Leftcourt Realty Corp. v. Sands

• Decision Date: 21 April 1955
• Citation: 35 Del.Ch. 164,113 A.2d 428
• Parties: . Harry SANDS and Irene Sands, Defendants. Court of Chancery of Delaware, New Castle County
• Court: Court of Chancery of Delaware

Page 428

113 A.2d 428

35 Del.Ch. 164

LEFTCOURT REALTY CORPORATION Plaintiff, v. Harry SANDS and Irene Sands, Defendants.

Court of Chancery of Delaware, New Castle County.

April 21, 1955.

Richard F. Corroon (of Berl, Potter & Anderson), Wilmington, and Charles L. MacDonald (of Lewis & MacDonald), New York City, for plaintiff.

H. James Conaway, Jr. (of Morris, James, Hitchens), Wilmington, and Manuel Maxwell, New York City, for defendants.

MARVEL, Vice Chancellor.

Plaintiff, a Delaware corporation, charges in its complaint that the defendant, Harry Sands, while one of plaintiff's directors, violated his fiduciary duty to plaintiff by secretly sharing in profits realized through the purchase of real estate from plaintiff's wholly owned subsidiary. Mrs. Sands, the other defendant, is charged with conspiring with her husband in the alleged breach of his fiduciary duty to plaintiff. The complaint seeks an accounting.

Defendants are residents of Florida, and not being amenable to personal service in Delaware have been ordered to appear and were served as provided for in § 366 of Title 10, Delaware Code. Stock held by defendants in the plaintiff corporation has been seized by a sequestrator. Defendants have not entered a general appearance, nor have they filed a motion under Rule 12, Rules of Court of Chancery, Del.C.Ann., attacking the jurisdiction of the Court. Rather they seek leave to appear for the purpose of contesting plaintiff's claim, asking that their liability, if any, be limited to the value of the property seized by the sequestrator.

This latter type of appearance was allowed in Cheshire National Bank v. Jaynes, 224 Mass. 14, 112 N.E. 500, a case decided under the Massachusetts attachment statute; also in Salmon Falls Manufacturing Co. v. Midland Tire & Rubber Co., 6 Cir., 285 F. 214, a case removed from an Ohio State court and decided under the Ohio statute, and in a number of other federal decisions involving seizures made under what is now § 1655 of the United States Revised Judicial Code, 28 U.S.C.A. The Restatement of the Law, Judgments, § 40, also approves of such a limited appearance in that it permits a non-resident defendant to avoid the dilemma normally presented in foreign attachment, that of either submitting personally to a foreign court or forfeiting the seized property without a battle. ¹

In Delaware, in the case of Kaiser-Frazer Corp. v. Eaton, 7 Terry 509, 85 A.2d 752, in which property of the defendants was attached at law under § 3531 of Title 10 Delaware Code, the defendants sought leave to appear and defend on the same limited basis on which the present defendants wish to litigate. The Court denied the application, holding that under the statute ² only two types of appearance may be made, a special appearance to raise jurisdictional objections and a general appearance constituting a submission to the Court.

There is no precedent in this Court for the type of appearance defendants wish to make. The statute, § 366, states that the Court may make an order directing a non-resident defendant to 'appear', and authorizes the Court to 'compel the appearance of the defendant' by seizure of his property in Delaware. The statute also provides that property so seized may be sold under Court order to pay plaintiff's demand, 'if the defendant does not appear'. Nowhere in the statute is there any direct or indirect reference to a special appearance, but there is no doubt but that such an appearance may be entered in actions under § 366 for the purpose of attacking jurisdiction, E. M. Fleischmann Lumber Corp. v. Resources Corp. International, Del.Ch., 98 A.2d 506.

In the case of Blaustein v. Standard Oil Co., 4 Terry 516, 51 A.2d 568, 571, in which a defendant's property was attached at law, the Supreme Court of Delaware held that in foreign attachment as in other cases, under general rules of law, 'a defendant may challenge the court's jurisdiction under a special appearance', although such an appearance is not expressly mentioned in the statute. Compare Kaiser-Frazer Corp. v. Eaton, supra. The normal function of a special appearance is to attack jurisdiction, Syracuse Trust Co. v. Keller, 5 W.W.Harr. 304, 165 A. 327.

In making the pending application, however, defendants necessarily do not raise any question as to the Court's jurisdiction. The question remains, therefore, does § 366 offer a middle way, permitting a defendant whose property is attached to contest the merits of plaintiff's claim, and if unsuccessful, to have liability limited to the value of the seized property?

In Massachusetts, where such an appearance was permitted in Cheshire National Bank v. Jaynes, supra [224 Mass. 14, 112 N.E. 501], the Supreme Judicial Court of Massachusetts held that in a suit on a contract against a citizen of Connecticut, on whom personal service was not made, the Massachusetts attachment statute ³ did not compel the non-resident to appear generally in order to protect the seized property. The Court ruled that the attachment statute itself and the sections of the same chapter having to do with notice did not have the purpose of compelling a non-resident defendant to appear generally 'if he appears at all'. The Court quoted from the early case of Bissel v. Briggs, 9 Mass. 462, 6 Am.Dec. 88, in support of a policy against compelling a non-resident by attachment to appear generally:

"It would be unreasonable to oblige any man living in one state, and having effects in another state, to make himself amenable to the courts of the last state, that he might defend his property there attached."

The background and specific language of the Delaware equitable attachment statute evidence a legislative intent directly opposed to that found to exist in the Massachusetts statute. The precursor to § 366 of Title 10 Delaware Code was enacted in 1927 and created a remedy in the Court of Chancery analogous to foreign attachment at law, Greene v. Johnston, Del., 99 A.2d 627. Such a remedy had been found not to exist in the statute governing in rem actions, ⁴ § 3850, Revised Code, 1915, Skinner v. Educational Pictures, 14 Del.Ch. 417, 129 A. 857, which case also held that sequestration to compel appearance under existing Chancery practice must be premised on personal service. In Wightman v. San Francisco Bay Toll-Bridge Co., 16 Del.Ch. 200, 142 A. 783, 784, decided after the 1927 amendment, the Chancellor noted that the seizure of property under the amendment 'is for the purpose of compelling an appearance in the first instance'. In Cantor v. Sachs, 18 Del.Ch. 359, 162 A. 73, 77, Chancellor Wolcott again commenting on the 1927 amendment stated:

'If such seizure be accomplished, the action then is turned into an action in the nature of a proceeding in rem. The judgment finally entered, though in form a personal one, is nevertheless effective, in the absence of the appearance of the defendant, only to the extent that the seized property is capable of satisfying it.'

The Supreme Court of Delaware has held that the sole primary purpose of present § 366 is to compel the appearance of a non-resident, Loft, Inc., v. Guth, 25 Del.Ch. 363, 19 A.2d 721. See also E. M. Fleischmann Lumber Corp. v. Resources Corp. International, supra. In view of the unambiguous language of § 366 and the manner in which it has been interpreted and applied by this Court with the approval of the Supreme Court of Delaware, I am unable to find any basis for the type of appearance here sought to be made by defendant. I believe that the cases in other jurisdictions permitting such a limited appearance are distinguishable.

Turning to the state decisions, it appears that the result reached by the Massachusetts court in Cheshire National Bank v. Jaynes, supra, was premised, as noted above, on a finding as to legislative intent directly at odds with that found in the Delaware statute. In Salmon Falls Manufacturing Co. v. Midland Tire & Rubber Co., supra , the Court was of the opinion that the Massachusetts statute interpreted in the Cheshire case was 'not so different in principle from the Ohio statute as to make the court's reasoning on that score inapplicable.

The case of Miller Bros. Co. v. State, 201 Md. 535, 95 A.2d 286, in which an appearance such as the present defendants seek to make was permitted, cites as authority § 40 of The Restatement of the Law, Judgments. § 40 after expressing its disapproval of compelling a general appearance in attachment or garnishment states (at p. 154)

'If, however, by the law of the State--in which the action is brought it is provided that if the defendant in a proceeding begun by attachment or garnishment enters an appearance for the purpose of contesting the validity of the plaintiff's claim he thereby subjects himself personally to the jurisdiction of the court, such a provision is not unconstitutional as in violation of the Fourteenth Amendment of the Constitution of the United States.'

The suit in the cited case was brought...