Baker v. Gotz

• Decision Date: 23 January 1975
• Docket Number: Civ. A. No. 4072,74-99,74-145.
• Citation: 387 F. Supp. 1381
• Parties: George P. BAKER et al., Plaintiffs, v. Fidel GOTZ et al., Defendants.
• Court: U.S. District Court — District of Delaware

387 F. Supp. 1381

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

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

United States District Court, D. Delaware.

As Amended January 23, 1975.

COPYRIGHT MATERIAL OMITTED

William E. Taylor, Jr., 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:

Pending for decision are identical motions by nonresident defendants in each of three cases to quash the sequestration of certain property purported to have been made under 10 Del.C. § 366 and Court of Chancery Rule 4(db),¹ Del.C. Ann.

Each of the actions was brought by trustees of the Penn Central Transportation Company ("Penn Central"), debtor in proceedings for reorganization of a railroad pursuant to § 77 of the Bankruptcy Act, 11 U.S.C. § 205, Cause No. 70-347, pending in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs presumably are residents of Pennsylvania, and the Penn Central is alleged to be a citizen of Pennsylvania and is organized under the laws of Pennsylvania with its principal office in Philadelphia, Pennsylvania.

The defendants in all of the three cases are Fidel Gotz, a citizen and resident of West Germany, numerous business entites, and in C.A. No. 4072, Volker Gotz, also a citizen and resident of West Germany.² Each of the entities is alleged to be a citizen of a foreign state and an independent juridical person organized and existing under the law of the principality of Lichtenstein. While the complaints vary slightly in language plaintiffs in each seek generally to recover a money judgment against each of the defendants based upon the alleged misappropriation by Fidel Gotz of $4,000,000 belonging to the Penn Central and held in trust by a "business" trust organized under the laws of Lichtenstein. The complaint in case one (C.A. No. 4072) alleges that the misappropriation was effected by Gotz for the "benefit of himself and/or one or more of the other defendants" acting in concert, combination and conspiracy with others and themselves. Case two (C.A. No. 74-99) alleges that the appropriation although effected by Gotz acting in concert with the other defendants was for the "benefit of himself", but that the actions of the other defendants were willful, wanton and malicious and hence entitle plaintiffs to recover punitive or vindictive damages against them. The complaint in case three (C.A.No. 74-145) alleges essentially the same claim as does the complaint in case two.

Case one (C.A.No. 4072) was instituted in March 1971 by an ex parte sequestration order which this Court on December 20, 1971 held to be unlawful.³ See Baker v. Gotz, 336 F.Supp. 197 (D. Del.1971). This was reversed by a three judge panel of the Court of Appeals (one dissent) in an unreported opinion filed August 31, 1973. Upon rehearing by the Court en banc the eight judges were evenly divided in an opinion filed February 21, 1974, 492 F.2d 1238 (3rd Cir. 1974). Thereafter plaintiff sought certiorari in the Supreme Court of the United States. The application was denied, 417 U.S. 955, 94 S.Ct. 3084, 41 L. Ed.2d 674 (1974). On June 17, 1974, the mandate of the Court of Appeals was issued to this Court affirming the judgment of this Court dated December 20, 1971. On June 24, 1974, plaintiffs sought and obtained a new sequestration order which is the subject of one of the pending motions.

Case two (C.A.No. 74-99) was begun on May 23, 1974, and a sequestration order was obtained in it substantially identical with the order of June 24, 1974 in case one (C.A.No. 4072). That order is likewise the subject of a pending motion to quash.

Case three (C.A.No. 74-145) was brought in the Court of Chancery of Delaware and on June 12, 1974, a sequestration order was obtained substantially identical with the orders in cases one and two obtained respectively on June 24, 1974 and May 23, 1974. Thereafter the action was removed to this Court by defendants. The third motion to quash is directed against the June 12, 1974 order entered by the Court of Chancery.

The following property of the defendants has purportedly been sequestered:

(a) property of defendant Vileda Anstalt (Establishment) as follows:

(1) one 6¾% subordinated debenture of SSI Computer Corporation (now called Itel Corporation or Itel Computer Leasing Corporation), a Delaware corporation due January 15, 1989, issued on November 25, 1969 to Vileda Establishment, in the face amount of $500,000 certificate number R 739.

(2) a warrant of Itel Corporation, a Delaware corporation, issued on December 8, 1969 to Vileda Establishment, to purchase 10,000 shares of common stock at a price of $29.00 per share and void after January 15, 1979, certificate number WS 2242.

(b) property of defendant Inter-Marketing Corporation Anstalt (Establishment) as follows:

(1) one 7% subordinated note due May 1, 1978 of SSI Computer Corporation (now called Itel Computer Leasing Corporation or Itel Corporation), a Delaware corporation issued on March 10, 1970 to Inter-Marketing Corporation, Est. in the face amount of $1 million.

(2) 50 shares of common stock of Itel Corporation, a Delaware corporation, certificate number NF 1535, issued to Inter-Marketing Corporation.

(3) warrant of SSI Computer Corporation (now called Itel Corporation or Itel Computer Leasing Corporation), a Delaware corporation, to purchase 15,000 shares of common stock void after May 1, 1978, certificate number W-099, issued to Inter-Marketing Corporation, Est. on March 13, 1970.

(4) one 7½% convertible subordinated note due May 1, 1983 of CBK Agronomics (now called General Energy Corporation), a Delaware corporation, issued on March 12, 1970 to Inter-Marketing Corporation, Est., in the face amount of $300,000.

(c) property of Minolta Anstalt (Establishment) as follows:

Six 8% notes of Textron Atlantic, Inc., a Delaware corporation, guaranteed by Textron, Inc., a Delaware corporation, dated May 15, 1970, maturing on May 15, 1975, acquired pursuant to an agreement dated April 27, 1970, and payable to Minolta Anstalt in the following amounts:

                                  Face Amount
                  Note Numbers   (Swiss Francs)
                     RA-01          4,000,000
                     RA-02          4,000,000
                     RA-03          4,000,000
                     RA-04          4,000,000
                     RA-05          4,000,000
                     RA-06          5,360,000
                                  ____________
                                   25,360,000
                

Plaintiffs have taken the position that: (Doc. 136, p. 2 in answer to the Court's letter dated November 6, 1974)

a) In C.A.No. 4072 the sequestrations against the following defendants may be quashed:

Volker Gotz

Gotz Aktiengesellschaft of St. Gallen (also known as Gotz AG of St. Gallen, or Gotz Anstalt of St. Gallen, or Gotz Etablissement of St. Gallen, or Gotz Establishment of St. Gallen)

Inter-Industry Aktiengesellschaft of St. Gallen (also known as Inter-Industry AG of St. Gallen, or Inter-Industry Anstalt of St. Gallen, or Inter-Industry Etablissement of St. Gallen, or Inter-Industry Establishment of St. Gallen), and

Finanz AG St. Gallen

and that the sequestrations are valid only as to the following defendants:

Fidel Gotz,

Finanz Aktiengesellschaft,

Vileda Anstalt,

Inter-Marketing Corp. Anstalt (also known as Inter-Marketing Corp. Etablissement, or Inter-Marketing Corp. Establishment)

Minolta Anstalt

b) In C.A.No. 74-99 and C.A.No. 74-145 the sequestrations are valid as to the following defendants:

Fidel Gotz

Vileda Anstalt

Inter-Marketing Corporation Anstalt

Minolta Anstalt

Finanz Aktiengesellschaft

Defendants have advanced a number of reasons why the challenged sequestrations should be quashed.⁴

As one ground defendants argue that the property purportedly sequestered consists of negotiable securities under the Uniform Commercial Code and since the certificates have not been actually seized and are not in Delaware the obligations which they represent have no situs in Delaware and cannot be validly sequestered under 10 Del.C. § 366.⁵ Plaintiffs on the other hand contend that the obligations themselves which the instruments represent are intangibles and that they have not been merged into the certificates but retain their status with a situs in Delaware, the state where the issuers were incorporated. Plaintiffs argue that this is so regardless of whether the sequesered property is negotiable by the terms of the Uniform Commercial Code.

Several of the instruments read in conjunction with the choice of law provision in the Uniform Commercial Code (§ 1-105(1)) suggest a possible choice of laws problem between the law of the forum and the laws of California and New York.⁶

In the absence of a provision in the instrument itself specifying the controlling law, the Delaware choice of law rule is that where an alleged interest in a security arises in a foreign jurisdiction the law of that jurisdiction governs the existence of the interest and presumably its nature, and the law of Delaware determines whether the interest is one which may be sequestered under 10 Del.C. § 366. Cheff v. Athlone Industries, 233 A.2d 170, 173 (Super.Ct. Del.1967); U. S. Industries v. Gregg, 348 F.Supp. 1004, 1016 (D.Del.1972). If the instrument provides that the law of a foreign state is to govern, § 1-105 of the Uniform Commercial Code gives that choice of law effect if "the transaction bears a reasonable relation" to that state. However, if the transaction bears no reasonable relation to the foreign state but does bear such a relationship to the forum state, the laws of the latter will govern. § 1-105(1).⁷

The choice of law problem is more academic than real, for the Court has concluded that the property purportedly seized is a negotiable instrument under the laws of Delaware,⁸...