Westerman v. Gilbert

• Court: U.S. District Court — District of Rhode Island
• Writing for the Court: CLIFFORD
• Citation: Westerman v. Gilbert, 119 F.Supp. 355 (D. R.I. 1953)
• Decision Date: 30 December 1953
• Docket Number: Civ. No. 1542.
• Parties: WESTERMAN v. GILBERT.

119 F. Supp. 355

WESTERMAN v. GILBERT.

Civ. No. 1542.

United States District Court D. Rhode Island.

December 30, 1953.

Gerald W. Harrington, Providence, R. I., for plaintiff.

Marshall Swan, Providence, R. I., for defendant.

CLIFFORD, District Judge.

This action comes before this Court on the Motion of the defendant, Henry I. Gilbert, filed pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A., to dismiss the action.

The case involves an action for money loaned brought against the defendant, Henry I. Gilbert, a resident of the State of New York, by the plaintiff, Jack Westerman, a resident of the State of Rhode Island. The action was commenced by a writ of attachment, wherein the sheriff was ordered to attach the stock and shares of the defendant in the Hope Valley Dyeing Corporation, a Rhode Island corporation doing business in this State. Pursuant to this order, the sheriff made service upon the corporation purporting to attach the shares of stock for which a certificate was outstanding in the hands of the defendant who was then in the State of New York. No personal service on the defendant was had, but a copy of the writ was mailed to the defendant's New York address by the sheriff, pursuant to the provisions of the General Laws of Rhode Island, 1938, Chapter 547, § 11.¹

The plaintiff also applied for and received an order in aid of the writ of attachment, enjoining the defendant and the Hope Valley Dyeing Corporation from transferring on the books of the corporation any shares of stock standing in the name of the defendant. Said restraining order was served upon the corporation, and notice was given to the defendant by mailing to him an attested copy thereof, pursuant to the provision of Chapter 547, § 11, supra.

The defendant appeared specially by his attorneys for the purpose of contesting the jurisdiction of the Court and moved to quash the writ of attachment on the grounds, among others, that Chapter 118, § 13 of the General Laws of Rhode Island, 1938, had not been fully complied with.² Before action was taken on said motion, the defendant petitioned this Court for the removal of the action and of the bill in equity in aid of the purported writ of attachment from the State Court to this Court. The removal was ordered on March 12, 1953.

After removal the defendant filed a motion pursuant to Rule 12(b) of the Federal Rules of Civil Procedure to dismiss the action for lack of service, or, in lieu thereof to quash the amended return of service of the writ of attachment, previously allowed by the State Court.

Shares of stock in a corporation were made subject to attachment in this state by statute. Two such statutes have been cited to this Court, as previously noted. The first, Chapter 547, § 11, supra, came into the body of statute law with the adoption of the Court and Practice Act of 1905. It has appeared in substantially its present form in every revision of the General Laws of Rhode Island since that date. The second statute, adopting Section 13 of the recommended model of the Uniform Stock Transfer Act, was enacted in 1912 and is now referred to as Chapter 118, § 13 of the General Laws of Rhode Island, 1938.

Considering the two statutes involved herein, the basic issue before this Court is whether the defendant's interest in shares of stock of a Rhode Island corporation is subject to attachment in Rhode Island when both he and the certificate of said stock held by him are not within said state.

The plaintiff contends that, regardless of the Uniform Stock Transfer Act, the situs of the shares of stock of the corporation is in Rhode Island where it is domiciled and at no other place; that this is particularly true because the stock of the defendant is not fully negotiable;³ that notwithstanding the absence of the defendant and the certificate of said stock, said stock was effectively attached by (1) service upon the corporation in compliance with Chapter 547, § 11 and (2) said corporation having been enjoined from transferring said stock on its books, in compliance with Chapter 118, § 13; that construed and applied in this manner, the two statutes are reconcilable; that the attachment of said stock in the State of Rhode Island is sufficient to confer jurisdiction in rem upon the State Courts and in turn upon this Court; and, therefore, the motion to dismiss should be denied.

The defendant, on the other hand, contends that by adoption of the Uniform Stock Transfer Act, the nature of the property in shares of stock has been entirely changed; that this enactment merged the shares of stock into the certificates; that the situs of the shares of stock is no longer at the domicile of the corporation but where the certificates are actually located; that Chapter 547, § 11 and Chapter 118, § 13, are not inconsistent, but provide that two separate and different processes must be served to effectuate an attachment; that said section 13 was not complied with because the certificate held by the defendant (1) was not actually seized, (2) not surrendered (3) or its transfer by the holder enjoined; that said section applies whether or not the certificate is fully negotiable; that because the defendant holding the certificate was out of this state, the purported service of both the writ of attachment and the order enjoining the defendant from transferring said certificate was without force or effect to subject him to the power and authority of either the State or Federal Court; and, therefore, the motion to dismiss should be granted.

This Court must follow the law of this State in removal proceedings of this nature. 28 U.S.C.A. § 1450.

It is important to note at the outset that shares of stock may have a situs in different jurisdictions for different purposes, at the same time. Thus, the situs of stock for purposes of taxation, distribution of a decedent's estate, attachment, garnishment, and execution may vary. The issue before this Court is limited to the consideration of the situs of stock for purposes of attachment only—namely, the proper place at which such stock is subject to attachment processes. See 122 A.L.R. 338, 339: Fletcher Cyclopedia Corporations, Perm.Ed. Vol. 11, Sec. 5101; 17 Cornel Law Quarterly 43. Unquestionably, prior to the passage of the Uniform Stock Transfer Act, the situs of shares of stock for the purposes of attachment and levy was at the domicile and usual place of business of the corporation and at no other place. Ireland v. Globe Milling & Reduction Co., 1895, 19 R.I. 180, 32 A. 921, 29 L.R.A. 429.

Although the effect of section 13 of the Uniform Stock Transfer Act has never been decided by the Supreme Court of the State of Rhode Island,⁴ the plaintiff contends that it has been the practice for lower state courts in Rhode Island to follow the procedure employed in the instant case. The plaintiff is undoubtedly correct in asserting that Federal Courts, under the Eire Doctrine, are bound to follow state law where "a goodly number of the trial courts of the state generally and for a considerable period of time have adhered to a common interpretation of (a) point. * * *" State of California, Dept. of Employment v. Fred S. Renauld Co., 9 Cir., 179 F.2d 605, 609. However, inasmuch as the able attorney for the plaintiff, having been afforded ample opportunity to provide evidence of a practice and a custom allegedly prevailing in the State Court relating to proceedings incidental to the attachment of stocks, was able to produce but two ex parte orders issued within a period of thirty-one years, this Court feels it is not unwarranted in concluding that this is far from "the goodly number" of trial courts adhering to this interpretation of the point at issue.

Other jurisdictions, however, have determined that section 13 of the recommended model Uniform Act, as adopted in Rhode Island, in effect necessitates the presence of the certificates of the shares of stock within the State before a valid attachment can be made of the stock unless, as provided by said section, the certificates are surrendered to the corporation which issued them, or the holder is enjoined from transferring them. Wallach v. Stein, 103 N.J.L. 470, 136 A. 209; Johnson v. Wood, 189 A. 613, 15 N.J. Misc. 150; Elgart v. Mintz, 123 N.J.Eq. 404, 197 A. 747; Elgart v. Mintz, 199 A. 68, 16 N.J.Misc. 289; Bloch-Daneman Co. v. J. Mandelker & Sons, 205 Wis. 641, 238 N.W. 831; Snyder Motor Co. v. Universal Credit Co., Tex.Civ.App., 199 S.W. 2d 792; Mills v. Jacobs, 333 Pa. 231, 4 A.2d 152, 122 A.L.R. 333; Knight v. Shutz, 141 Ohio St. 267, 47 N.E.2d 886, 150 A.L.R. 138.

According to these cited cases, the Uniform Stock Transfer Act has imparted such added value to the certificate, by increasing its negotiability, that the certificate is property within the meaning of attachment statutes and, having been merged, is considered to be the stock itself. Consequently, for the purposes of attachment, the situs of shares of stock is the place where the certificate is located.

By abrogating the general rule as to situs for attachment purposes, these cases are in harmony with the expression of the editors of the Restatement, Conflict of Laws, § 53, where they said:

"(3) To the extent to which the law of the State in which the corporation was incorporated embodies the share in the certificate, the share is subject to the jurisdiction of the state which has jurisdiction over the certificate." See Krizanek v. Smith, Del., 87 A.2d 871.

Furthermore, it has been held that since section 13, supra, specifies that it is the holder who is to be enjoined from transferring the certificate, an injunction restraining the corporation from transferring the share on its books is misdirected. Amm v. Amm, 117 N.J.Eq. 185, 175a, 186; Bloch-Daneman Co. v. J. Mandelker & Sons, 205 Wis. 641, 238 N.W. 831. See also Hodes v. Hodes, 176 Or. 102, 155 P.2d 564. As stated in Amm v. Amm, supra, 117 N.J.Eq. at page 187, 175 A. at page...