Anderson Foreign Motors v. NEW ENGLAND TOYOTA, ETC.

• Decision Date: 29 August 1979
• Docket Number: Civ. A. No. 76-417-G.
• Citation: 475 F. Supp. 973
• Parties: ANDERSON FOREIGN MOTORS, INC., on behalf of itself and all others similarly situated, Plaintiffs, v. NEW ENGLAND TOYOTA DISTRIBUTOR, INC., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

475 F. Supp. 973

ANDERSON FOREIGN MOTORS, INC., on behalf of itself and all others similarly situated, Plaintiffs, v. NEW ENGLAND TOYOTA DISTRIBUTOR, INC., et al., Defendants.

Civ. A. No. 76-417-G.

United States District Court, D. Massachusetts.

August 29, 1979.

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Donald B. Gould, Goodwin, Proctor & Hoar, Boston, Mass., for plaintiffs.

James D. St. Clair, Robert W. Mahoney, Hale & Dorr, Boston, Mass., for defendants.

James F. McHugh, John J. Curtin, Jr., Bingham, Dana & Gould, Boston, Mass., for Toyota Motor Sales, U.S.A., Inc.

MEMORANDUM OF DECISION

GARRITY, District Judge.

The precise characterization of the motions now before the court is disputed by the parties. Anderson Foreign Motors, Inc., a Toyota automobile dealer, brought this class action against New England Toyota Distributor, Inc. (hereinafter NET) and George A. Butler, formerly President and Treasurer and now Chairman of the Board and Chief Executive Officer of NET,¹ for violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1.² Plaintiffs complain of an allegedly illegal tying arrangement in which defendants require dealers to purchase NET's new car delivery services along with the purchase of Toyota automobiles for resale. On April 12, 1978, following a hearing, this court granted plaintiffs' motion for class certification, defining the class as all persons and entities who were Toyota dealers after January 25, 1972.

Plaintiffs now bring two motions: (1) a motion pursuant to Fed.R.Civ.P. Rule 64 for approval of the attachment of certain real property and assets and (2) a motion pursuant to Fed.R.Civ.P. Rule 65 for a preliminary injunction to limit the disposition of certain stock and assets of NET controlled by the defendants.

Plaintiffs seek through the pending motions to secure payment of an eventual judgment entered in plaintiffs' favor by restraining the disposal of certain assets in any manner injurious to plaintiffs' interests. The characterization problem stems from the nature of the property that plaintiffs wish to encumber: (1) specific parcels of real estate owned by NET and Butler and assets owned by NET and (2) the stock, rights, and assets of NET. Although real estate can be the subject of an ordinary motion for attachment under Massachusetts law,³ Mass.R.Civ.Pro., Rule 4.1; M.G.L. c. 223, § 42, stock cannot be attached in an action seeking only money damages, M.G.L. c. 223, § 71. But see, Krohn Hite v. Berube, D.Mass.1974, 372 F.Supp. 1262, 1263 (state court appears to have effected equitable attachment by injunction). Plaintiffs, therefore, have treated what is in reality a motion for an equitable attachment of defendants' stock and assets as a motion for a preliminary injunction prohibiting NET and Butler from transferring or diminishing the value of the stock and assets other than in the ordinary course of business.

We must first decide a threshold question as to the availability of a provisional remedy in the form of the preliminary injunction that plaintiffs seek. This issue was not discussed by the parties, but since it relates to the power of this court, we must address it. Fed.R.Civ.P. Rule 64 makes state law control the availability of provisional remedies to secure satisfaction of a judgment, and specifically provides that "the remedies thus available include arrest, attachment, garnishment, replevin, sequestration, and other corresponding or equivalent remedies, . . ." The precise scope of Rule 64 is somewhat unclear. See, 7 Moore's Federal Practice ¶ 64.043. According to a narrow interpretation of the Rule, 7 Moore's, supra, at 64-20-21, the phrase "and other corresponding or equivalent remedies, . . ." was never intended to exclude temporary equitable relief otherwise proper under Fed.R.Civ.P. Rule 65, even though that relief operates only to secure satisfaction of a final judgment and state law offers no equivalent remedy. Under this interpretation, we plainly have power to grant plaintiffs' motion, whether or not Massachusetts law permits equitable attachment of shares of stock.

However, the Rule is susceptible of a broader interpretation. It may make state law the exclusive source of available remedies to secure a final judgment. Even under this broad interpretation, we still have power to grant plaintiffs' motion for a preliminary injunction. The motion in effect seeks an equitable attachment. Daley v. Ort, D.Mass.1951, 98 F.Supp. 151, 152. Although in Daley a motion identical to plaintiffs' motion in this case was denied because the court could find no authority for an equitable attachment prior to verdict under Massachusetts or federal law, the court appears to have overlooked M.G.L. c. 214, § 3(7), (formerly M.G.L. c. 214, § 3(8)), which confers jurisdiction on the Supreme and Superior courts in "actions to reach and apply shares or interests in corporations, . . ." Massachusetts state courts rely on § 3(7), together with their power to issue injunctions pendente lite, to grant a plaintiff an equitable attachment of defendants' shares of stock by restraining their transfer prior to final adjudication of plaintiff's substantive claim. See, McCarthy v. Rogers, 1936, 295 Mass. 245, 3 N.E.2d 787; cf., Salvucci v. Sheehan, 1965, 349 Mass. 659, 662-63, 212 N.E.2d 243. Hence Massachusetts law appears to provide a procedure comparable to that used by plaintiffs in this case, and we will treat plaintiffs' motion for a preliminary injunction as in the nature of an action to reach and apply coupled with a motion for temporary relief.

We now turn to the standards for exercising our power under Rules 64 and 65. The conditions for issuance of a writ of attachment are set forth in Mass.R.Civ.Pro., Rule 4.1(c), which requires that the plaintiff show "a reasonable likelihood that he will recover judgment, including interest and costs, in an amount equal to or greater than the amount of the attachment over and above any liability insurance shown by the defendant to be available to satisfy the judgment." Cf., M.G.L. c. 223, § 42A. Because there is no evidence of liability insurance, the central question on the motion for approval of attachment is whether plaintiffs are likely to prevail on the merits and obtain damages in the necessary amount. Massachusetts law empowers the attaching officer under certain circumstances to require security from the plaintiff before or after attachment in order to indemnify the officer from liability for an improper attachment. M.G.L. c. 223, § 45A. Otherwise, there is no requirement for an attachment bond.

The standards for granting the preliminary injunction that plaintiffs seek differ only slightly from those governing the attachment. The due process clause of the Fourteenth Amendment compels the notice and hearing procedures implemented by Mass. Rule 4.1(c). Bay State Harness Horse R. & B. Ass'n v. PPG Industries, Inc., D.Mass.1973, 365 F.Supp. 1299. The preliminary injunction that plaintiffs seek will limit disposition of stock and assets owned or controlled by defendants and thus also amounts to a deprivation of property within the meaning of the Fourteenth Amendment, requiring prior notice and hearing. Fuentes v. Shevin, 1972, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556. In particular, plaintiffs must demonstrate more than just a probability of success on the merits in order to prevail on their motion for a preliminary injunction; they must also show a reasonable likelihood that they will recover a judgment in excess of the total value of the property that is the subject of plaintiffs' two motions. Cf., Fuentes, supra, at 97,⁴ 92 S.Ct. 1983.

Because plaintiffs' motion under Rule 65 is in the nature of a equitable attachment, we do not require a strong showing of irreparable injury or a favorable balance of harms. Plaintiffs fear that they will not be able to obtain satisfaction for a final judgment that likely may exceed twelve million dollars, see, Part II.A infra, without executing on the stock and assets of NET. It is our opinion that this fear is reasonably justified. Moreover, if defendants were to sell the stock and other personal property and, with the proceeds, purchase real estate, plaintiffs would be able to attach the real estate under Mass. Rule 4.1(c) without showing irreparable harm. There is no reason for a different result in this case just because the property happens to be in the form of stock.

After reviewing the numerous briefs and affidavits, we find that plaintiffs have demonstrated a probability of success on the merits and a reasonable likelihood of recovering a judgment in excess of seven million dollars and have otherwise satisfied the requirements of Mass.R.Civ.P. Rule 4.1(c). Therefore, we grant plaintiffs' motion for approval of attachment in the requested amount of seven million dollars. However, we cannot decide the motion for a preliminary injunction without some evidence of the value of the property that is the subject of that motion. Furthermore, without such evidence we are also unable to set the amount of the bond required by Fed.R.Civ.P. Rule 65(c). Therefore, we are issuing a contemporaneous procedural order calling for either a stipulation of the parties or evidence of the value of the property and briefs on the issue of the amount of the security that should be required.

The parties have submitted a number of relevant affidavits in connection with both the current motion and the prior motion for class certification. Before embarking on an analysis of the issues, we will first outline generally the significant factual background. NET was the sole distributor of Toyota automobiles in the five state New England area—Vermont, Maine, New Hampshire, Massachusetts and Rhode Island —until March 1978 when Toyota Motor Sales, U.S.A., Inc. (hereinafter TMS), the national distributor-franchisor, assumed NET's New England distributorship. Pursuant to standard franchise agreements...