Summary
In Nationsbanc Mtg. Corp. of Georgia v Luptak, 243 Mich App 560, 567, 625 N.W.2d 385 (2000), the Court of Appeals held that MCR 3.101(G)(1)(h) "applies only to conveyances that are void as to creditors at the time the writ is served on the garnishee defendant."
Summary of this case from Cartrette v. City of Melvindale Post 6032 Veterans of Foreign Wars of the United StatesOpinion
Docket No. 212634.
Submitted February 10, 2000, at Detroit.
Decided December 12, 2000, at 9:10 a.m. Updated February 2, 2001.
Appeal from Oakland Circuit Court, LC No. 93-453050-CZ.
Butzel Long, PC (by Edward M. Kalinka and Michael F. Matheson), for the plaintiff. Birmingham
Jacob Weingarten (by Brian D. Figot), for the Korn Family Limited Partnership. Troy
Before: Holbrook, Jr., P.J., and Kelly and Collins, JJ.
Plaintiff in this garnishment action appeals as of right from the trial court's order granting summary disposition in favor of garnishee defendant the Korn Family Limited Partnership (KFLP) pursuant to MCR 2.116(C)(8). We affirm.
I. Factual Background and Procedural History
Sheldon Korn, the Luptak defendants, and the Beznos defendants were guarantors of a mortgage loan procured from plaintiff by Beztak Homes, Inc., a Michigan corporation, for the development of a residential subdivision in Florida. Following Beztak's default on the mortgage loan, plaintiff instituted foreclosure proceedings in Florida. In 1992, a final judgment of foreclosure was entered against Beztak. Subsequently, plaintiff instituted proceedings against Sheldon Korn and the Luptak and Beznos defendants in the Circuit Court for Broward County, Florida, and obtained a judgment against them, jointly and severally, in the amount of $4,295,619.61.
The Luptak and Beznos defendants and defendant Sheldon Korn are not participants in the instant appeal.
In April 1993, plaintiff instituted proceedings in the Oakland Circuit Court, seeking to make the Florida judgment against the guarantors a domestic judgment. The Luptak and Beznos defendants later entered into a settlement agreement with plaintiff, and trial was held for the sole purpose of determining Sheldon Korn's liability. In March 1996, the trial court entered judgment against Sheldon Korn in the amount of $2,267,800.
Following entry of the judgment, plaintiff held a creditor's examination of Sheldon Korn. The creditor's examination revealed that, one week after plaintiff had demanded full payment from Beztak in 1991, Sheldon Korn had formed the KFLP and had transferred to the KFLP his interests in five real estate partnerships. Plaintiff immediately served the KFLP with a writ of nonperiodic garnishment. The KFLP denied that it was indebted to Sheldon Korn or that it possessed or controlled any property belonging to Sheldon Korn. The trial court subsequently entered an order granting the KFLP's motion for summary disposition, holding that (1) the writ of garnishment did not provide adequate notice to the KFLP of the basis for plaintiff's garnishment claim, and (2) plaintiff was not permitted to pursue a fraudulent conveyance claim under the Uniform Fraudulent Conveyance Act (UFCA), MCL 566.11 et seq.; MSA 26.881 et seq., within the context of the garnishment proceedings.
II. Standards of Review
This Court reviews decisions on motions for summary disposition de novo to determine if the moving party was entitled to judgment as a matter of law. UAW-GM Human Resource Center v KSL Recreation Corp, 228 Mich. App. 486, 490; 579 N.W.2d 411 (1998). A motion under MCR 2.116(C)(8) tests the legal sufficiency of a claim by the pleadings alone. Maiden v Rozwood, 461 Mich. 109, 119; 597 N.W.2d 817 (1999).
All factual allegations in support of the claim are accepted as true, as well as any reasonable inferences or conclusions that can be drawn from the facts. The motion should be granted only when the claim is so clearly unenforceable as a matter of law that no factual development could possibly justify a right of recovery. [ Kuhn v Secretary of State, 228 Mich. App. 319, 324; 579 N.W.2d 101 (1998) (citation omitted).]
Additionally, this appeal presents questions concerning the interpretation of court rules. "Interpretation of the court rules presents a question of law, which is reviewed de novo." Waatti Sons Electric Co v Dehko, 230 Mich. App. 582, 586; 584 N.W.2d 372 (1998).
III. Whether the Writ of Garnishment Provided Adequate Notice to Garnishee Defendant of the Basis for Plaintiff's Garnishment Claim
Garnishment actions are authorized by statute. MCL 600.4011(1); MSA 27A.4011(1). The court may exercise its garnishment power only in accordance with the Michigan Court Rules. MCL 600.4011(2); MSA 27A.4011(2); Waatti, supra at 587; Royal York of Plymouth Ass'n v Coldwell Banker Schweitzer Real Estate Services, 201 Mich. App. 301, 305; 506 N.W.2d 279 (1993). MCR 3.101 governs postjudgment garnishment proceedings, and subrule 3.101(G)(1) delineates the various categories of items for which a garnishee is liable. Plaintiff argued below that the KFLP is liable pursuant to MCR 3.101(G)(1)(h), which provides that the garnishee is liable for:
all tangible or intangible property of the defendant that, when the writ is served on the garnishee, the garnishee holds by conveyance, transfer, or title that is void as to creditors of the defendant, whether or not the defendant could maintain an action against the garnishee to recover the property . . . .
The trial court granted the KFLP's motion for summary disposition in part on the basis of its conclusion that the writ of garnishment served on the KFLP provided no notice of plaintiff's claim of fraudulent conveyance. The court reasoned, in part, that summary disposition was proper because plaintiff's writ neither indicates that the property at issue was transferred to the KFLP "by a void transaction" nor "state[s] the facts on which plaintiff relies and the allegations necessary to inform the limited partnership of the pleader's claims, MCR 2.111(B)(1)." We disagree.
MCR 3.101(M)(2) provides that the plaintiff's verified statement serves as the "complaint" against the garnishee defendant, that the garnishee defendant's disclosure serves as the answer, and that "[t]he garnishee's liability to the plaintiff shall be tried on the issues thus framed." MCR 3.101(D) specifically sets forth the allegations that must be included in the verified statement:
(1) that a judgment has been entered against the defendant and remains unsatisfied;
(2) the amount of the judgment and the amount remaining unpaid;
(3) that the person signing the verified statement knows or has good reason to believe that
(a) a named person has control of property belonging to the defendant,
(b) a named person is indebted to the defendant, or
(c) a named person is obligated to make periodic payments to the defendant.
Plaintiff's verified statement included each of the required allegations, including the statement that "the garnishee possesses or controls property belonging to the defendant."
The garnishment proceeding "complaint," as contemplated by MCR 3.101, is not required to contain specific information regarding the debts or property that are subject to the writ. MCR 2.111(B) generally requires that a complaint contain a "statement of the facts" and the "specific allegations necessary reasonably to inform the adverse party of the nature of the claims" against it. The verified statement submitted in the instant case complies with MCR 2.111(B) by setting forth the pertinent information concerning the judgment against Sheldon Korn and the specific allegation that the KFLP possessed or controlled property belonging to Sheldon Korn. This result makes particular sense in light of MCR 3.101(H)(1), which requires the garnishee defendant to file a disclosure "revealing the garnishee's liability to the defendant as specified in subrule (G)(1) . . . ."
Moreover, as a general rule of construction, when two statutes or provisions conflict and one is specific while the other is more general, the specific statute or provision prevails. Haberl v Rose, 225 Mich. App. 254, 261-262; 570 N.W.2d 664 (1997). Accordingly, if and to the extent that MCR 3.101(D) and (M) conflict with MCR 2.111(B), MCR 3.101, which specifically governs garnishment proceedings, prevails. See LeDuff v Auto Club Ins Ass'n, 212 Mich. App. 13, 17-18; 536 N.W.2d 812 (1995).
Therefore, because plaintiff complied with the requirements of the court rule, we conclude that summary disposition was not properly granted on the basis of a lack of notice.
IV. Whether Plaintiff Has Properly Stated a Fraudulent Conveyance Claim
The trial court also held that the KFLP was entitled to summary disposition because "a fraudulent conveyance is merely a voidable transaction and must be set aside using the proper procedure." The trial court noted that plaintiff's garnishment claim pursuant to MCR 3.101(G)(1)(h) was based on the UFCA, and held that the KFLP was not subject to liability under MCR 3.101(G)(1)(h) until the conveyance to it from Sheldon Korn had been declared void pursuant to the UFCA. We agree.
The UFCA has recently been repealed, MCL 566.43; MSA 26.895(13), and was replaced by the similar Uniform Fraudulent Transfer Act (UFTA), MCL 566.31 et seq.; MSA 26.895(1) et seq., effective December 30, 1998. 1998 PA 434, § 13.
MCR 3.101(G)(1)(h) clearly indicates that it applies only to conveyances that are void as to creditors at the time the writ is served on the garnishee defendant. Given the legal import attached to the term "void," and crediting the Supreme Court with full knowledge of such significance, we read the court rule as requiring a previous judicial determination that the transfer at issue is indeed void.
We also believe that such a reading is consistent with the requirements set forth in MCR 3.101(D) regarding the statement of claim made in a garnishment proceeding. Given the limited information that is required to be set forth in the verified statement, we believe that requiring a plaintiff to specifically allege the factual basis for a claim of fraudulent conveyance in a separate proceeding comports with due process guarantees. Without such specific pleadings, the garnishee's ability to resist a mistaken deprivation of property is severely compromised. This is especially so when the garnishee was not even a named party in the prior lawsuit and judgment from which the garnishment proceeding stems.
We do believe, however, that if the parties so agreed, adjudication of a fraudulent conveyance claim could be disposed of in garnishment proceedings, assuming proper notice of the issues in controversy.
In the instant case, the conveyance from Sheldon Korn to the KFLP had not been declared "void." Accordingly, we conclude that summary disposition was appropriately granted.
We note that the UFTA refers to fraudulent transfers as being "voidable" under the act, see MCL 566.38(1), (2), (5), and (6); MSA 26.895(8)(1), (2), (5), and (6), and specifically provides a statute of limitations for "[ a] cause of action . . . under this act," MCL 566.39; MSA 26.895(9) (emphasis supplied).
Affirmed.
Collins, J., concurred.
I agree with the majority that, under MCR 3.101, the writ of garnishment provided adequate notice of the nature of the proceedings to garnishee defendant, the Korn Family Limited Partnership (KFLP). Our Supreme Court held long ago that a writ of garnishment alleging that the garnishee has property, money, and so forth, in its hands or under its control belonging to the defendant is sufficient, and more detail regarding why the garnishee is liable is not required. Connor v Third Nat'l Bank of Detroit, 90 Mich. 328, 333-334; 51 N.W. 523 (1892). I disagree, however, that a transfer is not "void" until it is established to be so in a separate action brought under the Uniform Fraudulent Conveyances Act (UFCA), MCL 566.11 et seq.; MSA 26.881 et seq.
Defendant Sheldon Korn, and others, personally guaranteed a corporate loan. When the corporate debtor defaulted, plaintiff filed suit in Florida to collect on the personal guarantees. A judgment was entered in favor of plaintiff in 1992 in an amount in excess of $2 million. In 1993, plaintiff filed suit to enforce the judgment in Michigan and judgment was entered in favor of plaintiff in 1996. At a creditor's examination, it was learned that Sheldon Korn had transferred his interests in five real estate limited partnerships valued at over $2 million to the KFLP, which had been formed shortly after plaintiff issued its demand letter. The transfers left Sheldon Korn insolvent. On the basis of Sheldon Korn's testimony regarding consideration given for the transfers, plaintiff believed the transfers to be fraudulent.
The trial court reasoned that, because under the UFCA there are several ways to establish a conveyance to be fraudulent, the implication is that a conveyance is not fraudulent until established to be so under the UFCA. Thus, the court ruled, and the majority concurs, that plaintiff was required to file a separate action to void the fraudulent conveyance before seeking the writ of garnishment. I disagree.
In a garnishment proceeding, the affidavit acts as the plaintiff's complaint against the garnishee defendant and the garnishee's disclosure serves as the answer. MCR 3.101(M)(2). If there is a dispute regarding the garnishee defendant's liability, the issue shall be tried in the same manner as other civil actions. MCR 3.101(M)(1). To aid in determining the garnishee defendant's liability, the plaintiff may offer the record of the garnishment proceeding and other evidence. The garnishee defendant may offer evidence not controverting the disclosure or, in the discretion of the court, may show errors or mistakes in the disclosure. MCR 3.101(M)(5). These rules clearly indicate that disputes over the validity of a transfer affecting the garnishee's liability shall be tried in the garnishment proceeding.
The court rules provide that a garnishee defendant is liable for the property of the principal defendant that it holds by conveyances or transfers of title that are "void as to creditors of the defendant . . . ." MCR 3.101(G)(1)(h). Several decisions have recognized the use of garnishment proceedings to reach fraudulently conveyed property of a debtor. See 10A Michigan Pleading Practice (2d ed), Garnishment, § 75.27, pp 572-573, and cases cited therein. The issue in this case was whether the transfer was a bona fide transaction upon sufficient consideration and free from fraud. Long v Evening News Ass'n, 113 Mich. 261; 71 N.W. 492 (1897); Mihajlovski v Elfakir, 135 Mich. App. 528, 534; 355 N.W.2d 264 (1984). The circuit court had to reach this issue in order to render a judgment in garnishment. I see no justification for requiring a separate action declaring a fraudulent conveyance void under the UFCA before a creditor may proceed against a garnishee defendant who holds property by way of such a transfer.
I would reverse and remand for trial on the issue of the KFLP's liability.