Clarkson Co. v. Shaheen

544 F.2d 624, 22 Fed. R. Serv. 2d 552
CourtCourt of Appeals for the Second Circuit
DecidedNovember 1, 1976
DocketNo. 22, Docket 76-5018
StatusPublished
Cited by105 cases

This text of 544 F.2d 624 (Clarkson Co. v. Shaheen) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Clarkson Co. v. Shaheen, 544 F.2d 624, 22 Fed. R. Serv. 2d 552 (2d Cir. 1976).

Opinion

OAKES, Circuit Judge:

This suit was brought by a Canadian trustee in bankruptcy to obtain records located in the New York offices of the trustee’s two Canadian bankrupt corporations and in the possession of their officials, who are the appellants here. The United States District Court for the Southern District of New York, Richard Owen, Judge, granted to the trustee a preliminary injunction that required appellants to turn over the records and restrained them from disbursing or secreting any corporate property in, or coming into, their hands. This appeal lies by right from the grant of that injunction. 28 U.S.C. § 1292(a)(1).

Provincial Refining Co., Ltd. (PRC), and Newfoundland Refining Co., Ltd. (NRC), are interrelated corporations, commonly owned, organized under the laws of the Province of Newfoundland, Canada; they have executive offices and do business in New York. PRC owns and operates a petroleum refinery at Come-by-Chance, Newfoundland, and NRC manages the operation of the refinery. On March 12, 1976, after a week-long adversary hearing at which PRC and NRC were represented by counsel, the Supreme Court of Newfoundland (Trial Division) adjudicated the two corporations bankrupt and appointed appellee, The Clarkson Co., Ltd. (Clarkson), as trustee of both. Canadian law requires a trustee to take possession of the records of a bankrupt corporation,2 and Clarkson brought the present suit for that purpose. Named as [627]*627defendants were appellants here, who, as officers of the bankrupts, had custody or control of the records in New York.

A temporary restraining order preserving the records and directing the appellants to give Clarkson immediate and continuing access to them was issued by Judge Owen in federal district court on March 23, 1976, the day the federal complaint was filed. On March 24, appellants’ attorney obtained an ex parte order in the New York Supreme Court in order to prevent Clarkson from further examining PRC and NRC records.3 Immediately thereafter, Clarkson representatives were denied access to the books and records. On March 25, the state court order was modified at Clarkson’s request so as not to restrain Clarkson from taking action pursuant to the federal court order. Appellants’ request for the state order followed by their denial of access to Clarkson on March 24 led to the grant of a preliminary injunction by Judge Owen below on April 1, 1976, after notice and hearing. On that date the district court held both that the trustee had a lawful right to all property of the bankrupts and that “there is enormous risk of irreparable injury to the trustee” because the records “may well be destroyed.” No security against the possibility of wrongful restraint under Fed. R.Civ.P. 65(c) was sought by appellants or ordered by the court. Notice of appeal was duly filed.4

I. Jurisdiction.

Initially, as we are bound to do, Fed.R.Civ.P. 12(h)(3); Mansfield, Coldwater & Lake Michigan Ry. v. Swan, 111 U.S. 379, 4 S.Ct. 510, 28 L.Ed. 462 (1884), we raise on our own motion the question of jurisdiction, which is alleged on the ground of diversity of citizenship under 28 U.S.C. § 1332. As a matter of American bankruptcy law, the citizenship of the bankrupt, rather than that of the trustee in bankruptcy, is determinative for purposes of diversity jurisdiction. Bankruptcy Act, § 23, 11 U.S.C. § 46; Bush v. Elliott, 202 U.S. 477, 26 S.Ct. 668, 50 L.Ed. 1114 (1906); Tilton v. Model Taxi [628]*628Corp., 112 F.2d 86, 88 (2d Cir. 1940); 2 Collier on Bankruptcy ¶ 23.13, at 596 (14th ed. 1975). If this rule governed here, a question would arise as to whether PRC and NRC are to be treated as citizens of New York or Newfoundland.5 It is also true, however, that the determination of diversity citizenship under the Federal Bankruptcy Act is in derogation of the general common law rule that courts will look to the citizenship of a trustee, receiver, administrator, or other representative, and not the party which he represents, in determining diversity jurisdiction. Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183, 186, 52 S.Ct. 84, 76 L.Ed. 233 (1931); New Orleans v. Gaines’s Administrator, 138 U.S. 595, 606, 11 S.Ct. 428, 34 L.Ed. 1102 (1891); Nunn v. Feltinton, 294 F.2d 450, 453 (5th Cir. 1961), cert. denied, 369 U.S. 817, 82 S.Ct. 829, 7 L.Ed.2d 784 (1962); Nolan v. Transocean Air Lines, 276 F.2d 280, 283 n. 3 (2d Cir. 1960) (Friendly, J.), vacated on other grounds, 365 U.S. 293, 81 S.Ct. 555, 5 L.Ed.2d 571 (1961); Waxman v. Kealoha, 296 F.Supp. 1190, 1192 (D.Hawaii 1969); 13 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 3606, at 634-35 (1975).6 Thus, a trustee appointed under a law other than the Federal Bankruptcy Act may use his own citizenship in claiming diversity jurisdiction unless that law imposes its own restrictions. Since Clarkson was duly appointed a trustee in bankruptcy under the laws of Canada and appellants are citizens of New York, we hold that diversity jurisdiction exists in this case. Accord, Waxman v. Kealoha, supra.

A related point, which in a sense goes to jurisdiction, involves this court’s equitable responsibility, under Fed.R.Civ.P. 19, to dismiss a suit when the absence of an indispensable party makes impossible a just resolution of the entire action. See Kamhi v. Cohen, 512 F.2d 1051, 1053-55 (2d Cir. 1975); 7 C. Wright & A. Miller, Federal Practice & Procedure § 1611 (1972). Appellants urge that this action cannot be justly adjudicated without the presence as parties of PRC and NRC, and that, since their joinder would destroy diversity jurisdiction, the action must be dismissed. See id. § 1610. Under the flexible test governing Rule 19 questions, enunciated in Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118-19, 88 S.Ct. 733, 19 L.Ed.2d 936 (1968) (Harlan, J.), we find that the presence of PRC and NRC is irrelevant to a just resolution of the case.

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Bluebook (online)
544 F.2d 624, 22 Fed. R. Serv. 2d 552, Counsel Stack Legal Research, https://law.counselstack.com/opinion/clarkson-co-v-shaheen-ca2-1976.