Grynberg v. Burke

On June 24, 1977 the United States Supreme Court handed down its decision in the landmark case of Shaffer v. Heitner, 433 U.S. 186 , 97 S.Ct. 2569 , 53 L.Ed.2d 683 . On September 9,1977 certain of the individual defendants in this action, namely, Gene E. Burke, William E. Foster, Wesley N. Farmer, Thomas J. Vogenthaler and Norman J. Singer, moved to withdraw general appearances entered by them during December 1976. In addition, they seek an order which would permit them now to enter only a special appearance for the sole purpose of contesting the jurisdiction of this Court over them. The basis for the present application is the decision in Shaffer v. Heitner, supra.

This suit was filed in October 1976 and service of process was effected upon the aforesaid individual defendants by means of sequestration of their stock interests in the defendant Oceanic Exploration Company pursuant to 10 Del.C. § 366. A sequestrator was appointed and notification of the attachment given as to all except the defendant Singer. As to Singer, the initial sequestration effort was clouded by the use of an incorrect address. In November, however, Singer appeared in Delaware in connection with a special hearing being held concerning the propriety of then counsel for the defendants continuing to serve in the litigation. While here, Singer was served personally with process even though plaintiffs acknowledge that arguably at least he was immune from personal service under the circumstances.

Thereafter, in December 1976, by written stipulation of counsel, all of the aforesaid defendants entered a general appearance, in return for which the sequestration order was vacated and their stock interests released from further Court process. Also by written stipulation filed a few days later it was agreed that another defendant, Marc Waucquez, a Belgian national and one of the trustees in the voting trust which the complaint seeks to set aside, would enter a special appearance as trustee, thereby limiting his potential liability to the in rem issues only. Plaintiffs apparently agreed to this because Waucquez had indicated an intention to challenge the validity of the sequestration of his property interests, an involvement plaintiffs wished to avoid in the hope of moving the matter toward an early trial. In keeping with the foregoing stipulated appearances, none of the individual defendants moved to challenge jurisdiction in any way prior to the announcement of the decision in Shaffer v. Heitner.

The issue in Shaffer dealt specifically with the sequestration of nonresidents’ stock in a Delaware corporation pursuant to 10 Del.C. § 366 for the purpose of coercing such nonresidents to enter general appearances in litigation commenced against them in this forum. Compare Sands v. Lefcourt Realty Co., Del.Supr., 117 A.2d 365 (1955). In its decision the United States Supreme Court held, however, that this Court’s exercise of in rem or quasi in rem jurisdiction premised on the presence of a nonresident’s

“With respect to procedural due process, for example, the Court has acknowledged that waiver is possible, while explicitly leaving open the question whether a ‘knowing and intelligent’ waiver need be shown.

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“Almost without exception, the requirement of a knowing and intelligent waiver has been applied only to those rights which the Constitution guarantees to a criminal defendant in order to preserve a fair trial.”

As a consequence, I am inclined to base the decision here on the discussion of the waiver issue in Curtis Publishing Company v. Butts, 388 U.S. 130 , 87 S.Ct. 1975 , 18 L.Ed.2d 1094 (1967). First, however, I shall summarize the contentions of the parties.

Plaintiffs urge several factors in support of their position that a waiver as to jurisdiction has taken place. They point out that the same Delaware law firm representing the individual defendants here also represented the nonresident defendants who appealed to the United States Supreme Court in Shaffer v. Heitner, and that long before the entry of the stipulated general appearances here a jurisdictional statement had been filed in Shaffer in which it was made clear that the constitutional invalidity of the Delaware sequestration process was being asserted. In this Court, where the Shaffer case had been commenced by sequestration, the present defendants’ same Delaware law firm had moved to challenge the sequestration of the nonresident defendants’ stock interests and had thus preserved their right to attack jurisdiction. Yet that same law firm saw fit not to do so for the individual defendants here.

The record also reveals that the moving defendants here were aware, as of the time they entered their general appearances, that they possessed the right under Delaware law to challenge the validity of the sequestration process without subjecting themselves to in personam jurisdiction, that the sequestration process had been declared unconstitutional by the United States Court of Appeals for the Third Circuit in June 1976 in U. S. Industries, Inc. v. Gregg, 540 F.2d 142 (3rd Cir. 1976) on the facts therein presented, and that the United States Supreme Court had noted probable jurisdiction in Shaffer. Plaintiffs also point to defendants’ necessary knowledge that Waucquez had been permitted to enter a special appearance so as to avoid a challenge of the sequestration process by him, and that Singer had chosen to enter a general appearance even though he had an additional premise on which to attack jurisdiction due to a possible immunity from personal service.

Based upon these factors, plaintiffs find it inconceivable that the individual defendants did anything other than to knowingly waive all right they might have had to attack the service of process and to thereby voluntarily submit themselves to the jurisdiction of the Court.

Turning then to Curtis Publishing Company v. Butts, there, in answer to a defense of waiver, it was held that the failure to allege and assert a defense to a libel action based upon the First Amendment, when at the time there was no precedent supporting such a defense, did not bar the defendant, after suffering an adverse verdict, from moving for a new trial based upon such a constitutional defense which had been established shortly after the verdict by the decision of the United States Supreme Court in New York Times Co. v. Sullivan, 376 U.S. 254 , 84 S.Ct. 710 , 11 L.Ed.2d 686 (1964). Referring to Johnson v. Zerbst, supra, the Supreme Court emphasized that to constitute a waiver, there must have been a voluntary relinquishment of a known right which, presumably, could not have occurred before the right was declared to exist by the Supreme Court. Despite the possibility that bridging the gap in Curtis Publishing Company may have been facilitated by the Court’s decision to support the verdict and resulting judgment even in the face of the defense born of New York Times Co. v. Sullivan, the fact remains that the decision of the United States Court of Appeals for the Fifth Circuit to deny the motion for new trial under the waiver theory was not approved.

It was also established as a fact in Curtis Publishing Company that certain attorneys representing its interests were also involved in representing the interests of the publisher in the pending appeal in New York Times Co. v. Sullivan. The Court of Appeals had found this significant, charging counsel for Curtis with notice of “the handwriting on the wall” as of the time Curtis failed to raise the constitutional defense in its litigation. The Supreme Court, however, rejected this overlap of counsel as a basis for finding a waiver, deeming it inadvisable to determine whether a constitutional right is known for purposes of deciding whether or not a failure to assert it constitutes a waiver “by relying on information outside the record concerning the special legal knowledge of particular attorneys.” 388 U.S. 144 , 87 S.Ct. 1986 , 18 L.Ed.2d 1105 .

Despite the attempt of plaintiffs to distinguish Curtis Publishing Company from the present situation on the theory that a substantive right was involved there as compared to a procedural matter in the present case, I am persuaded that the rationale of Curtis controls the decision on the pending motion, at least to a certain extent.

At the same time I do not mean to imply that this holding automatically entitles the individual defendants to a dismissal of the complaint against them due to a lack of the essential minimum contacts with this forum. Indeed the motion itself does not go that far. Rather it asks that they now be entitled to enter a special appearance in order that they may contest jurisdiction under Shaffer. Thus the very form of the motion contemplates a special hearing or proceeding to determine whether the test of Shaffer and International Shoe Company has been met. And since the minimum contacts test necessarily includes factual determinations, it seems appropriate to view the nature of the proceeding they seek to be an evidentiary one.

Nor do I feel it to be dispositive that the plaintiffs have conceded, at least at this juncture, that the requisite minimum contacts do not in fact exist. This is particularly important where a potential waiver of insufficient process based upon the affirmative entry of a general appearance is the topic for consideration. As plaintiffs point out, defects in service of process are often deliberately waived for a variety of reasons. Sometimes defendants find it convenient for their purposes to submit voluntarily to suit against them in a foreign jurisdiction. The ability to joint third-party defendants or to cross-claim against a co-defendant may be a factor. Avoidance of unpleasant publicity in one’s home town, or perhaps, a more favorable body of law, or a desire to obtain a more speedy resolution on the merits in a jurisdiction having less of a judicial backlog may well influence a decision to waive defective process. In fact Chancery Rule 12(h)(1) recognizes these commonplace considerations by providing that defenses of lack of jurisdiction over the person and insufficiency of service of process are considered waived as a matter of course by the filing of a motion or responsive pleading which fails to assert them.

In other words, while I hold that the individual defendants here have not waived the right to challenge the jurisdiction of this Court over their persons I cannot accept at this point their naked assertion that their only reason for choosing to enter a general appearance was because of their desire to obtain a release of their property interests from the effect of the sequestration order. As yet there is nothing in the record of which I am aware that would support such a finding. And since these defendants now seek to avoid their affirmative act of entering the general appearances, and to do so based on the Shaffer decision, the burden of demonstrating that this was the sole motivation for their conduct, as opposed to other equally plausible considerations, should be theirs to establish.

This approach is made more compelling when the special appearance entered by Waucquez and the additional factors pertaining to Singer are recalled. In short, while the burden may not necessarily be upon nonresident defendants to affirmatively establish the absence of minimum contacts now in a post-Shaffer suit initiated under in rem or quasi in rem process, I feel it only fair to require them to demonstrate their entitlement to rely on the right created by Shaffer under circumstances such as exist here.

Accordingly, the motion to withdraw the general appearances and to enter special appearances for the purpose of contesting jurisdiction is denied, without prejudice, however, to the right of these defendants, through an appropriate application, to establish an evidentiary basis on which to justify an order dismissing the complaint as to them due to a lack of personal jurisdiction despite their collective entry of a general appearance. An appropriate form of order may be submitted.