Ortman v. Coane

• Decision Date: 08 April 1943
• Docket Number: 52.
• Parties: ORTMAN v. COANE et al.
• Court: Maryland Court of Appeals

31 A.2d 320

181 Md. 596

ORTMAN v. COANE et al.

No. 52.

Court of Appeals of Maryland

April 8, 1943

Appeal from Circuit Court No. 2 of Baltimore City; J. Craig McLanahan, Judge.

Action by Frank J. Ortman against Irwin M. Coane and the American Distilling Company, a corporation, to have all stock of the defendant corporation owned or held by the individual defendant impressed with a trust in favor of plaintiff to the end that the defendant Coane be decreed to have no right to bring a stockholder's derivative suit on behalf of the corporation and against its officers and directors. From a decree dismissing the complaint as to the defendant Coane plaintiff appeals.

Affirmed.

Walter H. Buck and Eben F. Perkins, both of Baltimore, for appellant.

Enos S Stockbridge, of Baltimore (Mullikin, Stockbridge & Waters, of Baltimore, on the brief), for appellees.

Before SLOAN, C.J., and DELAPLAINE, COLLINS, MARBURY, GRASON MELVIN, and ADAMS, JJ.

COLLINS Judge.

The appellant, plaintiff, Frank J. Ortman, filed a bill of complaint in Circuit Court No. 2 of Baltimore City against the appellees, Irwin M. Coane and the American Distilling Company, a Maryland corporation. The bill of complaint is as follows:

'1. That on or about July 17, 1941, the plaintiff acting through another, acquired, pursuant to a written agreement, from the defendant, Irwin M. Coane, the said defendant being then a resident of the State of New York, for a valuable consideration, each and every claim, right or assertable right, action, or cause of action, of any and every kind and nature which the said defendant had by reason of his stock ownership or otherwise against or through the American Commercial Alcohol Corporation and The American Distilling Company, Maryland corporations, and/or each and every of the officers, directors, employees and stockholders of either or both thereof, and thereby became the owner of all of the foregoing property and rights therein.

'2. That notwithstanding the said agreement, but in clear violation of the terms thereof, the said Coane as a stockholder of The American Distilling Company has recently filed in the Supreme Court of the State of New York, County of New York, a so-called derivative action against the American Distilling Company and certain of its officers and directors, purporting to sue on his own behalf and on behalf of stockholders similarly situated, and on behalf of and in the right of the said The American Distilling Company.

'3. That by reason of the wrongful action aforesaid of the defendant, Irwin M. Coane, the plaintiff is advised that he is entitled to a decree impressing the stock of The American Distilling Company, owned and held by the defendant, Irwin M. Coane, with a trust in his favor, and because the defendant, The American Distilling Company, is a corporation organized and existing under the laws of Maryland, the Courts of this State have the jurisdiction and duty to grant the relief herein prayed for.'

He prayed:

'1. That this Honorable Court shall by its decree determine and declare that the stock of The American Distilling Company owned or held by the defendant, Irwin M. Coane, is impressed with a trust in favor of the plaintiff, to the end that the said Irwin M. Coane shall be decreed to have no light whatever as a stockholder in the said The American Distilling Company to bring any suit or proceeding on behalf of the said The American Distilling Company against the said company and its officers and directors.

'2. That the defendant, The American Distilling Company, be required to answer therein and to discover under oath the number of shares of its stock, and the class or classes thereof, and the certificate numbers thereof, owned or held by the defendant, Irwin M. Coane.'

He also asked for general relief and for order of publication giving notice to the said Irwin M. Coane in the City of New York. The order of Publication was served on Coane by a deputy sheriff of New York City in the City of New York under the provisions of Code 1939, Art. 16, Sec. 149. The alleged written agreement was not filed with the bill of complaint.

An answer was filed by the American Distilling Company disclaiming all right, title and interest in the premises and alleging that Irwin M. Coane is the registered holder of 100 shares of preferred stock of the American Distilling Company and 50 shares of the common stock of the American Commercial Alcohol Corporation, which is exchangeable for a like number of shares of the American Distilling Corporation. Having answered, it asked to be dismissed with costs.

The appellee, Irwin M. Coane, appeared specially for the purpose of filing a motion to dismiss the bill of complaint against him in which he alleged that he was a nonresident of the State of Maryland, that he had recently filed a derivative suit in the State of New York involving certain officers and directors of the corporate defendant and further:

'3. There is no allegation in the Bill of Complaint that the corporate stock of the defendant corporation registered in the name of the individual defendant was sold by him to the plaintiff in this proceeding, or that this defendant is not a stockholder of said defendant corporation.

'4. That the relief prayed in the Bill of Complaint as against this individual defendant is for an adjudication that he has no right to bring any derivative suit against the officers and directors of the defendant corporation, or to prosecute such suit now pending in the Courts of the State of New York, as alleged in the Bill of Complaint.

'5. That it appears from the Bill of Complaint and the prayers for relief therein set out, that as to this individual defendant this proceeding is an action in personam and not an action in rem or quasi in rem.'

The plaintiff filed a motion in nature of motion ne recipiatur as to the motion of the appellee, Coane, to dismiss the bill of complaint and demurred to the motion to dismiss the bill of complaint. By decree, after hearing, upon the motion and demurrer, the Chancellor decreed: 'That the motion of Complainant Ortman to strike the motion of Deft. Coane and the demurrer of said Complt. Ortman to the motion of Deft. Coane, are hereby overruled, and that the Bill of Complaint be and the same is hereby dismissed as to the Deft. Coane.'

An appeal is taken by Frank J. Ortman, plaintiff, to this court from that decree.

The primary question for our decision is whether this proceeding is an action in personam against the appellee, Coane, or an action in rem against the stock.

If it is an action in personam, the Chancellor was correct in dismissing the bill of complaint as, of course, jurisdiction over a nonresident can only be acquired by service of process upon him within the state or by his voluntary appearance in person or by attorney. 'Constructive service by publication or personal service of process beyond the limits of the state is not sufficient, nor does a special appearance for the purpose of objecting to the jurisdiction of the court confer upon that court jurisdiction to decree on the merits of the case. Garner v. Garner, 56 Md. 127; Fisher v. Parr, 92 Md. 245, 48 A. 621; Gemundt v. Shipley, 98 Md. 657, 57 A.

12; Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565; Harkness v. Hyde, 98 U.S. 476, 25 L.Ed. 237; 2 Bishop, Marriage Divorce & Sep., c. 3; 14 Cyc. 745.' McSherry v. McSherry, 113 Md. 395, 400, 77 A. 653, 655, 140 Am.St.Rep. 428.

Code 1939, Art. 16, Sec. 137 provides: 'If in any suit in chancery, by bill or petition, respecting, in any manner the sale, partition, conveyance or transfer of any real or personal property lying or being in this State, or to foreclose any mortgage thereon, or to enforce any contract or lien relating to the same, or concerning any use, trust or other interest therein, any or all of the defendants are non-residents, the court in which such suit is pending may order notice to be given to such nonresidents, of the substance and object of such bill or petition, and warning them to appear by a day therein stated.' Evans v. Zouck, 172 Md. 12, 190 A. 523.

Appellant contends that the stock in the case now before us lies in Maryland and has a situs to support the jurisdiction of the court here. There is no question in this case about attachment of stock or taxation of stock. However, appellant contends that, by reason of the principle stated in the case of McQuillen v. National Cash Register Company D.C., 13 F.Supp. 53, affirmed in, 4 Cir., 112 F.2d 877, and certiorari denied by the Supreme Court in 311 U.S. 695, 61 S.Ct. 140, 85 L.Ed. 450, this is an action in rem. In that case the plaintiff, McQuillen, brought a derivative action against the National Cash Register Company, a body corporate, of the State of Maryland, and certain nonresident individuals who were not served with process. The case came before Judge Coleman in United States District Court for the District of Maryland. The plaintiff endeavored, among other things, to cause the cancellation of certain stock on the books of the National Cash Register Company. The primary question before the court, to determine its jurisdiction in that case, was whether the property, being the stock, was actually within the District when the suit was brought. The part of Sec. 57 of the Judicial Code, 28 U.S.C. § 118, 28 U.S.C.A. § 118 , material to the question was as follows: 'When in any suit commenced in any district court of the...