Odette v. Shearson, Hammill & Co., Inc.

• Decision Date: 24 March 1975
• Docket Number: 72 Civ. 4779,No. 72 Civ. 4930,73 Civ. 1461 and 74 Civ. 1800.,72 Civ. 4930
• Citation: 394 F. Supp. 946
• Parties: Edward E. ODETTE, Plaintiff, v. SHEARSON, HAMMILL & CO., INCORPORATED, Defendant and Third-Party Plaintiff, v. NATIONAL BANK OF NORTH AMERICA, Third-Party Defendant. Renee SLADE, Plaintiff, v. SHEARSON, HAMMILL & CO., INCORPORATED, Defendant and Third-Party Plaintiff, v. NATIONAL BANK OF NORTH AMERICA, Third-Party Defendant. COMPASS BANK AND TRUST COMPANY, LIMITED and Northwestern National Bank of Minneapolis, Plaintiffs, v. SHEARSON, HAMMILL & CO., INCORPORATED, Defendant and Third-Party Plaintiff, v. NATIONAL BANK OF NORTH AMERICA, Third-Party Defendant. Stephen E. FELDMAN, Plaintiff, v. SHEARSON, HAMMILL & CO., INCORPORATED, Defendant and Third-Party Plaintiff, v. NATIONAL BANK OF NORTH AMERICA, Third-Party Defendant.
• Court: U.S. District Court — Southern District of New York

394 F. Supp. 946

Edward E. ODETTE, Plaintiff, v. SHEARSON, HAMMILL & CO., INCORPORATED, Defendant and Third-Party Plaintiff, v. NATIONAL BANK OF NORTH AMERICA, Third-Party Defendant.

Renee SLADE, Plaintiff, v. SHEARSON, HAMMILL & CO., INCORPORATED, Defendant and Third-Party Plaintiff, v. NATIONAL BANK OF NORTH AMERICA, Third-Party Defendant.

COMPASS BANK AND TRUST COMPANY, LIMITED and Northwestern National Bank of Minneapolis, Plaintiffs, v. SHEARSON, HAMMILL & CO., INCORPORATED, Defendant and Third-Party Plaintiff, v. NATIONAL BANK OF NORTH AMERICA, Third-Party Defendant.

Stephen E. FELDMAN, Plaintiff, v. SHEARSON, HAMMILL & CO., INCORPORATED, Defendant and Third-Party Plaintiff, v. NATIONAL BANK OF NORTH AMERICA, Third-Party Defendant.

Nos. 72 Civ. 4930, 72 Civ. 4779, 73 Civ. 1461 and 74 Civ. 1800.

United States District Court, S. D. New York.

March 24, 1975.

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R. Alan Stotsenburg, New York City, for plaintiff Odette.

Mordecai Rosenfeld, New York City, for plaintiff Slade.

Cleary, Gottlieb, Steen & Hamilton by Edwin B. Mishkin, New York City, for plaintiffs Compass Bank & Trust Co., Ltd. and Northwestern National Bank of Minneapolis.

David B. S. Cohen, New York City, for plaintiff Feldman.

Dewey, Ballantine, Bushby, Palmer & Wood by Russel H. Beatie, Jr., New York City, for defendant Shearson, Hammill & Co., Inc.

Olwine, Connelly, Chase, O'Donnell & Weyher by John Logan O'Donnell, New York City, for third-party defendant National Bank of North America.

OPINION

ROBERT L. CARTER, District Judge.

Defendant Shearson, Hammill & Co., Inc. (Shearson) has filed third-party complaints for indemnification against National Bank of North America (NBNA) in the three class actions¹ and the related individual action² in which Shearson is alleged to have violated the fraud provisions of the federal securities laws. Third-party defendant NBNA has moved pursuant to Rules 14(a) and 12(b), F.R.Civ.P., for an order dismissing the third-party complaints on grounds of improper venue and failure to state a claim on which relief can be granted. These motions are denied.

Shearson has also moved to consolidate the class action, Feldman v. Shearson, Hammill & Co., Inc., with the Slade and Odette actions which were previously consolidated. That motion is granted.

The principal complaints in all four actions allege that Shearson sold securities of Tidal Marine International Corp. (Tidal) and one of its shipping subsidiaries while in possession of material, adverse information about Tidal. In its third-party complaints, Shearson seeks indemnification from NBNA for any liability that may be imposed on it in these actions.

Venue is Proper in the Southern District of New York

Shearson's third-party complaints assert that venue is properly laid in this district under both Section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa, and the general federal question venue statute, 28 U.S.C. § 1391(b).

On this motion, however, NBNA contends that under the venue provision of the National Bank Act, 12 U.S.C. § 94, which it claims is controlling in this case, venue is proper only in the Eastern District of New York. The statutory provision in question provides that a federal court action may be brought against a national bank only in the federal district in which it is "established":

"Actions and proceedings against any association under this chapter³ may be had in any district or Territorial court of the United States held within the district in which such association may be established * * *."

It is settled that "a national bank is `established,' within the meaning of Section 94 * * * only in the federal district encompassing the location specified in its charter citations omitted." General Electric Credit Corp. v. James Talcott, Inc., 271 F.Supp. 699, 703 (S.D.N.Y.1966) (Emphasis added). A bank does not become established in every district in which it has a branch bank. Leonardi v. Chase National Bank of City of New York, 81 F.2d 19, 22 (2d Cir.), cert. denied, 298 U.S. 677, 56 S.Ct. 941, 80 L.Ed. 1398 (1936).

NBNA's charter states that its "main office" is in Queens, thus showing that it is established in the Eastern District of New York. Therefore, NBNA argues, suit may be maintained against it only in that district.

NBNA also contends, and the court agrees, that the broad venue provision of § 27 of the Exchange Act is not to be construed to supersede § 94. The Second Circuit so held in reaffirming "with regret"⁴ the primacy of "the special and exceedingly narrow venue provisions" of § 94 which may, in some cases, render it inconvenient or impossible to compel national banks to account for their misdeeds in securities transactions, Bruns, Nordeman & Co. v. American National Bank & Trust Co., 394 F.2d 300, 301 (2d Cir.), cert. denied, 393 U.S. 855, 89 S.Ct. 97, 21 L.Ed.2d 125 (1968); Klein v. Bower, 421 F.2d 338, 342 (2d Cir. 1970); contra, Ronson Corporation v. Liquifin Aktiengesellschaft, 483 F.2d 852 (3d Cir. 1973).

Apparently acknowledging that § 94 would ordinarily be controlling, Shearson contends that NBNA has, nevertheless, waived the venue defense by prior acts inconsistent with its present effort to retreat across the East River.

Shearson first argues that NBNA has "generally" waived the statute by extensive commercial banking, branch banking and public advertising in the Southern District. In support of its argument, Shearson presents several NBNA and trade publications which show that NBNA's principal headquarters, some 76 per cent of its major divisions, and 27 full service branches are located in New York and Westchester counties.

However appealing Shearson's argument may be, there is no authority in this circuit to support its theory of a "general waiver" through full service banking. Moreover, in Helco, Inc. v. First National City Bank, 470 F.2d 883, 885 (3d Cir. 1972), the Third Circuit held that a New York City Bank did not waive the venue defense as to federal court actions brought in the Virgin Islands by establishing a single branch there.

It is true that the instant case may be distinguished from Helco, since here the asserted waiver is based on the operation of many branches at only a short distance from the main office. Moreover, as in Reaves v. Bank of America, 352 F.Supp. 745 (S.D.Cal.1973), the policy of § 94 to avoid undue disruption of national bank operations would not be materially advanced by permitting NBNA to defend this action in the Eastern District, rather than the Southern District where so much of its business is conducted.

However, in the absence of more persuasive authority than Reaves v. Bank of America, supra, I hesitate to base a finding of waiver on NBNA's "full service" banking in the Southern District.

The second ground on which Shearson asserts that NBNA has waived the protection of § 94 is that it has failed to raise the venue defense in prior litigation. Shearson cites seven cases now pending before this court and three cases decided in the last six years by the New York State Supreme Court Appellate Division for the First Department in which NBNA appeared as a defendant but failed to raise the venue defense.⁵

However, neither this court nor the Court of Appeals has considered whether a party's failure to raise a venue defense in prior litigation may constitute a waiver.⁶ This court has decided only the issue of whether failure to make a timely objection to venue during a particular litigation waived the defense as to that litigation. Altman v. Liberty Equities Corp., 322 F.Supp. 377, 379 (S.D.N.Y.1971); see also Exchange National Bank of Chicago v. Abramson, 45 F.R.D. 97, 105-106 (D.Minn.1968).

In the absence of some authority of this court or circuit, I am disinclined to hold that NBNA's conduct during prior litigation is dispositive of the venue issue.

Shearson's third argument is that a bank should be held to have waived venue "specifically" where its banking activities in a particular district give rise to the cause of action sub judice. In the instant case, NBNA's commercial loan business, including the Ship Loan Department which allegedly committed the fraud, is located exclusively in the Southern District of New York.

Although I agree with the logic of Shearson's argument, there is again no authority beyond the Reaves case, supra, to support it. I am reluctant to rest decision on this slender reed — particularly since somewhat firmer authority is at hand which seems to call for the rejection of NBNA's venue defense.

Shearson fails to make what I regard as the strongest and most conclusive argument in support of its position. There is a line of authorities holding that if venue is properly laid in the principal action, a third-party defendant impleaded under Rule 14(a) may not successfully raise the defense that venue would be improper in an original action by the third-party plaintiff against the third-party defendant. As Professor Moore has written:

"With a few exceptions, especially in the earlier decisions, the weight of authority supports the view herein advocated: the third-party defendant has no objection based on venue." 3 Moore's Federal Practice ¶ 14.282. (footnotes omitted)

The courts have held that the reasoning which supports ancillary subject matter jurisdiction over a third-party claim also supports ancillary venue. McGonigle v. Penn-Central Transportation Co., 49 F.R.D. 58, 60 (D.Md.1969); 6 C. Wright and A. Miller, Federal Practice and Procedure § 1445. Specifically, the purpose of the Federal Rules is to "simplify and expedite procedure." Consistent with this, "the purpose of Rule 14 was to accomplish in one proceeding the adjudication of the rights of all persons concerned in the controversy * * *." United States v. Acord, 209 F.2d 709, 712 (10th Cir.), cert. denied, 347 U.S. 975, 74 S.Ct. 786, 98 L.Ed. 1115 (1954). As this court said in one of its earliest decisions...