US Industries, Inc. v. Gregg, Civ. A. No. 4431.

Citation348 F. Supp. 1004
Decision Date28 September 1972
Docket NumberCiv. A. No. 4431.
PartiesU. S. INDUSTRIES, INC., a corporation and Diversacon Industries, Inc., a corporation, Plaintiffs, v. F. Browne GREGG, Defendant.
CourtUnited States District Courts. 3th Circuit. United States District Court (Delaware)

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David A. Drexler, Morris, Nichols, Arsht & Tunnell, Wilmington, Del., and Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for plaintiffs.

Thomas S. Lodge, and John R. Bowman, Connolly, Bove & Lodge, Wilmington, Del., and Bedell, Bedell, Dittmar, Smith & Zehmer, Jacksonville, Fla., for defendant.

H. James Conaway, Jr., and Ben T. Castle, Young, Conaway, Stargatt & Taylor, Wilmington, Del., for intervenor, First National Bank of Leesburg.

OPINION

STAPLETON, District Judge.

U. S. Industries, Inc., a Delaware corporation having its principal place of business in New York ("USI"), and Diversacon Industries, Inc., a Florida corporation having its principal place of business in Florida ("Diversacon"), instituted this action in the Court of Chancery of the State of Delaware against F. Browne Gregg, a citizen of the State of Florida. In the latter part of 1969 USI and Gregg entered into an Agreement and Plan of Reorganization (the "Agreement"). In this Agreement USI committed itself to purchase from Gregg all of the issued and outstanding shares of capital stock of certain corporations controlled by Gregg (the "Gregg corporations") in exchange for shares of USI voting common and special preference stock. The Agreement also provided for the execution of an employment contract under which Gregg would commit himself to USI to serve as an executive of the Gregg corporations. Such a contract was entered into at the closing of the transaction on October 20, 1969. Subsequent to that closing and as contemplated by the Agreement, the businesses formerly conducted by the Gregg corporations were transferred to the plaintiff Diversacon, a wholly owned subsidiary of USI.

The complaint is divided into eight counts. Those counts set forth the following claims:

1. A common law deceit claim by USI against Gregg based on allegations that Gregg made representations of material facts which were false and misleading and omitted to state material facts necessary in order to make the statements made not misleading in order to induce USI to enter the Agreement.

2. A claim by USI against Gregg under Section 17(a) of the Securities Act of 1933 based on the same factual allegations stated in Count 1 plus the allegation that instrumentalities of interstate commerce were utilized by Gregg.

3. A common law breach of warranty claim by USI against Gregg based upon the same factual allegations contained in Count 1.

4. A claim by USI against Gregg for the impressment of constructive trust upon Gregg's USI stock based upon the foregoing factual allegations and an additional allegation that Gregg intends to sell, transfer or otherwise dispose of or encumber said stock and that this would irreparably damage USI by rendering judgment ineffectual.

5. A common law rescission claim by USI against Gregg based on the foregoing factual allegations and the assertion that USI was fraudulently induced to employ Gregg pursuant to the employment agreement.

6(a). A breach of contract claim by USI against Gregg based on an allegation that Gregg breached his commitment to devote his full business time and best efforts to the business of the Gregg corporations or any successor entity "by mismanaging Diversacon, as by, among other things, undertaking contracts on the basis of estimates of the corporations ability to complete them which he knew or should have known to be erroneous, thereby committing the corporation to contracts on terms it could not meet."

(b). A breach of fiduciary duty claim by Diversacon against Gregg based on an allegation that the same "mismanagement" constituted a breach of duty owed by Gregg as an employee of Diversacon.

7. A breach of contract claim by USI against Gregg based on an allegation that Gregg breached a covenant not to compete "in that, while in the employ of USI, Gregg bid successfully against USI for the acquisition of Can Concrete Rock Co., Inc., a Florida corporation, with actual or constructive knowledge of USI's bid."

8. A breach of contract claim by Diversacon against Gregg based on an allegation that Gregg has failed to pay Diversacon on a $500,000 note executed by Gregg in favor of the Gregg corporations, executed on October 20, 1969.

The complaint asks the following relief:

(a) Claims 1, 2 and 3—$20,000,000,
(b) Claim 4—the impressment of a trust,
(c) Claim 5—return of the compensation paid Gregg,
(d) Claims 6 and 7—unspecified compensatory damages, and
(e) Claim 8—$400,000 plus interest.

After filing its complaint, USI secured an order of the Court of Chancery purporting to sequester all shares of common and preferred stock of USI "owned, of record or beneficially, by said defendant." The sequestrator was authorized "to seize and hold said property and any right, title or interest, legal or equitable, which" Gregg had therein.

The First National Bank of Leesburg, Leesburg, Florida, intervened in the Chancery action and moved to quash the order of sequestration on the ground that it held the "equitable ownership" of the stock as a result of a pledge thereof in December of 1971 as security for a loan. The motion to quash was argued before the Court of Chancery, but the case was removed by Gregg before any decision on that motion was handed down. Following removal, the bank renewed its motion to quash the sequestration1 and plaintiffs moved to remand the case to the Court of Chancery. Thereafter Gregg also moved to quash the sequestration and to dismiss this action.

These motions present four issues for resolution. First, is this case properly removable under § 1441 of Title 28 of the United States Code? Second, if so, does the specific non-removal provision of the Securities Act of 1933, 15 U.S.C. § 77a et seq., prevent removal? Third, is the sequestration order, upon which the state court's jurisdiction was predicated and from whence our jurisdiction derives, valid? And, finally, if this Court has jurisdiction should any of the claims asserted be remanded to the state court?

I. REMOVAL UNDER § 1441

In support of his removal, Gregg relies on § 1441(c) of Title 28 of the United States Code which provides:

"Whenever a separate and independent claim or cause of action, which would be removable if sued upon alone, is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction."

Plaintiffs, in support of remand, assert that there is no "separate and independent claim or cause of action" in their complaint, "which would be removable if sued upon alone." They assert both that the complaint states no claim or cause of action which is separate and independent of the others, and, in the alternative, that if there is a separate and independent claim or cause of action its removal is barred either by want of complete diversity between adverse parties or by Section 22 of the Securities Act of 1933, 15 U.S.C. § 77v(a), which provides in part:

". . . No case arising under this subchapter the Securities Act of 1933 and brought in any State court of competent jurisdiction shall be removed to any court of the United States. . . ."

Plaintiffs' initial argument stresses that all claims in the complaint arise as a result of USI's acquisition of the Gregg corporations. Plaintiffs correctly assert that the diversity of legal theories supporting the various claims and the fact that each does not rest upon the identical factual allegations is not determinative.2 Assuming, however, that all the claims here asserted do arise out of the same "interlocked series of transactions" as that phrase is used in the relevant legal standard, plaintiffs' analysis ignores another equally important element in that standard.

In American Fire & Casualty Co. v. Finn, 341 U.S. 6, 14, 71 S.Ct. 534, 540, 95 L.Ed. 702 (1951), the Supreme Court held that "where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action under § 1441(c)." It is clear from this statement, the Finn opinion as a whole, and the subsequent cases applying its rationale that related transactions and common questions of law or fact are not alone enough to weld claims together for the purpose of applying § 1441(c). The circumstances and character of the impact upon the plaintiff or plaintiffs are also crucial.3 Elsewhere in its opinion the Supreme Court suggests that inquiry must be made of whether there was "a single wrongful invasion of a single primary right of the plaintiff""one actionable wrong" for which plaintiff "was entitled to but one recovery"— damage arising from "a single incident." 341 U.S. at 13, 16, 71 S.Ct. at 540. As will appear hereafter the second part of this test is important in the context of this case and precludes a finding that no claim asserted is separate and independent of the others.

I accept plaintiffs' argument that Claims 1 through 5 are not separate and independent. All of these claims allege facts occurring in connection with a single transaction and assert but a single invasion of a single right, i. e., USI's right to be free from deception in its business dealings with others. The alleged damage to USI resulted from a single incident, consummation of a fraudulently induced bargain. Korber v. Lehman, 221 F.Supp. 358 (S.D.N.Y. 1963).

While the matter is not quite so clear, I agree with plaintiffs that Claims 6(a) and (b) are not separate and independent of each other. There is a split among the...

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