KHL Liquidation Trust v. G Stone Construction, Inc.
ORDER granting in part and denying in part 4 Motion for miscellaneous relief, specifically Supplemental Motion to Implead Third Party and for Issuance of Statutory "Notice to Appear". Signed by Magistrate Judge Amanda Arnold Sansone on 4/13/2018. (BEE)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
KIMBALL HILL, INC., et al.,
KHI LIQUIDATION TRUST,
Case No.: 8:17-mc-131-T-35AAS
G. STONE CONSTRUCTION, INC.,
Judgment assignee SMS Financial J, LLC (“SMS”) moves for an order impleading third
party Gene Stone Construction, LLC (“Gene Stone”) and for issuance of a notice to appear. (Doc.
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 filed a Motion for Proceedings Supplementary to Execution, to Implead Third Parties,
and For Issuance of Statutory “Notice to Appear” in this court. (Doc. 2). The court found SMS
entitled to proceedings supplementary to execution. (Doc. 3). The court, however, denied the
motion without prejudice as to all other requests and directed SMS to file a supplemental motion
that: (1) included the property descriptions required by Section 56.29(2) of the Florida Statutes for
the court’s issuance of a Notice to Appear; (2) attached proposed Notice to Appear with updated
property descriptions; and (3) clarified the relief it sought from the third parties it sought to
implead. (Id. at pp. 6-7).
In the instant motion, SMS clarifies the relief it requests against Gene Stone. (Doc. 4 ¶¶
10-11). Specifically, SMS seeks to hold Gene Stone liable for the Judgment entered against G.
Stone Construction, Inc. “pursuant to an alter ego/mere continuation theory of liability.” (Id. ¶
11). SMS is “not presently seeking relief under Chapter 726 relating to a specific fraudulent
transfer.” (Id. ¶ 11, n.1).
While a federal court has ancillary jurisdiction over “a broad range” of proceedings
supplementary involving the execution of federal judgments1 as to third parties, “including
attachment, mandamus, garnishment, and the prejudgment avoidance of fraudulent conveyances,”
“ancillary jurisdiction is not justified over a new lawsuit to impose liability for a judgment on a
third party.” Peacock v. Thomas, 516 U.S. 349, 356, 359 (1996); see Fed. R. Civ. P. 82 (explaining
that procedural rules, such as Rule 69, governing the procedure for the execution of judgments, do
not “extend or limit the jurisdiction of the district courts or the venue of actions in those courts”).
Because KHI registered the Judgment (Doc. 1), it has the same effect and may be enforced
as if this court had entered it. 28 U.S.C. § 1963.
The Supreme Court has made clear that its recognition of proceedings supplementary has
not “extended beyond attempts to execute, or to guarantee eventual executability of, a federal
judgment,” and, importantly, it has “never authorized the exercise of ancillary jurisdiction in a
subsequent lawsuit to impose an obligation to pay an existing federal judgment on a person not
already liable for that judgment.” Compare Peacock, 516 U.S. at 351, 356–70 (concluding that
the district court lacked jurisdiction over a judgment creditor’s supplementary proceeding to
impose liability for a money judgment on a third party), with Nat’l Mar. Servs., Inc. v. Straub, 776
F.3d 783, 787 (11th Cir. 2015) (concluding that the district court had ancillary jurisdiction to void
a transfer pursuant to § 56.29(6) of the Florida Statutes because the judgment creditor sought to
disgorge assets the judgment debtor fraudulently transferred to a third party but did not seek “to
impose liability for a judgment on a third party”).
Therefore, while the court has jurisdiction to implead Gene Stone, and disgorge assets G.
Stone Construction, Inc. fraudulently transferred to Gene Stone the court lacks jurisdiction to hold
Gene Stone liable for the Judgment unless SMS separately establishes the court’s original
jurisdiction over such a claim. See Forster v. Nations Funding Source, Inc., 648 F. App’x 850,
852 (11th Cir. 2016) (remanding for the district court to (1) implead the judgment debtor’s owner
to determine whether the judgment debtor transferred funds to the owner that the owner would be
required to disgorge and (2) determine whether the court had original jurisdiction over the
judgment creditor’s claim that the owner was individually liable for the Judgment under the alter
ego doctrine); Am. Home Assurance Co. v. Weaver Aggregate Transp., Inc., No. 5:10-CV-329OC-32PRL, 2018 WL 829126, at *2 (M.D. Fla. Feb. 12, 2018) (impleading a third party but
explaining that a complaint was statutorily required for the court to determine its jurisdiction over
the judgment creditor’s claims that the third party was a mere alter ego of the judgment debtor).
To hold Gene Stone liable for the Judgment, the proper course of action is for SMS to file
and serve an impleader complaint. See Branch Banking & Tr. Co. v. Hamilton Greens, LLC, No.
16-15186-BB, 2017 WL 3393352, at *1 (11th Cir. June 6, 2017) (remanding to the district court
for the judgment creditor to “amend its supplementary complaint against [third parties] . . . to
invoke the district court’s general diversity jurisdiction under 28 U.S.C. § 1332, rather that the
court’s more limited ancillary jurisdiction under FLA. STAT. § 56.29”); Morningstar Healthcare,
L.L.C. v. Greystone & Co., No. 8:05-CV-949-TMAP, 2008 WL 1897590, at *2 (M.D. Fla. Apr.
28, 2008) (impleading a third party and ordering the judgment creditor to file an impleader
complaint seeking to hold the impleaded defendant liable for the judgment).
Notice to Appear
Section 56.29(2) of the Florida Statutes 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). Upon filing of this motion and affidavit, the court shall issue
a Notice to Appear that “must describe with reasonable particularity the property, debt, or other
obligation that may be available to satisfy the judgment.” Id.
SMS attaches a Notice to Appear to the instant motion, providing the following property
Any property of Gene Stone Construction, LLC, including but not limited to real
property, personal property and funds held in bank accounts, not exempt from
execution in the hands of any person, or any property, debt, or other obligation due
to Gene Stone Construction, LLC which may be applied toward the satisfaction of
the Judgment entered against G. Stone Construction, Inc.
(Doc. 4, Ex. B). “Any property” does not satisfy the “reasonable particularity” required by the
Section 56.29(2). “[T]he description requirement in section 56.29(2) is a clear requirement of the
statute,” Longo, 2018 WL 527016, at *5, and SMS’s property descriptions in the Notice to Appear
simply do not meet the “reasonable particularity” standard required by Section 56.29(2).
Accordingly, it is ORDERED that the Supplemental Motion to Implead Third Parties and
For Issuance of Statutory “Notice to Appear” (Doc. 4) is GRANTED to allow SMS to file and
serve an impleader complaint to the extent SMS wishes to hold Gene Stone liable for the Judgment,
and DENIED without prejudice as to all remaining requests. Within fourteen (14) days, SMS
shall file an amended Notice to Appear and file and serve an impleader complaint, again, to the
extent it wishes to hold Gene Stone liable for the Judgment.
ORDERED in Tampa, Florida, on this 13th day of April, 2018.
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