unusual. Only in a few limited situations has this Court allowed outright seizure with- out opportunity for a prior hearing. First, in each case, the seizure has been directly necessary to secure an important govermental or general public interest. Second, there has been a special need for very prompt action. Third, the State has kept strict control over its monopoly of legitimate force: the person initiating the 24. 10 Del. C. § 366; Hanson v. Denckla, 357 U. S. 235, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958); cf. Jacobs v. Tenney, 316 F. Supp. 151 (D. Del. 1970); Restatement of Judgments, § 34 comment f (1942). A36 Appendix B seizure has been a government official responsible for determining, under the standards of a narrowly drawn statute, that it was necessary and justified in the par- ticular instance... .” In connection with these observations the Supreme Court cited with approval Ownbey v. Morgan, 256 U. S. 94, 41 S. Ct. 433, 65 L. Ed. 837 (1920), describing it as a case which “involved attachment necessary to secure juris- diction in [a] state court—clearly a most basic and important public interest.”* In Ownbey the Supreme Court rejected a constitutional attack on the exercise of quasi in rem jurisdiction based upon the seizure of stock in a Delaware corporation under Delaware’s foreign at- tachment statute. Under that statute, there was no pre- seizure notice or hearing. While the opinion in the Fuentes case should not be read as endorsing all of the views stated in the Ownbey opinion, Fuentes does indicate that seizures of the kind made here are constitutionally permissible when the tripartite test set forth there is met. The Supreme Court’s footnote characterization of the attachment in the Ownbey case supplies the answer to the initial inquiry of whether the seizure was “directly necessary to secure an important governmental or general public interest.” This is not a case like Fuentes where the statutes allowed “summary seizure” when “no more than [a] private gain is directly at stake.” Fuentes v. Shevin, 25. Fuentes v. Shevin, 407 U. S. 67, 91, n. 23, 92 S. Ct. 1983, 1999, 32 L. Ed. 2d 556 (June 12, 1972). : 26. Although neither the Delaware court nor the United States upreme Court considered it signi Ownbey case appears to have been a suit by non-resi plaintiffs against a non-resident defendant arising out of the latter's activities as general manager of a Delaware corporation the activities of which were limited to the States of Colorado and New Mexico. Morgan v. Ownbey, 29 Del. 379, 6 Boyce 379, 100 A. 411 (1916). Appendix B A37 supra at 93, 92 S. Ct. at 2000. As previously noted a state has a legitimate interest in the exercise of judicial jurisdic- tion with respect to property within its borders. Seizure for the purpose of securing such jurisdiction in a state court, accordingly, serves, in the words of the Supreme Court, “a most basic and important public interest.” Fuentes v. Shevin, 407 U. S. 67, 92 S. Ct. 1983, 1999, 32 L. Ed. 2d 556, at n. 23. See also Lebowitz v. Forbes Leas- ing & Finance Corp., 456 F. 2d 979 (3rd Cir. 1972). Was there need for prompt action? Given the nature of the interest served by the seizure, the answer here must also be in the affirmative. Notice would afford the defend- ant an opportunity to defeat the state's interest in securing jurisdiction by the simple expedient of moving or trans- ferring the property.” This distinguishes the present case from the situation involved in Fuentes. Those in posses- sion of the property seized in Fuentes were subject to the in personam jurisdiction of the courts of Pennsylvania and Florida respectively and could be compelled to attend a hearing to make a preliminary determination of the rights in the property. The state’s power to adjudicate was, ac- cordingly, not in jeopardy. The interest served by the replevin statutes there under attack was the plaintiff's private interest in securing possession of personal property in which they claimed a possessory interest. Finally, Delaware has kept a “strict control over its monopoly of legitimate force.” The court’s analysis of the 27. Gregg and the Bank seek to distinguish Lebowitz on the that plaintiffs’ cause of action there arose in the forum state. Under the rationale of the opinions in Lebowitz, Fuentes and Ownbey, however, this does not appear to be a relevant con- sideration. Moreover, there are more contacts between this litiga- tion and the State of Delaware than were present in Ownbey. 28. In the case of seizure of stock in a Delaware corporation, the latter would, of course, be the only option available for this purpose. A38 Appendix B Pennsylvania and Florida statutes on this point is helpful in understanding the purpose of this third requirement. The court observed: “The statutes, moreover, abdicate effective state control over state power. Private parties, serving their own private advantage, may unilaterally invoke state power to replevy goods from another. No state official participates in the decision to seek a writ; no state official reviews the basis for the claim to re- possession; and no state official evaluates the need for immediate seizure. There is not even a requirement that the plaintiff provide any information to the court on these matters. The State acts largely in the dark.” Here, unlike Fuentes, the order effecting the seizure was issued by a state court judge. That judge had been supplied with a complaint and with an affidavit which re- vealed: (1) that Gregg was a non-resident and accordingly not subject to the in personam jurisdiction of the court, (2) that Gregg owned specifically described, alienable prop- erty within the State of Delaware, (3) the value of that property and (4) the source of the plaintiffs’ information on these subjects. This information provided the basis for a determination that the seizure would be in furtherance of the “important public interest” underlying the seques- tration statute and that prompt action would be required.” 29. Under the Delaware practice, a court presented with a motion for the issuance of a sequestration order may also determine from the complaint whether it is “bona fide on its face,” Hughes v. Trans World Airlines, Inc., 40 Del. Ch. 552, 185 A. 2d 886 (1962), whether the action is of a kind where the exercise of quasi in rem jurisdiction is appropriate, Steinberg v. Shields, 38 Del. Ch. 349, 152 A. 2d 113 (1959), and whether the value of the property to be seized bears a reasonable relation to the amount of the claim asserted. Trans World Airlines Cotp. v. Hughes, 40 Del. Ch. 523, 185 A. 2d 762, 765 (1962). Appendix B A39 It may be argued that the defendant's interest might be better protected if the statute or the rule required the issuing court to make a preliminary finding, upon the basis of an ex parte presentation, that the plaintiffs’ case has some merit.*” However, as the Supreme Court noted in Fuentes, the protection offered by such an ex parte deter- mination is largely illusory. Fuentes v. Shevin, supra, 407 U. S. 67, at 80-82, 92 S. Ct. 1983, at 1994. I do not believe such a procedure is constitutionally required where, as here, the required presentation reveals to the issuing judge a situation where immediate seizure will serve a legitimate state interest.” In short, this is not a situation where the State of Delaware has abdicated “effective state control over state power . . . [to] private parties serving their own private advantage ....” Fuentes v. Shevin, supra, at 93, 92 S. Ct. at 2001. The procedure here attacked serves a public purpose as part of the ordered system of conflict resolution which includes the exercise of judicial power over prop- erty located within the state. Lebowitz v. Forbes Leasing & Finance Corporation, 456 F. 2d 979 (3rd Cir. 1972). IV. REMAND Having decided that a separate and independent cause of action, removable under 28 U. S. C. § 1441(a) and 30. This is not required under Delaware law. Hughes v. Trans World Airlines, Inc., 40 Del. Ch. 552, 185 A. 2d 886 (1962). 31. The distinction between the public interest foundation of the sequestration process and the private interest foundation of the Fuentes replevin statutes is reflected in the effect of the respective types of seizure. In Fuentes the state procedure had deprived one party of possession and had made it available to another without any determination regarding the merits of the latter's claim. In a sequestration context, the practical effect of the seizure is to immobilize the property and thereby protect the court's jurisdiction. The property may not be applied to the claim of the plaintiff until after there has been notice and an opportunity for the defendant to be heard. A40 Appendix B (b), is stated in Claim 7, that the Court of Chancery had jurisdiction under its Order of Sequestration and, accord- ingly, that the derivative removal jurisdiction of this Court has been properly invoked, the Court must finally decide whether the claims “othetwise non-removable” ought to remain in this Court or, in the exercise of the discretion granted under 28 U. S. C. § 1441(c), ought to be remanded to the state court. Notwithstanding the separate and in- dependent character of the claims asserted, I conclude that the public interest in the efficient administration of justice as well as the convenience of the parties and the witnesses will be best served by the litigation of all claims in one proceeding. See Baltimore Gas & E. Co. v. United States Fidelity & G. Co., 159 F. Supp. 738 (D. Md. 1958). The motions to remand this case and to vacate the sequestration order are denied. This Court will retain jurisdiction of the entire case and determine all issues raised. Submit order. f Appendix C A4l1 APPENDIX C. U. S. INDUSTRIES, INC., A CorporRATION AND DrIvERSACON INDUSTRIES, INC., A CORPORATION, Plaintiffs, v. F. BROWNE GREGG, Defendant. Civ. A. No. 4431. United States District Court, D. Delaware. Feb. 2, 1973. David A. Drexler, of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., and Olwine, Connelly, Chase, O’Don- nell & Weyher, New York City, for plaintiffs. Thomas S. Lodge, and John R. Bowman, of Connolly, Bove & Lodge, Wilmington, Del., and Bedell, Bedell, Dittmar, Smith & Zehmer, Jacksonville, Fla., for de- fendant. OPINION STAPLETON, District Judge: This action was originally filed in the Court of Chancery of the State of Delaware. Plaintiff, U. S. In- dustries, a Delaware corporation (“USI”), immediately secured an order from that court which sequestered cer- tain shares of USI stock owned by the defendant Gregg, a A42 Appeiidix C Florida resident, under Delaware’s sequestration statute, 10 Del. C. § 366. Gregg, before making any response in the Court of Chancery, removed the case to this Court. In subsequent proceedings, this Court held that the se- questration was valid and that the case was properly re- moved under 28 U.S. C. § 1441/c). The complaint asserted both federal and state claims. The holding on the remova! question, however, was based upon a finding that plaintiff had alleged “a separate and independent claim” which “would have been removable if sued upon alone” because of diversity of citizenship and the presence of the requisite jurisdictional amount. Sce U. S. Industries v. Gregg, 348 F. Supp. 1004 (D. Del. 1972). Beiore the time for det:endant’s an.wer, he moved for leave to enter @ “limiled’ or “restricied” appearance, claiming the right to defend »laintif’s coins on the meriis without subjecting himse!i to ihe in por-cnam jurisdiction of the court and thus the rizht to linit the satisfaction of any judgment obtained by the plaintiff wo ihe sequestered property itseli. ‘This motion is now betore the Court for decision.’ 1. Plaintiff, relying on F. R. Civ. P. 12(g¢), maintains that Cregg waived any right he may have had to the relief here soucht by failing to request that relief in conjunction with his attack upon the sequestration. { conclude, however, that Rule 12(g) is inapplicable. While the motion is in a sense similar to a “defense of lack of jurisdiction over the person,” at the time of the attack on the sequestration the laintiff was not claiming, and the court clearly did not have, jnrisdiction over defendant's person and there was no need to challenge jurisdiction which had not been asserted. While it would have perhaps been better practice to have joined the current request as one for alternative relief, this motion never- theless raises substantial and important issues from the defendant's point of view in a largely uncharted area, and I conclude that disposition on grounds of waiver would not be in the interest of justice. Defendant's form of motion has been used in other cir- cumstances to raise similar issues. E.g., Grant v. Kellogg Co., 3 F. R. D. 229 (S. D. N. Y. 1943); Sands v. Lefcourt Rea ty Corp., 35 Del. Ch. 340, 117 A. 2d 365 (Sup. Ct. 1955). —--_ --—- - —— oe wens @ Appendix C A43 Under the Delaware rule, as announced in Sands. v. Lefcourt Realty Corp.,? Gregz would concededly be de- nied the permission he see's. He asserts, however, that federal law controls the point and that, in any event, ap- plication of the Delaware rule would violate his right to due process of law under the Fourteenth Amendment to the United States Constitution. In this context, a number of questions are presented: (| ) whether any tederal statute or any of the Federal Rules oi Civil Procedure decides the point either by way of declaring, expressly or by neces- sary implication, a federal rule or by incorporating the state rule. (2) if not, whether this Court should apply federal or state law, (3) if tederal law is to be applied, what is the federal rule and (4) if Gregg’s choice is lim- ited to one between default and ceneral appearance, wil he be deprived of due process? {. THe Feperat STATUTES AND RULES. ue process questions aside, this is an area in which Congress by statute, or the Supreme Court by rule, could, consistent with Erie v. 7 onmkins * and the Constitution, establish a controlling rule ior decision.’ Neither, how- ever, has chosen to do so. Section 1450 of Title 28 provides in part: Whenever any aciion is removed from a State court to a district court of the United States, any attachment or sequestration of the goods or estate of 2. 35 Del. Ch. 340, 117 A. 2d 365 (Sup. Ct. 1955). 3. Erie R. Co. v. Tompkins, 304 U. S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). 4. Hanna v. Plumer, 380 U. S. 460, 472, 85 S. Ct. 1136, 1144, 14 L. Ed. 2d § (1965) (holding that such power exists “to regulate matters which. though falling within the uncertain area between substance and p re, are rationally capable of classification as either.” ). ; ; A44 Appendix C the defendant in such action in the State court shall hold the goods or estate to answer the final judgment or decree in the same manner as they would have been held to answer final judgment or decree had it been rendered by the State court. USI urges that this statute incorporates Section 366 of Title 10 of the Delaware Code which, as the court in the Sands case found, was drafted with the idea that lim- ited appearances would not be available. The purpose of Section 1450, however, is to give a state attachment the same effect in a federal court after removal as it would have had in the state court; it incorporates state law to this extent.’ I find no suggestion in the text of the statute, however, that it was intended to refer a federal court to state law for a determination of when the federal court obtains in personam jurisdiction and when it does not." Federal Rule 81(c) provides that the Federal Rules of Civil Procedure shall apply to removed actions and shall “govern procedure after approval.” No other federal rule, however, can be said to govern the question before this Court either expressly or by necessary implication. Rule 4(e) as amended in 1963, permits the institution of actions in a federal court by attachment and provides that “service shall be made . . . under the circumstances and 5. 1A Moore, Federal Practice, { 0.168 [4-5]. 6. This reading does not produce the procedural quagmire and jurisdictional dilemma which plaintiff predicts. Section 368 does require the Court of Chancery to release the seized property upon the entry of a “general , absent a showin release will make it ‘su tially less likely that laintiff i will ‘ob. tain satisfaction of any judgment secured.” It not follow, however, that this Court, in obeying the command of Section 1450 dd. a See would be required to act y upon en a limit a yt try o appearance and thereby lose Appendix C A45 in the manner prescribed in . . . [a state] statute or rule.” Its scope is thus limited to service of process and does not extend further.’ The “legislative” history so indicate." Rule 12 in describing the responses to a complaint does not, it is true, refer to the possibility of a “limited appearance.” This has helped one court to the conclusion that the rule excludes this alternative.” Moreover, Rule E(8) of the Supplemental Rules for Certain Admiralty and Maritime Claims, by contrast, expressly provides for limited appearances in the cases which it governs. But the temptation to draw a negative inference from the omission of a reference to limited appearances in Rule 12 should be resisted in light of the relevant advisory com- mittee comments. The comments relating to Rule 12 do not indicate that any judgment was made on the issue." The comment in connection with the 1963 amendments to Rule 4 likewise contained no mention of the problem." The 1963 amendment to Rule 13 and the 1965 adpotion of admiralty rule E(8), however, produced affirmative evi- dence that the committee intended to “leave the matter 7. Cf. Arrowsmith v. United Press International, 320 F. 2¢ 219, 224 (2nd Cir. 1963). 8. See notes 10 and 11, infra; Kaplan, Amendments of the Federal Rules of Civil Procedure, 1961-1963, 77 Harv. L. Rev. 601, 627-28 ( a ay Carrington has taken the position that since the “whole thrust of the [proposed] Rule 4(a) amendment is a reference to state law it may be presumed that the Committee would contemplate . . . use [of the limited appearance only] in states in which it is permitted in local courts.” Carrington, The Modern poo of Quasi in Rem Jurisdiction, 76 Harv. L. Rev. 303, 314 (1962). The Comments seem to indicat [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0587%3A1. Public record. Not legal advice.