Gagan v. Monroe, 99-2327

• Decision Date: 23 October 2001
• Docket Number: No. 99-2327,99-2327
• Citation: 269 F.3d 871
• Parties: (7th Cir. 2001) James L. Gagan, Plaintiff-Appellee, v. James A. Monroe, Defendant-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 871

269 F.3d 871 (7th Cir. 2001)

James L. Gagan, Plaintiff-Appellee, v. James A. Monroe, Defendant-Appellant.

No. 99-2327

United States Court of Appeals Seventh Circuit

Argued March 1, 2001

Decided October 23, 2001

Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 87 C 732--Andrew P. Rodovich, Magistrate Judge.

Before Wood, Jr., Manion, and Diane P. Wood, Circuit Judges.

Diane P. Wood, Circuit Judge.

In 1994, James Gagan won a civil RICO verdict in the Northern District of Indiana against James Monroe and several other defendants, and in 1996, we affirmed the judgment in Gagan's favor. That should have been the end of things, but it was not. Monroe has not paid his judgment debt to Gagan, and Gagan has been forced to turn to compulsory methods to collect. He filed the present postjudgment action in the district court as part of that effort, seeking an order requiring Monroe to turn over his interest in a cable company located in Arizona, where Monroe resides. The district court entered the turnover order, and Monroe has appealed, arguing that the order was improper for reasons stemming from Arizona community property law. We find no fault with the turnover order and affirm the judgment of the district court.

I

Gagan and Monroe were both participants in the cable television industry. Gagan invested in a cable television limited partnership in which Monroe was the general partner, but the partnership was unsuccessful. This ultimately led to Gagan's RICO suit against fourteen individual and corporate defendants, Monroe among them. The details of the underlying suit, which was commenced in 1987, are set out in our earlier decision affirming a verdict in Gagan's favor, see Gagan v. American Cablevision, Inc., 77 F.3d 951 (7th Cir. 1996).

In addition to the limited partnership with Gagan, Monroe has been involved in at least one other cable television endeavor. In 1982, he and a partner, Victor Sharar (who was also a defendant in Gagan's RICO suit), formed an Arizona general partnership, Apache Cablevision, to provide cable service to the San Carlos Apache Indian Reservation. As far as appears from the record, substantially all of Apache's assets are located in Arizona. Monroe and Sharar operated Apache as a general partnership until 1992, when they converted it to a limited partnership. At that time, Monroe and Sharar created an Arizona corporation, Gila River Cablevision, Inc., in which they each owned 50% of the stock. Gila River became the general partner in Apache and owned 1% of that partnership. The remaining interests in Apache were held equally by Monroe, his wife LaJunta Monroe, Sharar, and his wife Lois Sharar. The Monroes, Arizona residents, have been married since before the formation of Apache.

Through his RICO suit, Gagan won judgments against Monroe for $1.71 million and against Sharar for $1.76 mil lion, but the defendants did not pay as they should have done. Federal Rule of Civil Procedure 69(a) allows a judgment creditor in such a situation to return to the district court where the judgment was entered and seek the district court's assistance in enforcing the judgment. Taking advantage of this provision, Gagan returned to the Northern District of Indiana and filed this action, seeking an order requiring Monroe and Sharar to turn over their and their wives' interests in Gila River and Apache. The district court first determined that the transfers of interests to Mrs. Monroe and Mrs. Sharar were fraudulent transfers in anticipation of the RICO judgment, and accordingly voided those transfers. The court then ordered Monroe and Sharar to turn over all of their interests in Gila River and Apache to Gagan. Sharar has not appealed, and so we know nothing about the state of his compliance with that order. Monroe, however, has appealed the district court's order, arguing that it does not comport with Arizona's community property law.

II

As an initial matter, we must review choice of law principles to determine the extent to which Arizona's community property law applies in this ancillary proceeding in federal court in Indiana. Federal Rule of Civil Procedure 69(a), which governs this action, specifies that "proceedings supplementary to and in aid of a judgment . . . shall be in accordance with the practice and procedure of the state in which the district court is held." The district court here is the court for the Northern District of Indiana, which means that the first law to which we turn for determining the procedures by which Gagan may enforce his judgment is the state law of Indiana. Indiana's procedural rules allow courts to issue orders requiring a judgment debtor to turn over property, on pain of contempt, if the judgment creditor affirms that a levy of execution is not likely to satisfy the judgment and if the property the creditor seeks is not exempt from execution. See Ind. Code § 34-55-8-7; Ind. R. Trial P. 69(E). Gagan proved to the district court's satisfaction that a levy of execution was unlikely to be successful in this case, so the sole remaining question is whether the property Gagan seeks would be exempt from execution. In determining whether personal property such as the Monroes' interests in Gila River and Apache is subject to execution, Indiana law looks to the law of the state in which the property was located at the time the debt arose. Jackson v. Russell, 533 N.E.2d 153, 155 (Ind. Ct. App. 1989). The properties involved in this case are ownership interests in an Arizona corporation and an Arizona partnership, the assets of which, as far as the record reveals, were located entirely in Arizona at the time Monroe's debt to Gagan arose in 1994. As the district court recognized, therefore, whether Monroe could be ordered to turn over his interests in Gila River and Apache turned on whether those interests were exempt from execution under Arizona law.

The district court concluded that they were not exempt, and thus issued its turnover order. The sole question on the merits before us is whether this conclusion was correct. Arizona is a community property state, and because Monroe acquired his interests in Apache and Gila River after his marriage, the interests were presumptively property of the Monroes' marital community. See Ariz. Rev. Stat. § 25-211. Although the district court found that Monroe's 1992 transfer of half his interest in Apache to Mrs. Monroe was void as a fraudulent transfer, and the parties have spent con siderable time addressing this issue, that question is beside the point. Because the property belonged to the Monroes' marital community before Monroe transferred it into his wife's name, and it remained property of the marital community after the transfer, the transfer itself had no practical effect on Mrs. Monroe's claim. Under Arizona community property law either Gagan would be able to execute his judgment against all of the Monroes' marital property, or he would be unable to execute the judgment against any of it. Whether the property happens to be titled in Mr. or Mrs. Monroe's name makes no difference.

Monroe's primary argument on appeal is that, by virtue of certain details of Arizona's community property law, Arizona would not permit Gagan to execute his judgment against any of the Monroes' community property. Arizona law provides generally that "[t]he community property is liable for a spouse's debts incurred outside of this state during the marriage which would have been community debts if incurred in this state." Ariz. Rev. Stat. § 25-215(C). Neither party has specifically addressed the question whether the judgment against Monroe can be considered a community debt. However, Monroe's fraudulent conduct, if successful, would have enriched the marital community, and so under Arizona law it would be treated as a community debt. See Selby v. Savard, 655 P.2d 342, 349 (Ariz. 1982) ("The Arizona rule is that the community is liable for the intentional torts of either spouse if the tortious act was committed with the intent to benefit the community, regardless of whether in fact the community receives any benefit."). So far, it would appear that Gagan could reach the Monroes' community property in satisfaction of his judgment. But a procedural quirk of Arizona law complicates matters. Another statute, Ariz. Rev. Stat. § 25- 215(D), provides that "[i]n an action on [a community] debt or obligation the spouses shall be sued jointly . . . ." Monroe argues that this statute creates a substantive protection for community property and that, because Gagan did not join Mrs. Monroe in the underlying RICO suit, he cannot now reach the Monroes' community property.

Monroe's position is not without support in Arizona caselaw. In a 1983 decision, the Arizona Court of Appeals held that a judgment creditor could not reach the community property of an Arizona couple to satisfy a judgment rendered by the Minnesota courts, even if the underlying cause of action could have been considered a community debt, because the wife was not made a party to the Minnesota suit. Vikse v. Johnson, 672 P.2d 193 (Ariz. Ct. App. 1983). In reconciling what are now § 25-215(C) and § 25-215(D), the court stated:

The reason for the statutory provision making the community liable for community obligations incurred outside the state is to protect the rights of those creditors regardless of the fact that the obligation was not incurred in Arizona. In order to have the advantage of this provision, however, the creditor must join both spouses and thereby have personal jurisdiction over the community.

Id. at 195. The court of appeals reaffirmed this position in 1989. C&J Travel, Inc. v. Shumway, 775 P.2d 1097, 1100 (Ariz. Ct. App. 1989). Following these cases, we held in 1996 that § 25-215(D) requires that both spouses be joined in the underlying litigation in order for a judgment creditor to reach their Arizona community...