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Greene v. Allen

Court of Chancery of Delaware, New Castle County

April 27, 1953

ALLEN et al.

Action was brought against non-resident directors of corporation. The non-resident directors made a motion to dismiss or quash service of process on ground that there was no effective seizure of any of their property under statute providing that Court of Chancery may compel appearance of non-resident defendant by seizure of his property, which may be sold to pay demand of plaintiff if defendant defaults. The Court of Chancery, in and for New Castle County, Seitz, Chancellor, held that motion to vacate orders of sequestration was required to be granted to extent that orders attempted to seize any stock interests of nonresident directors, in view of fact that records of corporation did not show that directors owned any stock.

Order in accordance with opinion.

Page 350

[33 Del.Ch. 509] Robert C. Barab, of Wilmington, and Paul Roberts, of New York City, for plaintiff.

Caleb S. Layton, and Henry M. Canby of Richards, Layton & Finger, of Wilmington, and R. B. Persinger, of Simpson, Thacher & Bartlett, of New York City, for Oswald L. Johnston and Floyd B. Odlum, defendants.

SEITZ, Chancellor.

This is the decision on the motion of two nonresident individual defendants to dismiss or quash service of process on the ground that there was no effective seizure of any of their property in Delaware.

This is a derivative action filed by plaintiff-stockholder against Airfleets, Inc., a Delaware corporation, and certain individual defendants who are directors of Airfleets and are nonresidents of Delaware. Plaintiff seeks an accounting from the individual defendants of the profits and damages allegedly due Airfleets arising out of the alleged diversion by the defendant, Floyd B. Odlum, of a corporate opportunity of Airfleets in respect of certain patents. Plaintiff also seeks a transfer of the patents or the imposition of a constructive trust on the patents in favor of Airfleets.

[33 Del.Ch. 510] In order to compel the defendants to appear, plaintiff sought orders under what was then the second paragraph of the Delaware Code 1935, § 4374. That statute, being now 10 Del. C. § 366, in so far as pertinent provides:

‘ If it appears in any complaint filed in the Court of Chancery that the defendant or any one or more of the defendants is a non-resident of the State of Delaware, the Court may make an order directing such non-resident defendant or defendants to appear by a day certain to be designated. Such order shall be served on such non-resident defendant or defendants by mail or otherwise, if practicable, and shall be published in such manner as the Court directs, not less than once a week for three consecutive weeks. The Court may compel the appearance of the defendant by the seizure of all or any part of his property, which property may be sold under the order of the Court to pay the demand of the plaintiff, if the defendant does not appear, or otherwise defaults. Such property shall remain subject to seizure and may be sold to satisfy any judgment entered in the cause, unless security sufficient to the Court is given to secure the release thereof.’

Thereafter two orders were entered providing for notice by mail and publication for three individual defendants including the two whose present motion is being decided. The two orders also directed the sequestrator to seize all shares and rights pertaining thereto standing in the names of the defendants ‘ or in or to which all, or any of them, may have or hold any right, title or interest’ . The sequestrator was directed to demand of the corporations a statement of the number of the shares held or owned or standing in defendants' names or in or to which they had any right, title or interest, ‘ with the number or numbers of the certificate or certificates or other marks distinguishing the same and the dates said certificates were issued, and all rights of any kind thereunto belonging or appeartaining; shall cause entries to be made on the books * * * showing that all such shares of said stock and the rights or interest therein are held by such sequestrator.’

It appears from the sequestrator's interim report that both Airfleets and Atlas made returns disclosing that neither Oswald L. Johnston nor Floyd B. Odlum (hereafter called ‘ defendants') had any shares standing in their names or any right, title or interest therein, in so far as the books of the respective corporations disclosed.

Page 351

[33 Del.Ch. 511] After these returns were received, the plaintiff addressed interrogatories to the defendants requiring the defendants to tell whether they owned any shares beneficially and, if so, to tell the name of the registered owner. This court, over objection, required the defendants to answer solely as a possible aid to the court in resolving the jurisdictional question. From the answers it appeared that the defendants owned beneficial interests in shares of stock of both Airfleets and Atlas. The defendants also disclosed the names of the registered owners of such shares. On the basis of the information so obtained the sequestrator then served notice of seizure of such shares on the corporations. However, this was not done pursuant to any additional court order. The information obtained and the action taken on the basis of the answers to these interrogatories cannot warrant a finding of jurisdiction if there was no jurisdiction without it. I say this because the court directed the interrogatories to be entered to see whether jurisdiction had been established, not to create it. I express no opinion on the effect of such action under other circumstances and the possibly related problem of ‘ joinder’ .

The defendants appeared specially and moved that the proceedings be vacated, quashed and set aside and the complaint be dismissed as to them. The first ...

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