Raphael J. Musicus, Inc. v. Safeway Stores, Inc.

• Decision Date: 05 September 1984
• Docket Number: No. 83-3001,83-3001
• Parties: RAPHAEL J. MUSICUS, INC., Plaintiff-Appellant, v. SAFEWAY STORES, INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 503

743 F.2d 503

RAPHAEL J. MUSICUS, INC., Plaintiff-Appellant, v. SAFEWAY STORES, INCORPORATED, Defendant-Appellee.

No. 83-3001.

United States Court of Appeals Seventh Circuit.

Argued May 7, 1984.

Decided Aug. 30, 1984.

As Amended Sept. 5, 1984.

Raphael J. Musicus of Raphael J. Musicus, Ltd., Wilmette, Ill., for Raphael J. Musicus, Inc.

Harry L. Hobson, Holland & Hart, Denver, Colo., for defendant-appellee.

Before CUDAHY and FLAUM, Circuit Judges, and KELLAM, Senior District Judge. ^*

CUDAHY, Circuit Judge.

This is an appeal from a dismissal for lack of proper venue of a diversity case which presents somewhat arcane and technical issues involving the characterization of actions as local or transitory for venue purposes. For the reasons given below, we reverse and remand to the district court for further proceedings.

I

Defendant-appellee, Safeway Stores, Inc. ("Safeway"), undertook in 1961 a sale and leaseback arrangement of seven properties with a predecessor in interest of the plaintiff-appellant, Raphael J. Musicus, Inc. ("Musicus"). Musicus is now the lessor of two of these properties on which Safeway stores were located. One property is in Hardin, Montana and the other is in Lincoln, Nebraska. The leases for both properties, which are identical, have an initial term of twenty years, which began in 1962, with an option to renew six times, each time for a term of five years. The leases also contain an assignment provision which permits Safeway to assign its interest for a period extending beyond the expiration of the original term or any renewal term then in effect only with the lessor's prior written consent.

The plaintiff sued for several breaches of these lease agreements involving failure to provide liability insurance and sufficient fire insurance, failure to maintain the premises in good repair, adverse alteration of the premises, assignment of the leases beyond their original term or renewal term then in effect without the lessor's approval and failure to pay rent. In addition, plaintiff alleged that Safeway made fraudulent misrepresentations, on which the plaintiff relied, about Safeway's intent to perform material aspects of the sale and leaseback agreement. The relief which Musicus requests includes the voiding of the renewal options of both leases and the voiding of the respective subleases, an injunction to restrain a threatened breach of the Lincoln lease through assignment, compensatory and special damages, treble damages for wilful trespass and unlawful detainer under applicable Nebraska and Montana statutes and exemplary and punitive damages on the fraud count. The damages sought for alleged trespass depend entirely on the determination of the parties' respective rights under the leases and the renewal options.

The district court had dismissed Musicus' complaint on two prior occasions--the first time because the claim was not yet ripe for adjudication and the second for lack of subject matter jurisdiction. On the third occasion, the district court dismissed the second amended complaint for improper venue after finding that there was subject matter jurisdiction. Safeway does not appeal from this determination of jurisdiction, and we note that the district court's determination appears correct. ¹

The dismissal for improper venue was based on the characterization of the action as local under the law of the forum, Illinois. After observing that Illinois courts have never decided whether an action to cancel or void a lease is transitory or local in nature, the district court relied primarily on the Illinois venue statute and on decisions of other state courts. The district court concluded that the plaintiff seeks essentially to recover possession of the properties, a form of relief which would fall within the terms of the Illinois venue statute. That statute provides that an action to recover possession of real estate "must be brought in the county in which the real estate or some part of it is situated." Ill.Rev.Stat. ch. 110, p 2-103 (1982). Although a court without venue would normally transfer the action to the district in which venue properly lies, the district court in this case dismissed the action because venue would only be proper as to each property in the respective district in which the property in question is located.

II

This suit involves allegations of breach of contract, fraud and trespass based on the interpretation of a lease. In order to determine where proper venue would lie in a case such as this one, we must first characterize the action as either local or transitory. Generally, local actions are those which directly affect real property and traditionally such actions must be brought in the district in which the real property is located. See Part III, infra. Transitory actions, on the other hand, can usually be brought in any court having personal jurisdiction over the defendant.

The federal venue statute, 28 U.S.C. Secs. 1391 and 1392, sets out the rules for determining where proper venue lies depending on whether the action is local or transitory. These rules fail, however, to define "local" and "transitory" actions. Thus, while a determination of proper venue is clearly a matter of federal law, it is unclear whether the federal statute should be interpreted by reference to general law, including the decisions of both state and federal courts, or by reference specifically to the law of the forum state, in this case Illinois. Issues involving real property are often resolved by reference to state law, and thus a strong argument for adopting the law of the forum can be made. ²

There is also, however, some authority that general law should be applied, as in Pasos v. Pan American Airways, Inc., 229 F.2d 271 (2d Cir.1956), which rejected the application of a New York statute and followed prior federal decisions. See also Livingston v. Jefferson, 15 Fed.Cas. 660, 665, No. 8,411 (C.C.D.Va.1811) (apparently rejecting Virginia statute and following federal law). In addition, Moore makes a strong argument on policy grounds for the adoption of a uniform federal venue rule. According to Moore, the use of state rules can prevent a plaintiff from suing for a personal judgment for trespass to land even in a state having personal jurisdiction over the defendant. Moore also points out that the characterization of a suit for venue purposes is a matter of federal procedure and therefore should not be governed by state law. ³ Moore's Federal Practice p 0.142 [2.-1] at 1368-70. However, we do not need to resolve this question. As appears below, whether the venue question is resolved by reference to state law or to general law, the result is the same.

III

Proper venue is determined by the characterization of the action as either local or transitory--a determination which, in turn, depends on the type of relief sought. As noted, supra Part II, the federal statute, 28 U.S.C. Secs. 1391-1401, does not define either a local or a transitory action. The traditional and well-established distinction, however, is the same as that between in personam and in rem jurisdiction. See, e.g., Mostyn v. Fabrigas, 1 Cowp. 161, 98 Eng.Rep. 1021 (K.B.1774); Little v. Chicago, St. Paul, Minneapolis & Omaha Railroad Co., 65 Minn. 48, 67 N.W. 846 (1896). The reason for this parallel is simply that, in order to provide in rem relief, the court must have jurisdiction over the real property at issue, and a local action must therefore be brought in the jurisdiction in which that real property is located. On the other hand, to provide in personam relief, the court need only have personal jurisdiction over the defendant, and thus a transitory action may be brought in any jurisdiction in which the defendant can be found. This distinction is applied generally, but with one exception which will be discussed below. This same distinction is applied even to the situation in which the plaintiff seeks a personal judgment which will ultimately affect real property--so long as the action is based in fraud, trust or contract. Such an action is considered to be transitory and may be brought in any jurisdiction where there is personal jurisdiction over the defendant.

This rule was explained in Massie v. Watts, 6 Cranch 148, 3 L.Ed. 181 (1810), where the plaintiff alleged that he had been deprived of certain lands in Ohio through the fraudulent actions of the defendant who, while acting as the surveyor, appropriated the land to himself. The Supreme Court held that the plaintiff's suit to recover the lands could be brought in the district court sitting in Kentucky which had personal jurisdiction over the defendant, stating:

Where the defendant ... is liable to the plaintiff, either in consequence of contract, or as trustee, or as the holder of a legal title acquired by any species of mala fides practiced on the plaintiff, the principles of equity give a court jurisdiction wherever the person may be found, and the circumstance, that a question of title may be involved in the inquiry, and may even constitute the essential point on which the case depends, does not seem sufficient to arrest that jurisdiction.

* * *

* * *

This court is of opinion that, in a case of fraud, or trust, or of contract, the jurisdiction of a court of chancery is sustainable wherever the person be found, although lands not within the jurisdiction of that court may be affected by the decree.

6 Cranch at 158-60, 3 L.Ed. 181.

These principles have been generally followed and apply even to suits for specific performance of contracts where the subject of the contract is real property except when the court's decree would itself operate as a conveyance of the property. See, e.g., Sax v. Sax, 294 F.2d 133, 136-37 (5th Cir.1961) (suit to undo fraudulent conveyance of property may be brought in district court in Florida, although trust res was located in Illinois, because court can grant requested relief through "coercive sanctions"); Dan...