The opinion of the court was delivered by: DIMOCK
In this action based on allegedly false representations said to have been relied on in the purchase of $ 250,000 face amount of 4% Bridge Revenue Bonds of the Bellevue Bridge Commission (Nebraska), defendants Robert E. Schweser Company and Leonard L. Lawrence move to set aside the service of the summons on them and to dismiss the complaint for failure to state a claim on which relief can be granted.
The motion to set aside the service of the summons is based, in general, on the facts that it was not served within the state of New York and that the action involves bonds of a public agency and thus is not within provisions of law permitting extraterritorial service.
The motion to dismiss the complaint is based upon the ground (1) that the right of action asserted is statutory and that the statute does not apply to bonds of a public agency and (2) that plaintiffs claim only as assignees of the purchaser who relied on the allegedly false statements and that the right of action by the purchaser who thus relied is not assignable.
The complaint contains two separately stated 'causes of action'. The first states in paragraph 1:
'This action arises under § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q, and under § 10(b) of the Securities Exchanges Act of 1934, 15 U.S.C. § 78j and Rule X-10B-5 promulgated by the Securities and Exchange Commission thereunder, as hereinafter more fully appears.'
The second 'cause of action' realleges every paragraph of the first except the above quoted paragraph 1 and adds two paragraphs which do not invoke special statutory provisions.
We thus have an obviously deliberate attempt to pursue a right of action based on a federal statute and another based solely on common law. Whatever might have been the law prior to the adoption of the Federal Rules of Civil Procedure, the citation of statutes is proper in pleading. See for example Form 2 of the forms of pleading annexed to the Rules.
One of the statutes cited in the 'first cause of action' is the Securities Exchange Act of 1934. Section 27 of that act provides that in a suit to enforce liability under it the summons may be served wherever the defendant may be found. 15 U.S.C. § 78aa. The act creates liability with respect to sales of bonds, even though they be bonds of public instrumentalities of a state, and process in suits to enforce liability with respect to sales of such bonds may be served extraterritorially. Baron v. Shields, D.C.S.D.N.Y., 131 F.Supp. 370, 1954; Greenwich Savings Bank v. Shields, D.C.S.D.N.Y., 131 F.Supp. 368, 1955; Thiele v. Shields, D.C.S.D.N.Y., 131 F.Supp. 416, 1955.
Service was therefore proper insofar as the assertion of the federal right of action is concerned.
The assertion of the common law right of action does not enjoy the benefit of any express statutory permission for extraterritorial service. If extraterritorial service is to be permitted it must be because of its assertion in the same suit as the federal right of action. Can a plaintiff obtain this advantage for a common law right of action by the simple expedient of asserting it in the same suit with a federal right of action which a statute says may be enforced by extraterritorial service?
The first question is whether the common law right of action may be asserted at all in the federal court. That question was long ago answered in the affirmative by Hurn v. Oursler, 289 U.S. 238, 53 S. Ct. 586, 77 L. Ed. 1148, which involved rights of action based on copyright infringement and unfair competition. There Mr. Justice Sutherland said, p. 246, 53 S. Ct. p. 589:
'The distinction to be observed is between a case where two distinct grounds in support of a single cause of action are alleged, one only of which presents a federal question, and a case where two separate and distinct causes of action are alleged, one only of which is federal in character. In the former, where the federal question averred is not plainly wanting in substance, the federal court, even though the federal ground be not established, may nevertheless retain ...