defendants acting through one of their many corporate and partnership masks. The date of March 4, 1960, saw the regeneration of the extensive Rubinoff feed milling enterprises through the creation of new corporations to serve their many interests; the manipulation of stockholdings of the various corporations; the redistribution of assets, including the machinery and equipment in question; and the creation of new obligations by some of these legal entities, including the chattel mortgage transaction in question. However, it is apparent that ultimate control and ownership of these various companies, corporate and otherwise, were vested in the same individuals, namely, the defendants herein. And while Son-Mark Industries, Inc. obtained all the capital stock of the many Rubinoff corporations owned by Rubinoff Associates through officers common to both, the defendants herein, it in turn transferred all its corporate stock holdings to Jacob Rubinoff Co., the management company. The real estate mortgagor, Gold-Mark Realty Co., Inc., was controlled by the defendants herein, trading as Rubinoff Associates, who claimed title to the realty and the chattels on the institutional annexation theory, through foreclosure in 1961 of the $1,300,000.00 realty mortgage loan of which the Rubinoff Associates were the mortgagees.
The issues raised by the present cross motions must be viewed within these carefully structured corporate webs in which the parties now find themselves. In New Jersey, whose laws govern this diversity matter, the common law mortgage, whether chattel or real, vested the mortgagee with a defeasible title to the security with the concomitant right of immediate possession, subject to defeat upon the timely payment of the mortgage loan by the mortgagor.
Such an estate with its incidents was modified in New Jersey in the Nineteenth Century, so as to convert the common law transaction into one for security only, rather than the creation of a common law estate. Sanderson v. Price, 21 N.J.L. 637 (E. & A.1846); Woodside v. Adams, 40 N.J.L. 417 (Sup.Ct.1878); Kirkeby Corp. v. Cross Bridge Towers, Inc., 91 N.J.Super. 126, 131, 219 A.2d 343 (Ch.Div.1966); Farrow v. Ocean County Trust Co., 121 N.J.L. 344, 2 A.2d 352 (Sup.Ct.1938). Thereafter, the mortgagor's right to possession, as an incident of his title, remained in him, rather than moving to the mortgagee, and such right was paramount to all the world, unless and until a default in the mortgage terms occurred upon which the mortgagee proceeded by foreclosure to vacate the mortgagor's rights, including that of possession, and the extinction of his equity of redemption by final judgment.
The present complaint alleges that these very defendants independently intervened in Dommerich's prior chattel mortgage foreclosure proceeding and affirmatively asserted rights, title, interests and lawful possession exclusively in themselves and, at the same time, adverse and hostile to both the mortgagor and mortgagee; that the defendants made similar claims which were adverse and hostile to the mortgagee in the mortgagor's bankruptcy proceeding, as well as in their own declaratory judgment action, all of which pleadings are annexed as exhibits and incorporated by reference into the complaint. Thus, it is charged that these defendants asserted interests adverse and hostile to Dommerich on at least three separate occasions by more than the mere perfunctory filing of a legal answer in a pending action. And it is argued, that these defendants persistently sought to divert the chattel security from the reach of the mortgagee, and asserted interests inimical to the mortgagee's which would in effect leave the plaintiff with a balance due in excess of $100,000.00 on a dry, unsecured original loan of a quarter million dollars.
The present complaint in "trover" is the common law form of action to recover the value of goods or chattels by reason of an alleged unlawful interference with the possessory right of another, by the assertion or exercise of possession or dominion over the chattels, which is adverse and hostile to the rightful possessor. Mfgrs. Cas. Ins. Co. v. Mink, 129 N.J.L. 575, 30 A.2d 510 (Sup.Ct.1943); Mueller v. Tech. Devices Corp., 8 N.J. 201, 84 A.2d 620 (1951). And while the wrong and the remedy are ancient creatures of the common law, the gist of the modern action of trover is "conversion," that is, the exercise of any act of dominion over chattels in denial or defiance of or adverse to another's title or possessory right. Mueller, supra.
Viewed against the foregoing definitions, the plaintiff's complaint, and the allegation of facts and circumstances contained therein, states a valid and sufficient cause of action in law. Consequently, defendants' motion to dismiss the complaint, for failure to state a claim upon which relief can be granted, will be denied.
Turning to the plaintiff's cross motion to restrain the defendants' subsequent State Court action, which seeks to compel the instant plaintiff to foreclose the chattel mortgage in question, a less complex but no less troublesome problem is presented. The questions are whether these separate actions between the same parties may co-exist, or whether, as contended by the plaintiff in this Court, the gravamen of the State Court proceeding should be interposed here as a compulsory counterclaim when the instant defendants file answer to the complaint; or whether as countered by them, the present claim of trover and conversion should have been asserted by the instant plaintiff as a counterclaim in the prior declaratory judgment proceeding in which it was a defendant-counterclaimant on the question of title.
First of all, New Jersey practice provides for a permissive counterclaim. R.R. 4:13-1 states:
"A pleading may state as a counterclaim any claim against the opposing party whether or not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim, except that any defendant failing to set off a liquidated debt or demand, or a debt or demand capable of being ascertained by calculation, shall thereafter be precluded from bringing any action for such debt or demand which might have been set off under the provisions of this rule."
The declaratory judgment action sought to, and did establish the legal status of the parties to that proceeding. It was not an action for damages in which a connected or unconnected debt could have been offset under the foregoing rule, nor is it likely that it could have been successfully pleaded in that type of suit. Cf: Rosa v. Transport Operators Co., 45 N.J.Super. 438, 443, 444, 133 A.2d 24 (App.Div.1957). In a trover action, as here, the conversion must be established before the value of the chattels can be ascertained by traditional proofs fixing the extent of damages. Even assuming that Dommerich could have pleaded a "trover and conversion" in the declaratory judgment action in equity, such would have been merely a permissive counterclaim, an action at law, which it elected not to pursue until its status had been established upon which to base such a claim. Therefore, defendants' contention in this regard must fall.
Plaintiff raises a "tit for tat" argument to the effect that defendants' instant State Court action seeking to compel foreclosure is a matter of compulsory counterclaim under Rule 13(a) F.R.Civ.P., which provides as follows:
"A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. But the pleader need not state the claim if (1) at the time the action was commenced the claim was the subject of another pending action * * *."
The foregoing rule is considered by the Federal Courts to be a "good housekeeping" rule, being procedural, avoiding a multiplicity of actions, where all claims between the opposing parties generally have a logical connection arising out of the same transaction or occurrence. Southern Const. Co. v. U.S. etc., 371 U.S. 57, 83 S. Ct. 108, 9 L. Ed. 2d 31 (1962); Stewart-Warner Corp. v. Westinghouse Elec. Corp., 325 F.2d 822 (2 Cir. 1963), cert. den. 376 U.S. 944, 84 S. Ct. 800, 11 L. Ed. 2d 767 (1964); Barron & Holtzoff, Fed. Pract. & Proced. 1A §§ 391, 392. Plaintiff invokes 28 U.S.C. § 2283, contending that a stay of the State Court action should issue, where the effect of a state court judgment might tend to defeat or impair the jurisdiction, judgment, or orders of the Federal Court.
The general prohibition against enjoining actions in state courts is contained in 28 U.S.C. § 2283:
"A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."