Finova Capital Corporation v. Richard A. Arledge, Inc.

Full title: FINOVA Capital Corporation, a Delaware corporation, Plaintiff, v. Richard…

Court: United States District Court, D. Arizona

Date published: Mar 26, 2008

No. 02-1277-PHX-RCB (D. Ariz. Mar. 26, 2008)

Opinion

No. 02-1277-PHX-RCB.

March 26, 2008

ORDER

ROBERT BROOMFIELD, Senior District Judge

On September 20, 2006, a monetary judgment (doc. 269), which was amended on July 27, 2007 (doc. 296) ("the judgment"), was entered in favor of FINOVA and against defendants. "[T]he judgment is in the net principal amount of $1,663,809.42 . . . in favor of FINOVA and against, jointly and severally defendant Richard A. Arledge, Inc. d/b/a Arledge Motor Company, Richard A. Arledge and Peggy Arledge (. . . "the Defendants")." Mot. (doc. 297) at 2. On July 30, 2007, defendants timely filed a Notice of Appeal in the Ninth Circuit (doc. 299). Currently pending before the court is a motion by plaintiff FINOVA Capital Corporation ("FINOVA") for entry of an order allowing registration of that judgment pursuant to 28 U.S.C. § 1963 (doc. 297); and a cross-motion by defendants to "approve an alternative bond" and for a stay pursuant to Fed.R.Civ.P. 62(d) (doc. 302).

Background

Defendants maintain that the only asset they have which is not protected from seizure is a parcel of real estate located at 415 N. Central Expressway, Richardson, Texas 75080 ("the property").¹ "As part of the Loan and Security Agreement, made the subject of this lawsuit, [defendants] [Richard] Arledge and Peggy L. Arledge pledged th[at] Property as security for their Continuing Guaranty." Resp. Cross-Mot. (doc. 302) at 2. Consequently, FINOVA "has a second lien position behind Legacy Texas Bank, the purchase money lender for the Property." Id. at 2-3.

1 It is FINOVA's belief that the property is the only asset defendants have which would be subject to execution based upon the judgment. The opposite seems to be the case, however. Defendants unequivocally state that "[t]he only asset that [they] have that is not protected from seizure, is . . . the [p]roperty[.]" Resp. Cross-Mot. (doc. 302) at 2 (emphasis added); see also Reply (doc. 307) at 4 n. 10 ("Defendants do not believe any other non-exempt assets exist at this time.") Based upon these representations, it does not appear, as FINOVA suggests, that defendants "are attempting to prevent [it] from exercising any meaningful collection activities." Resp. (doc. 306) at 4 (emphasis in original).

FINOVA is seeking to register its judgment in, among other places, the Northern District of Texas where the property is located. Defendants are cross-moving pursuant to Fed.R.Civ.P. 62(d) to be allowed to provide alternative security in the form of an injunction and a $10,000.00 bond, and for a partial stay of execution of that judgment.

I. Registration of Judgment

FINOVA specifically "requests the entry of an Order allowing it to register the Judgment under 28 U.S.C. § 1963 in one or more districts outside of Arizona, including, without limitation, the Northern District of Texas[,]" where the subject property is located. Mot. (doc. 297) at 3 (emphasis added). 28 U.S.C. § 1963. That statute reads in pertinent part as follows:

A judgment in an action for the recovery of money . . . entered in any . . ., district court, . . . may be registered by filing a certified copy of the judgment in any other district . . . when ordered by the court that entered the judgment for good cause shown. . . . . A judgment so registered shall have the same effect as a judgment of the district where registered and may be enforced in like manner.

28 U.S.C. § 1963 (West 2006). Defendants agree that FINOVA has a "right . . . to register the Judgment in Texas" under section 1963. Resp. Cross-Mot. (doc. 302) at 2. Accordingly, they "do not oppose this relief." Id.; see also id. at 3-4 ("Defendants are not opposing Finova's motion to register the Amended Judgment in Texas[.]") Defendants' response is silent with respect to registering the judgment in districts other than Texas, however.

As section 1963 requires, the court has determined, that "good cause" exists to allow FINOVA to register the Judgment in the Northern District of Texas. That finding of good cause is based, among other things, upon the representation of FINOVA's counsel that "it appears that none of the defendants owns any assets in Arizona and that, to the extent that any of the defendants currently owns assets at all, such assets are located within the jurisdiction of the United States District Court for the Northern District of Texas." Decl'n of Robert P. Simbro (doc. 298) at 1-2, ¶ 3. That good cause finding is supported by the following additional factors: (1) "a good portion (if not all) of defendant's [sic] assets appear to be located in the Northern District of Texas[;]" (2) "none of the defendants has filed a supersedeas bond to preclude execution upon the judgment pursuant to Rule 62(d), Federal Rules of Civil Procedure[;]" and (3) "FINOVA would be able to use other (but less efficient) means to domesticate its judgment anyway outside of Arizona." Mot. (doc. 297) at 1-2.

Based upon the foregoing, the court will allow the judgment to be registered in the Northern District of Texas. The court will not, however, allow registration in any other districts because FINOVA has not made the necessary showing that defendants have assets in any districts other than the Northern District of Texas. See Blaine Larsen Processing, Inc. v. Hapco Farms, Inc., 2000 WL 35539979, at *15 (D.Idaho 2000) (emphasis added) (citingIn re Southern Industrial Banking Corp. V. Avery, 121 B.R. 229, 231 (Bankr.E.D. Tenn. 1990) ("[G]ood cause must be demonstrated for each state in which the Plaintiff seeks to register the judgment."))

II. Alternative Security and Stay of Judgment

A. Summary of Arguments

Pursuant to Fed.R.Civ.P. 62(d), defendants are cross-moving for a partial stay of execution of the judgment pending appeal. Defendants are seeking a stay only with respect to the subject property. Defendants are seeking such a stay because "Finova is insolvent and actively liquidating its assets to wind up its business." Resp. Cross-Mot. (doc. 302) at 3. Thus, defendants are concerned that if FINOVA is allowed to execute on the judgment and foreclose on the property pending appeal, and defendants succeed on appeal, they will be left without a remedy. Defendants raise the prospect of FINOVA executing on the judgment, selling the property and then, because of FINOVA's dire financial situation, their not being able to seek restitution from FINOVA.

To obtain a partial stay, in lieu of a supersedeas bond, defendants are requesting that the court exercise its "wide discretion" and approve an alternative form of security. Id. at 5. More specifically, in exchange for a partial stay, defendants would agree to be enjoined from engaging in several activities pertaining to the subject property. For example, they would agree to be enjoined from failing to make timely mortgage payments, and from "encumbering, transferring, assigning, or selling the Property." Id. at 3, ¶ (c).

Interestingly, in their memorandum defendants do not offer to post a bond of any kind. Their suggested alternative security focuses exclusively on an injunction. In the supporting affidavit of defendant Richard Arledge, however, he avers that he is "willing to post a [$10,000.00] bond as security for the issuance of the injunctive relief being requested." Id., exh. 1 thereto (Aff. of Richard A. Arledge) at 5, ¶ 17.

FINOVA counters that the court should deny this cross-motion because defendants are "merely offer[ing] to be subjected to the same covenants under which they already are bound pursuant to FINOVA's deed of trust on the subject property." Resp. (doc. 306) at 1. Even if defendants "propos[ed]" injunction is deemed to be "some form of additional security[,]" FINOVA contends that denial is proper because defendants have not "satisf[ied] the requirements for injunctive relief[,]" in that they have not "establish[ed] a probability of success on the merits of their appeal." Id. at 1-2.

Somewhat surprisingly, FINOVA does not comment upon defendants' offer to post a $10,000.00 bond. Perhaps FINOVA is unaware of that offer since it does not appear in defendants' memorandum. In any event, it is safe to assume that FINOVA would view such a bond wholly insufficient given that the judgment exceeds $1.6 million dollars.

In their Reply, defendants dispute the applicable legal standard. Contrary to what FINOVA asserts, defendants assert that the preliminary injunction standard does not apply here. Rather, because defendants contend that they are seeking relief in accordance with Rule 62(d), whether to grant a stay and allow alternative security lies within the court's discretion under that Rule. Furthermore, defendants assert that the "alternative security," in the form of the proposed injunction, actually "places [FINOVA] in a better position." Reply (doc. 307) at 4. FINOVA's position will be "enhance[d]," from defendants' perspective, because while the appeal is pending, they "will be paying approximately $5,000" monthly "in principal towards . . . reduction of the first lien on the Property." Id. at 5. Reduction of that first lien will mean, in turn, that "FINOVA's second lien position will improve each month[.]" Id. In light of the foregoing, defendants maintain that the court should grant their motion for alternative security and stay execution of the judgment with respect to the subject property.

B. Analysis

Generally enforcement of a final judgment is not stayed during the pendency of an appeal. See Fed.R.Civ.P. 62(a). However, pursuant to Fed.R.Civ.P. 62(d), "an appellant may obtain a stay of judgment by posting a supersedeas bond at or after the time of filing of the notice of appeal." Kassel v. U.S., 2007 WL 2729570, at *1 (N.D.Cal. 2007) (citation omitted). "`The posting of a bond protects the prevailing plaintiff from the risk of a later uncollectible judgment and compensates him for delay in the entry of the final judgment.'" Id. (quoting N.L.R.B. v. Westphal, 859 F.2d 818, 819 (9^th Cir. 1988)). "Rule 62(d) is a purely procedural mechanism to preserve the status quo during a stay pending appeal of a district court decision[.]" Vacation Village, Inc. v. Clark County, Nev, 497 F.3d 902, 914 (9^th Cir. 2007) (internal quotation marks and citation omitted).

"In lieu of a supersedeas bond, a court may allow for the posting of alternate forms of security." American Color Graphics, Inc. v. Travelers Property Cas. Ins. Co., 2007 WL 1520952, at *1 (N.D.Cal. 2007) (citing, inter alia, Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1367 (9^th Cir. 1990) ( en banc)). Of the "two recognized justifications for allowing . . . alternative form[s] of security[,]" only one is being invoked here — defendants' financial condition. SIBIA Neurosciences, Inc. v. Cadus Pharmaceutical Corp., 1999 WL 33554683, at *4 (S.D.Cal. 1999). Essentially defendants contend that their "present financial condition is such that the posting of a full bond would impose an undue financial burden" on them. See id. (internal quotation marks and citations omitted). When "the posting of a full bond would impose an undue financial burden, the court . . . is free to exercise a discretion to fashion some other arrangement for substitute security through an appropriate restraint on the judgment debtor's financial dealings, which would furnish equal protection to the judgment creditor." Id. (internal quotation marks and citations omitted). Here, defendants are suggesting an injunction, coupled with a $10,000.00 bond as "substitute security."

Before deciding whether "substitute security" is proper here, the court must resolve the issue of the applicable legal standard. Relying upon Lopez v. Heckler, 713 F.2d 1432 (9^th Cir. 1983), as mentioned earlier, FINOVA contends that the court should employ a preliminary injunction framework to resolve the issue of whether defendants are entitled to a stay and alternative security. Employing that framework, FINOVA contends that the court should deny this motion primarily because defendants cannot show a "probability of success on the merits" with respect to their appeal. Resp. (doc. 306) at 5. Defendants, on the other hand, urge the court to exercise its "sound discretion" under Rule 62(d) and grant their motion. Reply (doc. 307) at 3 (footnote omitted).

Faced with these same arguments, the court in Bolt v. Merrimack Pharmaceuticals, Inc., 2005 WL 2298423 (E.D.Cal. 2005), aff'd other grounds, 503 F.3d 913 (9^th Cir. 2007), held that Lopez "may very well" be "the appropriate standard for evaluating a motion to stay injunctive relief pending appeal[,]" but that "test is irrelevant in a case controlled by Rule 62(d)."Id. at *2 (footnote omitted). In so holding, the court astutely pointed out that "[t]he Federal Rules of Civil Procedure impose distinct standards for stays of judgments involving injunctions,see Fed.R.Civ.P. 62(c), and stays of other judgments, see Fed.R.Civ.P. 62(d)." Id. (other citation omitted). Because the judgment which defendants sought to stay in Bolt was "more akin to a money judgment . . . than [to] injunctive relief[,]" the court held that in deciding whether to grant an unsecured stay, it should look to Rule 62(d). Id. at *2 (footnote and citations omitted).

The same is true here. Just because the alternative security which defendants propose is in the form of injunctive relief does not change the fact that they are seeking to stay a monetary judgment as Rule 62(d) allows. Thus, the court declines to apply a preliminary injunction standard, as FINOVA urges. Instead, the court will rely upon Rule 62(d) and the case law construing that Rule.²

2 The court is fully cognizant that in Bolt the defendant was seeking an unsecured stay and defendants in the present case are seeking a secured stay (albeit nominal in the proposed form). That distinction does not render Bolt inapplicable, however. Critical to the court's decision to apply Rule 62(d) in Bolt was the form of the judgment — monetary versus injunctive relief — not the nature of the stay. And here, there is no doubt that the judgment for which a stay is sought is monetary; hence Rule 62(d) governs.

Defendants are seeking approval of alternative security because they claim that they do not have "sufficient assets to meet an insurance company's bonding requirements" for posting a supersedeas bond. Resp. Cross-Mot. (doc. 302) at 3. Defendant Richard Arledge explains that he has "investigated the requirements for obtaining a bond in order to supercede the . . . Judgment." Id., exh. 1 thereto (Aff. of Richard A. Arledge) at 2, ¶ 4. Mr. Arledge further avers that "in order to have an insurance company post a bond in the amount of the . . . Judgment, $1,663,809.42 plus interest, [he] [is] required to have liquid assets totaling at least that much." Id. Mr. Arledge claims "not [to] have liquid assets totaling anything near" that amount, although he does not elaborate. Id. In light of the foregoing, Mr. Arledge further avers that he is "unable to secure the posting of a supercedeas [sic] bond through an insurance company." Id. Finally, Mr. Arledge avers that he is "financially unable to personally post a supercedeas [sic] bond directly with the Court[,]" but again, he does not explain why. See id.

In the exercise of its discretion under Fed.R.Civ.P. 62(d), the court grants defendants' motion for alternative security, but not in the form which they are proposing. Having carefully considered the terms of defendants' proposed alternative security, i.e. injunction, and taking into account the Arledges' current obligations as grantors under the Deed of Trust, the court finds the proposed injunction would not "furnish equal protection to" FINOVA as the "judgment creditor." See SIBIA, 1999 WL 33554683, at *4 (internal quotation marks and citation omitted). The posting of a $10,000.00 bond, as defendants offer, does not convince the court otherwise, especially given the relative magnitude of the judgment.

To preserve the status quo, which is the goal here, the court will require defendants to post a bond in the amount of $228,137.97, which, according to Mr. Arledge, was the approximate amount of equity in the subject property as of August 1, 2007.See Resp. Cross-Mot. (doc. 302), exh. 1 thereto (Aff. of Richard A. Arledge) at 4, ¶ 12. Thus, the court grants defendants' motion for alternative security under Rule 62(d) (doc. 302), but it is requiring the posting of a bond as just described. Defendants' motion for a partial stay of execution is conditionally granted upon the posting of such a bond (doc. 302).

For the reasons set forth above, the court:

(1) GRANTS "FINOVA's Motion for Entry of Order Allowing Registration of Judgment Under 28 U.S.C. § 1963" (doc. 297) to the extent it is seeking to register the judgment in the Northern District of Texas, but DENIES that motion in all other respects; and

(2) GRANTS defendants' "Cross-Motion to Approve Alternative Bond" (doc. 302) and requires defendants to post a bond in the amount of $228,137.97; and

(3) GRANTS defendants' motion for a partial stay of execution as to the subject property upon the CONDITION that defendants post a bond in the amount of $228,137.97 (doc. 302).