Dalton v. Meister

• Decision Date: 30 June 1978
• Docket Number: No. 76-075,76-075
• Parties: LeRoy L. DALTON, Plaintiff-Respondent, v. Howard J. MEISTER, Defendant, Universal Telephone, Inc., Appellant.
• Court: Wisconsin Supreme Court

Page 326

267 N.W.2d 326

84 Wis.2d 303

LeRoy L. DALTON, Plaintiff-Respondent, v. Howard J. MEISTER, Defendant, Universal Telephone, Inc., Appellant.

No. 76-075.

Supreme Court of Wisconsin.

Argued May 3, 1978.

Decided June 30, 1978.

E. Campion Kersten (argued), Kevin M. O'Donnell, and Kersten & McKinnon, Milwaukee, on briefs, for appellant.

Ward I. Richter (argued), and Bell, Blake & Metzner, S. C., Madison, on brief, for plaintiff-respondent.

CALLOW, Justice.

This case arises out of the efforts of a judgment creditor, LeRoy Dalton, to recover on his judgment against Howard J. Meister by levying upon some shares of corporate stock registered in the name of Mr. Meister. Mr. Dalton obtained an order restraining both Mr. Meister and the issuer of the stock, Universal Telephone, Inc. (UTI), a Delaware corporation, from transferring the stock until it was turned over to the sheriff. UTI was never made a party to the injunction proceedings, though it was served with a copy of the injunction itself. The only issue is whether UTI can be held in contempt for violating this injunction.

On December 29, 1969, LeRoy Dalton obtained a judgment in the amount of $151,749.98 against Howard Meister in a defamation action. (This judgment was affirmed in Dalton v. Meister, 52 Wis.2d 173, 188 N.W.2d 494 (1971)). Almost one year later, on September 24, 1970, Mr. Dalton obtained an order to show cause in the defamation action why Mr. Meister should not be ordered to turn over to the sheriff certain shares of UTI stock.

The affidavit in support of the order to show cause alleged that an order enjoining Mr. Meister to turn over the stock is authorized by sec. 408.317(2), Stats., a provision of the Uniform Commercial Code governing the attachment and levies upon investment securities; that executions upon the judgment have been returned unsatisfied; that a substantial number of the shares registered to Mr. Meister have since been transferred to a third party; and that, unless the court orders the UTI stock turned over to the sheriff immediately, Mr. Meister will attempt to dispose of the remainder of the stock to frustrate Mr. Dalton's recovery on the judgment.

At the hearing on the order to show cause, Dalton and Meister were represented, but UTI was not. Counsel for Mr. Dalton estimated the value of this stock in excess of $300,000. For reasons which it did not explain, the trial court concluded that it did not have power to direct the delivery of the shares of stock to the sheriff. Instead, the court enjoined Mr. Meister from transferring the stock, and upon Mr. Dalton's request, it also enjoined UTI from transferring title to this stock on its stock books. The injunction was dated September 30, 1970, and was to remain in effect until further action by the court. The injunction decree was served on UTI.

On November 12, 1971, approximately fourteen months after the issuance of the injunction against UTI, UTI registered transfer of the shares of stock covered by the injunction to the American City Bank and Trust Company. On March 14, 1974, Mr. Dalton obtained an order to show cause why UTI should not be held in contempt for violating the injunction. UTI responded by filing a Notice of Special Appearance challenging the jurisdiction of the court to find it in contempt.

At the hearing on the contempt motion, Kenneth Baird, senior vice president of UTI, testified that on November 12, 1971, transfer of 26,747 shares of UTI stock was registered on the transfer books and a new certificate issued to the American City Bank and Trust Company. Mr. Baird testified that this transfer was made pursuant to a foreclosure agreement on June 20, 1971, between the American City Bank, the Continental Bank, UTI, and Mr. Meister and his family. ¹ Mr. Dalton was given no notice of the agreement despite the fact that it purported to transfer the shares of stock covered by the injunction. Mr. Baird admitted that at the time Mr. Meister's shares of UTI stock were transferred on the stock books he was aware of the injunction, though he was never personally served with a copy of it; but because he believed the injunction was jurisdictionally defective and because he feared that UTI would be liable to American City Bank if it did not register transfer of the stock, he decided to transfer the stock in disregard of the injunction.

The trial court concluded that it had the power to enjoin UTI from transferring the stock on its stock transfer books even though UTI was never made a party to the injunction proceedings. Accordingly, the court found UTI in contempt of court for transferring the stock in disregard of the injunction. UTI has brought this appeal.

Although the trial court found UTI in contempt, it postponed assessing damages pursuant to an agreement between the parties. The parties agreed to postpone the resolution of the damages issue until after deciding whether contempt was proper in the first instance because the issue of the damages sustained by Dalton as a result of the transfer of Meister's UTI stock to the American City Bank was also raised in an action pending before Hon. Robert J. Parins, Circuit Judge.

The action before Judge Parins was the subject of Dalton v. Meister, 71 Wis.2d 504, 239 N.W.2d 9 (1976). In that action Dalton sued Meister, members of the Meister family, the American City Bank, UTI, and others on a theory of fraud. In particular, Dalton alleged that, in anticipation of trial in the defamation action, Meister and the American City Bank, by means of a.$2.5 million loan, conspired to "liquidate and secrete" assets upon which Dalton could have realized subsequent to the judgment; that Meister fraudulently induced his mother to loan him money, thus rendering her estate insolvent and depriving Dalton of access to that portion of the estate bequeathed to Meister in his mother's will; that Meister put title to some Hawaiian real estate in the hands of his attorney to defraud Dalton; that the June, 1971, agreement between Meister, the American City Bank, UTI, and others, which resulted in the transfer of the stock, was void as an invalid, voluntary assignment for the benefit of creditors; and that all the property covered by the agreement should be distributed ratably to all Meister's creditors. On appeal this court affirmed the trial court's order overruling American City Bank's demurrer to the complaint. Thus the damages Mr. Dalton seeks on this contempt motion against UTI for transferring the stock he also seeks against UTI and others in the action pending before Judge Parins.

Besides this defamation action and the action between Dalton, Meister, and UTI described above, Dalton also commenced three garnishment actions against UTI as garnishee defendant in aid of execution on the judgment in this action. When Dalton moved by order to show cause to find UTI in contempt for violating the injunction, he filed the order to show cause in two of the garnishment actions. However, the injunction was issued in the defamation action. UTI filed a notice of special appearance containing the caption of the two garnishment actions as well as the caption of the defamation action. UTI contends that the defect in the caption of the motion for contempt makes the contempt proceedings void ab initio.

A contempt action should be initiated by an order to show cause and supporting affidavit in the same court in which the affiant established his rights. Sec. 295.03(1), Stats. Normally, the order to show cause should be filed in the same action in which the order allegedly violated was filed. But as long as the court that adjudicated the rights on which the contempt motion is based hears the motion for contempt, the fact that faulty procedures are used to bring the contemner before the court will not deprive the court of jurisdiction to award contempt. Upper Lakes Shipping, Ltd. v. Seafarers' International Union of Canada, 22 Wis.2d 7, 125 N.W.2d 324 (1963).

In this case, since Judge Parnell was presiding in the garnishment actions and the principle action, the order to show cause bringing on the contempt motion was in fact heard by the same judge who issued the injunction allegedly violated. According to our approach in Upper Lakes Shipping, the use of the wrong caption should not make the contempt proceedings void. This result is particularly appropriate in this case where the judge treated the defect in the caption as merely one of form. At the commencement of the hearing, Judge Parnell stated that the title of the principle action as well as the title of the garnishment actions should appear in the proceedings. The court thus corrected the defect in the motion papers and proceeded to hear the merits of the order to show cause. Though UTI had initially made a special appearance, UTI did not further object. At the hearing UTI argued that the court had no jurisdiction to find UTI in contempt because UTI was never made a party to the injunction proceedings. At no time during the hearing did UTI object to the contempt proceedings on the specific ground that the order to show cause was miscaptioned and that this defect also deprived the court of jurisdiction to find UTI in contempt. As a result, the trial court was never asked to rule on whether the error in the caption made the proceedings void. This purely formal defect in the motion papers for contempt, which was waived below by UTI, is no basis for setting aside the order finding UTI in contempt. If the order of contempt is to be set aside, we must do so because UTI was never made a party to the injunction proceedings.

The Uniform Commercial Code, which governs the transfer of the investment securities that Mr. Dalton seeks to levy upon, ² imposes a duty on an issuer to register transfer of a security if the security in registered form is presented to it with a request to register transfer, unless the issuer has actual notice of an adverse claim. Sec. 408.401, Stats. An adverse clai...