In re McAllister

• Decision Date: 26 January 1998
• Docket Number: Bankruptcy No. 95-03468-BGC-7,Adversary No. 95-00419.
• Citation: 216 BR 957
• Parties: In re John McALLISTER, Debtor. HOC, INC., Plaintiff, v. John R. McALLISTER, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

216 B.R. 957 (1998)

In re John McALLISTER, Debtor.

HOC, INC., Plaintiff, v. John R. McALLISTER, Defendant.

Bankruptcy No. 95-03468-BGC-7, Adversary No. 95-00419.

United States Bankruptcy Court, N.D. Alabama, Southern Division.

January 26, 1998.

COPYRIGHT MATERIAL OMITTED

Wayne Wheeler, Birmingham, AL, for Plaintiff.

Leo Costello, Birmingham, AL, for Defendant.

MEMORANDUM OPINION ON WRIT OF GARNISHMENT

BENJAMIN COHEN, Bankruptcy Judge.

I. Findings of Fact

On April 16, 1997, this Court entered an $84,835.60 non-dischargeable judgment against the defendant and in favor of the plaintiff. On June 19, 1997, the plaintiff began to collect that judgment by filing a writ of garnishment in this Court pursuant to Code of Ala. 1975, § 6-6-390. In response, the clerk of this Court issued a writ of garnishment against the garnishee, Infinity of Charlotte, North Carolina at 9103 East Independence Boulevard, Matthews, North Carolina. Infinity has not, however, answered the writ of garnishment or otherwise entered an appearance in this proceeding.¹

The plaintiff's writ of garnishment provides a North Carolina address for Infinity of Charlotte. There is no indication from either the writ or the plaintiff's motions that Infinity is a resident of the state of Alabama or conducts business in or otherwise has any contacts with this state. But in response to the garnishee's failure to answer or appear, the plaintiff requested this Court, pursuant to Code of Ala. 1975, § 6-6-457, for a conditional judgment against Infinity.²

In response to the plaintiff's actions, the defendant's North Carolina attorney, Mr. David R. Badger, wrote the plaintiff's attorney to explain (because the defendant is now a resident of North Carolina and works for the garnishee) the limited susceptibility of personal wages to garnishment under North Carolina law, and also to suggest that the plaintiff must domesticate its Alabama judgment in North Carolina, and then file and pursue its garnishment in the North Carolina courts. The defendant's attorney filed a copy of his letter with this Court.³

II. Conclusions of Law

A. No Writ of Garnishment May Proceed Absent Proper Service

Before this Court may grant any conditional judgment and issue an order to show cause why that judgment should not be made final, it must be made to appear that proper service of the garnishment writ has been made on the garnishee under Fed.R.Bankr.P. 7004.

According to the plaintiff's Motion for Entry of Conditional Judgment Against Garnishee, the garnishment writ issued by the clerk of the bankruptcy court was served by the United States Marshal on the garnishee on July 26, 1997. However, as is apparent from the record in this case, there are at least two problems that preclude a determination that proper service has been made on the garnishee.

First, Fed.R.Civ.P. 4(1), made applicable to bankruptcy proceedings by Bankruptcy Rule 7004(a), requires a person making service to make proof of service to the court. There is no such proof of service in this case. And while Civil Rule 4(h) also provides that the "failure to make proof of service does not affect the validity of the service," this Court may not, absent proof of service, render a conditional judgment against the garnishee.

Second, Fed.R.Civ.P. 4(h)(1), made applicable to bankruptcy proceedings by Bankruptcy Rule 7004(a), requires that service on a corporation, partnership or other unincorporated association that is subject to suit under a common name be made by delivering the process being served "to an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process. . . ." The garnishee in this case is not, according to the plaintiff's writ of garnishment and motion for conditional judgment, an individual but instead falls within the category of entities described under Fed.R.Civ.P. 4(h)(1).⁴ Because, the garnishment writ does not direct that service be made on any named person and no person is named in the writ as the garnishee's officer, managing or general agent, or agent authorized by appointment or by law to receive service of process, absent proof that the garnishment writ was actually served on a named person who is authorized by subdivision (h)(1) to be served on behalf of the garnishee, this Court may not enter a conditional judgment against the garnishee.⁵

B. No Writ of Garnishment May Proceed Absent Jurisdiction

This Court has no jurisdiction over the plaintiff's garnishee unless there is some procedural mechanism for exercising that jurisdiction. As expressed below, in the context of this proceeding, there is none; however, if there were, as discussed below, it would exist in either Rule 69 of the Federal Rules of Civil Procedure (containing the procedure for enforcing money judgments in bankruptcy courts) or Rule 7004 of the Federal Rules of Bankruptcy Procedure (containing the rules of process service in bankruptcy proceedings).

1. Civil Procedure Rule 69

The sole federal statutory framework for enforcing money judgments entered by bankruptcy courts is found in Rule 69 of the Federal Rules of Civil Procedure, Fed. R.Civ.P. 69, applicable to this proceeding through Bankruptcy Rule 7069. Fed. R.Bankr.P. 7069. Civil Rule 69(c) provides that:

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.

Fed.R.Civ.P. 69.

Clearly this rule offers no specific procedure for exercising jurisdiction but is helpful to the extent that it resolves any conflicts between state law and federal law collection procedures (an issue that has some peripheral connections to this matter). Consequently, Rule 69 is of no assistance to the plaintiff. See notes 12, 13 and 14 below.

2. Bankruptcy Rule 7004

Bankruptcy Rule 7004 severely limits a bankruptcy court's in personam jurisdiction through enactment of the recently added subsection (f). And because Bankruptcy Rule 7004 is the only rule of process service available in bankruptcy proceedings, there are no exceptions to those subsection (f) limitations.⁶

Subsection (f) of Rule 7004, became effective on December 1, 1996.⁷ It provides:

If the exercise of jurisdiction is consistent with the Constitution and laws of the United States, serving a summons or filing a waiver of service in accordance with this rule or the subdivisions of Rule 4 Fed. R.Civ.P. made applicable by these rules is effective to establish personal jurisdiction over the person of any defendant with respect to a case under the Code or a civil proceeding arising under the Code, or arising in or related to a case under the Code.

Fed.R.Civ.P. 7004(f)(emphasis added).

Pursuant to this new subdivision, service of process in bankruptcy adversary proceedings is effective to bestow in personam jurisdiction only in cases filed under Title 11, and civil proceedings arising under the Bankruptcy Code, or arising in or related to a bankruptcy case. Those terms, "arising under," "arising in," or "related to," refer to the forms of bankruptcy jurisdiction granted to federal courts by 28 U.S.C. § 1334. Therefore, in personam jurisdiction may be exercised in this case over the North Carolina garnishee by virtue of service made in accordance with Bankruptcy Rule 7004 only if this Court has "arising under," "arising in," or "related to" subject matter jurisdiction over this garnishment proceeding pursuant to 28 U.S.C. § 1334(b).⁸ See notes 12, 13 and 14 below.

3. "Arising Under," "Arising in," or "Related to" Subject Matter Jurisdiction Under 28 U.S.C. § 1334 in the Garnishment Proceeding

Bankruptcy judges have no independent jurisdiction over bankruptcy matters but derive their jurisdiction from the district courts that do. This transfusion occurs by way of 28 U.S.C. § 157.

Under section 157, a district court may refer to bankruptcy judges in the same district, any matters over which the district court has jurisdiction under 28 U.S.C. § 1334. Pursuant to 28 U.S.C. § 1334(a) that jurisdiction includes exclusive and original jurisdiction over cases filed under the provisions of title 11 of the United States Code, as well as, pursuant to 28 U.S.C. § 1334(b), original, but not exclusive, jurisdiction over civil proceedings arising under title 11, civil proceedings arising in cases filed under title 11, and civil proceedings related to cases filed under title 11.

Because the pending garnishment is a "proceeding" and not a "case," if this Court is able to exercise any section 157, district court jurisdiction over that proceeding, this Court must be able to characterize the garnishment proceeding as either a civil proceeding arising under title 11, a civil proceeding arising in cases filed under title 11, or a civil proceeding related to cases filed under title 11. Otherwise because of the limitations imposed by Bankruptcy Rule 7004(f), this Court has no jurisdiction whatsoever over the proceeding.

a. Arising Under or Arising In

Section 157 defines both arising under proceedings and arising in proceedings as "core proceedings" under 28 U.S.C. § 157.⁹ A nonexclusive list of those proceedings is published in subsection (b)(2) of section 157, but there is no reference to a garnishment proceeding filed for the purpose of collecting a non-dischargeable debt from post-bankruptcy, non-bankruptcy estate assets. The only item remotely related is item (b)(2)(1) which specifically recognizes "determinations as to the dischargeability of particular debts" as core proceedings. That listing is, unfortunately, of little help, as is the case law construing it. While the case law is abundant in recognizing the right of the bankruptcy court to reduce to judgment...