Eure v. NVF Co.

• Decision Date: 21 September 1979
• Docket Number: No. 79-470-Civ.-5.,79-470-Civ.-5.
• Citation: 481 F. Supp. 639
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Thad EURE, Secretary of State of the State of North Carolina and Huyck Corporation v. NVF COMPANY, Security Management Corporation and Victor Posner

481 F. Supp. 639

Thad EURE, Secretary of State of the State of North Carolina and Huyck Corporation v. NVF COMPANY, Security Management Corporation and Victor Posner

No. 79-470-Civ.-5.

United States District Court, E. D. North Carolina, Raleigh Division.

September 21, 1979.

Thomas F. Moffitt, Asst. Atty. Gen., North Carolina Dept. of Justice, Raleigh, N. C., for plaintiff Secretary of State.

Henry A. Mitchell, Jr., Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, Raleigh, N. C., Wachtell, Lipton, Rosen & Katz, New York City, for plaintiff-intervenor Huyck Corp.

E. Lawrence Davis, Womble, Carlyle, Sandridge & Rice, Winston-Salem, N. C., Shearman & Sterling, New York City, for defendants.

MEMORANDUM OF DECISION

DUPREE, Chief Judge.

The North Carolina Secretary of State, Thad Eure, brought this action on July 11, 1979 in Wake County Superior Court in order to enforce the defendants' compliance with the Tender Offer Disclosure Act, N.C. G.S. § 78B-1, et seq., in the course of purchasing Huyck Corporation common stock. Preliminary injunctive relief was sought and Huyck Corporation moved to intervene as a party-plaintiff.

The defendants removed the action to this court on August 10, 1979 pursuant to 28 U.S.C. § 1441 Jurisdiction is predicated upon 28 U.S.C. §§ 1332 (diversity), 1331(a) (federal question), 1337 (federal commerce statutes) and 1343(3) and (4) (deprivation of privileges and immunities secured by the Constitution). Defendants contend they are exempted from compliance with the Act and that, in any event, the Act violates the supremacy and commerce clauses of the Constitution. The Secretary has moved to remand and the court conducted a hearing on the remand issues on September 11, 1979.

The court took the remand questions under advisement and in the interim (1) allowed Huyck Corporation to intervene, and (2) granted a temporary restraining order enjoining defendants from further purchases of Huyck stock until September 24, 1979. The court advised the parties it would rule on the remand question prior to expiration of the TRO and does so now.¹

Broadly speaking, a state action may be removed to federal court when the action could have been originally brought in federal court. Defendants cite several bases for federal subject matter jurisdiction upon which removal may be predicated.

Diversity. The defendants' reasoning in support of diversity jurisdiction is as follows: Defendant NVF Company is a Delaware Corporation with its principal place of business in Delaware. Defendant Security Management Corporation is a Maryland Corporation with its principal place of business in Florida. Plaintiff Thad Eure is a citizen of North Carolina. Plaintiff Huyck is a New York Corporation with its principal place of business in North Carolina. Therefore, complete diversity exists.

Eure cannot be considered, however, in determining the diversity question. He brought this action pursuant to express statutory authority in his official capacity as Secretary of State. He has acted, in effect, as the alter ego of the state, and the state cannot be deemed a citizen for diversity purposes. Moore v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973).

Nor can Eure be considered a separate individual under the fiction developed in Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). The rationale of that case permitted the enjoining of unconstitutional acts by state officials, but it has no application to diversity jurisdiction. National Market Reports, Inc. v. Brown, 443 F.Supp. 1301, 1305 n.7 (S.D.W.Va.1978). In so holding, this court follows the line of cases which have rejected the reasoning of State of Ohio ex rel. Seney v. Swift & Company, 270 F. 141 (6th Cir. 1921), cert. denied, 257 U.S. 633, 42 S.Ct. 47, 66 L.Ed. 407, appeal dismissed, 260 U.S. 146, 43 S.Ct. 22, 67 L.Ed. 176 (1922), and limiting that case to its peculiar facts. E. g., Brown, supra; Olsen v. Doerfler, 225 F.Supp. 540 (E.D.Mich.1963); and State Tax Commission v. Union Carbide Corporation, 386 F.Supp. 250, 253 n. 7 (D.Idaho 1974).²

Assuming arguendo that the Seney reasoning is sound, however, the case still remains inapplicable. In Seney, the plaintiff state official did not, as the plaintiff here has done, sue pursuant to any express statutory authority. Moreover, the state laws originally sought to be enforced by the plaintiff were later determined not to be applicable to the remaining defendants' conduct. Seney, 260 U.S. at 148, 43 S.Ct. 22. The state official could therefore have been deemed an individual without resort to the Young fiction. In contrast, the state official in this case sues pursuant to express statutory authority and plaintiff argues that the North Carolina Act directly applies to defendants' conduct. Olsen, supra.

Defendants argue two other exceptions to buttress their diversity argument. First, they contend that Huyck, and not the state, is this case's real party in interest and that Huyck alone can be considered in the diversity computation, citing Blease v. Safety Transit Company, 50 F.2d 852 (4th Cir. 1931). Blease involved a state official preventing a new bus company from doing business until it secured a "certificate of public convenience." The defendant bus company removed the action on the basis of diversity. The plaintiff was treated as an individual because he sued only on behalf of entrenched bus line competitors and not the state. Here, however, the Secretary of State represents far more than the adverse interests of entrenched Huyck management. He represents (a) Huyck stockholders, (b) the investing public interested in buying Huyck stock, (c) all members of the public interested in aboveboard dealings in the purchase of stock, and (d) the local economy, which may be adversely affected by a purchaser who might drain the assets of the target corporation. The Secretary therefore evidences a direct interest in this case, particularly in light of his sworn duty to execute North Carolina's corporation laws. See Comment, The North Carolina Tender Offer Disclosure Act: Congenitally Defective?, 14 W.F.L.Rev. 1035 (1978).

Defendants finally argue that even if Secretary Eure is considered to represent the state for diversity purposes, the intervention of Huyck Corporation after removal creates diversity. This argument is without merit. New Orleans v. Winter, 14 U.S. (1 Wheat.) 91, 94-95, 4 L.Ed. 44 (1816), applying, Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806).

In summation, the court concludes that diversity jurisdiction does not exist.³

Federal Question. Defendants contend in their petition for removal and answer that the North Carolina Tender Offer Act is void for it imposes an undue burden on interstate commerce and is preempted by the federal Williams Act. 15 U.S.C. §§ 781(l), 78m(d), (e), 78n(d)-(f) (1976).

The basis of federal question jurisdiction, however, must appear upon the face of the state court complaint, and it cannot be supplied by reference to the answer or petition. Gully v. First National Bank, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70 (1936). The instant complaint contains only allegations of non-compliance with the state Tender Offer Act. Accordingly, no federal question exists. Louisville & Nashville Railroad Company v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908). Nor does jurisdiction under 28 U.S.C. § 1337 exist. Carlson v. Coca-Cola Company, 483 F.2d 279 (9th Cir. 1973).

Defendants counter that the Gully "face of the complaint" test is not absolute. Citing State of New York v. Local 144, Hotel, Nursing Home and Allied Health Services Union, 410 F.Supp. 225 (S.D.N.Y.1976), and Rettig v. Arlington Heights Federal Savings & Loan Association, 405 F.Supp. 819 (N.D.Ill.1975), defendants contend that a complaint based upon state law preempted by federal legislation raises a federal question for jurisdictional purposes, regardless of whether the federal question appears on the face of the complaint. Defendants argue that the North Carolina Act is preempted by the Williams Act, and that consequently the complaint raises a federal question in a manner contemplated by Local 144 and Rettig. The result achieved would be desirable in that it would prevent a plaintiff from concealing a federal question in his complaint and thereby circumventing a defendant's right to have his case heard in a federal forum.

The benefit to be derived from such an exception to the usual rule, however, is outweighed by other considerations. For example, the state judges of North Carolina are just as capable of adjudicating the federal rights of these parties as this court. The defendants are not prejudiced, therefore, if preemption is regarded as merely a defense to the state law claim, and not as a ground for removal. Washington v. American League of Professional Baseball Clubs, 460 F.2d 654, 660 (9th Cir. 1972); Lowe v. Trans World Airlines, Inc., 396 F.Supp. 9, 12 (S.D.N.Y.1975); Marquette National Bank v. First National Bank of Omaha, 422 F.Supp. 1346, 1352-53 (D.Minn.1976), aff'd on appeal from state courts after federal court remand, 439 U.S. 299, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978); State of New York v. Local 1115, 412 F.Supp. 720, 723 (E.D.N.Y. 1976) criticizing Rettig, supra; Borzello v. Charles D. Sooy, 427 F.Supp. 332 (N.D.Cal. 1977) criticizing Local 144, supra. In addition, the exception would detract from the simplicity and ease of application of the Gully "face of the complaint" test. Judicial economy would be ill-served if the federal court should conclude that no basis for remand exists, but only after it has been first forced to make an in-depth exploration of the possibility of preemption. This court chooses instead to heed the warning of Justice Cardozo: "Courts have formulated the distinction between . . . disputes that are necessary and those that are merely possible. We shall be lost in a maze if we put that compass by." Gully...