Macharg, K. v. Macharg, P.

J-A23032-16
2016 Pa. Super. 254
KAREN WEDGWOOD MACHARG, : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
v. :
:
PETER TILESTONE MACHARG AND :
PHILLIPS STEEL, GRAHAM STAMPING :
COMPANY, THOMAS METALS COMPANY, :
REDNIK II CORPORATION AND 1700 :
BROADWAY LTD, :
:
Appellees : No. 1940 WDA 2015
Appeal from the Order November 16, 2015
in the Court of Common Pleas of Mercer County
Civil Division at No(s): 2013-1965
BEFORE: LAZARUS, STABILE, and STRASSBURGER,* JJ.
OPINION BY STRASSBURGER, J.: FILED NOVEMBER 16, 2016
Karen Wedgwood MacHarg (Plaintiff) appeals from the November 16,
2015 order that denied her requests for (1) aid in execution against the
shares of stock in several corporations owned by Peter Tilestone MacHarg
(Defendant), and (2) a charging order requiring the sale of Defendant’s
interest in a limited partnership. We reverse and remand for proceedings
consistent with this opinion.
The trial court offered the following summary of the facts giving rise to
this appeal.
On June 24, 2013, [Plaintiff] filed a petition for the
registration and request for enforcement of a foreign order. The
order at issue was a judgment order entered by the Superior
Court, Windsor Unit Family Division, State of Vermont resulting
*Retired Senior Judge assigned to the Superior Court.
J-A23032-16
from the divorce of [Plaintiff] and [Defendant]. The order is
dated May 26, 2013 and was docketed on April 2, 2013 at No.
321-8-09. The decree of divorce is dated July 3, 2012.
In the decree of divorce, the court determined that in
order to equalize the property division, Defendant would pay
Plaintiff $416,682.21. That judgment was to be paid within 30
days after the entry of the divorce decree. However, Defendant
failed to pay the judgment and was found in contempt of court.
In the judgment order at issue, the remaining balance due on
the decree of divorce was $346,483.41.
Defendant has an ownership interest in five companies
organized under the laws of Pennsylvania with principal offices
located in Mercer County. Pursuant to paragraph 4 of the
judgment order, “[a]ll distributions paid to the Defendant by any
of the entities identified in Paragraph 11b of the divorce decree
shall be payable directly to the Plaintiff in full until the obligation
is paid in full. Plaintiff shall have all rights as a judgment
creditor.” Those entities in Paragraph 11b are: Phillips Steel
Corporation, Graham Stamping Company, Thomas Metals
Company, 1700 Broadway Ltd. and Rednick II Corporation
(Garnishees).
In an order dated June 25, 2013, the Mercer County Court
of Common Pleas adopted the decree of divorce and the
judgment order in their entirety for enforcement purposes.
Plaintiff filed a praecipe for judgment against Defendant
pursuant to judgment order and a praecipe for writ of execution
on July 24, 2013 against Defendant and Garnishees Phillips Steel
Corporation, Graham Stamping Company, Thomas Metals
Company and 1700 Broadway Ltd. On August 27, 2013, Plaintiff
filed a praecipe for judgment against garnishee upon admission
pursuant to Pa.R.C.P. 3146(b) against Garnishees Phillips Steel
Corporation, Graham Stamping Company, Thomas Metals
Company and 1700 Broadway Ltd. in the amount of $5,609.00
admitted to being in the garnishees’ possession. On September
26, 2013, Plaintiff filed a praecipe to reinstate the writ of
execution that was originally filed on July 24, 2013. In an Order
dated November 13, 2013 (Garnishment Order), th[e trial
c]ourt, pursuant to Plaintiff’s petition for order in aid of
execution, dated October 31, 2013, ordered that the execution
and garnishment shall continue until the judgment is paid in full.
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Garnishees Phillips Steel Corporation, Graham Stamping
Company, Thomas Metals Company and 1700 Broadway Ltd.
were ordered to pay all distributions that Defendant is entitled to
receive directly to Plaintiff via her Attorney, John Loftus, III, until
the judgment is paid in full.
Plaintiff filed another writ of execution on April 3, 2014
against Defendant and Garnishee the Rednik II Corporation for
the $346,483.41 listed in the judgment order. Plaintiff also filed
interrogatories in attachment directed to the Rednik II
Corporation c/o David MacHarg, Treasurer, Garnishee, on April
16, 2014. The Rednik II Corporation provided objections and
answers to the interrogatories on May 5, 2014. On June 2,
2014, Plaintiff filed the first motion at issue: motion and
application for a charging order and judicial sale to enforce
judgment against [Defendant’s] limited partnership interest in
Garnishee 1700 Broadway Ltd. In this motion, Plaintiff
allege[ed] that despite receiving distributions from 1700
Broadway Ltd. and other Garnishees, the judgment at issue
remain[ed] unsatisfied. Thus, Plaintiff ask[ed the trial c]ourt to
issue a charging order against 1700 Broadway Ltd. and order a
judicial sale of Defendant’s 19.22% interest in said Garnishee.
On the same day, Plaintiff also filed the second motion at issue:
motion for supplementary relief in aid of execution production of
corporate stock. In this motion, Plaintiff note[d] that Defendant
has 20% of the shares in the Rednik II Corporation, 13.898% of
the shares of Graham Stamping Company, 9.76% of the shares
of Phillips Steel Corporation and 4.089% of the shares of
Thomas Metals Company. In their answers to interrogatories,
each of these garnishees indicated that they are unable to
determine and do not know whether their shares of stock were
ever physically issued for or to Defendant. Plaintiff allege[d]
that Defendant does not have possession of these stocks, and
Plaintiff ask[ed the trial court to order the corporate Garnishees
to deliver certificates of stock to the sheriff to aid in her ultimate
execution upon them1].
1
In its opinion, the trial court erroneously indicated that Plaintiff asked it
“for a personal property execution to levy, seize, and sell the foregoing
shares of stock.” Trial Court Opinion, 11/16/2015, at 5. As Plaintiff notes in
her brief, she has not yet sought to execute against Defendant’s shares;
rather all she “sought below was routine and summary judicial relief for the
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Trial Court Opinion, 11/16/2015, at 2-5 (citations and unnecessary
capitalization omitted). Following oral argument, the trial court denied both
of Wife’s motions by order of November 16, 2015. This timely-filed appeal
followed.
With her first issue on appeal, Wife claims that the trial court erred in
denying her relief under Rule 3118 of the Rules of Civil Procedure.
In interpreting this Rule, our Supreme Court has held that
“Rule 3118 authorizes summary proceedings in aid of execution
for the purpose of maintaining the status quo of the judgment
debtor’s property and may be used only for that purpose.”
In order to demonstrate entitlement to relief, the movant
must establish: (1) the existence of an underlying judgment;
and (2) property of the debtor subject to execution. When
reviewing the grant or denial of Rule 3118 supplementary relief,
this Court’s review is limited to determining whether the trial
court abused its discretion.
Marshall Ruby and Sons v. Delta Min. Co., 702 A.2d 860, 862 (Pa.
Super. 1997) (citations omitted). Shares of corporate stock are property
subject to execution. See, e.g., Gulf Mortg. & Realty Investments v.
Alten, 422 A.2d 1090, 1094 (Pa. Super. 1980).
Here, there is no question that Plaintiff has an underlying judgment
against Defendant. See Order, 6/25/2013 (adopting “in its entirety for
enforcement purposes” the March 26, 2013 judgment order entered in
Vermont). Further, Plaintiff attached to her motion answers to
first part of the two step process for enforcement of her judgment against”
Defendant’s shares of stock in Garnishees. Plaintiff’s Brief at 22.
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interrogatories of each Garnishee establishing that a portion of each
company is Defendant’s property subject to execution. See Motion for
Supplementary Relief, 6/2/2016, at Exhibit A page 5 (indicating that
Defendant owns 655 shares in the Rednik II Corporation (20% of the
outstanding shares)); id. at Exhibit B page 5 (indicating that Defendant
owns 298 shares in Phillips Steel Corporation (9.76%)); id. at Exhibit C page
5 (indicating that Defendant owns 502 shares in Graham Stamping Company
(13.898%)); id. at Exhibit D page 5 (indicating that Defendant owns 86
shares in Thomas Metals Company (4.089%)).
Having shown the existence of the underlying judgment and property
of Defendant subject to execution, it would seem that Plaintiff established
her entitlement to relief. Kaplan v. I. Kaplan, Inc., 619 A.2d 322, 326
(Pa. Super. 1993) (“[T]he predicates to Rule 3118 relief in this case are the
existence of an underlying judgment and property of the debtor subject to
execution.”). However, the trial court denied Plaintiff relief upon the
following rationale: “Garnishees here have been paying their distributions to
Plaintiff in accordance with the current Garnishment Order. There is no
allegation from Plaintiff that she has not been receiving her distributions.
Under these circumstances, granting the Motion … would go far beyond the
preservation of the status quo.” Trial Court Opinion, 11/16/2015, at 12.
The trial court focused on the wrong status quo. The status quo Rule
3118 seeks to preserve is the availability of the debtor’s property to be
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executed upon. See Kaplan, 619 A.2d at 325 (quoting Greater Valley
Terminal Corporation v. Goodman, 202 A.2d 89, 94 (Pa. 1964)) (“‘Rule
3118 authorizes summary proceedings in aid of execution for the purpose of
maintaining the status quo of the judgment debtor’s property….’”).
As things stand, there is nothing to prevent Defendant from selling or
otherwise transferring his shares to a third party. Accordingly, Plaintiff
sought, and made the necessary showings to support, court assistance to
keep Defendant’s property from being transferred. The fact that Garnishees
faithfully have been paying Defendant’s distributions to Plaintiff while
Defendant still owns his shares is of no moment to the status quo at issue.
Therefore, we hold that the trial court abused its discretion in denying
Plaintiff relief under Rule 3118. Upon remand, the trial court shall enter an
order to preserve Defendant’s ownership of shares in Garnishees pending
execution.
Plaintiff also claims on appeal that the trial court erred in denying
Plaintiff’s application for a charging order and judicial sale of Defendant’s
limited partnership interest in Garnishee 1700 Broadway Ltd. Plaintiff’s Brief
at 25.
The following statute addresses the entry of a charging order against a
debtor’s share of a general partnership.
(a) General rule.--On due application to a competent court by
any judgment creditor of a partner, the court which entered the
judgment, order or decree, or any other court, may charge the
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interest of the debtor partner with payment of the unsatisfied
amount of the judgment debt with interest thereon and may
then or later appoint a receiver of his share of the profits, and of
any other money due or to fall due to him in respect of the
partnership, and make all other orders, directions, accounts and
inquiries which the debtor partner might have made or which the
circumstances of the case may require.
(b) Redemption.--The interest charged may be redeemed at
any time before foreclosure or, in case of a sale being directed
by the court, may be purchased without thereby causing a
dissolution:
(1) with separate property, by any one or more of
the partners; or
(2) with partnership property, by any one or more of
the partners with the consent of all the partners
whose interests are not so charged or sold.
15 Pa.C.S. § 8345. A separate statute addresses the rights of a creditor of a
partner of a limited partnership:
On application to a court of competent jurisdiction by any
judgment creditor of a partner, the court may charge the
partnership interest of the partner with payment of the
unsatisfied amount of the judgment with interest. To the extent
so charged, the judgment creditor has only the rights of an
assignee of the partnership interest. This chapter does not
deprive any partner of the benefit of any exemption laws
applicable to his partnership interest.
15 Pa.C.S. § 8563.
There is a dearth of case law in Pennsylvania concerning application of
these statutes, and none of the decisions addresses the issue presented in
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the instant appeal.2 In fashioning their arguments, Plaintiff, Garnishee, and
the trial court all discuss the federal district court decision in Auburn Steel
Co. v. Am. Steel Eng’g Co., No. CIV.A. 91-5747, 1993 WL 257379 (E.D.
Pa. July 2, 1993), aff’d without reported opinion, 22 F.3d 300 (3d Cir. 1994).
In that case, Auburn Steel Company (Auburn) obtained a judgment
against Alan A. Steinberg in 1991 for $61,517.78 plus 6% interest. In 1993,
Auburn obtained a charging order against Steinberg’s interests in several
limited partnerships. Two months later, not having obtained any money
from the charging order, Auburn sought an order requiring the sale of
Steinberg’s interests in the limited partnerships.
2
The published opinions addressing 15 Pa.C.S. § 8345 (general
partnerships) are, in chronological order: Frankil v. Frankil, 15 Pa. D. & C.
103 (Philadelphia County 1931) (holding that the statute gives the court
authority to order the sheriff to sell the charged interest of a partner);
Northhampton Brewery Corp. v. Lande, 10 A.2d 583 (Pa. Super. 1940)
(affirming trial court order granting a request to charge the interest of a
partner upon determination that the debtor was in fact a partner); Shor v.
Miller’s Flower Shop, 84 Pa. D. & C. 164 (Philadelphia County 1953)
(declining to grant a charging order against the interest of one joint obligor’s
interest in a partnership where the creditor had not shown inability to obtain
satisfaction of the judgment by executing on assets owned by both joint
debtors); Shirk v. Caterbone, 193 A.2d 664 (Pa. Super. 1963) (holding
that creditor of individual partner “can be paid only out of what remains to
the individual partner as his share of the profits after the partnership
obligations, including those of any judgment creditor of the partnership have
been satisfied”). The only published opinion that discusses 15 Pa.C.S.
§ 8563 (limited partnerships) is Zokaites v. Pittsburgh Irish Pubs, LLC,
962 A.2d 1220 (Pa. Super. 2008), which mentions both statutes in
considering an appeal from the denial of a motion to compel sale of a
debtor’s interest in a limited liability company governed by different statutes
altogether.
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The district court was first required to determine the interplay between
Section 8345 and Section 8563.
Steinberg argues that only Section 8563 applies, and that
according to the statute, Auburn, as a judgment creditor, retains
only the rights of an assignee of Steinberg’s Limited Partnership
interests. Steinberg further contends that Auburn previously
received, through the Charging Lien Order, all rights as an
assignee of Steinberg’s interests in the Limited Partnerships.
Steinberg claims that Auburn has received all rights and
remedies to which it is entitled since Section 8563 does not
provide any means for executing on a judgment creditor’s rights
as an assignee.
This Court finds that Steinberg’s contention that [Section] 8345
pertains solely to general partnerships and not limited
partnerships is misplaced. Section 8345 applies to both general
and limited partnerships except insofar as the statutes relating
to limited partnerships are inconsistent with the general
partnership statutes. 15 Pa.C.S.[] § 8311(b)[]. For Steinberg’s
argument to succeed, Section 8563 must be inconsistent with
Section 8345 with respect to a court ordered sale of Steinberg’s
Limited Partnership interests. Pursuant to Section 8345(a), it is
within this Court’s discretion to “make all other orders,
directions, accounts and inquiries ... which the circumstances of
the case may require.” 15 Pa.C.S.[] § 8345(a). Furthermore,
Section 8345(b) provides that “the interest charged may be
redeemed at any time before foreclosure or, in the case of a sale
being directed by the court, may be purchased without thereby
causing a dissolution....” 15 Pa.C.S.[] § 8345(b). The language
of Section 8563 does not prohibit the sale of Steinberg’s Limited
Partnership interests, nor does Section 8563 limit the discretion
of this Court to order a sale of Steinberg’s interests in the
Limited Partnerships pursuant to Section 8345. … It is clear
that pursuant to Section 8345 this Court may authorize the sale
of Steinberg’s interests in the Limited Partnerships to satisfy the
judgment entered in this action in favor of Auburn.
Auburn Steel Co., 1993 WL 257379, at *2. Having so determined, the
court proceeded to grant Auburn relief in ordering the United States
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Marshals Service to execute and sell at a public sale Steinberg’s interests in
the limited partnerships to satisfy Auburn’s judgment. Id. at *4.
Regarding whether a court has the power to order the sale of a
partner’s interest in a limited partnership, we agree with the reasoning of
the federal district court. Section 8345’s provision for court-ordered sale of
a partner’s interest applies to interests in limited partnerships as well as
general partnerships; thus, the absence of language regarding court-
directed sales in Section 8563 does not mean that the trial court lacks the
authority to order the sale of an individual interest in a limited partnership.
Accordingly, we consider whether the trial court in the instant case abused
its discretion in declining to order a sale.
The trial court offered the following analysis:
Plaintiff argues that the Auburn case clearly shows that
Defendant’s limited partnership interest in Garnishee may be
sold to satisfy the judgment at issue. However, Garnishee
argues that the result in Auburn was driven by the facts of the
case, not the law. This [trial c]ourt agrees with Garnishee.
Here, unlike in Auburn, the Garnishee has made regular
distributions to Plaintiff pursuant to the Garnishment Order. The
language of § 8345(a) shows that the court may at its discretion
charge the partnership interest of a judgment debtor with
payment of the unsatisfied debt. The [trial c]ourt may also
make all other orders which the circumstances of the case may
require, including entering an order for the judicial sale of the
debtor’s interest in the partnership. However, nothing in
§ 8345(a) indicates that the Court must charge the partnership
interests of a judgment creditor or compel the disposition of the
partnership interests of the debtor by a judicial sale. In fact,
Pennsylvania case law makes it clear that “a charging order is
discretionary with the court [and the] ... exercise of this
discretion has been said to be ‘equitable’ after a full inquiry into
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the facts.” Shor[, 84 Pa. D. & C. at 165] (citing Northampton
Brewery Corp.]). Accordingly, the [trial c]ourt in Shor
explained as follows:
While the court recognizes the ultimate right of a
creditor to recover the whole amount from any one
joint obligor, an appeal for an equitable procedure
for recovery must produce equitable results. Should
we grant the prayer of this petition, it might result in
the disruption of a partnership affecting adversely
the interest of other parties not concerned with the
present dispute or debt …
Id. The cases of Shirk [] and Frankil [], cited by Plaintiff
further support the permissiveness and the discretion of the
[trial c]ourt in deciding whether to issue a charging order and to
compel the public sale of a partnership interest. Here, the
issuance of a charging order and an order for judicial sale of
Defendant’s interest would not provide an equitable result when
considering the disruption to Garnishee’s limited partnership
such an order would make, especially when considering how
Garnishee has been making distributions according to the
current Garnishment Order. There is no allegation here of bad
faith on the part of Garnishee that has been preventing Plaintiff
from receiving her distributions.
Trial Court Opinion, 11/16/2015, at 8-9 (emphasis omitted).
A review of the record reveals that the trial court downplayed or
overlooked some important facts in reaching its conclusion that a charging
order and judicial sale were unwarranted in this case.
First, while Plaintiff has obtained payments from 1700 Broadway Ltd.
and other Garnishees pursuant to the garnishment order, it is barely making
a dent in Defendant’s debt. Plaintiff’s judgment is for nearly $350,000; the
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12% interest thereon provided for by Vermont law3 is over $40,000. In
2014, Plaintiff received less than $27,000 from all Garnishees combined.
Hence, the trial court’s attempt to limit Auburn to its facts does not justify
its departure therefrom: just as Auburn’s judgment was not paid down by
mere garnishment of Steinberg’s share of profits, Plaintiff’s judgment is not
being reduced at all by the payments she is receiving from Garnishees. In
other words, at this rate under the less extreme measure of garnishing
Defendant’s share of Garnishees’ profits, Plaintiff will never obtain
satisfaction of her judgment against Defendant. It is the public policy of
Pennsylvania “that debtors should pay their debts.” Gulf Mortg. & Realty
Investments, 422 A.2d at 1097.
Second, the trial court’s reliance on Shor is misplaced. In that case,
the plaintiff lent money to Miller’s Flower Shop, a partnership owned by
Sidney and Betty Coina. 84 Pa. D. & C. at 165. Betty Coina was both the
wife of Sidney Coina and the daughter of the plaintiff. The plaintiff sought to
obtain a charging order on the profits of his son-in-law that were payable to
him as a partner in Edward Dental Supply Co. The trial court declined, but
not, as is suggested by the trial court in the instant case, solely on the basis
that it could cause disruption to other partners of Edward Dental Supply who
3
See Trial Court Opinion, 11/16/2016, at 5 (citing 12 V.S.A. § 2903(c), and
Dooley v. Rubin, 618 A.2d 1014 (Pa. Super. 1993) (holding that judgments
transferred to Pennsylvania under the Uniform Enforcement of Foreign
Judgments Act were subject to the judgment interest rate of the jurisdiction
in which it arose)).
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were not involved in the debt. Rather, the trial court held that equities
weighed against it because it appeared that the plaintiff was seeking to
burden innocent partners of his son-in-law while “leav[ing] untouched”
Miller’s Flower Shop, an asset that was owned by both debtors and that was
the original source of the debt. Id. Under such circumstances, charging one
debtor’s interest in an uninvolved partnership would “create unnecessary
inequities and in some probability unnecessary additional litigation.” Id. In
the instant case, there is no indication that Plaintiff is creating unnecessary
inequities by passing up other avenues for satisfaction and instead seeking
to charge Defendant’s interest in 1700 Broadway Ltd.
Third, the trial court’s concern about disruption to 1700 Broadway Ltd.
is speculative. Under Section 8345, one or more partners of 1700 Broadway
Ltd. can prevent disruption of a judicial sale by exercising the statutory right
of redemption of Defendant’s interest at any time prior to the sale. 15
Pa.C.S. § 8345(b).
Under these circumstances, we hold that the trial court abused its
discretion in declining to assist Plaintiff in collecting her judgment against
Defendant. Upon remand, the trial court shall grant Plaintiff relief in the
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form of directing a sale of Defendant’s interest in Garnishee 1700 Broadway
Ltd.4
Order vacated. Case remanded for further proceedings consistent with
this opinion. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/16/2016
4
This ruling applies only to Defendant’s interest in 1700 Broadway Ltd.
because, as indicated at note 1 supra, Plaintiff has not yet sought to force
the sale of Defendant’s interests in the corporate Garnishees.
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