Marc v. Zowine
| Decision Date | 16 June 2016 |
| Docket Number | No. CV-13-01208-PHX-DGC,CV-13-01208-PHX-DGC |
| Parties | Marc A Wichansky, Plaintiff, v. David T Zowine, et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
Following a jury trial, the Court entered judgment in the amount of $27,625,500 in favor of Plaintiff Marc Wichansky and against Defendants David Zowine, Karina Zowine, Charles Johnson, Martha Leon, Pat Shanahan, Sarah Shanahan, Michael Ilardo, and Alisa Ilardo ("Defendants"). Doc. 535. Defendants ask the Court to stay execution of the judgment without security or with security other than a supersedeas bond. The Court has reviewed the parties' briefs (Docs. 542, 543, 545, 546, 547, 549) and heard oral argument on June 15, 2016 (Doc. 548).
"On appropriate terms for the opposing party's security, the court may stay the execution of a judgment - or any proceedings to enforce it - pending disposition of" certain post-trial motions. Fed. R. Civ. P. 62(b). "An unsecured stay is disfavored under Rule 62(b)." In re Apollo Grp. Inc. Sec. Litig., No. CV04-02147-PHX-JAT, 2008 WL 410625, at *1 (D. Ariz. Feb. 13, 2008) (citing Int'l Wood Processors v. Power Dry, Inc., 102 F.R.D. 212, 214 (D.S.C. 1984)). "Nevertheless, while security should be provided 'in normal circumstances,' a district court in its discretion may grant an unsecured stay in 'unusual circumstances,' where the granting of such a stay will not 'unduly endanger the judgment creditor's interest in ultimate recovery.'" Id. (citing Fed. Prescription Serv., Inc. v. Am. Pharm. Ass'n, 636 F.2d 755, 760-61 (D.C. Cir. 1980); In re Combined Metals Reduction Co., 557 F.2d 179, 193 (9th Cir. 1977)).
Defendants seek a stay of execution, without security, pending resolution of post-trial motions. Alternatively, Defendants ask the Court to permit security totaling $11,000,000 (a $5,000,000 bond and a $6,000,000 letter of credit), with no security for the punitive damages portion of the judgment, or, if the Court requires security in full, that Plaintiff be granted a security interest in Zowine's stake in his company, Zoe Holding Company, Inc. The parties have briefed and argued various issues the Court will address.
Plaintiff argues that the Court must deny Defendants' Rule 62(b) request because there are no currently-pending post-trial motions. As the Court explained during oral argument, however, Rule 62(b) does not require currently-pending motions. Indeed, the deadline for filing post-trial motions has not arrived, see Fed. R. Civ. P. 50(d), 59(b), and yet Rule 62(b) permits a stay pending disposition of precisely those motions.
Plaintiff also argues that Defendants must show a likelihood of success in their post-trial motions, and other elements normally required for injunctive relief, before they can obtain a stay. Rule 62(b) imposes no such requirement; it looks instead to "appropriate terms for the opposing party's security" as the basis for granting a stay. Fed. R. Civ. P. 62(b); see also FINOVA Capital Corp. v. Richard A. Alredge, Inc., No. CV02-01277-PHX-RCB, 2008 WL 828504, at *4-5 (D. Ariz. Mar. 26, 2008).
A district court may "grant an unsecured stay in 'unusual circumstances,' where the granting of such a stay will not 'unduly endanger the judgment creditor's interest inultimate recovery." In re Apollo Grp. Inc. Sec. Litig., 2008 WL 410625, at *1 (citations omitted). Unsecured stays are disfavored. Id.
Defendants have not shown unusual circumstances, or that granting an unsecured stay would not unduly endanger Plaintiff's interest in ultimate recovery. Defendants argue that they are likely to succeed in their post-trial motions, that they have encountered difficulty securing a bond to cover the full judgment amount, and that the judgment likely will be altered due to post-trial motions or offsets in state court litigation. The Court does not find that Defendants are likely to succeed on their post-trial motions, at least not to the extent of eliminating the jury verdict, and the Court previously has concluded that it will not anticipate or attempt to influence the results of the state court litigation. In addition, mere difficulty in obtaining security cannot be deemed unusual circumstances, particularly when Defendant Zowine claims to own more than $100 million in assets. The Court will not grant Defendants' request for an unsecured stay.
A supersedeas bond is the typical form of security, but district courts have discretion to allow alternative forms. See Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1367 (9th Cir. 1990); Int'l Wood Processors, 102 F.R.D. at 215. Alternative security must adequately protect the judgment creditor. See Skydive Ariz., Inc. v. Quattrocchi, No. CV05-02656-PHX-MHM, 2010 WL 2534200, at *1-3 (D. Ariz. June 18, 2010); Int'l Wood Processors, 102 F.R.D. at 215.
Defendants propose $11,000,000 of security in the form of an irrevocable $6,000,000 letter of credit and a $5,000,000 surety bond. Doc. 542 at 3-5. Defendants submit two affidavits describing their efforts to obtain a supersedeas bond in the full amount of the judgment. See Doc. 542-1 at 2-4, 10-11. Defendants retained an insurance brokerage firm to procure the bond. Id. at 3, ¶ 4; 10, ¶¶ 1-2. Of the twelve surety companies contacted by the firm, none was willing to issue a bond for the full judgment without full cash collateral. Id. at 3, ¶ 4; 10, ¶¶ 3-4. In addition, the brokerage firm estimated that a bond covering the full amount of the judgment would cost approximately$540,000 per year. Id. at 3, ¶ 4; 11 ¶ 6. Defendants also detail the hardship Zowine would endure should Plaintiff execute against Zowine's interest in Zoe. Doc. 542 at 5.
Defendants fail to explain how their proposed alternative security, standing alone, would protect Plaintiff's interest in ultimate recovery. Defendants correctly state that their proposed $11,000,000 alternative security "would provide Plaintiff with the same security as a supersedeas bond in the same amount, without the significant bond costs Defendants would otherwise bear." Doc. 542 at 5. But Defendants do not explain how their proposed alternative security arrangement - which would cover less than 40% of the total judgment - would adequately protect Plaintiff's interest in ultimate recovery. Nor have Defendants provided the Court with any information for evaluating the risk associated with the proposed alternative security, such as the terms or proposed issuers of the letter of credit or the bond. As explained below, the Court concludes that something more than the proposed alternative security is required during the post-trial motion period.
"If a judgment is a lien on the judgment debtor's property under the law of the state where the court is located, the judgment debtor is entitled to the same stay of execution the state court would give." Fed. R. Civ. P. 62(f). Defendants claim that they are entitled to the benefits of A.R.S. § 12-2108, which provides that security during an appeal need not include the amount of punitive damages. Defendants have not shown, however, that Rule 62(f) applies in this case.
Many courts have held that Rule 62(f) does not apply if a judgment creditor must take further action on a judgment before a lien arises under state law. See, e.g., MM Steel, L.P. v. JSW Steel (USA) Inc., 771 F.3d 301, 303-05 (5th Cir. 2014); Acevedo-Garcia v. Vera-Monroig, 296 F.3d 13, 17-18 & n.5 (1st Cir. 2002); Cotton ex rel. McClure v. City of Eureka, Cal., 860 F. Supp. 2d 999, 1025-26 (N.D. Cal. 2012); United States v. O'Callaghan, 805 F. Supp. 2d 1321, 1329 (M.D. Fla. 2011); Ribbens Int'l, S.A. v. Transport Int'l Pool, Inc., 40 F. Supp. 2d 1141, 1143 n.2 (C.D. Cal. 1999); Aldasoro v.Kennerson, 915 F. Supp. 188, 190-192 (S.D. Cal. 1995); Marandino v. D'Elia, 151 F.R.D. 227, 229 (D. Conn. 1993). In Arizona, a judgment creditor must take several steps to obtain a judgment lien. See A.R.S. §§ 33-961, 33-964, 33-967.
Other courts have held that Rule 62(f) applies if the additional actions required by state law are merely ministerial. See, e.g., F.D.I.C. v. Ann-High Assocs., No. 97-6095, 1997 WL 1877195, at *3 (2d Cir. Dec. 2, 1997); Smith v. Vill. of Maywood, No. 84-2269, 1991 WL 277629, at *1 (N.D. Ill. Dec. 20, 1991). Defendants have not shown that the actions required under Arizona law are merely ministerial within the meaning of these cases. Section 33-961 requires that a filed judgment include five specific elements, not all of which are included in the judgment issued by this Court. Doc. 535. In addition, § 33-967 requires that a party seeking a judgment lien file additional information. What is more, § 33-961 creates a lien only against real property, and Defendants fail to cite the recording requirements for liens against other types of property, including, most importantly in this case, a lien against Zowine's primary asset - his interest in Zoe.
Defendants have also failed to show that A.R.S. § 12-2108(A) applies to stays during the pendency of post-trial motions. The statute's plain text applies only to appeals. A.R.S. § 12-2108(A) () (emphasis added).
Defendants also contend that they should not be required to post security for the punitive damages because these damages are not awarded for Plaintiff's benefit. Defendants cite Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 786 F.2d 794 (7th Cir. 1986), but that case is distinguishable. The Seventh Circuit held that waiver of the bond requirement is appropriate in two circumstances: (1) where a debtor's ability to pay is so plain that a bond would be wasteful, or (2) where a bond...
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