The opinion of the court was delivered by: CARTER
Defendant Shearson, Hammill & Co., Inc. (Shearson) has filed third-party complaints for indemnification against National Bank of North America (NBNA) in the three class actions
and the related individual action
in which Shearson is alleged to have violated the fraud provisions of the federal securities laws. Third-party defendant NBNA has moved pursuant to Rules 14(a) and 12(b), F.R. Civ. P., for an order dismissing the third-party complaints on grounds of improper venue and failure to state a claim on which relief can be granted. These motions are denied.
Shearson has also moved to consolidate the class action, Feldman v. Shearson, Hammill & Co., Inc., with the Slade and Odette actions which were previously consolidated. That motion is granted.
The principal complaints in all four actions allege that Shearson sold securities of Tidal Marine International Corp. (Tidal) and one of its shipping subsidiaries while in possession of material, adverse information about Tidal. In its third-party complaints, Shearson seeks indemnification from NBNA for any liability that may be imposed on it in these actions.
Venue is Proper in the Southern District of New York
Shearson's third-party complaints assert that venue is properly laid in this district under both Section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa, and the general federal question venue statute, 28 U.S.C. § 1391(b).
On this motion, however, NBNA contends that under the venue provision of the National Bank Act, 12 U.S.C. § 94, which it claims is controlling in this case, venue is proper only in the Eastern District of New York. The statutory provision in question provides that a federal court action may be brought against a national bank only in the federal district in which it is "established":
"Actions and proceedings against any association under this chapter
may be had in any district or Territorial court of the United States held within the district in which such association may be established * * *."
It is settled that "a national bank is 'established,' within the meaning of Section 94 * * * only in the federal district encompassing the location specified in its charter." General Electric Credit Corp. v. James Talcott, Inc., 271 F. Supp. 699, 703 (S.D.N.Y. 1966). A bank does not become established in every district in which it has a branch bank. Leonardi v. Chase National Bank of City of New York, 81 F.2d 19, 22 (2d Cir.), cert. denied, 298 U.S. 677, 80 L. Ed. 1398, 56 S. Ct. 941 (1936).
NBNA's charter states that its "main office" is in Queens, thus showing that it is established in the Eastern District of New York. Therefore, NBNA argues, suit may be maintained against it only in that district.
NBNA also contends, and the court agrees, that the broad venue provision of § 27 of the Exchange Act is not to be construed to supersede § 94. The Second Circuit so held in reaffirming "with regret"
the primacy of "the special and exceedingly narrow venue provisions" of § 94 which may, in some cases, render it inconvenient or impossible to compel national banks to account for their misdeeds in securities transactions, Bruns, Nordeman & Co. v. American National Bank & Trust Co., 394 F.2d 300, 301 (2d Cir.), cert. denied, 393 U.S. 855, 21 L. Ed. 2d 125, 89 S. Ct. 97 (1968); Klein v. Bower, 421 F.2d 338, 342 (2d Cir. 1970); contra, Ronson Corporation v. Liquifin Aktiengesellschaft, 483 F.2d 852 (3d Cir. 1973).
Apparently acknowledging that § 94 would ordinarily be controlling, Shearson contends that NBNA has, nevertheless, waived the venue defense by prior acts inconsistent with its present effort to retreat across the East River.
Shearson first argues that NBNA has "generally" waived the statute by extensive commercial banking, branch banking and public advertising in the Southern District. In support of its argument, Shearson presents several NBNA and trade publications which show that NBNA's principal headquarters, some 76 percent of its major divisions, and 27 full service branches are located in New York and Westchester counties.
However appealing Shearson's argument may be, there is no authority in this circuit to support its theory of a "general waiver" through full service banking. Moreover, in Helco, Inc. v. First National City Bank, 470 F.2d 883, 885 (3d Cir. 1972), the Third Circuit held that a New York City Bank did not waive the venue defense as to federal court actions brought in the Virgin Islands by establishing a single branch there.
It is true that the instant case may be distinguished from Helco, since here the asserted waiver is based on the operation of many branches at only a short distance from the main office. Moreover, as in Reaves v. Bank of America, 352 F. Supp. 745 (S.D. Cal. 1973), the policy of § 94 to avoid undue disruption of national bank operations would not be materially advanced by permitting NBNA to defend this action in the Eastern District, rather than the Southern District where so much of its business is conducted.
However, in the absence of more persuasive authority than Reaves v. Bank of America, supra, I hesitate to base a finding of waiver on NBNA's "full service" banking in the Southern District.
The second ground on which Shearson asserts that NBNA has waived the protection of § 94 is that it has failed to raise the venue defense in prior litigation. Shearson cites seven cases now pending before this court and three cases decided in the last six years by the New York State Supreme Court Appellate Division for the First Department in which NBNA appeared as a defendant but failed to raise the venue defense.
However, neither this court nor the Court of Appeals has considered whether a party's failure to raise a venue defense in prior litigation may constitute a waiver.
This court has decided only the issue of whether failure to make a timely objection to venue during a particular litigation waived the defense as to that litigation. Altman v. Liberty Equities Corp., 322 F. Supp. 377, 379 (S.D.N.Y. 1971); see also Exchange National Bank of Chicago v. Abramson, 45 F.R.D. 97, 105-106 (D. Minn. 1968).
In the absence of some authority of this court or circuit, I am disinclined to hold that NBNA's conduct during prior litigation is dispositive of the venue issue.
Shearson's third argument is that a bank should be held to have waived venue "specifically" where its banking activities in a particular district give rise to the cause of action sub judice. In the instant case, NBNA's commercial loan business, including the Ship Loan Department which allegedly committed the fraud, is located exclusively in the Southern District of New York.
Although I agree with the logic of Shearson's argument, there is again no authority beyond the Reaves case, supra, to support it. I am reluctant to rest decision on this slender reed -- particularly since somewhat firmer authority is at hand which seems to call for the rejection of NBNA's venue defense.
Shearson fails to make what I regard as the strongest and most conclusive argument in support of its position. There is a line of authorities holding that if venue is properly laid in the principal action, a third-party defendant impleaded under Rule 14(a) may not successfully raise the defense that venue would be improper in an original action by the third-party plaintiff against the third-party defendant. As Professor Moore has written:
"With a few exceptions, especially in the earlier decisions, the weight of authority supports the view herein advocated: the third-party defendant has no objection based on venue." 3 Moore's Federal Practice P 14.28.
The courts have held that the reasoning which supports ancillary subject matter jurisdiction over a third-party claim also supports ancillary venue. McGonigle v. Penn-Central Transportation Co., 49 F.R.D. 58, 60 (D. Md. 1969); 6 C. Wright and A. Miller, Federal Practice and Procedure § 1445. Specifically, the purpose of the Federal Rules is to "simplify and expedite procedure." Consistent with this, "[the] purpose of Rule 14 was to accomplish in one proceeding the adjudication of the rights of all persons concerned in the controversy * * *." United States v. Acord, 209 F.2d 709, 712 (10th Cir.), cert. denied, 347 U.S. 975, 98 L. Ed. 1115, 74 S. Ct. 786 (1954). As this court said in one of its earliest decisions considering this issue, "the spirit and purpose of Rule 14 to a great extent would be frustrated if the venue statutes had to be applied to third-party proceedings under the Rule." Morrell v. United Air Lines Transport Corp., 29 F. Supp. 757, 759 (S.D.N.Y. 1939).
Therefore this court in Thompson v. United Artists Theatre Circuit, Inc., 43 F.R.D. 197, 201 (S.D.N.Y. 1967), a diversity action, recently reaffirmed that if venue is proper in the principal action, there need be no independent basis for venue in the third-party claim. The Second Circuit had earlier espoused this position in dictum. Agrashell, Inc. v. Bernard Sirotta Co., 344 F.2d 583, 585 (2d Cir. 1965). In addition, in United States v. Acord, supra, 209 F.2d at 713, where the United States as third-party defendant moved to dismiss under the venue provision of the Tort Claims Act, the Tenth Circuit adopted the rule that a third-party defendant could not raise the venue defense. Acord was recently followed in McGonigle v. Penn-Central Transportation Company, supra, 49 F.R.D. at 61, a federal question action under the Federal Employers' Liability Act.
NBNA contends, however, that to deprive third-party defendants of the venue defense would be to extend the venue of the district court in violation of Rule 82, F.R. Civ. P.:
"These rules shall not be construed to extend or limit the jurisdiction of the United States district courts or the venue of actions therein. * * *"
This argument was answered long ago in a case decided by this court shortly after Rule 14(a) was adopted. In Morrell v. United Air Lines Transport Corp., supra, it was noted that before the adoption of Rule 14, third-party defendants could not prevail on a venue defense. See, e.g., Dickey v. Turner, 49 F.2d 998, 999 (6th Cir. 1931). The court said that venue is not extended in violation of Rule 82 "if the law with respect to the venue of ancillary proceedings before the adoption of the new rules is applied to all ancillary proceedings which arise under the rules." 29 F. Supp. at 759.
NBNA also cites Swiss Israel Trade Bank v. E. L. Mobley, 319 F. Supp. 374, 375 (S.D. Ga. 1970), in which the court dismissed a third-party complaint for improper venue, holding that § 94 was fully applicable in a third-party proceeding. This decision cites no authority for its principal holding, and its reasoning is not persuasive.
I decline to follow it.
Since NBNA is a third-party defendant pursuant to Rule 14(a), I hold that it may not object to venue in the Southern District of New York. The purpose of Rule 14(a), to avoid multiplicity of actions, will be served by requiring NBNA to contest Shearson's claims in this proceeding rather than in a separate suit a few miles away in the Eastern District.
The Motion to Dismiss Under Rule 12(b)(6)
NBNA also moves to dismiss the third-party complaints on two principal grounds: (1) NBNA first contends that the pertinent substantive law does not allow indemnification for the violations of the securities laws with which Shearson is charged in the principal actions. (2) NBNA also argues that the third-party complaints fail to state a claim under Rule 10b-5 because Shearson does not meet ...