Baker v. Goetz

• Decision Date: 14 January 1976
• Docket Number: 74-99 and 74-145.,Civ. A. No. 4072
• Citation: 408 F. Supp. 238
• Parties: George P. BAKER et al., Plaintiffs, v. Fidel GÖTZ et al., Defendants.
• Court: U.S. District Court — District of Delaware

408 F. Supp. 238

George P. BAKER et al., Plaintiffs, v. Fidel GÖTZ et al., Defendants.

Civ. A. Nos. 4072, 74-99 and 74-145.

United States District Court, D. Delaware.

January 14, 1976.

COPYRIGHT MATERIAL OMITTED

David A. Drexler, of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for plaintiffs. Morris L. Weisberg, of Blank, Rome, Klaus & Comisky, Philadelphia, Pa., of counsel.

Arthur G. Connolly, and Arthur G. Connolly, Jr., of Connolly, Bove & Lodge, Wilmington, Del., for defendants. Saul L. Sherman, of Busby, Rivkin, Sherman, Levy & Rehm, New York City, of counsel.

OPINION

STEEL, Senior District Judge:

Three motions are before the Court. They are directed to substantially identical proceedings in each of the above three cases, hence separate treatment of each of the cases is not required. Civil Action No. 4072 will be treated as typical. One of defendants' motions seeks an order specifically authorizing Jay H. Conner, the sequestrator appointed by this Court in each of the above cases ("federal sequestrator"), to turn over to the defendants "funds" paid to him under the order of his appointment and deposited by him in the Wilmington Trust Company. These "funds" include securities of various kinds in which he has invested the monies which he received pursuant to the authority conferred upon him by the sequestration order and by the defendants.¹ The motion is directed solely to obtaining an order authorizing the federal sequestrator to turn over to defendants "funds" which came into his possession from 1971 to October 28, 1975. Defendants' second motion is for an order dismissing the complaint. A third motion has been filed by plaintiffs for a declaration that the defendants have appeared generally in all cases.

Defendants' motion for an order authorizing the federal sequestrator to turn over to defendants "funds" on deposit with the Wilmington Trust Company

While the complaints vary slightly in language, each seeks a money judgment in favor of the plaintiffs, trustees of the Penn Central, a debtor in proceedings for the reorganization under section 77 of the Bankruptcy Act, against each of the defendants, all of whom are non-residents of Delaware. Plaintiffs seek this relief upon the basis of the alleged misappropriation by one of the defendants, Fidel Götz, of $4,000,000 belonging to the Penn Central and held in trust by a "business" trust organized under the laws of the principality of Liechtenstein. The plaintiffs, having been unable to serve the defendants personally, have attempted to compel their appearance by purporting to sequester certain assets which defendants are alleged to own. These assets consisted of notes, warrants and debentures which had been issued by three Delaware corporations, Itel, CBK and Textron. None were physically located in Delaware and none have been physically seized. The purported sequestration was made under an order of this Court dated June 24, 1974² (C.A. No. 4072) entered purportedly under 10 Del.C. § 366 and F.R.Civ.P. 4(e) upon the theory that the obligations of the three companies, being obligations of Delaware corporations, had a situs in Delaware and hence were subject to the sequestration in Delaware by the procedures specified in section 366 which were the equitable equivalent of garnishee process.³

Defendants moved to vacate the sequestrations upon the ground, among others, that the securities allegedly sequestered were negotiable instruments and as such could not be validly sequestered under 10 Del.C. § 366 without a physical seizure of the instruments themselves. By opinion dated January 3, 1975, this Court sustained the defendants' position, Baker v. Götz, 387 F.Supp. 1381 (D.Del.1975), and on January 7, 1975, an order vacating the sequestration was entered. By its terms and by later proceedings the effectiveness of the order was stayed pending an appeal from the order by plaintiffs. On October 17, 1975, the Court of Appeals, acting unanimously, entered a "Judgment Order" which affirmed the decision of this Court. On December 1 the mandate of affirmance dated November 25, 1975, was received by this Court.

On October 28, 1975, between the dates of the "Judgment Order" of October 17, 1975, and November 25, when its mandate issued, successor trustees of the Penn Central and two other corporations began an action in the Court of Chancery of the State of Delaware sub nom. Blanchette, et al. v. Fidel Götz, et al., Civil Action No. 4919. Named as defendants were the defendants in the present action and others. The relief sought was based upon acts of wrongdoing which in general (although pleaded somewhat differently) are the subject of the present action.

Since all defendants were non-residents of Delaware and plaintiffs were unable to serve them with process, plaintiffs sought and obtained from the Court of Chancery on October 28, 1975, an ex parte sequestration order purportedly under 10 Del.C. § 366 which appointed Jay H. Conner sequestrator ("Chancery sequestrator"). He is the same individual who was appointed and is presently acting as federal sequestrator under the order of this Court dated June 24, 1974. Under the order of the Court of Chancery the Chancery sequestrator purported to seize the same notes, warrants and debentures of Itel, CBK and Textron which had been purportedly seized and were held by the federal sequestrator under the June 24, 1974, order of this Court.⁴ That order authorized the federal sequestrator not only to seize the specified notes, warrants and debentures, but also "all the rights belonging or appertaining to such property". The order of the Court of Chancery dated October 28, 1975, contained a similar provision.

As of October 28, 1975, the federal sequestrator had on deposit with the Wilmington Trust Company as its agent the assets listed on the asset statement of the Wilmington Trust Company as of October 31, 1975, a photostatic copy of which is attached.⁵ These consisted of a small amount of uninvested cash and securities in which monies received by the federal sequestrator from Itel, CBK and Textron or some of them under the federal sequestration order had been invested. In addition, the federal sequestrator was on October 28, 1975, holding $11,250 in a checking account which is not reflected in the Wilmington Trust Company asset statement.⁶

The motion of defendants is for a specific order authorizing the federal sequestrator to turn over the "funds" which he had deposited with the Wilmington Trust Company between the time of the federal sequestration and October 28, 1975. The order is sought because of the refusal of the federal sequestrator to do so. His refusal is presumably due to his uncertainty as to the effect of the sequestration order of the Court of Chancery of October 28, 1975.

In resisting defendants' motion for a turn over order plaintiffs argue that the Court is without power to enter such an order, that if it has the power it should refuse to exercise it as a matter of discretion, and that if it should exercise the power it should deny the motion because of the Court of Chancery sequestration.

So far as the power of the Court to enter a turn over order is concerned, counsel for the plaintiffs have taken a lukewarm position. At the argument he said, "I am not sure that you don't have the power . . . and I am not pressing the power point. But we are strongly urging Your Honor not to exercise that power". Regardless of this seeming abandonment by plaintiffs of their lack of power argument the question has at least been suggested. Whether or not the power to enter the order exists is a threshold question which should be resolved, for if the power to enter the order is lacking defendants' motion should be denied.

Plaintiffs urge the Court to deny defendants' motion upon the basis of the Court of Appeals decision and upon the terms of 28 U.S.C. § 2283. The former, plaintiffs assert, represents the law of the case and must be followed by this Court; the latter, or at least the federal policy which it expresses, they likewise say, is a bar to the Court issuing a turn over order. Regardless of whether these arguments are related conceptually to "power" or "discretion", neither is persuasive.

Between the time when the Judgment Order was entered by the Court of Appeals and prior to the issuance of the mandate, defendants filed a motion in the Court of Appeals "to (A) protect and effectuate judgment of this Court rendered herein . . ." The motion was triggered by the ex parte sequestration order entered on October 28, 1975, by the Court of Chancery. Relying upon the inherent power of the Court to protect its judgment and the provisions of 28 U.S.C. § 2283, defendants asked the Court (a) to enjoin plaintiffs from maintaining any action in the State of Delaware which seeks to sequester the notes, warrants or debentures purportedly sequestered in the present action, (b) to order plaintiffs not to hinder or refuse to cooperate with the defendants in effecting a release or transfer of these assets, (c) to order plaintiffs to abandon and withdraw the Court of Chancery action insofar as it seeks to sequester the properties purportedly sequestered herein, and (d) for such other and further relief as may be necessary. This motion was resisted by plaintiffs and was briefed by the parties. On November 24, 1975, the Court in a unanimous decision denied the motion without an opinion.

The question whether this Court has the power, or should as a matter of discretion exercise it by authorizing its sequestrator to turn over assets which he held on October 28, 1975, was obviously not before the Court of Appeals and its decision cannot be construed as settling that question.

As to 28 U.S.C. § 2283, plaintiffs contend that the turn over order, if granted, would permit the indirect accomplishment of a result which the statute prohibits being done directly. Section 2283 provides:

"A court of the United States may not

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