MEMORANDUM OF DECISION
Sеeking to enforce a judgment entered against Thai Teak Products Company and Forest Products Company (judgment debtors), Strick Corporation (plaintiff-garnish- or) served a writ of execution and interrogatories upon garnishee, Bangkok Industries, Inc. Significantly, Strick attached 1 not only the property of the nominal defendants, but also the assets of Dumrong Trading Co. and Dumrong Phanich Sawmill Company, two companies Strick contends are “alter egos” of the judgment debtors. The garnishee (Bangkok) concedes that the writ of execution and interrogatories are proper with respect to its relations with the judgment debtors, but it challenges Strick’s authority to attach debts owed to the alleged “alter egos” and to compel answers to interrogatories directed to its relationships with those companies. Bangkok has raised preliminary objections challenging the procedures while Strick has requested sanctions against Bangkok for failure to answer the interrogatories.
Federal Rule of Civil Procedure 69 governs the procedures to enforce judgments in federаl courts. Under Rule 69 the parties are referred to state practice for proceedings in aid of judgment. In addition, the judgment creditor may utilize either federal or state discovery rules. See generally, 7 Moore’s Federal Practice ¶ 69.05[1]. Of central concern in the present case is the method under Pennsylvania law for attaching the property of companies alleged to be “alter egos” of judgment debtors. The parties dispute what procedure is authorized and whether that procedure affords due prоcess of law.
Under Pennsylvania practice, execution is commenced by filing a praecipe for a writ of execution with the prothonotary. Rule 3103. The prothonotary issues the writ and indexes it against the defendant in the judgment index. Rule 3104. Service of the writ upon the garnishee attaches all property of the defendant which is in the posses
Before submitting these procedures to constitutional scrutiny, we must first examine whether the writ was issued in accordance with Pennsylvania law. The garnishee notes that the rules provide only for garnishment of the property of “defendant”. Under a literal reading of the rule, attachment of the Dumrong companies’ property is not authorized since they were not nominally defendants in the original action. The garnishee contends that execution upon their property is permitted only if Strick proves prior to attachment that an alter ego relationship exists. Strick, on the contrary, argues that alleged alter egos are considered “defendants" under Pennsylvania rules for purposes of attachment. It also asserts that Bangkok may not challenge the attachment or the interrogatories by means of preliminary objections. 2
Pennsylvania cases provide support for both of Strick’s arguments. Under circumstances similar to thosе in the present case, Pennsylvania courts have permitted judgment creditors to attach the property of alleged alter egos before proving the existence of the alter ego relationship and have even limited the methods for contesting the attachment after it occurs. For example, in
Fleming v. Quaid,
“The corporation’s remedy is to intervene formally under Pa.R.C.P. No. 2326 et seq,, and either (1) dissolve the attachment by giving security under Pa.R.C.P. No. 3143(b), after which the trustee will be in a position to pay the money to the corporation, leaving the issue of ownership as between the corporation and the judgment debtor to be determined in subsequent proceedings under the attachment; (2) file answers to the interrogatories stating that the property sought to be attached is the property of the corporation, not of the judgment debtor, and move for trial on this issue; or (3) move for trial upon the interrogatories and the garnishee’s answers.”
Id.
at 255. In other cases, courts have followed the
Fleming
reasoning.
See, e. g., Unity Mutual Life Insurance Co.
v.
DiDominico,
- Pa.Super. -,
DUE PROCESS
A. The Precedent
In a series of cases concerning pre-judgment attachment, the Supreme Court defined the contours of due process requirements. The first of these cases,
Sniadach v. Family Finance Corp.,
The final case in this line brought
Fuentes
back to life, albeit in weakened form. In
North Georgia Finishing v. Di-Chem,
For assistance in reconciling these holdings, we look to the decision of the Court of Appeals for the Third Circuit in
Jonnet v. Dollar Savings Bank of City of New York,
The balancing approach adopted by the Third Circuit in
Jonnet
after review of the garnishment cases foreshadowed the Supreme Court’s opinion in
Mathews v. Eldridge,
[F]irst, the private interest that will be affected by the official action; second, the risk оf an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirements would entail. Id. at 335,96 S.Ct. at 903 .
Under Mathews, the due process concern that property not be taken on the basis of an erroneous conception of the facts is implemented by balancing the various interests of the government and private parties together with the efficacy of requiring additional safeguards. 7
B. Post-Judgment Garnishment
Plaintiff contends that this case cannot be governed by the requirements set forth in the context of prejudgment attachment because plaintiff has already obtained a judgment in its favor. As Strick correctly notes, the balance between the interest of plaintiff and defendants is аltered once a judgment is entered. Indeed, in
Finberg v. Sullivan,
If we were presented with the same confrontation between plaintiff’s interests and defendants’ interests that the court balanced in Finberg, we might be reluctant to retread the same ground. But in the present case, the due process rights of third parties are implicated because the judgment debtors are not the nominal owners of the property. 11 The Endicott-Johnson rationale is entirely inapposite when the property owners were not parties to the prior court proceeding and may have no knowledge of the judgment. Without proof of the alter ego relationship we cannot assume that the nominal owners hаve received their day in court nor that they can be expected to know that plaintiff will attempt to execute on their property. The constitutional rights of the Dumrong companies cannot be eliminated from the balance simply because Strick alleges they are alter egos of the judgment debtors. Just as the defendants in Jonnet were entitled to protection against mistaken taking of their property, so the Dumrong companies are entitled to some protection against mistaken attachment. Thus, we cannot simply rely on the Finberg holding, but must perform the task of weighing the competing factors with the interest of the Dumrong companies included in the balance.
The interests of the judgment creditor and debtor in the present case parallel those found by the Finberg court. Strick wishes speedy satisfaction of its judgment. Indeed, in the last four years it has been unable to locate and execute upon assets of the judgment debtor. Thus it has a strong interest in finding and attaching property. The government also has an interest in policing and encouraging orderly commercial transactions. Judgment debtors, of course, wish to avoid deprivation of their property. In the event they do own the attached property, their interest should be afforded the same weight as the interest of the judgment debtors in Finberg.
Because the attached property is nominally owned by the Dumrong companies, we must also consider their interests. Like the judgment debtors, the Dumrong companies wish to maintain control and use of their property. Attachment of the debt in the hands of the garnishee limits the companies’ available capital at least temporarily. It may also sever relations between the garnishee and the Dumrongs since future debts become part of the attached property. Just as the Di-Chem and Jonnet defendants had strong interests in avoiding prejudgment attachment and thus retaining control of their property, so the Dumrong companies have strong interests in avoiding execution attachment prior to a showing that they are alter egos of the judgment defendants.
The risk that the companies will be temporarily deprived of property based upon аn
Under Pennsylvania procedure, the protections for the garnishment defendants occur after attachment. After plaintiff’s attorney submits the affidavit, secures the writ and attaches the property, notice is given by the garnishee to the garnishment defendants. At that point they may seek release of their property by filing a bond in an amount not required to exceed the value of the attached property. Rule 3143. See also Rule 3119. They may also intervene and move for trial on the question of whether they are alter egos. See Fleming v. Quaid, supra. Although not stated in the Fleming opinion, most likely the statutory authority for such a trial derives from Rule 3121(b) permitting a stay of execution by a party in interest showing any legal or equitable ground. There is no clear requirement on how promptly a hearing must be held. 12
Because the garnishment defendants have interests akin to those of prejudgment defendants and those interests are unprotected prior to attachment, we find the Pennsylvania garnishment procedures unconstitutional as applied to the property of parties other than the judgment debtors. Additional safeguards would provide enhanced protection against mistaken attachment at minimal cost to the state. For guidance we look to the decisions of the Supreme Court as interpreted by our Third Circuit in Jonnet. An affidavit should be required clearly setting forth the factual basis for the conclusion that the garnishment defendants are alter egos of the judgment debtors. This affidavit should be presented to an official with competence to evaluate the claim and discretion to deny the writ. The writ should issue only if on its face probable cause exists for accepting its conclusion. Plaintiff should post a bond to indemnify the defendant for a mistaken tаking. Finally, an immediate post attachment hearing should take place where plaintiff would be required to prove the existence of an alter ego relationship. The Pennsylvania rules statute under consideration totally fails to meet these criteria. Accordingly, we dissolve the writ attaching the property of the Dumrong companies.
THE INTERROGATORIES
Striek also seeks sanctions against Bangkok for failure to answer interrogatories. The two cases cited by Striek in its supplemental memorandum of law, however, require at least somе demonstration of the alter ego relationship prior to imposition of sanctions. In
Caisson Corp. v. County West Building Corp.,
There is no doubt that third parties can be examined in relation to the financial affairs of the judgment debtor. The appropriate manner to afford third parties protection is not to require that questions be phrased in a legalistically conclusory manner but rather to allow questions as to their personal activities, within limits, yet requiring some showing of the relationship that exists between the judgment debtor and the third party from which the court on a motion for a protective order can determine whether the examination has a basis. Id. at 335. 13
Similarly, in
Magnaleasing Inc. v. Staten Island Mall,
Notes
. Attachment as used herein includes garnish-, ment and restraint of payment of a debt.
. Rule 3142(a) provides: “The defenses of immunity or exemption of property from attachment or a question of jurisdiction over the garnishee may be raised by preliminary objections.”
. The
Fleming
court seemed to regard the grounds stated in the Rule 3142(a) as exclusive.
Fleming v. Quaid,
. In 9 Goodrich Amram 2d § 3142(a):1. at 478, the authors suggest that the grounds mentioned in Rule 3142(a) are not exclusive. The treatise states:
The two defenses of exemption or immunity and lack of jurisdictiоn are properly understood as simply two grounds for objection which “may” be raised preliminarily and as the two which will most commonly be raised by the garnishee. There is nothing within the purposes of Rule 3142, and no other practical reason, why the garnishee should be prevented from raising the preliminary objections properly raised in an action of assumpsit under Rule 1017(b).
. The Court then defined the exceptions to the rule as follows:
There are “extraordinary situations” that justify postponing notice and opportunity for a hearing. These situations, however, must be truly unusual. Only in a few limited situations has this court allowed outright seizure without opportunity for a prior hearing. First, in each case, the seizure has been directly necessary to secure an important governmental or general public interest. Second, there has been a sрecial need for very prompt action. Third, the State has kept strict control over its monopoly of legitimate force: the person initiating the seizure has been a government official responsible for determining, under the standards of a narrowly drawn statute, that it was necessary and justified in the particular instance.407 U.S. at 90-91 ,92 S.Ct. at 1999 (citations and footnotes omitted).
. Foreign attachment is the process used to obtain jurisdiction over instate property of an out of state debtor in order to adjudicate a claim or to obtain satisfaction of a debt. This casе resembles a foreign attachment in that an out of state corporation must defend the execution to protect its property in Pennsylvania. We asked the parties to brief the issue of personal jurisdiction because we were unsure whether the Dumrong companies had sufficient contacts with Pennsylvania to permit the court to determine the ownership of the debt owed by Bangkok. Although Strick asserts that the execution is an in rem proceeding because the ownership of the debt is at issue, we are not convinced that labeling the proceeding in rem automatically solves the jurisdictional problem.
See U. S. Industries v. Gregg,
. The need for at least some safeguards also derives from another concern of the Due Process Clause, the promotion of participation and dialogue by affected individuals in the decision-making process.
Marshall v. Jerrico
Inc., - U.S. -,
. Other federal courts have followed the Supreme Court and invalidated prejudgment seizures.
See,
e.
g., Johnson v. American Credit Co. of Ga.,
. Other courts have also upheld postjudgment statutes that would not meet the
Jonnet
requirements.
See, e. g., Brown v. Liberty Loan Corp. of Duval,
. Rule 3123 permits exercise of a statutory exemption simply by notifying the sheriff of the claim before the date of sale.
. The interests of third parties must be considered when assessing whether the Pennsylvania procedures comport with due process. In
Coe v. Armour Fertilizer Works,
But before a third party’s property may be taken to pay that indebtedness upon the ground that he is a stockholder and indebted to the corporation for an unpaid subscription, he is entitled, upon the most fundamental principles, to a day in court and a hearing upon such questions as whether the judgment is void or voidable for want of jurisdiсtion or fraud, whether he is a stockholder and indebted, and other defenses personal to himself. Id. at 423,35 S.Ct. at 628 .
Thus the court expressly considered the rights of the property owner. To be sure the
Coe
court was not presented with an allegation that the shareholder was an alter ego of his company and arguably would require only a post attachment hearing. This early case, however, demonstrates the importance of the interest of non-judgment defendants.
Cf. Luria Bros. and Co., Inc. v. Allen,
. As stated in note 1
supra,
in
Fleming v. Quaid
the Pennsylvania Superior Court rejected the use of 3121(d) to challenge the writ itself. This holding was recently reaffirmed in
Unity Mutual Life Insurance Co. v. DiDomenico,
— Pa.Super. -,
. The court also found significant that the deponent was an officer of the corporation and could be deposed in that capacity.
.
See also, Burak v. Scott,
