PEACOCK v. THOMAS
In 1987, Jack L. Thomas filed an Employee Retirement Income Security Act of 1974 (ERISA) class action against his former employer Tru-Tech, Inc. and D. Grant Peacock, an officer and shareholder of Tru-Tech. Thomas alleged that they had breached their fiduciary duties to the class in administering Tru- Tech's pension benefits plan and sought the benefits due under the plan. The District Court ruled in Thomas's favor, but found that Peacock was not a fiduciary. After the Court of Appeals affirmed and attempts to collect from Tru-Tech failed, Thomas sued Peacock. The District Court, agreeing with Thomas to pierce the corporate veil, entered judgment against Peacock in the amount of the judgment against Tru-Tech. In affirming, the Court of Appeals held that the District Court properly exercised ancillary jurisdiction over Thomas' suit.
Do federal courts possess ancillary jurisdiction over new actions in which a federal judgment creditor seeks to impose liability for a money judgment on a person not otherwise liable for the judgment?
Legal provision: Employee Retirement Income Security
No. In an 8-1 opinion delivered by Justice Clarence Thomas, the Court held that the District Court lacked jurisdiction over Thomas's subsequent suit. The Court found that neither ERISA's jurisdictional nor the general federal question jurisdictional provision supplied the District Court with subject matter jurisdiction over the suit against the corporate officer. The Court noted that is was unaware of any provision under ERISA for imposing liability under the circumstances for an extant ERISA judgment against a third party. Justice John Paul Stevens, in a dissent, argued that a federal court's jurisdiction encompasses a claim by a judgment creditor that a party in control of the judgment debtor has fraudulently exercised that control to defeat a judgment.
Argument of David L. Freeman
Chief Justice Rehnquist: We'll hear argument next in Number 94-1453, D. Grant Peacock v. Jack Thomas.
Mr. Freeman, you may proceed whenever you're ready.
Mr. Freeman: Thank you, Mr. Chief Justice, and may it please the Court:
At issue in this case are two important areas of the law, one touching on ERISA, the other dealing with the scope of ancillary jurisdiction of the Federal courts under Article III of the Constitution.
In the ERISA issue, we ask the Court to examine whether there exists a Federal common law remedy of veil-piercing or a rule of decision said by the courts below to arise out of ERISA.
The issue of ancillary jurisdiction seeks examination by the Court of the power of the Federal court to entertain a separate lawsuit, such as the case now before the Court, where there is no independent basis of jurisdiction.
The case before the Court was commenced 3 years after a judgment was entered against Tru-Tech.
Unknown Speaker: If we were to decide the second question in your favor, would we need to reach the first question, Mr. Freeman?
Mr. Freeman: Your Honor, you would not, I think... the second question being the ancillary jurisdiction--
Unknown Speaker: Yes.
Mr. Freeman: --question?
Well, I think I spoke too quickly there.
I believe that you would in fact need to go back to the ERISA issue and make a decision on whether you can read into ERISA a common law cause of action, and that would be the Federal question basis for maintaining this action in Federal court.
Unknown Speaker: If we decided it against you we could dodge the other bullet, right?
Mr. Freeman: That's the way to put it.
Unknown Speaker: That's great.
Mr. Freeman: Yes... that's the right way to put it.
So... but I understand the complexity of the ancillary jurisdiction, and it would be my purpose, unless the Court should direct me otherwise, to address that first and then in the time remaining come back, if I may, to ERISA.
In the second suit before the court, the district court, after trial on the merits, held the petitioner liable for the Tru-Tech judgment on the basis that there was a Federal law cause of action.
Now, when it reached the Fourth Circuit, the Fourth Circuit, without hearing argument, really without the briefs having addressed the issue, found that the jurisdiction giving vitality to the case was to be found in the court's ancillary jurisdiction, and we believe that in so doing that constituted a mistake which needs to be addressed in the Court here today.
Before moving away from the subject of ERISA, Mr. Chief Justice, I would want to make one important point.
The district court asserted personal jurisdiction over petitioner, a resident of the State of Pennsylvania, on the basis of ERISA's provision for nationwide service of process.
Now, should this Court conclude that there is no ERISA cause of action to be read into the ERISA statute, we believe it would be necessary for the Court at a minimum to remand for a proper determination of personal--
Unknown Speaker: Unless... I assume there's a long arm statute in South Carolina that could have been used if there were no ERISA jurisdiction, but if there was a proper... in respect of the ancillary jurisdiction of the court.
Mr. Freeman: --We do have a long arm statute, Your Honor, and the... I don't think it's terribly clear that if you have ERISA jurisdiction that furnishes a substitute for appropriate service of process.
Unknown Speaker: Well, let's assume no ERISA jurisdiction, but that there is an independent basis under Federal common law ancillary jurisdiction of the court to proceed.
I take it that Mr. Peacock would have been subject to the long arm statute.
Mr. Freeman: He would have been subject to the long arm statute, and when we attack the subject of ancillary jurisdiction, and we have to determine under the argument of the Government which law applies, then it would make a difference what law is applied, and if, for example, you should apply the law of fraudulent transfers, then you would be thrown to a focus which shifts in point of time from South Carolina to Pennsylvania, where all of the actions which were involved in that occurred.
And I would submit, I think, at the time of remand, that the appropriate place for trial would be Pennsylvania, and that the long arm statute, while it might reach causes of action in South Carolina, would not be sufficient without sufficient constitutional--
Unknown Speaker: In any event, we can't resolve that question.
Mr. Freeman: --Cannot.
Unknown Speaker: Let me understand... do I understand correctly that you are not saying there's no remedy here.
What you're saying is, there is a remedy under State law and State court.
Mr. Freeman: Precisely.
Unknown Speaker: Before you get off of the remand necessity to determine personal jurisdiction, why do you reject out of hand the possibility that in a suit that is ancillary to another suit, the court's personal jurisdiction is the same as that in the suit to which the suit is ancillary?
That is, even if this doesn't... even if this is not an ERISA case, if it is ancillary to a case in which there is nationwide jurisdiction, there is also nationwide jurisdiction in the ancillary suit.
Isn't that a possibility?
I mean, I don't know what the answer is--
Mr. Freeman: I don't know what--
Unknown Speaker: --but isn't that something we ought to look at?
Mr. Freeman: --I think it would have to be looked at, and I don't know what the answer is.
I think you would be required to take a close focus on what nationwide service of process relates to, and under the statute it relates, really, to actions under ERISA, so if you can read a cause of action into ERISA... probably.
But if you're only reading a rule of decision into ERISA, if you're superimposing it at that level, I think it's very problematical that you can read the nationwide service of process statute in a way that would effectuate personal jurisdiction under the nationwide service.
Unknown Speaker: One quick question on this, because I know we have other issues.
Was Peacock originally served in the original underlying action under the nationwide service of process provision?
Mr. Freeman: I'm sure he was.
I'm sure he was.
My memory doesn't go entirely to that point, but there was no question of his jurisdiction at that point.
Unknown Speaker: May I ask you why... let's leave ERISA out of this entirely, but if what's being charged here is conduct that frustrates the collection of a Federal judgment, why shouldn't the conduct that frustrates the collection of the judgment be considered ancillary to the case that resulted in the judgment?
Mr. Freeman: I think that's the... a critical question for me to deal with, and what I want to say about that is... I'll come back to it a number of times, but basically that supposes that there was a violation of the court's order by the petitioner in this case, not, as we maintained, the violation of a State court rule of law, and--
Unknown Speaker: Why does it assume that?
Mr. Freeman: --Pardon?
Unknown Speaker: Why does it assume that?
Why does it assume there's a violation of the court order rather than a violation of the State rule of law?
Mr. Freeman: To say that this person should be held liable in an action which seeks affirmative relief against him, personal liability, and that you append that to the first action on ancillary jurisdiction simply because he had an eye to that judgment in doing what he did, we think goes farther than this Court's decisions has ever gone in creating ancillary jurisdiction.
Unknown Speaker: In Labette, had the county commissioners violated the order?
Mr. Freeman: They had not, but the commissioners--
Unknown Speaker: Aren't they in the same boat, then, as... I forget the person's name--
Mr. Freeman: --Peacock.
Unknown Speaker: --in this case... Peacock in this case?
Mr. Freeman: Not at all, and fundamentally in a different position.
The commissioners in Labette were simply the people who could bring about satisfaction of that judgment.
They were representatives of a public body, the entity, and in so doing, the directive to them was merely the means of executing on the judgment, and probably the only means that could be effectuated, whereas--
Unknown Speaker: And you're saying Peacock hasn't got the money.
Mr. Freeman: --Whereas in contrast here, what's sought is not that, but he is being required personally, not in his representative capacity... he is being required to respond in a money judgment in court in a summary fashion, rather than--
Unknown Speaker: Not because he's got the money, but because of something he did with the money.
In other words, you're saying, the commissioners had the money, and they could get the money back from the commissioners.
That was the only way to get it.
Here, you're saying Peacock doesn't have the money, and he is being charged with wrongdoing.
Is that the essential difference?
Mr. Freeman: --I don't think that's the difference.
Unknown Speaker: Then I'm sorry, I'm not following--
Mr. Freeman: I'm--
Unknown Speaker: --Maybe I would follow it better if I let you answer the questions instead of interrupting.
Mr. Freeman: --I'm not sure of that at all.
Unknown Speaker: You'd like that better, anyway.
Mr. Freeman: What I am sure of is that the court in Labette and the court in Riggs, which is its first cousin and one that the lower court here relied upon, both treated the mandamus, the writ of mandamus there as the substitute for a writ of execution, and in so doing they directed the people who had the ability to require... to satisfy the original order to take that appropriate action, and they did not seek of them any affirmative release or seek to hold them personally liable--
Unknown Speaker: And that appropriate action was what?
Mr. Freeman: --That appropriate action would have been, I suppose, in that case to have required them personally to respond in satisfaction of the court's order.
What we believe is involved here--
Unknown Speaker: But what was the... would it have taken anything out of their own pockets?
Mr. Freeman: --No, I don't think that was ever contemplated in Labette or in Riggs.
Unknown Speaker: But it would have taken it out of their official pockets.
I mean, they had control over the money.
Mr. Freeman: In fact, they were being directed to levy the tax to satisfy the bond.
Unknown Speaker: In effect, yes.
They were instructed to toll the public to respond to the court's judgment.
Mr. Freeman: Right.
Unknown Speaker: But nothing that involved them--
Mr. Freeman: Right--
Unknown Speaker: --personally.
Mr. Freeman: --and we believe that that simply--
Unknown Speaker: All right--
--What if the--
What if the mandamus were brought against Peacock?
Is there any way that this judgment could be satisfied by a mandamus process against Peacock saying, get the money back?
Mr. Freeman: --Treating him somehow as amenable to mandamus--
Unknown Speaker: Yes.
Mr. Freeman: --as if he were a public figure.
Unknown Speaker: Yes.
Mr. Freeman: I think that would involve precisely the same thing, that what you're doing is departing from principles of res judicata, and simply establishing affirmative liability, personal liability, if you will, in a way that this Court has not yet--
Unknown Speaker: Is there... well, may I interrupt you?
Is there a way of treating Peacock as, in effect, an agent or conduit to effect the return of this money without making him otherwise personally liable?
Could an order issue against him saying, get the money back?
Would that be effective?
Mr. Freeman: --Bring a suit against yourself... to recover the--
Unknown Speaker: In effect, an equity order against Peacock, get the money back.
Would that be effective, or would you need more parties in there?
Mr. Freeman: --I think you would, at most what could be done with respect to Mr. Peacock... he had been the unpaid chairman of this board for a long while... would be to require Tru-Tech, with orders directed against him as the only person who could respond to it, to cause Tru-Tech to pay the money back.
Unknown Speaker: No, but the money had been paid to a third party, hadn't it, so that assuming you had a mandatory... assuming you had a mandatory injunction against Peacock saying, get the money back, it is... I guess it is possible that with the best will in the world, Peacock would say, I'd like to, but I can't do it, whereas in Labette the commissioners could levy the tax.
There was no one who could say them nay, in effect, whereas if Peacock doesn't have the money, if it's in a third party hand, maybe Peacock alone can't do the job.
Mr. Freeman: --Of course, there would need to be two sides to that lawsuit, obviously, and you wouldn't ask Peacock to recover the money from himself.
It would be an appropriate point, I think, had the respondent chosen to do it, to invoke involuntary bankruptcy once he had his judgment, which would have been a mechanism under which the estate of the bankrupt Tru-Tech could be placed in the court's in rem jurisdiction.
That's the other line of cases.
Attachment is the prime example, and I suppose levy under the writ of execution in both the--
Unknown Speaker: How about fraudulent conveyances?
How are they handled postjudgment?
Is... suppose it's alleged that the... Tru-Tech fraudulently conveyed whatever they had in the till to Peacock, and then he disbursed it.
Mr. Freeman: --Fraudulently transferred it to Peacock.
Unknown Speaker: Right.
Mr. Freeman: He may or may not still have it.
Unknown Speaker: Right.
Mr. Freeman: Can he be made amenable under a writ of execution for the restoration of that, for under fraudulent conveyance it's part of ancillary jurisdiction.
Unknown Speaker: Right.
Mr. Freeman: I would say no, and I would say no because there what you are seeking at the end of the day is to fix liability on a stranger, stranger in the eyes of the law, to the original judgment, and for that there would need to be a full-blown trial, going through to the end on the merits, and the adjudication of his personal... of transferee's personal responsibility, not the Government situs.
Unknown Speaker: Well, I mean, to some extent you can't claim that no new issues must be triable.
For example, in the County Commissioners case, where there's a judgment against the county and the order going to the commissioners, the commissioners could raise, for example, as we've had them raise here, a constitutional objection that the court cannot require them to impose a tax, or things of that sort.
They can raise issues, can't they, even though it's ancillary, legal issues that are separate and distinct, and in addition to the legal issues raised in the original proceeding?
Mr. Freeman: That would be in the areas where they are not bound by the principles of determining the first lawsuit.
Unknown Speaker: Well, the principle of the first lawsuit governs, the county is liable, okay, for this money.
The county doesn't have the money, so you get an order to the commissioners telling them to impose the tax.
The commissioners come in, and they want to argue the court has no power to direct the imposition of a tax.
We've had people argue that.
Mr. Freeman: Well, they certainly could not--
Unknown Speaker: Unsuccessfully, I'm sorry to say.
Mr. Freeman: --They could not relitigate the issues determined, and I haven't given particular thought to the issues that they might raise outside the ambit, if you will, of the original adjudication.
Unknown Speaker: Well, Mr. Freeman, in the Dewey case, which respondents rely on, it was to set aside a fraudulent conveyance.
Now, you're always... in a fraudulent conveyance case you're always going to have this question of the motive of the defendant, did they convey the property, and can you infer from the price that it was fraudulent, things that weren't litigated in the first lawsuit.
Mr. Freeman: Right, and let me say this about Dewey: Dewey is a totally different situation from the one we have here, in that it came up from the defendant's side of the table in the form of a compulsory counterclaim to the contractual issue before the court, and there, in addition to the contractual counterclaim, there was a claim by the defendant, a counterclaim by the defendant to set aside as a fraudulent conveyance a transfer from the plaintiff to an affiliate corporation, and we analyze that case as one in which there is a common nucleus of issues--
Unknown Speaker: But the case was decided long before the common nucleus phrase was even developed, and it was decided on the basis of ancillary jurisdiction.
Mr. Freeman: --It was.
It was, and we think it has to be rationalized on the common nucleus basis--
Unknown Speaker: Well, why isn't it perfectly rational the way it is?
Mr. Freeman: --Without being rationalized?
Unknown Speaker: Yes.
Mr. Freeman: Well, I--
Well, I think there is some argument for that.
If you look at Owen, you see that defendants can do things that plaintiffs cannot do, and Owen says it's the posture of the thing that's of great importance, and that defendants, who are hailed into court, if you will, stand at risk of losing the adjudication of their claims unless they're given some broader latitude to raise the issues and have them adjudicated.
Unknown Speaker: Well, isn't Dewey on point in this respect: I thought your argument was tending to something like this, that although on ancillary jurisdiction there are some issues that can be litigated which weren't issue... which weren't litigated the first time around.
They can't be issues of tort-like personal liability, and yet in Dewey, that tort-like personal liability was adjudicated on ancillary jurisdiction.
Mr. Freeman: It was, and--
Unknown Speaker: So if Dewey stands, you cannot defeat ancillary jurisdiction on kind of tort-like personal liability as being the dividing line, as marking the point beyond the outer limit of ancillary jurisdiction.
Mr. Freeman: --I believe that we can draw the line under Owens that would say that the plaintiff, at least, would not be able to join--
Unknown Speaker: And that's the problem here, isn't it, that it is the plaintiff.
The core of ancillary jurisdiction, as I understand it, is allowing a defendant who hasn't asked to litigate not to be stuck having to respond to the plaintiff and then trying to recoup himself in a separate lawsuit.
Mr. Freeman: --Right, and I think that's what the court was saying in Owens when it said the posture of things is crucial, and they went on to talk--
Unknown Speaker: I think you're better off rationalizing Dewey.
It did involve a common nucleus of facts, after all.
Mr. Freeman: --It did, and I remember that Your Honor struggled with that somewhat in a footnote to, I believe, Finley.
I'm always cautious in arguing cases when I know the justices have struggled with it themselves.
I struggled with it, but I don't think at the end of the day Dewey is decisive of our situation.
Unknown Speaker: Was it diversity, Dewey?
Mr. Freeman: It involved a nondiverse party in the affiliate that was joined, I believe.
Unknown Speaker: Before you get to ERISA, or maybe it's part of the ERISA argument, too, I take it you would have no argument, or no objection... maybe you would... if during the course of trial prejudgment... Peacock's before the court and the counsel for the plaintiff brings up the argument, Your Honor, it has come to our attention Mr. Peacock is in the process of beginning to siphon off assets of the corporation, and we want an order to tell him that he may not do that, to preserve your jurisdiction you'd have no problem with the court issuing that order?
Mr. Freeman: In the course of the trial?
Unknown Speaker: Yes.
Mr. Freeman: I think at least in South Carolina and probably around the world there are procedures for attachment prior to judgment, and that that would be a mechanism to be employed that would bring the assets within the--
Unknown Speaker: No.
The court just issues an order.
They say, Mr. Peacock, you're before us, we haven't adjudicated your connection or your liability in this suit, but you're before us, and we want to make it clear that you're violating this court's order if you siphon off any assets until we issue judgment.
Mr. Freeman: --I would resist that with all fervor, not that my resistance has always carried the day, as this Court knows, but what would be happening there is that there would be an injunction doing what an attachment might do, but an attachment would do it only in the setting of an ample bond to protect the improvident issuance, and the simple issuance of a restraining order or an injunction in the course of a trial before it's final determination would, I think, prejudge the ultimate issue in the case, and--
Unknown Speaker: In other words, the court doesn't have the power to preserve the assets of the corporation that is before it when it has also before it the officer who's taking away the assets?
Mr. Freeman: --If the court did it without bond, would be a problem that I would have.
I think the court has that power, and once it effectuates that power, then it has the property within the custody of the court, actual or constructive, so I don't challenge the court's power.
I challenge the method of execution with the use of the power without security standards being imposed, and once it's exercised, then as I see it, it turns the case to the extent of the assets into an in rem proceedings, which is different.
I think the Government in--
Unknown Speaker: Mr. Freeman, before you go on, I mean, the line you propose is one point at which I suppose we could draw the line.
If you have to go beyond what was adjudged in the original case and adjudge new tort liability, it's not ancillary.
But we could also adopt another line, and that is anything, whether by tort or not, that interferes with the satisfaction of the original judgment is ancillary.
Now, what... you know, what's wrong with choosing the latter line?
Mr. Freeman: --Well, the Court could draw such a line, I suppose, but what it would be doing is drawing a line that I think would be very difficult of effectuating.
Unknown Speaker: What are the horribles that would entail?
Mr. Freeman: --The litany of horrors, as we've tried to visualize it, is that you would simply be saying that subject matter jurisdiction is a thing to be determined focusing on intent or purpose, and the person who has the intent to defeat or frustrate a Federal judgment is somebody who ought, with nothing more, to be hailed into Federal court under ancillary jurisdiction and required to respond.
Subject matter jurisdiction is something to be determined at the outset of a case before you go forward, because it cannot be waived, and if it turns, and traditionally it's turned on objective considerations instead of subjective ones... Do you have diverse parties?
Is there the sufficient amount for jurisdiction?
Is there a common nucleus of operative fact +/?
those things can be determined at the threshold of the litigation, and then you go forward.
If you've changed the rules of the game to say that we're going to let this ride on a determination of intent, then you have given... you have opened the door, as we see it, to a simple allegation... there's room for hyperbole in every complaint... that alleges that the defendant for the purpose of frustrating the payment of this judgment secreted or transferred the assets.
Those are relevant inquiries in the State court claim, but once they're allowed to determine the issue of subject matter jurisdiction, you have created, as we see it, something that can be raised years later, established on the basis of complaints requiring in fact a subjective determination that only comes at the end of the day in the lawsuit, and permitting, I believe, a widening of this Court's jurisdiction that will trouble it for years to come.
Unknown Speaker: How about the notion that if you didn't have this ancillary peg, you would have only a suit not involving a Federal question, assuming you're right about the ERISA part of it, between parties who are not diverse, and you... the theory would be that the court ought to spread the ancillary jurisdiction that far without any signal from Congress to do that just on its own.
Mr. Freeman: I don't think that ancillary jurisdiction should be extended as far as it was sought to be extended here.
Unknown Speaker: In the question that I asked you, I'm just not sure what your answer was, about the fraudulent conveyance, does your answer to me say, because the transferee is somebody who is not a part of this lawsuit, that that would have to be a separate suit in a Federal court--
Mr. Freeman: Yes.
Unknown Speaker: --could not be after the judgment is rendered latched on to the--
Mr. Freeman: Yes, that's what we said.
The one case that comes close to that is the Empire Lighting case which our friends at the other table have cited.
That's a Judge Learned Hand decision, and I'm always careful to... with tremendous deference for Judge Hand.
That case, however, turns on a peculiarity of New York law, and was so recognized by Judge Hand in his decision.
What he said was that under New York law the fraudulent transfer is absolutely void, and that the transferee is really not a necessary party to the adjudication of that matter, and that what was working in Empire Lighting was an equitable execution against the assets still deemed in the law to be owned by the transferor, and it's been treated as... it's been rationalized on that distinction by later decisions cited in our briefs.
I will reserve, if I may, the remainder of my time.
Unknown Speaker: --Thank you, Mr. Freeman.
Mr. Few, we'll hear from you.
Argument of J. Kendall Few
Mr. Few: May it please the Court, Mr. Chief Justice, Members of the Court:
It's an honor for me to be here today, particularly with Mr. Freeman, who is a very fine lawyer and a good friend, and who tried his first case in 1950 for my father, and the fact that he lost, I've never held that against him.
Our friends the amicus in this case have pointed out to us that there may actually be three bases of jurisdiction, where we have contended that there are two, adding that there may be a separate basis for jurisdiction under--
Unknown Speaker: Our rules, Mr. Few, are that amicus may not inject a separate issue into the case that has not been raised by the parties.
Mr. Few: --That certainly takes care of that issue.
And so we are here to argue to the Court that there is jurisdiction, that is, power in the Court to adjudicate this controversy both under ancillary jurisdiction and under ERISA, and I'd like to start out by pointing out what I think has been overlooked in the arguments, and that is that although Judge Traxler, in this original order on jurisdiction, which is found at page... beginning at page 54a in the petition for certiorari, although he did not use the term ancillary jurisdiction, his analysis as set forth on page 57a is the classic analysis under ancillary jurisdiction, and therefore we would argue that a fair reading of Judge Traxler's order would also provide a basis for ancillary jurisdiction.
Unknown Speaker: What page was that?
Mr. Few: --Page 57a, Justice Ginsburg.
He says in the instant action plaintiff Thomas for his class is attempting to satisfy the judgment rendered by Judge Anderson in the previous case on the merits of the plaintiff's breach of fiduciary claim and then, dropping down, the alleged effect of these preferential transfers is that Tru-Tech is escaping not only the duties that it has as a fiduciary, but also the judgment rendered adverse to it by Judge Anderson, and then it goes on to say, thus, the present action is an attempt to satisfy the former judgment.
The second point I'd like to make is that--
Unknown Speaker: Why is it... you said that that's classic ancillary jurisdiction.
Mr. Few: --Under Justice Scalia's opinion in Kokkonen, as I read it, Justice Scalia says there are two bases of ancillary jurisdiction.
One is the common nucleus of facts, which I understand must have come up after Rule 69(a), and that the second is, where it is necessary for the proper functioning of the Court and to vindicate the Court's authority and carry out the Court's judgment.
Unknown Speaker: Was Justice Scalia's the prevailing one in Kokkonen?
Mr. Few: Yes, sir.
Unknown Speaker: I'm... well, perhaps Justice Scalia will clarify this for us, but I thought that he was talking about pendant jurisdiction and the common nucleus of facts, which is not--
Mr. Few: Well, let me read briefly from Justice Scalia's opinion in--
Unknown Speaker: --It's really the opinion for the Court.
I just happened to write it.
Mr. Few: --Well, all right.
I apologize for that.
Unknown Speaker: Well, in any event--
Mr. Few: The Court's opinion, having been written by Justice Scalia.
Unknown Speaker: --my basic concern about the argument you're making is that, as far as I know, the standard incidences of ancillary jurisdiction, now called supplemental jurisdiction, is for a defending party who is being brought into a lawsuit.
I mean, the standard incidences are the compulsory counterclaim, bringing in another party on the compulsory counterclaim, a claim over, under Rule 14... it's for somebody who's brought into court in a defending posture who then wants to litigate another claim which ordinarily wouldn't qualify for Federal court jurisdiction, and so the court says, we recognize that it's unfair to require a party to pay out something that that party claims he can recoup from a third party and make that into two lawsuits instead of one.
That's the standard incidences of ancillary jurisdiction, is it not?
Mr. Few: Justice Ginsburg, that is part of it, and that's the part that comes under 28 U.S.C. 1367, which is called supplemental jurisdiction, as I understand it.
But as the Court points out in the prevailing opinion in Kokkonen, and I'm referring to... well, I'm not real good at finding page numbers, but it's at page 8... page 4 of the court's opinion.
I'll find that in just a minute.
Generally speaking, we have asserted ancillary jurisdiction in the very broad sense of that term is sometimes used for two separate though sometimes related purposes: 1) to permit disposition by a single court of claims that are in varying respects and degrees factually interdependent, and cases are cited there, and then 2) to enable the court to function successfully.
That is, to manage its proceedings, vindicate its authority, and effectuate its judgment, and cases are cited there, as well as Wright and Miller.
And we have cited in support of that proposition in addition to Kokkonen the Barnett v. United States case which also went back and quoted the famous case from Mississippi, and I think that was because historically that came up as a Mississippi case.
That is, Watson v. Williams, where the supreme court of Mississippi in 1858 said that a court without the power effectually to protect itself against the assaults of the lawless, or to enforce its orders, judgments, or decrees against the recusant parties before it would be a disgrace to the legislation and a stigma upon the age which invented it.
Unknown Speaker: Mr. Few, if that's your position, then why did you say in your brief that you recognize that the petitioner's argument might be tenable if we were dealing here with just a contract claim or a tort judgment?
Mr. Few: I'm not--
Unknown Speaker: There would similarly be the undermining of the Federal judgment.
Mr. Few: --I'm not certain that we said that in our brief, but if we did, of course we did, but I don't think that we meant to say that.
I think that the jurisdiction, ancillary jurisdiction, if we take away from a court the power to protect itself from the lawless invasion of others, we take away the court, respect for the court--
Unknown Speaker: So then imagine that there are 40,000 cases in the Federal courts every year where plaintiff sues a defendant corporation, and let's say in 20,000 the plaintiff obtains a money judgment against the corporation, and let's say in 3,000 the corporation might be insolvent.
Now, what a plaintiff does when he has a judgment, he is a judgment creditor against the corporation, and I imagine that there are dozens of things that might happen to that corporation's property.
It might go into bankruptcy court.
An officer may decide to pay himself.
An officer may decide to pay another debt.
To my knowledge, those vast matters of State law, sometimes Federal preferences, sometimes fraudulent conveyances, sometimes violations of other duties of officers to corporations, to my knowledge those matters have not become subject to Federal jurisdiction except in the bankruptcy courts, where they should be.
I haven't found a case to the contrary, and I don't see how by accepting this case and agreeing with you I could avoid bringing into Federal court the thousands of State law cases that involve the rights of judgment creditors against the corporate officers or other third parties, so what's the answer to that?
Mr. Few: --My answer to that is that there would be very few cases in which you would have the facts that you have here, as found by the Federal district court, where the district court found there was a specific intent on the part of Mr. Peacock to undermine and defeat this particular judgment.
Unknown Speaker: There are always... a fraudulent conveyance, I take it, is a case where a creditor has a claim against a corporation or a person, and that person or the officer decides to prefer his friends or his family to the rightful creditor.
Now, how would you distinguish that... and indeed, this is a perfect example.
You bring a thing called a veil-piercing cause of action.
I never heard of such a thing.
Mr. Few: I would take issues with Your Honor's statement that there are no authorities to support ancillary--
Unknown Speaker: --I didn't say there weren't.
I said I hadn't found any, which is--
Mr. Few: --All right.
Well, we have cited a number of them, the Dewey case--
Unknown Speaker: --The Dewey case is a case which would be ancillary today.
It was absolute common nucleus of fact.
A sues B for judgment on a contract.
B replies saying your coal was no good and give me damages from what you already delivered.
They want to bring into it, that case, the company that was the successor company.
He's rationalizing it, Mr. Few.
Mr. Few: --Yes, I--
Unknown Speaker: Well, they--
Mr. Few: I would then cite Swift & Company Packers v.... I'm not real good at pronouncing non-English words, not too good with English words, sometimes--
Unknown Speaker: --Mr. Few--
--I haven't read that one.
Which is that?
--you will concede that there's a difference between bringing into a lawsuit prejudgment this kind of counterclaim that was involved in the case you were... the Dewey case, or having a case involving a race, a thing that's in the court and the court has to decide the interest in that thing.
Then there's a judgment.
I think what Justice Breyer's asking you, and if he's not, I will certainly ask you, do you have any authority for the exercise of ancillary jurisdiction after the judgment is rendered to then have a sideshow on the theory that the judgment is being undermined?
Give me an example of a postjudgment--
Mr. Few: --Well, I think that there are a number.
I think that the Krippendorf case is, I believe, and I think the Swift case--
Unknown Speaker: --Which one--
Mr. Few: --Krippendorf is cited in a number of our briefs.
I'm not sure we've got it cited in ours, but it's one of the cases that is cited, and I have it here, but I think there are a number of cases that have been cited in--
Unknown Speaker: --That's the ones that I want, exactly that, because the ones you think... I haven't read the Swift one.
I did read quite a few of the ones that were cited, but not all of them.
Mr. Few: --Yes, sir.
There were I think about five boxes full of cases that were cited.
Unknown Speaker: No, no... I mean, probably if you had one you'd say look, here are the facts right here, and the one that seems a most likely cite are ones which seem fairly readily distinguishable, at least to me, so the one that's the best for you is which?
Mr. Few: Well, I think I'm going to receive some assistance on this from our arguing amicus for the United States, but I believe that--
Unknown Speaker: I thought Empire was the best actually, to tell you the truth, and Empire seemed to be one in which Judge Hand was going on the peculiar fact of New York law that they treated a fraudulent conveyance as if it was something they called an equitable execution.
Mr. Few: --In that case, I will cite that case back to you, but I would argue that it should not... it should not, from the perspective of respect for thou, Federal courts be the determining factor that the interference took place before or after the judgment.
In all cases, it would appear to us that the court should have the power to protect itself, and particularly after the judgment has been entered.
Unknown Speaker: You see, my concern, which I'll go back to for a second, is a totally practical one.
It could federalize State fraudulent conveyance law in terms of giving courts jurisdiction to enforce it.
You could do the same thing about breaches of obligation of corporations in this area, et cetera.
You have done it when you go into bankruptcy court, and since you have that remedy in bankruptcy court, which you can use if you want, I was awfully nervous about a holding that would federalize the rest of it, and that's why I... that's why I raise this.
I want to get your response.
It's not to--
Mr. Few: Going back to the Chief Justice Marshall's opinions in 1825 and coming forward to the Riggs case, it has been... always been the rule as long as the question has been addressed here the Federal court has jurisdiction until the action is satisfied.
There are three ways, as have been pointed out by amicus, that the question can arise.
The judgment debtor may have an asset that is removed from his possession but the title has not been removed, and in that case the remedy would be to require the person who has the possession to bring it back in.
The second case would be where there has been a conveyance where the title has actually been removed, and in that case it would be to bring that party in and require... set that transaction aside, and the third case, as here--
Unknown Speaker: --Mr. Few, are you saying that the Federal court, after a judgment has--
Mr. Few: --Yes.
Unknown Speaker: --been rendered as part of its ancillary jurisdiction can exercise jurisdiction over a third party, the transferee, and that's all part of this ancillary jurisdiction?
Mr. Few: In those three instances that I have mentioned, all of those, if the purpose of those transactions is to defeat the jurisdiction of the court, then the court to vindicate its authority and carry out its decree would have ancillary jurisdiction--
Unknown Speaker: Do you have any, apart from reading what you read, where a judgment creditor--
Mr. Few: --Yes, ma'am.
Unknown Speaker: --can then sue someone who is not diverse, and there's no Federal claim, who is the alleged transferee of property from the judgment debtor as part of ancillary jurisdiction?
Mr. Few: I believe that the Swift & Company case is one such case.
The Dewey case is one in which the parties bringing the suit--
Unknown Speaker: None of those cases were cases where the judgment creditor, after getting the judgment, then brings an ancillary lawsuit against an alleged transferee, and we have that litigation decided by the same Federal court.
None of those cases involved a suit by the judgment creditor against someone who was alleged to have assets that were siphoned away from the judgment debtor.
Mr. Few: --Well, I think I'll take issue with Your Honor's statement but without being able to specifically call your attention to the case at this particular time.
I hope that Mr. Bress will be able to do so and if not, perhaps I can get that information to the Court.
Unknown Speaker: Mr. Few, let me ask you--
Mr. Few: Yes, sir.
Unknown Speaker: --when would it be that someone who derives a fraudulent conveyance from an insolvent company which numbers among its debts some judicial judgments, when would it be that such a person would not have an intent to frustrate the court's judgment?
Wouldn't that always be the case--
Mr. Few: There are many... there are many--
Unknown Speaker: --whenever there's a fraudulent conveyance of a bankrupt who has a judgment against them, which most bankrupts do.
Mr. Few: --I think, Justice Scalia, that there would be--
Unknown Speaker: Wouldn't it always be not only... not only allegeable, but wouldn't it always be true?
You know, when you accept a fraudulent... you're frustrating all of the creditors, aren't you?
Mr. Few: --I think that there's a very strong burden under the applicable law here to prove what we have proved in this case, and there are many instances where a businessman who is in control of a corporation that is insolvent makes a transfer that is in... is a good faith business judgment on his part.
Unknown Speaker: I mean, what does it take to prove it?
It seems to me all you have to do is ask the fraudulent transferee, did you know this corporation had outstanding judgments against it?
Yes, I did.
And in taking that fraudulent transfer, didn't you... didn't you intend to take the money for your own use and deprive all of the creditors of the corporation, including these judgment creditors?
Yes, I did.
Mr. Few: In the majority, the vast majority of instances, there is going to be a good and sufficient consideration flowing back to the company, and if they are in a position to prove that, then that would defeat the claim.
Unknown Speaker: Well, that's true.
I'm just saying, it seems to me that all fraudulent conveyances are really sucked into this thing, and--
Mr. Few: I think that you're right to the extent that the issue is there.
Unknown Speaker: --Well then, what about... I'm worried as well... you see, workers.
I mean, suppliers.
There are thousands of people all over the country who might get some money.
They might just be employees of the company.
They suddenly end up with some money from the company, and then, leaving this case aside, a judgment creditor could suddenly haul those people into Federal court in some place and all of a sudden they'd be adjudicating the law of fraudulent conveyances and all these other things.
That's the underlying concern that I have.
Mr. Few: I think my--
Unknown Speaker: And the answer to that is what?
Mr. Few: --My answer to that is that it would be much more important that the court have the power to vindicate its judgment and to act against those who would lawlessly undermine its judgments intentionally, as was held here.
Unknown Speaker: Thank you, Mr. Few.
Mr. Few: Thank you very much.
Unknown Speaker: Mr. Bress, we'll hear from you.
Argument of Richard P. Bress
Mr. Bress: Mr. Chief Justice, and may it please the Court:
I'll be happy to address some of the case law--
Unknown Speaker: Well, I'd like to know where you think the line should be drawn.
It has to be drawn somewhere to avoid sweeping too much into Federal court jurisdiction under this ancillary theme, and where do you think the line has to fall?
Mr. Bress: --Your Honor, I was about to address that, and if I might address that in the context of just setting out our affirmative position, and I'll make it short.
In our view, the result in this case does not require any sort of expansion or drawing of new lines.
It really flows from long-settled law, really from four principles.
The first principle is that a court retains Article III jurisdiction over a case until its judgment in that case is satisfied.
The second principle is that a court has the power, under the All Writs Act, to enforce and prevent the frustration of its judgments.
The third principle is the court has the power to enforce its judgments against the party or its privy, and the fourth principle... and this was conceded by petitioners in their brief at pages 36 and 37... is that this ancillary jurisdiction does not depend on a common nucleus of operative facts.
In fact, it predates that doctrine by... well, certainly more than 50 years.
Now, in order not to find ancillary jurisdiction in this case, this Court would have to depart from those principles, and in our view such a--
Unknown Speaker: Mr. Bress, apart from principles, I do not know of any case of the kind that Justice Breyer's been asking about and that I've been asking about, and I do know where ancillary jurisdiction starts, and it starts with cases like Swift, where there's somebody in the defendant posture, and the court says, we're going to allow that defendant to bring in somebody else on the counterclaim, to bring in someone on the claim over.
That's the core of ancillary jurisdiction, as Congress confirmed in 1367.
Mr. Bress: --Your Honor, I would... first, I'd just like to take issue with the notion that that's the core of an ancillary jurisdiction.
That's the core of pendant jurisdiction.
Ancillary jurisdiction, the original incarnation of it, was the power of a court to enforce by writ of execution against the very defendant before it the judgment that it has obtained.
Now, I do have cases, though, that address your question and Justice Breyer's question.
One such case would be Pierce v. United States.
Now, that case involved a penalty that had been obtained against a corporation, a civil penalty that had been obtained by the Government against a corporation, and the corporation had distributed the property up to, or out to its shareholders, and it was held in that case that it was merely supplemental or auxiliary to go after those shareholders to pay the civil penalty.
Another such case, and this case I must acknowledge was not cited--
Unknown Speaker: Excuse me, did the court have jurisdiction in rem in that case, or was it just--
Mr. Bress: --There's no holding it had jurisdiction in rem in that case.
The property certainly wasn't before the court.
The property was in the hands of the shareholders.
Unknown Speaker: --But it was assumed that the shareholders could pay over and, in fact, going against Peacock is not on all fours with that, because Peacock hasn't got the money.
Mr. Bress: Actually, Peacock does have the money, Your Honor.
There was a misconception, I think, that came up during petitioner's argument.
I don't think you quite understood what petitioner was saying.
Petitioner had... in this case, Peacock.
I'll use that name, had... the allegation is that he had taken the money to himself, and there's some dispute as to how much money it is, but the allegation is that he took the money for himself, not that he paid it out to a third party.
Unknown Speaker: Well then, I stand corrected.
I thought he had paid it--
Mr. Bress: No.
Unknown Speaker: --to a third party.
Mr. Bress: Another case that I'd like to bring up at this point--
Unknown Speaker: Isn't the claim for more money that the corporation had at the time of the judgment?
Mr. Bress: --Yes, it is, Your Honor, and that's a function--
Unknown Speaker: Well, how can that be?
Mr. Bress: --This is not a fraudulent conveyance case, Your Honor.
This is a case where Mr. Peacock is being held liable because at law he is considered to be the--
Unknown Speaker: Because he has committed a tort.
Mr. Bress: --No.
Because under standard principles of law that cut across many areas of law, he is considered by virtue of his actions and his own--
Unknown Speaker: By virtue of his actions.
You can call it not a tort, but in fact the veil will not be pierced, as we say, unless he has acted wrongfully, and that distinguishes the case you just mentioned, where these individuals who had received the payout from the corporation, the money was returnable whether or not they had acted wrongfully in receiving it.
The court was sort of following the res.
I'm not sure I agree with the outcome of the case, but it differs from a case in which you have to demonstrate some wrongdoing on the part of those shareholders.
Mr. Bress: --Your Honor, I would submit that it is actually a closer nexus to the underlying case, because for whatever reason... and it does have to do with wrongdoing, and also how the shareholder has treated the corporation in its relations to the corporation.
The theory in this case is that the alter ego is the corporation for purposes of law, and it's no different in that respect, and I think--
Unknown Speaker: But that's the problem that I've had with the briefs on this side.
There is no such thing, to my knowledge, as a cause of action called piercing the corporate veil.
That's just what Justice Scalia said.
This case does not lie on the principle that Mr. Peacock was the alter ego of the corporation for purposes of violating ERISA, so what you have here is, you have a valid judgment that has nothing to do with Peacock.
Now you're trying to enforce the judgment.
At that point, you don't need the corporate veil theory.
Or maybe you do, or maybe you don't, but the question is, what is it that either the corporation or Mr. Peacock did wrong, and I take it what's wrong is that they transferred some assets to a person who didn't deserve them as much as did the judgment creditor.
Now, if that isn't the case, I don't understand it--
Mr. Bress: --All right--
Unknown Speaker: --and if it is the case, I don't understand how the cases you cite are relevant.
Mr. Bress: --All right.
Your Honor, this case could have been brought under pure fraudulent conveyance theory.
It was not.
Unknown Speaker: Well then, what was the theory?
Mr. Bress: --The theory of this case is, Your Honor, as I was about to say, is really indistinguishable from collection of a judgment that you've already obtained against a successor corporation.
Now, in some States... I'll grant that in some States net recovery will be limited to the number of assets, or amount of assets that's been transferred to the successor, but that is not universally the case.
Unknown Speaker: Well, I don't know of any principle of law that allows a person who holds a judgment against Jones to collect it against Smith in the absence of some kind of rule of law that says, what, like a fraudulent conveyance or some other thing.
Mr. Bress: Well, the rule of law in this instance, Your Honor, says that a corporate alter ego stands in the shoes of the corporation in the same way that a successor corporation stands in the shoes of the... a successor corporation stands in the shoes of a corporation.
Unknown Speaker: Where did this particular rule of law come from?
What is its source?
Is it Federal common law?
Is it State law?
What is it?
Mr. Bress: All right, first, Your Honor... and I will answer that right at this moment, but first, that issue is not presented in this case, because the court of appeals held that this result would obtain either under its Federal common law standard or under South Carolina law.
Unknown Speaker: Well, Mr. Bress--
Mr. Bress: It's our view that it's South Carolina law.
Unknown Speaker: --South Carolina law.
So you're urging that there's ancillary jurisdiction whenever a controlling shareholder of a small corporation is alleged to have siphoned off assets that would thwart the collection of a Federal judgment.
That's the broad--
Mr. Bress: We're alleging that there's ancillary jurisdiction.
However, there is discretion... the court retains discretion because execution is an equitable function to hold back from exercising that jurisdiction, and in some of the instances, or in some of the examples that Justice Breyer suggested, the ancillary cause of action may become so attenuated from what the Federal court of appeals did it primarily does--
Unknown Speaker: --Why do you say execution is an equitable function?
I never understood... there are equitable remedies for collecting debts, but I'd understood execution is just a very straightforward issuance of a legal writ.
Mr. Bress: --Well, execution can include not only, Your Honor, a legal writ, it can include attachment, it can include garnishment--
Unknown Speaker: Those are both another prototypical examples of writs... garnishment, execution, attachment.
Why do you say they're equitable?
Mr. Bress: --Because, Your Honor, in the cases of Dunn v. Clark, I believe, and also in Dewey itself, the Court spoke of an exercise of equity in support of collecting a legal judgment, and I'd like to address Dewey before it gets too late, because I think there's been some misunderstanding about it.
Dewey would fall under pendant jurisdiction if the claim was against... the counterclaim had been just against the plaintiff.
However, joined with that there is a claim against a third party defendant for fraudulent conveyance.
Unknown Speaker: Wasn't it more than that?
It was for, in fact, having this coal that didn't live up to the standards.
Mr. Bress: No, it was for fraudulent conveyance, Your Honor, it really was, and because of that, it really is no different than if it had just been a claim by a plaintiff where you are joining a claim against the person to whom the fraudulent conveyance has been made.
The case really can't be distinguished in that sense.
As another matter that I'd like to address--
Unknown Speaker: But the Federal rules do distinguish between what a defendant can enlarge and what a plaintiff can.
In a diversity case, the defendant is allowed to have a claim over against a nondiverse party.
The plaintiff, if the plaintiff is nondiverse, can't turn over and sue that party.
Mr. Bress: --Your Honor, here we're not looking at what the Federal rules will permit.
We're really talking about the jurisdiction of the Federal courts, and something quite important.
I mean, this is isn't... you know--
Unknown Speaker: But that was based on some notion that you ought not enlarge Federal jurisdiction except for a very good reason.
Mr. Bress: --This isn't an enlargement of Federal jurisdiction, Your Honor.
The principles that I've stated up front control this case.
It's been alleged by petitioner that this is an enlargement.
Unknown Speaker: Well, you have said that every Federal judgment that has been alleged to have been collected by a controlling shareholder in a corporation then becomes a Federal case, even though the claim arises under State law and there's no diversity.
Mr. Bress: Your Honor, we have, but that is not an enlargement or change in the law.
That has always been the law, and the Court retains the discretion to refrain from exercising such jurisdiction when it becomes too attenuated.
Chief Justice Rehnquist: Thank you, Mr. Bress.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 94-1453, Peacock against Thomas will be announced by Justice Thomas.
Argument of Justice Thomas
Mr. Thomas: This is a case in which the successful plaintiff is left to ask what happened to my money.
In 1987, Jack Thomas, no relation, filed an ERISA class action in Federal Court against Tru-Tech, Inc, his former employer and D. Grant Peacock, an officer and shareholder of Tru-Tech. for the benefits due under the corporation's pension benefits plan.
He won the suit against Tru-Tech but lost against Peacock.
Thomas did not collect the judgment while the case was on appeal and Peacock apparently settled many of Tru-Tech's accounts with favored creditors not a lease of whom was himself.
After the appeal, Thomas was unable to collect the judgment from Tru-Tech there being no money, so he filed a new lawsuit against Peacock in Federal Court arguing among other things that the court should pierce the Corporate Veil and hold Peacock personally liable for the judgment that Thomas had won against Tru-Tech.
The District Court agreed with Thomas and the Court of Appeals affirmed.
We took this case decide whether the District Court had jurisdiction over Thomas' second lawsuit.
We hold that it did not.
Because Thomas allege no violation of the Employee Retirement Income Security Act Codiac or of Tru-Tech's long sense terminated plan, and because the ERISA recognizes no stand along cause of action for piercing the Corporate Veil, neither ERISA’s jurisdictional provision nor the general federal question statute supply the District Court with subject matter jurisdiction over the suit.
We also disagree with Thomas’ argument that this action is sufficiently related or ancillary to his original lawsuit.
Though we have approved the exercise of ancillary jurisdiction over a broad range of supplementary proceedings involving third parties to assist in protection and enforcement of federal judgment, we have never authorized the exercise of ancillary jurisdiction in a subsequent lawsuit to transfer liability for an existing federal judgment to a person not already liable for that judgment.
As long as the federal rules protect the judgment creditor's ability to execute on a judgment, the District Court's authority is adequately preserved.
An ancillary jurisdiction is not justified over a new lawsuit to impose liability for judgment on a third party.
Accordingly, the judgment of the Court of Appeals is reversed.
Justice Stevens has filed a dissenting opinion.