The opinion of the court was delivered by: MODARELLI
This is an interpleader action filed on December 28, 1950, by Al Bierman and William Miller against Samuel Marcus and Milmar Estate, Inc.
In order to understand the full significance of the matters in dispute in this case, I feel it necessary to make a synopsis of the pleadings in narrative form.
The complaint alleges that on September 14, 1948,
Milmar contracted to sell to Bierman and Miller all of its authorized and issued stock, consisting of 1,250 shares of common stock.
The purchase price was $ 125,000, payable $ 30,000 cash on September 14, 1948, and $ 95,000 in deferred payments: $ 3,000 each month certain premises at Fort Lee, New Jersey, were open for business, and $ 1,500 each month the premises were closed. On the date of the complaint, the unpaid balance of the purchase price was $ 35,000 and a payment of $ 1,500, plus interest, would be due on January 1, 1951; additional payments of $ 1,500 or $ 3,000, plus interest, would be due on the first day of each succeeding month. Marcus '* * * claims that he is entitled to the said $ 1,500.00 installment and interest, and to all the installments constituting the balance of the purchase price, to wit: $ 35,000.00, and interest, and demands payment of same. Defendant, Milmar Estate, Inc., may claim that it is entitled to the said $ 1,500.00 installment and interest, and to all the installments constituting the balance of the purchase price, to wit: $ 35,000.00 and interest.' If plaintiffs pay any installment to the defendant not entitled to it, the other defendant might declare an acceleration of the entire balance of the purchase price.
Plaintiffs require the protection of this court in order that they will not be compelled to pay the balance of the purchase price twice and to restrain defendants from calling a default and invoking the acceleration clause. Plaintiffs have deposited the $ 1,500 installment and interest into the registry of the court and have alleged their willingness to deposit the amount of each installment as it becomes due.
They demand that the defendants interplead to determine their rights to collect the obligation described in the complaint; plaintiffs also demand a discharge from all liabilities to the defendants.
On December 28, 1950, on plaintiffs' motion the court (1) enjoined the defendants from commencing or prosecuting any legal proceeding affecting the obligation involved in the interpleader action, (2) ordered the defendants (a) to interplead and determine their rights, (b) not to invoke the acceleration clause of the alleged contract, (c) to show cause on January 15, 1951, why plaintiffs should not be discharged from their alleged liability under the alleged contract and why the injunctions in the order should not be made permanent.
Milmar cross-claims against Marcus, demanding judgment that as a result of the September 14, 1948, transaction, Marcus has no right, title, or interest in any Milmar stock certificates issued prior to September 14, 1948; any Milmar stock certificates possessed by Marcus be delivered to Milmar for cancellation; the balance of the proceeds of the condemnation award
is the sole property of Milmar and should be delivered and paid to Milmar; an unlawful filing by Marcus of a lis pendens was a malicious use of process for which Milmar demands punitive damages of $ 100,000, and it was also a malicious abuse of process and a malicious prosecution for which it demands $ 100,000, and it was also a slander of title for which it demands $ 100,000, and it was also a malicious interference with a prospective economic advantage for which it demands $ 100,000.
Marcus filed his responsive pleading on October 25, 1954, in which he cross-claims against Milmar and Al Kevelson,
and counterclaims against the plaintiffs. His claims are in the alternative: The September 14, 1948, document is null and void, and there is no contract relating to the sale of any Milmar stock; Lieberman must deliver to him all the stock and all other documents deposited by him pursuant to the September 14, 1948, document;
he is the owner and presently entitled to possession of 1,230 shares of Milmar; Bierman, Miller, and Kevelson are not the duly elected officers and directors of Milmar, have no right to act as such and must be restrained from so acting; in the alternative, if the September 14, 1948, document is a contract, $ 35,000, plus $ 15,000, must be paid to him; he is the owner and entitled to possession of 630 shares of Milmar stock; Miller, Bierman, Milmar, and Kevelson have defaulted in paying money due him under the September 14, 1948, contract, so that he has the right to the possession of the Milmar stock held by Lieberman as escrowee, who should deliver to him all documents held by him pursuant to that contract. He also cross-claims against Milmar for $ 46,801.23 allegedly loaned to it.
Bierman and Miller counterclaim against Marcus: The transaction of September 14, 1948, is a valid contract; Marcus has no right, title, or interest in any of Milmar's stock; Marcus is not an officer or director of Milmar; the $ 50,000 note executed by Miller to Marcus must be cancelled; Bierman, Miller, Milmar, and Bill Miller's Riviera, Inc., must be released from all liability to Marcus, excepting the liability of Miller on the balance of the $ 15,000 note to Marcus; Marcus is not entitled to the return of any documents held by the escrowee, Lieberman; all documents held by Lieberman pursuant to the September 14, 1948, transaction must be delivered to Bierman and Miller; all of the stock of Milmar is owned as follows: Miller, 40%; Kevelson, 40%; Bierman, 20%; Marcus must deliver to Miller all certificates of stock which he holds.
Kevelson cross-claims against Marcus, alleging essentially the same things as do the plaintiffs against Marcus.
As I see them, the legal and factual issues raised by the pleadings and the evidence are: (1) Has the court jurisdiction under 28 U.S.C.A. § 1335?
(2) Are Marcus and Milmar 'adverse claimants' who 'are claiming or may claim to be entitled' to the unpaid balance of the purchase price of the Milmar stock?
(3) What substantive law governs the contract claim? (4) Did Bierman, Miller, Milmar, and Marcus on September 14, 1948, contract for the purchase and sale of any amount of Milmar stock owned by Marcus?
(5) If there is a contract, was Marcus fraudulently induced to enter into it? (6) Does Milmar owe Marcus any money which he loaned to it? (7) Was Marcus' filing of a lis pendens (a) malicious use or (b) abuse of process, (c) slander of title, or (d) malicious interference with a prospective economic advantage.
The citizenship of the parties is: Plaintiff Bierman, North Carolina; plaintiff Miller, New Jersey; defendant Marcus, New York; and defendant Milmar, New Jersey. There is diversity of citizenship between the two defendants who allegedly are adverse claimants. But does the co-citizenship of Miller and Milmar jurisdictionally affect the requirement of diversity set forth in 28 U.S.C.A. § 1335? The question is discussed in 3 Moore, Federal Practice, paragraph 22.09, page 3029 (2d Ed. 1948), where Professor Moore notes that Treinies v. Sunshine Mining Co., 1939, 308 U.S. 66, 60 S. Ct. 44, 84 L. Ed. 85, does not settle the doubt '* * * whether, under the Interpleader Act, there must be diversity between the complainant and all the claimants, if the complainant has an interest and is not a mere stakeholder * * *.' This court agrees with Professor Moore who believes that interpleader relief is proper despite the co-citizenship of a plaintiff with an interest and a defendant who is an alleged claimant. Ibid. The dicta in Boice v. Boice, 3 Cir., 1943, 135 F.2d 919, 920, is not contra. That case also involved a bill in the nature of interpleader. The appellate court affirmed the trial court's order dismissing the complaint which sought interpleader between the defendants. But the court also thought that '* * * the dismissal was right because of an absence of diversity of citizenship between the plaintiff and one of the defendants * * *.' Confining that case to its facts, the dicta expresses the court's view that in a case involving a bill in the nature of interpleader where one plaintiff has an active controversy with respect to the subject matter of the suit with one of the defendants whose citizenship is the same as his, the court is without jurisdiction. Although this is also a case involving a bill in the nature of interpleader,
that dicta does not apply. Here there is co-citizenship of plaintiff Miller and defendant Milmar. But not only are there two plaintiffs, one of whose citizenship differs from the two defendants, but further analysis demonstrates the inapplicability of that dicta.
Miller's theory pertaining to Milmar is that he and Bierman purchased all of Milmar's stock. Milmar's theory is the same as Miller's. Thus, there is no 'active controversy' between Miller and Milmar. This is so even though the interpleader action was commenced on the ground that since the named seller is Milmar, it 'may claim' the unpaid balance of the purchase price of the Milmar stock. But Miller (and Bierman) never have claimed a right to that money. In this case, it is important to distinguish between the phase of the case involving the fund and the controversy concerning the nature of the September 14, 1948, transaction. A similar distinction was made in the Boice case, where the Court of Appeals carefully referred to the plaintiff's '* * * active controversy with respect to the subject matter of the suit with one of the defendants * * *.' This general language becomes meaningful by referring to the facts of the case described in the lower court's opinion. D.C.N.J.1943, 48 F.Supp. 183. In that case, the fund in court resulted from dividends paid to the plaintiff who was formerly a trustee of stock under a declaration of trust. The trust had been terminated, but the stock was still registered in his name. At the time plaintiff commenced the interpleader action, there was a controversy between him and the settlor's wife concerning the right to the stock. Clearly, that plaintiff did not claim any right to the dividends he deposited in court. Thus, the Court of Appeals decided the district court was without jurisdiction because of the plaintiff's active controversy with one of the defendants and both of them were citizens of the same state. But in the case at bar, the two co-citizens (Miller and Milmar) do not have an active controversy with each other, even though one (Milmar) may have had a claim to the unpaid balance of the purchase price of the Milmar stock at the time the action was commenced because it was the named seller.
On the basis of the foregoing, the court concludes that it has jurisdiction under 28 U.S.C.A. § 1335.
Previously, the court decided in an order dated March 24, 1953, that Marcus and Milmar are adverse parties. The question arose on a motion by Milmar to strike interrogatories propounded to it by Marcus. The court's order denying the motion was based on its finding that they were adverse parties. And clearly, on the date of the complaint Marcus was claiming to be entitled to the unpaid balance of the purchase price of the Milmar stock, and Milmar as the named seller in the basic document involved in the transaction 'may claim' that money. Thus, they are adverse claimants within the meaning of the Interpleader Act.
Before discussing the remaining issues, what substantive law governs this action?
Kerrigan's Estate v. Joseph E. Seagram & Sons, 3 Cir., 1952, 199 F.2d 694, was an interpleader action. The court held that the substantive law governing the action was the state law in which the federal court sat as that state's court had declared it, citing Klaxon Co. v. Stentor Electric Mfg. Co., 1941, 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477. In the case at bar commenced in this New Jersey federal court, there is a dispute concerning the interpretation of certain documents, which were executed not in New Jersey but in New York. The New Jersey conflict of laws rule is the general rule, viz., the reference regarding questions of validity and interpretation of the obligations of the parties is to the place of contracting.
Colozzi v. Bevko, Inc., 1955, 17 N.J. 194, 202, 110 A.2d 545; James H. Rhodes & Co. v. Chausovsky, 137 N.J.L. 459, 462, 60 A.2d 623; Hinkly v. Freick, 86 N.J.L. 281, 283, 90 A. 1108, L.R.A.1916B, 1041. That place is New York. Thus the substantive law governing this action is New York law as the New York courts have declared it.
Before I recite my findings of facts in this case, I should like to make some observations. The case was tried intermittently without a jury over a period of approximately four months, consuming nineteen full trial days beginning January 29, 1955. The transcript is 2,471 pages, in six volumes, and hundreds of documents are in evidence, with no attempt made to abbreviate them so that I should only consider the parts which were pertinent to the disposition of this case. The record is a very long one and its analysis was a tedious and rather unwelcome task because of truths evaded, half truths, half lies, some perjury, faulty recollection of events, of incidents, and conversations which took place some seven years before the trial. Thousands of pages of depositions were taken and were used often to confront witnesses with statements made at the taking of depositions which were irreconcilable with the testimony given at the trial. Many of the characters involved in this litigation might be well characterized as Damon Runyon types, some of whom had a wholesome disregard for the spirituality of the truth and were actuated in testifying to facts which they thought more helpful to their cause than to establishing the truth of what happened. The record is replete with circumlocutions of the truth and the best that could be said for some of the witnesses is that they had no recollection of what actually happened, and so they said whatever came to their minds while on the stand. These factors made it rather difficult to find the facts, and I have done the best I can to establish the operative facts under the circumstances.
The bringing of this case to trial was characterized by much unnecessary delay. It appears to me from the activity of some of the litigants that it was deliberately planned to delay the trial of the issues. Countless motions were made before the trial and during the trial; may postponements of arguments on the motions were had for one reason or another. I do not find it necessary to specify who the delayers were. Motions were made during the trial for discovery of documents and books in an effort by one of the litigants to bolster up his case. Great inconvenience was caused in searching for documents which had long since been put away. It meant rummaging through countless files and thousands of papers in an effort to find something to bolster up the case, but all in vain. I found it necessary to force the trial on because several of the litigants were thoroughly disgusted with the delay and appealed to me personally over the heads of their counsel. Their appeals were justified. It became necessary during the course of the trial for the production of typewriter experts, which, in my opinion, were ...