Blaw Knox Corp. v. AMR Industries, Inc.

Citations: 130 F.R.D. 400; 1990 U.S. Dist. LEXIS 4204; 1990 WL 44226Docket: No. 90 Misc. 18

Court: District Court, E.D. Wisconsin; April 11, 1990; Federal District Court

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Blaw Knox Corporation secured a default judgment against AMR Industries, Inc. for $8,515,490.62, plus pre-judgment interest, on February 3, 1989, in the Western District of Pennsylvania. To ascertain AMR's assets, Blaw Knox aimed to depose shareholders and former directors Jerry Coleman and Robert J. Coleman, who had resigned in 1988. Although the Colemans’ counsel objected during the depositions on January 2, 1990, the depositions continued. Blaw Knox subsequently filed a motion for contempt, alleging the Colemans failed to produce documents as required by a subpoena duces tecum, seeking contempt findings against them, compliance orders, and $500 in costs.

In response, the Colemans moved to vacate the subpoenas or stay proceedings pending a decision on AMR’s motion to vacate the default judgment. On March 29, 1990, Judge Terence T. Evans assigned the matter to the court for recommendations. A hearing on April 2, 1990, involved procedural challenges from both parties. The Colemans argued that Blaw Knox did not comply with Rule 69(a) of the Federal Rules of Civil Procedure and applicable Wisconsin law, which necessitates attempting to execute against AMR before seeking discovery from them. They cited Wis. Stat. § 816.03(1)(a), allowing creditors to compel debtors to disclose property only after unsuccessful execution.

Blaw Knox countered that Rule 69(a) permits discovery from any person, including the debtor, following either federal or state procedures. The court noted a potential inconsistency in Rule 69(a) but emphasized that a judgment creditor must adhere to state collection practices, which allow for various relief methods. However, when pursuing discovery, the creditor may choose federal or state procedures. Ultimately, the court found the Colemans' objection unpersuasive, affirming Blaw Knox’s right to seek discovery under federal rules.

Blaw Knox's compliance with 816.03(1)(b) is deemed sufficient despite not having an unsatisfied execution, as this provision allows a judgment creditor to petition a court commissioner without that requirement. Blaw Knox's only shortcoming is failing to apply to a court commissioner. Additionally, Blaw Knox argues that the Colemans waived their right to challenge the subpoena by not objecting in writing per Rule 45(d) Fed. R.Civ.P. Although the Colemans did not object prior to compliance, they raised objections during the deposition, and the court finds that this procedural failure does not prevent them from opposing discovery on substantive grounds.

Blaw Knox holds an $8 million judgment against AMR, which is no longer in business and has no assets. The creditor seeks to pursue the Colemans, former shareholders of AMR, based on suspicions of fraudulent transactions from 1982, which they believe allowed the Colemans to improperly retain AMR assets. Blaw Knox is requesting access to records from the 1982 transactions, including financial statements and meeting minutes, but the Colemans object to providing their personal financial records, arguing they are irrelevant due to the time elapsed and that Blaw Knox can obtain necessary documents from other sources.

Moreover, the Colemans cite a recent dismissal by Judge Gary Gerlach of Blaw Knox's state lawsuit against them for fraudulent conveyance, claiming it was based on an erroneous application of the Wisconsin Uniform Fraudulent Transfers Act. The court underscores that while Rule 69(a) permits broad discovery to aid in judgment execution, the key issue remains whether the Colemans' personal financial records will assist Blaw Knox in satisfying its judgment.

A judgment creditor, when seeking discovery of a non-judgment debtor under Rule 69(a), must demonstrate the necessity and relevance of the requested documents, balancing third-party privacy interests against the creditor's needs. This determination is factual and case-specific. Blaw Knox has not sufficiently justified its request for the Colemans' personal financial records, particularly given the eight-year gap since the alleged fraudulent transactions. The court finds that Blaw Knox's attempt to investigate past transactions does not align with the present aid of judgment as intended by Rule 69(a). Blaw Knox has also pursued a state court action under the Uniform Fraudulent Transfers Act, which is deemed the appropriate venue. An adverse ruling in that case does not change the court's stance. Consequently, the court recommends that the district judge deny Blaw Knox's motions for contempt and to compel, and grants the Colemans' motion to vacate subpoenas for personal financial records. Any objections to this recommendation must be filed within ten days, or the right to appeal will be waived.