Elmer J. Jonnet v. Dollar Savings Bank of the City of New York , 530 F.2d 1123 ( 1976 )

OPINION OF THE COURT

ROSENN, Circuit Judge.

Once again the constitutionality of Pennsylvania foreign attachment procedures ¹ are before this court. Four years ago in Lebowitz v. Forbes Leasing & Finance Corp., 456 F.2d 979 (3d Cir. 1972), cert. denied, 409 U.S. 843, 93 S.Ct. 42, 34 L.Ed.2d 82, rehearing denied, 409 U.S. 1049, 93 S.Ct. 509, 34 L.Ed.2d 502 (1972), we sustained the constitutionality of these procedures against a procedural due process attack. Due process, however, is a dynamic concept; refinements are evolved from time to time. In light of the latest elaborations by the Supreme Court, we conclude that Lebowitz is no longer viable and that the Pennsylvania foreign attachment procedures must be declared unconstitutional.

I.

In Lebowitz, Chief Judge Seitz succinctly described Pennsylvania foreign attachment procedures as follows:

Pennsylvania foreign attachment procedures authorize the issuance of a writ by the prothonotary without notice to the defendant, without any hearing, without an affidavit of meritorious action, without the posting of a bond, and without intervention by a judicial officer. Indeed, the attachment may precede the filing of the complaint by as much as five days. Once the attachment becomes effective, it is not dissolved by the general appearance of the defendant. Rather, dissolution occurs only if, inter alia, the defendant posts an adequate bond or other acceptable security or the plaintiff fails to prosecute his case with due diligence. Also, provision is made that if the defendant can demonstrate that the amount of property attached is excessive when compared to the amount in controversy he may obtain a reduction. 456 F.2d at 980.

Only a few additional provisions need be mentioned. A foreign attachment can issue only against an individual who is a nonresident of the Commonwealth, a partnership or unincorporated association without a regular place of business in the Commonwealth, or a foreign corporation which is not registered in the Commonwealth. Pa.R.Civ.P. 1252. The action is commenced by filing with the prothonotary² a praecipe for a writ which shall direct the sheriff to attach stated property. “The prothonotary shall immediately enter the attachment against the defendant in the judgment index.” Pa.R.Civ.P. 1255. The statute does not require that the defendant be served with the writ or complaint. Pa.R. Civ.P. 1265, 1267, 1269. The function of notifying the defendant is delegated to the garnishee. Pa.R.Civ.P. 1267.

Plaintiffs Elmer J. Jonnet, Jonnet Development Corporation, and Jonnel Enterprises, Inc., (collectively, Jonnet) invoked these procedures by filing “Complaint in Assumpsit with Foreign Attachment,” alleging that Dollar Savings Bank of the City of New York (Dollar) wrongfully failed to honor a mortgage commitment for $1,100,000.³ Several days later, plaintiffs filed a praecipe for writ of foreign attachment pursuant to Pa.R.Civ.P. 1255.⁴ The writs were issued by the U.S. Clerk of Court and served by the U.S. Marshal on two corporate garnishees, who were indebted to Dollar in an aggregate amount over $1,300,000 and who were obliged to make monthly installment payments to Dollar in amounts totaling over $10,000. Monthly payments for August 1973 were not made to Dollar because of the attachments.

On August 20, 1973, the district court, acting on Dollar’s motion and pursuant to Pa.R.Civ.P. 1272(c), dissolved the attachment and permitted Dollar to substitute security in the form of U.S. Treasury notes totaling $50,000. In its motion to dissolve the attachment, its answer, and subsequent motion filed October 11, 1974, Dollar challenged the constitutionality of the instant procedures. Judge Teitelbaum, in a carefully considered opinion, held the foreign attachment procedures unconstitutional and granted Dollar’s motion to dismiss the action. This appeal followed.⁵

II.

The basic issue before us is whether Pennsylvania summary procedures for jurisdictional attachment of property of a Corporation not registered and having no regular place of business in the Commonwealth in a suit by a resident plaintiff comports with fundamental fairness, in the absence of notice to the defendant prior to attachment, an opportunity for prompt hearing to challenge the attachment, and other procedural safeguards against wrongful seizure.

Procedural due process issues have been the subject of much recent Supreme Court litigation.⁶ None of these cases have specifically considered the issue before us, but several have analyzed prejudgment attachment procedures for debtor-creditor suits. The Supreme Court opinions have produced not only varying results, but differing analytical approaches to due process problems.

The earliest case in this line of decisions is Sniadach v. Family Finance Corporation, 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969), which held Wisconsin prejudgment garnishment procedures unconstitutional. That decision appeared to evince a particular concern for “wages —a specialized type of property”, 395 U.S. at 340, 89 S.Ct. 1820, and mandated that the affected individual receive notice and a hearing before garnishment.

Sniadach spawned two divergent lines of cases — one limiting Sniadach’s pre-deprivation notice and hearing rule to wages or property of similar importance to the individual, the other invalidating prejudgment procedures generally.⁷ The Supreme Court put its imprimatur on the latter line in Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972). The Court there held unconstitutional Florida and Pennsylvania prejudgment replevin procedures utilized to recover household goods purchased under conditional sales contracts and on which payments were allegedly overdue. The Court stated that even a temporary, non-final deprivation of property in which an individual had less than full title was sufficient to invoke due process protection. 407 U.S. at 84-87, 92 S.Ct. 1983. Furthermore, procedural guarantees were not limited to items of “necessity.” 407 U.S. at 88-90, 92 S.Ct. 1983. The constitutional rule enunciated was that except in “extraordinary situations,”⁸ notice and hearing must precede any deprivation of property.

Two years later the Court seemingly interred Fuentes when it approved Louisiana sequestration procedures. Mitchell v. W. T. Grant Co., 416 U.S. 600, 94 S.Ct. 1895, 40 L.Ed.2d 406 (1974). The Court appeared to abandon the strict pre-sei-zure hearing rule of Fuentes and instead substitute a balancing of interests analysis.⁹ The Court identified two policies behind the Louisiana procedures — (1) protecting from concealment, or waste, property in which the creditor, as well as the debtor, had a proprietary interest, 416 U.S. at 604-5, 94 S.Ct. 1895, and (2) averting self-help measures by the creditor, which could engender violence. 416 U.S. at 605, 94 S.Ct. 1895. In light of these policies, the debtor’s concern with protecting his property interest from arbitrary or wrongful deprivation was adequately protected by sequestration procedures that: (1) required a creditor to file an affidavit stating “specific facts” entitling him to sequestration; (2) mandated that the writ was issuable only by a judge; (3) required the creditor to file a bond to protect the debtor from all damages in the event the sequestration was shown to have been wrongful; (4) entitled the debtor to dissolve the sequestration by filing his own bond; and (5) entitled the debtor to an immediate hearing after seizure and to dissolution of the writ absent proof by the creditor of the grounds on which the writ was issued.¹⁰

That the Fuentes analysis continued to retain some vitality was demonstrated by a decision filed two days after Mitchell. In Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 94 S.Ct. 2080, 40 L.Ed.2d 452 (1974), the Court sustained the constitutionality of Puerto Ri-can statutes providing for forfeiture, without prior notice or hearing, of vessels used for unlawful purposes, by applying the “extraordinary situation” exception of Fuentes.

The requiem for Fuentes’ “demise” soon appeared to have been chanted prematurely. See North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 608, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975) (Stewart, J., concurring). The Court in Di-Chem not only again held a garnishment statute unconstitutional, but appeared, to some extent, to resuscitate Fuentes. See 419 U.S. at 609-614 (Powell, J., concurring). Procedural Due Process, note 5 supra, 88 Harv.L.Rev. at 1514. The Georgia procedures were held constitutionally insufficient because (1) they allowed a writ of garnishment to issue on affidavit by a creditor or his attorney containing only conclusory allegations; (2) the writ was issuable by the court clerk without participation by a judge; (3) the garnishment could be dissolved only by the filing of a bond, which continued to deprive defendant of the use of some property; and (4) there was no provision for an early hearing at which the creditor would be required to demonstrate at least probable cause for the garnishment. 419 U.S. at 607, 95 S.Ct. 719.

Although these recent Supreme Court decisions have dealt with the constitutionality of debtor-creditor attachments, their implications for foreign attachments cannot be ignored. An older decision dealing with foreign attachments, Owenbey v. Morgan, 256 U.S. 94, 41 S.Ct. 433, 65 L.Ed. 837 (1921), has been cited several times.¹¹ Ownbey upheld the constitutionality of a Delaware attachment statute which prevented the entry of appearance and defense by a non-resident individual defendant whose property had been attached, except on posting of special bail. Ownbey, who could not post the bail, attacked only the bail requirement. Although he did not challenge the validity of the attachment process, the Supreme Court not only sustained the bail requirement, but in broad dictum approved the attachment as well. 256 U.S. at 110-12, 41 S.Ct. 433.

In both Sniadach, 395 U.S. at 339, 89 S.Ct. 1820, and Fuentes, 407 U.S. at 91, n.23, 92 S.Ct. 1983, Ownbey was cited as an example of an extraordinary situation in which summary procedures “may well meet the requirements of due process.” 395 U.S. at 339, 89 S.Ct. at 1821. Own-bey was also cited, somewhat ambiguously, in Mitchell; apparently as an example of Supreme Court approval of pre-hearing seizure.

III.

A question critical to the resolution of this case is the continuing vitality of Ownbey. The case might be read to mandate the validity of the Pennsylvania procedures here at issue. See Lebowitz v. Forbes Leasing & Finance Corp., 326 F.Supp. 1335, 1352-3 (E.D.Pa.1971), aff’d, 456 F.2d 979, 982 (3d Cir. 1972), cert. den. 409 U.S. 843, 93 S.Ct. 42, 34 L.Ed.2d 82, reh. den. 409 U.S. 1049, 93 S.Ct. 509, 34 L.Ed.2d 502 (1972); Balter v. Bato Company, Inc., 385 F.Supp. 420 (W.D.Pa.1974). Indeed, that is the position plaintiffs urge upon us. Ownbey, however, might be limited to its holding sustaining the validity of the special bail requirement. See In Re Law Research Services, Inc., 386 F.Supp. 749, 753 (S.D.N.Y.1974). See also, Yale Note, note 10, supra, at 1030—31 (suggesting that Ownbey should be limited to its historical context).

Whether one reads Ownbey narrowly or broadly, it is apparent that the holdings, if not the language, of Fuentes, Mitchell, and Di-Chem cast serious doubt on Ownbey’s current strength. The Court’s manifest concern with fair procedures, whether by hearing or otherwise, to protect an individual or corporation¹² from arbitrary or wrongful deprivations of any property for even a short period of time, reflects a changing view of due process much more attuned to the realities of present times than is the Ownbey justification of the bail requirement. Ownbey rested on the ground, perhaps valid then but hardly today, that “ordinarily it is not difficult to comply with — a man who has property usually has friends and credit — and hence in its normal operation it must be regarded as a permissible condition.” 256 U.S. at 111, 41 S.Ct. at 438. Nor does the antiquity or widespread prevalence of a procedure, on which the Ownbey court relied, 256 U.S. at 108-112, 41 S.Ct. 433, render it absolute and inviolate. See Folk and Moyer, note 10, supra, at 758-9. Cf. Sniadach v. Family Finance Corp., 395 U.S. at 340, 89 S.Ct. 1820. Fuentes, Mitchell and Di-Chem reflect a growing sensitivity in concepts of fundamental fairness in administering justice, reasonable requirements in legal procedures, and a realistic recognition of the enormous role played today by credit transactions in the consumer and commercial life of our complex economy. The rationale of Ownbey is no longer in harmony with the principles of Fuentes and its progeny. A balance must be struck between providing effective creditor remedies and the risk to the debtor of wrongful deprivation.

Furthermore, the more recent citations of Ownbey do not necessarily indicate approval. Sniadach introduces a note of uncertainty to summary procedures, such as in Ownbey, stating they “may well meet the requirements of due process . . . .” 395 U.S. at 339, 89 S.Ct. at 1821. [emphasis supplied]. The citation in Fuentes and Mitchell is no more than an example of a situation in which pre-seizure hearing is not required. One cannot read these citations as endorsing all aspects of the Ownbey opinion. Cf. In Re Law Research Services, Inc., 386 F.Supp. 749, 753 (S.D.N.Y.1974); U. S. Industries Inc. v. Gregg, 348 F.Supp. 1004, 1021 (D.Del.1972).

Thus, we believe that Ownbey today must be limited to the proposition for which it .was cited in Fuentes and Mitchell — that due process does not require that foreign attachments be preceded by notice and a hearing.

IV.

We infer from the current crop of Supreme Court decisions that the prevailing rule of procedural due process is that official seizures can be constitutionally accomplished only with either “notice and . . . opportunity for a hearing or other safeguard against mistaken” taking.¹³ North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 606, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975). Since recent citations of Ownbey have made it clear that pre-seizure notice and hearing are not required for jurisdictional attachment, we must consider the constitutional adequacy of the “other safeguards” provided by the Pennsylvania procedures. The “overriding consideration must be whether the statute minimizes the risk that the ex parte issuance of a writ will result in a wrongful or arbitrary deprivation consistent with the protection of legitimate creditor’s remedies.” Hutchinson v. Bank of North Carolina, 392 F.Supp. 888, 894 (M.D.N.C. 1975) (three-judge court). Our model is drawn from ' the Court’s analysis in Mitchell and Di-Chem.

Determination of the fairness of the procedures provided requires consideration of the competing interests at stake in jurisdictional attachments. A prospective plaintiff has two interests in utilizing foreign attachment procedures: establishing jurisdiction in a desired forum ¹⁴ and restraining a res within the control of the court for the eventual payment of a successfully established claim. The potential defendant’s interests are not only in maintaining complete control over the disposition and use of his property, but also in his ability to defend the particular lawsuit. If he is compelled to defend in an inconvenient forum by means of foreign attachment of valuable property, his position in seeking dismissal, summary judgment, or settlement negotiations might be substantially weakened.

We deem the Pennsylvania procedures to serve only the potential plaintiff’s interests and to provide insubstantial protection to the prospective defendant against wrongful attachment. First, we note that the attachment process is commenced by the filing of a praecipe, which apparently only need specify the property to be seized. Pa.R.Civ.P. 1255. Indeed, a complaint need not be filed until five days thereafter. Pa.R.Civ.P. 1265. There need be no facts alleged setting forth the basis for the attachment or even the colorability of the underlying claim. 2 Goodrich-Amram, Standard Pennsylvania Practice, § 1255(a) — 1 p. 66. Such a procedure provides no protection against frivolous claims. Some protection can be achieved with minimal inconvenience to a plaintiff. We read Mitchell and Di-Chem to require, at a minimum, that the process cannot be instituted without an affidavit or other sworn document stating substantially facts on which the cause of action is predicated, the amount claimed, that the defendant is a non-resident, and that the defendant has specified property in the state.

Second, the foreign attachment rules make the seizure process entirely ministerial. Pa.R.Civ.Pa. 1255-60. There are no provisions for the exercise of judgment by an official of professional competence to ascertain whether conditions for attachment have been met or whether a valid claim has been pleaded. The affidavit requirement has little utility if it is not given meaningful consideration. Due process requires at a minimum that the sworn statement be presented to an official with sufficient legal competence to make those determinations; the issuance of the writ should be conditioned on approval by such official.¹⁵

Third, the Pennsylvania attachment rules offer no machinery to indemnify a defendant for damages due to wrongful attachment, which might occur, for example, if he in fact resided in the state or if the claim pleaded is frivolous or perjurious. A constitutionally valid statute must afford such protection, by bond or otherwise.

Fourth, the rules do not provide any means for the defendant promptly to contest the attachment. Given the harm that an attachment could cause a defendant, he should be given an early opportunity to contest the basis for it. Conversely, the opportunity to contest the attachment should not necessitate an immediate trial. We read Mitchell and Di-Chem to require an opportunity for a prompt hearing after seizure at which the plaintiff would be required to demonstrate at least the probable validity of his claim and, if the defendant puts his residence in issue, that the defendant is in fact a non-resident. See North Georgia Finishing, Inc. v. Di-Chem, Inc. 419 U.S. at 607, 95 S.Ct. 719.

Finally, there must be some means not prejudicial to the plaintiff’s interests by which the defendant can dissolve the attachment. Filing of a reasonable bond, substitution of other property, or dissolution of attachment on entry of a general appearance may constitute such means. On this record we decline to pass on the merits of any specific proposal.

V.

In conclusion, we must emphasize that our decision today does not hold foreign attachment procedures unconstitutional per se. Our concerns are with ex parte procedures which summarily deprive a party of an interest in property, even though temporarily, without notice, an opportunity for a prompt hearing, or other essential safeguards against wrongful seizure. We require only that Pennsylvania provide procedures consistent with fundamental fairness for the respective interests of creditor and debt- or alike.

The judgment of the district court will be affirmed.

1 . Pennsylvania Rules of Civil Procedure 1251-1279.

2 . In Pennsylvania, the prothonotary is the clerk of the civil court. See Whitney v. Hopkins, 135 Pa. 246, 19 A. 1075 (1890).

3 . Federal jurisdiction was predicated on diversity of citizenship, 28 U.S.C. § 1332 (1970).

4 . Dollar Savings Bank is a New York corporation not registered to do business in Pennsylvania. Because the Pennsylvania “longarm” statute, 42 Pa. C.S.A. § 8301 et seq., excepts acquiring mortgages from its definition of “doing business,” 42 Pa. C.S.A. § 8309(c), foreign attachment was the only jurisdictional basis on which the suit could be maintained. Federal courts’ use of Pennsylvania foreign attachment procedures is authorized by Fed.R.Civ.P. 64.

5 . In its brief and at oral argument, plaintiffs suggested that Dollar waived the defense of lack of jurisdiction by (1) filing security, Pa.R. Civ.P. 1269(b), and (2) conducting discovery for over a year before bringing the jurisdictional issue to a head by motion. Dollar’s initial motion for dissolution of the attachment raised the constitutional claim and moved for dissolution “pending a disposition by this Court of the Constitutional issue.” Its answer, filed thereafter, raised lack of jurisdiction and the constitutionality of the foreign attachment procedures as separate defenses. Dollar’s initial motion carefully and reasonably preserved the constitutional issue under the Pennsylvania rule. Dollar effectively preserved the constitutional issue under the. federal rules by raising it in a motion to dissolve attachment and in its initial responsive pleading. See Fed. R.Civ.P. 12(h)(1)(B).

6 . See generally, Note, Specifying the Procedures Required by Due Process: Toward Limits on the Use of Interest Balancing, 88 Harv.L. Rev. 1510 (1975) [hereinafter Procedural Due Process].

7 . See, cases collected in Fuentes v. Shevin, 407 U.S. at 72-73, n.5, 92 S.Ct. 1983; Lebowitz v. Forbes Leasing and Finance Corporation, 326 F.Supp. 1335, 1341-48 (E.D.Pa.1971); Comment, 57 Minn.L.Rev. 396 (1972).

8 . 407 U.S. at 90, 92 S.Ct. at 1983. These “truly unusual” situations said the Court, have three common characteristics:

First, in each case, the seizure has been directly necessary to secure an important governmental or general public interest. Second, there has been a special need for very prompt action. Third, the State has kept strict control over its monopoly of legitimate force: the person initiating the seizure has been a government official responsible for determining, under the standards of a narrowly drawn statute, that it was necessary and justified in the particular instance.

407 U.S. at 91, 92 S.Ct. at 2000.

9 . The Court stated that the “usual rule has been ‘[w]here only property rights are involved, mere postponement of the judicial en-quiry is not a denial of due process, if the opportunity given for ultimate judicial determination of liability is adequate. Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 596-597, 51 S.Ct. 608, 611, 75 L.Ed. 1289 (1931).”’ 416 U.S. at 611, 94 S.Ct. at 1902. Justices Powell, 416 U.S. at 623-29, 94 S.Ct. 1895, Stewart, Douglas, and Marshall, 416 U.S. at 629-36, 94 S.Ct. 1895, concluded that the Fuentes analysis had been abrogated, and commentators so read the case. See, e. g., The Supreme Court, 1973 Term, 88 Harv.L. Rev. 41, 71 (1974).

10 . The Court distinguished Sniadach on several grounds, but primarily on Sniadach’s concern with the protection of wages. 416 U.S. at 614, 94 S.Ct. 1895. It distinguished Fuentes on the grounds that the Florida and Pennsylvania replevin statutes did not provide the protections afforded by the Louisiana sequestration statute and that, while the issues in sequestration are “narrowly confined” to the existence of the lien and default, the “broad ‘fault’ standard” employed in the Florida and Pennsylvania statutes was “inherently subject to factual determination and adversarial input.” 416 U.S. at 616-18, 94 S.Ct. 1895, 1905.

11 . The problem has also been the subject of scholarly commentary. See Folk and Moyer, Sequestration in Delaware: A Constitutional Analysis, 73 Colum.L.Rev. 749 (1973) [hereinafter Folk and Moyer]; Note, Quasi in Rem Jurisdiction and Due Process Requirements, 82 Yale L.J. 1023 (1973) [hereinafter Yale Note],

12 . North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. at 608, 95 S.Ct. 719.

13 . As discussed above, Fuentes, fortified by Caiero-Toledo, seems to establish the proposition that, except in extraordinary circumstances, preseizure notice and hearing are required. Since foreign attachments necessary to secure jurisdiction qualify as an “extraordinary situation,” 407 U.S. at 91, n.23, 92 S.Ct. 983, the instant procedures could be evaluated in light of the three criteria established for such situations. See n.7 supra. Indeed, the district court in this case took that route and concluded that the Pennsylvania procedures do not provide the requisite strict governmental control over the use of force.

Mitchell and Di-Chem, however, would appear to require a balancing of interests approach. See, e. g., Hutchinson v. Bank of North Carolina, 392 F.Supp. 888, 895 n.8 (M.D. N.C.1975) (three-judge court); Note, The Supreme Court—1973 Term, 88 Harv.L.Rev. 41, 71 (1974).

Whether we apply the language of “strict control.” see n.7 supra, or balancing, the analysis on these facts will be the same.

14 . It has been suggested that where in person-am jurisdiction over the defendant is available, foreign attachment is per se unconstitutional, see Folk and Moyer, supra, note 10, 763-68, or least it requires prior notice and hearing, see Yale Note, note 10, supra, at 1032-34. But see Comment, Minn.L.Rev. 396, 401 (1972). That issue is not before us, see note 3, supra, and we intimate no view as to it.

15 . Mitchell and Di-Chem might be read to require that a judge approve the seizure. See North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. at 611, n.3, 95 S.Ct. 719. (Powell, J., concurring). The Court’s approval of the Louisiana procedures in Mitchell does not necessarily establish judicial participation as a constitutional requisite. The concern clearly is that the official making the required determinations exercise some discretion and possess the necessary professional competence. It is probably true that judicial participation in the writ process affords a greater opportunity for meeting that concern. However, due process is flexible and if that concern can be met by other reasonable means, a state should have the leeway to make the selection.