Steelman v. All Continent Corp.

• Decision Date: 08 January 1937
• Citation: 188 A. 817
• Parties: STEELMAN v. ALL CONTINENT CORPORATION et al.
• Court: New Jersey Court of Chancery

188 A. 817

STEELMAN

v. ALL CONTINENT CORPORATION et al.

Court of Chancery of New Jersey.

Jan. 8, 1937.

Syllabus by the Court.

1. Under rule 76 of this court, answers are required to be filed within twenty days "after the service day of the subpoena," but rule 2 provides that the time so limited may, "for good cause, be extended by order" of the court. Held, that a petition for removal of a cause from this court to the federal court, filed within the time limited by an order duly made by this court, extending the time of the defendants to answer, is within time under section 72, 28 U.S.C.A.

2. In determining the question of diversity of citizenship in removal proceedings, the domicile of the corporation is controlling and not that of its individual stockholders.

3. In a suit brought by a trustee in bankruptcy to set aside transactions alleged to have been in fraud of creditors, the bankrupt is not a necessary party where the relief prayed for is against the grantee or transferee and no relief is prayed for against the bankrupt, other than formal prayers for subpoena and answer.

4. In a determination of the jurisdiction of the federal courts and the right to remove causes of action to them, indispensable parties alone are to be considered, and the inclusion of a merely proper party will not oust the jurisdiction of the federal court.

5. An indispensable party is one who has such an interest in the subject-matter of the controversy that a final decree cannot be rendered between the other parties to the suit without radically or injuriously affecting his interests, or without leaving the controversy in such a situation that a final determination may be inconsistent with equity and good conscience.

6. Where there is a separable controversy between complainant, a resident of this state, and defendant, a resident of another state, such defendant may remove the entire cause.

Suit by Hiram Steelman, trustee for William Fox, bankrupt, against the All Continent Corporation and others, wherein named defendant filed a petition for removal to the federal court.

Petition granted.

William Elmer Brown, Jr., of Atlantic City, for complainant.

John Milton, of Jersey City (Murry C. Becker, of New York City, of counsel), for All Continent Corporation.

Bourgeois & Coulomb, of Atlantic City, for William Fox.

Cole & Cole, of Atlantic City, for Eva, Belle, and Mona Fox.

Ralph O. Willguss, of New York City, for Milton C. Weisman, ancillary receiver of Fox Theatres Corporation.

Proskauer, Rose & Paskus, of New York City, for Chicago Title & Trust Co.

SOOY, Vice Chancellor.

This matter comes before me on a petition by the defendant All Continent Corporation for an order removing the cause to the United States District Court.

Counsel for the complainant opposed the removal and says, first, the petition for removal was not filed within the time limited by statute. The bill of complaint was filed October 13, 1936, and subpoena duly served. Defendant's answers, under rule 76, "shall be filed within twenty days after the service date of the subpoena"; but by rule 2 it is provided, "the time limited in these rules for doing any act may, for good cause, be extended by order, either before or after the expiration of the time."

Under rule 76 the answers of the defendants were due on or before November 4, 1936, but on October 28, 1936, the court entered an order as follows: "Ordered, that the time of the defendants * * * to answer, plead, demurr or otherwise move with respect to the bill of complaint, be and the same is hereby extended to and including the 8th day of December, 1936."

The "good cause" for the order was consent of all parties to the extension of time in order that defendants might have opportunity to investigate the facts and law pertinent thereto, in order to determine upon the future procedure with respect to the bill of complaint.

The requirements of 28 U.S.C.A. § 72, are that the petition for removal be filed in the "State court at the time, or any time before the defendant is required by the laws of the State or the rule of the State court in which such suit is brought to answer," etc.

The petition for removal was filed on December 3, 1936, and was therefore before the time the defendant All Continent Corporation was required to answer under the rules of this court. The order extending the time was in conformity with the rules and merely made operative rule 2 in conjunction with rule 76. Rule 2 must be read in conjunction with rule 76 and, taken together, they constitute the time "before the defendant is required by * * * the rule of the State Court * * * to answer."

It is true that Judge Rellstab, in August of 1916, in Pilgrim v. Ætna Life Insurance Co. (D.C.) 234 F. 958, decided otherwise, and it is likewise true that at that time that able jurist said: "This question has not been passed upon in this judicial circuit." But since the time of that decision the Circuit Court of Appeals of the Third Circuit, in Bankers Securities Corporation v. Insurance Equities Corporation, 85 F.(2d) 856, 858, have held to the contrary and pointed out that: "A number of the inferior courts mostly before the case of Ayers v. Watson, 113 U.S. 594, 5 S.Ct. 641, 28 L.Ed. 1093, held that the time for filing a petition for removal from the state to the federal court could not be extended by stipulation of the parties, but this position does not seem to be in harmony with the declarations of the Supreme Court. These declarations led to the change of the position in the Southern District of New York."

It is true that the Ayers Case, cited by the Circuit Court of Appeals, was decided long before that of Pilgrim v. Ætna Life Insurance Co., supra; but it is also true that in the latter case there was no review of the then existing authorities.

But it is argued that "what the court said (Bankers Securities Corporation Case) constituted nothing but dicta," and this is probably true; but that court said: "We have thought it best to state what we think the law is and to indicate what the practice in this circuit should be."

This court is not advised of any decision in the courts of this state dealing with this question, but I am furnished with an abundance of authorities in support of the rules that the filing of a petition for removal at any time after the time limited for the filing of the answer by the rule of the court is fatal, even though that time be extended by an order of the court, stipulation of the parties, or otherwise, as well as of an abundance of authorities in support of the view laid down by the Circuit Court of this district, supra. A great number of these authorities, pro and con, are cited in 54 C.J. p. 307, § 207(2).

It is conceded that the rule in the Southern District of New York and in the State of Pennsylvania is that a petition for removal is in time if filed before the expiration of any extension to plead, given by special order of the court, if the order of the court is authorized by the rules thereof. See (for N.Y.) Gleason v. H. M. Byllesby & Co., 160 Misc. 613, 290 N.Y.S. 436 (Sup.Ct. Special Term, New York County, September 30, 1936), wherein Justice McLaughlin held, in accordance with the decision of the United States Court for the Southern District of New York, that an application for removal is timely if made before an answer is required to be served, whether the time has been extended by the state court, by a state statute, or by stipulation of the parties. As to the rule in Pennsylvania, see citations in Bankers Securities Corporation Case, supra.

Being at liberty, in so far as the Court of Chancery is concerned, to adopt the rigid rule of construction of some jurisdictions, or the rule of less rigidity, which it seems to me is more in accord with modern decisions and more nearly accords with a proper interpretation of section 29 of the Judicial Code (28 U.S.C.A. § 72), my conclusion is that the petition for removal in the instant case was in time.

The next ground of opposition to the petition is that there is no separable controversy between the complainant, a citizen of New Jersey, and the defendant All Continent Corporation, a corporation of Delaware.

Section 28 of the Judicial Code, as amended (28 U.S.C.A. § 71), in providing for removal of causes from state to federal courts, states: "And when in any suit mentioned in this section there shall be a controversy which is wholly between citizens of different States, and which can be fully determined as between them, then either one or more of the defendants actually interested in such controversy may remove said suit into the district court of the United States for the proper district."

In order to decide the question involved, it is necessary to analyze the bill of complaint, the allegations therein and as contained in the petition for removal being decisive as to the separability of the controversy. Shapiro v. Christian Bahnsen, Inc., 117 N.J.Eq. 105, 175 A. 145, 146.

The bill of complaint is composed of four counts as causes of action. The first cause of action is dealt with in 46 numbered paragraphs, from 1 to 46, inclusive, wherein (eliminating paragraphs 11 to 15, both inclusive) complainant charges that William Fox, intending to hinder, delay, and defraud creditors, formed the All Continent Corporation and transferred all of his assets to it; that the All Continent Corporation is and was merely the alter ego of Fox; and that its assets are his and, he being a bankrupt, his trustee is entitled thereto.

Paragraphs 11 to 15, inclusive, in the first cause of action, seek to set aside as fraudulent a trust agreement made by Fox for the benefit of his wife, children, and grandchildren, to the end that the trustee in bankruptcy may regain possession of all the corporate stock of the All Continent Corporation, which stock forms the corpus of the trust created by Fox for the benefit of his wife and others.

The remaining causes of...