Andes Industries Incorporated v. EZconn Corporation ( 2019 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Crestwood Capital Corporation, No. CV-15-00600-PHX-NVW 10 Plaintiff and Judgment Creditor, ORDER 11 v. 12 Andes Industries Inc., 13 Defendant and Judgment Debtor. 14 Garnishee: 15 PCT International, Inc. 16 No. CV-15-00604-PHX-NVW 17 Devon Investment, Inc., 18 Plaintiff and Judgment Creditor, 19 v. 20 Andes Industries, Inc., 21 Defendant and Judgment Debtor. 22 Garnishee: 23 PCT International, Inc. 24 25 26 27 28 1 Andes Industries, Inc., and PCT 2 International, Inc., 3 Plaintiffs and Judgment Debtors,, 4 v. 5 EZconn Corporation and eGTran Corporation, 6 No. CV-15-1810-PHX-NVW Defendants and Judgment Creditors. 7 8 Garnishee: 9 PCT International, Inc. 10 11 Plaintiffs and Judgment Creditors Crestwood Capital Corporation (“Crestwood”) 12 and Devon Investment, Inc. (“Devon”) purport to withdraw their respective supplements 13 to their replies to Andes Industries, Inc.’s (“Andes”) Objection to Writ of Garnishment 14 (Doc. 382, CV-15-00600; Doc. 113, CV-15-00604), along with the supporting declarations 15 and exhibits thereto (Docs. 382-1, 382-2, CV-15-00600; Docs. 113-1, 113-2, CV-15- 16 00604) without explanation. Those attempted withdrawals are rejected. Moreover, a 17 withdrawal would have no significance anyway. 18 A. Background and the Pending Matters 19 The only matters before the Court for decision are: Judgment Debtor Andes’ 20 Objection to Writ of Garnishment and Request for Hearing in Crestwood Capital 21 Corporation v. Andes Industries, Inc., No. CV-15-00600 (Doc. 359); Andes’ Objection to 22 Writ of Garnishment and Request for Hearing in Devon Investment, Inc. v. Andes 23 Industries, Inc., No. CV-15-00604 (Doc. 90); and Andes’ Objection to Writ of 24 Garnishment and Request for Hearing in Andes Industries, Inc. and PCT International, Inc. 25 v. EZconn Corporation and eGTran Corporation, No. CV-15-01810 (Doc. 76) (together, 26 the “Objections”). The garnishing creditors, Crestwood, Devon, EZconn Corporation, and 27 eGTran Corporation are collectively referred to as the Judgment Creditors. 28 These actions are three of six related, previously-consolidated, actions that have 1 been the subject of over a dozen substantive orders of the Court and a half-dozen decisions 2 of the Court of Appeals. 3 Briefly, four of the actions were brought on loans of nearly $9 million and unpaid 4 invoices of $6.6 million (plus pre-judgment interest). The debtors brought the other two 5 actions to offset those liabilities with other claims of the debtors. Summary judgment was 6 granted in favor of the lender or seller and against the borrower or purchaser in the four 7 collection actions and in favor of the lender or seller against all the offset claims. The 8 Court of Appeals affirmed all the judgments in the six actions, save for two relating to 9 attorneys’ fees awards. 10 The Objections concern Judgment Creditors’ attempts to collect on their judgments 11 by garnishing Andes’ shares in garnishee PCT International, Inc. (“PCT”), Andes’ wholly 12 owned subsidiary. The Court held oral argument on the Objections on November 6, 2019 13 (Doc. 381, CV-15-00600; Doc. 112, CV-15-00604; Doc. 115, CV-15-01810). The 14 substantive dispute is whether Nevada law, under which Andes’ shares in PCT would be 15 exempt from execution, or Arizona law, under which they would not be exempt, applies. 16 At the oral argument, the Court rejected the Judgment Creditors’ contention that Rule 17 69(a)(1), Federal Rules of Civil Procedure, mandates the application of Arizona law to the 18 exemption question but also made clear that Arizona substantive law applies under 19 Arizona’s choice of law rules (though not under the force of Rule 69). 20 At the oral argument, Andes and PCT also pressed the point, first raised in their 21 reply briefs, that Andes (the alleged holder of the stock certificate), and not PCT (the 22 issuing corporation), is the proper garnishee of the stock interest, relying on the case of 23 Tryon v. Silverstein, 10 Ariz. App. 25, 455 P.2d 474 (Ct. App. 1969). On November 19, 24 2019, Crestwood and Devon each filed a Second Supplement to their respective replies to 25 Andes Industries, Inc.’s Objection to Writ of Garnishment, along with supporting 26 declarations and exhibits (Docs. 382, 382-1, 382-2, CV-15-00600; Docs. 113, 113-1, 113- 27 2, CV-15-00604), which presented intervening Arizona statutes that overturned the 28 holding of Tryon and re-established that garnishment of a certificated share in corporate 1 stock may be addressed to the issuing corporation, even if the stock certificate is held by 2 another person. (In effect, the garnishment can be addressed to either the issuing 3 corporation or the holder of the certificate, with some differences in effect.) Crestwood 4 and Devon also presented evidence that PCT’s directors and officers are the same as 5 Andes’. Those facts are contained in judicially noticeable records of the Arizona 6 Corporation Commission. 7 Unbeknownst to the Court, on November 15, 2019, Crestwood and others filed 8 involuntary petitions in bankruptcy against Andes and PCT. The Court first learned of this 9 when Andes and PCT filed notices of bankruptcy on December 3, 2019 (Doc. 383, 15- 10 CV-00600; Doc. 114, CV-15-00604; Doc. 116, CV-15-01810). The Court was ready to 11 file a merits ruling on the Objections that day, but the automatic stay prevented that filing. 12 The Court admonishes counsel for the Judgment Creditors, Mr. Greer Shaw, for not timely 13 informing the Court of his bankruptcy filing, and thus having the Court waste valuable 14 judicial resources by continuing to examine the Objections for weeks after the stay was 15 imposed. 16 Then, on December 3, 2019, Crestwood and Devon each filed a Notice of 17 Withdrawal of their respective second supplements to their replies to Andes Industries, 18 Inc.’s Objection to Writ of Garnishment (Doc. 384, CV-15-00600; Doc. 115, CV-15- 19 00604). Perhaps the withdrawal of the supplements was in contrition for violating the 20 bankruptcy stay by filing them, but withdrawing citations to controlling statutes does not 21 eliminate those statutes from any court’s consideration. Similarly, the fact that Andes and 22 PCT have the same directors and officers is judicially noticeable from the records of the 23 Corporation Commission. 24 Even before the filing of the Second Supplement, the Court was aware of the 25 intervening statutes that overturned the holding of Tryon: that a writ of garnishment cannot 26 be addressed to the issuing corporation for certificated stock shares if the certificate is held 27 by someone other than the issuing corporation. The effect of the intervening statutes is that 28 the service of the writs of garnishment on the issuing corporation establishes the 1 || garnishment lien on the shares of PCT, a point that will be of great significance in the || bankruptcy proceedings, whether under Chapter 7 or Chapter 11. 3 The withdrawal of citations to controlling statutes does not negate those statutes. Nor does the withdrawal of reference to judicially noticeable facts eliminate those facts. 5 IT IS THEREFORE ORDERED that the Notice of Withdrawal of Second 6|| Supplement to Crestwood Capital Corporation’s Reply to Andes Industries, Inc.’s Objection to Writ of Garnishment (Doc. 384, CV-15-00600) is denied and the record 8 || stands. 9 IT IS FURTHER ORDERED that the Notice of Withdrawal of Second Supplement || to Devon Investment, Inc.’s Reply to Andes Industries, Inc.’s Objection to Writ of 11 |} Garnishment (Doc. 115, CV-15-00604) is denied and the record stands. 12 Dated: December 11, 2019. Mal Lhe 14 Neil V. Wake 15 Senior United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 -A-