Detrio v. United States, 17306.

• Decision Date: 10 March 1959
• Docket Number: No. 17306.,17306.
• Parties: Louis J. DETRIO, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

264 F.2d 658 (1959)

Louis J. DETRIO, Appellant, v. UNITED STATES of America, Appellee.

No. 17306.

United States Court of Appeals Fifth Circuit.

March 10, 1959.

COPYRIGHT MATERIAL OMITTED

David W. Walters, Miami, Fla., for appellant.

David C. Clark, Jr., O. B. Cline, Jr., Richard R. Booth, Asst. U. S. Attys., Miami, Fla., James L. Guilmartin, U. S. Atty., Miami, Fla., Lloyd G. Bates, Jr., Asst. U. S. Atty., Miami Beach, Fla., for appellee.

Before TUTTLE, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

Transposed on to the field of administrative proceedings, this case involves essentially the problem of the satisfaction of a judgment against a partnership out of the personal property of a former partner not personally served with process.

The case grows out of the renegotiation of a World War II contract pursuant to the War Contracts Renegotiation Act, 50 U.S.C.A.Appendix, § 1191(c). Under that Act, the order for renegotiation, if not otherwise complied with, may be sued on by the Government for the recovery of the excess profits adjudged. Section 1191(c). The case comes to us from a judgment in favor of the Government granting recovery against a former partner individually for the principal of that excess ($82,629.63) plus interest for 13 years ($67,873.58). The excess profits administratively adjudged against the contractor cover the years 1943 and 1944. The principal amount, as well as the liability of the partnership's assets to respond therefor, is not open to question as the Act provides that the order is final unless modified by an appeal to the Tax Court. Section 1191 (d). Such appeal was never taken.

The basic attack by Louis Detrio which, if successful, wipes out all others, is that the two orders of the Renegotiation Board while valid against the partnership property, do not permit recovery out of his personal assets since he did not participate in the proceedings and was never served with notice of their pendency.

The facts, either admitted or stipulated formally, are not in dispute and may be briefly summarized. The contractor was a partnership trading under the name of Consolidated Tile and Deck Coverings with its principal place of business in New York City. Louis J. Detrio and another were general partners with four of his brothers and one other as limited partners under the New York Partnership Law. Louis withdrew as a partner on September 1, 1944. He was not a partner at the time the administrative proceedings were commenced or were completed. He was never served with any notice of their pendency and he was without knowledge of any kind of the proceedings or their pertinence to him. He was not a partner at the time the Order was made for 1943 (April 7, 1945) or 1944 (March 12, 1946). It is agreed, however, with respect to the partnership, that written notice by registered mail sent to the principal office of the Contractor was given as required by the Act.¹

Thus, ten years after he had withdrawn from the partnership, the Government successfully sought payment of the administrative order out of the personal property of Louis. He contends that where there has been no personal notice or service of process, partnership liability does not go this far and if it did, the result would offend due process. We think he is correct on the fundamental issue of partnership law, which Congress did not here intend to abrogate. Undoubtedly the partnership law that requires personal service on a partner to bind his individual assets is required by concepts of procedural due process.

The error of the District Court was the failure carefully to distinguish between liabilities of a partnership and the obligation of an unserved general partner to respond personally for such liabilities.

The Court was eminently correct in assuming, as well as holding, that since these were contracts² undertaken by the partnership while Louis was yet a general partner (1943 and 1944), he had the unlimited liability of a general partner for their performance for "* * all partners are liable * * * jointly for all * * * obligations of the partnership." New York Partnership Law, McKinney's Unconsol. Laws, c. 39, § 26. It was also correct in holding that even though the withdrawal of Louis in September 1944 had the legal consequence of a dissolution of the partnership, § 60, "* * * the dissolution of the partnership does not of itself discharge the existing liability of any partner." New York Partnership Law, § 67. See also 49 Am.Jur., Partnership, § 201 (1942).

But in partnership law the establishment of the personal unlimited liability of the general partner requires a legal proceeding in which (whether local practice requires him to be named personally or not) the individual partner thus pursued is personally served with process or notice. This is so because he must have an opportunity to contest the claim on its merits. That is not to say that either here in the administrative proceeding, or generally in a lawsuit, it is essential in order to bind partnership property alone that the partners be individually named instead of the entity being treated as the party. The universality of these principles is vividly illustrated by the standards applied in New York where this partnership was principally domiciled and in Florida where Louis now lives. Section 222-a of the New York Civil Practice Act expressly permits suits against a partnership as an entity. But New York law accords with that generally applied, 40 Am.Jur. Partnerships, §§ 447-449 (1942); 68 C.J.S. Partnership §§ 235e-236, 375c (1950); 100 A.L.R. 994; 136 A.L.R. 1071; that a judgment validly obtained against the firm by suit against the entity is effective against partnership property only, and the individual property of partners not personally served is not subject to lien or execution in satisfaction of it. This is carefully spelled out. "An execution upon such judgment may be collected out of the real and personal property of the partnership, and out of the real and personal property of the persons summoned, whose names shall be indorsed on the execution." New York Civil Practice Act § 222-a. This is reflected further in Sections 1197-1201 of the Act, dealing with joint debtors. Section 1199 concludes, "An execution against property issued upon such a judgment against joint debtors in which not all were summoned shall not be levied upon the sole property of such a defendant one not summoned; but it may be collected out of the real and personal property owned by him jointly with the other defendants who were summoned, or with any of them, and out of the real and personal property of the latter, or of any of them." These and many other New York cases affirm that if the personal property of the individual partner is sought to be reached, he must have been served. Cohn v. King, Sup.1918, 172 N.Y.S. 288, affirmed 187 App.Div. 969, 175 N.Y.S. 897; Mandell v. Moses, 3d Dept.1924, 209 App.Div. 531, 205 N.Y.S. 254, affirmed 239 N.Y. 555, 147 N.E. 192; Magovern v. Robertson, Sup.1891, 59 Hun 627, 14 N.Y.S. 114 affirmed 129 N.Y. 636, 29 N.E. 1031.

This is likewise the clear state of the law in Florida, from which this appeal comes and in which State Louis resides and presumably owns property exposed to a judgment lien or levy. Florida Brewing Company v. Sendoya, 1917, 73 Fla. 660, 74 So. 799; Thomas v. Nathan, 1913, 65 Fla. 386, 62 So. 206; First Nat. Bank of Orlando v. Greig, 1901, 43 Fla. 412, 31 So. 239.

We think these principles have direct application here. For an administrative proceeding before the Renegotiation Board is substantially the same as a court suit brought against the entities. And the civil action commenced by the Government in the District Court of Florida against Louis and others is substantially the same as ancillary proceedings for satisfaction of the court judgment out of the individual assets of a partner.

Of course, Congress did not require that the notice, see note 1, supra, be addressed and served on each partner of the contractor if the contractor was a partnership. The Act, much like Section 222-a of the New York Civil Practice Act, and see also F.R.Civ.P. rule 17(b), 28...