McFaddin Express, Inc. v. Adley Corporation

• Decision Date: 07 January 1965
• Docket Number: Civ. 10763.
• Citation: 240 F. Supp. 791
• Court: U.S. District Court — District of Connecticut
• Parties: McFADDIN EXPRESS, INCORPORATED, L & L Leasing Corporation, and Louis DeBeradinis, Jr. v. The ADLEY CORPORATION, Michael L. Adley, Donald A. Adley, Ralph J. Adley, Daniel J. Adley, and United States of America.

240 F. Supp. 791

McFADDIN EXPRESS, INCORPORATED, L & L Leasing Corporation, and Louis DeBeradinis, Jr. v. The ADLEY CORPORATION, Michael L. Adley, Donald A. Adley, Ralph J. Adley, Daniel J. Adley, and United States of America.

Civ. 10763.

United States District Court D. Connecticut.

January 7, 1965.

Tobias Weiss, Stamford, Conn., for plaintiff.

Joseph P. Cooney, Cooney & Scully, Hartford, Conn., William C. Baskin, Jr., Wiggin & Dana, Jon O. Newman, U. S. Atty., Howard T. Owens, Jr., Asst. U. S. Atty., New Haven, Conn., for defendants.

BLUMENFELD, District Judge.

This is an action for an accounting and damages allegedly caused by the defendants' mismanagement of the business, property and affairs of the plaintiff corporations by the defendants from April 20, 1959, and thereafter.

Plaintiff, McFaddin Express, Incorporated, (hereinafter McFaddin) was a motor carrier of freight, authorized by the ICC to engage in that business over certain routes between points in Connecticut and New York City, eight New Jersey counties and over certain New England routes. Plaintiff, Louis DeBeradinis, Jr., was the sole shareholder of McFaddin and of L & L Leasing Corporation (hereinafter L & L). About 1/5th of McFaddin's rolling stock was leased from L & L.

Defendant, Adley Corporation (hereinafter Adley), is also a motor carrier of freight authorized by the ICC. It operates over a larger network of routes which includes the area of McFaddin's operations. The plaintiff corporations had been in financial straits for a considerable time before 1959.

A "contract of sale" for the sale of all of the stock in McFaddin and L & L to Adley was executed as of April 20, 1959. The parties agreed that the liabilities of the corporations equalled the value of the tangible assets and that $125,000 was the value of the intangible assets, subject to reduction in the event that an annexed consolidated balance sheet turned out to be inaccurate. Contemporaneously the parties also entered into a "management contract" under which complete control was to be immediately relinquished to Adley, who thereupon undertook to carry on both businesses.

The contract to buy the stock was expressly conditioned upon approval by the ICC, whose consent to a merger is required. See 49 U.S.C. § 5. An application for such approval was filed on May 7, 1959. To effectuate the objective of the separate management contract, an application under the Interstate Commerce Act § 210a(b) (49 U.S.C. § 310a (b)) for approval of temporary authority for Adley to operate McFaddin was filed on May 1st. This was treated by the ICC as concurrently filed with the application for authority to merge under § 5 of the act and was immediately granted.

Shortly thereafter, the assessment of tax delinquencies and penalties, followed by collection procedures of the Internal Revenue Service imposed so much additional stress upon the already strained financial condition of McFaddin that it could not survive. Both corporations were dissolved by forfeiture on November 30, 1962, for failure to file statutory reports in accordance with Connecticut's law. Adley refused to comply with its agreement to purchase the stock from DeBeradinis. This lawsuit followed.

The action was begun by a writ of summons and a writ of attachment which were issued as a matter of course upon application to the clerk. In addition to the garnishment of several bank accounts, most of Adley's rolling stock then engaged in transportation of freight was attached. Before the marshal's return was filed, the parties allegedly reached a settlement. The attachments on the trucks were released. The plaintiffs allegedly then asserted additional settlement demands and threatened to re-attach the defendant's trucks. This precipated an ex parte application on December 17, 1964, for a temporary injunction against further attachment of the defendant's property. Upon the defendant's offer to furnish a bond in lieu of attachment for an amount in excess of the amount of the settlement allegedly agreed upon, a temporary restraining order was issued pending a hearing on the application. See Landis v. North American Co., 299 U.S. 248, 254-255, 57 S.Ct. 163, 81 L.Ed. 153 (1936). At the hearing on December 22, 1964, on the issues thus presented, the defendants raised for the first time the threshold question of this court's jurisdiction over the subject matter of the plaintiffs' claim and, therefore, of the court's power to issue a writ of attachment.

JURISDICTION

It is conceded that diversity jurisdiction does not exist. All parties are citizens of Connecticut. The other major category of cases which the federal courts have authority to hear are cases arising under the Constitution, laws and treaties of the United States; these are called "Federal Questions." In any event, the jurisdiction of federal courts lies within the power of Congress to regulate. If Congress has given this court power to entertain jurisdiction, it may do so, but not otherwise. Turner v. Bank of North America, 4 U.S. (4 Dall.), 8, 10, n. 1, 1 L.Ed. 718 (1799). With specific reference to inferior federal courts, Justice Grier said flatly: "Courts created by statute can have no jurisdiction but such as the statute confers." Sheldon v. Sill, 49 U.S. (8 How.) 441, 449, 12 L.Ed. 1147 (1850). Therefore, unless a statutory basis for jurisdiction exists, persons do not have any right to proceed, or be proceeded against, in the first instance in a federal rather than a state court.

This court's jurisdiction over the subject matter of this case is asserted on the following statutory jurisdictional grounds:

1. 28 U.S.C. § 1331 —

"(a) The district courts shall have original jurisdiction of all civil actions wherein the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and arises under the Constitution, laws, or treaties of the United States."

2. 28 U.S.C. § 1337 —

"The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies."

3. 28 U.S.C. § 1336 —

"(a) Except as otherwise provided by Act of Congress, the district courts shall have jurisdiction of any civil action to enforce, enjoin, set aside, annul or suspend, in whole or in part, any order of the Interstate Commerce Commission."

I.

For federal question jurisdiction to exist, a controverted question of federal law must form a substantial part of the plaintiff's case, e. g., Gully v. First Nat'l Bank, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70 (1936). Cf. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950). The remedies which the plaintiffs seek are founded on alleged breaches of contracts. In all of its essential features the case made by the plaintiffs' complaint is based upon contracts negotiated at arms length in the open market, and they owed nothing to federal legislation. Every question which is raised depends for decision upon conventional local or general common law concepts and doctrines of damages applicable in suits to enforce purely private rights. In construing the contracts, it might be found expedient or even necessary to refer to or consult the statutes upon which the applications to the ICC for permission to merge and to temporarily operate McFaddin were based, which are referred to in the complaint, and with some reference to which the contracts appear to have been executed. But, as stated in St. Paul, M. & M. Ry. v. St. Paul & No. Pac. R. R., 68 Fed. 2, 13 (8th Cir. 1895), aff'd by consent, 18 S.Ct. 946, 42 L.Ed. 1212 (1897), where a similar issue of federal question jurisdiction was decided adversely to the plaintiff —

"After all, the point at issue upon this branch of the case is the true construction of that agreement, and that is clearly a question of general and local law, inasmuch as the right asserted by the plaintiff depends upon that agreement, and the local statute by which it was adopted and confirmed. A case does not become one of federal cognizance because it may be found necessary, in construing a private contract or a local law from which the rights of the respective parties are derived, to consult some federal statute with a view of ascertaining the meaning of the contract or the scope and effect of the local law. In such cases the cause of action or the defense, as the case may be, is not founded on a law of the United States in any such sense as to bring the suit within the jurisdiction of the federal courts."

II.

No citation of examples of the wide scope of congressional legislation under the Commerce Clause, nor of the willingness of the Supreme Court to uphold it, is pertinent, for the jurisdiction of this court is not co-extensive with the power of Congress. For a matter in controversy to "arises under laws of Congress regulating commerce" so as to enable this court to exercise jurisdiction over it, there must, at the very least, first be such "laws."

Among the 133 separate paragraphs in the plaintiffs' 33 page complaint, it is not possible to find one which advises the parties defendant what is...