Michigan

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Nationsbanc Mortgage Corporation of Georgia v. Luptak,
625 N.W.2d 385 (Mich.App. 12/12/2000)

Michigan Court of Appeals

No. 212634

243 Mich.App. 560, 625 N.W.2d 385, 2000.MI.0045073, 2000 WL 1836023

December 12, 2000

NATIONSBANC MORTGAGE CORPORATION OF GEORGIA, F/K/A CITIZENS AND SOUTHERN MORTGAGE CORPORATION, PLAINTIFF-APPELLANT,

v.

JERRY LUPTAK, JERRY D. LUPTAK REVOCABLE TRUST, NINA LUPTAK, NINA D. LUPTAK REVOCABLE TRUST, HAROLD BEZNOS, HAROLD BEZNOS REVOCABLE TRUST, NORMAN BEZNOS, NORMAN BEZNOS REVOCABLE TRUST, MAURICE BEZNOS, MAURICE JERRY BEZNOS REVOCABLE TRUST AND SHELDON KORN,*FN1 DEFENDANTS, AND THE KORN FAMILY LIMITED PARTNERSHIP, GARNISHEE DEFENDANT-APPELLEE.

Oakland Circuit Court LC No. 93-453050-CZ

Before: Holbrook, Jr., P.J., and Kelly and Collins, JJ.

The opinion of the court was delivered by: Holbrook, Jr., P.J.

FOR PUBLICATION

9:10 a.m.

Plaintiff in this garnishment action appeals as of right from the trial court's order granting garnishee defendant's motion for summary disposition pursuant to MCR 2.116(C)(8). We affirm.

I. Factual Background and Procedural History

Sheldon Korn, the Luptak defendants, and the Beznos defendants, were guarantors of a mortgage loan procured from plaintiff by Beztak Homes, Inc., a Michigan corporation, for the development of a residential subdivision in Florida. Following Beztak's default on the mortgage loan, plaintiff instituted foreclosure proceedings in Florida. In 1992, a final judgment of foreclosure was entered against Beztak. Subsequently, plaintiff instituted proceedings against Korn and the Luptak/Beznos defendants in the Circuit Court for Broward County, Florida, and obtained judgment against them, jointly and severally, in the amount of $4,295,619.61.

In April 1993, plaintiff instituted proceedings in Oakland Circuit Court; seeking to domesticate the Florida judgment against the guarantors. The Luptak/Beznos defendants later entered into a settlement agreement with plaintiff, and trial was held for the sole purpose of determining Korn's liability. In March 1996, the trial court entered judgment against Korn in the amount of $2,267,800.

Following entry of the judgment, plaintiff held a creditor's examination of Korn. The creditor's examination revealed that, one week after plaintiff had demanded full payment from Beztak in 1991, Korn had formed the garnishee defendant The Korn Family Limited Partnership (KFLP) and had transferred into KFLP his interests in five real estate partnerships. Plaintiff immediately served KFLP with a writ of nonperiodic garnishment. KFLP denied that it was indebted to Korn or that it possessed or controlled any property belonging to Korn. The trial court subsequently entered an order granting KFLP's motion for summary disposition, holding that (1) the writ of garnishment did not provide adequate notice to KFLP of the basis for plaintiff's garnishment claim, and (2) plaintiff was not permitted to pursue a fraudulent conveyance claim under the Uniform Fraudulent Conveyance Act (UFCA), MCL 566.11 et seq.; MSA 26.881 et seq., within the context of the garnishment proceedings.

II. Standards of Review

This Court reviews decisions on motions for summary disposition de novo to determine if the moving party was entitled to judgment as a matter of law. UAW-GM Human Resource Center v KSL Recreation Corp, 228 Mich App 486, 490; 579 NW2d 411 (1998). A motion under MCR 2.116(C)(8) tests the legal sufficiency of a claim by the pleadings alone. Maiden v Rozwood, 461 Mich 109, 119; 597 NW2d 817 (1999).

All factual allegations in support of the claim are accepted as true, as well as any reasonable inferences or conclusions that can be drawn from the facts. The motion should be granted only when the claim is so clearly unenforceable as a matter of law that no factual development could possibly justify a right of recovery. [Kuhn v Secretary of State, 228 Mich App 319, 324; 579 NW2d 101 (1998)(citation omitted).]

Additionally, this appeal presents questions concerning the interpretation of court rules. "Interpretation of the court rules presents a question of law, which is reviewed de novo." Waatti & Sons Electric Co v Dehko, 230 Mich App 582, 586; 584 NW2d 372 (1998).

III. Whether the Writ of Garnishment Provided Adequate to Garnishee Defendant of the Basis for Plaintiff's Garnishment Claim

Garnishment actions are authorized by statute. MCL 600.4011(1); MSA 27A.4011(1). The court may exercise its garnishment power only in accordance with the Michigan Court Rules. MCL 600.4011(2); MSA 27A.4011(2); Waatti, supra at 587; Royal York of Plymouth Ass'n v Coldwell Banker Schweitzer Real Estate Services, 201 Mich App 301, 305; 506 NW2d 279 (1993). MCR 3.101 governs postjudgment garnishment proceedings, and subrule (G)(1) delineates the various categories of items for which a garnishee is liable. Plaintiff argued below that KFLP is liable pursuant to MCR 3.101(G)(1)(h), which provides that the garnishee is liable for all tangible or intangible property of the defendant that, when the writ is served on the garnishee, the garnishee holds by conveyance, transfer, or title that is void as to creditors of the defendant, whether or not the defendant could maintain an action against the garnishee to recover the property . . . .

The trial court granted KFLP's motion for summary disposition based in part on its conclusion that the writ of garnishment served upon KFLP provided no notice of plaintiff's fraudulent conveyance claim. The court reasoned, in part, that summary disposition was proper because plaintiff's writ neither indicates that the property at issue was transferred to KFLP "by a void transaction," nor "state[s] the facts on which plaintiff relies and the allegations necessary to inform the limited partnership of the pleader's claims, MCR 2.111(B)(1)." We disagree.

MCR 3.101(M)(2) provides that the plaintiff's verified statement serves as the "complaint" against the garnishee defendant; that the garnishee defendant's disclosure serves as the answer; and that

"[t]he garnishee's liability to the plaintiff shall be tried on the issues thus framed." MCR 3.101(D) specifically sets forth the allegations which must be included in the verified statement:

"(1) that a judgment has been entered against the defendant and remains unsatisfied;

(2) the amount of the judgment and the amount remaining unpaid;

(3) that the person signing the verified statement knows or has good reason to believe that

(a) a named person has control of property belonging to the defendant,

(b) a named person is indebted to the defendant, or

(c) a named person is obligated to make periodic payments to the defendant.

Plaintiff's verified statement included each of the required allegations, including the statement that "the garnishee possesses or controls property belonging to the defendant."

The garnishment proceeding "complaint," as contemplated by MCR 3.101, is not required to contain specific information regarding the debts or property that are subject to the writ. MCR 2.111(B) generally requires that a complaint contain a "statement of the facts" and the "specific allegations necessary reasonably to inform the adverse party of the nature of the claims" against it. The verified statement submitted in the instant case complies with MCR 2.111(B) by setting forth the pertinent information concerning the judgment against Korn and the specific allegation that KFLP possessed or controlled property belonging to Korn. This result makes particular sense in light of MCR 3.101(H)(1), which requires the garnishee defendant to file a disclosure "revealing the garnishee's liability to the defendant as specified in subrule (G)(1) . . . ."

Moreover, as a general rule of construction, when two statutes or provisions conflict, and one is specific while the other more general, the specific statute or provision prevails. Haberl v Rose, 225 Mich App 254, 261-262; 570 NW2d 664 (1997). Accordingly, if and to the extent that MCR 3.101(D) and (M) conflict with MCR 2.111(B), MCR 3.101, which specifically governs garnishment proceedings, prevails. See LeDuff v Auto Club Ins Ass'n, 212 Mich App 13, 17-18; 536 NW2d 812 (1995).

Therefore, because plaintiff complied with the requirements of the court rule, we conclude that summary disposition was not properly granted due to lack of notice.

IV. Whether Plaintiff Has Properly Stated a Fraudulent Conveyance Claim

The trial court also held that KFLP was entitled to summary disposition because "a fraudulent conveyance is merely a voidable transaction and must be set aside using the proper procedure." The trial court noted that plaintiff's garnishment claim pursuant to MCR 3.101(G)(1)(h) was based on the UFCA,*fn2 and held that KFLP was not subject to liability under MCR 3.101(G)(1)(h) until the conveyance to it from Korn had been declared void pursuant to the UFCA. We agree.

MCR 3.101(G)(1)(h) clearly indicates that it only applies to conveyances that are void as to creditors at the time the writ is served on the garnishee defendant. Given the legal import attached to the term "void," and crediting the Supreme Court with full knowledge of such significance, we read the court rule as requiring a previous judicial determination that the transfer at issue is indeed void.

We also believe that such a reading is consistent with the requirements set forth in MCR 3.101(D) regarding the statement of claim made in a garnishment proceeding. Given the limited information that is required to be set forth in the verified statement, we believe that requiring a plaintiff to specifically allege the factual basis for a claim of fraudulent conveyance in a separate proceeding comports with due process guarantees. Without such specific pleadings, the garnishee's ability to resist a mistaken deprivation of property is severely compromised. This is especially so when the garnishee was not even a named party in the prior lawsuit and judgment from which the garnishment proceeding stems.*fn3

In the instant case, the conveyance from Korn to KFLP had not been declared "void."*fn4 Accordingly, we conclude that summary disposition was appropriately granted.

Affirmed.

Donald E. Holbrook, Jr.

Jeffrey G. Collins

KELLY, J. (concurring in part and dissenting in part).

I agree with the majority that, under MCR 3.101, the writ of garnishment provided adequate notice of the nature of the proceedings to garnishee-defendant, the Korn Family Limited Partnership ("KFLP"). Our Supreme Court held long ago that a writ of garnishment alleging that the garnishee has property, money, etc., in its hands or under its control belonging to the defendant is sufficient, and more detail as to why the garnishee is liable is not required. Connor v Third Nat'l Bank, 90 Mich 328, 333-334; 51 NW 523 (1892). I disagree, however, that a transfer is not "void" until it is established to be so in a separate action brought under the Uniform Fraudulent Conveyances Act, MCL 566.11 et seq.; MSA 26.881 et seq.

Defendant Sheldon Korn, and others, personally guaranteed a corporate loan. When the corporate debtor defaulted, plaintiff filed suit in Florida to collect on the personal guarantees. Judgment was entered in favor of plaintiff in 1992 in an amount in excess of $2 million. In 1993, plaintiff filed suit to enforce the judgment in Michigan and judgment was entered in favor of plaintiff in 1996. At a creditor's examination, it was learned that Korn had transferred his interests in five real estate limited partnerships valued at over $2 million to KFLP, which had been formed shortly after plaintiff issued its demand letter. The transfers left Korn insolvent. Based on Korn's testimony regarding consideration given for the transfers, plaintiff believed the transfers to be fraudulent.

The trial court reasoned that, since under the Uniform Fraudulent Conveyances Act ("UFCA"), MCL 566.11 et seq.; MSA 26.881 et seq., there are several ways to establish a conveyance to be fraudulent, the implication is that a conveyance is not fraudulent until established to be so under the UFCA. Thus, the court ruled, and the majority concurs, that plaintiff was required to file a separate action to void the fraudulent conveyance before seeking the writ of garnishment. I disagree.

In a garnishment proceeding, the affidavit acts as the plaintiff's complaint against the garnishee defendant and the garnishee's disclosure serves as the answer. MCR 3.101(M)(2). If there is a dispute as to the garnishee defendant's liability, the issue shall be tried in the same manner as other civil actions. MCR 3.101(M)(1). At the trial of the garnishee defendant's liability, the plaintiff may offer the record of the garnishment proceeding and other evidence. The garnishee defendant may offer evidence not controverting the disclosure or, in the discretion of the court, may show errors or mistakes in the disclosure. MCR 3.101(M)(5). These rules clearly indicate that disputes over the validity of a transfer affecting the garnishee's liability shall be tried in the garnishment proceeding.

The court rules provide that a garnishee defendant is liable for property of the principal defendant's that it holds by conveyance or transfer of title that are void as to creditors of the defendant. MCR 3.101(G)(1)(h). Several decisions have recognized the use of garnishment proceedings to reach fraudulently conveyed property of a debtor. See Mich PI Prac § 75.27 (2nd ed) and cases cited therein. The issue in this case was whether the transfer was a bona fide transaction upon sufficient consideration and free from fraud. Long v Evening News Ass'n, 113 Mich 261; 71 NW 492 (1897); Mihajlovski v Elfakir, 135 Mich 528, 534; 355 NW2d 264 (1984). The circuit court had to reach this issue in order to render a judgment in garnishment. I see no justification for requiring a separate action declaring a fraudulent conveyance void under the UFCA before a creditor may proceed against a garnishee defendant who holds property by way of such a transfer.

I would reverse and remand for trial on the issue of KFLP's liability.

Michael J. Kelly

Opinion Footnotes

*fn1 The Luptak and Beznos defendants are not participants in the instant appeal; nor is Sheldon Korn.

*fn2 The UFCA has recently been repealed, MCL 566.43; MSA 26.895(13), and was replaced by the similar Uniform Fraudulent Transfer Act, MCL 566.31 et seq.; MSA 26.895(1) et seq., effective December 30, 1998. 1998 PA 434, § 13.

*fn3 We do believe, however, that if the parties so agreed, adjudication of a fraudulent conveyance claim could be disposed of in garnishment proceedings, assuming proper notice of the issues in controversy.

*fn4 We note that the UFTA refers to fraudulent transfers as being "voidable" under the Act, see MCL 566.38(1), (2), (5), (6); MSA 26.895(8)(1), (2), (5), (6), and specifically provides a statute of limitations for "[a] cause of action . . . under this act," MCL 566.39; MSA 26.895(9) (emphasis supplied).

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