Cargill, Inc. v. Sabine Trading & Shipping Co., Inc.

• Decision Date: 21 February 1985
• Docket Number: D,No. 622,622
• Citation: 756 F.2d 224
• Court: U.S. Court of Appeals — Second Circuit
• Parties: , 40 Fed.R.Serv.2d 1476 CARGILL, INCORPORATED, Plaintiff-Appellant, v. SABINE TRADING & SHIPPING CO., INC. and George P. MacDonough, Defendants- Appellees. ocket 84-7932.

Page 224

756 F.2d 224

1985 A.M.C. 1634, 40 Fed.R.Serv.2d 1476

CARGILL, INCORPORATED, Plaintiff-Appellant, v. SABINE TRADING & SHIPPING CO., INC. and George P MacDonough, Defendants- Appellees.

No. 622, Docket 84-7932.

United States Court of Appeals Second Circuit.

Argued Dec. 12, 1984.

Decided Feb. 21, 1985.

Robert J. Zapf, New York City (John F. O'Connell, Luanne Surace, and Burlingham, Underwood & Lord, New York City, on the brief), for plaintiff-appellant.

James J. Martin, Philadelphia, Pa. (Laurence T. Muri, and Walder, Martin & Kresman, Philadelphia, Pa., Albert, Pastore & Ward, New York City, on the brief), for defendants-appellees.

Before KAUFMAN, TIMBERS and ROSENN, ^* Circuit Judges.

TIMBERS, Circuit Judge:

This appeal presents the question of whether a state statute authorizing limited appearances in quasi in rem actions is applicable in a federal diversity action. We hold that it is and that the filing of an answer containing a counterclaim arising from the attachment of appellees' property does not subject appellees to full in personam jurisdiction.

The appeal is from an order entered in the Southern District of New York, John M. Cannella, District Judge, granting appellees' motion to vacate an order of attachment, denying appellant's motion for a preliminary injunction, and denying appellant's motion for the appointment of a receiver to marshal the assets of appellees. For the reasons stated below, we affirm in part and reverse and remand in part.

I.

Appellant Cargill, Inc. ("Cargill") is a Delaware corporation with its principal place of business in New York. Appellee Sabine Trading & Shipping Co., Inc. ("Sabine") is a Texas corporation not qualified to do business in New York. Appellee George P. MacDonough is a domiciliary of Texas and is alleged to be the "alter ego" of Sabine. The jurisdiction of the district court is based upon diversity of citizenship. We shall briefly summarize only those facts believed necessary to an understanding of our rulings on this appeal.

In November and December 1981, Cargill and Sabine entered into a contract whereby Cargill would sell and Sabine would buy 10,000 metric tons of rice for $5,180,810. Sabine thereafter contracted with T.J. Stevenson & Co. ("Stevenson") to ship the rice to Warri, Nigeria. Delays in shipping and payment followed, caused in part by restrictions imposed in April 1982 by the Nigerian government on currency conversions.

The parties and Stevenson entered into a new contract on April 23, 1982. This new contract required Sabine to pay Cargill $5,362,370 and $90,000 representing the purchase price of the rice and $271,560 in interest, to pay Stevenson $895,000 and $90,000 for shipment, to establish an escrow account in amount of $636,296.95 for the benefit of all parties, and to pay daily interest into the account at an annual rate of 17%. Sabine also agreed to submit Stevenson's $450,000 demurrage claim to arbitration.

In its complaint, Cargill alleged that Sabine and MacDonough breached the April 23, 1982 agreement by failing to establish the escrow account and by failing to pay interest accruing after April 30, 1982. Cargill also alleged that a $90,000 balance of interest on the purchase price was still owing. Cargill sought $2.5 million in damages plus interest.

On December 19, 1983, the same day that it filed its complaint, Cargill moved in the district court for an ex parte order of attachment. Judge Richard Owen ordered the attachment against appellees' property in amount of $2.5 million. Cargill filed an undertaking of $250,000. Levy was made on December 20, 1983 when the order of attachment was served on appellees' bank, the First Chicago International Banking Corp., in New York City.

Appellees pleaded a number of defenses in their answer, including the allegation that an escrow account had been established in Nigeria in an amount equivalent to U.S. $90,000 for eventual transfer to Cargill. They further alleged that, despite their "best efforts", they had been unable to effectuate a conversion of this amount into U.S. currency as a result of the aforementioned Nigerian governmental restrictions. Appellees also asserted a counterclaim against Cargill arising from the "unjustified" attachment of their funds in New York. They sought $1 million in damages.

On January 24, 1984, appellant moved in the district court, before Judge Cannella, for leave to prove the grounds for the attachment. Appellees filed a cross-motion to vacate the attachment. Judge Cannella entered an order on May 21, 1984 confirming the attachment and denying appellees' motion to vacate it.

Appellant thereafter moved pursuant to Fed.R.Civ.P. 64 and 65 for a preliminary injunction, seeking to enjoin appellees from transferring or encumbering "any real or personal property the title of which, in whole or in part, is held by [appellees]". At the same time, appellant moved for the appointment of a receiver to marshal the assets of appellees. Oral argument was heard on May 25, 1984 before Judge Cannella. On November 1, 1984, the court entered an order denying the injunction and the appointment of a receiver and vacating the attachment. The order vacating the attachment was stayed by the district court pending this expedited appeal.

II.

We turn first to the claim by appellant that the district court abused its discretion in vacating the order of attachment. Our analysis is two-pronged: First, whether, in a diversity action, federal courts must apply a state statute that permits a defendant in a quasi in rem action to appear in court to defend its property without submitting to in personam jurisdiction. Second, whether the assertion of a counterclaim arising from an attachment in a quasi in rem action results in the court obtaining in personam jurisdiction. Appellant concedes that no other colorable basis for the exercise of in personam jurisdiction over appellees exists. Thus, our rulings on these issues will determine whether appellees have "appeared" and thus submitted themselves to the full power of the court; and whether, alternatively, the order of attachment provided the only basis for personal jurisdiction over appellees and whether the district court thus abused its discretion in dissolving it.

Under Fed.R.Civ.P. 64, the provisional remedy of an attachment is available in a federal court, subject to qualifications not applicable here, "under the circumstances and in the manner provided by the law of the state in which the district court is held". Id.; Brastex Corp. v. Allen International, Inc., 702 F.2d 326, 327, 330 (2 Cir.1983). Attachments for the purpose of obtaining jurisdiction over a defendant also are governed by state law in federal diversity actions under Fed.R.Civ.P. 4(e). ITC Entertainment, Ltd. v. Nelson Film Partners, 714 F.2d 217, 220 (2 Cir.1983). New York law on the subject provides that an attachment is available in an action for a money judgment when, among other bases, "the defendant is a nondomiciliary residing without the state, or is a foreign corporation not qualified to do business in the state". New York CPLR Sec. 6201(1) (McKinney 1980). Although attachment is permitted under CPLR Sec. 6201(1) primarily to afford quasi in rem jurisdiction over a nonresident defendant, McLaughlin, Practice Commentaries, CPLR Sec. 6201(1), at 12 (McKinney 1980), the section also serves the independent purpose of providing security for a potential judgment against a nonresident. ITC Entertainment, supra, 714 F.2d at 220.

The district court confirmed the attachment under Sec. 6201, holding that it served the dual purposes of obtaining jurisdiction and providing security. (May 21, 1984 order at 4). Although personal jurisdiction initially was premised solely on the attachment of appellees' property, appellant's counsel subsequently argued before the district court, on the motion for an injunction and the appointment of a receiver, that the court had obtained in personam jurisdiction over appellees by virtue of the fact that they "appeared and answered". (Transcript at 18). The court relied on this representation and stated that appellant "conceded that the Court had acquired personal jurisdiction over both defendants." (November 1, 1984 order at 3). ¹ The court concluded that the attachment therefore was unnecessary for jurisdictional purposes. We disagree.

Under New York CPLR Sec. 320(c)(1), an "appearance", which includes the filing of an answer, "is not equivalent to personal service upon the defendant ... if jurisdiction is based solely upon a levy on defendant's property within the state pursuant to an order of attachment". Section 320 sanctions the use of a "limited" appearance and permits the defendant in a quasi in rem action to answer and to protect his interest in the attached property without submitting to full in personam jurisdiction and risking a personal judgment. Gager v. White, 53 N.Y.2d 475, 487-88 & n. 10, 442 N.Y.S.2d 463, 468-69 & n. 10, 425 N.E.2d 851, 856 & n. 10 (1981); National Am. Corp. v. Federal Rep. of Nigeria, 425 F.Supp. 1365, 1368 n. 3 (S.D.N.Y.1977); McLaughlin, Practice Commentaries, CPLR Sec. 320(c), at 373-74 (McKinney 1972); see Dempsey & Spring, P.C. v. Ramsay, 79 A.D.2d 1017, 1018, 435 N.Y.S.2d 336, 338 (2d Dep't 1981).

The amenability of a defendant to personal jurisdiction is governed by state law in a diversity case. E.g., Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 711 (1982) (Powell, J., concurring); Intermeat, Inc. v. American Poultry, Inc., 575 F.2d 1017, 1020 (2 Cir.1978); Arrowsmith v. United Press International, 320 F.2d 219, 223 (2 Cir.1963). While Sec. 320(c) does not govern amenability to service of process, it is a self-imposed limitation on the power of the state to exercise complete jurisdiction over a defendant. It thus restricts a defendant's amenability to in personam jurisdiction. To adopt for use in a federal court the state's...