Opinion
Civil Action No. 02-0208 Section "R" (4).
August 2, 2004
ORDER AND REASONS
Defendant 3 Eagles Aviation, Inc. moves the Court to enforce its contempt order, dated January 28, 2004, against Clayton Kresge, President of Standard Collision. 3 Eagles also asks the Court to award it additional sanctions for Kresge's failure to comply with this Court's September 2, 2003 Turn Over order and January 28, 2004 Contempt order (Rec. Doc. Nos. 117 143). Kresge opposes the motion and also moves the Court to reconsider and to vacate the September Turn Over and January Contempt orders under Federal Rule of Civil Procedure 60(b). For the following reasons, the Court denies 3 Eagles' motion. The Court also grants Kresge's motion to reconsider and vacates its September 2, 2003 Turn Over order and lifts the January 28, 2004 contempt order. The Court further orders Kresge to pay $9,207.50 in attorneys' fees to 3 Eagles for the cost of the supplemental brief that the Court ordered 3 Eagles to file here.
I. Background
In October 2002, the Court entered judgment against Wayne Rousseau, judgment debtor, and in favor of 3 Eagles in the amount of $1,341,462.14, plus interest at the rate of $556.44 per diem. To satisfy the judgment, 3 Eagles applied for and obtained a writ of fieri facias that ordered the United States Marshal for the United States District Court for the Eastern District of Louisiana to seize and to take into his possession the property, rights, and credits of Rousseau.
In February 2002, Rousseau tendered to Standard Collision three checks that totaled $285,028.87. In June 2003, the United States Marshal served a citation, a petition of garnishment, and garnishment interrogatories on Standard Collision through its registered agent for service of process, Clayton Kresge, who is also the president and sole officer of the corporation. Standard Collision, through its attorney of record, confirmed under oath that Rousseau had invested $285,028.87 in the corporation in return for a 3.6774% interest in the company's common stock.
In August 2003, 3 Eagles sought an ex parte Order to Turn Over and Deposit Seized Funds. ( See Rec. Doc. No. 117). Based on Standard Collision's responses to the garnishment interrogatories, 3 Eagles asked the Court to order Standard Collision to liquidate Rousseau's $285,028.37 investment and to turn it over and to deposit it into the Court's registry. ( See id.). Although 3 Eagles served the motion on Kresge and his counsel on August 27, 2003, there was no notice of hearing, no hearing was set, and no briefing schedule established. ( See id.). Neither Standard Collision nor Kresge objected to the application for the Turn Over order. The Court granted the order and directed Standard Collision to liquidate Rousseau's investment and to turn over and to deposit the sum of $285,028.87 into the Court's registry. This order was personally served on Kresge on September 23, 2003.
In November 2003, 3 Eagles moved the Court to hold Kresge in contempt and to impose sanctions on him for his failure to abide by the Court's September Turn Over order. In December 2003, counsel for Rousseau and 3 Eagles jointly moved to continue submission of the sanctions motion until January 7, 2003. The Court granted the motion to continue. Despite the continuance, Kresge did not file an opposition to the motion for contempt and sanctions. In January 2004, having no opposition from Kresge that explained his noncompliance with the Court's prior order, the Court granted 3 Eagles' Motion and found Kresge in contempt of the September Turn Over order. In addition, the Court ordered Kresge to pay $2,730.00 in attorney's fees to 3 Eagles' counsel for the cost of ensuring compliance with the Court's Turn Over order.
Kresge has failed to comply with either the Court's Turn Over or Sanctions order. 3 Eagles now moves the Court to enforce its contempt order and to impose additional sanctions on Kresge. 3 Eagles moves the Court to: (1) take all measures and issue all appropriate orders to assist 3 Eagles in the collection of $287,087.00; (2) order Kresge to pay a compensatory fine for damages that 3 Eagles suffered as a result of the loss of use of the unpaid funds; (3) order Kresge to pay a reasonable fine to the clerk of court; (4) order Kresge to pay attorneys' fees and costs incurred in the filing of the pending motion; (5) order Kresge to immediately comply with a subpoena duces tecum or to order an independent audit of Standard Collision's books and records at his expense; and, (6) as a last resort, imprison Kresge.
The Court notes, however, that Kresge tendered a check to 3 Eagles' counsel for $2,730.00 in attorneys' fees in compliance with the January contempt order.
Kresge, who responds for the first time to any of 3 Eagles' motions, now asks the Court to reconsider the merits of the Court's original September 2003 Turn Over order under Federal Rule of Civil Procedure 60(b). Kresge first argues that the Court's Turn Over order has no basis in fact or law. Kresge also argues that compliance with the Turn Over order is impossible, and in violation of Louisiana law, because Standard Collision is insolvent. Lastly, Kresge argues that he has complied with the Court's order to the extent that he is able. Kresge also moves the Court to vacate the Turn Over and Contempt orders.
On May 18, 2004, the Court ordered supplemental briefing by 3 Eagles. The Court ordered 3 Eagles to brief whether a garnishment proceeding may be used to require a corporate garnishee to liquidate a judgment debtor's equity interest in the corporation and to turn over the proceeds to the judgment creditor. The Court also ordered that the brief specifically address what debt the corporation owes a shareholder, or, in other words, what property of the shareholder is in the possession or under the control of the corporation. The Court further ordered 3 Eagles to submit a statement of its attorneys' fees that it incurred in preparing the brief. The Court is now in receipt of numerous supplemental briefs by the parties. After thoroughly considering the applicable law, the Court rules as follows.
II. Discussion
Although the Federal Rules of Civil Procedure do not formally recognize a motion to reconsider in haec verba, the Fifth Circuit has held that a motion to reconsider a judgment may be classified under either Rule 59 or Rule 60, depending upon the time of filing. See Pryor v. United States Postal Service, 769 F.2d 281, 285 (5th Cir. 1985); Lavespere v. Niagra Mach. Tool Works, Inc., 910 F.2d 167, 173 (5th Cir. 1990), abrogated on other grounds by Little v. Liquid Air Corp., 37 F.3d 1069, 1075 n. 14 (5th Cir. 1994) ( en banc). Because Kresge filed his motion for reconsideration more than ten days after issuance of the Court's Turn Over and Sanctions orders, the motion falls under Rule 60(b) as a motion for "relief from judgment." See Lavespere, 910 F.3d at 173. Under Rule 60(b) a court will grant relief from a final judgment or order only upon a showing of:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b);
(3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or
(6) any other reason justifying relief from the operation of the judgment.
Kresge argues that he is entitled to relief from judgment under Rule 60(b)(1). Kresge contends that Rule 60(b) (1)'s "mistake, inadvertence, surprise, or excusable neglect" prong includes errors of law made by the Court. Kresge argues that the Court committed an error of law when it issued the September Turn Over order because: (1) the garnishment interrogatories propounded by 3 Eagles did not ask Standard Collision whether it held property of Rousseau or owed a debt to Rousseau; (2) the Turn Over order grants 3 Eagles greater rights against Standard Collision than Rousseau had; and (3) under Louisiana law, a corporation cannot redeem its stock if it is insolvent, or if such redemption would render it insolvent. For the following reasons, the Court grants Kresge's motion to reconsider and further vacates the September 2, 2003 Turn Over order and lifts the January 28, 2004 contempt order against Kresge.
There is some dispute in the briefs with regard to whether Kresge also requests relief under Rule 60(b)(6). In his reply memorandum, however, Kresge admits that he does not seek relief under that provision.
The Fifth Circuit has held that Rule 60(b)(1) allows "relief from final judgments on account of 'mistake,' and, in this circuit, the rule may be invoked for the correction of judicial error, but only to rectify an obvious error of law, apparent on the record." Hill v. McDermott, Inc., 827 F.2d 1040, 1043 (5th Cir. 1987). A party may invoke Rule 60(b)(1) when the "judgment obviously conflicts with a clear statutory mandate or when the judicial error involves a fundamental misconception of the law." Id. (citations omitted). However, a party may not use a district court's alleged "error of law" as a "mask for [a] forfeited appeal." Halicki v. Louisiana Casino Cruises, Inc., 151 F.3d 465, 471 (5th Cir. 1998). The Fifth Circuit has consistently held that "Rule 60(b) is not a substitute for a timely appeal. Courts should not grant relief when the moving party has not been diligent in protecting its own rights by filing an appeal from an adverse judgment." See id. (citing 12 JAMES W. MOORE, MOORE'S FEDERAL PRACTICE, § 60.22[2], at 60-67 (3d ed. 1998)). Because the Court finds that the September 2, 2003 Turn Over order was based on an erroneous precept of law, the Court grants Kresge's motion to reconsider.
The Turn Over order and the subsequent Contempt order were not valid because the creditor never showed that the corporate garnishee possessed the judgment debtor's property. Further, there was no authority authorizing a creditor to use an ex parte garnishment proceeding to force a corporation to liquidate the judgment debtor's equity interest and to turn over the proceeds to the judgment creditor.
A garnishment proceeding is a separate proceeding "from the original suit and is between different parties." Covington Pontiac-Buick-GMC Trucks, Inc. v. AAA Sewer Water Fabrication Serv., LLC, 873 So.2d 56, 57-58 (La.Ct.App. 2004) (citing LA. CODE CIV. P. arts. 2411—17). A garnishment proceeding is "a streamlined legal process for obtaining the seizure of property of a judgment debtor in the hands of a third party." Id. (citing All Star Floor Covering, Inc. v. Stitt, 804 So.2d 705, 708 (La.Ct.App. 2001). To effect garnishment, the judgment creditor obtains a writ of fieri facias and serves upon the garnishee a petition for garnishment that requires the garnishee "to declare under oath what property he has 'in his possession or under his control' belonging to a judgment creditor." Id. (citing LA. CODE CIV. P. art. 2411(A)). When the garnishee's answers reflect that he holds property that belongs to the debtor, the court enters a garnishment judgment that orders the garnishee to deliver the property to the sheriff. See id.
The Turn Over order that 3 Eagles submitted to the Court was based on a faulty proposition of law. 3 Eagles did not demonstrate that Standard Collision had property in its possession or under its control that belonged to Rousseau. See LA. CODE CIV. P. art. 2411(A). Nor did 3 Eagles provide the Court with any authority that would give 3 Eagles the right to seize from a corporation the money that its judgment debtor invested in the corporation. Although the garnishment interrogatories to which Kresge responded on behalf of Standard Collision reflect that Rousseau invested $285,028.87 in Standard Collision, this money is no longer Rousseau's property. His property consists of the shares of stock that Standard Collision issued in return for the funds invested. The shares of stock are "the property to be seized, being an undivided interest in the funds and assets" of the corporation. Harris v. Bank of Mobile, 5 La. Ann. 538, 1850 WL 3852, at *1 (La. 1850). The shares of stock represent the debtor's incorporeal rights in the corporation. As the Louisiana Supreme Court stated in Succession of Quintero,
a share of stock is simply one of the proportionate integers or units, the sum of which constitutes the capital stock of the corporation. In a broader sense, a share of the capital stock may be defined as the interest or rights which the owner . . . has in the management of the corporation, and in its surplus profits, and, on a dissolution, in all of its assets remaining after the payment of its debts.24 So.2d 589, 591 (La. 1946) (citing FLETCHER CYCLOPEDIA CORPORATION § 5083, at 28-29); see also LA.REV.STAT. § 12:1 (defining "shares" of stock as the "units into which the shareholders' rights to participate in the control of the corporation, in its profits or in the distribution of corporate assets, are divided."). The consideration that the debtor paid for his investment in the corporation is not the debtor's property that is subject to seizure from a corporate garnishee in a garnishment proceeding.
Despite the Court's order to 3 Eagles to brief the issue of whether a garnishment proceeding can be used to order a corporation to liquidate the stock of a judgment debtor, 3 Eagles has provided the Court with no authority to support this proposition. Indeed, 3 Eagles for the first time argues that the transaction between Kresge and Rousseau is an absolute simulation and asks the Court to void the transaction. This argument, however, was not the basis for the original Turn Over order. 3 Eagles obtained the Turn Over order based on Kresge's responses to the garnishment interrogatories, which simply reported that Rousseau had made an equity investment in Standard Collision. The interrogatories did not ask if Standard Collision held property of Rousseau; they asked if Rousseau had invested in Standard Collison. There was nothing in the questions or the answers to suggest that the stock investment was a simulation. Moreover, 3 Eagles did not provide notice to Kresge in the Turn Over order that it based the garnishment order on the Louisiana law of absolute simulation or fraud, and it never set the application for the order for a contradictory hearing.
Nor does the Court find that these contempt proceedings are the appropriate place to litigate the simulation issue, which was never raised as a basis for the garnishment, the Turn Over order, or the Contempt order. Indeed, 3 Eagles has a companion suit in this Court in which it asks the Court to revoke Rousseau's alleged fraudulent transaction and/or to declare certain transactions a simulation under Louisiana law. 3 Eagles recently moved to amend its complaint to include the transaction between Kresge and Rousseau, which the Court granted. The Court finds that 3 Eagles can adequately protect its interests there.
The suit is captioned, 3 Eagles Aviation, Inc. v. Rousseau, et al., No. 03-CV-2889, Section "R" (5).
In short, 3 Eagles has cited to no authority that justified the Turn Over order or the Contempt order. Indeed, the Court has found no authority that permits it to order a corporate garnishee to liquidate the shares of stock of a judgment debtor and to turn over the funds invested by the judgment debtor to the judgment creditor.
III. Attorneys' Fees
By minute entry dated May 18, 2004, the Court also ordered 3 Eagles to submit an affidavit of its attorneys' fees that it incurred as a result of the Court's order to brief the garnishment issue. For the following reasons, the Court grants attorneys' fees in the amount of $9,207.50 to 3 Eagles for the cost of filing its supplemental brief.
The Fifth Circuit has reasoned that attorneys' fees are appropriate in a civil contempt proceeding because the moving party suffers further monetary damages when it is forced to bring a violation of a court order to the attention of the court: "It matters not whether the disobedience is willful, the cost of bringing the violation to the attention of the court is part of the damages suffered by the prevailing party and those costs would reduce any benefits gained by the prevailing party from the court's violated order." See Cook v. Ochsner Found. Hosp., 559 F.2d 270, 272 (5th Cir. 1977).
Here, the lack of response on Kresge's part forced 3 Eagles to file its motion to enforce the contempt order and to impose sanctions. ( See Rec. Doc. No. 148). In response, Kresge filed his motion, which argued for the first time that the Court's Turn Over order, in effect for seven months at the time of his response, had no basis in law. ( See Rec. Doc. No. 159). Kresge's legal argument prompted the Court's order to 3 Eagles to brief the legal issue of whether a garnishment proceeding here is proper. ( See Rec. Doc. No. 165). This was a direct result of Kresge's failure to take action in response to the Court's Turn Over and Sanctions orders. For this reason, the Court exercises its discretion and awards attorneys' fees in the amount of $9,207.50 to 3 Eagles for the cost of the supplemental brief that the Court ordered.
IV. Conclusion
For the foregoing reasons, the Court denies 3 Eagles' motion to enforce its contempt order and to impose additional sanctions on Kresge. The Court grants Kresge's motion to reconsider and vacates its September 2, 2003 Turn Over order and lifts the Contempt order against Kresge. The Court further orders Kresge to pay $9,207.50 in attorneys' fees to 3 Eagles for the cost of the brief that the Court ordered 3 Eagles to file here.