In re John Richards Homes Building Co., LLC

• Decision Date: 08 August 2006
• Docket Number: No. 02-54689.,02-54689.
• Citation: 346 B.R. 762
• Parties: In re JOHN RICHARDS HOMES BUILDING CO., LLC, Alleged Debtor, (Dismissed).
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

346 B.R. 762

In re JOHN RICHARDS HOMES BUILDING CO., LLC, Alleged Debtor, (Dismissed).

No. 02-54689.

United States Bankruptcy Court, E.D. Michigan, Southern Division.

August 8, 2006.

Norman C. Ankers, Honigman, Miller, Schwartz and Cohn, Detroit, MI, for Debtor.

Opinion Regarding Motions Related to Garnishee Defendants

STEVEN RHODES, Chief Judge.

These matters are before the Court following lengthy judicial proceedings in Michigan and Florida. The proceedings began on June 24, 2002 when Kevin Adell filed an involuntary bankruptcy petition against John Richards Homes Building Co., LLC. On July 18, 2002, the Court dismissed the involuntary petition as a bad faith filing. On April 25, 2003, the Court awarded punitive damages and attorney fees to JRH. See In re John Richards Homes Bldg. Co., LLC, 291 B.R. 727 (Bankr.E.D.Mich.2003), aff'd, 439 F.3d 248 (6th Cir.2006).

JRH's attempts to collect the judgment spurred a flurry of litigation. JRH served garnishments on Kevin Adell's employers, STN.com and Adell Broadcasting Corp. On May 23, 2003, Adell Broadcasting and STN.com filed garnishee disclosures. JRH asserts that these garnishee disclosures were false and it now seeks judgments against each of the employers pursuant to MCL § 600.4051. That section provides:

Any person summoned as a garnishee or any officer, agent, or other person who appears and answers for a corporation summoned as a garnishee, who knowingly and wilfully answers falsely upon his disclosure or examination on oath is liable to the plaintiff in garnishment, or to his executors or administrators, to pay out of his own goods and estate the full amount due on the judgment recovered with interest, to be recovered in a civil action.

MCL § 600.4051.

STN.com and Adell. Broadcasting filed motions to dismiss asserting that the Court lacks jurisdiction over JRH's claims.

While the garnishment matters were pending, Kevin Adell filed a bankruptcy petition in Florida. This Court determined that the Florida bankruptcy proceedings stayed all of the Michigan actions. The Florida bankruptcy proved to be as litigious as the Michigan proceedings. After more than two years, Adell's Florida bankruptcy was dismissed as a bad faith filing.

Following the dismissal of the Florida bankruptcy, JRH, Adell Broadcasting and STN.com all filed renewed motions with this Court regarding the garnishment proceedings. The Court scheduled a hearing on these matters for March 2, 2006. At the March 2, 2006, hearing, Kevin Adell's counsel appeared and informed the Court that Kevin Adell was prepared to pay the judgment to the Court's registry for disbursement. Kevin Adell paid the judgment on April 3, 2006.

Currently before the Court are: JRH's motion for judgment against Adell Broadcasting Corp., garnishee defendant (docket no. 480); JRH's motion for judgment against STN.com, garnishee defendant (docket no. 483); JRH's motion, to enforce judgment (docket no. 773, requesting the same relief as docket nos. 480 & 483); and Adell Broadcasting & STN.com's motion to dismiss motions (docket nos. 480 & 483) due to lack of subject matter jurisdiction (docket no. 760). For the reasons stated below, the Court concludes that all of these motions should be denied.

I.

Adell Broadcasting and STN.com assert that the Court does not have jurisdiction over the motions for judgment. Adell Broadcasting and STN.com cite Hudson v. Coleman, 347 F.3d 138 (6th Cir.2003), for the well-established proposition "that federal courts are courts of limited jurisdiction, possessing only that power authorized by the Constitution and statute ... which is not to be expanded by judicial decree." Id. at 141 (citations omitted). JRH asserts that the Court has ancillary enforcement jurisdiction to enforce the judgment.

The Supreme Court has recognized that a federal court may exercise ancillary jurisdiction "`to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees.'" Peacock v. Thomas, 516 U.S. 349, 354, 116 S.Ct. 862, 867, 133 L.Ed.2d 817 (1996) (quoting Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 379-380, 114 S.Ct. 1673, 1676, 128 L.Ed.2d 391 (1994) (citations omitted)). The Supreme Court cautioned, however:

Our recognition of these supplementary proceedings has not, however, extended beyond attempts to execute, or to guarantee eventual executability of, a federal judgment. We have never authorized the exercise of ancillary jurisdiction in a subsequent lawsuit to impose an obligation to pay an existing federal judgment on a person not already liable for that judgment.

Id., 516 U.S. at 357, 116 S.Ct. at 868.

In determining the reach of the federal courts' ancillary jurisdiction, we have cautioned against the exercise of jurisdiction over proceedings that are "`entirely new and original,'" Krippendorf v. Hyde, supra, [110 U.S. 276]at 285, 4 S.Ct., [27]at 31 [28 L.Ed. 145 (1884)] (quoting Minnesota Co. v. St. Paul Co., 2 Wall. 609, 633, 17 L.Ed. 886 (1865)), or where "the relief [sought is] of a different kind or on a different principle" than that of the prior decree. Dugas v. American Surety Co., 300 U.S. 414, 428, 57 S.Ct. 515, 521, 81 L.Ed. 720 (1937).

Id. at 358, 116 S.Ct. at 869.

Adell Broadcasting and STN.com argue that JRH's claims against them under MCL § 600.4051 are an attempt to impose liability on new parties under a new theory and therefore are not within the federal courts' ancillary jurisdiction as limited by Peacock and Hudson.

There is one important distinction between the present case and the Peacock and Hudson cases. In Peacock and Hudson, nothing in the facts presented indicated that the garnishee defendants committed any fraud upon the courts in those cases. In Peacock, the plaintiff attempted to impose liability upon a new party by arguing that the corporate veil should be pierced. In Hudson, the plaintiff attempted to impose liability on the garnishee defendant due to an indemnification agreement. These were thus both independent grounds for liability, existing simultaneously with the plaintiffs' claims against the original defendants.

In the present case, JRH attempts to impose liability upon Adell Broadcasting and STN.com due to false garnishee disclosure statements, the liability for which would arise, if at all, from the garnishee defendants' misconduct in this Court. The underlying basis for imposing liability against Adell Broadcasting and STN.com is their fraud on this Court.

Federal Rule of Civil Procedure 69 provides in pertinent part:

The procedure on execution, in proceedings supplementary to and in aid of a judgment, and in proceedings on and in aid of execution shall be in accordance with the practice and procedure of the state in which the district court is held, existing at the time the remedy is sought, except that any statute of the United States governs to the extent that it is applicable.

Accordingly, JRH's garnishment proceedings are effectuated pursuant to Michigan law, but the garnishments were issued based on authority of this Court's judgment and the garnishee defendants filed their disclosures in this Court. If the garnishee defendants had simply not answered the garnishments, it is clear that under MCR 3.101(S)(1), the Court would have entered judgments against them¹ and would have had the subject matter jurisdiction to do so. See, e.g., First Tenn. Bank. Nat'l Assoc. v. Warner (In re Warner), 191 B.R. 705 (Bankr.W.D.Tenn.1996). See also McMahan & Co. v. Po Folks, Inc., 206 F.3d 627, 633, 2000 Fed.App. 0083P (6th Cir.2000) (holding that a garnishee defendant has "an independent duty to refrain from conduct that would obstruct enforcement of the judgment."). The Court concludes that when a garnishee defendant files a false garnishment disclosure, both Rule 69 and the Court's inherent authority permit it to respond under MCL § 600.4051. A federal court's subject matter jurisdiction simply cannot be so limited that it is required to rely on a state court to address a false statement made during its own processes. Accordingly, the Court holds that it has jurisdiction over JRH's claims.

II.

This Court previously found that Adell Broadcasting and STN.com participated in a scheme to evade the judgment and that the scheme included filing false garnishee disclosures. See In re John Richards Homes Bldg....