Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v. CAV

March 12, 1970

MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, Plaintiff,
v.
Elsie CAVICCHIA, the State of New York, Arthur Weiss, as temporary receiver for the State of New York, Anna L. Parillo and Louis J. Parillo, Defendants. REYNOLDS & CO., Plaintiff, v. Elsie CAVICCHIA, the State of New York, Arthur Weiss, as temporary receiver for the State of New York, Anna L. Parillo and Louis J. Parillo, Defendants


Lasker, District Judge.


The opinion of the court was delivered by: LASKER

LASKER, District Judge.

The Attorney General of the State of New York brought suit under Article 23-A of the New York General Business Law, McKinney's Consolidated Laws, c. 20 ("Martin Act"), General Business Law § 352 et seq., against one Elsie Cavicchia. A receiver (defendant Arthur Weiss) of Cavicchia's property was appointed and authorized to take possession of such of her property as was in the hands of her brokers, the plaintiffs here.

 Simultaneous proceedings by a private party against Cavicchia in New Jersey resulted in similar orders of the New Jersey court addressed to Cavicchia's brokers. Confronted with the possibility of double liability relating to the same subject matter, plaintiffs brought these statutory interpleader actions pursuant to 28 U.S.C. § 1335. In each of the interpleader actions the respective plaintiff has moved, pursuant to 28 U.S.C. § 2361, for an order restraining the prosecution of the Martin Act suit and for other relief.

 The State of New York and Weiss now move to dismiss the complaints in the interpleader actions, claiming that the court lacks personal jurisdiction of them because they are immune from suit under the Eleventh Amendment to the Constitution of the United States, which provides:

 
"The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State."

 The question for determination is whether, in a "Martin Act" proceeding, the State of New York is a real party in interest. If it is, the Eleventh Amendment acts as a bar to the interpleader suit; if it is not, the Amendment is inoperative.

 These motions, which present precisely the same issue in each case, are treated in a single opinion.

 The facts are not in dispute. Sometime in 1968 the Attorney General of the State of New York, on behalf of the state, commenced a civil action in New York Supreme Court, New York County, against Cavicchia. The action was brought pursuant to the Martin Act and sought to enjoin Cavicchia from engaging in the sale of securities within New York State. Upon a showing by the Attorney General that defendant Cavicchia had indulged in a course of fraudulent conduct in connection with the sale of securities in the state, Justice Helman of the Supreme Court granted an order enjoining her pendente lite from engaging in such sales and "from transferring or disposing of * * * the property of the defendants in their possession or in the possession of other persons, brokers, banks, or associations or institutions * * *, derived by the fraudulent practices set forth" in the complaint in that action.

 On September 6, 1968, the Supreme Court appointed Arthur Weiss, Esq., a defendant herein, to be temporary receiver, pursuant to Section 353-a of the Martin Act, "of any and all property derived by * * * Elsie Cavicchia * * * by means of fraudulent practices," and directed that the "receiver shall take title to any and all such property * * * and preserve and conserve such property * * * for the benefit of all persons intervening in this action and establishing an interest in such property." The order specifically authorized Weiss to take charge and possession of "[any] and all securities, dividends and monies held by * * * Merrill Lynch Pierce Fenner & Smith, Inc., Reynolds & Co., [and others] * * * in the accounts of the defendant Elsie Cavicchia." Cavicchia maintained her accounts with both companies at their Newark, New Jersey, offices.

 On appeal from this order by defendant Cavicchia, the Appellate Division, First Department, on February 27, 1969 unanimously affirmed. By letters dated the following day, defendant State of New York joined in the demand of defendant Weiss that Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch") and Reynolds & Co. ("Reynolds"), the respective plaintiffs in the companion interpleader actions herein, turn over to the receiver all securities held by them in the accounts of defendant Cavicchia.

 Meanwhile Anna L. and Louis J. Parillo, defendants herein, brought suit in the Superior Court of New Jersey, Chancery Division, Essex County, against Cavicchia and certain other defendants, and on July 17, 1968 obtained an order placing in the custody of that court the "securities and funds on deposit with the defendant Elsie Cavicchia's brokerage account with Merrill Lynch, Pierce, Fenner & Smith, Newark New Jersey, * * * and * * * Reynolds & Co., Newark, New Jersey."

 On October 18, 1968, the New Jersey court granted a further order providing that the net value of the funds and securities in the Merrill Lynch account and in the Reynolds account be applied "to such payment to the plaintiffs as will satisfy any settlement or final judgment" in the action as between the Parillos and Cavicchia. The order further provided that the Parillos' interest in these accounts was "a first charge thereon, superior and prior to that of Arthur Weiss, Esq., * * * as temporary receiver" in the above mentioned New York action.

 Plaintiffs Merrill Lynch and Reynolds thereupon commenced these companion statutory interpleader actions seeking judgment restraining all the defendants from commencing or prosecuting any suit against plaintiffs to recover the securities here involved and requiring defendants to interplead and settle among themselves the right to this property. *fn1"

 Subsequently, defendants State of New York and Weiss, as temporary receiver, made the present motions to dismiss the complaints of both plaintiffs on the ground that this court lacks jurisdiction over defendants by virtue of the provisions of the Eleventh Amendment. They argue that the instant interpleader actions are brought against the state and a receiver appointed by its courts, and as such are expressly barred by the Eleventh Amendment, which denies to federal courts authority to entertain a suit brought by private parties against a state without its consent. (Plaintiffs nowhere allege, nor does the record indicate, any consent on the part of the state to be sued.)

 Were it not for the Eleventh Amendment issue raised by defendants, plaintiffs' interpleader actions would clearly lie. Indeed, defendants do not challenge the appropriateness of this procedure other than on the specific constitutional ground just mentioned.

 28 U.S.C. § 1335 provides, in part:

 
"(a) The district courts shall have original jurisdiction of any civil action of interpleader * * * filed by any person, firm, or corporation, association, or society having in his or its custody or possession money or property of the value of $500 or more, * * *, if
 
"(1) Two or more adverse claimants, of diverse citizenship * * *, are claiming or may claim to be entitled to such money or property, * * *"

 All conditions required by the statute have been met in the cases at bar. All of the defendants except the state and Arthur Weiss, a New Yorker, are residents of New Jersey. Despite the absence here of complete diversity between parties plaintiff and parties defendant, as well as between the claimants themselves, the diversity requirements of the interpleader statute have been met. As Professor Wright has noted:

 
"Where each of the claimants is a citizen of a different state, and the stakeholder is disinterested, his citizenship is immaterial, since the actual controversy is between the claimants. The courts have gone far beyond this, however, and have entertained statutory interpleader on the basis of what is called 'minimal diversity': so long as there are at least two opposing claimants of diverse citizenship, they have held that jurisdiction exists, even though there may be other claimants, or a stakeholder who is not disinterested, of the same citizenship." Wright, Federal Courts § 74, p. 280 (1963).

 That both Merrill Lynch and Reynolds are innocent and completely disinterested stakeholders is not contested. The New York courts have ordered plaintiffs Merrill Lynch and Reynolds to turn over to defendant Weiss all monies and securities which they hold in the accounts of defendant Cavicchia. Plaintiffs have also been directed by the New Jersey courts to hold the money and property of defendant Cavicchia in custodia legis. It is manifestly clear, therefore, that the courts of both states are claiming an interest in the property held by plaintiffs in the various Cavicchia accounts. It is equally clear that compliance with the orders of one state's courts could place plaintiffs in jeopardy of violating the orders of the other state's courts, for the New Jersey courts would be without power to compel the State of New York, or its temporary receiver, to comply with any orders entered in the New Jersey action, and there is a question as to whether the New York courts would be able to enforce orders entered in the New York action against ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.