CHRISTENSEN, District Judge.
In this diversity suit the lower court held upon the face of the complaint that service of process could not be effected upon an absent but indispensable party defendant because the action was not one in rem within the contemplation of 28 U.S.C. § 1655.
The complaint in substance alleged: That Murphy-Lowell Co., a co-partnership, not a party herein, transferred to the defendant Roy G. Anderson the real property described in the complaint, all located within the State of Colorado, as security for financial aid and assistance; that thereafter the plaintiff Shuford and the defendant Anderson entered into an agreement as joint venturers whereby they agreed to jointly contribute financial
In addition to the allegations above mentioned, and more or less commingled therewith, the plaintiff further alleged in substance that the money was procured by the defendant Anderson from the plaintiff by means of false representations, that there had been a breach of a fiduciary relationship, that the defendant had no complete or adequate remedy at law, that there was a necessity of a tracing of all moneys spent and that a complete accounting between the parties was essential. It was further alleged that the defendants had been unjustly enriched in the sum of $150,250.00, and had received other property and securities rightfully belonging to the plaintiff. The prayer in the complaint also asked "for a complete adjudication of the rights of all of the parties to this action (and) for an order enjoining the defendants from acting in a manner inconsistent with the rights of the plaintiff in the real property", and a second claim asked for the appointment of a receiver to prevent waste of rents, issues and profits.
It was upon the basis of the allegations and demands for relief set out in the last paragraph, going beyond reference to the particular real property involved, that the lower court determined that the action was one in personam and not in rem. The court was of the view that essentially the action was one for the breach of an alleged agreement, or for an accounting, or at most for specific performance of a contract. It referred to the assertions that Anderson did not distribute the funds he received in accordance with the alleged agreement, had been "unjustly enriched" by the money, and had disposed of the property "to make execution unavailable", all of which suggested to the lower court that the plaintiff was seeking in personam relief. It was noted "that the plaintiff does not limit his prayer for relief to an adjudication of the rights * * * in specific property but seeks an adjudication of all rights of the parties", and the conclusion was reached that the action was not maintainable as one in rem in this venue under the provisions of Section 1655. Accordingly, the defendants' motions to dismiss the action were granted.
Except as otherwise provided by law, a civil action, jurisdiction of which is founded only on diversity of citizenship, must be brought in a district where all plaintiffs or all defendants reside. Without attempting to delineate the conceptual and developmental aspects of the problem apart from this statute,
Prayers or demands going beyond in rem relief do not prevent the court from granting the relief to which a plaintiff is actually entitled.
Hence, apart from mere form or the nature of the evidence that may be necessary to establish the extent of the claim, the inquiry must be whether the complaint states substantially a claim to or lien against the real property situated in the district and specifically described, or whether essentially it comprises a claim merely in personam, with the status of the real property being a mere incidental inquiry.
In Massie v. Watts, 6 Cranch 148, 10 U.S. 148, 3 L.Ed. 181 (1810), Chief Justice Marshall said that "In a case of fraud, or trust, or of contract, the jurisdiction of a court of chancery is sustainable wherever the person be found, although lands not within the jurisdiction
In Walker v. Brown, 165 U.S. 654, 17 S.Ct. 453, 41 L.Ed. 865 (1897), the doctrine as expressed in Pomeroy was accepted that "every express executory agreement in writing, whereby the contracting party sufficiently indicates an intention to make some particular property, real or personal, or fund, therein described or identified, a security for a debt or other obligation, or whereby the party promises to convey or assign or transfer the property as security, creates an equitable lien upon the property so indicated, which is enforceable against the property in the hands, not only of the original contractor, but of his heirs, administrators, executors, voluntary assignees, and purchasers or incumbrancers with notice". In reversing the lower court for refusing to recognize the existence of a claim in rem, the Supreme Court said: "It is clear that if the express intention of the parties was to create an equitable lien upon the bonds or the value thereof, or if such intention arises by a necessary implication from the terms of the agreement, construed with reference to the situation of the parties at the time of the contract, and by the attendant circumstances, such equitable lien will be enforced by a court of equity against the bonds in the hands of Brown or against third parties who are volunteers or have notice". If we accept the mooted point that state law can be looked to in determining what is a claim or lien to specific property for the purposes of the federal statute,
The complaint in this case, apart from any other theory presented by it, expressly alleges an agreement between Shuford and Anderson that each was to have a share in the property specifically described in the complaint. All of the other allegations in a sense orbit around this alleged agreement. Such an agreement, if sustained by the proof, would clearly create an interest in the land, subject to protection by a local action. The
The case of Seymour v. Freer, 8 Wall. 202, 75 U.S. 202, 19 L.Ed. 306 (1869), is instructive from several viewpoints. Involved was a contract between two persons, the one to furnish money, the other to purchase lands therewith and to receive for his compensation one-half of the profits on the sales of the land. The Supreme Court determined under the facts of that case that not merely a personal claim was involved but an equitable interest in the land and that the parties had a "joint interest in the property". The court added: "There is another view of this subject, which we think may properly be taken. The agreement that the property should be sold, and half of the profits paid to Price, was a charge upon the property, and gave him a lien to the extent of the amount to which he should be found entitled upon the execution of the agreement, according to its terms".
In addition to an express agreement for an interest in the specific real property within the jurisdiction of the court, the complaint alleges that the defendant Anderson fraudulently withheld or diverted property from plaintiff under circumstances giving rise to a constructive trust, as well as a lien interest through the joint venture undertaken by the parties. The existing law as to both of these additional features of the case is presaged by Seymour, supra.
It now seems authoritatively established that actions to establish and enforce constructive trusts in specific real or personal property having its situs within the jurisdiction of the court are actions quasi in rem within the purview of Section 1655.
Kelleam, supra, speaks clearly for this circuit. In affirming the trial court's decision in favor of the plaintiff upon substituted service, the court stated that this was an action to impress a trust on real and personal property with a fixed situs and that 28 U.S.C. § 118 (now § 1655) contained the applicable statutory provisions rather than those governing transitory actions. It is true that the Supreme Court reversed on other grounds, holding that it was improper for the federal court to appoint a receiver and to otherwise attempt to adjudicate matters already at issue in a state court proceeding attacking a decree in probate. Notwithstanding the action of the Supreme Court based upon another principle, the law of the case on the point in which we are interested remains to the effect that an action to impress a constructive trust upon specific property held by an alleged wrongdoer may be deemed an in rem or quasi in rem action within the contemplation of § 1655.
There is still another reason why this action may be regarded as one to enforce a lien upon specific property situate within the jurisdiction of the court. While this additional reason is fraught with certain technical difficulties, we are convinced that under the special circumstances of this case it also is a valid basis for regarding the action as a local one.
A broad application of these rules in context with § 1655 would pose difficulties for under them, apart from any specific agreement, a lien might be deemed one growing out of the very suit in which venue is sought to be established, in which event it is commonly accepted that § 1655 would not apply. The latter consideration was one of the persuasive elements considered by the court in McNulty v. Heine, 137 F.Supp. 508 (D.C. Md.1956), citing McQuillen v. National Cash Register Co., 112 F.2d 877 (4th Cir. 1940), cert. den. 311 U.S. 695, 61 S.Ct. 140, 85 L.Ed. 450 (1940), rehrng. den. 311 U.S. 729, 61 S.Ct. 316, 85 L.Ed. 474 (1940), supra, that "[t]he proceeding must be in aid of some pre-existing claim, existing prior to the suit in question and not a proceeding to create for the first time a claim to the property as the effect of the proceeding itself." If partnership or joint adventurer's liens arising by operation of law and applied as a result of the proceedings in such cases would establish venue pursuant to § 1655, venue would exist in the case of partnership accountings in almost every case in the district where the partnership had any property. This in our judgment would be an undue extension of the reach of the statute. However, under the peculiar facts of the present case, we do not believe that the involvement of a joint venture bars recourse to § 1655; on the contrary the section should be applied both on the basis of principle and as a practical matter here.
In McNulty v. Heine, supra, the court in declining to apply § 1655, emphasized that the action was "not based upon a claim that the defendant is improperly asserting title to assets which in fact belong to the partnership". The complaint in the case at bar contains little if any indication that the contemplated business of the joint venture was ever actually undertaken by defendants. Hence, an accounting in the partnership sense would be all the more secondary, and clearly subsidiary to relief based upon the withholding of the real property from the agreed joint ownership and the use of the very money advanced by plaintiff to enhance Anderson's antagonistic interest therein. For these reasons, among others, another case more closely in point is Porter v. Cooke, 63 F.2d 637 (5th Cir. 1933), supra, where the petition had alleged that the defendants purchased property for themselves with money furnished by plaintiffs for a joint enterprise and sought an accounting and to recover the property. The trial court held that the action was in personam, 58 F.2d 1033 (W.D.La.1931), but the Circuit reversed, determining that the suit was one to enforce an equitable lien within the meaning of the statute providing for service by publication. Even though the complaint had not expressly asked for the declaration of a resulting trust, the court concluded that where the allegations of the petition showed the right of recovery in plaintiffs on that ground equitable relief was grantable under the prayer for general relief. In Austin v. Stephen, 89 Colo. 177,
Here it is alleged in effect that the joint venturer had renounced, and through fraud and dereliction of fiduciary duty sought to frustrate, the purposes of the joint venture and to divert specific property from a pre-existing commitment. The lien and claim of the plaintiff as a joint venturer covers specific real property entirely located within the geographical jurisdiction of the court and is premised not only upon the joint venture relationship but upon express agreement. In addition, the basis of a resulting trust appears. Under these circumstances the claim of the plaintiff is one within the contemplation of § 1655. To hold otherwise would unduly limit the purposes of the statute, would not comport with prior determinations of this court and the Supreme Court of the United States, and would hardly be in keeping with the spirit of modern federal court procedures.
The court also dismissed the action as against Currier & Carlsen, Inc., presumably upon the ground that Anderson was an indispensable party not subject to service of process and that hence the suit could not be maintained even as against Currier & Carlsen, Inc., which was personally served within the jurisdiction. Anderson does appear to be an indispensable party to the controversy.
Whether the in rem claim pleaded by plaintiff can be sustained of course will be dependent upon the proof.
Reversed and remanded for further proceedings.
ON PETITION FOR REHEARING
Appellant Anderson now argues that the judgment of the lower court should have been affirmed because the order and proceedings below for substituted service upon him had been defective. Having hardly more than mentioned this point in his original brief without any supporting argument either in the brief or orally, he well could be deemed to have waived it. J. F. White Engineering Corporation v. United States, 311 F.2d 410 (10th Cir. 1962); cf. Parrott v. Whisler, 313 F.2d 245 (6th Cir. 1963), and Taylor v. Fee, 233 F.2d 251 (7th Cir. 1956). However, a reference to the record establishes that the present claim in substance is devoid of merit.
There was, indeed, a motion to quash service of summons upon Anderson on the ground that the court's order for publication of summons was defective for failure to require him to appear and plead by a designated day certain, even though the published summons directed him to appear and plead "within twenty days" and he did in fact specially appear within twenty days after the date of the last publication. This motion by Anderson was entitled "Motion to Quash" and also included a demand for dismissal of the action for "improper venue". The plaintiff below, appellant here, did not question the irregularity of the process and there is still undisposed of his motion to the trial court for a new order for substituted service requiring the defendant Anderson to appear and plead by a day certain, in order to meet any contention in that respect. The court ruled upon neither this motion nor upon the motion to quash service of process. On the contrary, not even mentioning these matters, it began its decision with the statement, "The question here involved is one of proper venue". Its conclusions were "that the aims and objects of the action determine that the nature and character of this action is in personam and not in rem and is not maintainable in this venue under the provisions of Section 1655"; and it ordered "that the motions of the defendants to dismiss the action are granted and the complaint is hereby dismissed."
This was the order from which the appeal was taken and the one that we have reversed. The case was remanded "for further proceedings". With venue established, it is to be assumed that the trial court will consider whether previous service of process upon Anderson was irregular or adequate and, depending on such ruling, determine what further action, if any, may be necessary, consistent with our decision, with respect to substituted service of process. These questions were not before us and it would be inappropriate to express any opinion concerning them.
The substance of all other matters presented by the petition for rehearing already has been considered and ruled upon by us adversely to Anderson's present contentions.
The Motion for Rehearing is denied.
"If an absent defendant does not appear or plead within the time allowed, the court may proceed as if the absent defendant had been served with process within the State, but any adjudication shall, as regards the absent defendant without appearance, affect only the property which is the subject of the action."