States Resources Corp v. Younger et al
Filing
76
ORDER denying 62 motion to quash. Signed on 3/10/14 by Magistrate Judge John T. Maughmer. (Alexander, Pam)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
SAINT JOSEPH DIVISION
States Resources Corp.,
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Plaintiff,
v.
Mark Younger, et al.
Defendants.
Criminal Action Number
08-06041-CV-SJ-DGK
ORDER
On April 18, 2008, plaintiff States Resources Corp. (“SRC”) filed the present action in
this Court against defendants Mark R. Younger (“Younger”) and Bearcat Express, LLC.
(“Bearcat”) regarding certain promissory notes and associated security agreements. On
November 10, 2008, the Court 1 granted summary judgment to SRC on four of the five counts
raised by SRC, dismissed the fifth count, and directed the parties to file a proposed judgment
[Doc. 22]. However, prior to the entry of any judgment, Younger filed for bankruptcy and the
case was stayed pursuant to 11 U.S.C. § 362. On October 22, 2010, the Bankruptcy Court
entered an ORDER DENYING DISCHARGE. In re Mark Raymond Younger, No. 08-50740-JWV-7
(Bankr. W.D. Mo.). On November 22, 2010, the Court lifted the stay and entered a judgment in
favor of SRC and against Younger and Bearcat, jointly and severally, in an amount of
$772,586.28 plus any accrued post-judgment interest [Doc. 40]. Neither Younger nor Bearcat
appealed the judgment or filed for any relief from the judgment. Thereafter, SRC has undertaken
efforts to collect on the still unpaid judgment.
1
The Honorable David Gregory Kays, Chief District Judge, United States District
Court for the Western District of Missouri.
On September 3, 2013, SRC served a subpoena on the Nodaway Valley Bank seeking
documents related to a particular account in the name of Renee Schlag (“Schlag”), referred to as
the “Clerking Account.” In addition, on August 31, 2013, SRC served a subpoena on YAC, LLC
(“YAC”) seeking documents related to the Clerking Account as well as documents reflecting
transfers of funds between Younger and Schlag. In the course of attempting to collect on its
judgment, SRC has developed evidence that might tend to show that Younger has used Schlag,
the Clerking Account, and YAC to hide assets from judgment creditors like SRC. The Court
does not make any finding on that allegation except to state that SRC has a good faith argument
in support of its supposition based on information obtained to date and the reasonable inferences
to be made from such information.
In response to the subpoena, Schlag and YAC filed a motion to modify the subpoenas
[Doc. 62]. Schlag and YAC argue that the subpoenas seek information that invades their “right
to privacy” in that the subpoenas seeks information, in some cases, is unrelated to Younger. In
addition, Schlag and YAC argue that the case of State ex rel. Long v. Askren, 874 S.W.2d 466
(Mo. App. [W.D.] 1994) affords them protection from SRC’s federal subpoenas. The Court
rejects both arguments raised by Schlag and YAC in this discovery dispute.
The necessary starting point for addressing the issue before the Court is FED. R. CIV. P.
69. Rule 69 governs the execution of judgments rendered in federal court. The first sentence of
Rule 69(a) specifies that unless otherwise ordered by a court, “[p]rocess to enforce a judgment
for the payment of money shall be a writ of execution. . .” FED. R. CIV. P. 69(a). The remaining
provisions of Rule 69(a) describe two entirely separate aspects of the judgment enforcement
process: the first relates to judgment execution procedure and supplemental proceedings thereto,
while the other controls postjudgment discovery. FED. R. CIV. P. 69(a)(1)-(2).
2
With respect to the execution procedure for a federal court money judgment, Rule 69(a)
provides:
The procedure on execution – in proceedings supplementary to and
in aid of a judgment or execution – must accord with the procedure
of the state where the court is located, but a federal statute governs
to the extent it applies.
FED. R. CIV. P. 69(a)(1). By its terms, then, this portion of the rule requires compliance with the
forum state’s execution methods and procedures, except where the state enforcement mechanism
is pre-empted by an applicable federal law. In reality, only a few federal laws exist in the
judgment execution context and most are concerned only technical details relevant to specific
judgments. See, e.g., 28 U.S.C. § 2005 (appraisal of goods taken on execution); 28 U.S.C. §
2006 (execution against revenue officers). In the present case, no federal statutory provisions
regarding execution procedures are implicated and, as such, there are no issues of possible
preemption.
Although Rule 69(a)(1) clearly mandates adherence to most state law execution
procedures, the next provision of the rule provides:
In aid of the judgment or execution, the judgment creditor or a
successor in interest . . . may obtain discovery from any person –
including the judgment debtor – in the manner provided in these
rules or by the procedure of the state where the court is located.
FED. R. CIV. P. 69(a)(2). Some courts have commented that “[a]t first blush, there appears to be
an inconsistency in Rule 69(a) which first mandates following state procedures and then presents
an option” of utilizing the Federal Rules of Civil procedure. Blaw Knox Corp. v. AMR
Industries, Inc., 130 F.R.D. 400, 402 (E.D. Wis. 1990). Any such “confusion” is alleviated,
however, by a plain reading of the two provisions of Rule 69(a) as dealing with separate subjects
– FED. R. CIV. P. 69(A )(1) pertains only to execution procedures available to creditors, while FED.
R. CIV. P. 69(a)(2) relates only to postjudgment discovery. See generally Chicago Pneumatic
3
Tool Co. v. Stonestreet O.V., 107 F.R.D. 674, 675 (S.D. W.Va. 1985) (explaining that “Rule
69(a) can be read as dealing with (1) execution procedures generally and (2) discovery in aid of
execution”). By its terms then, FED. R. CIV. P. 69(a)(2) offers a judgment creditor the option of
utilizing federal law or state law as it relates to postjudgment discovery.
Rule 69(a) first provides that a judgment creditor shall follow state
practice and procedure in seeking to satisfy a judgment. In other
words, [state law] provides various avenues of relief such as
execution, garnishment, appointment of a receiver, etc. Thus, a
judgment creditor is limited to the collection options provided by
the state. However, when utilizing state collection procedures,
Rule 69(a) then provides that a judgment creditor may obtain
discovery and in so doing, may then either use the procedures set
forth in the federal rules or those provided by state practice.
Blaw Knox, 130 F.R.D. at 402. See also FDIC v. LeGrand, 43 F.3d 163, 171 (5th Cir.1995)
(rejecting judgment debtor's argument that “state procedural rules apply to the determination of
the postjudgment discovery issue”); Fuddruckers, Inc. v. KCOB I, L.L.C., 31 F.Supp.2d 1274,
1277-79 (D. Kan. 1998) (“[T]o the extent that it elects to conduct postjudgment discovery . . . the
judgment creditor may choose between state and federal law [and the pursuit of a state court
execution procedure] does not preclude a judgment creditor from utilizing federal discovery
procedures simultaneously”).
In this case, with regard to the subpoenas in question, SRC has elected to use federal
procedure rules for its postjudgment discovery regarding Younger. As made clear in Rule
69(a)(2) (“the judgment creditor . . . may obtain discovery from any person”), the scope of such
discovery is broad and should be liberally construed.
The purpose of discovery under Rule 69(a)(2) is to allow the
judgment creditor to identify assets from which the judgment may
be satisfied and consequently, the judgment creditor should be
permitted to conduct a broad inquiry to uncover any hidden or
concealed assets of the judgment debtor. The discovery must be
relevant to that purpose, however, and may not be used in order to
harass the judgment debtor or any third parties.
4
13 JAMES WM. MOORE ET AL., MOORE’S FEDERAL PRACTICE ¶ 69.04 (2008). See also 12
CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 3014 (1997)
(“The judgment creditor is allowed discovery to find out about assets on which execution can
issue or about assets that have been fraudulently transferred or are otherwise beyond the reach of
execution. . . . The scope of examination is very broad, as it must be if the procedure is to be of
any value.”); LeGrand, 43 F.3d at 172 (“The scope of postjudgment discovery is very broad.”).
Turning to the subpoenas in this case, the Court concludes that they properly fall within
the scope of permissible discovery sanctioned by the Federal Rules of Civil Procedure. See, e.g.,
FED. R. CIV. P. 26(b)(1); YCB International, Inc. v. UCF Trading Co., Ltd., 2014 WL 117353,
op. *2 (N.D. Ill. Jan. 13, 2014) (“The ‘rules’ mentioned in Rule 69(a)(2) are the federal rules
governing pre-trial discovery.”). In this case, the Court concludes that SRC has satisfactorily
demonstrated that the information sought in the subpoenas is relevant to the collection of any
outstanding federal judgment and is reasonably calculated to lead to the discovery of assets to aid
in the satisfaction of SRC’s outstanding judgment.
Moreover, it “[t]here is no doubt that third parties can be examined in relation to the
financial affairs of the judgment debtor.” British International Insurance Co., Ltd. v. Aeguros La
Republica S.A., 200 F.R.D. 586, 590 (W.D. Tex. 2000) (citation omitted). Indeed, the very
language of Rule 69(a)(2) contemplates that discovery may be obtained “from any person.”
However, postjudgment discovery from third parties “must be balanced against the privacy
interests of third party.” YCB International, op. at *2. Thus, the “judgment creditor must make a
threshold showing of necessity and relevance.” Blaw Knox, 130 F.R.D. at 403-04. Certainly, a
federal court always retains the authority to limit postjudgment discovery “if it determines that
the burden of the discovery outweighs its benefit.” In re IKB Deutsche Industriebank AG, 2010
WL 1526070, op. at *5 (N.D. Ill Apr. 8, 2010).
5
In this case, the Court is satisfied that SRC has demonstrated both relevance and
necessity with regard to the information sought in the subpoenas, including evidence indicating
that significant monies being received by Younger and his businesses has been transferred to the
Clerking Account. Indeed, neither Schlag nor YAC seriously argue that the information is not
relevant and necessary, only that it invades their privacy and is burdensome. While recognizing
the privacy rights of Schlag and YAC , the Court finds that they are outweighed by SRC’s
legitimate need for the sought after information. However, as a protection for the privacy rights
of Schlag and YAC, the Court orders that the documents produced pursuant to the subpoenas not
be disseminated beyond the parties, their attorneys (and retained experts and investigators)
without express permission of the Court. 2
Finally, the Court also rejects the reliance of Schlag and YAC on State ex rel. Long v.
Askren, 874 S.W.2d 466 (Mo. App. [W.D.] 1994) in an effort to avoid compliance with the
subpoenas. In Long, a Missouri appellate court determined that a debtor’s examination
conducted pursuant to MO. REV. STAT. § 513.380 did not permit a state circuit court to compel
the attendance and testimony of third parties.
Statutory debtor’s examinations are limited statutory creations.
They did not exist at common law. . . . Section 513.380 neither
specifically nor impliedly authorizes the trial court to compel the
presence of third parties. Thus, while trial courts have statutory
authority to compel the judgment debtor to appear and to produce
documents relevant to the judgment debtor proceeding . . . the
limited authority granted courts to conduct judgment debtor's
examinations does not include statutory authority to compel
attendance of third party witnesses. Additionally, because
judgment debtor’s examinations are purely limited statutory
proceedings, trial courts lack inherent authority to compel the
attendance of third parties at debtor’s examinations.
Long, 874 S.W.2d at 477.
2
The Court further rejects the vague and unsupported allegation by Schlag and
YAC that the subpoenas are overly broad and compliance with them would be unduly
burdensome.
6
The decision in Long is limited to an interpretation of the scope of state law procedure
under MO. REV. STAT. § 513.380. In this case, the Court is not dealing with such a debtor’s
examination under state law. Moreover, the narrow holding in Long does not create a general
state law privilege that might be a limitation on discovery under the Federal Rules of Civil
Procedure.
For the foregoing reasons, the Court DENIES the MOTION TO MODIFY PLAINTIFF’S
SUBPOENAS DIRECTED TO NODAWAY VALLEY BANK AND YAC, LLC [Doc. 62]. Compliance
with the subpoenas should be accomplished forthwith.
/s/ John T. Maughmer
John T. Maughmer
United States Magistrate Judge
7
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