The opinion of the court was delivered by: POLLAK
The motion for provisional pre-judgment protection of defendant Consolidated Rail Corporation ("Conrail") presents another in a series of pre-trial disputes that have characterized this diversity case from its beginning. The case itself arises out of a disagreement between Northfleet Corporation ("Northfleet") and Conrail over a lease. As of December 1, 1967, Northfleet allegedly leased to the Pennsylvania Railroad Company fifty (50) diesel locomotives. Conrail succeeded to the rights of the lessee under that lease on April 1, 1976.
On June 23, 1983, Northfleet filed a complaint that alleged various breaches of the lease agreement by Conrail. Among them are Conrail's alleged failures to comply with provisions of the lease concerning casualty losses to the locomotives, to maintain the locomotives in good repair, and to deliver them to Northfleet in accordance with the lease upon its termination. See Complaint 8-19. Conrail denied Northfleet's claims and asserted a counterclaim seeking storage charges for the locomotives because they were left with Conrail beyond the three-month grace period stipulated in the lease. See Answer, at 6-7.
This court has so far resolved the numerous disputes between the parties, particularly those concerning discovery and demands for sanctions. The action triggering this latest dispute is a sale by Northfleet of eighteen (18) of the locomotives in Conrail's possession. Northfleet sold these locomotives to Naporano Iron Metal Company, but Conrail refused to release them unless the proceeds of the sale were put into an escrow account or Northfleet posted a bond. By a telephone conference on April 10, 1985, this court temporarily resolved the dispute with Northfleet agreeing not to distribute the sale proceeds until this motion was decided and with Conrail agreeing to release the locomotives.
The substance of Conrail's present motion can be summarized as follows. Conrail asserts that, if Northfleet is allowed to distribute the proceeds from the sale of the locomotives, Conrail may be unable to collect on the counterclaim should it prevail in the suit. See Memorandum of Law in support of Consolidated Rail Corporation's Motion for Provisional Pre-judgment Protection, at 2. Conrail's fear of being unable to collect a possible judgment is based upon the alleged fact that Northfleet is no more than a "shell" corporation whose only assets are the locomotives and which is controlled by two corporations not parties to the suit, Amvest Leasing Corporation and Radnor Associates. See id. at 3. Conrail adds that the parties came to an agreement to escrow proceeds from the sale of two other locomotives. It does not understand why a similar escrow arrangement or the posting of a bond would not satisfy Northfleet with respect to the eighteen locomotives. See id. at 16-17.
Conrail has not been entirely precise in identifying the particular federal or state legal principle--and whether it is statutory, or grounded on a rule of procedure, or part of the arsenal of inherent judicial power--it invokes in asking this court for pre-judgment protection. Conrail's broad-ranging argument does, however, touch on at least three issues--warehouseman's lien, Federal Rule of Civil Procedure 64, and equity powers--which arguably have a bearing on the proper resolution of Conrail's motion.
In its memorandum, Conrail argues at length that it has a warehouseman's lien on the locomotives under New York law. See Memorandum, at 5-9. It is unclear what Conrail hopes to accomplish by this argument. Either 1) it is meant to establish a new claim to the locomotives, which in turn entitles it to the remedy it demands, or 2) it is intended to reassert its counterclaim, which might justify the pre-judgment remedies sought.
If by its discussion of a warehouseman's lien, Conrail is attempting to establish a new claim to the locomotives, it is not readily apparent what differentiates this alleged lien from the counterclaim Conrail has already asserted. If there is no difference between the lien and the counterclaim, it does not seem appropriate in the context of a motion for pre-judgment protection to decide the substance of Conrail's counterclaim. For to accept Conrail's argument that it has a valid warehouseman's lien would in effect be to grant its counterclaim, which in turn would appear to constitute an implicit determination of the merits of Northfleet's claims.
On the other hand, Conrail's discussion of the warehouseman's lien may be understood as a reassertion of its counterclaim and thus a justification for a pre-judgment remedy. Thus, the question becomes whether one with a colorable claim to possess the status of warehouseman is entitled to any special pre-judgment protection.
Warehouseman's law has been codified in Article 7 of the Uniform Commercial Code, which both Pennsylvania and New York, the site of the "warehousing" of the locomotives, have adopted.
This statute defines "warehouseman" as "a person engaged in the business of storing goods for hire." N.Y. Uniform Commercial Code 7-102(1)(h) (McKinney 1964). Nothing in the statute or its commentary requires this to be the person's sole business or describes the amount of business an individual must be engaged in to achieve the status of warehouseman. Another crucial term in the Code is "warehouse receipt," which is defined as a "receipt issued by a person engaged in the business of storing goods for hire." N.Y. Uniform Commercial Code 1-201(45) (McKinney 1964). Such a receipt "need not be in any particular form." N.Y. Uniform Commercial Code 7-202(1) (McKinney 1964). Finally, if one is a warehouseman and possesses goods for which a warehouse receipt has been issued, one has a lien against the bailor for such expenses as storage charges. N.Y. Uniform Commercial Code 7-209(1) (McKinney 1964). This lien is lost if the warehouseman "voluntarily delivers" or "unjustifiably refuses to deliver" the goods. N.Y. Uniform Commercial Code 7-209(4) (McKinney 1964).