Petition for Writ of Certiorari — Baker v. Gotz
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Supreme Court of the Unite
.90°9 FILE copy} “FTP
APR 25 1974
IN THE
October Term, 1974.
No.73-1609
GEORGE P. BAKER, RICHARD C. BOND, JERVIS LANGDON,
JR., WILLARD WIRTZ, Trustees of the Property of the PENN
CENTRAL TRANSPORTATION COMPANY,
Petitioners,
«
FIDEL G6TZ, VOLKER G6TZ, FINANZ AKTIENGESELL-
SCHAFT, VILEDA ANSTALT, G6TZ AKTIENGESELL-
SCHAFT OF ST. GALLEN (Also Known as GOTZ AG OF ST.
GALLEN, or GO6TZ ANSTALT OF ST. GALLEN, or GOTZ
ETABLISSEMENT OF ST. GALLEN, or GOTZ ESTABLISH-
MENT OF ST. GALLEN), INTER-INDUSTRY AKTIENGE-
SELLSCHAFT OF ST. GALLEN (Also Known as INTER-
INDUSTRY AG OF ST. GALLEN, or INTER-INDUSTRY
ANSTALT OF ST. GALLEN, or INTER-INDUSTRY ETAB-
LISSEMENT OF ST. GALLEN, or INTER-INDUSTRY ESTAB-
LISHMENT OF ST. GALLEN), INTER-MARKETING CORP.
ANSTALT (Also Known as INTER-MARKETING CORP.
ETABLISSEMENT, or INTER-MARKETING CORP. ESTAB-
LISHMENT), MINOLTA ANSTALT, and FINANZ AG ST.
GALLEN.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT.
Epwin P. Rome,
Marvin Comisky,
Morris L. WEISBERG,
4 Penn Center Plaza,
Philadelphia, Pennsylvania. 19103
Wituiam E. Taytor, Jr.,
500 Continental American Building,
On Rodney Square,
Wilmington, Delaware. 19801
‘ Attorneys for Petitioners
-
International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711
WICRAEL RODAK JR_GLE
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INDEX.
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JURISDICTION... 22. cee ccc cece ccc cc cscs cceecccces
CIN PUD «ons occ ncccnccaccccccccccersssess
CONSTITUTIONAL AND STATUTORY PROVISIONS AND PROCE-
en I NII 0 Fe aw euine
Aare naaememmeennmneeie? ni SUNN a ok tah atc tintin wail wen
DS IE iccicnicdcancwenenenhudenans
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REASONS FOR GRANTING THE WRIT ............2eceeecees
I. The Court of Appeals In Banc Was Equally Divided
on the Important Federal Constitutional Questions
Dt ctinisoueeauesubanndbolimcubagmesnae
II. This Court Should Finally Settle the Issue Whether
the Delaware Sequestration Procedure Violates the
Due Process Provisions of the Fifth and Fourteenth
Amendments Because It Authorizes the Seizure of
Property Without Notice or Opportunity for Hear-
De csatdavedwnseivessnestkeeabeesbeseuseeusbs
III. This Court Should Finally Settle the Issue Whether
the Delaware Sequestration Procedure Violates the
Due Process Provisions of the Fifth and Fourteenth
Amendments When the State Lacks Minimum Con-
tacts With Either the Subject Matter or the Parties
IV. This Court Should Settle the Question Whether the
Sequestrations Constituted an Unconstitutional
SE SD viwenianreveneseedeunenns
(TESS TTD RRA I ie RS ER oe ie ON IDE GRO LE ONE EEN TP
12
15
15
21
MR eA te OTS By he by 2
Nr asics yc ty eet rd
BDisrieriisstivtesirsions s ctptiaitn sends
TABLE OF CASES CITED.
Page
Boyd v. United States, 116 U. S. 616 (1886) ........... 13, 25, 26
Camara v. Municipal Court, 387 U. S. 523 (1967) ......... 25
Chicago R. I. & P. R. Co. v. Sturm, 174 U. S. 710 (1899) ... 22
English v. Cunningham, 80 S. Ct. 18 (1959) ............... 16
Forsyth v. Hammond, 166 U. S. 506 (1896) ............... 2
Fuentes v. Shevin, 407 U. S. 67 (1972) ..... 12, 17, 18, 19, 20, 21, 23
Hanson v. Denckla, 357 U. S. 235 (1958) ............... 23
Biesvis wv. at, THB UL. & BES CUBS) ons cccccwcvcccccwcs 22
International Shoe v. Washington, 326 U. S. 310 (1945) . .22, 23,24
Landau v. Best, 187 A. 2d 75, 41 Del. Ch. 1 (Del. Supr. 1962) 24
Lebowitz v. Forbes Leasing and Finance Corp., 456 F. 2d 979
SE SEED cpa dadnnadnvnsiaecdavisasenaeacessaus 19, 21
Magnum Import Co. v. De Spoturno Coty, 262 U. S. 159
SE Sc .ccrdekudkase ponddeke ceaeetesebaecancenhes 16
McDonald v. Mabee, 243 U. S. 90 (1917) ................ 23
Meredith v. Fair, 306 F. 2d 374 (Sth Cir. 1962) ............ 16
Ownbey v. Morgan, 256 U. S. 94 (1920) ......... 12, 19, 20, 23, 24
Pennoyer v. Neff, 95 U. S. 714 (1877) ..........cceeeeee 22
Sniadach v. Family Finance Corp., 395 U. S. 337 (1969) .... 19
Weinress v. Bland, 71 A. 2d 59, 31 Del. Ch. 269 (Del. Ch.
ST cccuan tithe edu seated saenosseaneneeacane’ 24
MISCELLANEOUS.
Page
Cary, Federalism and Corporate Law: Reflections Upon Dela-
wore, SP Tele ©. 3. Ge CIPS) none ccckvcccccdescscc 17
Delaware Court of Chancery, Rules, Rule 4(db) ....2,5, 10, 11,13
ee Soy ED PEED gccnciescccestanecsnecaseen 24
ieee ele Ou C es aie irae gal lok 23
A a ed wed aod 2, 4, 8, 10
Federal Rules of Civil Procedure, Rule 4(e) ......... 2, 3, 4, 8, 10
Federal Rules of Appellate Procedure, Rule 35(a) .......... 15
Staff Report of the Committee on Banking and Currency of the
House of Representatives “The Penn Central Failure and
the Role of Financial Institutions” (1971), Part IV ... 9
is EE ID. 5 oc cae cncankeaGacn aude nck 24
United States Constitution :
i sk a a anes icin SS oucmarc@ eae 25
I: 13, 21
Fourteenth Amendment .......... eR PrES eR men Tea? 13, 21
an Mn. dc nil nd dagen cause htekamauewas 2
Pn te ie IE als cb aeons ini dose beuas 10
ls ee ED Gixtcknbengacecavenabacbadenseecac 10
Wright & Miller, Federal Practice and Procedure: Civil (1969)
PE at ek dnketadnenennnbansseueess oracles 3
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT.
Petitioners (Trustees) are the Trustees of the
Property of Penn Central Transportation Company
(Penn Central), Debtor in proceedings for the reorgan-
ization of a railroad pursuant to Section 77 of the
Bankruptcy Act, No. 70-347 pending in the United
States District Court for the Eastern District of Penn-
sylvania. The Trustees 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 case on
February 21, 1974.
OPINIONS BELOW.
The per curiam opinion of the Court of Appeals in
bane dated February 21, 1974 is not reported, and is
printed in the Appendix (6a-7a).’ The majority and
dissenting opinions of the panel of the Court of Ap-
peals dated August 31, 1973 are not reported, and are
printed in the Appendix (12a-66a). The opinion of the
District Court dated December 20, 1971 is reported at
336 F. Supp. 197 (D. Del. 1971), and is printed in the
Appendix (73a-85a).
1. References are to the pages of the Appendix to this petition,
separately presented. Rule 23(1) of the Rules of this Court.
a
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to
Petition for Writ of Certiorart
JURISDICTION.
The Court of Appeals in bane entered judgment
(4a-5a) on February 21, 1974. A timely petition for
rehearing containing a suggestion for rehearing in bane
was filed by the Trustees on March 6, 1974, and was
denied by order (2a-3a) of the Court of Appeals in
bane dated March 15, 1974. The Trustees filed a motion
for stay pending application to this Court for a writ
of certiorari, which the Court of Appeals granted by
order (la) dated April 1, 1974, thereby staying its
mandate until April 25, 1974.
The jurisdiction of this Court is invoked under 28
U.S. C. § 1254(1). This Court’s power to issue a writ
of certiorari is in no way affected by the fact that the
Court of Appeals in bane was equally divided. Forsyth
v. Hammond, 166 U. S. 506, 513 (1896).
QUESTIONS PRESENTED.
Under Rule 4(e) of the Federal Rules of Civil Pro-
cedure, whenever a statute or rule of court of the state
in which a district court is held provides for notice toa
party not an inhabitant of or found within the state to
appear and respond or defend in an action by reason of
the seizure of his property located within the state.
service of the summons may be made under the eireum-
stances and in the manner prescribed in the statute or
rule. Delaware’s sequestration procedure—embodied
in 10 Del. C. § 366 and in Delaware Court of Chancery
Rule 4(db)—provides for such notice to a party not an
Petition for Writ of Certiorari 3
inhabitant of or found within the state to appear by
reason of the sequestration of his property located
within the state. The Delaware District Court issued
an order pursuant to Rule 4(e) providing for service
of the summons, in accordance with the Delaware se-
questration procedure, upon defendants, all aliens
located in Europe.
The questions presented are:
1. Does such sequestration violate the due process
provisions of the Fifth and Fourteenth Amendments?
because it provides for the seizure of a non-resident’s
property located within the state without prior notice
and an opportunity to be heard?
2. Does such sequestration violate the due process
provision of the Fifth and Fourteenth Amendments
when there are no minimum contacts between the state
and either the subject matter or the defendants, but the
defendants are all aliens not otherwise suable in the
United States?
3. Did the sequestrations herein constitute unrea-
sonable searches and seizures in violation of the Fourth
Amendment ?
2. When service of process is made pursuant to state law, the
federal court applies both federal and state law—federal law to deter-
mine the constitutional validity of the service and state law to see if
the procedures set out in the applicable state statute or rule have been
followed. Wright & Miller, Federal Practice and Procedure: Civil
(1969) § 1075, p. 316.
Bens. Yanai A acne 0
4
Petition for Writ of Certiorari
CONSTITUTIONAL AND STATUTORY PROVISIONS
AND PROCEDURAL RULES INVOLVED.
Rule 4(e) of the Federal Rules of Civil Procedure
provides in part:
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 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 garnish-
ment of similar seizure of his property located
within the state, service may in either case be made
under the circumstances and in the manner pre-
scribed in the statute or rule.
10 Del. C. § 366 provides in part:
§ 366. Compelling appearance of non-resident
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 non-resident of the
State of Delaware, the Court may make an order
directing such non-resident defendant or defend-
ants to appear by a day certain to be designated.
Such order shall be served on such non-resident
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
three 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
Petition for Writ of Certiorari 5
demand of the plaintiff, if the 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 circum-
stances 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 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 Delaware Court of Chancery
Rules provides:
(db) Service by Publication and Seizure. (1)
no order shall be entered under 10 Del. C. § 366 un-
less it appears in the complaint that the defendant
or any one or more of the defendants is a non-resi-
dent of the State of Delaware and the application
therefor is accompanied by the affidavit of a plain-
tiff or other credible person stating:
(a) As to each non-resident defendant
whose appearance is sought to be compelled,
his last known address or a statement that such
address is unknown and cannot with due dili-
gene be ascertained.
Petition for Writ of Certiorari
(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 informa-
tion 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 times as the court may fix, the Register
shall, in addition to making the required publica-
tion, send by registered or certified mail to each
defendant whose appearance is sought to be com-
pelled 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 hav-
ing possession or custody of the property or control
of its transfer, and shall seize the property. The
sequestrator shall seize property which is, or ap-
Ty
Petition for Writ of Certiorari 7
pears, not to be susceptible of physical seizure
within the state by serving a direction in writing
that the person, persons or corporation having pos-
session or custody of the property or control of its
transfer, shall:
(a) retain the property and recognize no
transfer 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
(ec) within ten 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 twenty 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 re-
turn, including the date and hour of service and
seizure pursuant to subdivision (3) hereof.
(5) The court may in its discretion and sub-
ject to statutory requirements dispense with or
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8 Petition for Writ of Certiorari
modify compliance with the requirements of any
part of this rule in any cause upon application to
it stating the reasons therefor.
The full texts of Rule 4(e) of the Federal Rules of
Civil Procedure and of 10 Del. C. § 366 are set out in
the Appendix, as well as other applicable statutory and
constitutional provisions involved.
ee
Petition for Writ of Certiorari 9
STATEMENT OF THE CASE.
1. In the District Court.
This case, which squarely presents the opportunity
for this Court to answer a challenge to the continuing
validity of established precedents, has its roots in a
bizarre factual setting.
In 1969, prior to its reorganization, Penn Central
obtained a $10 million loan from a syndicate of German
banks, $6 million of which was soon used in connection
with a railroad equipment program. The remaining $4
million was placed in a trust account in Liechtenstein.
After Penn Central instituted reorganization pro-
ceedings in 1970 and the appointment of the Trustees,
it was discovered that the $4 million * of the loan pro-
ceeds was no longer held in the trust and was in the pos-
session of defendant Vileda Anstalt, a Liechtenstein
entity owned and controlled by Fidel Gotz (Gotz) a
German citizen.*
On March 10, 1971, the Trustees instituted suit to
recover the misappropriated funds belonging to the
Debtor. This suit was brought against Gotz, his son
3. Specifically, the sum of DM 16,800,000 which in 1969 had
a value of in excess of $4.6 million, and which now has a value in
excess of $6 million.
4. Gotz has been described in a Congressional Staff Report on
the subject as “a German national operating his far-flung business
ventures out of the tiny European state of Liechtenstein” (103a).
The conversion of the $4 million by Gotz through entities controlled
by him, has been described in the same Report “as a tale of financial
chicanery rarely matched in the annals of the business world” (102a),
and as having “all the elements of a film script of international finan-
cial intrigue” (109a). See Staff Report of the Committee on Bank-
ing and Currency of the House of Representatives entitled “The
Penn Central Failure and the Role of Financial Institutions~ (1971).
Part IV of that study is entitled “Penn Central Loses Four Million
Dollars: A Story of International Intrigue,” and is set out in the
Appendix (100a-134a).
wise aa |
PR eR Pas a Oe ie ne ak ee
10 Petition for Writ of Certiorari
and seven ° entities, alleged to be controlled by Gotz, all
aliens located in Europe, and was filed in the United
States District Court for the District of Delaware,
basing the jurisdiction of the District Court upon 28
U.S. C. § 1332(a) (2) pertaining to aliens and diversity
of citizenship. Among other things, the complaint al-
leged that Gotz, acting through—and in conspiracy
with—the other alien defendants, fraudulently con-
verted and embezzled $4 million of Penn Central’s
moneys from the trust located in Liechtenstein.
Utilizing the provisions of Rule 4(e) of the Fed-
eral Rules of Civil Procedure, the Trustees applied
to the District Court for a sequestration order under
10 Del. C. § 366 (87a) and under Delaware Court of
Chancery Rule 4(db) (89a). The Trustees’ complaint
alleged that the defendants were all aliens located in
Europe. The Trustees filed the affidavit prescribed by
Delaware Court of Chancery Rule 4(db), containing
certain information concerning the property of the
non-resident defendants to be seized. The District
Court’s sequestration order directed the service of
copies of the summons, complaint and order by certified
mail upon defendants in Europe, and also directed
publication of the order in a local newspaper. The
clerk of the District Court sent such copies to the
defendants at their European addresses, which copies
were received. The District Court’s sequestration
order also provided for the appointment of a seques-
5. Four corporations and three Anstalt defendants. An -instalt
(translated as Establishment or Foundation) is an entity peculiar
to Liechtenstein, and in many ways is like a trust. There are no
shares, and it may be organized by one person. Rights in an Anstalt
are freely transferable by written assignment.
6. As to venue, 28 U. S. C. § i391(d) provides that “[d] An
alien may be sued in any district.”
-
die
Petition for Writ of Certiorart 11
trator, who served sequestration notices’ upon the
Delaware corporations, shares of stock or obligations
of which were alleged in the affidavit to belong to de-
fendants. Asa result of the District Court’s sequestra-
tion order, shares of stock and obligations * of three
Delaware corporations belonging to the three Anstalt
defendants was seized. Refusing to enter an appear-
ance in the District Court, all defendants moved to
quash the sequestrations and to dismiss the complaint.
On December 20, 1971 the District Court issued an
order (7la-72a) vacating the sequestrations, upon the
sole ground (84a) that the affidavit filed by the Trustees
failed, in its view, to properly specify the property
of each defendant sought to be seized, and that the
omission of the information was not excused by giving
the reasons for such omissions—a procedure author-
ized by Delaware Court of Chancery Rule 4(db).°
The Trustees appealed (69a-70a) from the District
Court’s order of December 20, 1971. They moved for
7. Sub-paragraph 3 of Delaware Court of Chancery Rule 4(db)
(90a) provides, in part, for seizure of intangible property by service
of a notice upon the person, persons, or corporation “having posses-
sion or custody of the property or control of its transfer”.
8. Defendants contend that the value of this property at the
time of sequestration was in excess of $7 million.
9. Delaware Court of Chancery Rule 4(db), sub-paragraph
(1)(b), provides that certain information “as to the property of
each such defendant sought to be seized” shall be included in the
affidavit, including “(3) The nature of the defendant’s title or in-
terest therein * * *.” However, sub-paragraph (b)(1)(5) (89a)
also provides that the affidavit shall include “The reason for the
omission of any of the required statements” (89a), thus permitting
omission of the information. Further, subparagraph (5) provides
that “The Court may in its discretion and subject to statutory require-
ments dispense with or modify compliance with the requirements of
any part of this rule in any cause upon application to it stating the
reasons therefor.” (91a).
F ated
bib eQiles Sikes pettaibas
12 Petition for Writ of Certiorart
a stay *° in the Court of Appeals, which was granted
on December 23, 1971 (67a-68a).
2. In the Court of Appeals.
A panel of the Court of Appeals on August 31,
1973 reversed the judgment of the District Court in
a scholarly opinion written by Judge Adams for the
majority (13a-42a); Judge Gibbons dissented (42a-
66a). The majority did not agree with the sole ground
of the District Court’s ruling—the asserted insuffi-
ciency of the affidavit filed on behalf of the Trustees—
and held the affidavit sufficient under Delaware law
(18a-22a).
Meeting the first of defendants’ constitutional
attacks on the Delaware sequestration statute under
the Fifth and Fourteenth Amendments, the majority
held that the Delaware sequestration procedure repre-
sented an ‘‘extraordinary situation’’ within the mean-
ing of Fuentes v. Shevin, 407 U. S. 67 (1972). The
majority noted (27a-28a) that in Ownbey v. Morgan,
256 U.S. 94 (1920), this Court had upheld the consti-
tutionality of the Delaware foreign attachment statute
—a statute closely related to the sequestration statute—
and that Ownbey was referred to by this Court in
Fuentes as an example of such an ‘‘extraordinary
situation.”’
With regard to defendants’ attack on the seques-
trations under the Fourth Amendment, the majority
held that the Delaware sequestration procedure was
not encompassed by the Fourth Amendment, relying
10. Without such a stay, defendants would have been free im-
mediately to transfer the sequestered property, thereby defeating the
jurisdiction of the District Court. The stay pending appeal was con-
ditioned by the Court of Appeals upon the posting by the Trustees of
a bond in the amount of $25,000.
Petition for Writ of Certiorart 13
upon Boyd v. United States, 116 U. S. 616 (1886) and
Wyman v. James, 400 U. 8. 309 (1971) (40a-41a).
Judge Gibbons dissented, asserting, in part, that
the sequestrations were violative of the due process
provisions of the Fifth and Fourteenth Amendments
because Delaware lacks minimum contacts with either
the subject matter or the parties (55a-66a).
The defendants filed a petition for rehearing in
bane, urging review by the full court of what de-
fendants described as ‘‘several major and novel issues
as to constitutional matters on the frontiers of current
constitutional litigation’’..*. On October 10, 1973 the
Court of Appeals granted (8a-9a) the defendants’
petition for rehearing in bane.
After reargument, the Court of Appeals in banc ”
filed a per curiam opinion (6a-7a) stating simply that
“the Court is evenly divided’’, and that the order of
the District Court appealed from would be affirmed.
The earlier reversal (10a-lla) of the order of the
District Court, which resulted from the panel’s de-
cision was transformed—because of the equal division
of the Court in bane on the constitutional issues which
prompted the reargument—into an affirmance of the
order of the District Court of December 20, 1971,
vacating the sequestrations. Thus, because of the
equal division of the eight Judges of the Court of
Appeals on the constitutional issues involved, the
order of the District Court, based upon alleged non-
conformance of the Trustees’ affidavit to the require-
ments of Delaware Court of Chancery Rule 4(db)—
11. Petition of Appellees for Rehearing and Suggestion of Re-
hearing In Banc, p. 1.
12. The Court of Appeals in banc consisted of the nine active
Judges with the exception of Judge Hunter who disqualified himself.
sient S ALR BAIN UIA EE ER BRE BB Di RRA AI OS cai
j
14 Petition for Writ of Certiorart
which ruling of the District Court the panel had held
to be erroneous under Delaware law—was affirmed.
The Trustees then petitioned for a rehearing in
bane, which the Court of Appeals in bane denied (2a-
3a) on March 15, 1974. The Trustees also moved for
stay pending application to this Court for a writ of
certiorari. Defendants opposed the stay, and de-
manded that any stay be conditioned upon the posting
by the Trustees of a bond in the amount of $1 million.
On April 1, 1974 the Court of Appeals issued an order
(1a) granting the Trustees’ motion for a stay pending
the filing of this petition, and continuing in effect the
$25,000 bond originally posted by the Trustees for the
stay pending appeal, thus rejecting the defendants’
demand for a $1 million bond.
Petition for Writ of Certiorari 15
REASONS FOR GRANTING THE WRIT.
I. The Court of Appeals In Banc Was Equally Divided
on the Important Federal Constitutional Questions
Involved.
1. The federal constitutional issues raised by de-
fendants were briefed for—and argued—to the courts
below. These issues were strenuously urged in de-
fendants’ petition for rehearing in bane. While the
District Court’s opinion rested upon the narrow
ground of alleged noncompliance with the Delaware
Court of Chancery Rule, the majority of the panel
held the District Court’s decision to be erroneous, and
went on to decide the constitutional issues, in an
opinion by Judge Adams, from which Judge Gibbons
dissented. It is indisputable that the Court of Appeals
granted defendants’ petition for rehearing in bane in
order to review the exceptionally important constitu-
tional questions '* involved, and which were again
13. Section M of the Internal Operating Procedures of the
United States Court of Appeals for the Third Circuit (1974), re-
cently published, describes what has been the Court’s practice with
regard to rehearing in banc:
M. Rehearing, Criteria and Practice for Voting for
1. General Criteria and Court Practice for Voting for Re-
hearing :
a. Granting of rehearing in banc is totally within the
discretion of the cricuit judges of this Court in regular
active service.
b. F. R. A. P. 35(a), hearing in banc or rehearing in
banc, is not favored and ordinarily will not be ordered except
(1) where consideration by the full court is neces-
sary to secure or maintain uniformity of its decisions, or
(2) where the proceeding involves a question of
exceptional importance.
c. This Court does not, ordinarily, grant rehearing in
banc where the panel's statement of the law is correct and
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16 Petition for Writ of Certiorari
raised by defendants in their petition for rehearing
in bane. Were there any doubt, the fact that the
Court of Appeals stayed the issuance of its mandate
pending an application by the Trustees for a writ of
certiorari, is further indication of its view that this
case raises issues of exceptional importance, and ‘‘* * *
is one likely, under [our] practice, to be taken up by us
on certiorari * * *’’: Magnum Import Co. v. De
Spoturno Coty, 262 U. 8. 159, 163 (1922) ; English v.
Cunningham, 80S. Ct. 18 (1959) (Mr. Justice Frank-
furter as Acting Cireuit Judge) ; Meredith v. Fair, 306
F, 2d 374 (5th Cir. 1962).
And while the Court of Appeals in bane filed a
per curiam opinion stating only that the eight Judges
were equally divided—the earlier opinions of Judges
Adams and Gibbons illuminate, in part, the reasons
why four of the Judges were on one side, and four
Judges were on the other side, of the federal constitu-
tional issues involved.
13. (Cont’d.)
the controverted issue is solely the application of the law
to the circumstances of the case.
Third Circuit Rule 22, provides that after May 1, 1974 counsel for
a petitioner for rehearing in banc shall make the following statement:
“TI express a belief, based on a reasoned and studied profes-
sional judgment, that the panel decision is contrary to decisions
of the United States Court of Appeals for the Third Circuit or
the Supreme Court of the United States, and that consideration
by the full court is necessary to secure and maintain uniformity
of decisions in this Court, to-wit, the panel's decision is contrary
to the decision of the court or the Supreme Court in [citing
specifically the case or cases] or, that this appeal involves a
question of exceptional importance, to-wit [set forth in one sen-
tence].”
The Court of Appeals would clearly not have granted defendants’
petition for rehearing in banc merely to decide the non-constitutional
questions in this case, since decision of such issues by the Court in
bane would not have been necessary to secure uniformity of its deci-
sions, nor did such issues involve questions of exceptional importance.
Petition for Writ of Certiorari 17
2. The constitutional validity of the Delaware
sequestration procedure, additionally, is a matter of
practical importance, not merely because of the pend-
ing sequestrations in the Delaware federal and state
courts, but Delaware is the state of incorporation of
a great number™ of corporations and the potential
use of the sequestration procedure is also great.
3. This Court should exercise its supervisory
powers to decide the important federal constitutional
questions which equally divided the eight Judges of
the Court-of Appeals in bane. Unless it does so, the
District Court’s order vacating the sequestrations will
stand affirmed, thus defeating the jurisdiction of the
District Court, permitting the defendants immediately
to transfer their sequestered property, and leaving de-
fendant Gotz enriched at the expense of the Trustees’
Debtor.”*
II. This Court Should Finally Settle the Issue Whether the
Delaware Sequestration Procedure Violates the Due
Process Provisions of the Fifth and Fourteenth Amend-
ments Because It Authorizes the Seizure of Property
Without Notice or Opportunity for Hearing.
1. Defendants contend that the Delaware seques-
tration statute violates their due process rights because
their intangible property located in Delaware was
seized without prior notice or an opportunity to be
heard. Defendants rely upon Fuentes, 407 U. S. 67,
14. Probably 9,000 new corporations will be incorporated in
Delaware during 1974; see Cary, Federalism and Corporate Law:
Reflections Upon Delaware, 83 Yale L. J. 663, 668 (1974). It has
been unofficially estimated that 75,000 corporations are incorporated
in Delaware.
15. Gotz is reputed to be the owner of an international con-
glomerate valued at $500 million. New York Times, April 9, 1972,
p. 40, col. 4.
PANN Tee oe 0h dl SAE, aati
18 Petition for Writ of Certiorart
in which this Court struck down Pennsylvania and
Florida replevin statutes authorizing seizure of per-
sonal property without notice or an opportunity to be
heard. This Court however also said in Fuentes:
There are ‘extraordinary situations’’ that
justify postponing notice and opportunity for a
hearing. Boddie v. Connecticut, 401 U. 8., at 379.
These situations, however, must be truly unusual.
Only in a few limited situations has this Court
allowed outright seizure without opportunity for
a prior hearing. First, in each case, the seizure has
has been directly necessary to secure an important
governmental 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 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 particular in-
stance. * * * [407 U. S. at 90-91 (footnotes
omitted ) ]
In connection with these observations, this Court
cited Ownbey v. Morgan, 256 U. S. 94, with approval,
describing it as a case which involved ‘‘attachment
necessary to secure jurisdiction in [a] state court—
clearly a most basic and important public interest’’.
Fuentes, 407 U. S. at 91, note 23. In Ownbey this
Court had rejected a constitutional attack made upon
the exercise of quasi in rem jurisdiction under Dela-
ware’s foreign attachment statute, and under that
statute there was no pre-seizure notice or hearing.
2. The majority of the panel noted that Ownbey
involved the Delaware foreign attachment statute, a
Petition for Writ of Certiorari 19
statute closely related to the Delaware sequestration
statute, and that both in Sniadach and Fuentes this
Court referred to Ownbey as an example of an ‘‘ex-
traordinary situation’? (27a). The majority said:
* * * the continuing vitality of Ownbey is attested
tu by its presence in both Fuentes and Sniadach.
Unless and until the Supreme Court reverses
Ownbey this Court is duty bound to accord the
ease its full respect. (28a, n. 35)
The majority of the panel also pointed out (27a-
28a) that references by this Court to Ownbey in
Sniadach v. Family Finance Corp., 395 U.S. 337 (1969)
and Fuentes had caused the Court of Appeals in Lebo-
witz v. Forbes Leasing and Finance Corp., 456 F. 2d
979, 982 (3d. Cir.), cert. denied, 409 U. S. 843 (1972),
to uphold the constitutionality of Pennsylvania’s for-
eign attachment statute procedure against strong
attack.
3. The Delaware sequestration statute provides
that after a general appearance the seized property may
be released, and in Lebowitz it was contended that after
a general appearance there could no longer exist any
justification for the attachment. The Court of Appeals
for the Third Circuit, however, said in Lebowitz that
it was bound by the decisions of this Court:
But we are not free to adopt our own view as to
post-appearance attachment. We say this because
we think the reasoning of the Supreme Court’s
decisions in Ownbey v. Morgan, 256 U. S. 94, 41
S. Ct. 433, 65 L. Ed. 837 (1921) and McKay v.
McInnes, 279 U. S. 820, 49 S. Ct. 344, 73 L. Ed. 975
(1929) precludes such action. Any reexamination
of the continuing vitality of these cases must come
from the Supreme Court. [456 F. 2d at 982]
dubbed A'S a OP al SOR. acs at la lita pases
4 Tee
a ee)
s
Petition for Writ of Certiorari
4. The Delaware sequestration statute comports
with the tripartite test of due process established in
Fuentes. First, this Court’s footnote characterization
of the attachment in Ownbey supplies the answer to the
inquiry of whether the seizure was “‘directly necessary
to secure an important governmental or general publie
interest.’’ This is not a case like Fuentes where the
statutes allowed private parties—serving their own
private advantage—unilaterally to invoke state power
to replevy goods from another. Fuentes, 407 U. S. at
93. A state has a legitimate interest in the exercise of
judicial jurisdiction with respect to property within
its borders. Seizure for the purpose of securing such
jurisdiction accordingly serves a most basic and im-
portant public interest.
Second, there was a need for prompt action.
Notice would afford the defendants an opportunity to
defeat the state’s interest in securing jurisdiction, by
the simple expedient of transferring the property.
This distinguishes this case from Fuentes, for here
the State of Delaware’s power to adjudicate was in
jeopardy.
Third, Delaware has kept a “‘strict control over its
monopoly” of foree. This Court said in Fuentes:
The statutes, moreover, abdicate effective state
control over state power. Private parties, serving
their own private advantage, may unilaterally in-
voke 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 repossession; 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. [407 U. S. at
93 (footnote omitted) ]
—
Here, unlike Fuentes, the order effecting the seizure
was issued by a District Court judge. That judge had
been supplied with a complaint and with an affidavit.
The information provided a basis for the determination
by the District Court that the seizure would be in fur-
therance of the “‘important public interest’’ underlying
the Delaware sequestration statute, and that prompt
action would be required in order that the state’s juris-
diction not be defeated.
This case does not present a situation where the
State of Delaware has abdicated ‘‘effective state control
over state power * * * [to] private parties, serving their
own private advantage * * *’’. Fuentes, 407 U. S. at
93. The sequestration procedure here attacked also
serves a public purpose as part of the ordered system of
conflict resolution which includes the exercise of judi-
cial power over property located within (te state.
Lebowitz, 456 F. 2d at 981.
5. The issue whether, under Fuentes, the Delaware
sequestration procedure violates the due process pro-
visions of the Fifth and Fourteenth Amendments be-
eause it involves a seizure without prior notice or op-
portunity for hearing—an issue on which the eight
Judges of the Court of Appeals in bane split—should
be finally settled by this Court.
III. This Court Should Finally Settle the Issue Whether
the Delaware Sequestration Procedure Violates the Due
Process Provisions of the Fifth and Fourteenth Amend-
ments When the State Lacks Minimum Contacts With
either the Subject Matter or the Parties.
1. Defendants assert that the sequestration of the
property of a non-resident where Delaware lacks mini-
mum contacts either witn the subject matter or the
Petition for Writ of Certiorari 21
vse! i nl PRR ~]
Dae inlays O50, 002 await Sat
Juels MNOS ra A ade ats Sinencraibd atthe
eee ee
Bo wenrinic
22 Petition for Writ of Certiorart
parties violates due process, an argument based upon
International Shoe v. Washington, 326 U. S. 310
(1945). Defendants assert that a court cannot assert,
even quasi in rem jurisdiction, unless either the parties
or the subject matter of the action have minimum con-
tacts with the forum. Judge Gibbons, in his dissent
from the panel’s opinion, accepted the defendants’
contention that the minimum contacts analysis set out
in International Shoe and developed in connection with
in personam jurisdiction, constitutionally must also be
applied to cases of quasi in rem jurisdiction. Thus,
rejecting landmark decisions * of this Court—holding
a state’s power over persons or property within its
boundaries is enough to establish quasi in rem juris-
diction—Judge Gibbons asserted:
It is time that Ownbey v. Morgan, 265 [sic] U. S.
94 (1921), be considered in light of International
Shoe Co. v. Washington, supra, and its progeny.
There is no reason for considering the jurisdiction
recognized in Ownbey v. Morgan, supra, as exempt
from the stricture of the fifth and fourteenth
amendment due process clauses. Ownbey v.
Morgan, supra, and International Shoe Co. v.
Washington, supra, cannot be reconciled if the
former is not applied subject to a minimum con-
tacts analysis * * * (65a)
2. Judge Adams—speaking for the majority of the
panel—pointed out that the Trustees did have substan-
tial contacts with Delaware, and that the valid state
interests in protecting residents and affording a forum
to litigate grievances could not be satisfied in case of
16. Harris v. Balk, 198 U. S. 215 (1905) ; Chicago R. 1. & P. R.
Co. v. Sturm, 174 U. S. 710 (1899) ; Pennoyer v. Neff, 95 U. S. 714
(1877).
aa
Petition for Writ of Certiorari 23
defendants who could not be served in the United States
in any less restrictive manner, and that, therefore, the
procedure used was necessary to secure jurisdiction and
was under the circumstances appropriate as a response
to an “‘extraordinary situation” within the exception
described in Fuentes (31a). After discussing the doc-
trines of International Shoe, Hanson v. Denckla, 357
U. S. 235 (1958), and Ownbey, Judge Adams observed:
If consent to personal jurisdiction is the necessary
implication of the entry of a general appearance,
then application here of the ‘‘minimum contacts”’
tests seems misguided, and the in terrorem effect of
the sequestration procedure might well pass con-
stitutional muster. Ultimate resolution of this
issue would depend, then, on which course of anal-
ysis a court were to pursue—the ‘‘voluntary con-
tact’’ test of International Shoe and Hanson or the
‘*implied consent’’ view of Ownbey. (36a) (foot-
notes omitted)
3. The minimum contacts doctrine is not applicable
where, as here, the plaintiff invokes the quasi in rem
jurisdiction of the court. Almost 60 years ago Justice
Holmes declared that the ‘‘foundation of jurisdiction
is physical power’’ over persons and property within a
state’s territorial borders. McDonald v. Mabee, 243
U.S. 90, 91 (1917).
4. Delaware’s jurisdiction over intangibles—such
as shares of stock of, or the obligations or debts of, a
Delaware corporation—is based upon two Delaware
statutes, the effect of which is to prevent such intangible
property from ever being embodied in a document,
which document might be physically located outside of
the State of Delaware. Under 8 Del. C. § 169 (92a)
the situs of shares of stock of a Delaware corporation is
" 7 rt is bios!
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ee ee er ot eed
detras*ibs
Jabs Was lable Laine, 22020
24 Petition for Writ of Certiorart
regarded as Delaware, no matter where the share cer-
tificates may be located. Furthermore, the debts or
obligations of a Delaware corporation also have their
situs—as intangibles—within the State of Delaware.”
Even when such intangibles may be regarded as ‘‘in-
vestment securities’? within the meaning of the Uni-
form Commercial Code (UCC) (and, therefore. by
definition ‘‘negotiable’’), they, nevertheless, still have
their situs in Delaware. Delaware—uniquely out of the
49 states which have adopted the UCC—is the only state
which has rejected Section 8-317(1) in the form recom-
mended by the UCC draftsmen (95a-96a), and in lieu
thereof has enacted Section 8-317(1) of 5A Del. C.
(93a-94a), which establishes the unique Delaware rule
that such intangibles can never be embodied in a docu-
ment. Thus, the intangible property of Delaware cor-
porations—corporate stock and obligations—always
has its situs in Delaware, no matter where the docu-
ments evidencing such intangibles may happen to be
physically located.
5. The issue whether Ownbey must be read in light
of International Shoe, that is, whether the doctrine of
minimum contacts, which is applicable to in personam
jurisdiction, also applies to quasi in rem jurisdiction—
an issue on which the Court of Appeals in bane split—
should be finally settled by this Court.
IV. This Court Should Settle the Question Whether the
Sequestrations Constituted an Unconstitutional Search
and Seizure.
1. Defendants argued in the courts below that the
sequestration order ‘‘constituted a general warrant in
17. Weinress v. Bland, 71 A. 2d 59, 31 Del. Ch. 269 (Del. Ch.
1950) ; Landau v. Best, 187 A. 2d 75, 41 Del. Ch. 1 (Del. Supr.
1962).
Petition for Writ of Certiorari 25
its most obnoxious form, indeed precisely as that
noxious instrument stood when it became the specific
abuse against which the Fourth Amendment was
directed. 99 18
The majority of the panel held, however, that an
examination of the early cases of this Court shows
clearly that the protection of the Fourth Amendment
does not extend to seizures of a civil nature. Boyd v.
United States, 116 U.S. 616 (1886). Noting that while
the concept of what constitutes a search or seizure
impermissible under the Fourth Amendment has
evolved significantly since the late nineteenth century,
the majority said that ‘‘the path of that evolution has
been neither so straight nor so exorable that it encom-
passes sequestration proceedings, at least at the present
time.’’ Compare Camara v. Municipal Court, 387 U.S.
523 (1967) with Wyman v. James, 400 U.S. 309 (1971).
The majority also pointed out that the Court of Appeals
in Lebowitz had summarily dismissed the same Fourth
Amendment contention. 456 F. 2d at 980 (40a-41a).
2. In their petition for rehearing in bane de-
fendants strenuously urged that the sequestrations in
this case violated their Fourth Amendment rights,
and that it is ‘‘well established’’ that the Fourth
Amendment applies to civil actions:
Yontrary to the majority holding, it is well es-
tablished that the Fourth Amendment applies tu
civil actions. Camara v. Municipal Court, 387
U. 8. 523 (1967) ; See v. City of Seattle, 387 U.S.
541 (1967) * * *.”
18. Brief for Fidel Gotz, et al., Defendants-Appellees 40-41.
19. Petition of Appellees for Rehearing and Suggestion of Re-
hearing In Banc, p. 13.
q
Bitsiainais
26
Petition for Writ of Certiorari
Defendants urged with respect to Boyd that:
Furthermore, the statement relied upon by the
majority from the Boyd case, decided in 1886,
was not only mere dictum but is no longer the
law, as the above decisions show. The Supreme
Court plainly took the Fourth Amendment argu-
ment seriously in Fuentes (see fn, 2.) * * **°
And defendants further urged with respect to Wyman:
But Wyman dealt with the propriety of a re-
quirement that a welfare caseworker make
periodic visits to a recipient’s home. The Court
specifically reaffirmed that Fourth Amendment
protections are not restricted to the criminal law
field (400 U. S., at 317). It held that there was
no ‘‘search’’ involved, and even if there were it
was not unreasonable.”
3. The issue whether the sequestrations effected
herein under the Delaware statute constituted an un-
reasonable search and seizure—an issue on which the
Court of Appeals in bane split—should be finally
settled by this Court.
20. Ibid.
21.Jd. at 14.
Petition for Writ of Certiorart 27
CONCLUSION.
For the foregoing reasons this Court should grant
the Trustees’ petition for a writ of certiorari, settle
the important constitutional issues on which the eight
Judges of the Court of Appeals in bane were equally
divided, and remand the case for further proceedings
in the Court of Appeals.
Respectfully submitted,
Epwin P. RoMgE,
MarvIN CoMISKY,
Morris L. WEISBERG,
4 Penn Center Plaza,
Philadelphia, Pennsylvania. 19103
WituiaMm E. Taytor, JR.,
300 Continental American Building,
On Rodney Square,
Wilmington, Delaware. 19801
Attorneys for Petitioners.
-99 FILE COPY
- wee aw
| IN THE ae a hee
Supreme Court of the United States ~
October Term, 1974.
No. @3~ESOO
GEORGE P. BAKER, RICHARD C. BOND, JERVIS LANGDON,
JR., WILLARD WIRTZ, Trustees of the Property of the PENN
CENTRAL TRANSPORTATION COMPANY,
Petitioners,
vu.
FIDEL GO6TZ, VOLKER G6TZ, FINANZ AKTIENGESELL-
SCHAFT, VILEDA ANSTALT, GOTZ AKTIENGESELL-
SCHAFT OF ST. GALLEN (Also Known as GOTZ AG OF ST.
GALLEN, or G6TZ ANSTALT OF ST. GALLEN, or GOTZ
ETABLISSEMENT OF ST. GALLEN, or GOTZ ESTABLISH-
MENT OF ST. GALLEN), INTER-INDUSTRY AKTIENGE-
SELLSCHAFT OF ST. GALLEN (Also Known as INTER-
INDUSTRY AG OF ST. GALLEN, or INTER-INDUSTRY
ANSTALT OF ST. GALLEN, or INTER-INDUSTRY ETAB-
LISSEMENT OF ST. GALLEN, or INTER-INDUSTRY ESTAB-
LISHMENT OF ST. GALLEN), INTER-MARKETING CORP.
ANSTALT (Also Known as INTER-MARKETING CORP.
ETABLISSEMENT, or INTER-MARKETING CORP. ESTAB-
LISHMENT), MINOLTA ANSTALT, and FINANZ AG ST.
GALLEN.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT.
Epwin P. Rome,
Marvin Comisky,
Morris L. WEISBERG,
4 Penn Center Plaza,
Philadelphia, Pennsylvania. 19103
WituiaM E. Taytor, Jr.,
500 Continental American Building,
On Rodney Square,
Wilmington, Delaware. 19801
Attorneys for Petitioners
International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711
LER 25
TABLE OF CONTENTS OF SEPARATE APPENDIX.
Page
Order of the Court of Appeals Granting the Trustees’ Motion
for Stay Pending Application for a Writ of Certiorari ... la
Order of the Court of Appeals in Banc Denying the Trustees’
Petition for Rehearing in Banc ............ccccccccees 2a
Judgment of the Court of Appeals in Banc ................- 4a
Opinion of the Court of Appeals in Banc ............+.5+6. 6a
Order of the Court of Appeals in Banc Granting Defendants’
Petition for Rehearing te Dame .......sccccvcccccccecs 8a
Judgment of the Panel of the Court of Appeals ............ 10a
Opinions of the Panel of the Court of Appeals .............. 12a
Order of the Court of Appeals Granting the Trustees’ Motion
Gee: Date, Te FD ov vcceinsenisesveviccanses 67a
Trustees’ Notice of Appeal to the Court of Appeals ........ 69a
Goder of the District Camit 2... ccccccccvcccccscceccecses 7la
Gotniom of Che Tletvicd Camst ....cccsveccencccesesccccess 73a
Federal Rule of Civil Procedure 4(e), 28 U. S. C. (1960, Cum.
Sk SE cdvdves dennacdesaedeeemeieasea 86a
Delaware Sequestration Statute, 10 Del. C. § 366 (1953, Cum.
RED vcabuevcusscsecsdevenescseeurereewesens 87a
Delaware Chancery Rule 4(db), 13 Del. Code (1970) ...... 89a
Pe ET nhiducdcnsesauwacwias abageredasodusanewsker 92a
Se Be Sa EE hbk dee nein Sonn cesaccensecasaeaneeens 93a
Section 8-317 of the Uniform Commercial Code Recommended
et Sie EY, BUND sv aciccccvasenkcveanascwcsoes 95a
Fourth Amendment to the Constitution of the United States .. 97a
Fifth Amendment to the Constitution of the United States ... 98a
Foureenth Amendment (Section 1) to the Constitution of the
i a ee ea 99a
Staff Report of the Committee on Banking and Currency .... 100a
ORDER OF THE COURT OF APPEALS GRANTING
THE TRUSTEES’ MOTION FOR STAY PENDING
APPLICATION FOR A WRIT OF CERTIORARI.
UNITED STATES COURT OF APPEALS
For THE THIRD CIRcuIT
No. 71-2150.
GEORGE P. BAKER, RICHARD C. BOND,
JERVIS LANGDON, JR., WILLARD WIRTZ,
TRUSTEES OF THE PROPERTY OF THE PENN CEN-
TRAL TRANSPORTATION COMPANY,
Appellants
v.
FIDEL GOTZ, et aL.
Pursuant to Rule 41(b) of the Federal Rules of
Appellate Procedure, it is ORDERED that issuance of the
certified judgment in lieu of formal mandate in the
above cause be, and it is hereby stayed until April 25,
1974, and it is
FURTHER ORDERED that no final judgment in man-
date form having issued, the $25,000 security heretofore
filed in connection with the stay shall continue to con-
stitute security in connection with the petition for
certiorari.
/s/ Cotiins J. Seitz,
Chief Judge.
Dated : April 1, 1974
(la)
|
4
!
:
5
i
;
|
|
2
2a Court of Appeals Order (3/15/74)
ORDER OF THE COURT OF APPEALS IN BANC
DENYING THE TRUSTEES’ PETITION FOR
REHEARING IN BANC.
UNITED STATES COURT OF APPEALS
For THE Txuirp Circuit
No. 71-2150.
GEORGE P. BAKER, RICHARD C. BOND,
JERVIS LANGDON, JR., WILLARD WIRTZ,
TRUSTEES OF THE PROPERTY OF THE PENN CEN-
TRAL TRANSPORTATION COMPANY,
Appellants
v.
FIDEL GOTZ, er At.
SUR PETITION FOR REHEARING.
Present: Serrz, Chief Judge, Van Dusen, ALDISERT,
Apams, Grssons, Rosenn, Weis and GarrTH,
Circuit Judges.
The second petition for rehearing filed by Appel-
lants in the above entitled case having been submitted
to the judges who participated in the decision of this
court and to all the other available circuit judges of
the circuit in regular active service, and no judge who
concurred in the decision having asked for rehearing,
Court of Appeals Order (3/15/74) 3a
and a majority of the circuit judges of the circuit in
regular active service not having voted for rehearing
by the court in bane, the petition for rehearing is
denied.
By THE COURT,
CoLuins J. SEITz,
Judge.
Dated : March 15, 1974
T —
}
4a Court of Appeals Judgment (2/21/74)
JUDGMENT OF THE COURT OF APPEALS IN BANC.
UNITED STATES COURT OF APPEALS
For THE TuHrirp Circuit
No. 71-2150.
GEORGE P. BAKER, RICHARD C. BOND,
JERVIS LANGDON, JR., WILLARD WIRTZ,
: TRUSTEES OF THE PROPERTY OF THE PENN CEN-
TRAL TRANSPORTATION COMPANY,
Appellants
:
|
v.
FIDEL GOTY, er at.
(D. C. Civil Action No. 4072)
3
; On AppEAL FROM THE UNrTeEp States District Court
j FOR THE District OF DELAWARE.
Present: Seitz, Chief Judge and VAN DusEN, ALDISERT,
Apams, Gisppons, RosENN, WEIS and GARTH,
Circuit Judges.
JUDGMENT ON REHEARING.
This cause came on to be heard on the record from
the United States District Court for the District of
Delaware and was reargued by counsel.
Court of Appeals Judgment (2/21/74) da
On consideration whereof, it is now here ordered
and adjudged by this Court that the judgment of the
said District Court, filed December 20, 1971, be, and
the same is hereby affirmed and the stay previously
granted by this Court is hereby vacated. Costs taxed
against appellants.
ATTEST :
THomas F.. QUINN,
Clerk.
February 21, 1974
| *
6a Court of Appeals Opinion (2/21/74)
OPINION OF THE COURT OF APPEALS IN BANC.
UNITED STATES COURT OF APPEALS
For THE THtrD CIRcuIT
No. 71-2150.
GEORGE P. BAKER, RICHARD C. BOND,
JERVIS LANGDON, JR., WILLARD WIRTZ,
TRUSTEES OF THE PROPERTY OF THE PENN CEN-
TRAL TRANSPORTATION COMPANY,
Appellants
Ne ee Ne ee *
s Vv.
FIDEL GOTZ, Et At.
, On AppeAL From THE UnitTep States District Court
FOR THE District oF DELAWARE.
(C. A. No. 4072)
Argued April 9, 1973
’ Before Van Dusen, ADAMS and GIBBONS,
Circuit Judges.
Reargued In Banc November 16, 1973.
Reargued before Seitz, Chief Judge, Vax Dvusen,
ALDISERT, ADAMS, GIBBONS, ROSENN, WEIS and
GarTH, Circuit Judges.
Edwin P. Rome Arthur G. Connolly
Marvin Comisky Attorney for Appellees
Morris L. Weisberg
William E. Taylor, Jr.
Attorneys for Appellants
Court of Appeals Opinion (2/21/74) Ta
OPINION OF THE COURT.
(Filed February 21, 1974)
PER CURIAM:
On this appeal from the order dated December 20,
1971, the Court is evenly divided.
The order will be affirmed and the stay heretofore
entered will be vacated.
desde eile: Ua in Ae ate pica RAR ii Sc FRI BIE Ca ae iow Sis BALA Ee tea cece:
Br wa deh bs cit RIA eR at bet
8a Court of Appeals Order (10/10/73)
ORDER OF THE COURT OF APPEALS IN BANC
GRANTING DEFENDANTS’ PETITION FOR
REHEARING IN BANC.
UNITED STATES COURT OF APPEALS
For THE THIRD CIRCUIT
No. 71-2150.
GEORGE P. BAKER, RICHARD C. BOND,
JERVIS LANGDON, JR., WILLARD WIRTZ,
TRUSTEES OF THE PROPERTY OF THE PENN CEN-
TRAL TRANSPORTATION COMPANY,
Appellants,
v.
FIDEL GOTZ, Er At.
A ppellees.
Present: Seitz, Chief Judge and VAN DUSEN, ALDISERT,
Apams, GIBBoNs, RosENN, WEIS and GARTH,
Circuit Judges.
ORDER.
The Petition for Rehearing filed by. defendant-
appellees in the above captioned matter having been
submitted to the judges who participated in the deci-
sion of this court and to all the other available circuit
judges of the Circuit in regular active service, and a
majority of such active circuit judges having voted for
rehearing in bance, it is
Court of Appeals Order (10/10/73) 9a
ORDERED that the Petition for Rehearing in banc is
granted, and the judgment of this court entered on
August 31, 1973, is vacated, and it is
FuRTHER ORDERED that the Clerk of this Court shall
list this appeal for rehearing or reconsideration before
the court in bance at the convenience of the court.
By THE COURT,
CoLuins J. SEITz,
Chief Judge.
DatepD: October 10, 1973.
7 ™
10a ss Court of Appeals Judgment (8/31/73)
j JUDGMENT OF THE PANEL OF THE COURT
OF APPEALS.
UNITED STATES COURT OF APPEALS
For THE THIRD CIRCUIT
No. 71-2150.
bias nirvana abies tea er cay Ae
GEORGE P. BAKER, RICHARD C. BOND,
JERVIS LANGDON, JR., WILLARD WIRTZ,
TRUSTEES OF THE PROPERTY OF THE PENN CEN-
TRAL TRANSPORTATION COMPANY,
Appellants
: v.
FIDEL GOTZ, Et At.
(D. C. Civil Action No. 4072)
3 —————
On APPEAL FrRoM THE UNITED States District Court
FOR THE DISTRICT OF DELAWARE.
Present: VAN Dusen, ADAMS and GIBBONS,
Circuit Judges.
JUDGMENT.
This cause came on to be heard on the record from
the United States District Court for the District of
Delaware and was argued by counsel.
Court of Appeals Judgment (8/31/73) lla
On consideration whereof, it is now here ordered
and adjudged by this Court that the order of the said
District Court, filed December 20, 1971, be, and the same
is hereby reversed and the cause is remanded for action
consistent with the opinion of this Court. Costs taxed
against appellees.
ATTEST:
/s/ M. EizaBETH FERGUSON,
Chief Deputy Clerk.
August 31, 1973
12a Court of Appeals Opinions (8/31/73)
OPINIONS OF THE PANEL OF THE COURT
OF APPEALS.
UNITED STATES COURT OF APPEALS
For THE THIRD CIRCUIT
No. 71-2150.
GEORGE P. BAKER, RICHARD C. BOND,
JERVIS LANGDON, JR., WILLARD WIRTZ,
TRUSTEES OF THE PROPERTY OF THE PENN CEN-
TRAL TRANSPORTATION COMPANY,
Appellants
v.
FIDEL GOTZ, Et AL.
On APPEAL FROM THE UNITED StaTEs District Court
FOR THE DISTRICT OF DELAWARE.
(C. A. No. 4072)
Argued Monday, April 9, 1973.
Before: VAN Dusen, ADAMS and GIBBONS,
Circuit Judges.
Edwin P. Rome
Marvin Comisky
Morris L. Weisberg
William E. Taylor, Jr.
Attorneys for Appellants
Arthur G. Connolly
Attorney for Appellees
Court of Appeals Opinions (8/31/73) 13a
Opinion of the Court.
(Filed August 31, 1973)
Apams, Circuit Judge:
The Trustees of the Penn Central Transportation
Company (Trustees) appeal to this Court from an
order of the district court vacating a sequestration at-
tempted by the Trustees against the property of de-
fendant-appellees Fidel Gotz, his son Volker Gotz, and
a number of corporations alleged to be controlled by
Gotz. All of the defendants ‘‘are citizens of foreign
states and reside in Continental Europe.’’ In granting
the defendants’ motion to vacate, the district court did
so on the basis that the Trustees had failed to conform
fully to the required procedures.
The underlying dispute, from which this case
arose, involves an alleged conspiracy between Gotz and
several of the defendant corporations. Through the
conspiracy Gotz allegedly caused $4,000,000., belonging
to the Penn Central, deposited in a Lichtenstein bank,
to be converted to the use of Gotz and the corporations
in which he had an interest. The activity involved
occurred before the entry of the Penn Central into re-
1. Sequestration is a procedure for compelling the appearance
of a defendant. In its operation, it is similar to the more common
procedure of foreign attachment. In each, the plaintiff commences
the suit by requesting that a judicial officer seize the property of an
out-of-state defendant. The defendant is given notice of the seizure
and is advised that unless he appears to defend the action, the prop-
erty seized will be awarded to the plaintiff by default.
Delaware has both sequestration and foreign attachment, the
primary difference being that foreign attachment is an action at law
while sequestration is effected in Chancery. See generally, E. Folk,
The Delaware General Corporation Law, Appendix I at 569-71
1972).
Because of the similarity of the two actions, they will be referred
to at times interchangeably in the third section of this opinion.
~~
f
l4a Court of Appeals Opinions (8/31/73)
_ organization. The Trustees, not surprisingly, sought
* to recover this amount.
I.
To commence the recovery litigation, the Trustees
filed a complaint in the federal district court, with
jurisdiction based on diversity of citizenship. Rule
4(e) of the Federal Rules of Civil Procedure provides
that:
**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 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 gar-
nishment or similar seizure of his property located
within the state, service may in either case be made
under the circumstances and in the manner pre-
scribed in the statute or rule.”’
Because Rule 4(e) adopts for the district courts
the rules of the state in which the district court in ques-
tion is located, the Trustees sought to effect service on
the defendants through the Delaware sequestration
provisions.*
In broad outline, the Delaware sequestration pro-
cedure is as follows: The sequestration statute, 10 Del.
C. § 366, provides that if in a complaint filed in the
2. Rule 4(e) was incorporated into the Federal Rules of Civil
Procedure in 1963. wie Phage nab pam a non yh ely ae
could not be commenced in the federal courts, though actions begun
in that manner in state courts could be removed to federal court. The
1963 amendment enacting rule 4(e) cured this anomalous situation.
4 Wright & Miller, Federal Practice and Procedure § 1119 (1969).
—
Court of Appeals Opinions (8/31/73) 15a
Court of Chancery, it appears that the defendant is a
non-resident of Delaware, the Court may order such
defendant to appear. Such appearance may be com-
pelled by the seizure of all or any part of the defend-
ant’s property. Such seizure is carried out by an officer
of the court. The defendant whose property is seized
is given notice of the commencement of the proceedings
by mail, if feasible, and also by publication. If he does
appear, the seizure may be dissolved, but the defendant
has then submitted to in personam jurisdiction.
Delaware Chancery Rule 4(db), promulgated pur-
suant to section (b) of the statute limits the use of the
sequestration proceeding. To utilize sequestration, the
plaintiff must supply an affidavit which is to include,
inter alia, a description of the property to be seized,
specifying the amount, the nature of defendant’s title,
and the source of the affiant’s information. If any
information is omitted, the affidavit must contain the
reason therefor.
Sequestration in Delaware may be made of prop-
erty not susceptible of physical seizure. And this pro-
vision has been interpreted to permit seizure of certain
equitable interests, so long as the interests are capable
of being sold.*
Employing this Delaware procedure, the Trustees,
on March 10, 1971, filed in the district court a complaint
requesting sequestration of the property of the non-
resident defendants. That same day, the district court
entered a sequestration order and gave notice to the
defendants that they were to appear to defend by April
3. 8 Del. C. § 169 (Cum. Supp. 1968). See Green v. Johnston,
99 A. 2d 627 (1953). The statute and regulation have been inter-
preted to mean that shares of a Delaware corporation, held by a
non-resident, with the certificates evidencing the interest out-of-state,
are nonetheless seizable. Such seizure is accomplished by notifying
the transfer agent.
~
l6a Court of Appeals Opinions (8/31/73)
22, 1971. Pursuant to the order, debentures, warrants
and notes held by the defendants in Delaware corpora-
tions were seized.
On March 22, 1971, the Trustees filed an amended
complaint, again seeking sequestration. Pursuant to
the amended complaint, notice was sent to the defend-
ants requiring that they appear on May 4, 1971. The
defendants did not do so by April 22, 1971, the deadline
established by the original complaint. They did, how-
ever, file a motion to quash the sequestration before
May 4, 1971, the deadline created by the second, or
amended, complaint. Between April 22nd and May 4th
the Trustees obtained, from a deputy clerk, a default
against the defendants who had failed to appear by
April 22nd. The defendants moved to vacate that de-
fault, and such motion was granted by order of the
district court dated December 3, 1971. In view of the
confusion created by the two complaints served on de-
fendants, and since the defendants did appear by May
4th, and bearing in mind this Court’s ‘‘reluctance to
permit the final disposition of substantial controversies
by default’’* and the high standard necessary to re-
verse an order in a default situation,’ we affirm the
vacation of the default.
Responding to the order to appear, the defendants
on May 4, 1971, filed a motion to quash the sequestration
or to dismiss the action for lack of jurisdiction. On
December 20, 1971, the district court granted the motion
to quash but denied the motion to dismiss. The Trus-
tees appealed from the granting of the motion to quash.
It is to that issue that we must address our attention.
4. Hutton v. Fisher, 359 F. 2d 913, 916 (3d Cir. 1966).
5. To reverse a district court's action in a matter of this sort,
this Court must find that there was an abuse of discretion. Tozer v.
Charles A. Krause Milling Co. 189 F.2d 242, 246 (3d Cir. 1951).
Court of Appeals Opinions (8/31/73) 17a
IL.
The able and experienced district judge, granting
the motion to quash the sequestration, focused on a
narrow question of Delaware law,*® and found that the
affidavit filed in support of the sequestration request
was inadequate.
As stated earlier, the procedure to be employed in
effectuating service under the sequestration statute, 10
Del. C. § 366, is set forth in Chancery Rule 4(db). In
pertinent part, that Rule states:
““(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 non-resident of the State of Delaware and the
application therefor is accompanied by the affi-
davit of a plaintiff or other credible person stating:
**(a) As to each non-resident defendant whose
appearance is sought to be compelled, his last
known address or a statement that such address is
unknown and cannot with due diligence be ascer-
tained.
“*(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.
is controlling on questions concerning the state
procedure ed by ix Dede exnte eaamenst to €28. Ge. ©
Rule 4(e). = ia < Piedmont Aviation, Inc., 295 F. Pm
228 (S. D. N. ¥. 1968) aff'd 411 F. 2d 812 (2d Cir.), cert.
396 U. S. 840 (1969).
re ewe Vee. ee
18a Court of Appeals Opinions (8/31/73)
(3) The nature of the defendant’s title or
interest therein; and if such title or in-
terest 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.
* * * * * * *
(5) The court may in its discretion and sub-
ject to statutory requirements dispense with or
modify compliance with the requirements of any
part of this rule in any cause upon application to it
stating the reasons therefor.”’
The two sections of the Rule most germane to this
appeal are subsection (1)(b)(5) and section (5).
Pursuant to the Rule’s directive, the Trustees sub-
mitted an affidavit. It set forth that defendant Fidel
Gotz, his son, or one or more of his alter ego corpora-
tions held notes or shares in thirteen Delaware cor-
porations. Regarding several but less than a majority
of these corporations, the affidavit stated the estimated
amount and value of the defendants’ holdings. The
exact nature of the defendants’ title was not specified,
and the identity of which specific defendant was the
holder of the interest in any of the corporations was not
stated.
Affiant sought to overcome these deficiencies by
furnishing, as provided for in section (1)(b)(5), a
statement of the reasons for the omissions. Aware of
the shortcomings of his affidavit, the affiant ascribed
a
Court of Appeals Opinions (8/31/73) 19a
the omissions to the complete control over the informa-
tion retained by Fidel Gotz.’
The property located and seized by the seques-
trator was possessed by Inter-Marketing Corp., Minolta
Corp. and Vileda Corp., three of the defendant cor-
porations.
The district court, noting that the affidavit did not
specify that any of the three named corporate defend-
ants did possess the specific property seized, ruled that
the affidavit was insufficient to support the seques-
tration.
Holding that section (1) (b) (5) permitted only the
omission of statements required by subsections (1) (b)
(1)-(4), the district court concluded that denominating
the specific possessor defendant was a requirement not
of those subsections but a general requirement of sec-
tion (1) (b) and therefore not curable under (1) (b) (5).
That subsection being unavailable to the plaintiffs, the
district court then turned to section (5) of the Rule
which gives the court discretion, upon application by
the plaintiff, to dispense with other requirements.
The district court refused to consider whether it
was proper to dispense with other requirements because
it found that application had not been made for the
dispensation. This finding was made by the district
court despite the fact that a different judge of the dis-
trict court had granted the original sequestration re-
quest. Underlying the action of the second district
judge in quashing the sequestration was a desire to
7. For example, the affidavit stated:
“A ffiant is unable to state the value of any of the property owned
by any of said defendants . . . because that information is
peculiarly within the knowledge of said defendants and the cor-
poration whose shares, notes, debentures, debts and contract ob-
ligations are involved.”
20a Court of Appeals Opinions (8/31/73)
prevent the use of the sequestration statute for ‘‘fishing
expeditions,’’ attempts by individuals to commence
harassing litigation by making sweeping claims and
alleging that the defendant owns property in one or
more of a large number of companies. Such abuse had
been common prior to the adoption of Rule 4(db),* and
the district court expressed a fear that if this affidavit
were held adequate because of either section (1) (b) (5)
or section (5), there would be a return to dragnet-type
seizures.
This Court holds that, under the circumstances of
this ease, the affidavit submitted was sufficient to sup-
port the sequestration.’ The danger of a “‘fishing ex-
pedition”’ is not present when, as in this case, the affiant
endeavors to attain the maximum possible degree of
specificity, and additional precision is beyond the
affiant’s facilities, because of the complex inter-cor-
porate activities of multiple interrelated defendants.
Along much the same line, the affiant has asserted that
the corporations holding the legal title of the shares are
but alter egos of the principal defendant. Thus, for the
purpose of protecting against dragnet seizures, there
may be considered to be one defendant with many
facets. On these bases, the fears of the district court
would not appear to be well-founded in this case.
Further, a reversal of the order quashing the
sequestration appears supported in part by our reading
of Delaware case law, specifically Rebstock v. Lutz, 158
A. 2d 487 (1960). In that case, the plaintiffs, minority
8. See Cantor v. Sachs, 162 A. 73 (Del. Ch. 1932).
9. There were actually two affidavits submitted, one in connec-
tion with the complaint filed March 10 and one with the amended
or second complaint filed March 22. Since the district court did not
deal explicitly with one or the other, we have treated the affidavits
as one, as did the district court.
oh
a
Court of Appeals Opinions (8/31/73) 2la
shareholders, commenced a suit against directors of a
corporation by seeking to sequester shares held by the
directors in three Delaware corporations. The com-
plaint named nineteen individual defendants, but the
accompanying affidavit specified neither who among
defendants held shares in the three corporations nor
the amount of the holdings of any of the defendants.
The affidavit alleged, pursuant to subsection (1) (b)
(5):
‘*Deponent cannot state or estimate the number of
shares owned by each of the individual defendants
and the defendants named as co-partners in Model,
Roland & Stone because the information is avail-
able only to the respective defendants or to the cor-
poration whose shares are involved.’’ *°
The subsequent seizure revealed that five of the individ-
ual directors held shares in the three designated cor-
porations.
Under these facts, the defendants moved to vacate
the seizures. Their motion was denied by the Chancel-
lor,” and the denial was affirmed by the Supreme Court
of Delaware. The Supreme Court held that (1) (b) (5)
was designed to allow omissions if explained, and in
Rebstock, as in this case, one of the omissions was the
failure to specify which among numerous defendants
possessed shares of any of three corporations. The
Delaware court further held that section (5) was not
the sole remedy for this type of omission.
It is with some hesitancy that this Court reverse a
ruling on Delaware law made by an experienced Dela-
ware district court judge. Nonetheless, given the re-
10. Rebstock v. Lutz, 158 A. 2d 487, 490 (1960).
11. Lutz v. Boas, 156 A. 2d 96 (1959).
4
ie
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moh cic alas A ales
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a
22a Court of Appeals Opinions (8/31/73)
semblance between Rebstock and the present case, this
Court holds that the affidavit filed here is sufficient
under Delaware law.”
The defendants have asserted several other
grounds on which the vacation of the sequestration
order can be sustained.** One of these grounds, that
the Delaware sequestration statute is unconstitutional,
raises difficult questions dealt with in section III. One
other ground appears not insubstantial, and we shall
now consider it briefly.
The return of the sequestrator showed that the
following securities had been seized:
(a) 30,000 SSI Computer Corp. common stock
purchase warrants.
(b) $1,000,000 principal amount 7% subordinated
note, SSI Computer Corp. (now Itel Com-
puter Leasing Corporation).
12. The dissent asserts that this holding constitutes a “specious
refutation” of the district court and that reliance on Rebstock is not
warranted.
The procedure apparently employed in Rebstock consisted of
the filing of affidavits asserting that each of nineteen defendants owned
an unknown number of shares in one or more of several corporations.
The return of the sequestrator revealed that five of the nineteen de-
fendants held shares in the named corporations. Thus, as to many
if not all of the remaining fourteen defendants, any affidavit asserting
that the defendant owned an unknown number of shares would appear
to be a misstatement. In the present case, there was no allegation
that a particular defendant, among the inter-related corporate de-
fendants, was the owner of a particular number of shares.
Between the procedure here, and that employed in Rebstock, it
is difficult to determine which produced more of the “beating of the
bushes,” so criticized by the dissent. Here, at least, the affidavits
submitted would appear to be free of misstatement.
13. On appeal, the appellate court must affirm the decision of
the lower court, if correct, although the lower court relied on a dif-
ferent and incorrect ground. Helvering v. Gowran, 302 U. S. 238,
245 (1937).
-
Court of Appeals Opinions (8/31/73) 23a
(c) 50 shares of SSI Computer Corp. common
stock (now Itel Computer Leasing Corp.).
(d) 25,360,500 (Swiss franes) principal amount
8% notes of Textron Atlantic, Inc.
(e) $500,000 principal amount of SSI Computer
Corp. debentures (now Itel Computer Leasing
Corporation).
(f) 10,000 Itel warrants.“
Various types of securities are present in this list-
ing. The sequestration statute does not, by its terms,
define what is property seizable under the statute.
Shares of common stock of Delaware corporations are
seizable property ; * securities representing a debt owed
to a non-resident by a Delaware corporation vary as to
whether they are seizable.
‘*A debt owed to a nonresident of Delaware is
sometimes subject to sequestration in order to
compel his appearance in the Delaware courts. The
key consideration is whether the debt is repre-
sented by a negotiable instrument. If it is nego-
tiable, then it does not have a Delaware situs and
may not be seized. In other words, unlike stock
of a Delaware corporation, the situs of a negotiable
bond issued by a Delaware entity is not Delaware
but follows the certificate. On the other hand, if
the indebtedness is represented by a non-negotiable
instrument, then it is like any other debt and re-
tains a Delaware situs and may thus be seized
under sequestration process.”
14. Baker v. Gotz, 335 F. Supp. 197, 199 (D. Del. 1971).
15. 8 Del. C. § 169.
16. E. Folk, supra note 1 at 592. (Footnote omitted)
Pee aR oes
24a Court of Appeals Opinions (8/31/73)
The Trustees argue that this distinction between
negotiable and non-negotiable securities has not sur-
vived Delaware’s modification of the Uniform Com-
mercial Code.” They contend that this alteration in-
dicates that all securities are seizable. The defendants,
however, assert that the alteration merely preserves the
existing Delaware judicial rules determining seizabil-
ity. Professor Folk agrees with the interpretation
suggested by the defendants.”
The district court did not determine which, if any,
of the securities seized are negotiable. Such resolution,
since it may involve a question of fact, is, in the first
instance, properly made by the district court.” If the
17. Section 8-317(1) of the Uniform Commercial Code as gen-
erally adopted provides:
“(1) No attachment or levy upon a security or any share
or other interest evidenced thereby which is outstanding shall be
valid until the security is actually seized by the officer making
the attachment or levy but a security which has been surrendered
to the issuer may be attached or levied upon at the source.”
Delaware, however, has enacted a different provision. 5A Del.
C. §8-317(1) states:
“(1) Nothing contained in this title shall repeal, amend
or in any way effect (sic) 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 title is inconsistent with such
sections, sections 169 and 324, title 8, and 365 and 366 and
chapter 35, title 10, shall be controlling.”
The Trustees argue that this section indicates that sequestration
may be had of any type of property, regardless of whether that prop-
erty is embodied in a negotiable instrument. The defendants, on the
other hand, contend that this section merely carries forward estab-
lished Delaware law on what items are seizable.
18. E. Folk, supra note 1 at 592, n.160. The distinction based
on the negotiability rule was enunciated in Landau v. Best, 187 A. 2d
75 (1962). There does not appear to be a post-UCC case dealing
with this question.
19. The dissent suggests that there should not be a remand on
this issue, because only “phantom facts” remain to be found by the
district court. However, this Court, as an appellate tribunal, does
Court of Appeals Opinions (8/31/73) 25a
district court determines that these securities are not
negotiable, that will conclude this aspect of the inquiry,
since non-negotiable securities would be sequesterable
under the statutory construction advanced by either
party. Only if the securities are found to be negotiable
will statutory interpretation be required. Thus, it
would not appear that the question is ripe for adjudica-
tion, and, therefore, it will be deferred pending the dis-
trict court’s factual determination, and if necessary, its
construction of the Delaware statute.”
The defendants, however, concede that the 50
shares of SSI Computer Corp. (now Itel Computer
Leasing Corp.) (item (c)), are seizable under the Dela-
ware sequestration statute.” This seizure appears un-
assailable insofar as Delaware law is concerned. Thus,
there remains property which has been properly seized
according to the Delaware sequestration statute. For
that reason, this Court must perforce proceed to meet
the challenges raised to the constitutionality of the
statute itself.”
19. (Cont’d.)
not have before it the instruments embodying the interests seized, nor
an exact description of those interests. While the determination of
the negotiability of these instruments requires an application of law,
the law must be applied to facts, And these facts have not yet been
developed. Indeed, were we to make a decision now, we might be
more validly charged with deciding on the basis of phantom facts.
20. On remand, the district court should consider Gotz’s argu-
ment that the $500,000 principal amount, SSI Computer Corp. deben-
tures (item (e)) are not seizable because they were sold prior to the
sequestration. This question need not be reached if the debentures
are found to be negotiable and held to be not seizable under Delaware
law.
21. Brief of Appellee at 29.
22. The defendants also urge that the Trustees’ action is basically
at law, not in equity, and consequently could not be brought in the
Delaware Court of Chancery. They further contend that because
sequestration is available only in Chancery, that procedure should not
dict
a ey a ee Ee
TREN TOE Oe
26a Court of Appeals Opinions (8/31/73)
Il.
Having found that the sequestration order was
proper under Delaware law, the Court must now pro-
ceed to the contention of the defendants that the seizing
of their property by sequestration, prior to a hearing,
violated due process.”
In considering the constitutionality of the state
procedure, it is important to bear in mind that this
Court’s task is not to assess the wisdom of a procedure
characterized by some as a ‘“‘bludgeon.’’ Rather, our
assignment is limited to measuring the state statute and
rules against the decisions of the Supreme Court de-
lineating the elements of due process.
The recent cases of Sniadach v. Family Finance
Corp.* and Fuentes v. Shevin® provide the benchmark
against which prehearing seizures must be gauged.”
22. (Cont’d.)
be available to a plaintiff in a federal court whose action sounds at law.
This contention of the defendants must be weighed against the Trus-
tees’ assertions that their action is in equity since it seeks an account-
ing and imposition of a constructive trust and involves complex ac-
counting and allegations of fraud. The Trustees also suggest that
there is no longer a sharp cleavage in the federal courts between law
and equity and that Rule 4(e) permits utilization of state procedures
in any federal action, since all are denominated civil actions. Rule 2
F. R. Civ. P. This dispute has not been resolved by the district court
and, in view of this Court’s disposition of the case, our resolution
of the question at this time would appear to be premature.
23. Because of the incorporation of the state procedure provision
on F. R. Civ. P. 4(e), Gotz’s claim must be primarily that his Fifth
Amendment right to due process is being abridged, and secondarily
that the underlying state statute deprives him of rights secured under
the Fourteenth Amendment.
24. 395 U. S. 337 (1969).
25. 407 U. S. 67 (1972).
26. See E. Folk & P. Moyer, Sequestration in Delaware: A
Constitutional Analysis, 73 Colum. L. Rev. 749 (1973) (hereinafter
Folk & Moyer).
Court of Appeals Opinions (8/31/73) 27a
Although both Sniadach and Fuentes dealt with sei-
zures from persons at the lower end of the economic
spectrum,” Fuentes makes clear that the principle
enunciated is wide-ranging in its application.* The
basic holding of these two eases is that unless, as the
Supreme Court stated, ‘‘extraordinary situations’’ ob-
tain, absent notice and a prior hearing, pre-judgment
seizures of property violate fundamental tenets of due
process.” Since the Delaware procedure utilized here
is essentially a pre-judgment seizure, the question he-
comes whether, nonetheless, it is permissible because of
the presence in this case of an extraordinary situation.
Both Sniadach and Fuentes set forth examples of
the type of situations the Supreme Court considers
extraordinary.” In both cases, Ownbey v. Morgan ®™
was referred to as an exemplar of such a circumstance.”
Ownbey involved the Delaware foreign attachment stat-
ute, a statute closely related to the sequestration statute
challenged here. The Supreme Court’s citation to
27. In Sniadach the seizure challenged was the garnishment of
wages for non-payment of debt. In Fuentes the ancient practice of
replevin was attacked. Both of these procedures are commonly ap-
plied against the poor who are unable to meet installments due on
credit purchases.
28. Prior to Fuentes two lines of cases had developed, one line
holding that Sniadach was a bar to virtually all prehearing seizures,
the other line limiting Sniadach to situations akin to wage garnish-
ments. Compare e.g. Black Watch Farms vy. Dick, 323 F. Supp.
100 (D. Conn. 1971) with e.g. Swarb v. Lennox, 314 F. Supp. 1091
(E. D. Pa. 1970), aff'd 405 U. S. 191 (1972).
29. 395 U. S. at 339, 342; 407 U. S. at 90.
30. The Court in Fuentes indicates that extraordinary situations
permitting prehearing seizures, include collection of the internal reve-
nue, assistance to the war effort, and protection against an imminent
bank failure, contaminated food and misbranded drugs. 407 U. S
at 91-2.
31. 256 U. S. 94 (1921).
32. 395 U. S. at 339; 407 U. S. at 91, n. 23.
Wee ee ne eee Ss ae
a ee dus
28a Court of Appeals Opinions (8/31/73)
Ownbey led this Court, in Lebowitz v. Forbes Leasing
and Finance Corp.,* to uphold the constitutionality of
Pennsylvania’s foreign attachment procedure,” in the
face of a strong challenge.™
Although it might be contended that the Court,
now, could hold that Lebowitz is binding in this case,”
and on that basis sustain the Delaware statute, an ex-
plication of the considerations that must be balanced
in this due process challenge lead to the same conclu-
sion, sustaining the Delaware procedure as applied in
this case.
The question that must be posed is, assuming an
encroachment upon one’ right, what is the legitimate
state interest justifying such a burden. In a typical
ease of foreign attachment or sequestration, the state’s
interest may not be of such magnitude to override the
right to a pre-seizure hearing.” That question need
33. 456 F. 2d 979 (3d Cir.), cert. denied, 409 U. S. 843 (1972).
34. P. R. Civ. P. 1251-79, 1285-92.
35. The difficulty this Court had in reconciling the Ownbey
citation with the philosophy of Sniadach can be seen in both the
majority opinion, by Chief J Seitz, and the concurring opinion,
po Gibbons. 456 F. 2d at 982-3. However, the continuing vitality
of Ownbey is attested to by its presence in both Fuentes and Sniadach.
Unless and until the Supreme Court reverses Ownbey this Court
is duty bound to accord the case its full respect.
36. This Court’s prior reliance on Ownbey has been criticized in
two thoughtful recent notes. See Comment, Foreign Attachment
After Sniadach and Fuentes, 73 Colum. L. Rev. 342 (1973) ; Com-
ment, Quasi in Rem Jurisdiction and Due Process Requirements, 82
Yale L. J. 1023 (1973).
37. The Supreme Court’s language indicates that extraordinary
circumstances must be present to permit a prehearing seizure. In
determining whether there is an extraordinary circumstance, the
icons is Ghee’ t Oe eeet f te aoe Ss ema ¢
summary proceeding. Therefore, whether ysis is denominat
a search for extraordinary circumstances or a balancing under due
process, the final inquiry remains the extent and importance of the
state’s interest.
‘—_
Court of Appeals Opinions (8/31/73) 29a
not be decided at this point, for this is not the typical
foreign attachment or sequestration case.
It is crucial to recall that the defendants cannot be
located within the United States and are not liable to
im personam service under the applicable Delaware
statutes.“ Thus, the constitutional challenge becomes
more circumscribed, for if the procedure is constitu-
tional as applied to the defendants, further examination
of it would be impermissible.
**[OJne to whom application of a statute is con-
stitutional will not be heard to attack the statute
on the ground that impliedly it might also be taken
as applying to other persons or other situations in
which its application might be unconstitutional.”
Several interests of the state are frequently as-
serted as the bases for justifying foreign attachments,
or, as in this case, sequestration. These interests in-
elude: protecting state residents by affording them a
forum ; “ insuring that a fund be available from which
a judgment may be satisfied ; “ reducing or eliminating
extended litigation arising from attempted long-arm
service ;“* and the more metaphysical interest of the
38. Delaware has a rather limited “long-arm” statute for secur-
ing jurisdiction. 10 Del. C. § 3104, 8 Del. C. § 343.
39. United States v. Raines, 362 U. S. 17, 21 (1960). Raines
involved a Federal statute, but the rule clearly applies to state statutes,
see e.g. Yazoo v. Mississippi Valley R. Co. v. Jackson Vinegar Co.,
226 U. S. 217 (1912). The presence of both Federal and state rules
or statutes in this case, see note 20, supra, does not affect the per-
tinence of this mandate.
40. See Lebowitz v. Forbes Leasing and Finance Corp., 326
F. Supp. 1335, 1348-9 (E. D. Pa. 1971) aff'd 456 F. 2d (3d
Cir.), cert. denied, 409 U. S. 843 (1972).
41. See id. at 1349. See also, Comment, 73 Colum. L. Rev. at
7-8.
42. See Lebowitz v. Forbes ing and Finance Corp., 456
F. 2d 979, 982 (3d Cir.), cert. denied, U. S. 843 (1972).
a ee ee
ae a. ee
Arte amoethé;
30a Court of Appeals Opinions (8/31/73)
state in exercising its power as sovereign over property
within its jurisdiction.”
Were the defendants here amenable to service pur-
suant to a Delaware statute or, even if the defendants
were not liable to suit in Delaware but were liable in
another state of the Union, we would be presented with
not inconsideraable difficulty in holding that these as-
serted state interests outweigh the right of the property
owners to notice and a hearing prior to being deprived,
even temporarily, of their property.“
Gotz, his son, and the alter ego corporate defend-
ants named in the complaint are all ‘‘citizens of foreign
states and reside in continental Europe.’’* As such,
they are not liable to effective service by or in the
United States, either under a Delaware statute or by
proceedings brought in a sister state.
The plaintiffs are trustees of a corporation that is
incorporated in Delaware, has extensive power in
Delaware, and conducts a significant amount of busi-
43. U. S. Industries v. Gregg, 348 F. Supp. 1004, 1019-21 (D.
Del. 1972).
44. In the usual situation, many of the state’s objectives can be
achieved without causing the deprivation of rights associated with
prehearing seizures. If the potential defendant is amenable to service
im personam, that proceeding might be sufficient to provide resident
plaintiffs with a local forum. Similarly, if the case were between two
ae es re ae Oe ee ay pee
seizing a fund prior to judgment. endants were out-of-state,
proceedings under the Gatton Enforcement of Judgments Act, ¢.g.
12 P. S. $§ 921-928 (Pennsylvania), or pursuant to the full faith and
credit clause, U. S. Const. Art. IV $1, would provide the plaintiff
with the means to satisfy any judgment obtained.
From these illustrations, it becomes clear that the presence of less
restrictive, alternative means to legitimate state ends might present
ne eee aes Oe ee Se a oe Oe
dures in the normal situation. Compare Folk & Moyer, 73 Colum.
L. Rev. at 759-68.
45. Baker v. Gotz, 336 F. Supp. at 200.
Court of Appeals Opinions (8/31/73) 3la
ness in Delaware.“ In view of the fact that the plain-
tiffs here do have substantial contacts “* with Delaware,
and that the valid state interests in protecting residents
and affording a forum to litigate grievances cannot be
satisfied in the case of defendants who cannot be served
in the United States in any less restrictive manner, the
procedure used here is necessary to secure jurisdiction
and under the circumstances appropriate as a response
to an extraordinary situation within the exception de-
seribed in Sniadach and Fuentes.“* Therefore, we hold
that, as applied in this case, the absence of a pre-seizure
hearing in the Delaware sequestration procedure does
not violate due process.”
The foregoing conclusion is, of course, bottomed
on the premise that Delaware may, consistent with due
process, provide a forum for the adjudication of the
Trustees’ claim.” The defendants contest this premise,
46. The main line of the debtor-corporation’s Eastern corridor
passenger and freight service runs through Delaware.
47. Whether the state has a legitimate interest in providing out-
of-state plaintiffs a forum to sue out-of-state defendants is a question
which we do not reach. Here, the plaintiffs have sufficient ties in
Delaware to be considered not out-of-state. See generally Interna-
tional Shoe Co. v. Washington, 326 U. S. 310 (1945).
48. The use of Ownbey in the Fuentes case as an example of
an extraordinary situation has drawn some skeptical comment. See
Comment, 73 Colum. L. Rev. at 344-7. Comment, 82 Yale L. J. at
1025-6. However, as applied to the facts of a case similar to this, the
import of the citation is clear. Here, the prehearing seizure is jus-
tifiable because it provides the only means for the state to gain juris-
diction over a suit appropriately brought in its court.
49. Accord, Gordon v. Michel, 297 A. 2d 420 (Del. Ch. 1972).
50. In this point, the discussion has addressed the question
whether due process requires a pre-seizure hearing. Analysis has
been focused on the presence or absence of “extraordinary situa-
tions.” The conclusion has been reached that the non-availability
of the defendants in the United States presents an extraordinary
situation.
This same non-availability of the defendants raises questions con-
cerning the propriety of adjudicating this claim in Delaware. The
a
32a Court of Appeals Opinions (8/31/73)
; asserting that any attempted exertion of jurisdiction
over them by Delaware would be, in reality, nothing
short of an exercise of in personam jurisdiction. Since
the exercise of in personam jurisdiction raises the
specter of a judgment not limited by the value of their
property, defendants contend that the procedure is
unconstitutional.
The highest court of Delaware has, in fact, in-
dicated that the sequestration procedure, once properly
instituted, leaves a defendant only the choice between
defaulting, and thus forfeiting the property seized, or
entering a general appearance to defend on the merits.”
A general appearance subjects a defendant to the in
personam jurisdiction of the court; thus, defendants
argue, the Delaware procedure seeks, by its in terrorem
effect, to secure personal jurisdiction where none could
be obtained otherwise. Defendants consequently main-
tain that when tested by the standards of due process
enunciated in International Shoe Co. v. Washington,”
the Delaware procedure must be struck down, at least
insofar as it permits the rendition of judgments exceed-
ing the amount of any property lawfully seized.™
i
pit Bisel
50. (Cont’d)
discussion now turns to that distinct question. The dissent, however,
would appear to blur the distinction between the questions by suggest-
ing that language employed to answer the first question is actually
involved in the answer to the second.
51. See Sands v. Lefcourt Realty Corp., 117 A. 2d 365 (Del.
1955) : cf. Schwartz v. Miner, 36 Del. Ch. 481, 133 A. 2d 599 (1957).
i 52. 326 U. S. 310 (1945).
3 53. The federal district court in Delaware has recently addressed
; itself to this contention. Basing its conclusion on the fundamental
; proposition that the “foundation of jurisdiction is physical power,”
Judge Stapleton held that the presence of the property in the state
gave the state power over the property and this provided sufficient
contact. U. S. Industries v. Gregg, 348 F. Supp. 1004, 1019-21
(D. Del. 1972).
Court of Appeals Opinions (8/31/73) 33a
On the record before us, it would appear that the
only contact between the defendants and Delaware is
the property seized by the sequestrator. Since that is
their sole contact, it may be argued that the defendants’
exposure to liability should be limited to the degree of
their property in Delaware, i.e., limited to the degree of
their contact with Delaware. As discussed earlier,”
however, questions remain as to which of the de-
fendants’ properties seized are indeed properly se-
questerable. Thus, the specific monetary value of the
defendants’ contact with Delaware awaits further
adjudication. The Trustees seek to recover $4,000,000
from the defendants. Yet, there has not been any de-
termination of the probability of success of the Trus-
tees’ claim.” Since resolution of these underlying
issues—which the dissent characterizes as phantom
facts—is necessary before we can say with certainty
that the Trustees’ judgment will exceed the amount of
the property seized, the constitutional issue such an
‘“texcess’’ judgment would present is not yet ripe for
determination. Accordingly, we decline to answer it
at this time.
We are not unmindful of the awkward position in
which the defendants are left by our reluctance to de-
cide whether, consistently with the Constitution, they
may be subjected to a liability exceeding the value of
the property sequestered. Given that the Delaware
procedure does not provide for limited appearances,
the defendants are now met with a choice between
defaulting on the one hand and, on the other, entering
a general appearance to defend the action. Since we
54. See text accompanying notes 10-16, supra.
55. At the time of a sequestration request, seizures will be
ordered if the “complaint, regardless of its merits, is on its face a
bona fide allegation.” Folk & Moyer, 73 Colum. L. Rev. at 755.
sven
34a Court of Appeals Opinions (8/31/73)
have left the question unanswered, defendants, if they
choose to defend generally, and if they are found liable
in an amount surpassing the value of their property
legitimately seized, will be forced to litigate the con-
stitutionality of the excess award in another appeal.™
If the constitutional question is decided adversely to
i them on that appeal, their opportunity to limit their
liability by defaulting will, quite obviously, have
passed. Conversely, a decision to default now, with the
attendant forfeiture of their property, would work to
deprive them of the benefit of any subsequent judicial
; determination that an award in such an action may not
; exceed the value of seized property. Thus, by staying
our hand on this point, it may well be that we have
deprived the defendants of the opportunity to make a
fully informed choice between default and general
appearance.
Moreover, it appears that the constitutional ques-
tion presented by the possibility of a judgment exceed-
ing in amount the value of defendants’ property is
neither an insubstantial nor a frivolous one. If we
; assume that defendants will, as a practical matter,
decide to defend this action generally, it may be no dis-
tortion of language to maintain that they will have been
*‘eoerced” into subjecting themselves to the in per-
: sonam jurisdiction of the court.” The only justifiable
basis of in personam jurisdiction is, of course, ‘*power”’
over the defendants’ person. Since the decision in
6 De Pua eP PEO eye Nae See ee
56. See discussion at p. 31, infra.
57. Indeed, at least one court has pointed out that the “avowed
purpose of Delaware’s sequestration statute is to compel a general ap-
pearance and thereby produce a basis for im personam jurisdiction.”
U. S. Industries Inc. v. Gregg, 348 F. Supp. 1004 (D. Del. 1972).
See also Folk & Moyer, supra, at 789.
58. See Pennoyer v. Neff, 95 U. S. 714 (1877).
Court of Appeals Opinions (8/31/73) 35a
International Shoe Co. v. Washington, 326 U. S. 310
(1945), the exercise by courts of in personam jurisdic-
tion over persons without the territorial bounds of the
forum has been tested against the so-called ‘‘minimum
contacts’’ standards. Where a person elects to do
business in a state, be it merely through the appoint-
ment there of agents or salesmen, it is not conceptually
difficult to conclude that that person, having voluntarily
accepted the benefits conferred by the state upon those
doing business, may be forced to accept the burdens
implicit in subjection to personal jurisdiction. ‘‘ Mini-
mum contacts”’’ voluntarily established, therefore, offer
an acceptable predicate for in personam jurisdiction:
a personal judgment rendered under such conditions
‘“‘does not offend ‘traditional notions of fair play and
justice.’ ’’® In this connection, the Supreme Court in
Hanson v. Denckla stated:
‘**TI]t is essential in each case that there be some
act by which the defendant purposefully avail it-
self of the privilege of conducting activities within
59. 326 U. S. at 316.
60. Id. Both the Court of Appeals of New York and the U. S.
Court of Appeals for the Second Circuit have upheld the constitu-
tionality of New York’s practice of allowing a plaintiff in an accident
case to attach a contingent debt owed to the defendant by a New
York insurer, although the defendant would not otherwise be subject
to suit in New York. See Simpson v. Loehman, 21 N. Y. 2d 305,
287 N. Y. S. 2d 633, 234 N. E. 2d 669 (1967), reargument denied,
21 N. Y. 2d 990, 290 N. Y. S. 2d 914, 238 N. E. 2d 319 (1968) ;
Minichiello v. Rosenberg, 410 F. 2d 106 (2d Cir. 1968) (en banc),
cert. denicd, 396 U. S. 844 (1969). Significantly, the Court of Ap-
peals of New York has held that recovery in an action brought pur-
suant to this procedure must be limited to the amount of the debt
seized, i.e., to the amount of the insurer’s liability. See Simpson,
supra.
4 This Court, in an admiralty context, has expressly declined to
adopt the New York practice. See Robinson v. Shearer & Sons, Inc.,
429 F. 2d 83 (3d Cir. 1970).
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36a Court of Appeals Opinions (8/31/73)
the forum state, thus invoking the benefits and
protections of its laws.’’®
In a case such as this, it might persuasively be
argued that since the ‘‘voluntariness’’ of defendants’
contacts with the forum state is, at best, attentuated,
a personal judgment exceeding the value of their prop-
erty—seizure of which is the only real jurisdictional
base—would offend against due process. However,
there appears to be substantial authority to the effect
that a ‘‘coerced’’ general appearance will not be deemed
involuntary at all, since by opting to appear generally
the defendant has in fact ‘‘consented’’ to the court’s
jurisdiction. In Ownbey v. Morgan, supra, the Court
spoke with apparent approbation of this ‘‘conversion
of a proceeding quasi in rem into an action in personam.
. .’?* Tf consent to personal jurisdiction is the
necessary implication of the entry of a general appear-
ance, then application here of the ‘‘minimum contacts”’
tests seems misguided, and the in terrorem effect of the
sequestration procedure might well pass constitutional
muster. Ultimate resolution of this issue would de-
pend, then, on which course of analysis a court were to
pursue—the ‘‘voluntary contact”’ test of International
Shoe and Hanson or the ‘‘implied consent’ view of
Ownbey.®
Having illustrated that seemingly divergent lines
of Supreme Court and lower court decisions leave the
61. 357 U. S. 235, 253 (1958). (Emphasis added)
62. 256 U. S. at 111. Cf. Pennoyer v. Neff, supra, 95 U. S. at
730-31, where the court contrasted in personam judgments against
absent defendants with those in which the party “voluntary ap-
peared.” See Anderson v. Benson, 117 F. Supp. 765, 769-70 (D.
Neb. 1953), and compare Salmon Falls Mfg. Co. v. Midland Tire
& Rubber Co., 285 F. 214, 218-19 (6th Cir. 1922).
63. See generally Folk & Moyer, supra, at 789-95.
a
defendants virtually in the dark as to the constitu-
tionally permissible extent of their liability, we re-
iterate, with some disquietude, that we cannot at this
time lay their uncertainty to rest. This Court has long
honored the proposition that we are bereft of power to
render ‘“‘an opinion advising what the law would be
upon a hypothetical state of facts.””“ The interdiction
against advisory opinions emanates from the very
fountainhead of our jurisdiction, Article III of the
Constitution. Like other doctrines falling under the
general head uv: “‘justiciability,’’ it serves to assure that
federal courts stay their mandate until confronted with
‘a question . . . precisely framed and necessary for
decision... .”’™
The constitutional question here under discussion,
albeit one of vital interest to the defendants, is not, at
this juncture, ‘‘precisely framed and necessary for
decision.’”’ The amount of the defendants’ property
legally seizable remains undetermined; the precise
value of any property legitimately seized is, perforce,
unknown; the extent of their potential liability is yet
to be resolved. There thus survives the real possi-
bility that our resolution of the constitutional issue
would indeed prove ‘‘advisory,’’ if defendants’ liability
64. Aetna Life Ins. Co. v. Haworth, 300 U. S. 299, 241 (1937) ;
accord North Carolina v. Rice, 404 U. S. 244, 246 (1971). See
Conover v. Montemuro, No. 71-1871 (3d Cir. Filed Dec. 20, 1972)
slip op. at 18 (Adams, J., concurring) aff'd en banc (3d Cir. Filed
May 8, 1973) ; Super Tire Engineering Co. v. McCorkle, 469 F. 2d
914 (3d Cir. 1972).
65. United States v. Fruehauf, 365 U. S. 146, 157 (1961). See
South Carolina v. Katzenbach, 383 U. S. 301, 335 (1966) ; Muskrat
vy. United States, 219 U. S. 346 (1911); C. Wright, Federal Courts
334 (1963).
66. Even if the amount of lawfully seizable property and the
value thereof were known, the question whether the district court’s
judgment will exceed that value would, obviously, remain unanswered.
Court of Appeals Opinions (8/31/73) 37a
_ Meee ne he
- 4 be r vere PE as eee a eS fe iid
Bano: wee Saket ‘piioics Neck cin a i it AN al ia cel AT OSA OANA CATES
38a Court of Appeals Opinions (8/31/73)
happens to be less than the value of the seized property.
As much as our appreciation of the hardship visited
upon the defendants may move us to reach the constitu-
tional question, the counsel of recognized limitations
upon our jurisdiction is more compelling. Accord-
ingly, we hold that resolution of the question would be
premature.
One further consideration convinces us of the
wisdom of declining to settle this due process issue
now. As indicated above,” the Supreme Court of Dela-
ware has held that the Delaware sequestration pro-
cedure does not permit a limited appearance to defend
on the merits.“ However, the Delaware court has ap-
parently never given its full attention to the constitu-
tional argument that may be mounted against the
sequestration statute, insofar as that statute is con-
strued to permit a judgment exceeding the value of
property seized.” It is not inconceivable that prior to
determination by the court below of the extent of de-
fendants’ liability, the Supreme Court of Delaware,
moved by its perception of this specific constitutional
issue, will re-interpret the sequestration statute to
prohibit judgments in excess of property seized. Such
an interpretation, authoritative and binding upon the
federal judiciary, would, of course, obviate any need
for this Court to gauge the Delaware statute against
constitutional standards.
We think, too, that where the courts of a state have,
over the years, repeatedly upheld a statute such as the
67. See text accompanying note 48, supra.
68. See Sands v. Lefcourt Realty Corp., supra, 117 A. 2d at 368.
69. See generally Folk & Moyer, supra, at 789-95. Compare
the analysis in U. S. Industries v. Gregg, supra, 348 F. Supp. at
1019-21, where Judge Stapleton apparently found no constitutional
violation worked by the statute’s avowed purpose of “coercing” gen-
eral appearances.
Court of Appeals Opinions (8/31/73) 39a
Delaware sequestration law, notions of comity militate
in favor of allowing those courts the first opportunity
to test the statute against new inroads of constitutional
attack. The courts of Delaware have only recently
reaffirmed their readiness, in a proper case, to subject
the sequestration law to thoroughgoing constitutional
analysis.”
This is not to say that we would defer decision of
the constitutional question were it properly before us,
merely to allow the Delaware court the first opportunity
to pass on the constitutional validity of the statute.”
But where, as here, the constitutional issue is not yet
ripe for decision in a federal court, a salutary effect
upon state-federal relations may be had by holding in
abeyance our power to strike down the state statute
under attack.”
Having set forth our reasons for refusing to settle
the constitutional issue at this time, we are not disposed
to conclude that we are powerless to meliorate defend-
ants’ plight. While Rule 4(e) of the Federal Rules
of Civil Procedure permits commencement of this ac-
tion by the ‘‘borrowing’’ of Delaware’s quasi in rem
procedure, nothing in the Rule appears to require that
we ‘‘borrow,’’ as well, all the accoutrements of Dela-
ware’s practice. Thus in the interest of fairness, the
defendants, even if they elect to enter a general appear-
ance and defend on the nierits, shall not be deemed to
have waived their constitutional claim. Accordingly,
70. See Gordon v. Michel, 297 A. 2d 420 (Del. Ch. 1972).
71. Compare Railroad Comm. of Texas v. Pullman, 312 U. S.
496 (1941).
72. Were the highest court of Delaware to be of the opinion that
“excess” judgments are, indeed, invalid, it would appear to have
statutory authority to “sever” from the sequestration statute those
words thought to permit the rendition of the excess award. See 1
Del. C. § 308; Conrad v. State, 41 Del. 107, 16 A. 2d 121 (1940).
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40a Court of Appeals Opinions (8/31/73)
if a judgment by the district court exceeds the value of
defendants’ lawfully seized property, such would be
open to constitutional attack either in the district court
or on appeal.
We hold, therefore, that the presence of property
in Delaware and the involvement of the Penn Central
with Delaware provide sufficient basis for the assump-
tion of jurisdiction by Delaware. Thus, we reject,
within the context of this appeal, the claims of the de-
fendants that employment of the sequestration statute
deprives them of due process.
The defendants further contend that the seizures
made by the sequestrator ® violate the Fourth Amend-
ment since they were not made pursuant to a warrant
based on probable cause. An examination of early
cases indicates quite clearly that the protection of the
Fourth Amendment was not considered to extend to
seizures of a civil nature. In Boyd v. United States,"
the Supreme Court stated in dicta:
‘‘The entry upon the premises, made by a sheriff
or other officer of the law, for the purpose of seiz-
ing goods and chattels by virtue of a judicial writ,
such as an attachment, a sequestration, or an exe-
cution, is not within the prohibition of the Fourth
or Fifth Amendment.’ ”
While it is clear that the concept of what consti-
tutes a search or seizure impermissible under the
Fourth Amendment has evolved significantly since the
late nineteenth century, the path of that evolution has
73. The sequestrator is an officer of the court empowered to serve
writs, similar to a sheriff or constable. E. Folk, supra note 1 at 581.
74. 116 U. S. 616 (1886).
75. Id. at 624.
Court of Appeals Opinions (8/31/73) 4la
been neither so straight nor so inexorable“ that it
encompasses sequestration proceedings, at least at this
time.”
Moreover, in Lebowitz, the same Fourth Amend-
ment claim was raised, and this Court dismissed the
contention summarily.”
Bound by the holding of this Court in Lebowitz
and guided by the unrepudiated pronouncement of
the Supreme Court in Boyd, we reject the defendants’
Fourth Amendment claim.
IV.
The constitutional challenge mounted by the de-
fendants on this appeal has impelled this Court to
examine carefully a statute of the State of Delaware.
Our examination has, however, been confined to the
statute’s impact on the litigants present here, in the
factual setting of this case. Save for litigation involv-
ing the right of free speech,” inquiry into a statute
beyond that required for deciding the immediate dis-
pute is not only doctrinally impermissible but indica-
tive of a misapprehension of the role of a court in our
society. Invalidating legislation is serious business,
and should not be indulged in lightly, if there is any
basis for substantiating it-
Recognition that the task of the judiciary is de-
ciding cases, and that cases are comprised of discrete,
76. Compare Camara v. Municipal Court, 387 U. S. 523 (1967)
with Wyman v. James, 400 U. S. 309 (1971).
77. See generally Comment, Laprease and Fuentes: Replevin
Reconsidered, 71 Colum. L. Rev. 886, 898-901 (1971).
78. 456 F. 2d at 980.
79, See e.g. Thornhill v. Alabama, 310 U. S. 88 (1940). “It is
not merely the sporadic abuse of power by the censor but the perva-
sive threat inherent in its very existence that constitutes the danger
to freedom of discussion.” Jd. at 97.
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42a Court of Appeals Opinions (8/31/73)
at times even unique facts, is necessary to a proper
appreciation of the place of the court in our federal
system. We are not empowered to be knights-errant,
striking dowa any statute that appears to us to be un-
attractive. Rather, we may invalidate a statute only
when its actual effect on a litigant before the court is
to deprive that litigant of a right secured by a superior
law, here the United States Constitution.”
Moreover, this Court is neither equipped nor em-
powered to act as a finder of fact. Appellate adjudica-
tion involves reviewing the application of law to facts
found by the district courts, even though at times it
may be enticing to forego this necessary albeit time-
consuming step. On occasion, in a zeal to decide all
issues presented, some have asserted that a particular
issue involves only the application of law, thus obvi-
ating the need for facts found by a district court.
Although this approach, having the advantage of
celerity, is to some inviting, sound judicial procedure
requires that it be eschewed in favor of a more orderly
resolution of a particular case.
For all the reasons set forth above, the judgment
of the district court will be reversed and the case re-
manded for action consistent with this opinion.
Gissons, Circuit Judge, dissenting
I coneur in that part of Judge Adams’ opinion
affirming the vacation of a default entered against the
defendants. I dissent from the reversal of the district
court’s order because of my disagreement with the
80. “This Constitution, and the laws of the United States which
shall be made in pursuance thereof . . . shall be the supreme law
of the land.” U. S. Const. Art. VI, § 2.
Court of Appeals Opinions (8/31/73) 43a
majority over the proper interpretation of the Dela-
ware Sequestration Statute, over the treatment of the
defendants’ due process contentions, and over post-
ponement of the resolution of issues properly before
us. Since the district court’s interpretation of the
Delaware Sequestration Statute provides an adequate
nonconstitutional basis for decision, I would affirm on
that ground, and will commence analysis of the case at
that point.
A. Application of the Delaware Sequestration Law
This diversity action (that is the only federal
jurisdiction alleged) was brought by the Trustees of
Penn Central Transportation Company against Fidel
Gotz, a West German national, Volker Gotz, a Swiss
national and seven business entities organized in
Switzerland or Liechtenstein. The complaint charges
that Fidel Gotz controls the seven business entities,
and that acting through them in Europe he fraudu-
lently m sappropriated four million dollars belonging
to the estate being administered by the plaintiffs.
None of the defendants are residents of Delaware or
qualified to do business there. The transactions giving
rise to the alleged misappropriation did not take place
in Delaware. The only process which has issued from
the district court is a sequestration order issued pur-
suant to the borrowing provision of Fed. R. Civ. P.
4(e)(2)- Prior to 1963, an action could not have been
commenced in a United States District Court in this
manner. Big Vein Coal Co. v. Read, 229 U. 8. 31
(1913) ; Davis v. Ensign-Bickford Co., 139 F. 2d 624
(8th Cir. 1944). The 1963 amendment to Rule 4(e)
made it possible to bring an original quasi in rem
action in the federal court. But the district court in
— ant. te —. s tive t th | bens iin >
tta Court of Appeals Opinions (8/31/73)
a diversity case can go no further in compelling a de-
fendant’s appearance by the quasi in rem device than
could the state court whose jurisdictional device it
borrows-
The sequestration by which this action commenced
was issued on the basis of a conclusively framed affi-
davit alleging, on information and belief without
specifying the source of the belief in any detail, that
one or more of the nine defendants had a legal or an
equitable interest in one or more of thirteen different
categories of property. The sequestrator’s return in-
dicated that three of the defendants, Inter-Marketing
Corp. Anstalt, Minolta Anstalt, and Vileda Anstalt, had
an interest in property in three of the sixteen concerns
in Delaware to whom notice of the sequestration had
been addressed. As to six of the nine defendants, the
sequestrator reported no property subject to sequestra-
tion. By an order dated September 14, 1971, the dis-
trict court vacated the sequestration as to these six
defendants and no appeal has been taken from that
order. On December 20, 1971, the district court
quashed the sequestration as to Inter-Marketing,
Minolta and Vileda on the ground that the affidavit
supporting it was insufficient under the applicable
Delaware statute and rules. See 336 F. Supp. 197
(D. Del. 1971). The property in issue, as disclosed in
the return of the sequestrator, is as follows:
(1) Sequestered at SSI Computer Corp. (now
ITEL Computer Leasing Corp.)
(a) 50 shares of SSI common stock owned by
Inter-Marketing
(b) 30,000 warrants to purchase SSI common
stock, owned by Inter-Marketing
Ve
Court of Appeals Opinions (8/31/73) 45a
(ec) 10,000 warrants to purchase ITEL stock,
owned by Vileda
(d) a $1,000,000 principal amount 7% note of
SSI Computer Corp. held by Inter-Mar-
keting
(e) $500,000 principal amount of SSI regis-
tered debentures. These debentures had
been sold by Vileda on December 22, 1970
by physical delivery and by payment, but
on the date of sequestration, March 17,
1971, had not yet been registered in the
name of the purchaser because the trans-
fer agent had requested additional sig-
nature guarantees. When the sequestra-
tion took place the buyer was still in the
process of complying with this request.
(2) Sequestered at Textron Atlantic, Inc.
(a) 25,360,500 (Swiss francs) principal
amount 8% notes of Textron, held by
Minolta.
For reasons which will appear hereinafter, somewhat
different legal issues are presented by the attempted
sequestration of common stock, of warrants to purchase
common stock, of negotiable notes and of registered
debentures. Moreover, there is a significant distinction
between the debentures sold on December 22, 1970, and
the balance of the property. None of the indicia of
ownership of these various interests was physically
seized in Delaware.
The sequestration statute, 10 Del. C. § 366(a), per-
mits the Court of Chancery to make an order compel-
ling a nonresident defendant to appear. The court may
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46a Court of Appeals Opinions (8/31/73)
compel such appearance ‘*‘. . . by the seizure of all or
any part of his property.’’ The defendant can obtain
release of the property only by entering a general
appearance. The statute provides that any transfer or
assignment of the seized property shall be void. 10 Del.
C. § 366(e).
The operation of such foreign attachment statutes
(or as here their equitable counterpart) is not notori-
ously fair. Commenting on the proposed amendment
to Rule 4(e) which ultimately made their use available
in original proceedings in the federal courts, Professor
Carrington noted the anomaly that state courts could
use quasi in rem procedures while federal district
courts could not, but observed:
‘**The anomaly, however, is an anomalous exception
to an anachronistic rule. In the light of the emerg-
ing concept of personal jurisdiction, the quasi in
rem procedure is rarely useful to plaintiffs except
in eases which the defendant ought not to be asked
to defend in the forum chosen by the plaintiff.”
Carrington, The Modern Utility of Quasi In Rem
Jurisdiction, 76 Harv. L. Rev. 303, 306 (1962).
The anachronism of the quasi in rem devise for com-
pelling an appearance in a_ jurisdiction in which a
defendant ought not to be asked to defend is com-
pounded when coupled with procedures which would
permit wholesale fishing expeditions among dozens of
possible debtors in order to discover some property
which may be used as an appropriate bludgeon with
which to exercise that compulsion. To insure against
such a potential abuse of the Delaware statute, and
hence of the jurisdiction of the Delaware courts, that
state adopted Delaware Chancery Rule 4(db). A key
Court of Appeals Opinions (8/31/73) 47a
concern was that prior to the seizure the plaintiff should
with reasonable certainty specify that which was to be
seized. In Cantor v. Sachs, 18 Del. Ch. 359, 390-91, 162
A. 73, 85 (1932), Chancellor Wolcott expressed the con-
cern thus:
**Tn the instant case the defendants happen to be
in the business of buying and selling and under-
writing stocks and bonds. In a sense they are
merchants and their merchandise consists of secu-
rities. By securing a sequestrator to roam around
and seize all the stock of Delaware corporations
owned by the defendants or standing in their
names, amounting as I have before stated to about
368,339 shares, the complainants have practically
taken from the possession of the defendants a con-
siderable portion of their merchandise and turned
it over to the equivalent of a receiver pendente lite,
before a single item of liability is established
against them, on an ex parte application. Now
that sort of thing is rather drastic. Such drag net
enterprises are not to be encouraged. I expressly
disclaim any purpose to characterize the present
complainants or their solicitors, when I say that it
is common knowledge that frequently the processes
of courts are utilized by a certain class of litigants
appropriately described by the expressive word
‘snipers.’ If such litigants are permitted to in-
augurate suits against defendants who are reputed
to be large holders of stock, and secure from the
court an official ‘fisherman’ to go forth in their be-
half and drag a sein through the corporate waters
in the blind search for the property of defendants
in the hope that vexatious seizures might result,
scandalous abuses could be perpetrated. There
48a
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Court of Appeals Opinions (8/31/73)
should of course be no obstacle thrown in the way
of honest suitors who file their bills in the best of
faith. How to obviate the possible abuses and at
the same time preserve the rights of litigants who
are actuated by a bona fides of purpose, is a diffi-
cult problem.
* = *
Furthermore, some safeguard should be pro-
vided against what for want of a better term I may
call fishing expeditions. It seems to me that com-
plainants who seek to bring their adversaries into
court by seizure of their property ought to be pre-
pared to say with reasonable certainty what prop-
erty they desire to have seized. It is hardly com-
portable with the dignity of the court to appoint a
judicial agent to go forth on a hunt in behalf of
a complainant and beat the bushes for him.”’
Rule 4(db) is the result of the Chancellor’s concern
that the court not be used as an agent to go forth on a
hunt in behalf of a complainant and beat the bushes
him so that he can bludgeon an appearance in
Delaware. It requires that the affidavit contain:
**(1)(b) The following information as to the prop-
erty 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 in-
terest therein; and if such title or interest be equi-
table in nature, the name of the holder of the legal
title.
Aa ea
wey
Court of Appeals Opinions (8/31/73) 49a
(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.”’
Nowhere in the affidavit on which the sequestration
order was based is it stated that Inter-Marketing,
Minolta, or Vileda owned any of the property which
has been sequestered. Indeed the affiant expressly
negates knowledge of such ownership, averring:
*“*8. Affiant is unaware of and, therefore, unable to
state that any person or persons or other legal
entities have an equitable or legal interest in any
of said property because such information is
peculiarly within the knowledge of the defendant
Fidel Gotz or persons or corporations subject to
his control and domination and not available to
plaintiffs or affiant.’’
It must be apparent to anyone that if the quoted aver-
ment is sufficient to avoid the application of Rule
4(db)(1)(b) then that rule, as a means of satisfying
the concern about fishing expeditions expressed by the
Chancellor in Cantor v. Sachs, supra, is meaningless.
The quoted averment is one that could be made by any-
one in the world with respect to anyone reputed to be
a large holder of corporate securities. As the district
court put it:
“If Taylor’s affidavit is sufficient to support the
present seizure, so also would be an affidavit stat-
ing that one or more of fifty defendants might
own specified stock or bonds in one or more of one
hundred companies.”’ 336 F. Supp. at 202.
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50a Court of Appeals Opinions (8/31/73)
The majority opinion answers this contention by say-
ing:
“The danger of a ‘fishing expedition’ is not
present when, as in this case, the affiant endeavors
to attain the maximum possible degree of spec-
iticity, and additional precision is beyond the
affiant’s facilities, because of the complex inter-
corporate activities of multiple inter-related de-
fendants.”’
This amounts to saying that the less specific is the
plaintiff’s information the greater is the justification
for turning the court’s sequestrator into ‘‘a judicial
agent to go forth on a hunt in behalf of a complainant
and beat the bushes for him.’’ Cantor v. Sachs, 18 Del.
Ch. at 391, 162 A. at 85. Such a construction of the
Delaware rule is a complete emasculation of its in-
tended purpose.
Reinforcing its specious refutation of the district
court’s analysis, the majority opinion continues:
‘* Along much the same line, the affiant has asserted
that the corporations holding the legal title of the
shares are but the alter egos of the principal de-
fendant. Thus, for the purpose of protecting
against dragnet seizures, there may be considered
to be one defendant with many facets. On these
bases, the fears of the district court would not ap-
pear to be well-founded in this case.”’
The less the plaintiff can tell the court about who holds
what the principal defendant actually owns, in other
words, the greater is the justification for sending the
court’s judicial agent forth to beat the corporate
bushes for the plaintiff. This was not what Chancellor
Wolcott had in mind.
Pr
The majority also finds solace in Rebstock v. Lutz,
39 Del. Ch. 25, 158 A. 2d 487 (1960). There is no
similarity between this case and Rebstock. The defect
in the affidavit with which Rebstock deals is a failure
to state the estimated amount and value of the property
as required by Rule 4(db)(1)(b)(2). The court held
that the omission was explained sufficiently for pur-
poses of subpart (5) of paragraph 1(b). As to owner-
ship, the Rebstock affidavit stated:
‘**Upon information and belief the property of said
defendants consists of shares of stock in Slayton
Associates, Ine., and Managed Funds, Incorpo-
rated, and Christiana Oil Corporation.’’ 39 Del.
Ch. at 30, 158 A. 2d at 490.
Court of Appeals Opinions (8/31/73) dla
It did not say, as does the affidavit in this case, that
the affiant was unaware of the owners of the property.
Rebstock quite clearly supports the interpretation of
the Delaware rule made my the experienced Delaware
district judge in this case, and, indeed, was relied on
in his opinion. 336 F. Supp. at 202. That opinion, as
does the Rebstock opinion, draws a distinction between
the specific information in the affidavit which may be
omitted pursuant to subparagraph (1)(b)(5) of Rule
4(db) and the general power of the court, in its dis-
cretion, to dispense with or modify any part of the
sequestration rule. Rule 4(db)(5). Rebstock only
involved the facial sufficiency for purposes of sub-
paragraph (1)(b)(5) of the affidavit respecting an
omission of amount and value. It did not, as the
majority opinion suggests, involve an application to
the court for discretionary relief pursuant to Rule
4(db)(5). No such application was made in this case.
As the district court put it:
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52a Court of Appeals Opinions (8/31/73)
‘‘The need for a plaintiff to specify the property
of each defendant sought to be seized is so basic
that if it is excusable at all it can only be by
judicial action taken under 4(db) (5). Plaintiffs
have never applied for or obtained such approval.”
336 F. Supp. at 203.
The Delaware requirement that the Delaware court
exercise an informed discretion before it will permit
its sequestrator to act as ‘‘a judicial agent to go forth
on a hunt in behalf of a complainant and beat the
bushes for him”’ is a reflection of the court’s apprecia-
tion that there are due process limitations upon its
power to use the quasi in rem device to dragoon a
defendant into a general appearance in Delaware.
Those due process limitations will be referred to in a
later part of this opinion. Since Judge Steel’s inter-
pretation of the Delaware sequestration rule, with
which he is obviously far more familiar than any mem-
ber of this panel, is entirely consistent with its text,
with the purpose announced by Chancellor Wolcott in
Cantor v. Sachs, supra, and with every Delaware au-
thority interpreting it, I would affirm on the same
ground on which he decided.
But the appellees have advanced additional rea-
sons for affirmance, some of which present noncon-
stitutional issues dealt with by the majority largely
by avoiding the responsibility of decision. Each is
substantial and each suggests an affirmance in whole
or in part on nonconstitutional grounds.
(1) The $500,000 principal amount of SSI de-
bentures were sold by Vileda on December 22, 1970
by physical delivery and payment. These were regis-
tered debentures so that arguably Vileda still had hare
oa >
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Court of Appeals Opinions (8/31/73) 53a
legal title on March 19, 1971, the date of the sequestra-
tion. But the Delaware law is clear that absent special
circumstances property in which the defendant has
only a legal interest should not be subject to sequestra-
tion. See Jacobs v. Tenney, 316 F. Supp. 151, 162 (D.
Del. 1970) ; Nickson v. Filtrol, 265 A. 2d 425 (Del. Ch.
1970) ; Steinberg v. Shields, 38 Del. Ch. 423, 153 A. 2d
599 (1959). The order quashing the sequestration as
to these debentures clearly should be affirmed. This
issue the majority opinion treats in a footnote, refer-
ring it back to the district court. But the fact of sale
is not in dispute. Either the cited authorities apply,
or they do not. If the majority do not contest their
application, why should this ground for affirmance be
referred back to the district court?
(2) Of the securities sequestered, there are only
50 shares of SSI common stock. The balance of the
securities consisted of notes, debentures and warrants
to purchase stock. Under the Uniform Commercial
Code these notes, debentures, and stock warrants, as
well as the common stock, are investment securities.
5 A. Del. C. § 8-102(a). Under that Code investment
securities are negotiable instruments having their situs
where the instrument is held. 5 A. Del. C. § 8-105(1).
When Delaware adopted the Uniform Commercial
Code, however, a savings clause, 5 A. Del. C. § 8-317(1),
was included to the effect that the Code would not be
construed to amend or repeal certain other statutes,
ineluding 8 Del. C. § 169, which provides:
‘‘For purposes of title, action, attachment, gar-
nishment and jurisdiction of all courts held in this
State . . . the situs of the ownership of the capital
stock of all corporations existing under the laws
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dta Court of Appeals Opinions (8/31/73)
of this State . . . shall be regarded as in this
State.”’
That statute applies by its terms only to the 50 shares
of SSI stock. It is not in point with respect to the
remaining investment securities. wo Delaware cases
have held that securities representing indebtedness of
a Delaware corporation have their situs in Delaware.
See Landau v. Best, 41 Del. Ch. 1, 187 A. 2d 75 (1962) ;
Weitnress v. Bland, 31 Del. Ch. 269, 71 A. 2d 59 (1950) ;
accord, Jacobs v. Tenney, supra. But in Landau, the
Supreme Court of Delaware, citing Bank of Jasper v.
First National Bank, 258 U.S. 112 (1922), aecknowl-
edged that if the debentures in issue were negotiable
they would have no situs in Delaware. 41 Del. Ch. at
2-3, 187 A. 2d at 76. The court looked to New York
law, since the indentures pursuant to which the de-
bentures were issued stated that New York law should
apply. The Landau finding of nonnegotiability was
based on the then-existing New York law. Under
N. Y. U. C. C. § 8-105(1) (McKinney 1964) the result
would of course be different. In the instant case, the
notes, debentures and warrants, provide that New
York or California law should apply. California, too,
has adopted U. C. C. § 8-105(1) (West Supp. 1973).
Thus, under the Landau analysis none of the seques-
tered securities except the 50 shares of SSI common
stoek, to which 8 Del. C. § 169 applies, had a situs in
Delaware, and none was subject to the quasi in rem
jurisdiction of a Delaware court. As to all these nego-
tiable investment securities, the order quashing the
sequestration should be affirmed.
This issue, the majority opinion suggests, ‘‘may
involve a question of fact,’’ and on this basis holds that
Court of Appeals Opinions (8/31/73) dda
the issue is not ripe for adjudication. What issue of
fact? What additional facts will serve to illuminate
whether the law of New York or of California would
treat the securities as negotiable investment securities
under the Uniform Commercial Code? What addi-
tional facts will serve to guide the district court as to
the appropriate choice of law on the issue of nego-
tiability? The ‘‘question of fact’’ is a phantom, con-
jured up as an excuse for postponing decision on a legal
issue clearly ripe for adjudication. Meanwhile, the
issuers of the negotiable investment securities remain
subject to an order of sequestration.
Contrast the majority’s willingness to reverse the
interpretation by an experienced Delaware district
court judge of a Delaware statute and rule, with both
of which he is obviously far more familiar, with its
unwillingness to decide an issue of choice of law and an
issue of negotiability under a uniform law of invest-
ment securities. These questions are referred back to
the same district judge, although, as to them, this court
obviously is as well qualified to decide as is he, and al-
though they are clearly ripe for adjudication. Of
course this irresolution has the added feature of leaving
in the hands of the plaintiffs whatever leverage they
obtain from continuing the sequestration order in effect
in the interim. I most strongly disassociate myself
from such a result.
B. The Constitutionality of the Delaware
Sequestration Law as applied.
Appellees contend that under the circumstances of
this case Delaware could not constitutionally exercise
quasi in rem jurisdiction to force them to make a gen-
eral appearance in the courts of that state because
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d6a Court of Appeals Opinions (8/31/73)
Delaware lacks minimum contacts with either the sub-
ject matter or the parties. Their contention is strength-
ened, of course, because the bulk of the sequestered
securities are debt obligations of corporate debtors. If
the determining factor for the exercise of quasi in rem
jurisdiction over a debt is the presence of the debtor
within the jurisdiction of the court, such presence is
not dependent upon the debtor’s place of incorporation.
It would exist in any state in which a corporate debtor
had qualified to do business or was otherwise present.
See Harris v. Balk, 198 U. S. 215 (1905). As pointed
out above, such a result is now precluded by § 8-105(1)
of the Uniform Commercial Code. The majority de-
clines to rule on that issue, however. That Delaware
is the state of incorporation of the debtor is an irrele-
vancy, for many corporate debtors incorporated else-
where are present there, and many incorporated there
are present in all fifty states of the Union. The issue
is whether a foreign national, with respect to a foreign
transaction, can be compelled to litigate in any one of
the fifty states’ in which a corporate debtor happened
to be present whose negotiable debt securities, or other
oligations, the defendant happened to own.
Traditionally, the approach of confining jurisdic-
tion, for due process purposes, to those jurisdictions
having certain minimum contacts, has been followed in
eases involving in personam jurisdiction. E.g., Inter-
national Shoe Co. v. Washington, 326 U. S. 310 (1945) ;
U. S. Industries, Inc. v. Gregg, 348 F. Supp. 1004 (D.
Del. 1972). But where, as here, no party is a resident
of the state, and the cause of action did not arise in the
state, and the claim, except for potential satisfaction of
1. There would be venue in this diversity case in all judicial
districts. 28 U. S. C. § 1391(d).
_———
Court of Appeals Opinions (8/31/73) d7a
a judgment, involves no property within the state, a
court must, I submit, make the same interest analysis
before asserting jurisdiction quasi in rem as it would
before it asserted jurisdiction in personam. The better
reasoned authorities which have considered the matter
have made such an analysis.
In Atkinson v. Superior Court, 49 Cal. 2d 338, 316
P. 2d 960 (1957), cert. denied, 357 U. S. 569 (1958),
for example, Judge Traynor stated that since a person
might be forced personally to appear (the very pur-
pose of the procedure) when a state asserted quasi in
rem jurisdiction, a minimum contacts analysis should
be made tu determine whether forcing such an appear-
ance was consistent with due process.
A quite significant group of cases presenting a
closely analogous issue aruse as a result of the attach-
ment procedure sanctioned by the New York Court of
Appeals in Seider rv. Roth, 17 N. Y. 2d 111, 216 N. E.
2d 312, 269 N. Y. S. 2d 99 (1966). In that case the
plaintiff, a New York resident, was involved in an
automobile accident in Vermont with a resident of
Canada. The court held that quasi in rem jurisdiction
in New York was obtained when the plaintiff attached
an automobile insurance liability policy issued in
Canada by an insurance company which was doing
business, and hence minimally present, in New York.
The court reasoned that the obligation of the insurer
to defend and indemnify was a debt which could be
attached wherever the debtor could be found. It re-
considered the problem in the light of a constitutional
objection in Simpson v. Loehmann, 21 N. Y. 2d 305,
310-11, 234 N. E. 2d 669, 671, 287 N. Y. S. 2d 633, 636-
37 (1967), reargument denied, 21 N. Y. 2d 990, 238
N. EF. 2d 319, 290 N. Y. S. 2d 914 (1968) (per curiam),
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58a Court of Appeals Opinions (8/31/73)
and relying on Harris v. Balk, supra, held the pro-
cedure to be constitutional. In Minichiello v. Rosen-
berg, 410 F. 2d 106 (2d Cir. 1968), aff’d on rehearing
in banc, 410 F. 2d 117, cert. denied, 396 U. S. 844
(1969), the Seider v. Roth, supra, quasi in rem proce-
dure came before the Second Circuit. Judge Friendly
noted that the Seider decision had judicially created a
direct action statute. Analyzing the interests and con-
tacts involved, he concluded that the Supreme Court
probably would uphold such a statute enacted for the
benefit of New York residents, or for the benefit of
nonresidents injured in New York. 410 F. 2d at 110.
On rehearing in bane, Judge Friendly dealt directly
with the due process issue arising from the exercise of
quasi in rem jurisdiction. He found that the exercise
of such jurisdiction was justified by Harris v. Balk,
supra. Three judges dissented, distinguishing Harris
v. Balk, and urging that there were insufficient New
York contacts to sustain jurisdiction. See 410 F. 2d
at 113-17 (Anderson, J., dissenting from the panel
decision), and 410 F. 2d at 120-22 (Anderson, Lumbard
and Moore, JJ., dissenting from the in bane decision).
The majority opinions in Minichiello, however, rest at
least in part on the limitation upon Seider v. Roth,
supra, announced in Simpson v. Loehmann, supra, 21
N. Y. 2d 990, 238 N. E. 2d 319, 290 N. Y. S. 2d 914
(1968) (denying reargument) (per curiam), which
held that even if the defendant appeared and defended
on the merits a judgment could be rendered only up
to the amount of the policy. This result was later
codified. See N. Y. C. P. L. R. 320(e), which allows a
limited appearance in all cases of quasi in rem juris-
diction. The Second Circuit noted that this meant
that a Seider judgment could not be given collateral
Court of Appeals Opinions (8/31/73) 39a
estopped effect in a later suit. 410 F.2d at 112. Thus,
the Minichiello holding recognized that the Seider
jurisdiction could not be resorted to in order to compel
a general appearance, and that it was available only
for New York resident plaintiffs or for New York
accidents. These limitations were contirmed in Farrell
vr. Piedmont Aviation, Inc., AVL BL 2d 802, 816-17 (2d
Cir.), cert. denied, 396 U.S. Mo (1989). Judge
Friendly noted that without these limitations the
Seider procedure would be of doubtful constitution-
ality and that [t]he constitutional doubt arises from
New York's lack of meaningful contact with the claim
eres at, 817. Cf. United States v. Firat
National City Bank, 379 US. 378, 381 (1965), in which
the Court, sustaining exercise of quasi in rem jurisdic-
tion, noted that the result might have been different
if the defendant whose account in Citibank had been
attached had not alse been subject to in personam
jurisdiction under the New York long arm statute.
Quite clearly the Second Circuit in Farrell rejected
the view that the presence of a debtor within the juris-
diction is sufficient without other minimum contacts,
to sustain a compelled general ap: earance by use of a
quasi in rem attachment. .
Applying a minimum contacts tests in this case
compels the conclusion that the exereise of quasi in
rem jurisdiction would violate due process. There is
no possibility, under the Delaware statute and rule,
of a special appearance.’ None of the parties are
2. The majority does not resolve the question whether the fed-
eral district court, under the 1963 amendment to Rule 4(e), must
accept the Delaware quasi in rem procedure as it stands, or may on
its own permit a special appearance. Compare Dry Clime Lamp
Corp. v. Edwards, F. 2d 590 (5th Cir. 1968), with United States
vy. Balanovski, 236 F. 2d 298 (2d Cir. 1956), cert. denied, 352 U. S.
968 (1957).
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60a Court of Appeals Opinions (8/31/73)
Delaware residents. The cause of action did not arise
in Delaware. The interest of Delaware is no greater
than that of any jurisdiction in which a debtor may
be found whose investment securities or other debts
one of the defendants happen to hold. See Lebowitz
. Forbes Leasing and Finance Corp., 456 F. 2d 979
(3d Cir.), cert. denied, 409 U.S. 843 (1972), in which
this court’s analysis of the Pennsylvania foreign at-
tachment statute focused on the Pennsylvania govern-
mental interests involved. See also Note, Quasi in
Rem Jurisdiction and Due Process Requirements, 82
Yale L. J. 1023, 1025-26 (1973).
The majority opinion finds two due process justi-
fications for the exercise of quasi in rem jurisdiction
in Delaware.
The first ground is that the defendants are not
amenable to in personam service in Delaware or any
other state of the union.* The opinion even relies upon
Delaware’s rather limited long-arm statute. 10 Del. C.
§ 3104, 8 Del. C. § 343. One defect in this reasoning
is that it relies upon the very absence of minimum
contacts as a ground for ignoring the due process re-
quirement that before jurisdiction is asserted there be
such contacts. The less justification there is for assert-
ing personal jurisdiction, in other words, the greater is
the justification for attaching property which may be
used to bludgeon a general appearance. Such reason-
ing involves, it seems to me, an inversion of the due
3. The majority notes:
“Were the defendants here amenable to service pursuant to a
Delaware statute, or even if the defendants were not liable to suit
in Delaware but were liable in another state of the Union, we
would be presented with not inconsiderable difficulty in holding
that these asserted state interests outweigh the right ‘of the prop-
erty owners to notice and a hearing prior to being deprived, even
temporarily, of their property.” (footnote omitted).
a
Court of Appeals Opinions (8/31/73) 6la
process clause. Another defect in this reasoning is that
the unamenability of the defendants to process in the
United States has occurred in this case not by reason of
anything they have done, but because, so far as the
record discloses, they have never been here. Penn Cen-
tral, the plaintiffs’ predecessor in title to the claim
being asserted, chose to do business with foreign na-
tionals in a foreign jurisdiction. I cannot see for the
life of me why that possible improvidence on the part
of the Penn Central can be resorted to by the trustees
as a reason for forcing those foreign nationals to make
a general appearance in Delaware, a state having no
relationship with the transaction involved, or forfeit
debts owed from third parties having no relationship
with the transaction involved.
The second ground is that the ‘‘plaintiffs are trus-
tees of a corporation that is incorporated in Delaware,
has substantial property in Delaware and conducts a
significant amount of business in Delaware.’’ Penn
Central Transportation Company is a corporation
which was organized under the laws of Delaware, but
its principal office, according to the complaint, is in
Philadelphia. For purposes of diversity jurisdiction,
in a railroad reorganization, the citizenship of the
bankrupt is determinative. 11 U. S. C. §§ 205(/),
46(b). Congress could have given subject matter juris-
diction in this type of ease to all federal district courts.
See Williams v. Austrian, 331 U. S. 642 (1947), for the
broader jurisdiction available to a Chapter X trustee.
Instead, under sections 23 and 77(7) of the Bankruptcy
Act it has limited federal jurisdiction to those courts
in which the debtor could have sued. Moreover, it could
have made process in such cases extraterritorial. Had
that been done, our analysis would have been concerned
with whether such an exercise of jurisdiction and proc-
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62a Court of Appeals Opinions (8/31/73)
ess is consistent with the law of nations. However,
since Congress has not done this, jurisdiction in this
case is grounded solely on diversity of citizenship.
Thus, we are confronted with the question whether
Penn Central could, by virtue of its ineorporation,
ownership of property and business conducted in Dela-
ware, have compelled a foreign national, with whom it
did business elsewhere, to subject itself to jurisdiction
in that State’s courts. Obviously Delaware has no in-
terest peculiar to it. If Delaware can assert jurisdic-
tion on such grounds, so can any other of the numerous
states in which Penn Central was qualified to do busi-
ness, owned property and did business. If Delaware
can assert jurisdiction on this basis, undoubtedly the
courts of every state in the Union would be open to
corporations such as General Motors Corporation,
which do business, and own property, almost every-
where. The cases following Jnternational Shoe Co. v.
Washington, supra, preclude this result for purposes
of in personam jurisdiction. All that is added here is
the happenstance of locating a garnishee in Delaware.
That is the sole real connection of Delaware with this
lawsuit, and is not such a connection as, consistent with
due process, permits Delaware to compel a general ap-
pearance or even a limited appearance in its courts in
connection with litigation entirely unrelated to the
debt. But see Standard Oil Co. v. Superior Court, 44
Del. 538, 62 A. 2d 454 (1948), where the Delaware
Supreme Court upheld the foreign attachment statute
in an action by a nonresident plaintiff against a non-
resident defendant on a foreign cause of action.
4. Incorporation in Delaware is particularly insignificant for a
railroad, since it is to some extent the creature of the legislative fran-
chise of every state through which its lines pass.
Court of Appeals Opinions (8/31/73) 68a
While partially rejecting the defendants’ due
process contentions, the majority opinion apparently
leaves open the question whether, by the quasi in rem
device, a foreign national can be compelled to submit
to an in personam judgment beyond the value of the
property seized. Postponement of the resolution of
that question is justified by the same phantom fact
issues which the majority relies upon to avoid decision
as to which of the securities were actually subject to
sequestration. Because of the majority’s nondeter-
mination as to the securities subject to sequestration
both the amount of the property seized and the amount
of the plaintiffs’ claim are in doubt, and these two
doubts, one of which the majority has gone to great
pains to create, serve as the excuse for not deciding
whether the defendants can be coerced into a general
appearance in order to contest the plaintiffs’ claim
against the seized property. The suggested justifica-
tion for this course is an unwillingness to decide con-
stitutional issues ‘‘prematurely’’. As the majority
opinion candidly concedes, this ruling gives the defend-
ants a Hobson’s choice. Neither this court, nor, ap-
parently, the district court, should decide the constitu-
tionality of compelling a general appearance so as to
subject defendants to a judgment in excess of the
amount of property seized until such time as the
amount of the plaintiffs’ claim has been liquidated.
But, in order to contest the amount of the plaintiffs’
claim, the defendants will, if the Delaware statute
applies, be required to enter a general appearance. The
majority does not even suggest that something short
of a general appearance should be permitted if the
defendants attempt some sort of reservation of rights.
None is permitted under the Delaware statute. Thus,
the defendants run the risk that on the second appeal,
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64a Court of Appeals Opinions (8/31/73)
after judgment, we will enforce the general appearance
in accordance with its terms, or that some other juris-
diction will afford comity to any resulting judgment.
To avoid these risks, the defendants must surrender to
the plaintiffs the property seized—several million dol-
lars worth—and forget about litigating the plaintiffs’
claims.
Let us suppose, however, that the defendants do
choose to litigate, that a judgment against them in ex-
cess of the property seized does result, and that on
appeal, we hold that the issue of the coerced general
appearance is still open. What will have occurred to
make the due process claim any more ‘‘concrete’’ at
that point than it is now? Nothing, I submit. If, on
the other hand, the defendants litigate and win, at
least to the extent that the plaintiffs’ judgment is less
than the seized property, this court would have avoided
a decision on the legality of the coerced general ap-
pearance. But the cost of that avoidance will have
been to subject the defendants to the risks referred to
above, and to the loss of use of several million dollars
of property in the meantime. The practical effect of
the course chosen by the majority is to add to the set-
tlement leverage resulting from a massive ex parte
seizure the additional leverage resulting from the un-
certainties and ambiguities of its ruling. This is not
my idea of responsible judicial action, especially when
there is an available nonconstitutional ground on which
the matter could be decided. We could hold that while
Rule 4(e), Fed. R. Civ. P., permits the commencement
of a federal diversity action by borrowed quasi in rem
process, it does not require the borrowing, as well, of
the state law rule prohibiting the contesting of liability
in the absence of a general appearance. A holding that
ZZ
Court of Appeals Opinions (8/31/73) 65a
in the federal courts a special appearance is permitted
would satisfy even the majority’s expressed timidity
about applying the due process clauses to a state
statute.
Another aspect of the majority opinion puzzles
me. This is a diversity case in an article III court.
Yet explicitly and implicitly the opinion suggests that
foreign residents, because they are such, should receive
less consideration of their due process claim that they
should not be dragooned into a Delaware lawsuit than
would be afforded to residents of the United States.
Such an approach, it seems to me, is inconsistent with
the only substantial reason for the existence of di-
versity jurisdiction, namely affording nonresidents a
forum in which they will be on equal footing with
residents. Instead, the majority says that because the
defendants are not amenable to in personam process
in Delaware or any other state in the Union, Dela-
ware’s interest in subjecting their property to seizure
is thereby greater.
There are, as I have said above, several adequate
nonconstitutional grounds for affirming the district
court. But accepting the majority’s misinterpretation
of Delaware law, there should still be an affirman
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