Opinion
HHDCV174085491
03-22-2019
Robert C. Treadwell et al. v. William Bischoff et al.
UNPUBLISHED OPINION
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Graham, James T., J.
MEMORANDUM OF DECISION RE APPLICATION FOR TURNOVER ORDER
James T. Graham Superior Court Judge
In Rockingham County, New Hampshire on April 27, 2016, the Superior Court entered a stipulated judgment in the amount of $411,537.60 plus interest in favor of the plaintiffs here (Robert C. Treadwell individually and as trustee) against the defendants, William A. Bischoff (Bischoff) and Genesis Investment Group, LLC (Genesis), jointly and severally. On July 12, 2017, that judgment was certified to this court and registered as a foreign judgment by the plaintiffs. Following an unsuccessful attempt to satisfy the judgment by a property execution in the amount of $430,655.75, issued on October 13, 2017, the plaintiffs filed their application for a turnover order in aid of execution, dated March 23, 2018. Said application sought an order that third-party garnishee, Universal Waste Management, Inc. (UWM) turn over twelve notes owed to Genesis.
Those notes are eleven demand promissory notes (Demand Notes) and one monthly amortized note. The latter is known as the Whitt Note for historical reasons (Whitt note) and is dated December 3, 2016 in the face amount of $149,000 and payable to Genesis Investment Group Ltd. In response to the service of execution papers, UWM escrowed payments on the Whitt note. On June 5, 2018 UWM filed a motion for determination of interests in dispute property, specifically the twelve notes. On June 29, 2018 at the request of all appearing parties the court (Peck, J.) ordered that all funds held in escrow by UWM or NLR pertaining to the Whitt note, and all future payments due on same, be held by UWM’s counsel in an attorney trust account. The order did not provide that it be an interest bearing account.
Notice was provided to three other possible claimants to the Whitt note, as well as to Michelle Robbins (MR) as a possible claimant to the demand notes. The defendants also received notice. Bischoff filed a pro se appearance, filed an exemption claim and then withdrew the latter. He did not appear for the turnover and determination of interests hearing. Genesis had notice, as Bischoff was its sole owner, but it did not appear. Besty Bischoff, (BB) a possible claimant to the Whitt note and Michelle Robbins, a possible claimant to all the notes, were found to have actual notice of these proceedings and it was ordered that their claims would be waived unless filed within 10 days by Budzik, J. on October 16, 2018. They filed no claims, failed to appear at the hearing and they are deemed to have waived any claims pursuant to Budzik, J.’s order.
Betsy Bischoff specifically stated in a filing of August 13, 2018 that she was not involved in this case.
The third claimant to the Whitt note, Kristin Steinke (KS), appeared through counsel and filed her own claim for determination of interests in the Whitt note on June 26, 2018. The hearing on the combined turnover application and motions for determination of interests, in which the plaintiffs, UWM and KS participated, was heard on November 2, 2018. The last court ordered brief was filed on November 26, 2018.
I have weighed the testimony, drawn reasonable inferences from it, assessed the credibility of the witnesses, reviewed the exhibits, considered the post-trial briefs, determined the facts and applied the relevant law and burdens of proof as to this proceeding.
I find that, as to the demand notes, all eleven reflect Genesis as the payee and UWM as the maker and all eleven are subordinated by Genesis to UMW’s asset based primary lender. They are in the dates and face amounts of: 10/24/14 — $10,000; 10/30/14 — $25,000; 10/31/14 — $13,818.48; 11/12/14 — $9,000; 11/13/14 — $4,500; 11/19/14 — $6,000; 11/21/14 — $21,000; 12/11/14 — $2,500; 1/29/15 — $60,000; 2/23/15 — $60,000 and 4/23/15 — $5,000.
There is a minor discrepancy between the corporate name of Genesis Investment Group, LTD on the twelve notes and Genesis Investment Group, LLC in the registered judgment and Genesis Investment Group in Bischoff’s emails. The evidence establishes only one Genesis Investment Group and the court finds it to be of no legal significance on these facts as to either the plaintiffs’ claim to the demand notes nor to KS’ claim to the Whitt note. If the difference is of no significance for the former, it should also be insignificant for the latter. "[A] minor deviation in the name of a corporation has little legal significance ... it is the general rule that in case of a misnomer of a corporation in a grant, obligation or legal contract, if there is enough expressed to show that there is an artificial being and to distinguish it ... the corporation is sufficiently named although there is a variation of words ..." Wyandot, Inc. v. Gracey Street Popcorn Co., 208 Conn. 248, 255 (1988).
While the full details of the subordination agreement were not presented at the hearing, its existence, the name of the lender (North Mill Capital, LLC) and its revolving line of credit to UMW were established.
Interest continues to accrue as to these notes and UMW is uncertain when they will be paid off although its CEO expressed confidence they would eventually be satisfied.
"General Statutes § 52-356b, the turnover statute, sets forth a postjudgment procedure permitting a judgment creditor to (a) ... apply to the court for an execution and an order in aid of the execution directing the judgment debtor, or any third person, to transfer to the levying officer either or both of the following: (1) Possession of specified personal property that is sought to be levied on; or (2) possession of documentary evidence of title to property of, or a debt owed to, the judgment debtor that is sought to be levied on. "The court may issue a turnover order pursuant to [this section], after notice and hearing ... on a showing of need for the order." General Statutes § 52-356b(h). JPMorgan Chase Bank, N.A. v. Herman, 175 Conn.App. 662, 666-67, 168 A.3d 514, 518 (2017).
To the extent that KS claims the return of the execution is a precondition to a turnover order, and relies upon older Superior Court decisions for that proposition, that precondition and those cases are rendered inapplicable by the amendment of the turnover statute, G.S. § 52-356b(a) in P.A. 97-86.
"The law of turnover orders is entirely statutory ... General Statutes § 52-356b(a) authorizes a court, at the request of an unpaid judgment creditor, to direct "any third person, to transfer to the levying officer [p]ossession of specified personal property that is sought to be levied on ..." ... This] statute ha[s] not been extensively litigated. In Fleet Bank Connecticut, N.A. v. Carillo, 240 Conn. 343, 691 A.2d 1068 (1997), our Supreme Court considered whether a judgment creditor was entitled to a turnover order for the entire balance of a joint bank account even though only one of the co-holders was a judgment debtor. In furtherance of the legislature’s intent to allow a judgment creditor to execute against all forms of a judgment debtor’s assets, the court concluded that such a creditor was entitled to reach any property in which the judgment debtor had a cognizable interest." (Citation omitted.) Sarasota CCM, Inc. v. Golf Mktg., LLC, 94 Conn.App. 34, 37-38, 891 A.2d 72, 73-74 (2006).
"Although the turnover statute is governed by statute, it has been characterized by our supreme court as having an equitable nature." (Internal quotations omitted.) Simko v. LaMorte, 222 Conn. 793, 798 (1992). The plaintiffs have shown a need for a turnover order in aid of the unsatisfied execution, and there is clearly a need to determine contested priorities.
A. The Demand
As between the parties noticed for the hearing, judgment debtor Genesis has a 100% interest in the debt memorialized by the demand notes. Bischoff, KS, BB, MR have no interest in any of the demand notes. Only the revolving credit lender for UMW, North Mill Capital, may have a superior interest to the plaintiffs in such notes. It lacked notice of this hearing.
Under the unusual realities of these notes, as to their lack of current payment and uncertain date of future payment, their market value for resale is questionable. Therefore, as requested by the plaintiffs, in the interest of UMW and its lender and consistent with the equitable exercise of the court’s powers, the court orders as follows: The plaintiffs are found to be the lawful holders of the eleven demand notes, subject only to any valid and enforceable subordination agreement with UWM’s lender, North Mill Capital, LLC. Within 30 days, defendants, and/or UMW shall transfer possession of the original notes or, if such are lost, a missing note affidavit. If and when any payments become due under the notes, UWM shall make same to the levying officer and, upon receipt by same, such payments will be credited to Genesis. Should plaintiffs desire to sell or assign the demand notes, they must first attempt to reach an agreement as to the details of same with UWM and North Capital Mill, LLC. Any sale or assignment must be commercially reasonable and the details of same noticed to UMW, North Capital Mill, LLC and the judgment debtors 30 days before such sale. Any party to this action or noticed entity may move for the court to review the proposed sale or assignment within 10 days of receiving notice. The court retains jurisdiction to approve or disapprove such assignment or sale.
B. The Whitt Note
KS has the burden of proving by a preponderance of the evidence her ownership of the 1/2 interest in the Whitt note. She has done so. As to this twelfth note, the Whitt note (Defendant’s exhibit 8) the evidence shows that intervener KS paid $60,000 consideration by wire transfer for a 1/2 interest in the Whitt note on February 24, 2017, when it was not in default. The funds were paid, as requested, to Bischoff/Genesis. Bischoff had communicated with KS by emails which consistently showed his name and proclaimed his role as the managing partner of Genesis Investment Group. At the time of the transaction, she had no reason to distrust Bischoff.
Defendant’s exhibit 6 clearly shows the assignment of the note to be from payee/assignor Genesis Investment Group Ltd to KS and recites consideration of the $60,000 payment to Genesis. Under these facts the court concludes that KS in good faith paid consideration to Genesis by paying Bischoff in his capacity as the managing partner of Genesis.
The evidence establishes that by this time Bischoff was the sole member of Genesis.
There is no evidence that the plaintiff had executed upon the notes before then. The maker of the note, UMW, through its wholly owned subsidiary, NLR, made payments directly to KS in March, April, May, June, July, August, September and October of 2017. During that same time period it made payments to BB. Previously it had made payments on the note to Bischoff. No party presented credible evidence as to the validity, or lack thereof, of payments to BB and Bischoff upon that note by UMW or its subsidiary, NLR. No evidence was presented that any assignment of the proceeds of the Whitt note to BB or Bischoff lacked consideration or were otherwise legally defective. Further, evidence was presented that Bischoff was the sole member or Genesis and its managing partner, which would give him apparent authority to direct payments due Genesis to third parties. The court does not accept plaintiffs’ claims that any payments under the Whitt note by UWM to any entity other than Genesis were, ipso facto and ipso jure, unauthorized and improper.
The plaintiffs make several attacks on KS’ claim to ownership of the 1/2 interest in the Whitt note. First they claim that she was not a ‘holder in due course’ under the UCC because she never physically possessed the original note. The court disagrees.
KS did have an assignment of the note dated February 24, 2017, reciting the consideration of KS paying the $60,000 to Genesis for a 1/2 interest of Genesis in the Whitt note. The document bears the name of William Bischoff as partner and as signatory beneath the Genesis name as the assignor. KS signed as the assignee. KS subsequently came into possession of a copy of the note.
The assignment has an error with regard to the date of the note, but accurately states the amount of the note, the payment schedule for the note and maturity date. Further, the evidence indicates this was the only such promissory note issued by UWM. The court finds that the note assigned by document dated February 24, 2017 was the Whitt note, dated December 3, 2016.
Contrary to the plaintiffs’ position, the UCC does not require physical possession of the original note as the only way to be a holder in due course. "A bill or note is not a debt; it is only primary evidence of a debt; and where this is lost, impaired or destroyed bona fide, it may be supplied by secondary evidence ... The loss of a bill or note alters not the rights of the owner, but merely renders secondary evidence necessary and proper ... The Uniform Commercial Code ... addresses situations ... where the instrument sought to be enforced is unavailable, by creating an exception to the general rule that one must hold an instrument in order to enforce its payment. Section 42a-3-309(a) provides: "A person not in possession of an instrument is entitled to enforce the instrument if ... the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. Here, the court found that the plaintiff had sustained its burden of showing that the note was lost and that the copy it produced was authentic. Despite the defendant’s contention to the contrary, there is no specific requirement under § 42a-3-309 that the proponent of a lost note produce an affidavit detailing how the instrument was lost." (Citations omitted; internal quotation marks omitted.) Silicon Valley Bank v. Miracle Faith World Outreach, Inc., 140 Conn.App. 827, 833-34, 60 A.3d 343, 348 (2013).
In this case, both a copy of the assignment of the note and a copy of the note itself were produced as full exhibits. No representative of Genesis was present to explain the location of the missing original and it was indicated at the hearing that Bischoff is both in another jurisdiction and in federal custody. The court finds KS has proven that she is a holder in due course and the rightful assignee of 1/2 of the debt reflected in the Whitt note.
The plaintiffs also attack KS’ claim to the Whitt note on the basis that Bischoff’s signature to the assignment of the note has not been authenticated. However, both the assignment and copy of the note are already in evidence as full exhibits. Plaintiffs, contrary to G.S. § 42a-3-308, did not, prior to the hearing, deny the authenticity and authority of Bischoff’s signature on behalf of Genesis, and it is therefore admitted.
"[Defendant] attacks the efficacy of those endorsements by pointing out that the plaintiff proffered no documentary evidence, extrinsic to the note itself, authenticating the signature ... nor vesting [the signatory] with authority to endorse the note on behalf of anyone. This attack, however, ignores the effect of General Statutes § 42a-3-308(a), which deems "the authenticity of, and authority to make, each signature on the instrument" as "admitted unless specifically denied in the pleadings ..." [Defendant] never filed an answer assailing the signatures on this note. He attempts to avoid the evidentiary impact of § 42a-3-308(a) by decrying the fact that [signatory] endorsed the note for two, different entities ... He argues that this circumstance raises a cloud of suspicion which ought to undermine the presumption of authenticity and authority to act otherwise created by § 42a-3-308(a). The court rejects this notion. There is nothing inherently nefarious nor improper about one person possessing authority to act as an agent to bind more than one principal. If [defendant] wished to assail [signatory]’s authority to act, § 42a-3-308(a) makes it incumbent upon him to deny that authority "specifically" in a pleading. Because the defendant failed to proceed in accordance with this statutory provision, § 42a-3-308(a) relieves the plaintiff of any burden to produce additional documentary support to establish the authenticity and authority of [signatory] to endorse the note ..." Deutsche Bank Nat. Tr. Co. v. Shivers, 52 Conn.Supp. 358, 360, 48 A.3d 143, 144-45 (Super.Ct. 2010), aff’d and remanded, 136 Conn.App. 291, 44 A.3d 879 (2012) .
As to the distribution of the escrowed funds, KS is entitled to one-half of the amount being escrowed on the Whitt note, being $42,923.52, plaintiffs being entitled to the half which would otherwise be due to Genesis. The court does not accept the position of KS that she should receive interest during the period of the escrow, given that all parties to this case agreed to the payments due being placed in an escrow account which did not bear interest.
Plaintiffs’ one-half of the escrow amount should be paid to the levying officer and, after his/her fees, the balance credited to the judgment debt of Genesis.
Nor does the court accept the position of KS that she is entitled to attorney fees for these proceedings. The note provided for reasonable attorneys fees "[i]n the event of commencement of suit to enforce payment of this note." KS did not commence a suit and this proceeding was not to enforce payment of the note but to establish her priority of claim. Unsurprisingly, KS was unable to cite any legal authority for her request.
For the above reasons, the application for turnover is granted and the interests in the twelve promissory notes are determined, as set forth above.