INTERNATIONAL LADIES'GARMENT WKRS.'U. v. Shields & Co.

• Decision Date: 21 September 1962
• Citation: 209 F. Supp. 145
• Parties: INTERNATIONAL LADIES' GARMENT WORKERS' UNION and Joint Board of Cloak, Suit, Skirt and Reefer Makers' Unions, Plaintiffs, v. SHIELDS & COMPANY, Robert E. Schweser Company, Leonard L. Lawrence, and Parsons, Brinckerhoff, Quade & Douglas, Defendants.
• Court: U.S. District Court — Southern District of New York

209 F. Supp. 145

INTERNATIONAL LADIES' GARMENT WORKERS' UNION and Joint Board of Cloak, Suit, Skirt and Reefer Makers' Unions, Plaintiffs, v. SHIELDS & COMPANY, Robert E. Schweser Company, Leonard L. Lawrence, and Parsons, Brinckerhoff, Quade & Douglas, Defendants.

United States District Court S. D. New York.

September 21, 1962.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for plaintiffs. Jay H. Topkis, Gerald D. Stern, Allan Blumstein, New York City, of counsel.

Watters & Donovan, New York City, Gross, Welch, Vinardi & Kaufman, Omaha, Neb., for Robert E. Schweser Company and Leonard L. Lawrence. Edward V. Gross, Gerald E. Bodell, New York City, Walter C. Reid, Brooklyn, N. Y., of counsel.

DIMOCK, District Judge.

In this action based on allegedly false representations said to have been relied on in the purchase of $250,000 face amount of 4% Bridge Revenue Bonds of the Bellevue Bridge Commission (Nebraska), defendants Robert E. Schweser Company and Leonard L. Lawrence move to set aside the service of the summons on them and to dismiss the complaint for failure to state a claim on which relief can be granted.

The motion to set aside the service of the summons is based, in general, on the facts that it was not served within the state of New York and that the action involves bonds of a public agency and thus is not within provisions of law permitting extraterritorial service.

The motion to dismiss the complaint is based upon the ground (1) that the right of action asserted is statutory and that the statute does not apply to bonds of a public agency and (2) that plaintiffs claim only as assignees of the purchaser who relied on the allegedly false statements and that the right of action by the purchaser who thus relied is not assignable.

The Motion to Set Aside Extraterritorial Service

The complaint contains two separately stated "causes of action". The first states in paragraph 1:

"This action arises under § 17(a) of the Securities Act of 1933, 15 U. S.C. § 77q, and under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j and Rule X-10B-5 promulgated by the Securities and Exchange Commission thereunder, as hereinafter more fully appears."

The second "cause of action" realleges every paragraph of the first except the above quoted paragraph 1 and adds two paragraphs which do not invoke special statutory provisions.

We thus have an obviously deliberate attempt to pursue a right of action based on a federal statute and another based solely on common law. Whatever might have been the law prior to the adoption of the Federal Rules of Civil Procedure, the citation of statutes is proper in pleading. See for example Form 2 of the forms of pleading annexed to the Rules.

One of the statutes cited in the "first cause of action" is the Securities Exchange Act of 1934. Section 27 of that act provides that in a suit to enforce liability under it the summons may be served wherever the defendant may be found. 15 U.S.C. § 78aa. The act creates liability with respect to sales of bonds, even though they be bonds of public instrumentalities of a state, and process in suits to enforce liability with respect to sales of such bonds may be served extraterritorially. Baron v. Shields, D.C.S.D.N.Y., 131 F.Supp. 370, 1954; Greenwich Savings Bank v. Shields, D.C. S.D.N.Y., 131 F.Supp. 368, 1955; Thiele v. Shields, D.C.S.D.N.Y., 131 F.Supp. 416, 1955.

Service was therefore proper insofar as the assertion of the federal right of action is concerned.

The assertion of the common law right of action does not enjoy the benefit of any express statutory permission for extraterritorial service. If extraterritorial service is to be permitted it must be because of its assertion in the same suit as the federal right of action. Can a plaintiff obtain this advantage for a common law right of action by the simple expedient of asserting it in the same suit with a federal right of action which a statute says may be enforced by extraterritorial service?

The first question is whether the common law right of action may be asserted at all in the federal court. That question was long ago answered in the affirmative by Hurn v. Oursler, 289 U.S. 238, 53 S.Ct. 586, 77 L.Ed. 1148, which involved rights of action based on copyright infringement and unfair competition. There Mr. Justice Sutherland said, p. 246, 53 S.Ct. p. 589:

"The distinction to be observed is between a case where two distinct grounds in support of a single cause of action are alleged, one only of which presents a federal question, and a case where two separate and distinct causes of action are alleged, one only of which is federal in character. In the former, where the federal question averred is not plainly wanting in substance, the federal court, even though the federal ground be not established, may nevertheless retain and dispose of the case upon the non-federal ground; in the latter it may not do so upon the non-federal cause of action.

"The case at bar falls within the first category. The bill alleges the violation of a single right, namely, the right to protection of the copyrighted play. And it is this violation which constitutes the cause of action."

This jurisdiction of a common law right of action, which the federal court possesses under the rule of Hurn v. Oursler when it is asserted with a federal right of action to vindicate a violation of the same right, has come to be called "pendent". The theory has been refined by the adoption of the Federal Rules of Civil Procedure which abolished the term "cause of action" and, to express the conception expressed by Mr. Justice Sutherland by "cause of action", substituted the word "claim".

In a case like Hurn v. Oursler the subject matter is a single claim although there are two rights of action created by different sovereignties. The federal court, having been given jurisdiction of the claim, has jurisdiction of the whole subject matter, and, provided it can obtain jurisdiction over the person of the defendant as to the rights of action involved, can enforce both rights of action.

In the instant case the complaint charges the violation of a single right, i. e. the right that there should be no misrepresentation by the seller in connection with a certain sale of securities. This court has, therefore, pendent jurisdiction of the subject matter including both the federal and the common law rights of action.

The next question is whether the doctrine of pendent jurisdiction should be extended to include pendent jurisdiction of the person. By the Securities Exchange Act Congress made unlawful certain practices in the nature of misrepresentation and in substance empowered the District Courts to entertain suits based on the commission of those unlawful acts. It is only as to those suits that Congress authorized extraterritorial service. Ought the courts to extend this congressional authorization so as to cover rights of action which are based not on the commission of acts made unlawful by Congress but on the commission of acts made unlawful by state law?

To extend the rule of pendent jurisdiction to jurisdiction over the person calls into play different considerations. The doctrine of Hurn v. Oursler flows of necessity from the conception that there is but a single claim where a single right has been violated. Where the subject matter is a single claim and the court has jurisdiction of the claim it has jurisdiction of the whole subject matter. As we see here, however, there may be plural rights of action to enforce a single claim. As far as the court's jurisdiction of the subject matter is concerned, it has jurisdiction to enforce all...