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LEBOWITZ v. FORBES LEASING & FIN. CORP.

April 15, 1971

Marvin LEBOWITZ, Plaintiff,
v.
FORBES LEASING AND FINANCE CORPORATION (a foreign corp.), Benjamin Ogurek, Orchid Farales, Network Cinema Corporation and Jerry Entman, Defendants


Edward R. Becker, District Judge.


The opinion of the court was delivered by: BECKER

EDWARD R. BECKER, District Judge.

 I. STATEMENT OF CASE

 We are here confronted with a challenge to the validity of the Pennsylvania foreign attachment procedure on post- Sniadach due process grounds. Sniadach v. Family Finance Corp. *fn1" is the landmark case holding that, absent notice and a prior hearing, the Wisconsin pre-judgment garnishment procedure in which a summons was issued at the request of a creditor's lawyer, and the lawyer, by serving a garnishee, set in motion machinery whereby wages were frozen in the interim before trial of the main suit without any opportunity on the part of a wage-earner to be heard or to tender any defense he might have, violated fundamental principles of due process.

 1. the California *fn2" and Arizona *fn3" wage garnishment statutes, in addition to Wisconsin's;

 2. the New York replevin statute; *fn4"

 3. the California innkeeper's lien law; *fn5"

 4. the Pennsylvania statutes relating to distress for rent *fn6" and confession of judgment; *fn7"

 5. the Minnesota general garnishment statute; *fn8" and

 6. the California statute relating to landlords' writs of immediate possession. *fn9"

 In the wake of these precedents, a constitutional attack upon Pennsylvania foreign attachment, a similar prejudgment garnishment proceeding not limited to wages, was to be expected.

 It comes before us on a motion of defendant Forbes Leasing and Finance Corporation ("Forbes") to quash the foreign attachments perfected by plaintiff Marvin Lebowitz ("Lebowitz") in the Court of Common Pleas of Philadelphia County prior to removal of the case to this Court on the grounds of diversity of citizenship. We refuse to quash the foreign attachments. However, because the case has been a difficult one for us, and because it is on the frontier of a rapidly developing field of law, we have set forth not only our reasons for denying the motion, but also our views as to countervailing considerations which we consider to be of substance, in considerable detail. *fn10"

 II. THE FACTUAL SETTING

 On January 27, 1971, Lebowitz commenced an action in equity against Forbes and the other defendants in the Court of Common Pleas of Philadelphia County. On February 1, 1971, Lebowitz caused a writ of foreign attachment to issue pursuant to and under color of the Pennsylvania Rules of Civil Procedure against Forbes. The attachment claimed an amount of $200,000 and was served upon the Girard Trust Bank and the First Pennsylvania Banking and Trust Company as garnishees. In accordance with the Pennsylvania Rules, the attachments were effected without notice to Forbes or a hearing. The report of the Girard Bank showed that it had custody of monies due Forbes in the amount of $71,672.61, and First Pennsylvania's report showed that it had custody of monies due Forbes in the sum of $4,293.34.

 On February 16, 1971, the action was removed to this Court on the ground of diversity between the parties, and the motion to quash the foreign attachments followed. Forbes is a Delaware Corporation, with principal offices in New York, not registered to do business in Pennsylvania; however, at all times relevant hereto, Forbes maintained an office in Philadelphia. Forbes filed a general appearance. Subsequent to filing the motion, Forbes filed an answer and counterclaim.

 The factual background which may be gleaned from the well-pleaded facts, is essentially as follows. Lebowitz had engaged in business as a financial consultant with particular experience, reputation and contacts in the field of equipment lease financing. Defendant Network is in the business of franchising the operation of mini theaters in various parts of the country. Defendant Entman is a principal of Network. Lebowitz entered into an employment agreement with Forbes, a wholly-owned subsidiary of Network to be formed in Pennsylvania providing that he would become President of Forbes and would engage in business under that name. His principal duty was to obtain financial commitments for the benefit of Network. The salary arrangement included a bonus based upon profits, an expense account, and an option to purchase Forbes' stock. A further agreement between Lebowitz and Network provided that Lebowitz was to obtain certain funding commitments for Network, in return for which he was to receive stock options.

 The gravamen of the complaint is the allegation that, after obtaining extensive financial commitments for Network, Lebowitz was circumvented by the defendants, acting in concert, who allegedly conspired to use the line of credit obtained by Lebowitz for their own benefit, in disregard of the written agreements. The Complaint also alleges that Lebowitz was dispossessed from his offices, that his employment contract was wrongfully terminated, and that he received no compensation for the financial commitments obtained by him and converted to defendants' use. The damages claimed are considerably in excess of $150,000.00. *fn11"

 Defendant's answer avers that Lebowitz breached his agreement by (1) failing to devote full time to his duties; (2) converting the assets and credit of Forbes to his own use; and (3) failing to deliver satisfactory financial commitments. The answer further avers that the employment contract was terminated for cause. The counterclaim asserts damages in the sum of $25,000.

 On March 18, 1971, we heard extensive argument on the motion to quash and have considered the parties' excellent briefs.

 III. FOREIGN ATTACHMENT -- ITS ANCIENT LINEAGE AND THE METAMORPHOSIS FROM A PROCEDURE TO COMPEL APPEARANCE TO PRE-JUDGMENT EXECUTION.

 Full understanding of the case before us requires an historical orientation. Our search into the origins of foreign attachment indicates that attachment of the property of a defendant to hold it pending the outcome of litigation over a debt allegedly due the plaintiff was unknown at early common law. It had its origin in the law merchant. Select Cases on the Law Merchant *fn12" describes an attachment issuing out of the merchants' court at the Fair of St. Ives in 1287. According to Glenn, Fraudulent Conveyances and Preferences, *fn13" attachment "floated into the common law world by means of that estuary of the law merchant which was called the custom of London." The custom was ultimately brought to the colonies and in most of them became part of the common law. In Pennsylvania, the custom was introduced by statute *fn14" and called foreign attachment.

 An excellent description of the custom of London and the early authorities describing the same is found in J. Patton, Foreign Attachment in Pennsylvania. *fn16" It appears therefrom that the process of attachment was originally intended merely to compel the appearance of the defendant by sufficient sureties to answer plaintiff's demand upon him. Patton refers to the writings of R. Woolsey in the Doctrine and Practice of Foreign Attachment in the Mayor's Court, London,. 23 (1816), where it is said:

 
"The process of attachment seems, therefore, in its origin, to have been originally intended merely to compel the appearance of the defendant by sufficient sureties to answer the plaintiff's demand upon him. It was justly considered that the merchants of a great mercantile city would have debtors resident in foreign countries with no means (unless by their property here), of rendering them amenable to our courts of justice. The process of attachment was, therefore, probably devised; and hence, in our commonlaw books, it is styled Foreign Attachment. But it may be remarked, that in the language of the city courts, all non-freemen are styled foreigners." *fn17"

 The law of foreign attachment became crystallized in Pennsylvania in the Foreign Attachment Act of 1836. *fn18" This Act, together with its amendments and supplements, the Fraudulent Debtor's Attachment Act of 1869, as amended, *fn19" the Domestic Attachment Act of 1836, *fn20" and the Attachment of Vessels Act of 1836 and its supplements, *fn21" constitute the law of attachment in Pennsylvania. The final stage in the development of the law governing attachments in Pennsylvania took place in 1954, when the Rules of Civil Procedure took over much of the regulation of the attachments formerly governed by the statutes referred to above. *fn22" This was accomplished by the adoption of Rules of Civil Procedure expressly regulating the subjects of foreign attachment and fraudulent debtor's attachment. *fn23" At the same time, the Rules suspended, in whole or in part, many of the statutes previously regulating those subjects. *fn24" These rules have, of course, been amended from time to time by the Pennsylvania Supreme Court on recommendation of its Civil Procedural Rules Committee.

 That the purpose of foreign attachment as it originally appeared in Pennsylvania was to secure the entry of appearance of the defendant only is demonstrated by the cases. See Linn v. Chapman, *fn25" Longbotham v. Longbotham, *fn26" and Raymond v. Leishman, *fn27" where Justice Mestrezat remarked:

 More recently, however, foreign attachment has served the double purpose of compelling an appearance AND rendering the property within the state subject to the demands of creditors. This constitutes a metamorphosis of the foreign attachment procedure. The significance of this metamorphosis as it affects the notion of due process, insofar as due process is defined as the settled usage in England prior to emigration to the colonies, is discussed infra at p. 1351. This metamorphosis is demonstrated by the language of the Pennsylvania Superior Court in Sniderman v. Nerone, *fn29" where the court, speaking through Judge Keller, stated:

 
"The primary purpose of a foreign attachment is to compel a foreign nonresident to appear within the jurisdiction and defend the plaintiff's claim; a secondary purpose is by attaching the foreign defendant's goods and property to secure a fund or property out of which the plaintiff's claim, when reduced to judgment, may be paid." *fn30" , *fn31"

 We proceed now to a brief summary of the rules under attack.

 A foreign attachment may be issued to attach property of a defendant not exempt from execution. *fn32" Where the defendant is subject to such action, any person owing a debt to defendant, having property of the defendant in his custody, possession or control, holding fiduciary property in which the defendant has an interest, or holding legal title to property of the defendant may be made a garnishee. *fn33" The attachment is commenced by filing a praecipe for a writ with the prothonotary which directs the sheriff to attach such items of property of the defendant as are set forth in the praecipe and all other property of the defendant. *fn34" The prothonotary immediately enters the attachment against the defendant in the judgment index. *fn35" If the sheriff attaches real property, legal title to which is held by the garnishee, the prothonotary, on praecipe of the plaintiff, immediately enters the attachment against the garnishee in the judgment index. *fn36" The attachment extends to the property after acquired by the garnishee, *fn37" may reach a safe deposit box, *fn38" or real property, including liens and rents, *fn39" and, in fact, to any form of property not exempt from execution. *fn40" The rules authorize manual seizure by the sheriff. *fn41" No bond or security is required of the plaintiff commencing the foreign attachment by the sheriff except for the actual or estimated cost of obtaining possession of the property. *fn42" Plaintiff is required to file a complaint setting forth his cause of action but not until five days after the filing of the foreign attachment proceedings. *fn43" The attachment is implemented by the filing of a garnishee's report, setting forth in detail the property of the defendant in his possession. *fn44"

 Foreign attachment is generally considered under both the statutes and the rules as a form of process and not a form of action. *fn45" As the Goodrich-Amram commentary points out, foreign attachment, until the defendant is served with the complaint, appears or files a bond or security, has many characteristics of a proceeding in rem ; however, unlike a proceeding purely in rem, the attachment affects merely the interest of the defendant in the property attached, and no personal judgment may be rendered against the defendant unless he becomes subject to the jurisdiction of the court in personam by service of process upon him or by a voluntary action, such as an appearance or the filing of a bond. *fn46"

 Against that background, Rule 1272 provides for dissolution of attachment only upon:

 
(1) the entry of bond or security;
 
(2) the failure of the plaintiff after judgment against the defendant to proceed diligently against the garnishee;
 
(3) the failure of the plaintiff, after the garnishee has answered interrogatories, to proceed diligently against the garnishee; or
 
(4) the failure of the plaintiff generally to prosecute the action with due diligence.

 Rule 1273 provides that:

 
"The court on the petition of any person or party, may, at any time after notice and hearing
 
(1) review the action of the prothonotary in approving or rejecting the bond or security offered;
 
(2) increase or decrease the amount of any bond or security;
 
(3) strike off a bond improperly filed; or
 
(4) permit the substitution of a bond or security and enter exoneration of a prior bond."

 We set these provisions forth in haec verba because they represent the first time in the procedure where the defendant may appear and be heard. Until then, everything is done on a purely ministerial basis by the prothonotary and sheriff without notice or hearing. And the scope of the hearing in this instance is ...


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