Property Research Financial Corp. v. Superior Court

• Decision Date: 09 February 1972
• Citation: 23 Cal.App.3d 413,100 Cal.Rptr. 233
• Parties: PROPERTY RESEARCH FINANCIAL CORPORATION, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF LOS ANGELES, Respondent; MACCO CORPORATION, a Delaware corporation, et al., Real Parties in Interest. Civ. 39331.
• Court: California Court of Appeals Court of Appeals

Page 233

100 Cal.Rptr. 233

23 Cal.App.3d 413

PROPERTY RESEARCH FINANCIAL CORPORATION, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF LOS ANGELES, Respondent MACCO CORPORATION, a Delaware corporation, et al., Real Parties in Interest.

Civ. 39331.

Court of Appeal, Second District, Division 2, California.

Feb. 9, 1972.

Hearing Denied April 6, 1972.

Greenberg, Bernhard, Weiss & Karma, Incorporated, Maxwell E. Greenberg, Herbert A. Bernhard, Dennis E. Golob, Los Angeles, for petitioner.

Tuttle & Taylor Incorporated, Eli Chernow, C. Stephen Howard, Los Angeles, for real parties in interest.

No appearance for respondent.

FLEMING, Associate Justice.

Petition for writ of prohibition or mandate to require the Superior Court of Los Angeles County to vacate its order quashing a pre-judgment attachment under subdivision 2 of section 537 of the Code of Civil Procedure levied against real property of a non-resident corporate defendant. In quashing petitioner's attachment under the authority of Randone v. Appellate Department, 5 Cal.3d 536, 96 Cal.Rptr. 709, 488 P.2d 13, respondent court concluded that subdivision 2 of section 537 is equally unconstitutional with subdivision 1 of that section. We issued an alternative writ and heard argument in this and a companion case having two of the same real parties in interest: Ortleb et al. v. Superior Court, Cal.App., 100 P.2d 471.

Here, petitioner filed suit in January 1971 against real parties in interest and two other corporations for the balance of $650,000 assertedly due on a promissory note. Initially, it filed its declaration of attachment under subdivision 1 of section 537 and posted an attachment bond of $325,000 as required by section 539. After the Randone decision in August 1971, petitioner filed a second declaration, this time for attachment under subdivision 2 against the real parties in interest as non-residents. Macco Corporation (Macco) is a Delaware corporation, and GSC Development Corp. and GSC Development Corporation (Development) are Texas corporations. A writ of attachment was issued under which unimproved real properties owned by Development and others were levied upon. Thereafter, respondent court ordered the writ and levy quashed, but stayed the operation of its order so that petitioner could apply to this court for an extraordinary writ, meanwhile allowing a pending sale of the property and ordering the proceeds of the sale, $642,000, held in escrow.

Petitioner contends respondent court exceeded its jurisdiction in quashing the attachment as unconstitutional, and it asserts that unless the attachment is reinstated, real parties in interest will dissipate or remove the funds, and assets will no longer be available in California to satisfy a judgment. Development filed an answer and a demurrer, of which we consider only the demurrer, since our determination of the legal issue makes irrelevant the issues of fact raised by the answer. Essentially, the demurrer argues that California's foreign attachment statute violates due process of law.

California Statutes on Attachment Before Judgment

Pre-judgment attachment in California, governed by sections 537 through 561 of the Code of Civil Procedure, is authorized for use in the cases listed in section 537. ¹ Plaintiff is required to post an undertaking equal to half the amount of his claim in order to cover possible damages from unlawful attachment. (Section 539.) Defendant may apply to the court to release the attachment upon posting a similar undertaking to secure plaintiff's recovery (sections 554 and 555), and he may obtain a hearing 'at any time' on 'reasonable' notice to challenge the regularity and propriety of the issuance of the writ (section 556). The latter procedure has been supplemented by judicially-established hearings, which permit a challenge to the legality of the Levy under a valid writ, e.g. one made on property claimed to be exempt. (Holmes v. Marshall, 145 Cal. 777, 783, 79 P. 534 (1905); Coon v. Biscailuz, 1 Cal.App.2d 346, 348, 36 P.2d 430 (1934).)

Ownbey, Sniadach and Randone

The principal United States Supreme Court decision on the validity of foreign attachment under the due process clause is Ownbey v. Morgan (1921), 256 U.S. 94, 41 S.Ct. 433, 65 L.Ed. 837, a case in which the executors of J. P. Morgan filed suit for $200,000 in Delaware against a Colorado resident and attached his shares in a Delaware corporation, shares which under Delaware law had a situs in the state for purposes of attachment. Delaware had no remedy of general attachment before judgment, and its remedy of foreign attachment was more severe on defendants than the present California statute in two respects: (a) plaintiff was not required to post any bond; and (b) defendant was required to post substitute security equal to the value of the property attached before he could appear generally and answer on the merits. Ownbey claimed that the attached shares were not available for purposes of collateral because their market value had been temporarily destroyed by a receivership, that he had no other property to use as collateral for the necessary bond, and therefore the statutory requirement that he post security as a condition of his right to defend the action deprived him of property without due process of law.

In rejecting these claims the Supreme Court relied mainly upon the ancient lineage of foreign attachment, which it traced back through early colonial statutes to that part of the law merchant known as the Custom of London and which it identified as a means originally used to acquire jurisdiction over a foreign defendant. The court pointed out that foreign attachment developed from a seizure of defendant's chattels to compel his appearance. The action was Quasi in rem. If defendant appeared his chattels were restored to him; if he did not appear they were forfeited. On the defendant's personal appearance the action became one In personam, and the body of the defendant then substituted as security in place of his chattels. Over time, however, the use of body attachment and body execution for debt declined, with the net result that the release of the lien on the attached property on defendant's appearance might leave plaintiff with nothing by way of security. Hence the requirement for substitute security developed as a reasonable means to preserve plaintiff's security position in the litigation and to compensate him for the release of the attached property on defendant's personal appearance. The Supreme Court, in affirming the requirement of substitute security as a condition of defendant's personal appearance to contest the merits, said: 'A procedure customarily employed, long before the Revolution, in the commercial metropolis of England, and generally adopted by the states as suited to their circumstances and needs, cannot be deemed inconsistent with due process of law, even if it be taken with its ancient incident of requiring security from a defendant who after seizure of his property comes within the jurisdiction and seeks to interpose a defense.' (256 U.S. at p. 111, 41 S.Ct. at p. 438.) In holding that Delaware's foreign attachment procedure complied with due process of law, the Supreme Court, most importantly for our purposes, implicitly recognized that the collectibility of plaintiff's judgment was the primary purpose to be served by foreign attachment, and it termed the traditional purpose of obtaining jurisdiction Quasi in rem an 'incident object' of the statutes authorizing foreign attachment. (p. 107, 41 S.Ct. 433.)

In Sniadach v. Family Finance Corp. (1969), 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349, the United States Supreme Court held that Wisconsin's wage garnishment statute violated due process for its overbreadth in allowing summary attachment on defendants without providing safeguards against economic hardship. The use of such statutes, said the court, 'may as a practical matter drive a wage-earning family to the wall.' (395 U.S. at [23 Cal.App.3d 418] pp. 341--342, 89 S.Ct. at pp. 1822--1823.) The court referred to Ownbey in the following manner: 'Such summary procedure may well meet the requirements of due process in Extraordinary situations. Cf. . . . Ownbey v. Morgan . . . But in the present case no situation requiring Special protection to a state or creditor interest is presented by the facts; nor is the Wisconsin statute narrowly drawn to meet any such unusual condition. Petitioner was a resident of this Wisconsin community and In personam jurisdiction is readily obtainable.' (395 U.S. at p. 339, 89 S.Ct. at p. 1821; italics added.)

In Randone v. Appellate Department, 5 Cal.3d 536, 96 Cal.Rptr. 709, 488 P.2d 13, the California Supreme Court considered the validity of an attachment under subdivision 1 of a small bank account on which defendants relied for their necessities of day-to-day living. Applying the rationale of Sniadach, the court held subdivision 1 unconstitutional in its entirety and on its face for its overbreadth in failing to distinguish among various types of property whose attachment entails varying degrees of hardship. While the court limited its holding to subdivision 1, its opinion has since been interpreted to cast doubt on section 537 in its entirety as violative of due process of law.

Real parties in interest raise three issues in connection with the constitutionality of subdivision 2. (1) Is the non-residence of a defendant a sufficient extraordinary factor 'requiring special protection to a state or creditor interest' to justify summary attachment, i.e. before notice to defendant and provision for hearing? (2) Should we interpret the phrase 'not residing in this state' as not including foreign corporations whose principal place of business is located in California? (3) Would validation of attachment against non-residents but not residents deprive non-residents of the equal protection of the laws?

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