Opinion
Case No. 1:02CV195
December 18, 2003
MEMORANDUM OPINION
The following matters are currently pending before this Court: Defendant's Objections [Doc. #15] to the Recommendation of the United States Magistrate Judge to Deny Defendant's Motion [Doc. #2] to Dismiss for Lack of Personal Jurisdiction, or in the Alternative, to Change Venue; Plaintiff's Motion to Proceed with Discovery [Doc. #11]; and Defendant's Motion to Vacate the Attachment of Bank Account 000055191720 [Doc. #25].
For the reasons stated below, the Magistrate Judge's Recommendation to Deny Defendant's Motion is adopted. Thereby, Defendant's Motion to Dismiss for Lack of Personal Jurisdiction, or in the Alternative, to Change Venue will be DENIED. Plaintiff's Motion to Proceed with Discovery will be DENIED as MOOT. Defendant's Motion to Vacate the Attachment will be GRANTED.
I.
Defendant William M. Gregg resides in South Carolina and is the sole shareholder for South Carolina Tees, a t-shirt company. Plaintiff Sara Lee Corporation ("Sara Lee") is a Maryland corporation, headquartered in Illinois, but with a large textile operation in Winston Salem, North Carolina. Part of Sara Lee's Winston Salem textile operation is Hanes Printables, an unincorporated division. Both Sara Lee and Hanes Printables are successors of Hanes Corporation.Mr. Gregg, acting on behalf of South Carolina Tees, began purchasing shirts from Hanes Corporation in 1978. Initially, these purchases were paid for in cash. However, as the business relationship continued, Hanes Corporation extended credit to South Carolina Tees. As part of this credit arrangement, Mr. Gregg signed a personal guarantee on behalf of South Carolina Tees in 1980. The resulting business relationship involved repeated shipments of shirts from North Carolina to South Carolina and other locations. South Carolina Tees would remit payment to Hanes Printables in North Carolina. Sara Lee states that Mr. Gregg has always been Hanes Corporation's contact for any business with South Carolina Tees.
When South Carolina Tees later filed for bankruptcy, Sara Lee filed suit against Mr. Gregg on February 20, 2002. [Doc. #1], The suit is brought pursuant to Mr. Gregg's 1980 personal guarantee of South Carolina Tees' debts to Hanes Corporation. Specifically, Sara Lee seeks recovery from Mr. Gregg of over $3 million owed to Sara Lee by South Carolina Tees.
On March 14, 2002, Mr. Gregg filed a Motion to Dismiss for Lack of Personal Jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2), or in the alternative, to Change Venue [Doc. #2]. On July 31, 2002, the United States Magistrate Judge issued a Recommendation [Doc. #9] that Mr. Gregg's Motion be denied. On August 14, 2002, Mr. Gregg filed a timely objection to the Recommendation [Doc. #15].
On August 7, 2002, Sara Lee filed a Motion to Proceed with Discovery [Doc. #11]. In addition, on August 13, 2002, Sara Lee filed a Motion for an Order of Attachment [Doc. #13]. On August 15, 2002, the United States Magistrate Judge issued an order granting Sara Lee's Motion for an Order of Attachment [Doc. #16]. The Order permitted pre-judgment attachment of Mr. Gregg's property located within the Middle District of North Carolina. Pursuant to the Order, on August 21, 2002, Sara Lee served a Notice of Attachment on Bank of America at a branch located in Greensboro, North Carolina. Mr. Gregg's Bank of America account was attached pursuant to this Notice. Mr. Gregg had opened this account in 1984 at the Columbia, South Carolina branch of Bank of America, and had conducted all banking regarding this account in South Carolina. In response to the attachment of his bank account, Mr. Gregg filed an Urgent Motion to Vacate the Attachment [Doc. #25] on August 27, 2002.
Bank of America Account Number 000055191720.
The three motions pending before the Court in this matter, Defendant's Objections to the Magistrate Judge's Recommendation, Plaintiff's Motion to Proceed with Discovery, and Defendant's Motion to Vacate the Attachment, are considered in turn, in the three sections that follow.
II.
A court in North Carolina has personal jurisdiction over a party when two requirements are satisfied: (1) the North Carolina long-arm statute applies, and (2) the exercise of that statutory power will not violate the due process clause of the United States Constitution. Dowless v. Warren-Rupp Houdailles, Inc., 800 F.2d 1305, 1306 (4th Cir. 1986). However, North Carolina's long-arm statute has been construed to extend to the outer limits allowed by the due process clause. Hiwassee Stables, Inc. v. Cunningham, 135 N.C. App. 24, 519 S.E.2d 317 (1999). Thus, the two-prong personal jurisdiction analysis can be collapsed into one inquiry, that is, whether the requirements of the constitutional "minimum contacts" analysis, developed under the due process clause, are met. Id.
Here, Defendant argues that the Magistrate Judge's Recommendation erroneously construed portions of the North Carolina long-arm statute, specifically, N.C. Gen. Stat. §§ 1.75.4(5)(a) (c), in determining that North Carolina's exercise of personal jurisdiction over the Defendant was proper. However, for the reasons described in the Magistrate Judge's Recommendation, the requirements of the due process analysis have been satisfied. Therefore, resolution of the proper construction of §§ 1.75.4(5)(a) (c) is unnecessary.
The reliance of the Magistrate Judge's Recommendation onUnited Buying Group, Inc. v. Coleman, 296 N.C. 510, 251 S.E.2d 610 (1979), in finding that Defendant had minimum contacts with the state of North Carolina sufficient to satisfy the constitutional requirements, was appropriate.
The Magistrate Judge's Recommendation to deny Defendant's Motion to Change Venue is adopted in full. Therefore, Defendant's Motion to Dismiss for Lack of Personal Jurisdiction, or in the Alternative, to Change Venue will be DENIED.
III.
Plaintiff's Motion to Proceed with Discovery is now moot. According to Rule 26(d) of the Federal Rules of Civil Procedure, "[e]xcept . . . when authorized by these rules or by order or by agreement of the parties, a party may not seek discovery from any source before the parties have conferred as required by Rule 26(f)." The deadline for parties to confer and prepare their Rule 26(f) report is not set until the Court orders a scheduling conference or sets a deadline for a scheduling order pursuant to Federal Rule of Civil Procedure 16(b).
At the time of Plaintiff's motion, Defendant's Motion to Dismiss was still pending. Therefore, a scheduling conference had not been ordered. Now that Defendant's Motion to Dismiss will be denied, a scheduling conference will be set and discovery will commence. Therefore, Plaintiff's Motion to Proceed with Discovery will be DENIED as MOOT.
IV.
The August 15, 2002 Attachment Order permitted pre-judgment attachment of Mr. Gregg's property to satisfy Sara Lee's demand of $4 million. The order limited attachment to property located within the Middle District of North Carolina. For the reasons stated below, it is determined that Mr. Gregg's Bank of America account is not property located within the Middle District. Therefore, Mr. Gregg's Motion to Vacate the Attachment of the bank account will be GRANTED.
Under Federal Rule of Civil Procedure 64, the propriety of the attachment in question is governed by North Carolina state law. North Carolina courts have not specifically addressed whether different branches of a bank are considered separate entities for purposes of attachment. However, several states have addressed the issue, and a general rule has emerged. The general rule is that each branch of a bank is considered a separate entity, and "in no way concerned with accounts maintained by depositors in other branches or at the home office," when it comes to attachment or garnishment. R. F. Chase, Attachment and Garnishment of Funds in Branch Bank or Main Office of Bank Having Branches, 12 A.L.R.3d 1088 at § 2 (1967);See, e.g., Det Bergenske Dampskibsselskab v. Sabre Shipping Corp., 341 F.2d 50 (2d Cir. 1965); Fidelity Partners, Inc. v. Phillipine exp. Foreign Loan Guar. Corp., 921 F. Supp. 1113 (S.D.N.Y. 1996). Therefore, under the separate entity rule, accounts may only be attached "by serving the writ of attachment at the branch, or the main office, supposedly holding the funds for the debtor." Chase, 12 A.L.R. 1088. However, the New York courts have noted an exception to the separate entity rule: service upon the main office of a bank is sufficient to attach funds held at a branch of that bank located in the same district. See Digitrex, Inc. v. Johnson, 491 F. Supp. 66 (S.D.N.Y. 1980).
Rule 64 provides, ". . . all remedies providing for seizure of person or property for the purpose of securing satisfaction of the judgment ultimately to be entered in the action are available under the circumstances and in the manner provided by the law of the state in which the district court is held. . . ." Fed.R.Civ.P. 64.
Of the states that have addressed this issue, only Illinois has adopted a rule contrary to the "separate entity rule." See Bank of Montreal v. Clark, 108 Ill. App. 163 (1903).
The separate entity rule is supported by considerations of banking efficiency. Transaction costs and potential liability are both increased if all branches of a bank are considered a single entity for attachment purposes. Specifically, each branch would face potential liability every time it released funds without verifying that no attachment had been placed on those funds at any other branch. Banks' transaction costs would increase from the communication necessary to avoid such liability. By treating each branch as a separate entity, banks may effectuate their daily business, and their compliance with attachment orders, more efficiently.
As the separate entity rule represents the general rule governing attachment of bank accounts, and the rule is supported by sound policy considerations, this Court assumes that North Carolina would adopt the separate entity rule if faced with the issue. In contrast, as support for its contention that attachment of Mr. Gregg's South Carolina bank account was proper, Sara Lee argues that North Carolina would not adopt the separate entity rule. Sara Lee points to N.C. Gen Stat. § 25-4-106, which states that branch offices or a bank are considered separate for purposes of computing certain timing issues, but notes that for some purposes "the single legal entity of the bank as a whole is preserved." N.C. Gen. Stat. § 25-4-106 (2003) (Off. Cmt. at ¶ 4). While this section makes clear that bank branches may sometimes be considered a single entity under North Carolina law, it provides no guidance as to whether this is the case in the specific instance of attachment proceedings.
Sara Lee also argues that technological advances have diminished the barriers between bank branches — that funds are now often held electronically (as opposed to being physically held at a particular branch), and instant communication between branches is possible. While this argument does provide a policy reason against adoption of the separate entity rule, it does not entirely mitigate the supporting policy reasons. Further, incorporation of modern trends, including technological changes, into the law is a task more appropriately tackled by the state legislature, not the federal courts. In short, absent a North Carolina statute specifically addressing the issue, North Carolina courts likely would follow the majority rule and adopt the separate entity rule.
In the case at hand, Sara Lee served an order of attachment at a Greensboro, North Carolina Bank of America branch, purporting to attach Mr. Gregg's Columbia, South Carolina account. Application of the separate entity rule makes this purported attachment invalid. The attachment cannot be saved by the Digitrex exception — here, a branch, not a main office, was served. Further, the branch served and the branch holding Mr. Gregg's account are not in the same district. Therefore, Defendant's Motion to Vacate the Attachment of Bank Account 000055191720 will be GRANTED.
V.
In summary, for the reasons stated above, the Magistrate Judge's Recommendation to Deny Defendant's Motion is adopted. Thereby, Defendant's Motion to Dismiss for Lack of Personal Jurisdiction, or in the Alternative, to Change Venue will be DENIED. Plaintiff's Motion to Proceed with Discovery will be DENIED as MOOT. Defendant's Motion to Vacate the Attachment will be GRANTED.