Hutchison v. Bank of North Carolina

• Decision Date: 17 April 1975
• Docket Number: No. C-74-58-G.,C-74-58-G.
• Citation: 392 F. Supp. 888
• Court: U.S. District Court — Middle District of North Carolina
• Parties: Mary Sue HUTCHISON, Plaintiff, v. BANK OF NORTH CAROLINA, N.A., et al., Defendants.

392 F. Supp. 888

Mary Sue HUTCHISON, Plaintiff, v. BANK OF NORTH CAROLINA, N.A., et al., Defendants.

No. C-74-58-G.

United States District Court, M. D. North Carolina, Greensboro Division.

Heard January 13, 1975.

Decided April 17, 1975.

Norman B. Smith, Greensboro, N. C., for plaintiff.

Roy M. Booth and Frederick C. E. Murray, Greensboro, N. C., for defendant Bank of N. C.

Perry C. Henson, Greensboro, N. C., and Donald A. Davis, Asst. Atty. Gen., Raleigh, N. C., for defendant Joseph P. Shore, Clerk of Superior Court of Guilford County.

William Daisy, Greensboro, N. C., for defendant Paul H. Gibson, Sheriff of Guilford County.

Before CRAVEN, Circuit Judge, GORDON, Chief District Judge, and WARD, District Judge.

GORDON, Chief Judge.

This case presents the question of whether the provisions of Section 1-440.1 et seq. of the North Carolina General Statutes, insofar as they permit the prejudgment attachment of real estate without prior notice and hearing, violate the Due Process Clause of the Fourteenth Amendment to the United States Constitution. Plaintiff has brought this action under 42 U.S.C. § 1983 seeking damages and injunctive relief. Jurisdiction is properly invoked under 28 U.S.C. § 1343(3) and § 1331(a). A three-judge court was convened pursuant to 28 U.S. C. § 2281.

The statute in question contemplates attachment as an ancillary proceeding. The process is intended to bring the property of a defendant within the custody of a court so that it may be applied to the satisfaction of a money judgment rendered against the defendant in the principal action. N.C.G.S. §§ 1-440.1, 1-440.2. Section 1-440.3 specifies the grounds for attachment.

"§ 1-440.3. Grounds for attachment. — In those actions in which attachment may be had under the provisions of § 1-440.2, an order of attachment may be issued when the defendant is

(1) A nonresident, or

(2) A foreign corporation, or

(3) A domestic corporation, whose president, vice-president, secretary or treasurer cannot be found in the State after due diligence, or

(4) A resident of the State who, with intent to defraud his creditors or to avoid service of summons,

a. Has departed, or is about to depart, from the State, or

b. Keeps himself concealed therein, or

(5) A person or domestic corporation which, with intent to defraud his or its creditors,

a. Has removed, or is about to remove, property from this State, or

b. Has assigned, disposed of, or secreted, or is about to assign, dispose of, or secrete, property."

To secure an order of attachment, the plaintiff or his attorney must state by affidavit his intention to secure a money judgment, the nature of the action, and the amount of his claim. He must also state by affidavit the grounds for attachment and, if the grounds for attachment are that the defendant has done, or is about to do, any act with intent to defraud his creditors, the plaintiff must state the facts and circumstances supporting such allegation. N.C.G.S. § 1-440.11. The order of attachment may be issued by the clerk of the court in which the action has been commenced or by a judge of the appropriate trial division as authorized by the statute. N.C.G.S. § 1-440.5. Before the court can issue the order of attachment the plaintiff must furnish a bond in an amount sufficient to pay all costs incurred and damages sustained by the defendant by reason of the attachment if the order of attachment is dissolved, set aside or the plaintiff fails to obtain judgment against the defendant. N.C.G.S. § 1-440.10.

Further, it is provided that the defendant may move at any time to dissolve the order of attachment, which motion may be determined upon affidavits or, if requested, before a jury.¹ If the motion is heard by only the judge or clerk, findings of fact supporting the ruling will be made. N.C.G.S. § 1-440.36. The defendant may also apply at any time to the clerk or judge for an order modifying the attachment or may move to discharge the attachment by giving bond for the property attached. N.C. G.S. §§ 1-440.37, 1-440.39. The amount of this counter-bond is double the amount claimed by the plaintiff or double the value of the property attached whichever in the particular case is less. N.C.G.S. § 1-440.39(b). No provision is made for notice to the defendant or for opportunity for the defendant to be heard before the attachment is executed.

On February 1, 1974, the defendant Bank of North Carolina brought suit against the plaintiff, Hutchison, her son and her daughter-in-law for $17,230.90 owing on four separate notes, then in default, on which the plaintiff was a co-maker (accommodation maker). In the course of making the loans, the Bank required the plaintiff to furnish a financial statement which showed that the plaintiff owned a condominium.² On February 18, 1974, the Bank filed an affidavit with the Clerk of Superior Court in Guilford County alleging that the plaintiff Hutchison was about to assign the condominium with intent to defraud creditors. The basis for this allegation, set forth in the affidavit, was that the plaintiff had filed an application for a loan from a savings and loan association intending to give a first mortgage on the property.³ The order of attachment was granted by the Clerk of Superior Court and the Sheriff levied on the condominium. The Sheriff served the plaintiff with the order of attachment on February 19, 1974.⁴ On February 26, 1974, the plaintiff filed this lawsuit in the United States District Court for the Middle District of North Carolina, alleging that she had been deprived of her property without due process of law and seeking an injunction against the Bank directing it to dissolve the attachment and prohibiting any future attachment of plaintiff's property. Granting the injunctive relief sought by the plaintiff, based on the lack of notice and opportunity for a hearing prior to the attachment, would have the effect of nullifying portions of N.C.G.S. § 1-440.1 et seq., and a three-judge court was designated.

I.

The plaintiff in its brief and at the hearing advanced the proposition that a three-judge court is not required in this case. The rationale for this position is that North Carolina's statutory scheme is not invalid per se and is susceptible to a constitutional construction, although it was allegedly applied in an unconstitutional manner in this case. The plaintiff contends that the state court could adopt procedures requiring an opportunity for notice and hearing prior to attachment pursuant to N.C.G. S. § 1-440.9. This section provides:

"§ 1-440.9. Authority of court to fix procedural details. — The court of proper jurisdiction, before which any matter is pending under the provisions of this article, shall have authority to fix and determine all necessary procedural details in all instances in which the statute fails to make definite provision as to such procedure. (1947, c. 693, s. 1.)"

Arguing that the jurisdiction of three-judge courts is subject to strict limitations, the plaintiff requested injunctive relief on the grounds of wrongful attachment in subverting a lawful statutory procedure to an unconstitutional and unlawful purpose.

The defendants took the position that the issuance of attachment without prior notice or hearing is contemplated by the statute and is the traditional state practice and, therefore, if the statute was here applied in an unconstitutional manner, it was only because the statute was unconstitutional. Defendant further contends that the history and use of N. C.G.S. § 1-440.9 clearly demonstrates that the legislature did not intend to allow state courts to interpret the statute to require a prior notice and hearing.

At the hearing, there appeared to develop a consensus among the parties that the statute did contemplate attachment without prior notice and hearing and that, at least, the prevailing practice which developed under this statute was the ex parte issuance of the writ. The clarity of § 1-440.3 and § 1-440.11 in stating when and under what conditions an order of attachment may be issued manifests a definite procedure for granting the writ, a procedure which does not entail opportunity for prior notice and hearing. Therefore, we feel that the plaintiff's claim for injunctive relief does represent a challenge to the constitutionality of the North Carolina attachment statute particularly appropriate for resolution by a three-judge court.

II.

The constitutional issue presented is narrow but troublesome. It is whether the failure of the North Carolina attachment statute to afford the defendant-debtor notice and an opportunity to be heard, before attachment of her real property, deprives the defendant of due process of law. This issue is difficult because of the flexible character of procedural due process and the problem of ascertaining what constitutes procedural due process in this context in light of the Supreme Court decisions in Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972), Mitchell v. W. T. Grant Co., 416 U.S. 600, 94 S.Ct. 1895, 40 L.Ed.2d 406 (1974), and North Georgia Finishing Co. v. Di-Chem, Inc., 419 U.S. 601, 95 S.Ct. 719, 42 L.Ed.2d 751 (1975).

Mitchell and Di-Chem are the most recent decisions in the area of pre-judgment or ex parte creditor remedies and we shall attempt to apply to this case the standards therein enunciated for determining compliance with due process.

The import of Mitchell is that courts should determine the need for particular procedural safeguards by balancing the potential for harm to the defendant-debtor with the interest in protecting creditor remedies.⁵ In so doing, the Court seemed to repudiate aspects of the Fuentes decision which established "a Procrustean rule of a prior adversary hearing" while clearly not rejecting the decision itself in Fuentes.

The foundation for this "balancing test" was the Court's belief that due process has never mandated inflexible procedures but rather requires the ...