KHL Liquidation Trust v. G Stone Construction, Inc.

Filing 3

ORDER granting in part and denying in part 2 Motion for an order invoking supplementary proceedings, impleading third party, and for issuance of a notice to appear. Signed by Magistrate Judge Amanda Arnold Sansone on 3/8/2018. (BEE)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

In re:
Kimball Hill, Inc., et al.,
Debtors,
____________________________________
KHI LIQUIDATION TRUST,
Plaintiff,
v.

Case No.: 8:17-mc-131-T-35AAS

G. STONE CONSTRUCTION, INC.,
Defendant.
_____________________________________/
ORDER
Judgment assignee SMS Financial J, LLC (“SMS”) moves for an order invoking
supplementary proceedings in this action, impleading third party, Gene Stone Construction, LLC
(“Gene Stone”), and for issuance of a notice to appear. (Doc. 2).
I.

BACKGROUND
The United States Bankruptcy Court for the Northern District of Illinois entered judgment

(the “Judgment”) in favor of KHI Liquidation Trust (“KHI”) against G. Stone Construction, Inc.
in the Chapter 11 case In re: Kimball Hill, Inc., et al., N.D. Ill. Bankr. Case No. 08-10095. (Doc.
1). KHI assigned its rights, title, and interest in the Judgment to SMS, and the Bankruptcy Court
entered an Assignment of Judgment. (Id.). SMS then filed a judgment lien certificate with
Florida’s Secretary of State (“Judgment Lien Certificate”). (Doc. 2, Ex. A).

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SMS’s manager declares that G. Stone Construction, Inc. has failed to satisfy the Judgment.
(Doc. 2, Ex. B ¶ 7). SMS points out that the State of Florida administratively dissolved G. Stone
Construction, Inc. for failure to file its 2015 annual report. (Doc. 2 ¶ 6; Doc. 2, Ex. C). Prior to
the administrative dissolution of G. Stone Construction, Inc., however, Mr. Gene Stone (the
President of G. Stone Construction, Inc.) formed Gene Stone Construction, LLC, and named
himself as the sole Authorized Managing Member. (Doc. 2, Ex. D). In addition, Gene Stone
Construction, LLC shares G. Stone Construction, Inc.’s principal and mailing addresses, the same
address for their registered agents, and the registered agent for G. Stone Construction, Inc. appears
to be the sole member of the limited liability company acting as the registered agent for Gene
Stone Construction, LLC. (Id., Exs. C-D). SMS asserts that Gene Stone Construction, LLC is “a
continuation or alter ego” of G. Stone Construction, Inc. and that G. Stone Construction, Inc.
transferred its assets to Gene Stone Construction, LLC in an effort to hinder and delay SMS’s
ability to recover on the Judgment. (Doc. 2, ¶¶ 8, 15-19).
SMS seeks an order initiating proceedings supplementary to execution, impleading Gene
Stone Construction, LLC as a supplemental defendant in execution of the Judgment, and issuing a
Notice to Appear to Gene Stone Construction, LLC. (Doc. 2, pp. 6-7). SMS further requests that
Gene Stone Construction, LLC be added to the Judgment so that its assets may be used to satisfy
the Judgment. (Id., ¶ 20).
II.

ANALYSIS
The court has jurisdiction to enforce a judgment pursuant to 28 U.S.C. § 1963. Under that

statute, “[a] judgment in an action for the recovery of money or property entered in any court of
appeals, district court, [or] bankruptcy court . . . may be registered by filing a certified copy of the
judgment in any other district . . . when the judgment has become final by appeal or expiration of

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the time for appeal . . . .” 28 U.S.C. § 1963. Here, KHI registered a certified copy of the Judgment
entered by the bankruptcy court with this court. (Doc. 1). Specifically, the bankruptcy court
certified that the filing was a true and correct copy of the Judgment and that no party appealed the
Judgment. (Id.). With this registration, the Judgment has “the same effect as a judgment of the
district court of the district where registered and may be enforced in like manner,” and this
procedure “is in addition to other procedures provided by law for the enforcement of judgments.”
28 U.S.C. § 1963.
Under Federal Rule of Civil Procedure 69, the procedure for executing on a money
judgment and in proceedings supplementary to and in aid of execution “must accord with the
procedure of the state where the court is located,” unless a federal statute applies. Fed. R. Civ. P.
69(a)(1). Here, SMS argues that Florida law governing proceedings supplementary, Section 56.29
of the Florida Statutes, provides for the relief SMS requests in the motion. (Doc. 2)
A.

Proceedings Supplementary

Under Florida law, judgment creditors who file a motion and an affidavit stating that they
hold an unsatisfied judgment or judgment lien are entitled to proceedings supplementary to
execution. Fla. Stat. § 56.29(1). Therefore, all that is required to initiate proceedings supplementary
is that “the judgment creditor have an unsatisfied judgment and file an affidavit averring that the
judgment is valid and outstanding.” Fundamental Long Term Care Holdings, LLC v. Estate of
Jackson ex rel. Jackson-Platts, 110 So. 3d 6, 8 (Fla. 2d DCA 2012); Longo v. Associated Limousine
Servs., Inc., No. 4D17-516, 2018 WL 527016, at *3 (Fla. 4th DCA Jan. 24, 2018) (“[B]ecause the
judgment creditor submitted a motion and affidavit in compliance with section 56.29(1), the trial
court erred in denying proceedings supplementary altogether.”).

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Here, SMS’s manager declares that G. Stone Construction, Inc. has failed to satisfy the
Judgment, and that the Judgment and Judgment Lien Certificate “remain valid, outstanding, and
unsatisfied.” (Doc. 2, Ex. B ¶¶ 6-7). Accordingly, SMS is entitled to proceedings supplementary
to execution, and the motion is granted as to this request.
B.

Issuing a Notice to Appear

Section 56.29(2) of the Florida Statutes “governs the process for bringing third parties into
proceedings supplementary.” Longo, 2018 WL 527016, at *3, *4; see Kennedy v. RES-GA Lake
Shadow, LLC, 224 So. 3d 931, 933 (Fla. 1st DCA 2017) (citations omitted) (“After a party initiates
proceedings supplementary, a creditor may pursue assets held by the debtor, assets of the debtor
held by another, or assets that have been fraudulently transferred to another. But the rights of any
third party interest-holders must be accounted for by impleading them into the proceeding and
allowing them to defend their interests.”).
The applicable statute requires the judgment creditor to, either in the initial motion and
affidavit or in a supplemental affidavit, “describe any property of the judgment debtor not exempt
from execution in the hands of any person or any property, debt, or other obligation due to the
judgment debtor which may be applied toward the satisfaction of the judgment.” Fla. Stat. §
56.29(2); 2016 Fla. Sess. Law Serv. Ch. 2016-33 (C.S.S.B. 1042) (West) (amending the former
version of Section 56.29(2), which provided that when the filings required by Section 56.29(1)
were made, “the court shall require the defendant in execution to appear before it or a general or
special magistrate at a time and place specified by the order in the county of the defendant’s
residence to be examined concerning his or her property”). Upon filing of this motion and
affidavit, the court shall issue a notice to appear, which “must describe with reasonable

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particularity the property, debt, or other obligation that may be available to satisfy the judgment.”
Fla. Stat.. § 56.29(2).
Here, the motion and affidavit of SMS’s manager (Doc. 2, Ex. B) lack any description of
Gene Stone Construction, LLC’s property that may be applied toward the satisfaction of the
Judgment required by Section 56.29(2). Accordingly, the statutory requirements, as amended in
2016, have not been met for the court to issue a notices to appear to Gene Stone Construction,
LLC. Longo, 2018 WL 527016, at *4 (holding that the trial court properly refused to issue Notices
to Appear where the motion and affidavit failed to describe the judgment debtor’s property subject
to execution). Therefore, SMS’s requests for the court to implead Gene Stone Construction., LLC
and to issue a Notice to Appear is denied without prejudice to SMS to include the required property
descriptions in a supplemental affidavit. Fla. Stat. § 56.29(2), (providing that the judgment creditor
shall provide the property description in the motion, in the affidavit filed with the motion “or in a
supplemental affidavit”); Longo, 2018 WL 527016, at *5 (affirming the trial court’s refusing to
issue Notices to Appear, but explaining that the court’s “affirmance on this issue is without
prejudice to the judgment creditor inquiring further into the assets of the judgment debtor and
submitting a supplemental affidavit in compliance with section 56.29(2)”).1
C.

Remaining Requests

SMS requests that the Judgment be amended to add Gene Stone Construction, LLC “so
that its assets may be executed upon to satisfy the aforementioned Judgment.” (Doc. 2, ¶ 17).

As recently explained by the Longo court, “in cases alleging alter ego liability, the
description requirement of Section 56.29(2) is satisfied if the judgment creditor describes any
property of an alter ego of the judgment debtor not exempt from execution in the hands of any
person, or any property, debt, or other obligation due to an alter ego of the judgment debtor which
may be applied toward the satisfaction of the judgment,” and need not “identify property that had
been transferred to the impleader defendants.” Longo, 2018 WL 527016, at *5.
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Section 56.29(9) allows the court to “entertain claims concerning the judgment debtor’s assets
brought under chapter 726 and enter any order or judgment, including a money judgment against
any initial or subsequent transferee, in connection therewith, irrespective of whether the transferee
has retained the property,” which is commenced “by a supplemental complaint and served as
provided by the rules of civil procedure.” Fla. Stat. § 56.29(9).
The court has the power to order any property of Gene Stone Construction, LLC be levied
upon to satisfy the Judgment, even if the property is “in the hands of or under the control of any
person subject to the Notice to Appear.” Fla. Stat. § 56.29(6) (“The court may order any property
of the judgment debtor, not exempt from execution, or any property, debt, or other obligation due
to the judgment debtor, in the hands of or under the control of any person subject to the Notice to
Appear, to be levied upon and applied toward the satisfaction of the judgment debt.”). Further,
the court can void fraudulent transfers of personal property “and direct the sheriff to take the
property to satisfy the execution.” Id. § 56.29(3)(b). However, “there is a difference between
proceeding under Florida Statutes § 56.29 and Chapter 726 to undo a fraudulent transfer of assets
and, what seems to be the primary relief sought here, seeking a judgment of liability against the
implead parties for existing federal judgments.” Am. Home Assurance Co. v. Weaver Aggregate
Transp., Inc., No. 5:10-CV-329-OC-32PRL, 2018 WL 829126, at *2 (M.D. Fla. Feb. 12, 2018).
Accordingly, SMS must clarify whether it “seeks to impute liability for the underlying
judgments directly on the impleaded parties, as distinguished from liability merely for the value
of transferred assets.” Id. Finally, SMS’s request for an award of reasonable attorney’s fees and
costs against G. Stone Construction, Inc., pursuant to Section 56.29(8), is denied without prejudice.

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III.

CONCLUSION
Accordingly, after due consideration, it is ORDERED that SMS’s Motion for Proceedings

Supplementary to Execution, to Implead Third Party, and for Issuance of Statutory “Notice to
Appear” is GRANTED in part and DENIED in part, as follows:
(1)

The motion is granted as to SMS’s entitlement to proceedings supplementary to

execution.
(2)

The motion is denied as to SMS’s request for the court to issue Notices to Appear

without prejudice to SMS to file a renewed motion attaching a supplemental affidavit that contains
the property descriptions required by Section 56.29(2). SMS also shall attach a proposed Notice
to Appear with updated property descriptions to the renewed motion.
(3)

SMS’s remaining requests are denied without prejudice.

ORDERED in Tampa, Florida, on this 8th day of March, 2018.

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