Chambliss v. Coca-Cola Bottling Corporation

• Decision Date: 04 October 1967
• Docket Number: Civ. A. No. 4483.
• Parties: M. S. CHAMBLISS v. COCA-COLA BOTTLING CORPORATION, William O. Mashburn, and Goldman, Sachs and Company.
• Court: U.S. District Court — Eastern District of Tennessee

274 F. Supp. 401

M. S. CHAMBLISS v. COCA-COLA BOTTLING CORPORATION, William O. Mashburn, and Goldman, Sachs and Company.

Civ. A. No. 4483.

United States District Court E. D. Tennessee, S. D.

October 4, 1967.

Chambliss, Chambliss & Hodge, Chattanooga, Tenn., for plaintiff.

Witt, Gaither, Abernathy & Wilson, Chattanooga, Tenn., for defendants.

OPINION

FRANK W. WILSON, District Judge.

This is an action in which plaintiff, on behalf of herself and her class,¹ seeks to have declared void the purported conversion by defendant Coca-Cola Bottling Corporation of equity stock into debentures. The case is before the Court upon the defendants' motion to dismiss upon the following grounds: (1) lack of in personam jurisdiction, (2) improper venue, and (3) failure to state a claim upon which relief can be granted.

Before going into the merits of the issues presented by the motion, it is appropriate that the Court review to some extent the background of this litigation. In late 1960, the Coca-Cola Bottling Corporation undertook a recapitalization plan. At that time, it had issued and outstanding either 16,179 or 20,000² shares of Class "A" stock. Plaintiff owned two of these shares. Coca-Cola also had outstanding some 20,000 shares of Class "B" stock. Pursuant to the recapitalization plan, the Class "A" stock was purportedly³ converted into debentures in the face amount of $130.00 each, bearing interest at 6% and having a due date December 30, 1990. The plan went into effect upon December 30, 1960. Plaintiff and other holders of Class "A" stock certificates have refused to surrender their certificates.⁴

The present lawsuit is the latest of a series of litigation arising out of the events described in the preceding paragraph. The first was docketed as Civil Action No. 3537 in this court, styled J. Polk Smartt and Isabel Smartt v. Cincinnati Coca-Cola Bottling Corporation. It was filed June 30, 1961. Upon October 9, 1961, service of original process was quashed by the Court. Upon March 26, 1962, further service was quashed and the suit dismissed. Upon April 10, 1962, an amendment to the complaint was rejected, service was quashed and the suit dismissed. An appeal was taken to the Court of Appeals for the Sixth Circuit, which Court affirmed the action of this Court in an opinion dated June 18, 1963. Smartt v. Cincinnati Coca-Cola Bottling Corporation (C.A.6, 1963) 318 F.2d 447.

A suit docketed as Civil Action No. 3878 in this court, J. P. Smartt and Isabel Smartt v. Coca-Cola Bottling Corporation, was filed upon May 2, 1962. On May 5, 1962, this suit was dismissed without prejudice and the summons was returned unexecuted upon May 9 at the request of counsel for plaintiffs.

A third suit was filed on August 27, 1963, styled J. Polk Smartt and Isabel Smartt v. Coca-Cola Bottling Corporation,⁵ and was docketed as Civil Action No. 4165 in this court. On October 31, 1963, service of original process was quashed. An appeal was taken to the Sixth Circuit, and an opinion affirming this Court was entered upon October 28, 1964. Smartt v. Coca-Cola Bottling Corporation (C.A.6, 1964) 337 F.2d 950.

The present action was filed upon March 22, 1965.

As hereinabove stated, the defendants assert three grounds in support of their motion to dismiss: (1) lack of in personam jurisdiction, (2) improper venue, and (3) failure to state a claim upon which relief can be granted. Because of the nature of the federal statutes relied upon by plaintiffs, these three grounds may be considered contemporaneously, as will appear shortly.

In prior litigation, the plaintiffs have never succeeded in bringing the defendant, Coca-Cola Bottling Corporation, before the Court in a manner that the Court would have personal jurisdiction over the defendant.

In Civil Action No. 3537, the plaintiffs attempted to establish personal jurisdiction over Coca-Cola by substituted service under T.C.A. § 20-220, which provides for the exercise of judicial power over a foreign corporation when such corporation is found to be "doing business" in the State of Tennessee.⁶ The Court found that the defendant was not "doing business" within the meaning of T.C.A. § 20-220, and this holding was affirmed by the Court of Appeals.⁷

In Civil Action No. 4165, plaintiffs relied upon a different statute, T.C.A. § 48-923, which provides for constructive appointment of the Secretary of State as agent for service of process by foreign corporations doing business in Tennessee without designating an agent for service of process.⁸ This Court held that the issue whether defendant was "doing business" in Tennessee had been fully dealt with in No. 3537, and that no new facts had been developed. Accordingly, the process was quashed and the suit dismissed. This action was affirmed by the Court of Appeals, per curiam.⁹

In the present litigation, the plaintiffs have adopted a different tack, asserting authority for service of original process outside the forum state in the provisions of the Securities Act of 1933 (15 U.S.C. § 77a et seq.) or the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) or both. Service was had upon the defendant, Coca-Cola Bottling Corporation, and defendant Mashburn by personal service upon Mashburn¹⁰ in Cincinnati, Ohio. Service was had upon defendant Goldman, Sachs and Company by personal service upon a partner in New York, New York.

Service of original process in a District Court is governed by the provisions of Rule 4, Federal Rules of Civil Procedure. Under the terms of that rule, it may be served within the state in which the Court sits or, when authorized by a statute of the United States, outside the state.¹¹ Both the Securities Act of 1933 and the Securities Exchange Act of 1934 provide for service of original process outside the forum state. The terms of 15 U.S.C. § 77v are, in pertinent part, as follows:

"(a) The district courts of the United States * * * shall have jurisdiction * * * of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter. Any such suit or action may be brought in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the offer or sale took place, if the defendant participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found * * *"

Likewise, it is provided in 15 U.S.C. § 78aa, in pertinent part, as follows:

"The district courts of the United States * * * shall have exclusive jurisdiction of violations of this chapter or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the violation occurred. Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found * * *"

Thus, these code sections provide for venue for civil actions based upon alleged violations of the respective Securities Acts, and further provide that process may issue out of a district where venue is proper to "any other district of which the defendant is an inhabitant or wherever the defendant may be found." There is no dispute but that defendants were served where they were, respectively, an inhabitant, or at least where they were respectively found. Accordingly, if venue is properly laid in this district, then the service of process was sufficient to give the Court in personam jurisdiction of the defendants.

Under the code sections hereinabove quoted, venue in a civil action predicated upon an alleged violation of the Securities Act of 1933 or the Securities Exchange Act of 1934, or both, would properly lie in a district (1) as to the Act of 1933, in which the offer or sale of the security took place, or, as to the Act of 1934, in which any act or transaction constituting the violation took place, or (2) in which the defendant is found, or (3) in which the defendant is an inhabitant, or (4) in which the defendant transacts business.

The amended complaint negates that any defendant is an inhabitant of this district,¹² and there is nothing to show that any defendant has been "found" in this district. None of the briefs filed on behalf of plaintiff in this action indicates in any manner that plaintiff contends that any defendant "transacts business" in this district.¹³

It appears to the Court from the foregoing that rulings as to venue and personal jurisdiction must rest upon resolution of the following issues: (1) insofar as the complaint is predicated upon the Securities Act of 1933, whether the complaint states a claim based upon a liability or breach of a duty imposed by the Act, as to which the offer or sale of the security took place in this district; and (2) insofar as the complaint is predicated upon the Securities Exchange Act of 1934, whether the complaint states a claim based upon a liability or breach of a duty imposed by the Act, as to which the act or transaction constituting the violation occurred in this district. It would appear to the Court that each of these issues must be resolved. Proper venue for claims under the Act of 1934 would not necessarily provide proper venue for claims under the Act of 1933, Rosenberg v. Globe Aircraft Corp. (D.C. Pa., 1948), 80 F.Supp. 123, and vice versa. Naturally, in order to bring the venue and process provisions of the respective Acts into play, a sufficient claim for relief for a...