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requiring "factual basis for satisfying" alter ego standard
Summary of this case from Crystallex Int'l Corp. v. Bolivarian Republic of Venez.Opinion
CIVIL ACTION NO. 02-648
February 24, 2004
MEMORANDUM
Before the court is the motion of Del Concrete Corp. ("Del") to vacate the judgment entered against garnishee Target Construction Corp. ("Target") and to set aside the attachment of Del's property. Del claims that the plaintiff judgment creditors, which are various union pension funds, have wrongfully attached property of Del as the alter ego of Delmarva Concrete Corp. ("Delmarva"), the judgment debtor, in violation of due process.
In ease of reference, we will hereafter refer to the plaintiffs as the "Union" or the "judgment creditor."
I.
On February 7, 2002, the Union filed a complaint against Delmarva, a masonry contractor with whom they have a collective bargaining agreement. The Union alleged that Delmarva failed to pay them certain contributions as required pursuant to 29 U.S.C. § 1145. Delmarva was served on May 29, 2002. On August 8, 2002, this court entered default judgment against Delmarva for $48,754 after it failed to answer the complaint.
Under 29 U.S.C. § 1445, "[e]very employer who is obligated to make contributions to a multiemployer plan under the terms of the plan or under the terms of a collectively bargained agreement shall, to the extent not inconsistent with law, make such contributions in accordance with the terms and conditions of such plan or such agreement."
On November 18, 2003, the Union filed with the Clerk of this court a praecipe for a writ of execution naming not only Delmarva, the judgment debtor, but also Del as Delmarva's alter ego. As a result, the Clerk issued a writ of execution directed to the United States Marshal for the Eastern District of Pennsylvania to attach the property of Delmarva "in its own name or under the name Del Concrete Corp. as the alter ego of Delmarva" in the possession of Target as garnishee in the amount of $48,754, plus costs of $500 for a total of $49,254. On November 26, 2003, this court granted the motion of the Union for appointment of Talone Associates to serve the writ of execution and interrogatories in attachment upon Target. The interrogatories, among other things, asked about money owed by Target to "defendant(s)" which were defined to include "Del Concrete Corp. as the alter ego of Delmarva Concrete Corp." (emphasis in original). In its answers to the interrogatories, Target admitted that it "currently owes Del Concrete Corp. $78,754 . . ." It made no mention of Delmarva.
On February 2, 2004, the Union filed a motion for entry of judgment against Target as garnishee. Attached to the motion were the answers of Target to the interrogatories in attachment. On February 6, 2004, this court entered judgment in favor of the Union and against Target in the requested amount of $49,254. Five days later, Del filed what it captioned as an "emergency motion for stay of execution and for vacation of judgment improperly entered against garnishee Target Construction Corp." It was not until January 27, 2004 that Del learned about the levy on its property. Del claims that Target never forwarded the writ to either Delmarva, the judgment debtor, or to Del. On February 13, 2004, after a telephone conference with counsel for the Union and for Del, the court stayed the execution on the judgment entered against Target pending a decision on Del's motion to vacate the judgment and dissolve the attachment.
II.
Rule 69 of the Federal Rule of Civil Procedure governs the procedures to enforce judgments in federal courts. Under Rule 69, the federal courts are directed to employ the practice and procedure for enforcing judgments employed by the state in which the district is located except when a federal statute is applicable. See Fed.R.Civ.P. 69(a); Nat'l Stabilization Agreement of the Sheet Metal Indus. Trust Fund v. Evans, 71 F. Supp.2d 427, 429 (M.D. Pa. 1999). Since no federal statute is implicated here, we must turn to the Pennsylvania Rules of Civil Procedure to determine the procedure for enforcing judgments. These rules require a party who seeks to execute on a judgment to file a praecipe for a writ of execution with the prothonotary. See Pa.R.C.P. 3103. In cases where a third party possesses the property sought to be executed, the writ is served by the sheriff on the third party as garnishee. See Nat'l Stabilization, 71 F. Supp.2d at 429 (citing Pa.R.C.P. 3108). "Service of the writ upon the garnishee attaches all appropriate property of the defendant which is in the possession of the garnishee." Nat'l Stabilization, 71 F. Supp.2d at 429 (citing Pa.R.C.P. 3111).
In addition, Rule 3121 of the Pennsylvania Rules of Civil Procedure states that
(d) The court may on application of any party in interest set aside the writ, service or levy
(1) for a defect therein; . . . [or]
(3) upon any other legal or equitable ground therefor.
Pa.R.C.P. 3121(d). To determine whether a writ is defective or whether any "legal or equitable ground" exists to set aside the writ and thus the judgment against the garnishee, we must of course consider whether due process has been satisfied.
Unlike an execution against a judgment debtor such as Delmarva which had notice of the original claim and an opportunity to contest it, we are here dealing with an execution against Del. It was not named in the complaint filed by the Union and of course did not participate in any of the events which preceded the entry of judgment against Delmarva. Obviously, no judgment was entered against Del in the underlying lawsuit. The attachment of Del's property eventuated only as a result of the garnishment process.
In Jonnet v. Dollar Savings Bank of the City of New York, 530 F.2d 1123 (3d Cir. 1976), our Court of Appeals held unconstitutional a foreign attachment under Pennsylvania law and set forth the proper procedure that must be followed in order to conform to due process. See also Matthews v. Eldridge, 424 U.S. 319 (1976); North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601 (1974). Relying on Jonnet, this court, on at least two occasions, has ruled as violative of due process the garnishment procedure used by a judgment creditor to execute against an alleged alter ego of a judgment debtor. See ABC Sewer Cleaning Co. v. Foxco, Inc., 1990 WL 139391 (E.D. Pa. Sept. 21, 1990); Strick Corp. v. Thai Teak Prods. Co., Ltd., 493 F. Supp. 1210 (E.D. Pa. 1980). Our sister court in the Middle District of Pennsylvania reached the same result where the property of a party with a similar name to that of the judgment debtor was attached. See Nat'l Stabilization, 71 F. Supp.2d 427.
In Jonnet, the court explained that "official seizures can be constitutionally accomplished only with either `notice and . . . opportunity for a hearing or other safeguard against mistaken' taking" 530 F.2d at 1129 (citations omitted) (emphasis added). It delineated the necessary procedure to conform with due process. First, the process for taking "cannot be instituted without an affidavit or other sworn document stating substantially facts on which the cause of action is predicated." Id. at 1129. Second, the sworn statement must be "presented to an official with sufficient legal competence" to "ascertain whether conditions for attachment have been met." Id. at 1130. Third, there must be a means to indemnify the party whose property is wrongfully attached.Id. Fourth, fundamental fairness requires a mechanism, such as a prompt post-attachment hearing, by which the party whose property has been attached may contest the attachment. Finally, there must be a means to dissolve the attachment in a manner not prejudicial to the judgment creditor. Id.
Here, the Union failed to follow any of the due process requirements outlined above prior to obtaining the writ of execution against Del's property. It did not file an affidavit that set forth a factual basis for satisfying the judgment by seizing Del's property. It did not seek in the first instance to have "an official with sufficient legal competence" determine whether the conditions justifying an attachment had been met.Jonnet, 530 F.2d at 1130. Instead, the writ of execution was issued by the Clerk as a ministerial act simply predicated on the conclusory statement of the Union that Del was the alter ego of Delmarva. In addition, the Union failed to post a bond to protect Del against an improper levy. Accordingly, we find that the Union's effort to satisfy its judgment against Delmarva by attaching Del's property violates Del's constitutional right to due process.
III.
Next, we turn to the issue of whether the violation of Del's due process right requires this court immediately to vacate the existing judgment against Target, the garnishee. The Union argues that it should first be given an opportunity to cure the defective writ of execution by following the procedures set forth in Jonnet, supra. In this regard, it has now filed a motion, with supporting affidavits, for issuance of a writ of execution to attach assets of Del Concrete Corp. as the alter ego of defendant and judgment debtor Delmarva Concrete Corp. If we accepted the Union's position, Del's property would continue to be frozen at least until it is determined if the Union has complied with the constitutional requirements for the initial attachment. In the meantime, the very due process violation outlined in Jonnet and the other cases would continue. We decline to sanction this outcome. We conclude that the only just result is to vacate the judgment against Target without delay and to allow Del to have control over its property. Significantly, the Union has offered no reason for overreaching and for not following the proper procedures as clearly enunciated not only in Jonnet, but also inABC Sewer Cleaning Co., Strick, and Nat'l Stabilization. Accordingly, we will grant Del's motion to vacate the judgment against Target and dissolve the attachment against Del's property. See Strick, 493 F. Supp. at 1217; Nat'l Stabilization, 71 F. Supp.2d at 432.There is some indication in the record that Target may owe additional moneys to Del in the future under a continuing contract. Nothing we have said prevents the Union from starting the execution process all over again even though the present judgment against Target is being vacated. Whether or not the Union, by following the proper procedure, will be successful in any new effort is a matter for another day.
ORDER
AND NOW, this day of February, 2004, for the reasons set forth in the accompanying Memorandum, it is hereby ORDERED that the motion of Del Concrete Corp. ("Del") to vacate the judgment entered against garnishee Target Construction Corp. and to dissolve the attachment of Del's property is GRANTED.