Opinion
No. 00-80460. Adv. No. 00-8083.
November 11, 2000.
OPINION
This case involves a statutory interpretation issue arising out of the Trustee's (TRUSTEE) efforts to enforce a judgment against the Defendant, Ronald J. Harris (HARRIS).
After entry of a default judgment against HARRIS on July 6, 2000 in the amount of $9,816.48 plus costs of $150, the TRUSTEE prepared a citation to discover assets directed against HARRIS. The citation commanded HARRIS to appear in Bankruptcy Court in Peoria, Illinois, at 9:30 a.m. on September 11, 2000, to be examined under oath concerning his property or income. The citation was duly issued by the Bankruptcy Clerk and was returned to the TRUSTEE for service. The TRUSTEE filed a certificate of service stating that the citation to discover assets, citation notice and certification of judgment were served by first class United States mail, with postage fully prepaid, on August 11, 2000, in an envelope addressed to HARRIS at 500 E. Thomas Road, Suite 201, Phoenix, Arizona.
HARRIS failed to appear for the scheduled citation on September 11, 2000, and the TRUSTEE requested that the Bankruptcy Court certify the matter to the District Court as a contempt proceeding for issuance of an order to show cause requiring HARRIS to appear before the United States District Court for the Central District of Illinois in Peoria, Illinois, to show cause why he should not be held in contempt of court for failing to appear for the citation hearing on September 11, 2000. The Court took the TRUSTEE'S request under advisement.
Before certifying this matter to the District Court, it is appropriate for this Court to consider whether proper procedures have been followed. This Court questions whether the supplementary proceedings used by the TRUSTEE in an effort to enforce the judgment have been properly implemented so as to satisfy due process concerns. Federal Rule of Civil Procedure 69(a), applicable to these proceedings by Federal Rule of Bankruptcy Procedure 7069, governs judgment enforcement procedure and provides in pertinent part:
The procedure on execution, in proceedings supplementary to and in aid of a judgment, and in proceedings on and in aid of execution shall be in accordance with the practice and procedure of the state in which the district court is held, existing at the time the remedy is sought, except that any statute of the United States governs to the extent that it is applicable. In aid of the judgment or execution, the judgment creditor or a successor in interest when that interest appears of record, may obtain discovery from any person, including the judgment debtor, in the manner provided in these rules or in the manner provided by the practice of the state in which the district court is held. (Emphasis added).
Fed.R.Civ.P. 69(a). Accordingly, the TRUSTEE may attempt to collect the judgment in Bankruptcy Court by following the practice and procedure for supplementary proceedings under Illinois law, unless a federal statute is applicable. The question here is whether Rule 7004 of the Federal Rules of Bankruptcy Procedure is an applicable federal statute that governs the method by which a citation to discover assets must be served or whether the Illinois rules for service of a citation apply.
Fed.R.Bankr.P. 7004, the general rule governing service of process in adversary proceedings, permits service by regular mail. The Illinois rules specifically applicable to citations do not permit service by regular mail but require either personal service or service by certified or registered mail with restricted delivery and return receipt. See Illinois Supreme Court Rules 277(c) and 105(b).
Some courts have ruled that the Federal Rules of Bankruptcy Procedure fall within the scope of the phrase "any statute of the United States" as used in Fed.R.Civ.P. 69(a), so that the methods for service contained in Fed.R.Bankr.P. 7004 are applicable to all supplementary proceedings conducted in a bankruptcy court to the exclusion of service requirements that are otherwise mandated by the laws of the state whose supplementary proceedings are being used. In re Mycro-Tek, Inc., 191 B.R. 188 (Bkrtcy. D. Kan. 1996); In re McAllister, 216 B.R. 957, n. 6 (Bkrtcy. N.D. Ala. 1998). Based on that analysis, the TRUSTEE'S service by mail in accordance with Fed.R.Bankr.P. 7004 was proper.
A contrary result was reached by the court in General Electric Capital Corporation v. THE JANE R., 2000 WL 825679 (E.D.La., June 23, 2000), where the court considered plaintiff's motion to execute against garnishee, Signal Companies, Inc. (Signal). The plaintiff was attempting to collect a judgment against Guilford J. Acosta. In the belief that Signal was indebted to Acosta, the plaintiff sought to have Signal answer garnishment interrogatories. Because Signal failed to timely respond to the interrogatories, the plaintiff moved to have a conditional judgment entered against Signal for the entire judgment balance as permitted by the Louisiana Code of Civil Procedure. In its defense, Signal claimed that it was not properly served with the garnishment interrogatories in that the individual who was served was not an agent for service of process for Signal. The plaintiff contended that service was proper in accordance with the Federal Rules of Civil Procedure. After noting the applicability of Louisiana law to garnishment proceedings pursuant to Fed.R.Civ.P. 69(a), the court framed the issue as follows:
However, the language in Fed.R.Civ.Pr. 69 which states "except that any statute of the United States governs to the extent that it is applicable" raises the issue for this Court to resolve, namely, whether service must be effected in accordance with the Federal Rules of Civil Procedure or the state law provisions for service.
The court then noted that the Louisiana Code of Civil Procedure has specific provisions governing garnishment proceedings requiring that garnishment interrogatories issued to a corporation be served by personal service on an authorized agent for service of process. Because the individual that the plaintiff served with the garnishment interrogatories was not Signal's registered agent for service, the court found that service was not proper under state law. The court went on to hold that the state rules regarding service in garnishment proceedings were applicable rather than the Federal Rules. The court based its ruling primarily on the fact that Louisiana's garnishment statute made specific provisions for service so that it was not a situation of choosing general state service rules over general Federal Rules for service. Like Louisiana, the Illinois statute which governs garnishment proceedings, as noted above, makes reference to a particular method of service for citations to discover assets.
The Seventh Circuit interpreted Rule 69(a) in Textile Banking Company, Inc., v. Rentschler, 657 F.2d 844 (7th Cir. 1981), a case involving issues related to the service of a citation to discover assets. The citation defendant argued that Fed.R.Civ.P. 45(a)(2) governing the service of deposition subpoenas was applicable and trumped Illinois law with respect to citations.
The court stated that Fed.R.Civ.P. 69(a) subordinates state supplementary procedure only when there is a federal statute fulfilling a comparable function. Id. at 851. The court found that there is not a federal statute prescribing methods for discovering the hidden assets of a judgment debtor, so that the Rule 69(a) exception for applicable federal statutes was not triggered, and state law governed the citation process. Therefore, Fed.R.Civ.P. 45(a)(2) governing the service of deposition subpoenas was inapplicable and did not displace Illinois law with respect to service of a citation summons.
The Seventh Circuit recently reiterated its disagreement with those cases holding that a federal court must apply the Federal Rules for service to supplementary proceedings simply because the Federal Rules have the force of statute, questioning the interpretation of the Rule as follows:
The reference in Rule 69(a) to applicable federal statutes appears to refer to federal statutes expressly governing execution, see Note of Advisory Committee on Rule 69(a), a category that would presumably comprehend any rule regulating execution, such as Rule 62(a), but not the rules of procedure or of evidence in gross.
Resolution Trust Corporation v. Ruggiero, 994 F.2d 1221, 1226 (7th Cir. 1993). See also Apostolic Pentecostal Church v. Colbert, 169 F.3d 409 (6th Cir. 1999) (Federal Rules of Civil Procedure are not a "statute" of the United States within the Rule 69(a) exception so that a writ of garnishment that was served in accordance with Michigan law governing service of garnishment writs was proper.)
The language of Rule 69(a) itself supports the conclusion that the drafters did not intend that the general federal service rules would supplant specific state rules for service of citations. The Rule's incorporation of the state's "practice and procedure" for collection of judgments is an intentionally broad phraseology. Where state rules governing citations contain specific provisions for service, the service provisions are necessarily part of the practice and procedure for citations. If the drafters of the Rules had intended for service to be governed by Rule 4 notwithstanding specific state service provisions, a reference to Rule 4 or to the Rules, generally, would have been expected.
Compare the second sentence of Rule 69(a) that provides that a judgment creditor may obtain discovery . . . in the manner provided in these rules . . ." (Emphasis added). The drafters knew how to state an intent that the Federal Rules prime the state rules. The statement of such intent is omitted from the first sentence of Rule 69(a), unless the reference to any applicable statute of the United States is meant to include the Federal Rules themselves, an interpretation that the Seventh Circuit has at least criticized if not rejected.
The interpretation of Rule 69(a) set forth in General Electric Capital Corporation v. THE JANE R., Textile Banking Company, Inc., v. Rentschler, and Resolution Trust Corporation v. Ruggiero is correct, in this Court's view, as a matter of statutory interpretation. It is the ruling of this Court that the Illinois rules regarding service of a citation to discover assets apply to a judgment collection proceeding conducted in the bankruptcy court. Because service of the citation upon HARRIS was not effected in accordance with those provisions, the TRUSTEE'S request that this matter be certified to the District Court for initiation of a contempt proceeding should be denied. The TRUSTEE may obtain the issuance of a second citation to discover assets which, if obtained, should be served on HARRIS in a manner provided for service of citations under Illinois law.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.