Avant Capital Partners, LLC v. Strathmore Development Co. Michigan
703 F. App'x 362
| 6th Cir. | 2017Background
- Avant obtained a federal judgment in Connecticut against Strathmore (a Michigan LLC) for broker fees and registered that judgment in the Western District of Michigan to pursue collection.
- Strathmore’s sole member is Terra Holdings (Terra); Chappelle controlled Strathmore, Terra, and related Bear Creek entities that operate Petoskey properties.
- Bear Creek entities had management agreements with Strathmore obligating management fees; after Bear Creek filed bankruptcy, Bear Creek paid many checks to Terra (not Strathmore), allegedly diverting funds that could satisfy Avant’s judgment.
- Avant sought post-judgment relief in Michigan under Fed. R. Civ. P. 69 and Mich. Ct. Rule 2.621 / MCL § 600.6104 to: (a) restrain Bear Creek from paying management fees to anyone but Avant, (b) require Strathmore and Terra to turn over monies to Avant, and (c) add Terra as a judgment-debtor jointly and severally liable for Strathmore’s debt — without formally serving or joining Terra in a new claim.
- The district court granted the requested relief, including paragraph two that added Terra as a joint judgment-debtor; Terra appealed only paragraph two, and Strathmore raised issues about unchallenged garnishee disclosures by Bear Creek.
- The Sixth Circuit affirmed all relief except paragraph two, holding the court exceeded Michigan law by making Terra a joint judgment-debtor without a separate veil-piercing claim/party process, but upheld orders compelling payments and restraints on transfers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) May the court add a nonparty (Terra) as a judgment-debtor and make it jointly & severally liable for the judgment against Strathmore in post-judgment proceedings? | Fed. R. Civ. P. 69 and MCL § 600.6104 allow broad supplementary relief; district court found facts supporting veil-piercing and thus could add Terra. | Michigan law bars using supplementary proceedings to enter an additional judgment against a nonparty; veil-piercing requires a separate action or proper joinder/notice. | Reversed as to paragraph two: court erred in adding Terra as a judgment-debtor without Terra being joined in a claim to pierce the veil. |
| 2) May the court order nonparties (Bear Creek, Strathmore, Terra) to pay monies they received relating to the management agreements to satisfy the judgment? | Court may garnish or restrain funds and order satisfaction out of money due to the judgment debtor under MCL § 600.6104(3)–(5) and Fed. R. Civ. P. 69. | Objected on various grounds (process, scope), but did not preserve all arguments on appeal. | Affirmed: court may compel payment of monies owed to Strathmore (and monies paid to Terra that legally belonged to Strathmore) and impose restraints on transfers. |
| 3) Did Avant’s failure to contest Bear Creek’s garnishee disclosures (that no money was owed at disclosure dates) bar relief against future payments? | The disclosures related only to amounts owed at those dates; they do not prevent collection from funds Bear Creek later came to owe Strathmore. | Argued that unchallenged disclosures should preclude subsequent enforcement out of those entities’ payments. | Held for Avant: accepting the disclosures as true for those dates did not bar garnishment of payments that later became owing. |
| 4) Were there jurisdictional or due-process defects in imposing the non-judgment relief (other than para.2)? | Terra had notice, appeared and argued below; Fed. R. Civ. P. 71 and precedent allow orders affecting nonparties with notice. | Terra claimed lack of service and due-process concerns as to being held liable without being a party. | Held: Terra waived personal-jurisdiction challenge and had notice/opportunity to be heard; no reversible due-process error for paragraphs 1,3,4,5. |
Key Cases Cited
- Green v. Ziegelman, 767 N.W.2d 660 (Mich. Ct. App.) (MCR § 2.621 / MCL § 600.6104 does not authorize entering judgment against a nonparty shareholder via supplementary proceedings).
- Gallagher v. Persha, 891 N.W.2d 505 (Mich. Ct. App.) (veil-piercing may be pursued post-judgment but requires a proper action or procedural vehicle; veil piercing is a remedy, not a freestanding judgment without process).
- Rawe v. Liberty Mut. Fire Ins. Co., 462 F.3d 521 (6th Cir.) (federal courts interpret state post-judgment enforcement procedures and review discretionary exercises for abuse).
- Presidential Facility, LLC v. Pinkas, [citation="607 F. App'x 473"] (6th Cir.) (permitting joinder of third-party holder of property in supplementary proceedings; distinguishes Green).
- In re RCS Engineered Prod. Co., Inc., 102 F.3d 223 (6th Cir.) (recognizing veil-piercing as an equitable remedy applicable in limited circumstances).