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Maryland Tuna Corp. v. MS Benares

decided: June 2, 1970.

MARYLAND TUNA CORPORATION, PLAINTIFF-APPELLANT,
v.
THE MS BENARES, HER ENGINES, BOILERS, ETC., NICHIMEN CO., INC., SKIBS A/S EXCELSIOR, BENDT RASMUSSEN AND REDERI A. B. SALENIA, INTEROCEAN SHIPPING CORPORATION, STOCKHOLM, DEFENDANTS, AND NICHIMEN CO., LTD., TOKYO, DEFENDANT-APPELLEE. MARYLAND TUNA CORPORATION, PLAINTIFF-APPELLANT, V. NICHIMEN CO., INC., DEFENDANT, AND NICHIMEN CO., LTD., TOKYO, DEFENDANT-APPELLEE. MARYLAND TUNA CORPORATION, PLAINTIFF-APPELLANT, V. NICHIMEN CO., LTD., TOKYO, DEFENDANT-APPELLEE



Medina, Waterman and Smith, Circuit Judges.

Author: Medina

MEDINA, Circuit Judge:

Maryland Tuna Corporation appeals from orders of the District Court for the Southern District of New York which had the combined effect of declaring that the District Court could not exercise in personam jurisdiction over Nichimen Co., Ltd., Tokoyo, a Japanese corporation, either by reason of the activities it conducted with Nichimen Co., Inc., a New York corporation with an office in the Southern District of New York or by the attachment of the property of the Japanese corporation held by, or debts to the Japanese corporation owed by, Nichimen Co., Inc.

The appeal in No. 31141 (Case I) is from an order entered December 30, 1966 denying reargument and/or resettlement of a judgment dated November 23, 1966 which quashed service and dismissed the complaint against Nichimen Co., Ltd., Tokyo in a libel in admiralty. The appeal in No. 31142 (Case II) is from an order entered December 30, 1966 denying reargument and/or resettlement of a judgment of November 23, 1966 which quashed service and dismissed the complaint against Nichimen Co., Ltd., Tokyo in a civil action at law for damages. The appeal in No. 34245 (Case III) is from an order of October 6, 1969 denying a motion by Maryland Tuna to require Nichimen Co., Inc. to deposit certificates of its stock into the registry of the District Court. For the reasons detailed below, Case I and Case II are reversed and remanded for further proceedings not inconsistent with this opinion. The appeal in Case III is dismissed.

Preliminary Comment

Because of the extraordinarily confusing and muddled record before us on these three interrelated appeals, our task of delineating and disposing of the simple legal issues involved has been made unnecessarily arduous. We hope to bring some order out of this confusion by a brief chronological resume of the numerous proceedings involved in the three separate appeals. It is well to bear in mind from the outset that the chief source of controversy is the relationship between Nichimen Co., Inc., a New York corporation, and Nichimen Co., Ltd., Tokyo, a Japanese corporation. We shall refer to these corporations as Nichimen New York and Nichimen Tokyo. Counsel for Nichimen Tokyo seem to think the relationship between the Japanese corporation and the New York corporation is, on the face of the record before us, perfectly clear. This is far from being the case, however, as will appear in the discussion of the law points later on in this opinion. It will suffice to say now, for the purpose of clarity, that in our opinion the little that appears in the record before us merely scratches the surface. One of the reasons for our remand is to afford an opportunity to probe beneath the surface and ascertain precisely what was the relationship between these two corporations at the time of the attempted service of process on Nichimen Tokyo.

The cases themselves arise from the claim of Maryland Tuna for damages in the amount of $46,311.05 for the contamination of a cargo of tuna in bulk shipped aboard the MS Benares from Port Louis, Mauritius Island to Cambridge, Maryland. The legal issues arise from the attempt of Maryland Tuna to obtain personal jurisdiction over the Japanese corporation by service of process on the New York corporation as its agent and the complete frustration of the efforts of Maryland Tuna to carry to a successful conclusion its Process of Maritime Attachment and Garnishment. It appears without dispute that all the shares of stock of the New York corporation were held in the names of its three officers and directors, all of whom were in New York at the time the process of attachment and garnishment was served on the New York corporation, and the evidence in the record would seem to support the conclusion that these individuals, by virtue of their office as officers and directors, held this stock not in their own right, but to serve some purpose or design of Nichimen Tokyo that is still obscure.

Two weeks after Judge Levet filed an opinion in which he concluded that the service of process against the Japanese corporation should be quashed because the corporation was not sufficiently present in the State of New York to afford a basis for personal jurisdiction, the certificates representing these shares of stock were sent to Japan for "safekeeping."

The equally important question, namely whether the legal or equitable interest of the Japanese corporation in the New York corporation, which would seem to be a lock, stock and barrel affair, was levied upon by service of the attachment papers on the New York corporation, was at first completely by-passed as the result of a judgment dismissing the libel and making no reference to the attachment and garnishment proceedings that had occurred in the interval between the date of filing the opinion quashing service of process and the entry of the judgment dismissing the libel. This surprising result would seem to stem from the circumstance that after the Clerk issued on November 9, 1966 the regular Form No. 2, Process of Maritime Attachment and Garnishment, stated on its face to be "issued pursuant to Rule B(1) of the Supplemental Rules for Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure," a quasi in rem proceeding, the Clerk, over the protest of counsel, also issued a summons to show cause, returnable on November 22, 1966, which is Form No. 3, applicable only to Supplemental Rule C(3) which has no application to the claim asserted in the libel but only to proceedings in rem.

It requires little argument to demonstrate that the as-yet-to-be-determined matter of the relationship between the two corporations is likely to be dispositive both of the question of the validity of the service of process on Nichimen Tokyo and also of the question of whether there was any interest of Nichimen Tokyo in Nichimen New York that was levied upon in the attachment and garnishment proceeding. We are at a loss to understand how this simple point got completely buried under a mass of procedural moves and counter-moves.

We reverse the orders appealed from in Cases I and II and remand the cases for further proceedings not inconsistent with this opinion to afford an opportunity fully to explore the true relationship between Nichimen New York and Nichimen Tokyo. It may eventually appear that the issuance of the stock certificates evidencing ownership of Nichimen New York to the three officers and directors and the return of the certificates to Japan for "safekeeping" were part of a scheme by those who controlled Nichimen Tokyo to transact a large and substantially non-profit business in New York and elsewhere without subjecting Nichimen Tokyo to personal jurisdiction of the courts functioning in New York or to taxation in the United States. A complete airing of the whole situation may well have the effect of sustaining the quasi in rem Process of Maritime Attachment and Garnishment under Supplemental Rule B(1), and it may also compel a reappraisal of the factors controlling a decision of the question of jurisdiction in personam as against Nichimen Tokyo.

The appeal in Case III is dismissed.

Chronological Survey of Proceedings

Although the written contract of October 20, 1964 shows on its face that the agreement to purchase the tuna was made by Nichimen Tokyo, Maryland Tuna proceeded by libel in admiralty in the District Court for the Southern District of New York against the MS Benares, Nichimen New York and others on October 7, 1965, alleging negligence by Nichimen New York causing contamination of the tuna. On October 13, 1965 a civil action at law was brought against Nichimen New York and the complaint sought damages in the same amount as was stated in the libel, $46,311.05, based upon an alleged breach of the implied warranty of merchantability, a theory of recovery different from the one charged in the libel. There was, of course, no problem of personal jurisdiction because Nichimen New York was a New York corporation. The answer of Nichimen New York, however, revealed the fact that Nichimen New York was not the seller of the tuna and that its only function in the entire transaction was to act as a collection agent for Nichimen Tokyo in California under a letter of credit.*fn1 Maryland Tuna promptly amended its pleadings in the two cases and on March 17, 1966 joined Nichimen Tokyo as a defendant.

Significantly, Maryland Tuna, in its amended libel, added two new paragraphs to its prayer for relief, the only purpose of which was, we think, to comply with what was then General Admiralty Rule 2 (the predecessor to the present Rule B of the Supplemental Rules which took effect on July 1, 1966) which then required that the libel contain "a clause therein to attach his goods and chattels, or credits and effects in the hands of the garnishees named in the libel to the amount sued for, if said respondent shall not be found within the district." The two new clauses are:

In case the respondent, Nichimen Co., Ltd., Tokyo, cannot be found within this district, then that all goods, chattels and credits belonging to it within this district, and in particular debts, credits and effects in the possession of Nichimen Co., Inc., may be attached by process of foreign attachment in the amount of $46,311.05, the sum sued for in this libel, with interest and costs and disbursements of the libelant.

And that the said garnishee, Nichimen Co., Inc., be cited and admonished to appear and answer on oath as to the said effects, debts or credits of the respondent, Nichimen Co., Ltd., Tokyo, in its hands.

As Maryland Tuna claimed it had obtained personal jurisdiction over Nichimen Tokyo by service of process on Nichimen New York, it was obviously not possible then to file with the amended libel an affidavit to the effect that "the defendant cannot be found within the district." Moreover, such an affidavit was not required under General Admiralty Rule 2.

The response of Nichimen Tokyo was a special appearance and a motion to dismiss the libel and the civil action at law under Fed.R. Civ.P. 12(b) (2) and 12(b) (3) for lack of jurisdiction over the person and improper venue. The latter ground is not involved on this appeal. The motion to dismiss on the former ground was argued, on the basis of affidavits pro and con, before Judge Levet who concluded in a preliminary way, in an opinion filed on October 3, 1966, that there was no basis for the exercise of personal jurisdiction over Nichimen Tokyo, under the applicable New York law. He stated in the opinion, however, that he would withhold final determination of the question until a deposition of an officer of Nichimen New York could be taken and submitted to him. Accordingly, the deposition of the President of Nichimen New York was taken on October 10, 1966. We shall later refer to this testimony. The result was the filing of a Supplemental Opinion by Judge Levet on November 7, 1966, with findings of fact and conclusions of law to the effect that the nature of Nichimen Tokyo's activities in New York were not sufficient to support jurisdiction in personam. The opinion concluded: "The respondent is entitled to an order quashing service. * * * Settle order on notice." It now having been judicially decided that Nichimen Tokyo was not to be found in the district, Maryland Tuna acted promptly.

On November 9 Maryland Tuna's counsel filed the affidavit required by Supplemental Rule B(1)*fn2 to the effect that Nichimen Tokyo could not be found in the Southern District of New York. He also obtained on the same day from the Clerk Form No. 2, Process of Maritime Attachment and Garnishment, in all respects regular and in conformity with the requirements of Supplemental Rule B(1), directed against Nichimen New York as garnishee and requiring the attachment of "debts, credits and effects and any interest of Nichimen Co., Ltd. in Nichimen Co., Inc."

Also on November 9, 1966, and evidently immediately after issuing the regular and proper Form No. 2 pursuant to Rule B(1), the Clerk, we are told, insisted upon also issuing Form No. 3, "Summons to Show Cause Why Intangible Property Should Not Be Paid Into Court." This document should not have been issued and it is the document that is largely responsible for the confused and chaotic state of the record before us.

On November 14, 1966 the marshal served on the manager of Nichimen New York copies of the Form No. 2, "Process of Maritime Attachment and Garnishment," * * * "issued pursuant to Rule B(1) of the Supplemental Rules * * *," and of Form No. 3, "Summons to Show Cause Why Intangible Property Should Not Be Paid Into Court," * * * "issued pursuant to Rule C(3)*fn3 of the Supplemental Rules * * *." The summons to show cause was returnable at 10:00 A.M. on November 22, 1966 in Room 506 of the United States Courthouse. Nichimen New York did not respond to the Summons to Show Cause and its default was noted by the Clerk. On the same day, however, i.e., November 22, 1966, Nichimen New York "as garnishee" served an answer to the libel denying that it held "at the time of the service of process ...


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