McFaddin Express, Incorporated v. Adley Corporation

• Citation: 346 F.2d 424
• Decision Date: 07 June 1965
• Docket Number: Docket 29529.,No. 452,452
• Parties: McFADDIN EXPRESS, INCORPORATED, L & L Leasing Corporation and Louis DeBeradinis, Jr., Plaintiffs-Appellants, v. The ADLEY CORPORATION, Michael L. Adley, Donald A. Adley, Ralph J. Adley and Daniel J. Adley, Defendants-Appellees, and United States of America, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

346 F.2d 424 (1965)

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

No. 452, Docket 29529.

United States Court of Appeals Second Circuit.

Argued April 28, 1965.

Decided June 7, 1965.

Tobias Weiss, Stamford, Conn., for plaintiffs-appellants.

Joseph P. Cooney, Hartford, Conn. (John F. Scully, Hartford, Conn., of counsel), for defendants-appellees.

Before LUMBARD, Chief Judge, and WATERMAN and FRIENDLY, Circuit Judges.

FRIENDLY, Circuit Judge.

In this action in the District Court for Connecticut between citizens of that state, plaintiffs sought to establish federal question jurisdiction under various sections of the Judicial Code, notably 28 U.S.C. §§ 1331, 1336, and 1337, see also 49 U.S.C. § 16(12). Judge Blumenfeld, in a well-reasoned opinion, 240 F.Supp. 791 (1965), decided that the effort had not succeeded and dismissed the complaint. We agree with his disposition.

The complaint alleged the making of two contracts, as of April 20, 1959, relating to McFaddin Express, Incorporated, a motor carrier holding a certificate from the Interstate Commerce Commission, and L & L Leasing Corporation, which leased equipment to it. One contract provided for the sale of all the stock of the two corporations to The Adley Corporation, also a certificated motor carrier; the other provided for temporary management and control of McFaddin and L & L by Adley for a period of 180 days from the effective date of an order of the ICC authorizing the contract "or to such earlier or later date as shall be ordered by said Commission, and unless otherwise ordered by said Commission until a final order is made by said Commission" with regard to the sale. The contract of sale was subject to ICC approval of the management contract in accordance with 49 U.S.C. § 310a(b), and ultimate approval of the sale itself as required by 49 U.S.C. § 5. Appropriate applications were made to the ICC which, on May 21, 1959, issued an order, later extended, approving the temporary management contract. Serious disagreements occurred between the parties, federal tax liens on McFaddin's property were foreclosed, and McFaddin's service became largely dormant. In a report dated Oct. 15, 1963, the ICC denied approval, 93 M.C.C. 378,¹ and the management contract terminated in August, 1964.

The complaint charged, inter alia, that during the term of the management contract the defendants failed to pay current federal taxes and to comply with an agreement McFaddin had made for the discharge of past delinquencies; that at the time the contracts were made, defendants did not intend to comply with them in good faith; that they had mismanaged McFaddin and L & L, both deliberately and negligently, had diverted the former's business to their own account, had induced creditors to repossess assets of McFaddin, had appropriated assets of McFaddin and L & L, had terminated the employment of McFaddin's employees and hired some of them for Adley, had failed to segregate revenues or funds belonging to McFaddin and L & L, and had failed on the expiration of the management contract to return the property and business of McFaddin and L & L as the contract required. The first count of the complaint alleged in conclusory terms that the mismanagement and return of the corporations in their damaged state violated the ICC order approving the management contract. Reasserting the same facts, further counts set forth theories of fraud, constructive trust, and breach of contract. Damages and certain equitable relief were requested.

In testing the complaint for sufficient assertion of a federal question, we apply, faute de mieux, the approach utilized with respect to 28 U.S.C. § 1338 in T. B. Harms Co. v. Eliscu, 339 F.2d 823, 826-828 (2 Cir. 1964), cert. denied, 85 S.Ct. 1534 (1965), namely, whether the complaint is for a remedy expressly granted by an act of Congress or otherwise "inferred" from federal law, or whether a properly pleaded "state-created" claim itself presents a "pivotal question of federal law," for example because an act of Congress must be construed or "`federal common law' governs some disputed aspect" of the claim. Compare ALI, Study of the Division of Jurisdiction Between State and Federal Courts 33 (Tent. Draft No. 3, 1965). Harms' exegesis of the "arising under" language in 28 U.S.C. § 1338 is well suited to the similarly worded §§ 1331 and 1337; the more specific jurisdictional warrant of § 1336 — to bring in federal court any civil action to enforce an ICC order — merely poses the subsumed question whether a particular federal remedy embraces the facts here pleaded and can be discussed at the same time.

If the complaint could fairly be read as asserting a substantial claim of violation of the ICC order approving the temporary management contract, the case could arguably go forward as one mandated by 49 U.S.C. § 16(12) "for the enforcement of such order," with jurisdiction squarely founded on 28 U.S.C. § 1336; or alternatively, the suit might take shape as one for an implied federal remedy for breach of the express federal duty raised by the ICC order, see Note, 77 Harv.L.Rev. 285 (1963), and so arguably meet the jurisdictional requirements of § 1331 or perhaps § 1337. There might still be some difficulty on either line of reasoning — on the first, for example, because McFaddin might be said to seek not so much enforcement of an order as compensation for past disobedience, and on the second, because "implication" of a federal remedy is hardly automatic, particularly where an agency occupies the field. But such questions need not be resolved, for we do not think that the ICC "ordered" Adley to obey the management contract.

The critical language of the initial order of May 21, 1959, which is set out in the margin,² states that Adley is "authorized" to take control. The order is permissive only, in effect granting a temporary exemption from the prohibition of 49 U.S.C. § 5. If Adley had never assumed the permitted temporary control, it would have violated its contract but not the order. And if Adley did control McFaddin other than "upon the terms and conditions set forth in the agreement filed with the application," perhaps Adley forfeited its exemption from § 5,³ but again it has disobeyed no express command of the ICC. Doubtless the Commission does expect that a carrier authorized to exercise temporary control will use this permission in accordance with its agreement, so as to enable the controlled carrier to resume independent operation if approval under § 5 is ultimately denied. But we do not feel justified in reading the bland language of the order so that these expectations become ICC commands, especially when the Commission has been at such pains to make clear that it considers the private disagreements of the parties not to be its concern, see fn. 1.

The only other suggestion of a federal question is that the national interest in contracts such as the present ones is so great that "federal principles control the disposition of the claim," T. B. Harms v. Eliscu, supra, 339 F.2d at 828, which would otherwise be governed by state law. Accepting that application of "federal principles" would bring the suit within 28 U.S.C. § 1331 on the theory that "the `laws' referred to in the statute are not confined to Acts of Congress, but include also such `federal...