SOUTHEAST GUAR. TR. CO., LTD. v. Rodman & Renshaw, Inc.

• Decision Date: 23 January 1973
• Docket Number: 72 C 1093.,No. 72 C 1078,72 C 1078
• Citation: 358 F. Supp. 1001
• Court: U.S. District Court — Northern District of Illinois
• Parties: SOUTHEAST GUARANTY TRUST COMPANY, LTD., a corporation, Plaintiff, v. RODMAN & RENSHAW, INC., a Delaware corporation, et al., Defendants. Louis C. MIRIANI and Vera Miriani, Plaintiffs, v. RODMAN AND RENSHAW, INC., a Delaware corporation, et al., Defendants. RODMAN & RENSHAW, INC., Counter-plaintiff, v. Louis C. MIRIANI, Counter-defendant. SOUTHEAST GUARANTY TRUST COMPANY, LTD., a corporation, Counter-plaintiff and Cross-plaintiff, v. Louis C. MIRIANI, Counter-defendant, Rodman & Renshaw, Inc., a Delaware corporation, et al., Cross-defendants. SOUTHEAST GUARANTY TRUST COMPANY, LTD., a corporation, Third-party-plaintiff, v. CHEMICAL BANK et al., Third-party-defendants.

358 F. Supp. 1001

SOUTHEAST GUARANTY TRUST COMPANY, LTD., a corporation, Plaintiff, v. RODMAN & RENSHAW, INC., a Delaware corporation, et al., Defendants.

Louis C. MIRIANI and Vera Miriani, Plaintiffs, v. RODMAN AND RENSHAW, INC., a Delaware corporation, et al., Defendants.

RODMAN & RENSHAW, INC., Counter-plaintiff, v. Louis C. MIRIANI, Counter-defendant.

SOUTHEAST GUARANTY TRUST COMPANY, LTD., a corporation, Counter-plaintiff and Cross-plaintiff, v. Louis C. MIRIANI, Counter-defendant, Rodman & Renshaw, Inc., a Delaware corporation, et al., Cross-defendants.

SOUTHEAST GUARANTY TRUST COMPANY, LTD., a corporation, Third-party-plaintiff, v. CHEMICAL BANK et al., Third-party-defendants.

Nos. 72 C 1078, 72 C 1093.

United States District Court, N. D. Illinois, E. D.

January 23, 1973.

COPYRIGHT MATERIAL OMITTED

Charles A. Brady, Ettelson, O'Hagan, Ehrlich & Frankel, Chicago, Ill., for Southeast Guaranty Trust Co.

Richard A. Makarski and Stephen E. Kitchen, Chapman & Cutler, Chicago, Ill., for Louis and Vera Miriani.

Sheldon Waxman, Asst. U. S. Atty., for the United States.

Narcisse Brown, Schwartz, Cooper, Kolb & Gaynor, Chicago, Ill., for Rodman and Renshaw, Inc.

Holland C. Capper, McBride, Baker, Wienke & Schlosser, Chicago, Ill., for City of New York Bank.

Paul B. Uhlenhop, Lawrence, Lawrence, Kamin & Saunders, Chicago, Ill., for Detroit Bank & Trust Co.

George V. Bobrinskoy, Jr., Mayer, Brown & Platt, Chicago, Ill., for Continental Ill. Nat. Bank & Trust Co., Kentucky Trust Co. and American Nat. Bank & Trust Co. of Chicago.

William B. Davenport, Jenner & Block, Chicago, Ill., for Fidelity Nat. Bank of Baton Rouge.

Leon E. Lindenbaum, Walsh, Case & Coale, Chicago, Ill., for National Bank of Detroit.

Thomas F. Ryan, Sidley & Austin, Chicago, Ill., for Chemical Bank.

Thomas F. Tobin, Baker & McKenzie, Chicago, Ill., for First Nat. Bank of Boston.

OPINION

WILL, District Judge.

These two consolidated cases arise out of the same set of alleged occurrences, which need be briefly summarized prior to a discussion of the motions filed by various defendants. The Mirianis, plaintiffs in 72 C 1093, alleged that certain securities of theirs were stolen from their apartment on January 23, 1972. They claim they immediately notified the police and all paying agents/trustees on the bonds of the theft. In February, Geist, the agent for Southeast Guaranty Trust Company, Ltd. (Southeast), which is the plaintiff in 72 C 1078, had a meeting with defendants Levy and Spiwak at which they offered Southeast these same bonds at a price substantially less than their market value.

Geist then went to Rodman and Renshaw, the brokerage firm used by Southeast, and a defendant in both actions, and asked them to investigate the validity of the bonds. After taking physical possession of the bonds, and after allegedly contacting all paying agents/trustees on the bonds to determine whether they had been lost, stolen, or forged, Rodman and Renshaw advised Geist that the bonds were valid and could be resold. Geist then purchased the bonds from Spiwak and authorized Rodman and Renshaw to resell them for Southeast's account. On February 25, 1972, Rodman and Renshaw advised Geist the bonds had been sold.

On March 3, 1972, Rodman and Renshaw told Geist that they were informed the bonds had been stolen, and later that the resale had been cancelled. Rodman and Renshaw turned the bonds over to the Federal Bureau of Investigation, whose investigation of the matter subsequently led to the indictment of Levy and Spiwak as receivers of stolen property. The United States has retained custody of the bonds for use in the criminal trial against Levy and Spiwak.

Southeast then filed this suit seeking the return of the bonds or indemnification for the money it had paid to Spiwak and Levy plus damages. In Count I, it alleges Rodman and Renshaw violated the Rules of Fair Practice of the National Association of Securities Dealers by its refusal to return the securities to Southeast. In Count II, naming Miriani, Spiwak, Levy, the United States of America, and Rodman and Renshaw as defendants, it seeks a declaratory judgment determining Southeast to be the lawful owner of the bonds, and an injunction ordering the bonds to be delivered to it. In Count III, indemnification and damages are sought against Spiwak and Levy for their knowingly false and fraudulent misrepresentation of the validity of the bonds. In Count IV, Southeast seeks indemnification and damages from Rodman and Renshaw for the breach of its duty to verify properly the validity of the bonds. And, in Count V, it names all the paying agents/trustees on the bonds¹ for their false and fraudulent misrepresentations that the bonds had not been stolen or forged and that Spiwak and Levy were fully authorized by the owners of the bonds to negotiate the sale at a discount.

Suit was also filed by the Mirianis, the alleged original owners of the bonds from whom they were stolen. In that action, 72 C 1093, Rodman and Renshaw, Southeast, Geist, Spiwak, Levy and the United States are named as defendants, and the Mirianis seek a declaration that they are the lawful owners of the bonds and the return of the bonds or a judgment entered against Levy and Spiwak for their market value.

After being named as a defendant in the Miriani complaint, Southeast filed a counter-claim, cross-claim and third-party complaint in 72 C 1093 which parallel Counts II, III, IV and V of its original claim. Meanwhile, the Internal Revenue Service attached a levy to the bonds based on a jeopardy assessment against the Mirianis for an income tax deficiency. The Mirianis have since added to their complaint a count seeking an injunction against the levy. Southeast also attacks the levy, alleging that it, and not the Mirianis, is the lawful owner of the bonds.

The matters dealt with in this opinion involve motions to dismiss filed by the paying agents/trustees of the bonds named in Count V of the Southeast complaint and in the Third-Party complaint filed by Southeast in the Miriani suit. While all of these defendants seek dismissal, the motions are based on a variety of grounds and are treated separately by subject matter.

IMPROPER VENUE

The out-of-state national banks, First National Bank of Boston, National Bank of Detroit and Fidelity National (Baton Rouge, Louisiana) moved pursuant to Federal Rule of Civil Procedure 12(b)(3) to dismiss Count V of the Southeast complaint and its Third-Party complaint in the Miriani suit as against them on the ground that under Section 5198 of the National Banking Act, as amended, 12 U.S.C. § 94, venue is improper in the Northern District of Illinois. Section 94 provides:

Actions and proceedings against any association under this chapter may be had in any district or Territorial court of the United States held within the district in which such association is established. . . .

That section has been consistently interpreted to mean that an action brought against a national banking association is strictly limited to the single district where that association is established. See Buffum v. Chase Nat. Bank of City of New York, 192 F.2d 58 (7th Cir. 1951), cert. denied 342 U.S. 944, 72 S.Ct. 558, 96 L.Ed. 702. See also, Mercantile Nat'l Bank of Dallas v. Langdeau, 371 U.S. 555, 83 S.Ct. 520, 9 L.Ed.2d 523 (1963); Brown v. Bank of America National Trust and Savings Association, 281 F.Supp. 82 (N.D.Ill.1968). Further, a national Bank is "established" only in the District containing the place specified in its charter as its place of business. See Buffum, supra. While the hardships sometimes imposed on plaintiffs as a result of this privilege accorded national banks have caused Section 94 to come under severe criticism,² we concur in the conclusion of the other courts that have considered the issue that the remedy lies in Congress. Consequently, since none of the three moving banks are established in the Northern District of Illinois, suit against them is improper here and they have been dismissed.³

SUBJECT MATTER JURISDICTION

Four of the remaining defendants named in Count V, Kentucky Trust Co. (Kentucky Trust), the Detroit Bank & Trust Co. (Detroit Bank), Chemical Bank of New York (Chemical Bank), and Continental Illinois National Bank & Trust Co. (Continental Bank), have moved to dismiss the Southeast complaint for lack of subject matter jurisdiction. The only jurisdictional allegation in the Complaint is found in Count I, basing that Count on Section 15A of the Securities and Exchange Commission authority to regulate the National Association of Securities Dealers (NASD). However, another provision of that same act provides: "Nothing in this section shall be construed to apply with respect to any transaction by a broker or dealer in any exempted security." 15 U.S.C. § 78o-3(m) and Section 78c(a)(12) defines an exempted security as including:

Securities which are direct obligations of or obligations guaranteed as to principal or interest by a State or any political subdivision thereof or by any agency or instrumentality of a State or any political subdivision thereof, or by any municipal corporate instrumentality of one or more States; . . . .

All of the bonds involved in these suits are in this class of exempted securities. Consequently, no federal cause of action can be maintained for an alleged violation of the Rules of the NASD with respect to these bonds.⁴

Since there is no other basis for asserting a federal cause of action against these defendants, the only remaining ground for this court's jurisdiction is diversity of citizenship. Under 28 U.S.C. § 1332, defendants contend this court does not have such jurisdiction because there is a lack of complete diversity between plaintiff and defendants as required by that section. Defendants Rodman and Renshaw, having its principal place of business here, and Continental Bank, incorporated and having its principal place of business here, are...