Arbor Farms, LLC v. Geostar Corp.

• Citation: 853 N.W.2d 421,305 Mich.App. 374
• Decision Date: 27 May 2014
• Docket Number: Docket No. 314911.
• Parties: ARBOR FARMS, LLC v. GEOSTAR CORPORATION.
• Court: Court of Appeal of Michigan (US)

305 Mich.App. 374

853 N.W.2d 421

ARBOR FARMS, LLC

v.GEOSTAR CORPORATION.

Docket No. 314911.

Court of Appeals of Michigan.

Submitted May 14, 2014, at Lansing.

Decided May 27, 2014, at 9:05 a.m.

Hoenig & Barham, Mount Pleasant (by Lesley A. Hoenig ) and Vincent E. Mauer for plaintiffs.

Silverman & Morris, PLLC, West Bloomfield (by Thomas R. Morris ), for defendant.

Before: STEPHENS, P.J., and HOEKSTRA and METER, JJ.

Opinion

HOEKSTRA, J.

In this postjudgment collection action to enforce a foreign money judgment, defendant appeals by right the trial court's civil contempt order. Because the trial court had jurisdiction over defendant's property in Michigan and did not abuse its discretion by appointing a receiver over defendant's Michigan property or by holding defendant in contempt for its failure to comply with a court order, we affirm.

Between 2001 and 2005, ClassicStar, LLC, which was owned by defendant during this period, engaged in a Ponzi scheme that involved the leasing of thoroughbred racehorses for breeding purposes. In 2006, plaintiffs, who are individuals and entities that had invested in this scheme, filed suit against defendant and others in the United States District Court for the Eastern District of Kentucky, asserting claims of breach of contract, fraud, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Ultimately, plaintiffs prevailed on a motion for summary disposition, and, in November 2011, the federal district court entered an amended judgment against defendant in the amount of $65,042,084.61.

On May 17, 2012, plaintiffs began a postjudgment collection action against defendant in Michigan by filing a notice of entry of a foreign judgment in the Isabella Circuit Court. That same day, plaintiffs filed an ex parte motion for a restraining order pursuant to MCL 600.6116,¹ requesting that defendant maintain the status quo and refrain from transferring its assets, including but not limited to exercising its rights as sole shareholder of CBM Resources, defendant's wholly owned Michigan subsidiary. That same day, granting plaintiffs' request, the trial court entered a restraining order that read as follows:

IT IS HEREBY ORDERED that:

A. GeoStar Corporation (“GeoStar”) is ordered to maintain the status quoand is hereby restrained from transferring, encumbering, distributing or otherwise disposing of any assets pursuant to MCL 600.6116, including, but not limited to exercising its rights as the sole shareholder of CBM Resources.

B. GeoStar is further ordered to hold any amounts, including but not limited to any distributions, due and owing to GeoStar from CBM Resources, in escrow for the benefit of Plaintiffs. This provision applies to amounts which are due and owing as of the date of this Order or which become due and owing during the time this Order remains in effect.

C. GeoStar is further ordered to provide, within thirty (30) days of the date of this Order, a complete accounting of all transfers, encumbrances, distributions and dispositions within six (6) years prior to entry of this Order.

On two occasions thereafter, defendant moved to set aside the restraining order, asserting in part that the trial court lacked personal jurisdiction over defendant. Plaintiffs responded that jurisdiction was proper because defendant continued to conduct business in Michigan through the control of its Michigan subsidiaries and, even if personal jurisdiction did not exist, jurisdiction was proper over defendant's assets located in Michigan, including extensive business records located in two storage lockers in Mt. Pleasant, Michigan. Eventually, at a motion hearing on November 2, 2012, the trial court denied defendant's motion to set aside the May 17, 2012 restraining order. However, the court modified the restraining order to apply only to defendant's Michigan assets and gave defendant 30 days to comply with the restraining order's provisions. In addition, the trial court ordered the creation of an inventory of defendant's business documents and a “privilege log” for all documents defendant believed were subject to the attorney-client privilege.

A week later, plaintiffs provided defendant notice of submission of an order modifying the court's May 17, 2012 restraining order under the “seven-day rule,” see MCR 2.602(B)(3). Defendant objected to the proposed order, asserting that it inaccurately set forth the trial court's November 2, 2012 ruling. Specifically, defendant argued that while the trial court limited its ruling to defendant's Michigan assets, the proposed order referred to assets generally; and further, while the trial court's ruling required defendant to “inventory” all of defendant's Michigan assets generally, the proposed order required defendant to “produce” all records remaining in storage and in possession of defendant's accountant. The trial court did not sign the proposed order and instead scheduled a hearing for January 25, 2013.

Three days before that hearing, on January 22, 2013, defendant filed an accounting, in which defendant maintained that it has no real or personal property in Michigan “with any market value.” It further indicated that it ceased doing business in Michigan on October 1, 2011, and that business records (including computers and papers) had been placed in storage. Defendant then stated that the records were “too voluminous to be itemized,” indicating that it would take two 40–foot semitrailers to move the records, and that many of these documents, particularly those in the possession of its accountant, were privileged.

At the January 25, 2013 hearing on defendant's objection to the proposed order, defendant again argued that the trial court lacked personal jurisdiction and also that plaintiffs sought to execute against business records which were not subject to execution and to impermissibly use a judgment to gain access to those records.

Viewing defendant's arguments as an attempt to relitigate the earlier motion to set aside the restraining order, the trial court declined to revisit the matter and noted that it would not tolerate defendant's efforts at delay or its “papering the court and opposing party with a bunch of paperwork.” The hearing ended with the trial court concluding that defendant was in violation of the trial court's November 2, 2012 ruling because the inventory of assets was due by December 3, 2012. Ultimately, the trial court signed plaintiffs' proposed order modifying the May 17, 2012 restraining order.

In early February 2013, defendant moved for reconsideration, and thereafter plaintiffs moved to hold defendant and its counsel in contempt of court for failing to comply with the court's orders regarding the business records. In response, defendant again asserted that the trial court lacked jurisdiction and that the business records were not subject to execution. Defendant further asserted that the requirements for a finding of contempt had not been met because no valid order existed given the court's lack of jurisdiction over defendant, and that no willful disregard of the January 25, 2013 restraining order had occurred.

On February 19, 2013, the trial court denied defendant's motion for reconsideration and found defendant in contempt of court for failing to produce, within the allotted time, an inventory of assets and documents located in Michigan. To remedy defendant's refusal to comply, the trial court appointed a receiver over defendant's Michigan assets, including documents, explaining that “the receiver is to take control of the assets and documents located in Michigan and to prepare an inventory for the court that includes electronic documents as well as non-electronic documents.” In response to arguments from defense counsel that the restraining order mandated discovery of the storage locker contents, the trial court clarified that it was not ordering production of the records at that time, but simply preservation. To this effect, the trial court entered an order modifying the January 25, 2013 restraining order by omitting the reference to “production” of documents, and indicating that defendant must “preserve” all records located in storage facilities and in the possession of defendant's accountant. That same day, the trial court entered an order holding defendant (but not defense counsel) in contempt of the court's November 2, 2012 ruling and the January 25, 2013 order as amended. Defendant now appeals as of right.

On appeal, defendant first argues that the trial court lacked personal jurisdiction over defendant and, for this reason, could not order discovery or injunctive relief. In response, plaintiffs maintain that, in the context of this postjudgment collection action, personal jurisdiction was not required because defendant owned property in Michigan.² We agree with plaintiffs.

Our review of jurisdictional questions is de novo. Electrolines, Inc. v. Prudential Assurance Co., 260 Mich.App. 144, 152, 677 N.W.2d 874 (2003). Pursuant to the Full Faith and Credit Clause, U.S. Const, art IV, § 1, a judgment entered in another state is “presumptively valid and subject to recognition in Michigan....” Hare v. Starr Commonwealth Corp., 291 Mich.App. 206, 216, 813 N.W.2d 752 (2011)(quotation marks and citation omitted). The statutory procedure for obtaining enforcement of foreign judgments is controlled by the Uniform Enforcement of Foreign Judgments Act (UEFJA), MCL 691.1171 et seq., which Michigan adopted in 1997. Electrolines, 260 Mich.App. at 157, 677 N.W.2d 874. According to the UEFJA, a foreign judgment “has the same effect and is subject to the same procedures, defenses, and proceedings for reopening, vacating, or staying as a judgment of [a Michigan court] and may be enforced or satisfied in like manner.” MCL 691.1173.

When a party seeks enforcement of a foreign judgment in Michigan, there exists a foundational jurisdictional requirement that must be satisfied with regard to the judgment debtor's person or...