361 A.2d 225 (Del. 1976), Greyhound Corp. v. Heitner

Citation:361 A.2d 225
Party Name:The GREYHOUND CORPORATION et al., Defendants-below-Appellants, v. Arnold HEITNER, as custodian for Mark Andrew Heitner, Plaintiff-below-Appellee.
Case Date:April 15, 1976
Court:Supreme Court of Delaware
 
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361 A.2d 225 (Del. 1976)

The GREYHOUND CORPORATION et al., Defendants-below-Appellants,

v.

Arnold HEITNER, as custodian for Mark Andrew Heitner,

Plaintiff-below-Appellee.

Supreme Court of Delaware.

April 15, 1976

Argued Oct. 15, 1975.

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[Copyrighted Material Omitted]

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Upon appeal from the Court of Chancery. Affirmed in part.

Richard F. Corroon and Richard E. Poole of Potter, Anderson & Corroon, Wilmington, for defendant-appellant The Greyhound Corp.

Max Terry, Jr., of Terry, Terry & Jackson, Dover, and William W. Schwarzer and Lynn H. Pasahow of McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for individual defendants-appellants.

Joshua M. Twilley of Twilley, Jones & Feliceangeli, Dover, and Michael F. Maschio and Carol Faye Simkin of Cowan, Liebowitz & Latman, P.C., New York City, for plaintiff-appellee.

Before DUFFY and McNEILLY, JJ., and TAYLOR, Judge.

DUFFY, Justice:

The single question at issue in this appeal is the constitutionality of the Delaware Sequestration Statute and the related procedures thereunder. In out view, they do not violate due process of law requirements and, accordingly, we affirm the judgment of the Court of Chancery.

I.

The Sequestration Statute, 10 Del.C. § 366, has been an integral part of our law since 1927. 1 35 Del.L. ch. 217; Sands v. Lefcourt Realty Corporation, Del.Supr., 35 Del.Ch. 340, 117 A.2d 365 (1955). Over the years since then a long line of cases has established the purpose of the Statute, its rationale and the procedure thereunder. Reference is made to those cases for a fuller definition of such matters. 2

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In Ownbey v. Morgan, 256 U.S. 94, 41 S.Ct. 433, 65 L.Ed. 837 (1921), the United States Supreme Court held that the Delaware foreign attachment statute was constitutional and, since the equitable remedy under § 366 is analogous to foreign attachment, Sands v. Lefcourt Realty Corporation supra, it is fair to say that Ownbey has been long regarded by the Courts of this State as authority for the constitutionality of the Sequestration Statute. Cf. Wiley v. Copeland, Del.Supr., 349 A.2d 211 (1975); Gordon v. Michel supra.

By its nature a foreign attachment, whether legal or equitable, involves a prejudgment seizure of property as a basis for jurisdiction and/or as a source of satisfaction for any judgment ultimately awarded on the merits of the claim. Such a proceeding has the seeds if not the fruits of unfairness in permitting the impounding of property before judgment and, under some circumstances, upon thin assertions of right. But, as the discussion by Justice Pitney in Ownbey demonstrates, the practice traces its origin to early colonial days and, indeed, beyond them to the 'custom of London.' In law, however, as in the life it reflects, what is old is not necessarily good. Neither, we hasten to add, is it necessarily bad. But, as we are often reminded, due process concepts involve evolving standards of fairness and so the test for constitutionality is necessarily dynamic. Much has been decided and written about such concepts in recent years including their implications for Delaware sequestration procedures. See, for example, the thoughtful study by Folk and Moyer, Sequestration in Delaware: A Constitutional Analysis, 73 Colum.L.Rev. 749 (1973).

For present purposes the current due process standards must largely be distilled from a quartet of decisions by the United States Supreme Court, all of which involved prejudgment seizures of property; they are: North Georgia Finishing, Inc., v. Di-Chem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975); Mitchell v. W. T. Grant Company, 416 U.S. 600, 94 S.Ct. 1895, 40 L.Ed.2d 406 (1974); Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972); Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969).

Those decisions provide a foundation for renewed constitutional attack upon the Sequestration Statute. The argument seems first to have been made in the Court of Chancery in Gordon v. Michel supra, but it was rejected as the Court concluded that Ownbey remained viable and that 10 Del.C. § 366 still passed constitutional muster. Following Gordon other Chancery decisions reached the same result. Then in Wiley v. Copeland supra this Court, in a brief Per curiam opinion, found § 366 constitutional on the same rationale announced in Gordon.

This appear came on for hearing shortly after Wiley was decided but we permitted full exploration of the issues in briefing and at oral argument because of the important questions involved, and because certain arguments are made herein which were not fully answered in Wiley.

Against that background, we now focus on this appeal.

II.

This is a stockholder's action, derivative in character and brought on behalf of The Greyhound Corporation (Greyhound) against some twenty-eight individuals (defendants) including directors of Greyhound (or its corporate predecessors) who served at various times between 1957 and 1974. The complaint alleges that Greyhound suffered significant loss and damage as a result of conduct by defendants which is said to have caused Greyhound to be found (by the United States District Court for the Northern District of Illinois) is violation

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of certain antitrust laws. The complaint also attacks the distribution of benefits under Greyhound's deferred compensation and stock option plans.

None of the defendants is a Delaware resident, all were served under the Sequestration Statute and relevant Rules of the Court of Chancery. Apparently, the Court-appointed Sequestrator seized certain Greyhound shares of stock and/or contract rights which defendants, respectively, had under agreements with Greyhound. The Court of Chancery denied both a motion by the individual defendants to dismiss the complaint for lack of jurisdiction and a motion by all defendants to vacate the order of sequestration. This appeal followed.

III.

The thrust of defendants' argument is that the sequestration procedure is inconsistent with controlling constitutional principles. They say that the procedure, including that which obligates them to appear generally before defending on the merits, violates their right to due process of law.

Defendants argue that the minimum contacts requirements of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), must be met before Personam jurisdiction is assumed and they say that they are entitled to a meaningful right to be heard under Boddie v. Connecticut, 401 U.S. 371, 91 S.Ct. 780, 28 L.Ed.2d 113 (1971), before their property may be seized. And, they continue, the passage of time and changing concepts of due process 'have rendered Ownbey obsolete.'

A.

There are significant constitutional questions at issue here but we say at once that we do not deem the rule of International Shoe to be one of them. An argument based on that case was made in Breech v. Hughes Tool Company, Del.Supr., 41 Del.Ch. 128, 189 A.2d 428 (1963), and rejected by this Court. Compare Hibou, Inc. v. Ramsing, Del.Super., 324 A.2d 777 (1974). We are not persuaded that Breech should now be abandoned. The reason, of course, is that jurisdiction under § 366 remains, as it was in 1963, Quasi in rem founded on the presence of capital stock here, not on prior contact by defendants with this forum. Under 8 Del.C. § 169 3 the 'situs of the ownership of the capital stock of all corporations existing under the laws of this State . . . (is) in this State', and that provides the initial basis for jurisdiction. Delaware may constitutionally establish situs of such shares here, Rogers v. Guaranty Trust Co. of New York, 288 U.S. 123, 53 S.Ct. 295, 77 L.Ed. 652 (1932); Jellenik v. Huron Copper Min. Co., 177 U.S. 1, 20 S.Ct. 559, 44 L.Ed. 647 (1900), it has done so and the presence thereof provides the foundation for § 366 in this case. Cf. Breech v. Hughes Tool Company, supra. On this issue we agree with the analysis made and the conclusion reached by Judge Stapleton in U.S. Industries, Inc. v. Gregg, D.Del., 348 F.Supp. 1004 (1972).

We hold that seizure of the Greyhound shares is not invalid because plaintiff has failed to meet the prior contacts tests of International Shoe.

As to Boddie, we agree that it contains an important summary of due process requirements, including a 'meaningful opportunity' to be heard before one is deprived of any significant property interest. But

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the implications of Boddie for this appeal may best be understood, not by reference to its general principles but in light of an analysis of Sniadach, Fuentes, Mitchell and other cases dealing with foreign attachments. And now we turn to those cases.

B.

In Sniadach, decided in 1969, the Supreme Court invalidated on due process grounds a Wisconsin statute which authorized garnishment of wages, at the request of a creditor's lawyer, before trial without any opportunity for the wage owner to be heard or to tender a defense. In the absence of 'notice and a prior hearing,' said the Court, the procedure was deemed unconstitutional. But, writing for the Court, Justice Douglas recognized an Ownbey exception in so many words; after referring to seizure without notice or hearing he said:

'Such summary procedure may well meet the requirements of due process in extraordinary situations. . . . Ownbey v. Morgan . . ..' 395 U.S. at 339, 89 S.Ct. at 1821.

Some three years later the Court decided Fuentes, in which it invalidated Florida and Pennsylvania prejudgment replevin statutes applied to household goods sold under conditional sales contracts. The statutes denied the purchasers the opportunity to be heard before seizure and that, said the Court...

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