Schenin v. Micro Copper Corp.

• Decision Date: 12 July 1967
• Docket Number: No. 66 Civ. 4466.,66 Civ. 4466.
• Citation: 272 F. Supp. 523
• Parties: Jack SCHENIN d/b/a I. J. Schenin Company, Plaintiff, v. MICRO COPPER CORP., Vanura Uranium, Inc., William T. Swift and E. R. Cook, Jr., Defendants.
• Court: U.S. District Court — Southern District of New York

272 F. Supp. 523

Jack SCHENIN d/b/a I. J. Schenin Company, Plaintiff, v. MICRO COPPER CORP., Vanura Uranium, Inc., William T. Swift and E. R. Cook, Jr., Defendants.

No. 66 Civ. 4466.

United States District Court S. D. New York.

July 12, 1967.

Edward Nathan, New York City, for plaintiff, Edward Nathan, Matthew Anenberg, New York City, of counsel.

Sullivan & Cromwell, New York City, for defendants, Micro Copper Corp., William T. Swift and E. R. Cook, Jr., Robert D. Krumme, New York City, of counsel.

OPINION

HERLANDS, District Judge:

Defendants Swift, Cook and Micro Copper Corporation hereinafter "Micro" have moved for an order:

"(a) Pursuant to Rule 12(b) of the Federal Rules of Civil Procedure dismissing the complaint on the ground that the Court lacks jurisdiction over the person, and

(b) Pursuant to Rules 12(b) and 56 of the Federal Rules of Civil Procedure granting judgment to William T. Swift and E. R. Cook, Jr. on the ground that the complaint fails to state a claim upon which relief can be granted."

In the event that their motion for dismissal and/or summary judgment is denied, defendants have asked for a protective order under Rule 30(b) in respect to the depositions of Cook and Micro by Cook, noticed for New York City.

Having concluded that there is an absence of jurisdiction over the persons of the defendants, the Court shall not reach the other issues raised. Arrowsmith v. United Press International, 320 F.2d 219, 221, 6 A.L.R.3d 1072 (2d Cir. 1963).

The present action was commenced in the Supreme Court of the State of New York by service of two copies of the summons and complaint upon defendant Ellis R. Cook, Jr. at his office in Moab, Utah. The proof of service indicates that one copy was directed to defendant Cook, individually, and the other to defendant Micro. Because Cook was the Secretary of Micro at the time of service, there is no question that service on Micro was proper if the corporation was amenable to suit in New York.

Cook and Micro removed the action to this Court on the basis of diversity of citizenship. Thereafter, defendant William T. Swift was served with a summons and complaint delivered to his wife at their home in Stratford, Connecticut. The fourth defendant Vanura Uranium, Inc. hereinafter "Vanura" has not been separately served in this action. Moreover, it is stated in the affidavits of Cook and Swift, and conceded in plaintiff's memorandum of law (p. 18), that Vanura—a Nevada corporation never authorized to do business in New York— was dissolved in October, 1958.

Plaintiff nevertheless insists that Vanura is before this Court (plaintiff's memorandum of law p. 18), erroneously relying upon § 1006 of the New York Business Corporation Law, McKinney's Consol.Laws, c. 4 hereinafter BCL relating to the survival of remedies against dissolved domestic corporations. See BCL § 102(a) (4). In view of the fact that Vanura is not a party to the present motions, it is unnecessary to elucidate upon the Court's conclusion that Vanura has not and could not be brought before this Court except through a receiver of its assets in New York appointed by a New York court, or perhaps through a trustee or receiver appointed by a Nevada court. See BCL § 1218; Nevada Revised Statutes §§ 78.585-78.610.

A brief chronology of the pertinent facts is helpful to an understanding of the jurisdictional question.

Vanura was incorporated in Nevada in February, 1955, for the purpose of engaging in the mining business. In exchange for fifty unpatented mining claims in Colorado, the corporation issued a total of 3,000,000 shares of common stock to Swift and Cook. By agreement dated May 31, 1955, Vanura engaged plaintiff Jack Schenin, doing business as I. J. Schenin Company, to underwrite a public offering of an additional three million shares of Vanura at a price of 10 cents per share. A modification and clarification agreement was executed on August 15, 1955.

In essence, the agreements provided that Schenin would undertake to sell the issue on a best-efforts basis for a commission of twenty-five per cent of the price to the public. In addition, the underwriter received an option to purchase up to 1,000,000 shares of Vanura from the corporation at a price of one mill per share on the basis of one share for each three shares sold to the public. The earlier agreement recited that the one million shares had been previously donated to the corporation by Cook and Swift for this purpose.

Schenin commenced selling shares of Vanura to the public. By December, 1956, almost the entire issue had been sold. On December 7, 1956, the Securities and Exchange Commission temporarily suspended Vanura's exemption from the registration requirements of the Securities Act of 1933. In effect, this order barred further issuance of Vanura stock. The adverse parties to the present action blame one another for the suspension, but apparently no interested party ever filed a request for a hearing before the SEC.

Thereafter, by check dated February 20, 1957, Schenin tendered one thousand dollars to Vanura in attempted exercise of his option to purchase one million shares from the corporation. The check was accepted by Vanura, but Schenin's demand for transfer and delivery of the shares was not honored by the corporation. In July, 1957, pursuant to Vanura's request, its transfer agent mailed, from its office in New Jersey to the corporation in Utah, a certificate for one million shares registered in the corporate name. The transfer agent is a New Jersey corporation; and the affidavit of its employee Cooney states that all transfers of Vanura stock were made on the books of Vanura by its transfer agent at its offices in New Jersey.

The final pertinent events occurred in October, 1958, when Vanura sold all of its assets to Micro in exchange for 247,227 shares of Micro common stock. Vanura's stockholders received the Micro shares as a liquidating dividend at the rate of one share of Micro for each twenty shares of Vanura; and Vanura was formally dissolved. The one million shares, still registered in the name of Vanura, were disregarded in the acquisition of assets by Micro and in the subsequent dissolution of Vanura.

We come now to the question posed. Defendants' claims of lack of in personam jurisdiction challenge the power of the Court to proceed with an adjudication of the rights asserted. Arrowsmith v. United Press International, supra. The plaintiff is thereby called upon to establish at least "threshold jurisdiction." United States v. Montreal Trust Co., 358 F.2d 239 (2d Cir.), cert. denied, 384 U.S. 919, 86 S.Ct. 1366, 16 L.Ed.2d 440 (1966); Unicon Management Corp. v. Koppers Co., 250 F.Supp. 850 (S.D.N.Y. 1966). It is agreed that, on the present record, jurisdiction based on out-of-state service of process is authorized here only if the claim falls within New York CPLR § 302, the State's general long-arm statute.

I. Defendant Micro Copper Corporation

Plaintiff concedes that defendant Micro—a Delaware corporation with its principal place of business in Utah— is not doing business in New York and has not done so in the past (CPLR § 301), and does not transact business here (CPLR § 302). The sole basis for in personam jurisdiction as asserted by plaintiff derives from Micro's purchase of the assets of Vanura. The contention seems to be that Vanura would have been amenable to suit in New York under CPLR § 302, and Micro being a "successor-in-interest" thereby became subject to our jurisdiction.

Although the defendants vigorously dispute plaintiff's minor premise that Vanura would have been subject to suit in New York, we can assume for present purposes, and without deciding the question, that CPLR § 302 provides a basis for jurisdiction over the person of Vanura. The insurmountable hurdle in plaintiff's path is the sound distinction in law between a statutory merger and an acquisition of assets. While the plaintiff has sought through ambiguous rhetoric and disproven implication to obscure the factual and legal character of the transaction between Micro and Vanura, he has failed to adduce a single shred of probative evidence that the transaction was anything but an aquisition of assets as sworn to by the individual defendants and as his own exhibit (plaintiff's exhibit 5) declares. Surely if a statutory merger had been effected, public records of the incorporating states of Vanura and Micro would show that fact. Moreover, in the absence of any allegation or proof that the transaction was part of a scheme to avoid jurisdiction, we are obliged to recognize the transaction in the form adopted by the parties thereto.

There having been no statutory merger between Micro and Vanura, any claim against Micro on an alleged obligation of Vanura must rest on an assumption of Vanura's liabilities by Micro. Whether or not plaintiff could sue Micro directly—for example, on a third party beneficiary theory—would depend on the applicable law, but he could sue Micro only where it could be found. Plaintiff's novel approach to the jurisdictional issue rests, in effect, on an untenable theory of involuntary, retroactive attribution. There exists no basis in law or reason to impute to Micro, for jurisdictional purposes, activities of Vanura in New York, such as they may have been. Madden v. Koehring Co., N.Y.L.J., March 8, 1965, p. 18, col. 8 (Sup.Ct. Nassau Cty.1964) relied on by the plaintiff is wholly inapposite. There, inter alia, the acquisition of assets, itself, occurred in New York.

II. The Individual Defendants

The question of jurisdiction over the person of the individual defendants presents a more difficult problem. There are sharply contested issues of fact and law concerning Vanura's amenability to suit in New York based on the transaction of business within the state under CPLR § 302(a) 1. For the reasons previously stated, however, the Court does not recognize Vanura as a party to the instant litigation. It is therefore...