Johnson v. Mid States Screw & Bolt Co.

• Decision Date: 08 June 1984
• Docket Number: No. 83-8080,83-8080
• Citation: 733 F.2d 1535
• Parties: 38 UCC Rep.Serv. 979 Gilbert R. JOHNSON, Plaintiff-Appellant, v. MID STATES SCREW & BOLT COMPANY, Speizman Industries, Inc., Defendants- Appellees, VINCENT BRASS & ALUMINUM CO., Cross Claim Plaintiff-Appellee v. MID STATES SCREW & BOLT COMPANY, Speizman Industries, Inc., Cross Claim Defendants- Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1535

733 F.2d 1535

38 UCC Rep.Serv. 979

Gilbert R. JOHNSON, Plaintiff-Appellant, v. MID STATES SCREW & BOLT COMPANY, Speizman Industries, Inc., Defendants- Appellees, VINCENT BRASS & ALUMINUM CO., Cross Claim Plaintiff-Appellee v. MID STATES SCREW & BOLT COMPANY, Speizman Industries, Inc., Cross Claim Defendants- Appellants.

No. 83-8080.

United States Court of Appeals Eleventh Circuit.

June 8, 1984.

Cornelius B. Thurmond, Jr., Augusta, Ga., for plaintiff-appellant, cross-appellee.

J. Patrick Claiborne, William J. Cooney, John C. Bell, Jr., William C. Calhoun, Augusta, Ga., for appellees.

Appeals from the United States District Court for the Southern District of Georgia.

Before TJOFLAT and HILL, Circuit Judges, and LYNNE ^*, District Judge.

LYNNE, District Judge:

This appeal concerns remedies under the Georgia Bulk Sales Act available to a creditor claiming improprieties in a bulk transfer of assets by both the transferee and the transferor. Also at stake, on cross-appeal, is the transferee's right to indemnity for its payment of the transferor's debt to the creditor.

We affirm, on alternative grounds, the lower court's decision to dismiss the appellant's fraud claim. Fraud allegations, based solely upon the Bulk Sales Act, fail to state a claim upon which relief may be granted. As to the cross-appeal, we concur with the court's determination that provisions enabling uninformed creditors to recover from the transferee are non-punitive in nature. Its decision compelling the transferor to indemnify the transferee is accordingly affirmed.

Mid States Screw & Bolt Company (Mid States) consummated a bulk transfer of its assets to Vincent Brass & Aluminum Company (Vincent) on March 31, 1977. Gilbert R. Johnson, the appellant, did not receive notice of the transaction. His first of two claims against Mid States alleging breach of a fixed term employment agreement qualified him as a creditor entitled to such notice under the Bulk Sales Act. Two months after the Bulk Transfer, he obtained judgment on the initial claim and subsequently collected against a letter of credit issued on Mid States' behalf.

Judgment on the second claim followed shortly thereafter. Unable to obtain satisfaction from either Mid States or its parent, Speizman Industries Inc. (Speizman), Johnson filed an in rem garnishment action against Vincent. The Bulk Sales Act sanctions such relief against transferees who fail to notify "known" creditors about a pending transfer. Ga.Code Ann. Secs. 109A-6-104, 109A-6-107(3). Vincent blamed the lack of notice on Mid States' failure to include Johnson in its sworn list of creditors. However, reference in the Bulk Transfer Agreement to the "Johnson litigation", as well as employment interviews between the two, established its independent knowledge of Johnson's creditor status. Accordingly, the Georgia Supreme Court reinstated a summary judgment order granting Johnson relief. See Johnson v. Vincent Brass & Aluminum, 244 Ga. 412, 260 S.E.2d 325 (1979).

With recovery from Vincent in hand, Johnson filed the present action claiming Mid States, Speizman and Vincent committed fraud by intentionally violating the detailed notice provisions of the Bulk Sales Act. Vincent cross-claimed against Mid States for indemnification of the adverse garnishment judgment. The district court rejected the fraud claim on the basis of Johnson's election of remedies in the state court in rem action. It additionally expressed doubt that the complaint stated a claim upon which relief could be granted. The court subsequently granted Vincent's summary judgment motion on the cross-claim.

That Vincent and Mid States both violated the notice provisions of Georgia's Bulk Sales Act is beyond question. However, that Act creates only an in rem garnishment action against the transferee. American Express Co. v. Bomar Shoes, 125 Ga.App. 408, 187 S.E.2d 922 (1972); Indon Industries, Inc. v. Martin Distributing Co., 234 Ga. 845, 218 S.E.2d 562 (1975). It is intended to supplement, not displace, the creditor's traditional remedies--similar in rem actions as well as fraudulent conveyance claims--against the transferor. Id.; See also Ga.Code Ann. Sec. 109A-6-101, Official Comment 1. Johnson abandoned these longstanding avenues of relief and based his...