Aaron Ferer & Sons Co. v. Berman

Decision Date16 May 1977
Docket NumberCiv. No. 76-0-151.
Citation431 F. Supp. 847
PartiesAARON FERER & SONS CO., Debtor and Debtor in Possession, Plaintiff, v. Aaron BERMAN, d/b/a Berman Steel Company, Defendant.
CourtU.S. District Court — District of Nebraska

Jerrold L. Strasheim, Steven C. Turner, Omaha, Neb., for plaintiff.

Waldine H. Olson, Omaha, Neb., for defendant.

DENNEY, District Judge.

This matter is before the Court upon the motion of defendant to dismiss this case for lack of quasi in rem jurisdiction and lack of in personam jurisdiction Filing # 46. The issue presented is whether the Nebraska prejudgment attachment statutes for acquiring quasi in rem jurisdiction violate the due process clause of the Fourteenth Amendment of the United States Constitution.

I.

Plaintiff, Aaron Ferer & Sons Co., Debtor and Debtor in Possession hereinafter referred to as Ferer, instituted this action on April 14, 1976, seeking to recover the value of metals purchased from defendant, Aaron Berman, d/b/a Berman Steel Co. hereinafter referred to as Berman, and allegedly retaken from Ferer by Berman after the filing of Ferer's Chapter XI petition in Bankruptcy Court. Plaintiff's causes of action are founded upon Sections 60, 64a, 67, 70, and 342 of the Bankruptcy Act, 11 U.S.C. §§ 96, 104a, 107, 110 and 742, and breach of contract.

Initially, Ferer asserted personal jurisdiction over Berman under Nebraska's Long-Arm Statute, Neb.Rev.Stat. § 25-535. Berman contested jurisdiction, as did the defendants in six similar lawsuits instituted by Ferer in this Court. Although the Court ultimately found that it lacked personal jurisdiction in the other lawsuits brought by Ferer, Aaron Ferer & Sons v. Scrap Iron & Metal Co., 418 F.Supp. 674 (D.Neb.1976), decision on Berman's motion to dismiss was held in abeyance pending plaintiff's attempt to attach a debt owed by the United States National Bank of Omaha, Nebraska, to Berman for the purpose of securing quasi in rem jurisdiction pursuant to Neb.Rev. Stat. § 25-1001 et seq. (1975).1

Plaintiff filed the requisite pleadings to secure the garnishment of the debt on February 18, 1977, and an Order of Attachment was issued, without bond or security, by Senior Judge Richard E. Robinson upon the following conclusive affidavit of plaintiff's attorney:

1. That he is one of the attorneys for Aaron Ferer & Sons Co., Plaintiff in the above-entitled case.
2. That said Plaintiff has commenced an action against Aaron Berman, d/b/a Berman Steel Company, Defendant herein, an action to recover damages in an as yet unknown sum, upon certain contracts for the purchase of metal, and upon Plaintiff's rights as Debtor in Possession, together with plaintiff's costs of suit.
3. That said claim is just, and that Plaintiff ought, as Affiant believes, to recover the sum of Five Hundred Thousand and 00/100 Dollars ($500,000.00), with interest thereon, together with Plaintiff's costs of suit.
4. That the Defendant is a nonresident, and as Affiant believes, is a resident of the State of California; that said Defendant does not have a resident agent within the State of Nebraska.
5. That Affiant believes that the United States National Bank, Omaha, Nebraska is indebted to the Defendant or has assets belonging to said Defendant, which property cannot be levied upon by attachment.
6. That this Affidavit is made pursuant to Section 25-1001, Nebraska Revised Statutes.
7. That Plaintiff has been a bona fide resident of the State of Nebraska for at least six months preceding the filing of this petition.2
II.

Defendant, relying upon Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972); Mitchell v. W. T. Grant Co., 416 U.S. 600, 94 S.Ct. 1895, 40 L.Ed.2d 406 (1974), and North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975) contends that the Nebraska Foreign attachment scheme is constitutionally deficient in the following aspects: (1) the attachment may issue upon conclusions, rather than facts; (2) the procedure does not require a judicial determination; (3) the creditor is not required to indemnify the defendant; and (4) the provision for a post-seizure hearing does not permit the court to review the validity of the underlying claim.

The Supreme Court in Fuentes held that, except in certain extraordinary situations, due process of law requires notice and a hearing when property is to be seized during the pendency of a lawsuit brought against the property owner. The Court then discussed the "extraordinary situations" exception:

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 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 governmental official. 407 U.S. 90-91, 92 S.Ct. 1999.

Following Fuentes, the Court apparently retreated from Fuentes' explicit preference for prior notice and hearing when it approved the Louisiana sequestration procedures in Mitchell v. W. T. Grant Co., 416 U.S. 600, 94 S.Ct. 1895, 40 L.Ed.2d 406 (1974). The Court stated that the usual rule has been that "`where only property rights are involved, mere postponement of the judicial enquiry is not a denial of due process, if the opportunity given for ultimate judicial determination of liability is adequate.' Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 596-597, 51 S.Ct. 608, 611, 75 L.Ed. 1289 (1931)." 416 U.S. at 611, 94 S.Ct. 1902.

Plaintiff contends that Fuentes and its progeny should not be extended to garnishments obtained for the purpose of obtaining quasi in rem jurisdiction. The Court notes that authority may be found on both sides of this issue: The courts in Jonnet v. Dollar Savings Bank of City of New York, 530 F.2d 1123 (3rd Cir. 1976); In Re Law Research Services, Inc., 386 F.Supp. 749 (S.D. N.Y.1974); and U.S. Industries, Inc. v. Gregg, 348 F.Supp. 1004 (D.Del.1972), reversed on other grounds, 540 F.2d 142 (3rd Cir. 1976), construed Fuentes to apply in quasi in rem situations; the courts in Holtzman v. Holtzman, 401 F.Supp. 520 (S.D.N.Y. 1975); Merrill Lynch Government Securities, Inc. v. Fidelity Mutual Savings Bank, 396 F.Supp. 318 (S.D.N.Y.1975); Usdan v. Dunn Paper Company, 392 F.Supp. 953 (E.D.N.Y.1975) and Stanton v. Manufacturers Hanover Trust Co., 388 F.Supp. 1171 (S.D.N.Y.1975) declined to so extend Fuentes.3

The thrust of plaintiff's argument requires the Court to carefully evaluate the continuing validity of Ownbey v. Morgan, 256 U.S. 94, 41 S.Ct. 433, 65 L.Ed. 837 (1921). In Ownbey, Delaware plaintiffs attached a nonresident's shares in a Delaware corporation in order to establish quasi in rem jurisdiction. The writ of attachment issued automatically upon plaintiff's filing an affidavit with the court clerk and posting a bond. Although the challenge went only to the requirement that the defendant put up "special bail" in order to contest the attachment, the Court expressly approved the Delaware foreign attachment scheme. Plaintiff therefore vigorously argues that the Supreme Court's recent citations of Ownbey indicates continuing approval of the Delaware statutory scheme.4

The Court is unable to agree that recent citations of Ownbey indicate approval. "The citation in Fuentes and Mitchell is no more than an example of a situation in which pre-seizure hearing is not required. One cannot read these citations as endorsing all aspects of the Ownbey opinion. citations omitted." Jonnet v. Dollar Savings Bank of City of New York, 530 F.2d at 1128.

The reasons for this Court's negative view of Ownbey's validity are several. First, to Justice Pitney the touchstone of due process lies in history.

A procedure customarily employed, long before the Revolution, in the Commercial Metropolis of England, and generally adopted by the States as suited to their circumstances and needs, cannot be deemed inconsistent with due process of law, even if it be taken with its ancient incident of requiring security from a defendant who after seizure of his property comes within the jurisdiction and seeks to interpose a defense. 256 U.S. at 111, 41 S.Ct. at 438.

As Judge Gibbons recognized in his concurring opinion in Jonnet v. Dollar Savings Bank of City of New York, supra, "the flaw in Justice Pitney's reasoning is that prior to 1868 the adoption of the procedure by the states had no due process significance." 530 F.2d at 1136. Moreover, it is clear that, under modern due process analysis, ancient lineage of a procedural rule is only one factor to be considered.

"`Due process,' unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances . . .. Representing a profound attitude of fairness . . . `due process' is compounded of history, reason, the past course of decisions, and stout confidence in the strength of the democratic faith which we profess . . .." Joint Anti-fascist Committee v. McGrath, 341 U.S. 123, 162-163, 71 S.Ct. 624, 95 L.Ed. 817 (1951) (Frankfurter, J. concurring).

Ingraham v. Wright, ___ U.S. ___, 97 S.Ct. 1401, 1414, 51 L.Ed.2d 711 (1977).

Second "the principal Ownbey holding, that a defendant's access to the civil courts can be conditioned upon the posting of a bond, has since been overtaken by significant changes in the law. See Boddie v. Connecticut, 401 U.S. 371 at 379, 91 S.Ct. 780, 28 L.Ed.2d 113 (1971)." In re Law Research Services, Inc., 386 F.Supp. at 753. In fact, the Court of Appeals for the Eighth Circuit has repudiated the holding of Ownbey, thereby recognizing its demise in modern law.

The bond requirement places a considerable impediment on any debtor who seeks to contest the attachment of any item of significant value, and to the extent that
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