Long v. Baldt

• Citation: 464 F. Supp. 269
• Decision Date: 25 January 1979
• Docket Number: Civ. A. No. 77-2415.
• Parties: Maynard B. LONG and Walter W. Long, Plaintiffs, v. Carl B. BALDT and John J. DeLuca, Defendants.
• Court: U.S. District Court — District of South Carolina

464 F. Supp. 269

Maynard B. LONG and Walter W. Long, Plaintiffs, v. Carl B. BALDT and John J. DeLuca, Defendants.

Civ. A. No. 77-2415.

United States District Court, D. South Carolina, Columbia Division.

January 25, 1979.

T. Alexander Beard, Camden, S. C., for plaintiffs.

Sherwood M. Cleveland, Columbia, S. C., William M. Wilson, Camden, S. C., for defendants.

ORDER

BLATT, District Judge.

This diversity action, charging multifaceted trust mismanagement, was commenced on December 14, 1977, by the filing of the summons and complaint. The defendant trustees moved on January 3, 1978, to dismiss for lack of personal jurisdiction, and, thereafter, extensive jurisdictional discovery was undertaken. After a preliminary hearing on May 9, 1978, the court heard oral argument on the motion to dismiss on November 15, 1978, following which the court directed the defendants to provide certain additional information concerning the activities of the defendants within South Carolina. This information was received on January 6, 1979, and the motion is now ripe for determination.

THE CASE

Plaintiffs are presently the income beneficiaries of a Delaware trust set up in 1965 by Mary W. Dupont for her children — (plaintiffs herein) — said trust being primarily funded by (1) income from stock in the Wooten Corporation, and, (2) payments on a mortgage on South Carolina realty held by the trust. The defendant trustees, by virtue of the transfer to the trust of Wooten Corporation stock, became controlling stockholders in that corporation and are officers and members of the Board of Directors and the Executive Committee of that corporation. Plaintiffs allege that the defendants have mismanaged the trust in many respects, the most important being:

1. Permitting the Wooten Corporation to become insolvent — (thereby "gutting" the trust) — by failing to exercise their powers as controlling stockholders-directors-officers to prevent the corporation president from misusing corporate funds.

2. Failing to require the Wooten Corporation to redeem quarterly a portion of the trust's stock as provided by the corporate stock issue, thereby depriving the trust of income.

3. Loaning trust funds to the Wooten Corporation when the trustees, as directors of the Wooten Corporation, knew or should have known that there was no reasonable prospect that the Wooten Corporation could ever repay the sums advanced.

4. Purchasing for the trust a note and mortgage of the Wooten Corporation on real property situated in South Carolina at a time when the corporation was in default on the note payments and had no reasonable prospect of repaying the loan.

THE MOTION

For the present, the court is not concerned with the merits of the plaintiffs' case; rather the court must deal with defendants' contention that this court has no personal jurisdiction over them because:

1. There is no trust property located in South Carolina.

2. If there is trust property in South Carolina, the assertion of jurisdiction over the defendants based solely on the presence of trust property in South Carolina is unconstitutional.

3. The defendants do not have the requisite "minimum contacts" with South Carolina.

At the outset, the court notes that while plaintiffs originally asserted South Carolina Code § 15-9-440 (1976) — (presence of trust property in South Carolina) — as their sole basis of personal jurisdiction over the defendants, they have, after inquiry by the court at oral argument, also urged the propriety of personal jurisdiction under South Carolina Code § 36-2-803 (1976) — (personal jurisdiction based upon conduct).¹ The court will examine these separate but related bases of jurisdiction below.

Code Section 15-9-440(3) provides:

"Service on nonresident trustee when there is no resident trustee. — When there is no resident trustee, the nonresident trustee of an inter vivos trust shall be deemed to have consented to the service of any summons, notice, or other legal process in connection with any proceeding in the courts of this State involving such trust, directly or indirectly, when served upon the Secretary of State, when the trust was created under the laws of this State or, in the case of a foreign trust, when part of the trust property is situated in this State."

As the section makes clear, the critical non-constitutional inquiry in applying this section to a foreign trust is to determine if "part of the trust property is situated in this State." Of course, it is also essential that assertion of jurisdiction on this basis not offend traditional notions of fair play and substantial justice.²International Shoe Co. v. Washington, 326 U.S. 310, 311, 66 S.Ct. 154, 90 L.Ed. 95 (1945). As the Supreme Court recently made clear:

". . . all assertions of state court jurisdiction must be evaluated according to the standards set forth in International Shoe and its progeny." (footnote omitted). Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 2584-5, 53 L.Ed.2d 683 (1977).

Since Shaffer, all assertions of jurisdiction must be examined for the presence of "minimum contacts," whether the plaintiff seeks through those contacts a judgment in personam, quasi-in rem, or in rem. (Id. at 2583 n. 23). It is clear after Shaffer that, standing alone, the presence of trust property in South Carolina would not support jurisdiction in an action unrelated to that property, where the "only role played by the property is to provide the basis for bringing the defendant into court" (97 S.Ct. at 2583). With this brief background, the facts of this case may be examined to see if they compel jurisdiction in this action.

The court first faces the state law question of whether the trustees, as legal owners of all trust property, actually have any "trust property" in South Carolina. As one example of "trust property situated in South Carolina," the plaintiffs contend that, since the defendants as trustees own a majority of the stock of Wooten Corporation — (which admittedly owns a warehouse in Greenville, South Carolina) — the trustees thereby, in effect, own the warehouse. However, in this case, it is the trustees who are being sued for activities connected with the trust; no suit against the Wooten Corporation is involved here. While it is probable that the Wooten Corporation could be sued in South Carolina in an action involving the Greenville warehouse, it is less clear that stockholders of the corporation can be haled before South Carolina courts on an unrelated cause of action by third parties not connected with the corporation solely because the trustees own stock in the corporation. If such an action could be maintained, a stockholder of a large corporation doing interstate business could be sued on unrelated causes of action in every state in which the corporation owned property because the stockholder would be held to be the "owner" of a portion of that property. Happily, the court is not required to determine the validity of this tenuous extension of the "property" concept because the record reveals that the trust does own property in South Carolina in the form of a mortgage executed by the Wooten Corporation on property situated in Greenville, South Carolina. In Ex parte Johnson, 147 S.C. 259, 145 S.E. 113, 121 (1929), it is said that "a mortgage does not convey any legal estate to the mortgagee, yet such mortgagee has an equitable interest which should be protected;" and in Lott v. Claussens, Inc., 251 S.C. 478, 163 S.E.2d 615, 617 (1968), the South Carolina Supreme Court held that the defendant's right to display its bread on bread racks owned by a baking council, of which defendant was a member and to which it contributed funds, was a valuable right rising to a "property" right. The court, therefore, found that the defendant "owned property" in the county where the bread racks were located, for the purposes of jurisdiction over the non-resident defendant corporation. In reaching its conclusion, the court stated:

"The term `property' is, in law, a generic term of extensive application. It is a term of large import, of broad and exceedingly complex meaning, of the broadest and most extensive signification, a very comprehensive word, and is the most comprehensive of all terms which can be used. The term is often called `nomen generalissimum,' and is employed to signify any valuable right or interest protected by law, and the subject matter or things in which rights or interest exist." 251 S.C. at 481, 163 S.E.2d at 617 (emphasis added)

Based on the liberal construction by the South Carolina Supreme Court given to the meaning of "property" in the state, this court holds that the trustees, as legal owners of the property of the trust, by virtue of the ownership of a mortgage on South Carolina real estate actually have an ownership interest in property situated in South Carolina. Additionally, the record reflects that the Wooten Corporation, a South Carolina corporation, owes the trust substantial sums of money. The South Carolina Supreme Court has held that a debt is property subject to attachment in the state, Howard v. Allen, 254 S.C. 455, 176 S.E.2d 127, 128 (1970).³ The court alternately finds that this debt of the Wooten Corporation is property of the trust situated in this state since the debtor is situated here.

This conclusion, however, only begins the inquiry because the court must now analyze the operation of § 15-9-440(3) (1976) in this case to determine whether an assertion of jurisdiction on the basis of the presence of this "property" in the state provides adequate "minimum contacts" with this state. Since Shaffer v. Heitner is important to the inquiry here, it will be analyzed in some detail. Plaintiff in Shaffer, a disgruntled shareholder of the Greyhound Bus Corporation, sued the corporation, its directors and officers in a Delaware state court for mismanagement. To support jurisdiction against the individual defendants, who had never "set foot in Delaware," 97 S.Ct. at...