HomeMy WebLinkAbout90-2424 CivilMICHAEL E. MEAGHER IN THE COURT OF COMMON PLEAS OF
to the use of CUMBERLAND COUNTY, PENNSYLVANIA
RUSSELL L. WANTZ, JR.
Plaintiff CIVIL ACTION - LAW
V.
WILLIAM R. COOPER, JR. and
MARY BETH HELMS COOPER, 2424 CIVIL 1990
Defendants
IN RE: GARNISHMENT ADJUDICATION
BEFORE OLER, J.
ORDER OF COURT
AND NOW, this jq r4 day of January, upon consideration of the
arguments presented at trial, the trial transcript, and Post -trial
briefs of counsel, this Court finds in favor of the Garnishee.
Audrey E. Woloshin, Esq.
345 East Market Street
York, PA 17403
Counsel for Plaintiff
Anna Marie Sossong, Esq.
204 State Street
Harrisburg, PA 17101
Garnishee
BY THE COURT,
�i
'J �—
MICHAEL E. MEAGHER IN THE COURT OF COMMON PLEAS OF
to the use of CUMBERLAND COUNTY, PENNSYLVANIA
RUSSELL L. WANTZ, JR.
Plaintiff CIVIL ACTION - LAW
V. -
WILLIAM R. COOPER, JR. and
MARY BETH HELMS COOPER, 2424 CIVIL 1990
Defendants
IN RE: GARNISHMENT ADJUDICATION
BEFORE OLER, J.
OPINION AND ORDER OF COURT
Oler, J.
This case presents the question of whether a plaintiff may
obtain an in personam judgment against a garnishee where: (1) the
plaintiff attempted to execute upon personal property in the form
of a corporate security; (2) where the security in question was not
physically seized; and (3) where the garnishee subsequently
transferred the security. This matter was the subject of a non -
jury trial before the undersigned judge on October 19, 1992. Based
upon the evidence presented at trial, the arguments of counsel, and
a review of the briefs submitted, the following Findings of Fact,
Discussion, and Order of Court are made and entered:
FINDINGS OF FACT
1. A judgment (Judgment) in the amount of Two Hundred
Thousand Dollars, with interest, was entered in favor of Michael
Meagher (hereinafter Meagher) and against William R. Cooper, Jr.
and Mary Beth Helms Cooper (hereinafter Defendant) on September 12,
1989, based upon a note signed by the Defendant, dated September
2424 Civil 1990
11, 1989.'
2. As of March 16, 1990, Defendant William R. Cooper was the
sole shareholder in Cooper -Helms Chevrolet, Inc. (hereinafter
Cooper -Helms), a General Motors franchise.2
3. Meagher subsequently assigned the Judgment to Russell L.
Wantz, Jr. (hereinafter Plaintiff) for a stated consideration of
one dollar.'
4. Anna Marie Sossong (hereinafter Garnishee) is an attorney
licensed to practice law in the Commonwealth of Pennsylvania.'
5. Between March 12 and March 16, 1990, the Garnishee
represented a Mr. Caffrey and a Mr. Hartzell (hereinafter Clients)
at a series of meetings wherein the Clients were attempting to
purchase stock in Cooper -Helms.'
6. General Motors Corporation restricts the sale and issuance
of stock in its franchises; consequently, potential investors must
1 Certification of Docket Entries and Judgment, Dauphin
County, Pennsylvania, No. 2647 N. 1989. The Judgment was
subsequently transferred to Cumberland County and entered in the
Judgment Docket at No. 2424 Civil 1990.
2 Transcript of Trial Proceedings pp. 6, 10 (hereinafter N.T.
' Praecipe and Assignment of Judgment docketed at 2424 Civil
1990.
° N.T. 4.
5 N.T. 3-5.
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2424 Civil 1990
be approved by General Motors.6
7. At the March 16, 1990, meeting, the Clients gave a
personal loan to Defendant William R. Cooper in the amount of
approximately Two Hundred and Eleven Thousand Dollars.'
8. At the same meeting, Defendant William R. Cooper used the
loan to pay the outstanding balance on a note held by Motors
Holding Corporation (hereinafter Motors Holding), a General Motors
affiliate.'
9. Upon receipt of the Two Hundred and Eleven Thousand
Dollars, an agent of Motors Holding signed over a stock certificate
(hereinafter Stock Certificate), which represented one thousand
five hundred and thirty-five shares of Class A stock in Cooper -
Helms, to Defendant William R. Cooper.'
10. From March 16, 1990, until October 2, 1990, Defendant
William R. Cooper was the sole shareholder in and dealer of record
6 N.T. 10, 59.
' N.T. 5, 42.
e N.T. 5; Plaintiff's trial Exhibit 6, at 6. The Garnishee
also testified that the "personal loan" from her clients to the
Defendant was, in substance, a payment to Motors Holding
Corporation through the Defendant and that, once General Motors
approved the Clients as investors, stock would be reissued to
reflect their ownership interest. N.T. 6, 11-12, 41-42.
' N.T. 6, 9-10. For some reason, no signature on behalf of
Motors Holding appears on the reverse side of the stock
certificate, where a form for sale, assignment and transfer is
provided. Garnishee's trial Exhibit 1.
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2424 Civil 1990
of Cooper Helms."
11. On or about October 2, 1990, the Clients were approved by
General Motors as investors in Cooper -Helms, and Class B stock was
issued to reflect the Clients' interest in the franchise."
12. The Garnishee obtained possession of the Stock
Certificate at the March 16, 1990, meeting between her Clients and
Defendant. 12
13. The Garnishee maintained exclusive possession of the
Stock Certificate until late September or early October of 1990.13
14. On or about August 15, 1990, while the Stock Certificate
was in the possession of the Garnishee, the Plaintiff served
Interrogatories in Attachment on the Garnishee pursuant to Pa.
to N.T. 11-13.
11 Eighty-five percent of the new Class B stock was issued to
the Clients and the remaining fifteen percent to the Defendant,
William R. Cooper. N.T. 11-12, 15-16.
12 According to the Garnishee's deposition testimony, she
inadvertently took possession of the stock certificate when she
"sucked up all the papers on the table" at the March 16, 1990,
meeting. Plaintiff's trial Exhibit 6, at 10.
13 The Garnishee was unable to recall the exact date she
physically transferred the Stock Certificate, but testified that
she relinquished control of it to William Miller, Esquire,
corporate counsel for Cooper -Helms, in late September or early
October of 1990. Mr. Miller returned the Stock Certificate, which
had been marked, while in his possession, with an "X" across its
face and a notation indicating that it had been cancelled,
effective March 16, 1990, to the Garnishee within forty-eight
hours. N.T. 14, 38, 43-45.
4
2424 Civil 1990
R.C.P. 3144.14
15. Interrogatory number two stated as follows:
At the time you were served or at any
subsequent time was there in your possession,
custody or control or in the joint possession,
custody or control of yourself and one or more
other persons any property of any nature owned
solely or in part by the defendants?"
16. On September 17, 1990, the Garnishee served her Answers
to the Interrogatories in Attachment on the Plaintiff.16
17. Garnishee answered Interrogatory.in Attachment number two
in the affirmative but did not identify the property of the
Defendant in her control."
18. On or about September 24, 1990, while the Stock
Certificate was in the possession of the Garnishee, the Plaintiff
served Interrogatories in Aid of Execution on the Garnishee
pursuant to Pa. R.C.P. 3117.1'
19. Interrogatory in Aid of Execution number one stated as
follows:
Describe the property admitted to be in your
possession in your Answer Number 2 to
Plaintiff's Interrogatories in Attachment.19
20. On October 15, 1990, the Garnishee served her Answers to
14 N.T. 7, 48.
15 Plaintiff's trial Exhibit 1.
16 N.T. 7-8.
17 Plaintiff's trial Exhibit 2.
1' N.T. 9.
19 Plaintiff's trial Exhibit 4; N.T. 9.
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2424 Civil 1990
the Interrogatories in Attachment on the Plaintiff.20
21. The Garnishee answered Interrogatory in Aid of Execution
number one as follows:
The property that was in my possession when
the Interrogatories were answered was 1,535
Class A shares of stock in Cooper -Helms
Chevrolet, Inc. These shares were cancelled
pursuant to instructions from Chevrolet Motor
Division to their licensed dealer ....21
22. The Garnishee was not served with a notice of levy by the
Cumberland County Sheriff's Office nor was she asked to produce the
Stock Certificate.22
23. The Stock Certificate was not seized nor was there an
attempt to seize the Stock Certificate by the Cumberland County
Sheriff's Office.23
DISCUSSION
Statement of the law. When dealing with the enforcement of
judgments, all personal property is subject to levy and attachment
"unless specifically exempted, ordinarily by statutory enactment."
Gulf Mortgage and Realty Investments v. Allen, 282 Pa. Super. 230,
238, 422 A.2d 1090, 1094 (1980) (citations omitted). Thus, a brief
review of the procedural rules regarding the levy and attachment of
20 N. T. 9.
21 Plaintiff's trial Exhibit 4.
22 N.T. 55.
23 Id.
Z
2424 Civil 1990
stocks or securities and any pertinent statutory exemptions is
instructive.
The general rule regarding execution upon personal property is
contained in Pa. R.C.P. 3108. A Writ of Execution served pursuant
to Pa. R.C.P. 3108 "provides for either levy or attachment, or
both, and will suffice for both personal and real property. 1124 A
levy is generally said to be effective even where there is only
constructive seizure .21 "Service of the Writ upon a garnishee
operates to attach all property of the defendant which may be
attached under the Execution Rules and which is in the possession
of the garnishee. ,21 However, where, the property sought to be
executed upon is a security, a statutory exception to the general
rule is found.27
At common law, shares of stock were not subject to
attachment.28 In order to enable creditors to reach this type of
property the General Assembly has enacted legislation making stock
24 9 Goodrich Amram 2d §3108:1, at 88 (1977).
25 Id., at 89.
26 Id., at 89-90.
27 In pertinent part, the Act of November 1, 1979, P.L. 255,
§1, 13 Pa. C.S. §8317(a), states that "[n]o attachment or levy
upon a security or any share or other interest evidenced thereby
which is outstanding shall be valid until the security is actually
seized by the officer making the attachment or levy ...."
(emphasis added).
" Mills v. Jacobs, 333 Pa. 231, 233, 4 A.2d 152, 153 (1939).
7
2424 Civil 1990
attachable.29 For the purposes of a garnishment proceeding,30 a
security is defined as follows:
A "security" is an instrument which:
(i) is issued in bearer or registered form;
(ii) is of a type commonly dealt in upon
securities exchanges or markets or commonly
recognized in any area in which it is issued
or dealt in as a medium for investment;
(iii) is either one of a class or series or by
its terms is divisible into a class or series
of instruments; and
(iv) evidences a share, participation or other
interest in property or in an enterprise or
evidences an obligation of the issuer.
Act of November 1, 1979, P.L. 255, 91, 13 Pa. C.S. §8102. It is
noteworthy in the instant case that shares of stock in closely held
corporations are securities within the meaning of 13 Pa. C.S.
29 Id.
30 See Pa. R.C.P. 3101.
C
2424 Civil 1990
§8102.31 To effect a valid levy or attachment upon a security, the
officer serving the Writ of Execution must physically take
possession of the security. Act of November 1, 1979, P.L. 255, §l,
13 Pa. C.S. §8317(a).32 Thus, with respect to a levy or attachment
upon securities, the requirements of 13 Pa. C.S. §8317 "must be
viewed as a limitation upon the more general provisions of [Pa.
R.C.P.] 3108, providing for execution upon personal property.1133
Moreover, Pennsylvania courts addressing this issue have held that
securities must be physically seized to constitute a valid
31 On the subject of this issue, the Pennsylvania Superior
Court has held:
We agree ... that shares of stock in closely
held corporations should be treated as
"securities" under Article 8 of the Uniform
Commercial Code.... Shares of stock in a
closely held corporation are, after all,
shares of stock, which are clearly instruments
"of a type" commonly dealt in on securities
exchanges or markets. They also fall within
the commonly recognized meaning of an
"investment" .... The fact that a corporation
may be closely held or the shares bear a
transfer restriction may affect the ease and
frequency with which the stock is traded or
the desirability of the stock as an investment
but it does not make it something other than a
"security."
Jennison v. Jennison, 346 Pa. Super. 47, 52-53, 499 A.2d 302, 304
(1985); Katz v. Abrams, 549 F. Supp. 668, 671 (E.D. Pa. 1982)
(stock of closely held corporations intended to be included within
definitions of both certified and uncertified securities by
inclusion of interests "of a type" commonly traded).
32 See note 27 supra.
33 9 Goodrich Amram 2d §3101(a):2, at 37 (1977); see also Act
of December 3, 1972, P.L. 1339, §3, 1 Pa. C.S. §1933.
9
2424 Civil 1990
attachment.34
With respect to the burden of proof in a garnishment
proceeding, it has been observed that "[i]n an execution
attachment, plaintiff is placed in the position ... of his debtor,
as regards the garnishee; and, after an answer filed and issue
joined, the same presumptions of law arise on the trial ... as if
... the suit had been by the debtor against the garnishee."
Tremont Township School District v. Western Anthracite Coal
Company, 381 Pa. 276, 281, 113 A.2d 234, 237 (1955). Thus, the
burden of proof in a garnishment proceeding has been placed upon
the plaintiff, 35 consistent with the general rule imposing upon a
plaintiff the burden of proving the elements of a claim for
34 Gulf Mortgage and Realty Investments v. Allen, 282 Pa.
Super. 230, 236, 422 A.2d 1090, 1093 (1980) (valid levy cannot be
made unless shares have been seized by a public officer); Neifield
V. Steinberg, 438 F.2d 423, 432 (3d. Cir. 1971) (applying
Pennsylvania law) (13 Pa. C.S. §8317 requires party to manually
seize securities in order to effect a valid attachment); Deshong v.
Cody, 36 Pa. D. & C.2d 109, 112 (Allegheny Co. 1964) (attempted
attachment of stock ineffective where shares were not actually
seized); Ellison v. Mitchell, 26 Pa. D. & C.2d 45, 49 (Allegheny
Co. 1961) (service of writ without seizure not effective to attach
shares of stock); see also 3 P.L.E. Attachment §52, at 397 (1957)
("An attachment upon a security or any share of stock or other
interest evidenced thereby which is outstanding will not be valid
until the security is actually seized by the officer making the
attachment ....").
35 Tremont Township School District v. Western Anthracite Coal
Co., 381 Pa. 276, 282, 113 A.2d 234, 238 (1955).
10
2424 Civil 1990
relief . 36
Application of law to facts. At trial, Plaintiff sought an in
personam judgment against the Garnishee in the amount of Two
Hundred Thousand Dollars premised upon the following arguments:
(1) that physical seizure of the Stock Certificate was not
required, because the certificate was not a security as defined in
13 Pa. C.S. §8102, 13 Pa. C.S. §8317, and Pa. R.C.P. 3101;37 (2)
that service of the Writ of Execution and Interrogatories in
Attachment on the Garnishee effectuated a constructive seizure of
the Stock Certificate; 38 (3) that the Garnishee improperly
relinquished control of the Stock Certificate thereby jeopardizing
Plaintiff's interest therein ;39 and (4) that the Garnishee waived
the non -seizure issue by failing to raise it until her trial
brief .40 Garnishee has argued inter alia that because the Stock
Certificate was not physically levied upon or seized by the
36 See generally Packel & Poulin, Pennsylvania Evidence
§301.1, at 47 (1987), citing McCormick, Evidence §337 (3d ed.
1984).
37 Post -trial briefs were submitted by both parties in lieu
of formal closings at trial. Accordingly, the briefs will be cited
where appropriate. Plaintiff's post trial brief, at 4; N.T. 81.
38 Plaintiff's post -trial brief, at 1, 4.
39 Id., at 4.
40 N.T. 64-67.
11
2424 Civil 1990
Cumberland County Sheriff's Department, the attachment was
invalid.41
In his first argument, Plaintiff maintains that the Stock
Certificate is not a security as defined in Pa. R.C.P. 3101 and 13
Pa. C.S. §8102, and that as a consequence physical seizure as
mandated by 13 Pa. C.S. §8317 was not required. Plaintiff's
argument relies upon certain language in Section 8102, expert
testimony presented at trial, the fact that the Stock Certificate
represented an interest in a closely held corporation, and the fact
that the Stock Certificate was subject to a transfer restriction.
It is important to note that the provision of 13 Pa. C.S.
§8102 relevant to Plaintiff's interpretation contains two parts,
separated by the coordinating conjunction "or." Because the other
requirements of 13 Pa. C.S. §8102 are met, 42 the Stock Certificate
in the case sub judice could be a security within the definition of
Section 8102 if (1) "[it] is of a type commonly dealt in upon
securities exchanges or markets or [ (2) ] commonly recognized in any
area in which it is issued or dealt in as a medium for investment
Plaintiff's expert testified that the Stock Certificate
could not be traded on securities exchanges because capitalization
41 N.T. 76-80; Garnishee's post -trial brief, at 4-7. Because
of our disposition of this case, it is unnecessary to determine
whether the unavailability of the certificate represented a loss of
the value claimed by Plaintiff.
42 See text following note 30 supra.
12
2424 Civil 1990
requirements could not be met.43 This does not, however, address
the second prong of the provision cited above. With respect to the
second prong, the Stock Certificate is unquestionably within the
ambit of such language as interpreted by our Superior Court .aa
Furthermore, the law regarding Plaintiff's arguments with respect
to close corporations and transfer restrictions is adverse.as
Therefore, the Stock Certificate representing an interest in
Cooper -Helms must be considered to be a security within the
definition of 13 Pa. C.S. §8102.
Plaintiff's second argument is premised on the belief that
service of the Writ of Execution and Interrogatories in Aid of
Attachment effectuated a constructive seizure of the Stock
Certificate. Plaintiff's assertion is correct to the extent that
service of a Writ of Execution would effect a constructive seizure
of most personal property within the control of a garnishee. A
special exception, however, applies with respect to the execution
upon securities. The language of 13 Pa. C.S. §8317 is clear and
unambiguous; moreover, judicial interpretation of the provisions
of Section 8317 indicates that actual or physical seizure of a
stock certificate is required to effect a valid levy or
43 N.T. 73.
as See note 31 supra.
as Id.
13
2424 Civil 1990
attachment.46 The Court is under an obligation to adhere to the
clear language of the legislature and the interpretative decisions
of the appellate courts cited above. Accordingly, because the
Stock Certificate was not physically seized by the Cumberland
County Sheriff's Department, an attachment can not be considered to
have occurred.
Since an attachment did not occur, the Garnishee was not
precluded from transferring the Stock Certificate. Plaintiff's
third argument is thus mooted.
With respect to Plaintiff's final argument wherein it is
suggested that the Garnishee has waived the issue of the failure to
seize the stock, it must be noted that "the burden of proof in any
cause [of action] rests upon the party who as determined by the
pleadings or the nature of the case asserts the affirmative of an
issue ....i" The nature of the present case, and the foregoing
authority, indicates that the Plaintiff has the burden of proof
with respect to the seizure of the Stock Certificate. The
Plaintiff has affirmatively asserted that the securities were
constructively seized but has not, of course, presented evidence
showing the actual seizure of the Stock Certificate.
For the foregoing reasons, the following Order will be
46 See note 33 supra.
" O'Neill v Metropolitan Life Insurance Company, 345 Pa. 232,
239, 26 A.2d 898, 902 (1942) (citations omitted).
14
2424 Civil 1990
entered.
ORDER OF COURT
AND NOW, this (jt4 day of January, 1993, upon consideration
of the arguments presented at trial, the trial transcript, and
Post -trial briefs of counsel, this Court finds in favor of the
Garnishee.
Audrey E. Woloshin, Esq.
345 East Market Street
York, PA 17403
Counsel for Plaintiff
Anna Marie Sossong, Esq.
204 State Street
Harrisburg, PA 17101
Garnishee
BY THE COURT,
s/J Wesley Oler, Jr.
J.
15