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Korff v. G & G Corporation

Decided: May 28, 1956.

SAMUEL Z. KORFF AND SARAH KORFF, PARTNERS T/A S. KORFF & SON, M. B. ALTMAN SONS, OSCAR HEYMAN & BROTHERS, AND HARRY GORDON & SON, PLAINTIFFS-RESPONDENTS,
v.
G AND G CORPORATION, AND MAUDE DAOUD, INDIVIDUALLY AND TRADING AS DAOUD BROTHERS, DEFENDANTS-RESPONDENTS



For affirmance -- Chief Justice Vanderbilt, and Justices Oliphant, Wachenfeld, Jacobs and Brennan. For reversal -- Justice Heher. The opinion of the court was delivered by Jacobs, J.

Jacobs

[21 NJ Page 560] On November 22, 1954 Samuel Z. Korff and others filed their complaint in the Chancery Division seeking the appointment of a receiver for the G and G Corporation and other relief. The complaint alleged that the plaintiffs were creditors of the defendant corporation which had been organized under the laws of New Jersey and had its principal place of business at 1523 Boardwalk, Atlantic City. It alleged further that the corporation had been organized for the sole purpose of assisting Maude Daoud, individually and trading as Daoud Brothers, in carrying out her retail jewelry business at the aforementioned address and that its original capital consisted of cash and jewelry contributed by Charles Penneys, Samuel Penneys and Maude Daoud. It asserted that the corporation's board of directors consisted of Charles Penneys, Samuel Penneys, Maude Daoud and George Skaf (designated as an agent of Maude Daoud) and charged that the corporation's capital assets had "been diverted for the individual benefit of its directors and stockholders," that the corporation was unable to meet its obligations as they matured, and that a receiver was necessary to conserve the corporate assets and "discover the relationship and the financial transactions between the defendant Maude Daoud, individually and trading as Daoud Brothers, and the officers and directors of the defendant G and G Corporation." In their prayers for relief the plaintiffs demanded that the corporation be declared insolvent and a receiver appointed under the court's statutory and general equity powers; that the assets of the corporation and "the rights of the plaintiffs and all creditors and stockholders of said corporation may be ascertained"; that an accounting be made of "the assets held and the debt due by the defendant, Maude Daoud, individually and trading as Daoud Brothers, to G and G Corporation"; and that an order be entered compelling Maude

Daoud to turn over to the receiver all of the assets in her possession which are found to be the property of the corporation.

On December 3, 1954 Judge Haneman appointed a receiver and on December 9, 1954 he admitted Charles Penneys and Samuel Penneys as parties plaintiff in accordance with their verified petition seeking such relief. On December 23, 1954 an order was entered confirming and continuing the appointment of the receiver. Thereafter claims were filed with the receiver by Charles Penneys and Merion Textiles, a partnership composed of Charles Penneys, Samuel Penneys and Harry Penneys, all residents of Pennsylvania. In turn, the receiver asserted claims against Charles Penneys and Merion Textiles, and after negotiation a compromise offer of settlement was submitted to and approved by the court in an order dated July 13, 1955. During a hearing before the court on October 25, 1955 it was disclosed that Maude Daoud had been examined by counsel for the receiver with respect to a check made by the Philadelphia Life Insurance Company in the amount of $91,622.57, made payable to "Maude Daoud, temporary guardian of George J. Daoud, II, minor," endorsed in that fashion, and bearing a rubber stamp endorsement "pay to the order of Girard Trust Corn Exchange Bank, Pennswood Fabrication Muriel Textiles." Her explanation was as follows:

"Mr. Penneys called me up the early part of February and said, 'Maude, I can't discount the notes that you have sent me for the G & G Corporation and I have to have money to pay the accounts and notes of the G & G Corporation and I would suggest you trying to get the money from the Philadelphia Life Insurance Company that you have there for your son and send it to me for the G & G Corporation so I can pay the bills with the money. Otherwise, I will not be able to meet any of the G & G bills.'

So after calling me several times and telling me that it was a must, he got in touch with the Philadelphia Life Insurance Company with a Mr. Phil Steel and they sent me down copies of a letter for me to send to the Philadelphia Life Insurance Company and take my child's money out and give it to the G & G Corporation. Then the check was sent to me to Florida and I endorsed it and immediately sent it to Mr. Charles Penneys to his Philadelphia office." [21 NJ Page 562] After learning of the foregoing testimony the court entered an order dated November 21, 1955 which set forth that it appeared that George J. Daoud II, an infant under the age of 14 years, had an interest in the proceedings and that a guardian ad litem should be appointed for him, and designated Robert C. Koury as such guardian. On December 15, 1955 Mr. Koury filed a notice of motion that he would apply for leave to file a claim against the receiver, a cross-claim against Maude Daoud, and a counterclaim against Charles Penneys and Samuel Penneys, and for leave to join the partnership Merion Textiles and file a cross-claim against it. Attached to the notice of motion was Mr. Koury's affidavit which set forth that his partial investigation had led him to the belief that the "sum of $91,622.57 was unlawfully appropriated, converted by the said Maude Daoud in conjunction with others and diverted by them to their own personal uses and benefits in violation of the legal and equitable rights of the infant, George J. Daoud II, and that by reason thereof there exists a cause of action against Maude Daoud, G & G Corporation, Charles H. Penneys, Samuel Penneys, Merion Textiles and others, in favor of the said infant, George J. Daoud II, for the recovery by him against each or all of the aforesaid persons of the sum of $91,622.57." On January 3, 1956 the court granted Mr. Koury's motion and gave him leave to file an answering pleading to the complaint, proof of claim with the receiver and a cross-claim against him, a cross-claim against Maude Daoud, a counterclaim against Charles Penneys and Samuel Penneys, and a cross-claim against Merion Textiles and its members who were added as parties. On January 10, 1956 Charles Penneys and Samuel Penneys filed notice of appeal to the Appellate Division from that part of the court's order which allowed Mr. Koury to file a counterclaim against Charles Penneys and Samuel Penneys, and a cross-claim against Merion Textiles and its members who were added as parties, and permitted service of the counterclaim and cross-claim in accordance with the rules of practice. While their appeal

was pending in the Appellate Division we certified it under R.R. 1:10-1; no other notices of appeal were ever filed by any of the parties to the proceedings.

The co-plaintiffs-appellants Charles Penneys and Samuel Penneys contend that in the light of their nonresidence the Chancery Division "was without jurisdiction to enter the order appealed from." They do not, at this juncture, present anything whatever in opposition to the merits of the claim being asserted on behalf of George J. Daoud, II. Their position is that although the claim may be presented in Pennsylvania where they can be served, it may not be effectively prosecuted in New Jersey where they are not amenable to personal service. They deny that their voluntary action in becoming co-plaintiffs in the receivership proceeding was legally sufficient to vest jurisdiction in the Superior Court for the entry of the order of January 10th. And they seek supporting comfort in some of the recent New Jersey decisions which dealt generally with the privileges and immunities of nonresident participants in court proceedings and the scope of jurisdiction which may rightly be exercised over them. See Whalen v. Young, 15 N.J. 321 (1954); Mueller v. Eucenham, 33 N.J. Super. 156 (App. Div. 1954); Swanson v. Swanson, 10 N.J. Super. 513 (App. Div. 1950), affirmed 8 N.J. 169 (1951); Schuster v. Schuster, 9 N.J. Super. 11 (App. Div. 1950); Republic of China v. Pong-Tsu-Mow, 33 N.J. Super. 24 (Law Div. 1954). See also Munday v. Vail, 34 N.J.L. 418, 422 (Sup. Ct. 1871). Cf. Englander v. Jacoby, 132 N.J. Eq. 336 (Ch. 1942); Four Star Delivery Service, Inc. v. Central Winery, Inc., 133 N.J. Eq. 330 (Ch. 1943); Ertag v. Haines, 30 N.J. Super. 225 (Law Div. 1954).

In the early decision of Halsey v. Stewart, 4 N.J.L. 366, 426 [ Reprint ] (Sup. Ct. 1817), the court held that nonresidents were immune from civil process while "necessarily going to, staying at, or returning" from New Jersey court proceedings. This ruling followed earlier English precedents and has been adhered to in many later decisions in our courts. See Herman v. Arndt, 116 N.J.L. 150 (E. & A.

1936); Riewold v. Riewold, 121 N.J. Eq. 134 (Ch. 1936); Younger v. Younger, 5 N.J. Super. 371 (App. Div. 1949); Randall v. Randall, 14 N.J. Super. 110 (Ch. Div. 1951). Cf. Baskerville v. Kofsky, 18 N.J. Misc. 325 (C.P. 1940). Although various reasons for the broad doctrine embraced in the cases have been advanced from time to time they have for the most part been discredited in recent legal writings. See Keefe and Roscia, "Immunity and Sentimentality," 32 Cornell L.Q. 471 (1947); Note, "Immunity of Non-Resident Participants in A Judicial Proceeding from Service of Process -- A Proposal for Renovation," 26 Ind. L.J. 459 (1951); Clapp, "Civil Procedure in State Courts," 1951 Annual Survey of American Law 799, 803 (1952). Professor Keefe acknowledges that the immunity serves the public interest when applied to nonresident witnesses who might well, in its absence, decline to enter the State and aid the just disposition of the pending proceeding; but he voices the opinion that its application makes little sense when applied in favor of nonresident parties, particularly non-resident plaintiffs who have freely availed themselves of the local courts; and he pointedly inquires as to whether courts should not justly subject nonresident plaintiffs to civil process in separate proceedings by local residents rather than to remand such residents to proceedings in far away jurisdictions. In Baldwin v. Emerson, 16 R.I. 304, 15 A. 83 (1888), the Rhode Island Supreme Court forcefully rejected the prevailing view (as have several other courts) and declined to afford immunity from process to a nonresident who was in Rhode Island in connection with a suit in which he was a plaintiff; in the course of his opinion Justice Matteson said:

"The reasons assigned for the exemption of non-resident suitors from the service of a summons are that courts of justice ought to be open and accessible to suitors; that they ought to be permitted to approach and attend the courts in the prosecution of their claims and the making of their defenses without the fear of molestation or hindrance; that their attention ought not to be distracted from the prosecution or defense ...


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