October 29, 2001
MEMORANDUM OPINION AND ORDER DENYING MOTIONS FOR LEAVE TO AMEND ANSWER AND DISCLOSURE
Petitioner National Labor Relations Board (NLRB) obtained judgments against respondents and filed this case in an effort to collect on those judgments. On March 7, 2001 it obtained a writ of garnishment against Dan's Excavating which, on March 19, 2001 filed an Answer disclosing that it owed Kelly Painting Company, an alleged alter ego/successor of M V Painting and the other Piper Painting respondents, $10,380 as "payment for work completed." In its Answer, Dan's also claimed setoffs for "any and all associated costs incurred during the performance of the contract or incurred in completing the contract if Kelly Painting fails or refuses to finish the project. . . ."
A finding that Kelly Painting is, in fact, such an alter ego, was made by Magistrate Judge Marc L. Goldman on June 15, 2001, following an evidentiary hearing on Kelly Painting's challenge to the garnishment.
The Answer can be found as Exhibit 3 to Dan's Reply Brief filed August 17, 2001.
On August 2, 2001 Dan's Excavating filed a Motion for Leave to Amend Answer and Disclosure, seeking to setoff approximately $12,000 in payments it made to paint suppliers to Kelly, and $8,000 in contract labor costs to complete its Blue Water Bridge project, after Kelly Painting (its subcontractor) subsequently walked away from the job. Because this amount exceeds its initially disclosed indebtedness of $10,000 to Kelly, Dan's contends it has no liability on the garnishment. Respondent filed a Response to the Motion to Amend, objecting thereto, and the matter was referred to the undersigned for hearing and determination. A hearing was held on September 10, 2001, and Dan's filed a Supplemental Brief on September 20, 2001.
The Federal Debt Collection Procedures Act, 28 U.S.C. § 3001, et seq., provides the exclusive civil procedures for the government (here the NLRB) to recover a judgment on a debt. § 3001(b). While the Act does pre-empt state law to the extent such law is inconsistent with the statute, § 3003(d), it "supersede or modify the operation of. . . the common law or statutory rights to setoff or recoupment." § 3003(c)(6).
The common law and statutory law in Michigan (including the Michigan Rules of Court-"MCR") require setoffs to garnishment disclosures to be "liquidated" at the time of the disclosure. What that means was discussed and explained in Blue Water Fabricators v. New Apex Co., 205 Mich. App. 295 (1994). In Blue Water, General Motors had been ordered to make payments to Blue Water under writs of garnishment based upon debts GM owed to Defendant New Apex. GM had purchased machinery from New Apex (for which it owed money) but claimed it was entitled to a setoff against that amount for an alleged breach of the sales contract by New Apex which required GM to bring the machinery into compliance with safety requirements. General Motors' initial disclosure stated it owed New Apex $74,200 but noted that "these sums may not be owing to plaintiff because of anticipated damages. . . due to breach of contract. . . ." GM subsequently sought to amend its disclosure to state the setoff amounts with greater specificity, but the trial court refused to permit the amendment.
The Court of Appeals first looked to MCR 3.101(H) which states in pertinent part:
[T]he [garnishment] disclosure. . .
(2) may claim any setoff that the garnishee defendant would have against the principal defendant, except for claims for unliquidated damages for wrongs or injuries;
The Court then continued:
The language of MCR 3.101(H)(2) clearly permits a garnishee defendant to claim any setoff except claims for unliquidated damages.
However, GM's initial disclosures, with their vague language and imprecise claims, did not specifically claim a setoff and did not specify the amount of liquidated damages. Rather, their language leads one to the conclusion that GM's claim was for unliquidated damages. As unliquidated damages do not qualify as a setoff under MCR 3.101(H)(2), we conclude that GM's initial disclosure did not excuse it from complying with the writs of garnishment.
In addressing whether General Motors should have been allowed to amend its disclosure, the Court began by observing that, on appeal, it:
[W]ill consider whether the garnishee defendant's defenses are `so clearly untenable as a matter of law that no factual development could possibly deny plaintiff's right to recovery.'
At p. 299 and quoting Lepp v. Cheboygan Area Schools, 190 Mich. App. 726, 730 (1991).
The Court noted that General Motors had spent a large, specific amount to bring the purchase equipment into compliance with safety and speed requirements and that "the cost had become ascertainable well before the writs of garnishment were served." At p. 299. It continued:
While little authority guides us in determining the point at which a claim becomes liquidated, the Sixth Circuit has noted that liquidated damages `are those damages which are reasonably ascertainable at the time of the breach,' Ramada Development Co. v. United States Fidelity Guaranty Co., 626 F.2d 517, 525, n. 11 (CA 6, 1980).
At p. 299.
In the instant case, the record is clear that at the time of Dan's initial disclosure, it did owe $10,000 to Kelly Painting but that Kelly owed nothing to it. Kelly did not stop working on the project untilafter the initial disclosure and, when it did, it still could have paid for the paint it had ordered from the suppliers. It appears Dan's voluntarily paid off those suppliers, but there is no evidence of anylegal obligation to do so and the garnishee should not be allowed to voluntarily create a setoff, for its own benefit, after the initial disclosure. Thus, the "debt" which forms the basis for the requested amended setoff disclosure was not only unliquidated and unascertainable, but was not even in existence at the time of the initial disclosure.
Pursuant to the authority of Blue Water Fabrication, supra, the Garnishee is not entitled to a setoff for a claim not in existence at the time of its initial disclosure and, accordingly, the Motion (and Supplemental Motion) for Leave to Amend and/or Supplement Answer and Disclosure are DENIED.