Davenport v. Ralph N. Peters & Co.

• Decision Date: 12 October 1967
• Docket Number: No. 11104.,11104.
• Citation: 386 F.2d 199
• Parties: P. W. DAVENPORT, Tax Collector for the City of Charlotte and Mecklenburg County, and City of Charlotte and Mecklenburg County, Appellees, v. RALPH N. PETERS & CO., a Limited Partnership, Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

386 F.2d 199 (1967)

P. W. DAVENPORT, Tax Collector for the City of Charlotte and Mecklenburg County, and City of Charlotte and Mecklenburg County, Appellees, v. RALPH N. PETERS & CO., a Limited Partnership, Appellants.

No. 11104.

United States Court of Appeals Fourth Circuit.

Argued April 7, 1967.

Decided October 12, 1967.

COPYRIGHT MATERIAL OMITTED

R. E. Cabell, Jr., Richmond, Va., and Thomas Ashe Lockhart, Charlotte, N. C. (Moncure & Cabell, Richmond, Va., and Cansler & Lockhart, Charlotte, N. C., on brief), for appellants.

Hamlin L. Wade, Charlotte, N. C. (Ruff, Perry, Bond, Cobb & Wade, Charlotte, N. C., on brief), for appellees.

Before HAYNSWORTH, Chief Judge, and BRYAN and WINTER, Circuit Judges.

WINTER, Circuit Judge:

Whether a Chicago commodities broker (Ralph N. Peters & Co., a partnership, hereafter called "Peters") was properly before the Court and was correctly held personally liable for 1963 and 1964 personal property ad valorem taxes on cottonseed oil stored in Charlotte, Mecklenburg County, North Carolina, when, at most, it had only a security interest in the warehouse receipts, had repledged them for loans to itself, and the receipts were in the physical possession of bank which lent money to Peters, are the questions to be decided. The district court gave judgment against Peters for $22,282.11. Davenport, Tax Collector v. Ralph N. Peters & Co., 274 F.Supp. 99 (W.D.N.C.1966). We reverse.

I

Detailed findings of fact, not contested by the parties on appeal, were made by the district judge. Only so much of them as are necessary for an understanding of the issues we decide will be restated.

Accommodating itself to a prescribed form which it had been furnished, Peters filed with the Tax Supervisor for Mecklenberg County a 1963 business personal property listing which disclosed that it had "Consigned Goods Carried As Part Of Your Inventory" of the value of $90,558.00. Peters made no similar filing in 1964, but C. & T. Refinery, Inc. ("C. & T.") filed a business personal property listing in its own behalf in which it disclosed that there was stored in its tanks cottonseed oil having a value of $901,302.00 "owned" by Peters. The "consigned" and the "owned" goods of Peters was all cottonseed oil initially refined and placed in its own tanks by C. & T., for its own account, but against which it issued negotiable warehouse receipts then sold by its own broker on the New York Produce Exchange.¹

Peters, as broker, purchased some of the C. & T. warehouse receipts for the account of Peters' customers. Customarily, Peters would lend its customers the money to purchase the receipts and would hold the receipts as security for the repayment of the loan. Peters made such loans from its own funds or from funds borrowed by Peters from The Chase Manhattan Bank ("Chase"), in which event the receipts were held by Chase as security for the repayment of the loan by Peters. Peters did not buy or sell warehouse receipts for its own account, or borrow money to finance such transactions. On January 1, 1963, and January 1, 1964, respectively, the warehouse receipts allegedly "owned" by Peters were physically in the possession of Chase to secure loans made by Chase to Peters, the proceeds of which were lent by Peters to its customers.² In North Carolina, personal property is assessed "in accordance with ownership and value as of the first day of January each year." N.C.G.S. § 105-280.

Peters, as shown by the books of C. & T., was the owner of the warehouse receipts (50, issued in 1962 and 95, issued in 1963) which it bought for its customers, and Peters was billed for monthly storage charges, which it paid. Peters, however, billed its customers for a prorata share of the storage charges. The warehouse receipts, once issued and once endorsed by C. & T.'s broker, were fully negotiable, with or without further endorsement, by delivery.

During 1963 and 1964, there were approximately 2,000 warehouse receipts for cottonseed oil outstanding in the United States (200 of which were issued by C. & T.), and there were in excess of 100 brokers, and from 50 to 100 refinery companies dealing in them. Dealings in warehouse receipts were not confined to full receipts but were also carried on in fractional interests therein. During 1963, there were between 1,000 and 2,000 transactions in these receipts, or interests therein, daily. There was no practicable way of knowing who was the ultimate owner of the stored oil from time to time.

II

The action to collect taxes assessed was commenced March 2, 1964, by a complaint which, inter alia, prayed the issuance of an order of attachment against 145 tank cars (8,700,000 lbs.) of cottonseed oil in the hands of C. & T. allegedly the property of Peters, and an injunction against the transfer by Peters or Chase of 145 negotiable warehouse receipts therefor.³

North Carolina law permits original attachments against non-residents and foreign corporations, N.C.G.S. § 1-440.3, and Rules 4(e) and (f), Fed.R.Civ.P., authorize a district court to provide for service of process in accordance with a statute of the state in which the district court is held, even beyond the territorial limits of the state. Because North Carolina law does not permit an attachment against property in the possession of a warehouseman who has issued a negotiable warehouse receipt therefor, unless the receipt is first surrendered or its negotiation enjoined, N.C.G.S. § 25-7-602 (formerly N.C.G.S. § 27-25), plaintiffs sought and obtained, ex parte, an order of attachment and a temporary restraining order enjoining Peters and Chase from negotiating the 145 warehouse receipts. Thereafter, a consent order was entered which, among other things provided for dissolution of the attachment and the temporary restraining order upon the filing of a bond in the penal sum of $25,000.00 to assure payment of the liability "if any" of Peters and Chase. The consent order recited and provided:

"Mr. Cabell ultimately counsel of record for Peters and Chase states to the Court that at the time any such bond is filed he will be authorized by the defendants to enter a personal appearance and will do so. Counsel discussed and are concerned with the in rem basis of the Court\'s jurisdiction and by this agreement intend that the in rem basis of jurisdiction will not be defeated by reason of the substitution of a bond and the release of the attached property.

"Nothing contained herein is intended to, or shall be construed to be a waiver of any other legal defense available to the defendants and it is their contention that there is no tax liability upon them."

The bond was filed April 13, 1964, and the property released.

By their answer, filed May 4, 1964, Peters and Chase admitted that C. & T. held oil for the account of Peters and, specifically, that Peters owned 95 of the warehouse receipts issued by C. & T., but they vigorously denied liability for any tax on numerous grounds. Discovery, primarily at the instance of the plaintiffs, ensued; and the facts concerning the issuance of warehouse receipts and the manner in which they were dealt in being developed, Peters and Chase, on February 11, 1966, filed an amended answer in which they denied that Peters was the owner of any of the 145 warehouse receipts on the day of finality for either 1963 or 1964 taxes, as alleged in the complaint.

The trial of the action began June 1, 1966, on which day the taking of evidence was completed; argument was postponed until a later date. Fully developed was the fact that Peters and Chase had only a security interest in the warehouse receipts, as we have stated and as set forth in the detailed findings of the district judge. In the light of such facts, Peters and Chase supplemented the denial of ownership in their amended answer by filing, on September 2, 1966, a motion for summary judgment and for dissolution of Chase's bond, previously filed to release the attachment. Plaintiffs countered with an amendment to the complaint alleging that if Peters and Chase were not the owners of the property attached, they, or either of them, had a duty to report the property for taxation for the years 1963 and 1964, failing which they were personally liable for payment of the taxes, interests and costs to the date of payment. Liability on the part of Peters and Chase was thus asserted under N.C.G.S. § 105-317 which, in pertinent part, reads:

"All brokers dealing in tangible personal property who have in their possession such property belonging to others, shall file with the supervisor of taxation of the county in which such property is located a full and complete list of the owners of such property, together with the amount of such property owned by each * * * Brokers failing to make such reports shall be liable to payment of the tax * *."

Carefully alleging that they appeared specially and not generally, Peters and Chase moved to dismiss the action alleged in the amended complaint for lack of jurisdiction by the court over them. Their motion alleged that a new and radically different cause of action was alleged against them in the amended complaint, changing the original cause of action from an in rem to an in personam proceeding, that they were non-residents of North Carolina and had not made a voluntary appearance before the court in respect to the amended complaint, and that their only appearance was in regard to the original in rem proceeding.

The case was argued and submitted to the district court on all points at issue on September 12, 1966.

III

So far as pertinent to this appeal, the district court ruled that neither Peters nor Chase owned either the warehouse receipts or the oil at the time of attachment and, therefore, the attachment was erroneously ordered and the bond should be dissolved. The district judge deemed the appearance of Peters and Chase in the proceeding a general one and, although he was of the view that the better rule was that they did not...