Puma v. Marriott, Civ. A. No. 3275.

• Decision Date: 03 January 1969
• Docket Number: Civ. A. No. 3275.
• Parties: John PUMA, Plaintiff, v. J. Willard MARRIOTT et al., Defendants.
• Court: U.S. District Court — District of Delaware

294 F. Supp. 1116

John PUMA, Plaintiff, v. J. Willard MARRIOTT et al., Defendants.

Civ. A. No. 3275.

United States District Court D. Delaware.

January 3, 1969.

COPYRIGHT MATERIAL OMITTED

Ernest S. Wilson, Jr., Wilson & Lynam, Wilmington, Del., Stanley L. Kaufman and Shephard S. Miller, Kaufman, Taylor, Kimmel & Miller, New York City, for plaintiff.

Henry M. Canby, Richards, Layton & Finger, Wilmington, Del., and John J. Wilson, Whiteford, Hart, Carmody & Wilson, Washington, D. C., for defendants, Don G. Mitchell, James M. Johnston and Marriott Corp.

David F. Anderson, Potter, Anderson & Corroon, Wilmington, Del., and Burton A. Schwalb, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D. C., for defendants, J. Willard Marriott, Alice S. Marriott, J. Willard Marriott, Jr., Milton A. Barlow, Richard E. Marriott, Woodrow D. Marriott, Russell S. Marriott and John S. Daniels.

OPINION

CALEB M. WRIGHT, Chief Judge.

This is an action for damages by plaintiff John Puma against the Marriott Corporation (Marriott) and several of its directors and officers based on alleged violations of federal securities laws and alleged breaches of common law fiduciary obligations. Plaintiff sues on his own behalf, on behalf of all other Marriott stockholders, and derivatively on behalf of Marriott. The claims purportedly arise out of transactions surrounding Marriott's acquisition (through stock purchase or merger) of six corporations owned by individuals in the Marriott family. Plaintiff alleges, inter alia, fraud, the use of false and misleading proxy statements, and unjust enrichment of the various defendants, in violation of § 17(a) of the Securities Act of 1933 (1933 Act), 15 U.S.C. § 77q(a), §§ 10(b) and 14(a) of the Securities Exchange Act of 1934 (1934 Act), 15 U.S.C. §§ 78j(b) and 78n(a),¹ SEC Regulation 10b-5, 17 C.F.R. 240.10b-5, SEC Regulation 14a-9, 17 C.F.R. 240.14a-9, and common-law fiduciary obligations. Jurisdiction for the statutory claims is based on 15 U.S.C. § 77v(a) and 15 U.S.C. § 78aa; jurisdiction for the common law violation is asserted to be pendent and, at the same time, based on diversity of citizenship.²

Defendants J. Willard Marriott, Alice S. Marriott, J. Willard Marriott, Jr., Milton A. Barlow, Richard E. Marriott, Woodrow D. Marriott, Russell S. Marriott, Don G. Mitchell, and James M. Johnston now move the Court to quash service and to dismiss the action for lack of personal jurisdiction.³ This is the second request for such relief by these parties, the Court having dismissed without prejudice the prior motions. See this Court's Order of October 9, 1967.

One preliminary matter concerns the Court. On December 28, 1963, defendant James Johnston died. Formal Suggestion of Death was filed in this proceeding on November 27, 1968. Johnston, by his attorney, now moves for dismissal on the ground that all claims herein abate at death.

As to the federal claims asserted here, Johnston is not entitled to dismissal. It is well established that, in the absence of a statutory pronouncement regarding the survivability of an action, the federal common law will be applied. Mills v. Sarjem Corp., 133 F.Supp. 753, 761 (D.N.J. 1955). Accordingly,

"It has grown to be the established law that the right of action in all personal actions does not die with the person but the true test is whether the injury upon which the cause of action is based is one which affected property rights or affected the person alone. In the former case, the action survives while in the latter, it does not." Armstrong v. Allen B. Du Mont Laboratories, 137 F.Supp. 659, 663 (1955).

These federal claims for damages, based as they are on unjust enrichment, fall into the category of actions affecting property rights. Accordingly, they do not abate. See 3 Loss, Securities Regulation, pp. 1817-18 (1961 Ed.).

The survivability of the common-law claim for breach of fiduciary obligations depends on state law. See 1A Moore, Federal Practice, § .3053, p. 3056. The parties having made no arguments to the contrary,⁴ this Court assumes that the law of Delaware applies.

10 Del.C. § 3701 governs this claim:

"All causes of action, except actions for defamation, malicious prosecution, or upon penal statutes, shall survive to and against the executors or administrators of the person to, or against whom, the cause of action accrued. Accordingly, all actions, so surviving, may be instituted or prosecuted by or against the executors or administrators of the person to or against whom the cause of action accrued."

While no Delaware case specifically holds that a claim based on breach of fiduciary obligations by which a corporate officer enriches himself survives the officer's death, the statute clearly covers such a situation.⁵ Such a reading is consistent with the approach taken in other states. See 1 Am.Jur.2d, § 81, p. 108.

Accordingly, all claims herein survive Johnston's death. Since no attempt has been made, to the Court's knowledge, to substitute the estate of Johnston as a party,⁶ the Court need not rule at this point on the propriety of any such substitution.

Turning now to the question of personal jurisdiction over the moving defendants, the disposition of the pending motions depends, in the final analysis, on the validity of the extraterritorial process used by plaintiff in this action. Each moving party has been served with process outside the territorial limits of this forum pursuant to § 27 of the 1934 Act. Defendants contend that such service is invalid under the 1934 Act and that, even if it is valid under the 1934 Act, the jurisdiction acquired thereby cannot extend to claims under the 1933 Act or under common law. Accordingly, they move for dismissal of all claims or, in the alternative, all but the 1934 Act claims.

Section 27 of the 1934 Act, 15 U.S.C. § 78aa, reads in relevant part:

"Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder * * * may be brought in the district wherein any act or transaction constituting the violation occurred * * * and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found."

The threshold question is whether plaintiff has alleged in his Amended Complaint any act or transaction occurring within Delaware which constitutes a violation of the 1934 Act. In determining this question, the Court need not look beyond the four corners of the Amended Complaint. Levin v. Great Western Sugar Co., 274 F.Supp. 974, 979 (D.N.J.1967).

Focusing on the alleged violation of § 14(a) of the 1934 Act, 15 U.S.C. § 78n(a), plaintiff asserts that defendants solicited the votes of Marriott stockholders by means of a proxy statement which contained statements that "were false and misleading with respect to material facts, and which omitted to state material facts necessary in order to make the statements therein not false and misleading. * * *" Amended Complaint, ¶¶ 28, 29. Plaintiff further alleges that all of the defendants permitted their names to be used in said solicitation of proxies and participated in and otherwise aided and abetted the implementation of the plan to unjustly enrich themselves, Amended Complaint, ¶¶ 27, 28(b). Finally, plaintiff alleges:

"The following acts and transactions constituting the violation, among others, occurred in the District of Delaware:

(a) the mailing and dissemination of the proxy statement to Marriott stockholders residing in the District of Delaware for the purpose of soliciting their approval of the transactions;

(b) the filing of the agreement of merger in the District of Delaware upon which event the merger became effective in the said District." Amended Complaint, ¶ 40.

Defendants apparently do not contest that the Amended Complaint on its face states a cause of action under § 14(a).⁷ However, they contend that neither act alleged in ¶ 40 of the Amended Complaint is sufficient to permit service under 15 U.S.C. § 78aa. The Court cannot agree. The law does not require that the violative act or acts form the core of the claim. All that is required is but one act within the forum district which represents more than an immaterial part of the allegedly illegal events. See Dauphin Corporation v. Redwall Corporation, 201 F.Supp. 466, 469-470 (D.Del.1962); Schneider v. Sears, 265 F.Supp. 257, 261 (S.D.N.Y. 1967).

By this standard, the sufficiency of the act of mailing proxies into Delaware does raise a question. Zorn v. Anderson, 263 F.Supp. 745, 748 (S.D. N.Y.1966) makes it clear that such an act can, as a general rule, constitute grounds for § 78aa venue and process. However, in this case, the number of proxies solicited in Delaware was very small in relation to the whole of the solicitation, raising the question of whether the act bears any material importance to the overall scheme. Indeed, if this were the only act alleged as having occurred in Delaware, this Court would be reluctant to sustain venue and process under § 78aa. However, the additional act of filing the merger agreement in Delaware, without which the merger could not have been effective, 8 Del.C. § 251, when considered along with the proxy solicitation, is enough to support jurisdiction in this Court. Cf. Dauphin Corporation v. Redwall Corporation, supra, 201 F.Supp. at 469-470.

Accordingly, plaintiff has met the criteria of 15 U.S.C. § 78aa and the use of extraterritorial process to acquire jurisdiction over the defendants is valid insofar as the claims under the 1934 Act are concerned.

Does the Court's jurisdiction extend beyond those claims to the 1933 Act claim? The law is clear that it does. Once plaintiff states a claim under the 1934 Act, the broader venue and special process provisions of that Act apply to claims arising under both Acts. Dauphin Corporation v. Redwall Corporation, supra, 201 F.Supp. at 469; Dauphin Corporation v. Davis, 201 F.Supp. 470, 472 (D.Del.1962); ...