Opinion
Case No. 19-55160 Adv. Pro No. 21-02003
2023-06-02
IN RE: Michael J. IANNARINO, Debtor. James A. Coutinho, Plaintiff, v. Stifel Financial Corp., Defendant.
Jeffrey Robert Corcoran, Allen Stovall Neuman & Ashton LLP, Columbus, OH, for Plaintiff. James A Coutinho, pro se. Daniel M. Anderson, Ice Miller LLP, Columbus, OH, for Defendant.
Jeffrey Robert Corcoran, Allen Stovall Neuman & Ashton LLP, Columbus, OH, for Plaintiff. James A Coutinho, pro se. Daniel M. Anderson, Ice Miller LLP, Columbus, OH, for Defendant. MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S SUPPLEMENTAL MEMORANDUM ADDRESSING ISSUES REMAINING AFTER DISTRICT COURT'S DECISION (DOC. # 40) AND GRANTING DEFENDANT STIFEL FINANCIAL CORPORATION'S SUPPLEMENTAL MEMORANDUM REGARDING IMPACT OF DISTRICT COURT DECISION DENYING TRUSTEE'S MOTION FOR RELIEF FROM JUDGMENT UPON THE REMAINING ISSUES IN THE CASE (DOC. #39) Mina Nami Khorrami, United States Bankruptcy Judge
Before this Court is Plaintiff's Supplemental Memorandum Addressing Issues Remaining After District Court's Decision (Doc. #40) (the "Second MSJ") and Defendant Stifel Financial Corporation's Supplemental Memorandum Regarding Impact of District Court Decision Denying Trustee's Motion for Relief from Judgment Upon the Remaining Issues in the Case (Doc. #39) (the "Second Cross-Motion") both of which were filed on March 24, 2023.
I. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Amended General Order 05-02 entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F). Venue is properly before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
II. FINDINGS OF FACT AND PROCEDURAL BACKGROUND
A. Findings of Fact
Debtor, Michael Iannarino ("Debtor"), owned a successful investment-management company. In June 2018, Debtor entered into an employment agreement with Stifel, Nicolaus & Company, Inc. ("Stifel"). Under the employment agreement, Debtor was employed as a financial advisor and had the option of receiving an initial personal loan of up to $900,000 from Stifel, as long as Debtor met certain conditions, including continued employment. After entering into the employment agreement, Debtor executed a demand promissory note with Stifel for $900,000. In early October 2018, Debtor received $450,000 from Stifel pursuant to the agreement and note but was terminated from his employment on October 11, 2018. As a result of his termination, Debtor had to repay the loan proceeds in the amount of $450,000 to Stifel.
The day after Debtor was terminated, Stifel filed a diversity action against him in the District Court for Southern District of Ohio ("District Court") for payment on the promissory note. At the same time, Stifel filed a motion requesting prejudgment attachment in District Court (the "Original Motion") to prevent Debtor from using the $450,000. The funds were believed to have been deposited in Debtor's account with CME Federal Credit Union and in a business account with PNC Bank.
After considering the Original Motion, District Court entered an order (the "Original Order") granting the unopposed motion for prejudgment attachment on December 3, 2018. Pl.'s Mot. for Summ. J. Ex. B 67-73, ECF No. 8; Stifel Fin. Corp. v. Iannarino, No. 2:18-cv-1223, 2018 WL 6288020, 2018 U.S. Dist. LEXIS 204085 (S.D. Ohio Dec. 3, 2018). District Court made these findings in the Original Order: "The Court finds that plaintiff is entitled to prejudgment attachment under Ohio law." Pl.'s Mot. 69; Stifel, 2018 WL 6288020, at *2, 2018 U.S. Dist. LEXIS 204085, at *5. District Court ordered Stifel to submit a bond in the amount of $900,000 to the clerk of District Court, and further ordered that the prejudgment attachment order would not be effective until the bond had been submitted. Stifel, 2018 WL 6288020, at *4, 2018 U.S. Dist. LEXIS 204085, at *12. Later, on December 7, 2018, Stifel deposited a bond in the amount of $900,000 with the clerk of District Court. Def.'s Cross Mot. for Summ. J., Decl. of Daniel Anderson, Ex. 1 - Notice 14 of 31, ECF No. 9.
Stifel later discovered that the funds that were initially believed to have been deposited in Debtor's accounts with CME Federal Credit Union and PNC Bank were transferred by Debtor to certain investment accounts held at Charles Schwab & Co., Inc. ("Schwab"). Consequently, on December 18, 2018, Stifel filed an ex parte motion for amended prejudgment attachment order (the "Amended Motion"), requesting that the attachment be extended to include Debtor's accounts at Schwab (the "Schwab Funds"). Pl.'s Mot. for Summ. J. Ex. C 74-102, ECF No. 8. After considering the Amended Motion, District Court entered an amended order of prejudgment attachment (the "Amended Order") on December 19, 2018, that granted the Amended Motion and extended the attachment to include the Schwab Funds. Pl.'s Mot. for Summ. J. Ex. D 103, ECF No. 8. The Amended Order provides:
This matter is before the Court on Plaintiff Stifel Financial Corporation's ex parte motion to amend the December 3, 2018 order of prejudgment attachment. Plaintiff has submitted evidence establishing that defendant has transferred the funds that were the subject of the order of attachment. Plaintiff has set forth specific facts showing that it will suffer irreparable injury if the order is not amended. For good cause shown, the motion to amend (doc. 19) is GRANTED.Pl.'s Mot. 103.
Accordingly, Defendant Iannarino, either directly or through his business entity Cephas Capital Partners & Advisory, LLC, shall not transfer, move, sell or encumber the $450,000 drawn from his Stifel account, then placed in accounts with PNC Bank and CME Federal Credit Union, and later transferred (whether in whole or in part) to accounts held with Charles Schwab & Co., Inc., which are identified by account number in plaintiff's affidavits and supporting documentation, until further order of the Court.
Stifel filed a Notice of Satisfaction of Delivery Pursuant to O .R.C. § 2715.05 in District Court, which includes the sheriff service return (the "Sheriff Return") as an exhibit evidencing service of the Amended Order on Schwab on December 24, 2018. Def.'s Cross Mot. for Summ. J., Decl. of Daniel Anderson, Ex. 1 - Notice 27 of 31, ECF No. 9. The Amended Order was also served on Debtor by the U.S. Marshal on January 8, 2019. Def.'s Cross Mot. for Summ. J., Decl. of Daniel Anderson, Ex. 2 - Return of Service 1 of 1, ECF No. 9. District Court granted default judgment against Debtor on May 19, 2019. Def.'s Cross Mot. for Summ. J., Decl. of Daniel Anderson, Ex. 4 - Opinion and Order 1-4, ECF No. 9. Subsequently, on June 14, 2019, District Court entered Order and Notice of Garnishment of Property Other than Personal Earnings and Answer of Garnishee (the "Order and Notice of Garnishment") directed to Schwab. Pl.'s Mot. for Summ. J. Ex. E 104-107, ECF No. 8. In response, Schwab filed its answer as garnishee (the "Answer of Garnishee") indicating that it held securities in the amount of $230,539.42. Def.'s Cross Mot. for Summ. J., Decl. of Daniel Anderson, Ex. 6 - Schwab Answer 1 of 2, ECF No. 9. Specifically, the section of the Answer of Garnishee where the garnishee is directed to indicate the amount of money that is in the garnishee's possession includes the dollar amount of $230,539.42 with a handwritten asterisk next to it (i.e., $230,539.42*). Def.'s Cross Mot. for Summ. J., Decl. of Daniel Anderson, Ex. 6 - Schwab Answer 1 of 2, ECF No. 9. At the bottom of the page is another asterisk with an annotation that: "Funds are subject to prior court order and cannot be turned over. Further, Schwab requires liquidation instructions - i.e., what positions to liquidate and in what order before funds can be turned over. Funds are restricted." Def.'s Cross Mot. for Summ. J., Decl. of Daniel Anderson, Ex. 6 - Schwab Answer 1 of 2, ECF No. 9.
Later, on July 2, 2019, District Court entered an order regarding the Answer of Garnishee (the "Disbursement Order") that provides, in part as follows:
For the sake of clarity, because this garnishment proceeding is a proceeding supplemental to the prejudgment attachment ordered by this Court on December 3, 2019 (ECF 16) (as amended by this Court on December 19, 2019 (ECF 20)) and relates back to that prejudgment attachment, the Court hereby clarifies that those Orders granting prejudgment attachment do not prohibit Garnishee Charles Schwab & Co., Inc. from complying with the Garnishment Order or this Order.Pl.'s Mot. for Summ. J. Ex. F 109, ECF No. 8. On July 9, 2019, Schwab sent a check in the amount of $234,376.66 to Stifel's counsel. Pl.'s Mot. for Summ. J. Ex. G 112-13, ECF No. 8.
B. Procedural Background
A month later, on August 9, 2019, Debtor filed for relief under Chapter 7 of the Bankruptcy Code. Later, on January 11, 2021, the Chapter 7 Trustee, James A. Coutinho ("Trustee") filed a complaint to avoid a preferential transfer under 11 U.S.C. § 547 and for the recovery of the value of the preferential transfer for the benefit of the estate under 11 U.S.C. § 550 ("Complaint").
Trustee then filed Plaintiff's Motion for Summary Judgment and related documents (Docs. #8, #10, #17, and #21) (collectively, the "First MSJ") requesting judgment as a matter of law against Stifel on Trustee's Complaint. In support, Trustee argued that the prejudgment attachment orders obtained by Stifel were void and unenforceable. In response, Stifel filed Defendant Stifel Financial Corporation's Memorandum in Opposition to Plaintiff's Motion for Summary Judgment and Cross-Motion for Summary Judgment (Docs. #9 and #18) (collectively, the "First Cross-Motion") arguing that the prejudgment attachment orders were valid and it obtained a valid attachment lien as a result. On January 13, 2022, this Court held a hearing to allow the parties an opportunity to present oral arguments on the First MSJ and the First Cross-Motion.
On March 30, 2022, this Court entered its Memorandum Opinion and Order Denying Plaintiff's Motion for Summary Judgment (Doc. #8) and Defendant Stifel Financial Corporation's Cross-Motion for Summary Judgment (Doc. #9) (the "MSJ Opinion") holding that it did not have the jurisdictional authority to grant Trustee relief from the prejudgment attachment orders entered by District Court because such relief must be requested from District Court, pursuant to Federal Rule of Civil Procedure 60(b) ("Rule 60(b)").
Then, Trustee filed a motion with District Court requesting relief from judgment under Rule 60(b) on the basis that the prejudgment attachment orders entered by it were void based on (1) the alleged procedural infirmities with the affidavits in support of the motions for prejudgment attachment and (2) that the financial accounts, which were the subject of the orders, were not located in Ohio. District Court entered its Opinion and Order (the "District Court Opinion") on January 20, 2023, rejecting Trustee's arguments and holding that the prejudgment attachment orders are not void, and it had jurisdiction to enter them. See Stifel Fin. Corp. v. Iannarino, 2023 WL 343957, 2023 U.S. Dist. LEXIS 10721 (S.D. Ohio Jan. 20, 2023).
On January 23, 2023, Stifel filed Defendant Stifel Financial Corporation's Notice of District Court's Denial of Trustee's Motion to Vacate (Doc. #34), after which this Court scheduled a pretrial conference to determine the status of the current adversary proceeding. At the pretrial conference, the parties disagreed as to whether there were any remaining issues for this Court to determine after the entry of the District Court Opinion. Thus, this Court allowed the parties an opportunity to file briefs in support of their positions on what, if any, issues remain pending. The Second MSJ and the Second Cross-Motion (collectively, the "Supplemental Briefs") were both filed on March 24, 2023. According to the Supplemental Briefs, the parties agree that this Court is presented with the following narrow issue: Did the prejudgment attachment orders entered by District Court create a lien in property of Debtor as of the date of the service of the Amended Order on December 24, 2018?
The MSJ Opinion ultimately denied both the First MSJ and the First Cross-Motion; it did not hold any issues in abeyance pending a determination by District Court. There were thus no pending motions before this Court at the time of the pretrial conference.
Though neither the Second MSJ nor the Second Cross-Motion cite Federal Rule of Civil Procedure 56, both parties refer to their respective motions for summary judgment that were filed previously with this Court (Docs. #8, #9, #10, #17, #18 and #21). Accordingly, this Court will review the Supplemental Briefs as renewed requests for summary judgment under Federal Rule of Civil Procedure 56 and may consider the documents in support that are attached to the prior motions in deciding the Supplemental Briefs.
For the reasons stated below, this Court, limiting its consideration to the narrow issue presented, concludes that the Original Order and the Amended Order (collectively, the "Orders") did create a lien in property of Debtor, and as a matter of law Stifel is entitled judgment in its favor.
C. Summary of Timeline
For ease of reference, this Court provides the following timeline of events that occurred in this case:
• October 12, 2018 - the Original Motion filed in District Court
• December 3, 2018 - the Original Order entered by District Court
• December 7, 2018 - Stifel deposits $900,000 bond with District Court
• December 18, 2018 - Stifel files the Amended Motion in District Court
• December 19, 2018 - the Amended Order entered by District Court
• December 24, 2018 - Sheriff serves the Amended Order on Schwab
• January 8, 2019 - U.S. Marshal serves the Amended Order on Debtor
• May 19, 2019 - District Court grants judgment by default against Debtor
• June 14, 2019 - the Order and Notice of Garnishment entered by District Court
• June 21, 2019 - the Answer of Garnishee filed by Schwab in District Court (the date of filing is based on the information contained on District Court's docket)
• July 2, 2019 - the Disbursement Order entered by District Court
• July 9, 2019 - Schwab sends a check in amount of $234,376.66 to Stifel's counsel
• August 9, 2019 - Debtor files for relief under Chapter 7 of the Bankruptcy Code
III. ARGUMENTS OF THE PARTIES
The parties agree that the material relevant facts here are not in dispute. The parties, however, dispute the effect of the District Court Opinion and whether any issues remain for this Court's determination in the current adversary proceeding.
Trustee concedes that the Orders entered by District Court are valid, but he argues that Stifel did not acquire a valid lien on the Schwab Funds because Stifel failed to obtain and execute on proper attachment orders. Trustee further claims that the Orders were procedurally defective in several ways under Ohio Revised Code ("O.R.C.") provisions governing prejudgment attachment. Specifically, Trustee contends that these defects with respect to the prejudgment attachment proceeding in District Court prevented the Orders from creating a lien because: (1) the Orders are not specifically addressed to the sheriff; (2) the Orders do not contain language that directs the sheriff to take control over the Schwab Funds; (3) Stifel failed to have the sheriff leave a notice with Schwab directing it to appear in court and answer; (4) Stifel failed to instruct the sheriff to take possession of the Schwab Funds and if unsuccessful leave a copy of the order with Schwab along with notice that it must appear in court and answer; (5) the return filed by the sheriff does not evidence what the sheriff did with the attachment and note the property attached and at what time; and (6) Schwab was not ordered to pay the money into District Court or post a bond to retain the money (collectively, the "Defects").
This Court notes that Trustee did not argue before District Court that relief from the prejudgment attachment orders was warranted on the basis that the prejudgment attachment orders failed to strictly comply with Ohio Revised Code provisions governing the content of orders and the manner of executing the orders.
In contrast, Stifel argues that whether a defect in the prejudgment attachment proceedings existed is an issue that Debtor should have raised before District Court entered judgment, which Debtor failed to do. Debtor's failure to raise any issues of defects in the prejudgment attachment proceedings waives same and that waiver is now binding on Trustee. In addition, Stifel argues that Trustee could have raised these issues before District Court in a timely fashion in his Rule 60(b) motion and his failure to raise these issues timely is a waiver that is binding on Trustee. Stifel further argues that Trustee is requesting that this Court impermissibly review prior rulings made by District Court that exceeds this Court's jurisdiction. Stifel maintains that there are no other issues for this Court to determine because of the District Court Opinion, and thus Stifel is entitled to judgment in its favor.
IV. LEGAL ANALYSIS
A. Summary Judgment Standard
Federal Rule of Civil Procedure 56 governs a request for summary judgment and provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The party requesting summary judgment bears the burden of establishing the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The opposing party must then "come forward with specific facts showing that there is a genuine issue for trial." Mounts v. Grand Trunk W. R.R., 198 F.3d 578, 580 (6th Cir. 2000) (citation omitted).
Federal Rule of Civil Procedure 56 is made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056.
When considering a motion for summary judgment, "[t]he court must view the evidence in the light most favorable to the nonmoving party. However, the party opposing the summary judgment motion must do more than simply show that there is some metaphysical doubt as to the material facts." Amini v. Oberlin Coll., 440 F.3d 350, 357 (6th Cir. 2006) (citations and internal quotation marks omitted). "[A] mere 'scintilla' of evidence in support of the non-moving party's position is insufficient to defeat summary judgment; rather, the non-moving party must present evidence upon which a reasonable jury could find in her favor." Tingle v. Arbors at Hilliard, 692 F.3d 523, 529 (6th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).
"[T]he standard of review for cross-motions of summary judgment does not differ from the standard applied when a motion is filed by only one party to the litigation." United States SEC v. Sierra Brokerage Servs., 712 F.3d 321, 327 (6th Cir. 2013) (citing Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991)).
B. 11 U.S.C. § 547 - Preferences
A transfer of the debtor's interest in property may be avoided under certain circumstances pursuant to 11 U.S.C. § 547(b), which:
(b) Except as provided in subsections (c) , (i), and (j) of this section, the trustee may, based on reasonable due diligence in the circumstances of the case and taking into account a party's known or reasonably knowable affirmative defenses under subsection (c), avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
11 U.S.C. § 547(b). The trustee must prove all the elements under 11 U.S.C. § 547(b) to avoid a preferential transfer. See Waldschmidt v. Ranier (In re Fulghum Constr. Corp.), 706 F.2d 171, 172 (6th Cir. 1983) (citation omitted).(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
In this case, Trustee and Stifel do not dispute that the first three elements of 11 U.S.C. § 547(b) have been satisfied. The dispute arises between the parties with respect to the fourth and fifth elements; specifically, whether Stifel received a transfer on or within 90 days of the filing of the bankruptcy case and whether that transfer enabled it to receive more than it would have received if the transfer had not been made. The resolution of this turns on whether Stifel obtained a valid prejudgment attachment order in District Court. The parties agree that if a valid lien was created by the Orders entered by District Court, Stifel would have received payment on its secured claim. Consequently, Stifel would not have received a transfer that enabled it to receive more than it would have if the transfer had not been made and the claim of Stifel was paid based on the provisions of the Bankruptcy Code.
C. District Court Prejudgment Attachment Procedure
In a federal diversity action, Federal Rule of Civil Procedure 64 governs the seizure of the defendant's property. Baxter v. United Forest Prods. Co., 406 F.2d 1120, 1125 (8th Cir. 1969). That rule "provides that every remedy that is available under the law of the state where the court is located, having to do with seizing property to satisfy a potential judgment, is also available in federal court. That includes the remedy of attachment." PCA-Corrections, LLC v. Akron Healthcare LLC, No. 20-428, 2021 WL 1582984, at *1, U.S. Dist. LEXIS 77769, at *2 (S.D. Ohio 2021) (citations omitted). Federal courts in Ohio apply O.R.C. § 2715.01, et seq., when considering a motion requesting prejudgment attachment under Federal Rule of Civil Procedure 64. See, e.g., Nationwide Mut. Ins. Co. v. Whiteford Sys., Inc., 787 F. Supp. 766, 768 (S.D. Ohio 1992). In doing so, federal courts in Ohio are guided by the decisions of the Supreme Court of Ohio that interpret the prejudgment attachment statutes. See Wheeling Traction Co. v. Pa. Co., 1 F.2d 478, 478 (S.D. Ohio 1924) (citations omitted) ("In actions in the federal courts involving liens and remedies, such as are involved in garnishment proceedings authorized by the statutes of a state, the federal courts apply and enforce such remedies, adopting and following such statutes as they are interpreted by the state's highest court."). A party must substantially comply with state law procedures when pursuing remedies related to the seizure of property to satisfy a judgment pursuant to Federal Rule of Civil Procedure 64. Williamson v. Recovery Ltd. P'ship, No. 2:06-cv-292, 2012 WL 13118448, at *4, 2012 U.S. Dist. LEXIS 201967, at *20-21 (S.D. Ohio July 31, 2012) ("[A party's] sufficiently close adherence to state procedural rules is all that is required under Federal Rules of Civil Procedure 64 (attachment) . . . ." (citations and internal quotation marks omitted)); see also Ohio Farmers Ins. Co. v. Special Coatings, LLC, No. 3:07-1224, 2010 WL 4775630, at *2, 2010 U.S. Dist. LEXIS 121408, at *6 (M.D. Tenn. Nov. 15, 2010) ("[N]umerous federal courts have long held that substantial compliance with state practices and procedures is sufficient for federal proceedings in aid of enforcing the satisfaction of a judgment.") (citations omitted).
"Attachment is a procedure unknown to the common law, and Section 2715.01 [of the Ohio Revised Code] provides the only grounds on which an order of attachment may legally and rightfully be obtained in Ohio." Rice v. Wheeling Dollar Sav. & Tr. Co., 163 Ohio St. 606, 611, 128 N.E.2d 16, 19 (1955).
Ohio's attachment provisions, [O.R.C.] § 2715.01-.56, permit a court to issue an attachment of defendant's property if the defendant is about to remove his property from the jurisdiction of the court, with the intent to defraud his creditors; or if he is about to convert his property into money to place it beyond the reach of creditors; or if he has property which he is concealing; or if he has disposed of his property with the intent to defraud creditors. Once the court authorizes prejudgment attachment, plaintiff must pay a bond equal to the value of the property to be attached, or, if not known, twice the value of plaintiff's claim. The court's order of attachment is then delivered to the levying officer who, without delay, will go to the location of the property, make an inventory and appraisal of its value, and take it into custody if personal property, or conspicuously place notice of attachment on it if real property.EBSCO Indus., Inc. v. Lilly, 840 F.2d 333, 334 (6th Cir. 1988) (citations omitted).
D. Relief From the Orders
Of the many Defects alleged, Trustee urges this Court to determine that the Orders entered by District Court, though valid orders, were not effective in creating a lien because the Orders failed to include certain language. Specifically, Trustee contends that because the Orders were not addressed and delivered to the sheriff and they did not require the sheriff to attach Debtor's property, the Orders did not create a lien on the Schwab Funds. In essence, Trustee is asking this Court to disregard the full force and effect of the Orders entered by District Court. Disregarding the full force and effect of the Orders entered by District Court, would ultimately provide Trustee relief from the operation of the Orders. A remedy that this Court lacks the authority to grant.
1. Voidable Orders
As discussed in the MSJ Opinion, this Court does not have the jurisdictional authority to sit in review of orders or judgments entered by District Court and determine the propriety of same.
This Court knows its position in the federal court hierarchy, which is below that of the District Court, the Circuit Court of Appeals, and the United States Supreme Court, all of which exercise appellate jurisdiction over and review of this Court's judgments and orders . . . . .John Labatt Ltd. v. Messina (In re Messina), Chapter 11, Bankruptcy No. 99 B 29371, Adversary No. 99 A 01573, 2000 WL 311145, at *6, 2000 Bankr. LEXIS 255, at *17-18 (Bankr. N.D. Ill. Mar. 27, 2000) (citations and internal quotation marks omitted). An order issued by a district court exercising proper jurisdiction over the subject matter and the parties is a valid order. Ins. Corp. of Ir. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 701, 102 S. Ct. 2099, 2103, 72 L.Ed.2d 492 (1982).
The converse is not true as this bankruptcy court has no appellate jurisdiction whatsoever and cannot as a matter of law effectively reverse or und[o] any final judgment entered by those higher federal courts. Under the principle of stare decisis, inferior or lower courts are bound to follow the decisions of superior courts. The lower court cannot alter the results of a prior final judgment even if that judgment was wrong . . . . To suggest that a final judgment obtained prior to the commencement of a bankruptcy case can be reopened by [a bankruptcy] court and in effect retried makes no sense . . . . Bankruptcy proceedings may not be used to re-litigate issues already resolved in a court of competent jurisdiction.
This Court recognizes that the Orders in this case may be irregular or erroneous due to the Defects, but this Court cannot disregard the full force and effect of them. The Defects of which Trustee complains would only amount to the Orders being voidable, if at all, on the basis that they are irregular or erroneous orders which only District Court can remedy. "Rule 60(b) is [a] procedural device, expressly permitting trial courts to set aside their own, otherwise final, judgments. It is an exception to the general rule of finality that normally attaches to judgments from which no timely appeal has been taken." In re Acorn Hotels, LLC, 251 B.R. 696, 701 (Bankr. W.D. Tex. 2000) (citations omitted). Pursuant to Federal Rule of Civil Procedure 60(b), parties to a cause of action may seek relief from a court's order if the issuing court has made a legal error. See Kemp v. United States, — U.S. —, 142 S. Ct. 1856, 1862, 213 L.Ed.2d 90 (2022) ("The ordinary meaning of the term 'mistake' in Rule 60(b)(1) includes a judge's legal errors."); United States v. Reyes, 307 F.3d 451, 455 (6th Cir. 2002) (citation omitted) (recognizing that a district court may vacate a final judgment under Rule 60(b)(1) "when the judge has made a substantive mistake of law or fact in the final judgment or order").
Here, Trustee did not ask District Court to consider his argument that even if the Orders are not void, that they contain the Defects which would make the Orders voidable. Trustee claims that he could not have included this argument at District Court because it "assumes that the District Court's orders were valid and still did not create a lien." Pl.'s Suppl. Mem. 1, n. 1, ECF No. 40. This Court disagrees with Trustee in this point. Trustee could have and probably should have argued in the alternative that if District Court determines the Orders are not void, that he was still entitled to relief from the prejudgment attachment orders because they are voidable due to irregularities in procedures. In fact, this is exactly what this Court presumed Trustee would do if he chose to file a Rule 60(b) motion in District Court. See Coutinho v. Stifel Fin. Corp. (In re Iannarino), 638 B.R. 873, 885-86 (Bankr. S.D. Ohio 2022) ("District Court will ultimately be confronted with the issue of whether the irregularities or defects, if any, in the prejudgment attachment proceeding before it were such that: (1) they deprived it of jurisdiction which resulted in void judgments being entered; or (2) they were non-jurisdictional and thereby waived by Debtor for failing to raise them timely."). This Court struggles with the proposition that Trustee advances here: The prejudgment attachment orders are valid but did not create a lien even though the very nature and operation of a valid attachment order is to create a lien. This Court will address this point in more detail later in this opinion.
An omission, defect or irregularity during the prejudgment attachment proceeding only results in the action being voidable, unless the defects would deprive the presiding court of its jurisdiction. See O'Farrell v. Stockman, 19 Ohio St. 296, 298-99 (1869) ("[t]he undertaking is not essential to jurisdiction in attachment. It is designed exclusively for the benefit of the defendant. He may waive it, and the omission to file it is a mere irregularity, of which he alone can take advantage. The effect of the omission is to render the proceeding voidable, but not absolutely void."); Marion v. Sickles, 105 Ohio App. 495, 500, 152 N.E.2d 813, 817 (1957) ("The statutes of Ohio permit an attachment defendant, before judgment and upon reasonable notice to the plaintiff, to move to discharge an attachment, and until such a motion is filed and there has been judicial determination thereof the attachment, unless absolutely void, is given full force and effect."). An order that is entered by a federal court warrants respect and is not subject to collateral attack even if that order is voidable. See Bernards v. Johnson, 314 U.S. 19, 32, 62 S.Ct. 30, 86 L.Ed. 11 (1941) (citation omitted) ("However erroneous the challenged orders, the remedy for their correction was by timely application for review or timely appeal.").
This Court finds the following language instructive on this issue:
Judgments may be irregular, erroneous or void. An irregular judgment is one rendered contrary to the method of procedure and practice allowed by the law in some material respect. An erroneous judgment is one rendered in accordance with the method of procedure and practice allowed by the law, but contrary to the law.McLeod v. Provident Mut. Life Ins. Co., 186 Colo. 234, 238-39, 526 P.2d 1318, 1320-21 (1974) (citations and internal quotation marks omitted). "Defects or irregularities in attachment proceedings, although they may be grounds for the direct reversal of the judgment for departing from the directions of the statute, do not render the judgment or the subsequent proceedings void or subject to collateral attack." 24 Oh Jur Creditors' Rights and Remedies § 301. An order is merely voidable and can only be challenged directly to the court that issued it or by appeal if the contents of the order are deficient. See Crawley v. Commonwealth, No. 2374-05-3, 2007 WL 1467171, at *3, 2007 Va. App. LEXIS 217, at *9 (Ct. App. May 22, 2007) ("The instant contention, challenging the contents of the order, raises a question of trial court error, not jurisdiction. Indeed, the order's lack of a specific finding that appellant had violated the terms of his suspended sentences and its arguable lack of clarity did not divest the court of jurisdiction in this case. At most, such errors or irregularities rendered the order merely voidable rather than void ab initio.").
Irregular and erroneous judgments necessarily retain their force and have effect until modified by the trial court in consequence of its authority in certain circumstances . . . or until vacated pursuant to new trial procedures, . . . or until reversed by an appellate court in review proceedings. Such judgments are subject only to direct attack; they are not vulnerable to collateral assault.
A void judgment is a simulated judgment devoid of any potency because of jurisdictional defects only, in the court rendering it. Defect of jurisdiction may relate to a party or parties, the subject matter, the cause of action, the question to be determined, or the relief to be granted. A judgment entered where such defect exists has neither life nor incipience, and a court is impuissant to invest it with even a fleeting spark of vitality, but can only determine it to be what it is -- a nothing, a nullity. Being naught, it may be attacked directly or collaterally at any time.
In this case, Trustee does not specifically argue that he is entitled to relief from the Orders based on legal errors by District Court for entering them in their current form (i.e., without the statutorily required language) but contends that Stifel failed to "obtain and execute on proper attachment orders." This Court, however, struggles to see the distinction urged by Trustee. Though Stifel was the party requesting prejudgment attachment remedies from District Court, it was District Court that entered the Orders. District Court, like other courts, is charged with the duty of issuing and entering orders, not Stifel. Thus, any errors, irregularities, or defects in the language contained in the Orders can be attributed only to District Court. Notwithstanding that Stifel could have or should have requested reconsideration of the Orders by District Court, but its failure to do so does not somehow change the fact that District Court ultimately decided what language needed to be in the Orders. Consequently, the legal error, if any, of not including certain language in the Orders can be attributed only to District Court, as it makes the final determination of what language must be included in the orders it enters.
2. Defects and Irregularities
Debtor failed to challenge any defects or irregularities during the prejudgment attachment process in District Court, and Trustee is now bound by that waiver. "Ample provisions are made for the defendant to question the validity of the order of attachment by Section 2715.44 et seq., [of the Ohio Revised Code]." Rice v. Wheeling Dollar Sav. & Tr. Co., 163 Ohio St. 606, 612, 128 N.E.2d 16, 19 (1955). O.R.C. § 2715.44 provides that "[b]efore judgment, upon reasonable notice to the plaintiff, the defendant may move to discharge an attachment as to the whole or any of the property attached. The motion shall promptly be heard and decided by the court." If a judgment debtor fails to timely challenge the validity of the attachment proceeding, all parties including the judgment debtor will have waived the right to do so. See Weirick v. Mansfield Lumber Co., 96 Ohio St. 386, 402-03, 117 N.E. 362, 366 (1917). The Supreme Court of Ohio has determined that:
[An] attachment is subject to dissolution at the instance of the debtor. If no motion is made to dissolve it, if it is permitted to stand until the final adjudication, it is then too late for any other person in another or independent proceeding to attack or assail its validity. It is clearly too late for the defendant in the original proceeding to attack it.Weirick, 96 Ohio St. at 402-03, 117 N.E. 362. Sometimes, only the judgment debtor may assert certain defenses to the attachment. See Cent. Nat'l Bank v. Broadview Sav. & Loan Co., 64 Ohio App. 2d 133, 138, 411 N.E.2d 840, 844 (1979) ("[A] garnishee being sued in a collateral action pursuant to [O.R.C. §] 2715.33 cannot assert as a defense that the affidavit filed by a plaintiff in the original action did not meet the requirements of [§] 2715.01(K). That defense is personal to the defendant in the original action and it can only be raised by the defendant in the original action or it is waived."); Conley v. Chilcote, 25 Ohio St. 320, 324 (1874) (holding that the defense that attached funds are exempt is personal to the judgment debtor and cannot be asserted by garnishee).
It must follow that it is likewise too late for third parties in another proceeding to attack it.
Furthermore, parties to an action involving prejudgment attachment must pursue the proper procedural mechanisms that are available to challenge the validity of the attachment or the ability to do so later will be waived. See 6 Am Jur 2d Attachment and Garnishment § 317 ("Generally, irregularities and defects in attachment proceedings that render the attachment merely voidable and not void are deemed waived unless promptly taken advantage of by the mode appropriate in the particular jurisdiction for raising an objection."). In addition, "defects in an instrument of attachment are waived when the defendant does not appeal from the issuance of the order of attachment." 6 Am Jur 2d Attachment and Garnishment § 270 (citing LVO Fed. Credit Union v. Wolfe, 1977 OK 236, 574 P.2d 293). The Supreme Court of Ohio has held that "[subsequent attaching creditors] can take no advantage of what may be properly regarded as informalities or irregularities in the proceedings, though constituting good grounds for objection on the part of the defendant." Ward v. Howard, 12 Ohio St. 158, 161-62 (1861).
In this case, Trustee contends that the Defects with respect to the prejudgment attachment proceeding in District Court prevented the Orders from creating a lien. As discussed above, the Defects in the prejudgment attachment proceeding in District Court noted by Trustee would, at most, render the Orders voidable. Debtor, Stifel, and Schwab had options available to them under the statutory framework to challenge the Defects with respect to the prejudgment attachment proceedings in District Court. In addition, the parties could have pursued other procedural avenues such as those under Federal Rules of Civil Procedure 59 and 60, to address the Defects. The parties in District Court, however, chose not to do so. District Court eventually entered a final judgment against Debtor by default on May 19, 2019, and in so doing, has foreclosed the parties from now complaining of any defects in the proceeding. Accordingly, any right to challenge the propriety of the Orders entered by District Court based on the Defects has been waived by the parties. This waiver is binding on Trustee. See In re Wey, 827 F.2d 140, 142 (7th Cir. 1987) (holding that the trustee was bound by the debtor's waiver of finality as a defense to the creation of the judgment lien); Bird v. White (In re White), 591 B.R. 884, 891 (Bankr. D. Utah 2018) ("A trustee in bankruptcy is bound by any waiver of a defense made by a debtor before the filing of the petition.") (citation and internal quotation marks omitted); Kapila v. Bank of Am., N.A. (In re Pearlman), 493 B.R. 878, 885 (Bankr. M.D. Fla. 2013) ("The Trustee, who has the same rights and defenses as the Debtors, is bound by the Debtors' waiver and is precluded from asserting a jury trial demand in this case.") (citation omitted). Thus, this Court finds that if Trustee is seeking relief from the operation of the Orders because legal errors occurred by District Court when certain language was not included in them, this Court cannot provide that relief. This Court finds that any challenges to the attachment proceedings based on the Defects have been waived by the parties in that case. The remaining issue before this Court is to determine when the prejudgment attachment lien was created based on Ohio law.
E. Prejudgment Attachment Under Ohio Law
1. Liberal Construction and Lien Creation
Applying the prejudgment attachment statutes liberally in order to promote their statutory objective, this Court must find that Stifel obtained a valid and effective attachment lien in the Schwab Funds when the Amended Order was served on Schwab on December 24, 2018. Under Ohio law, statutes governing prejudgment attachment proceedings are considered remedial. See Rice v. Wheeling Dollar Sav. & Tr. Co., 155 Ohio St. 391, 99 N.E.2d 301 (1951); Hart v. Andrews, 103 Ohio St. 218, 132 N.E. 846 (1921); Weirick v. Mansfield Lumber Co., 96 Ohio St. 386, 117 N.E. 362 (1917). "It is a familiar and elementary rule that remedial statutes shall be liberally construed." Weirick v. Mansfield Lumber Co., 96 Ohio St. 386, 395, 117 N.E. 362, 364 (1917). Ohio law further provides in part as follows:
Remedial laws and all proceedings under them shall be liberally construed in order to promote their object and assist the parties in obtaining justice. The rule of the common law that statutes in derogation of the common law must be strictly
construed has no application to remedial laws[.]OHIO REV. CODE ANN. § 1.11 (Page, Lexis Advance through File 3 of the 135th General Assembly (2023-2024)). Consequently, the statutes that govern prejudgment attachment in Ohio should be interpreted liberally for the benefit of the attaching creditor. Nw. Yeast Co. v. Broutin, 133 F.2d 628, 630 (6th Cir. 1943) (citations omitted); see also Weirick v. Mansfield Lumber Co., 96 Ohio St. 386, 395, 117 N.E. 362, 364 (1917) (internal quotation marks and citation omitted) ("And hence the polestar in the[ ] construction [of the attachment statutes] shall be to assist the parties in obtaining justice."). The prejudgment attachment process is intended to provide security to the attaching creditor by preventing dissipation of the judgment debtor's assets until the creditor obtains its judgment. See Carty v. Fenstemaker, 14 Ohio St. 457, 460 (1863) ("[The object of a proceeding by attachment] is the seizure and retention of the debtor's property, so that it may, at the proper time, be subjected to the payment of the judgment of the attaching creditor."); see also Green v. Coit, 81 Ohio St. 280, 285, 90 N.E. 794, 795 (1909) (holding that attachment proceedings are intended to create a lien in the judgment debtor's property).
Under Ohio law, a lien is created at the time the attachment order is served. See OHIO REV. CODE ANN. § 2715.19 (Page, Lexis Advance through File 3 of the 135th General Assembly (2023-2024)). The statute provides:
An order of attachment shall bind the property attached from the time of service. A garnishee under this chapter shall be liable to the plaintiff in attachment for all property of the defendant in his hands, and money and credits due from him to the defendant, other than personal earnings, from the time he is served with the written notice required in section 2715.091 of the Revised Code.Id. The use of "bind" in the statute provides the attaching creditor with a property interest in the "garnishee's and, by implication, the [judgment debtor's] property from the time service of the garnishment order is accomplished." In re Flynn, 238 B.R. 742, 746 (Bankr. N.D. Ohio 1999) (emphasis added). Said another way, an attaching creditor obtains a lien at the time the prejudgment attachment order issued by a court of competent jurisdiction is served on the garnishee. See Flynn, 238 B.R. at 746-47; see also Carty v. Fenstemaker, 14 Ohio St. 457, 461 (1863) ("The order of attachment binds the property attached from the time of service, and the garnishee stands liable to the plaintiff for all property, moneys and credits, in his hands, or due from him to the defendant, from the time he is served with the notice[.]").
Moreover, O.R.C. § 2715.044 provides in part as follows:
An order of attachment issued by a court shall not be effective until the plaintiff that filed the motion for attachment files with the court a bond to the defendant against whom the motion was filed . . . in an amount twice the approximate value of the property to be attached under the order[.]OHIO REV. CODE ANN. § 2715.044 (Page, Lexis Advance through File 3 of the 135th General Assembly (2023-2024)). Accordingly, under Ohio law, an attachment order is not effective until the attaching creditor deposits a bond with the issuing court, and the attaching creditor obtains a lien in the judgment debtor's property at the time that the attachment order is served.
In this case, Stifel deposited the requisite bond with the clerk of District Court on December 7, 2018. The Amended Order was served on Schwab on December 24, 2018, and no evidence has been introduced to suggest that Schwab did not receive a copy of the Amended Order as evidenced by the Sheriff Return. Accordingly, based on the statutory language, this Court finds that a valid and effective prejudgment attachment lien was created in the Schwab Funds on December 24, 2018.
Trustee, however, contends that the failure to serve Schwab with the written notice required in O.R.C. § 2715.091 along with a copy of the Amended Order nullifies the creation of the lien. This Court disagrees. Pursuant to the plain language of O.R.C. § 2715.19, it is service of the attachment order that binds the property and creates the lien not the notice to garnishee. The provision regarding service of the notice, relates to the timing of when the garnishee becomes liable to the attaching creditor: "A garnishee under this chapter shall be liable to the plaintiff in attachment . . . from the time he is served with the written notice required in section 2715.091 of the Revised Code." OHIO REV. CODE ANN. § 2715.19 (Page, Lexis Advance through File 3 of the 135th General Assembly (2023-2024)) (emphasis added). If the Ohio legislature intended for the attachment lien to be created after service of the order and notice, it could have easily provided for that. See Cleveland Elec. Illuminating Co. v. City of Cleveland, 37 Ohio St. 3d 50, 53, 524 N.E.2d 441, 444 (1988) (citation omitted) (noting that the function of the court is "to give effect to the words used, not to delete words used or to insert words not used"); State v. Edwards, 2018-Ohio-1739, ¶ 18, 110 N.E.3d 1042, 1048 (Ct. App.) (citations omitted) ("When interpreting a statute, a court must presume that the legislature meant exactly what it said and cannot delete or add words.").
The statutory language is clear - the lien is created once the attachment order is served. The failure to serve the notice required by O.R.C. § 2715.091 on Schwab at the time that the Amended Order was served on it arguably provided it with a defense to liability in the garnishment proceeding and nothing more. An attaching creditor may initiate a separate civil action under O.R.C. § 2715.33 if the garnishee fails to: (1) appear and answer; (2) answers unsatisfactorily; (3) provide bond; or (4) comply with the court order. See Cent. Nat'l Bank v. Broadview Sav. & Loan Co., 64 Ohio App. 2d 133, 136, 411 N.E.2d 840, 842-43 (1979) (citing O.R.C. § 2715.33). Arguably, if Schwab had released the Schwab Funds to Debtor or another entity seeking attachment or garnishment after it received a copy of the Amended Order but before it received the Order and Notice of Garnishment, Schwab could have argued that it was not liable to Stifel based on the lack of notice being served. Nonetheless, the clear language of the statute provides that the property is bound at the time the attachment order is served, and thus a lien was created in the Schwab Funds on December 24, 2018.
Furthermore, a review of the Orders entered by District Court and the language used in them, leaves little doubt that Stifel was pursuing a prejudgment attachment remedy and that District Court granted that relief. Indeed, the Original Order entered by District Court consisted of seven pages of discussion and analysis by District Court regarding the statutory requirements for granting prejudgment attachment. The Original Order references the unopposed motion for prejudgment attachment as the matter being considered by District Court, and it contains various citations to the statutes governing prejudgment attachment in Ohio (i.e., O.R.C. § 2715.01 et seq.). In addition, the Original Order specifically ordered that "plaintiff's motion for prejudgment attachment . . . is GRANTED." The title of the Amended Order similarly refers to prejudgment attachment: in the title of the order and in referring to the Original Order. And notably, the record in District Court was clarified by the Disbursement Order when District Court held that "this garnishment proceeding is a proceeding supplemental to the prejudgment attachment ordered by this Court on December 3, 2019 (ECF 16) (as amended by this Court on December 19, 2019 (ECF 20)) and relates back to that prejudgment attachment, the Court hereby clarifies that those Orders granting prejudgment attachment do not prohibit Garnishee Charles Schwab & Co., Inc. from complying with the Garnishment Order or this Order." If the prejudgment attachment statutes in Ohio are intended to create a lien on the property of a judgment debtor and courts must liberally construe the applicable statutes and procedures in order to promote that statutory objective, this Court must find that service of the Amended Order on Schwab created a lien in the Schwab Funds.
2. Substantial Compliance
Trustee, however, contends that the attachment lien created by the Orders is ineffective because Stifel did not strictly adhere to the prejudgment attachment statutes and procedures as evidenced by the Defects. A federal proceeding seeking prejudgment attachment, however, is not required to strictly adhere to the state practices and procedures; substantial compliance is sufficient, particularly if the objective of the procedure is otherwise achieved. See Williamson v. Recovery Ltd. P'ship, No. 2:06-cv-292, 2012 WL 13118448, at *4, 2012 U.S. Dist. LEXIS 201967, at *20 (S.D. Ohio July 31, 2012) (determining that the plaintiff's failure to file the praecipe with the clerk of court as required by the statute was not fatal to plaintiff's request for attachment because the praecipe was designed to give the defendants notice of the proceeding and the defendants received that requisite notice during a telephonic court conference); see also Green v. Coit, 81 Ohio St. 280, 285, 90 N.E. 794, 795 (1909) ("[I]t is the universal rule that in all attachment proceedings the requirements of the statute must be substantially complied with."). In addition, if the action contemplated by the statute is actually accomplished even though the Orders did not contain specific language regarding same, this Court struggles to see what prejudice ultimately results. For example, even though the Orders were not specifically addressed to the sheriff and did not specifically direct the sheriff to assume control over Debtor's property and if unsuccessful to leave a copy of the attachment order with the garnishee, it is apparent from the Sheriff's Return that the sheriff did in fact receive the Orders and served a copy of them on the garnishees. Accordingly, the objective of that statutory procedure (i.e., to notify and provide direction to the levying officer for what to do with the attachment order) appears to have been accomplished.
Furthermore, the written notice that is supposed to accompany the service of the attachment order and the requirement that the garnishee file an answer appear to be designed to give the garnishee notice of the attachment proceeding and allow it an opportunity to appear in court before any liability is assessed against it. Essentially, this procedure ensures that due process is provided to a garnishee before it becomes liable to the attaching creditor. See Whitman v. Keith, 18 Ohio St. 134, 145 (1868) ("Looking, therefore, to the nature and results of proceedings in garnishment, we think they exhibit the characteristic elements of a suit; that a garnishee, when duly served with a copy of the order of attachment, and notice to appear and answer, may properly be said to 'be sued' . . . ."). The applicable statutory section provides in part that the levying officer "shall leave with the person a copy of the order of attachment, with a written notice that he appear in court and answer, as provided in section 2715.29 of the Revised Code. The person is the garnishee and the proceeding in relation to the garnishee is a garnishment proceeding." OHIO REV. CODE ANN. § 2715.091 (Page, Lexis Advance through File 3 of the 135th General Assembly (2023-2024)). The statutory language clarifies that the proceeding against the garnishee is ancillary to the attachment proceeding, and as such, the garnishee is entitled to receive proper notice before it can be held liable. In fact, District Court specifically stated in the Disbursement Order that "this garnishment proceeding is a proceeding supplemental to the prejudgment attachment ordered by this Court on December 3, 2019 . . . ." Pl.'s Mot. for Summ. J. Ex. F 109, ECF No. 8.
In this case, Schwab has not advanced any due process challenges in District Court or this Court on the basis that it did not receive the proper notice. In fact, Schwab filed the Answer of Garnishee in District Court after receiving the Order and Notice of Garnishment. Thus, the objective of the procedure (i.e., affording the garnishee its due process) has been accomplished here; Schwab received the written notice, albeit after the Amended Order was served, and filed the Answer of Garnishee before District Court ordered Schwab to liquidate the securities and disburse them to counsel for Stifel. Hence, Schwab was able to answer and be heard before District Court ordered the disbursement of the Schwab Funds.
The Sheriff Return indicates the Amended Order, or writ, was received by the sheriff on December 20, 2018, and that it was served at "3:10 PM" to Schwab at 277 West Nationwide Blvd., Columbus, Ohio 43215 to the attention of Matt Watson. In addition, the Sheriff Return has a letter attached to it that is addressed to Schwab from counsel for Stifel that identifies, among other things, the dollar amount that is subject to the attachment and the account numbers for the Schwab Funds. The Sheriff Return also contains a copy of the Amended Order. As a result, the Sheriff Return shows that the attachment was served and when, and it attaches a letter that identifies the account numbers for the Schwab Funds. Accordingly, the Sheriff Return substantially complies with what is required by the statute regarding what the sheriff did with the attachment, what property was attached, and the time the property was attached.
And lastly, the requirement that the money be paid into the court or a bond be issued does not appear to be mandatory, given the use of "may" in O.R.C. § 2715.32, which provides in part that "the court may order the delivery of . . . property, or the payment of the amount . . . into court, or both; or it may permit the garnishee to retain the property, or the amount owing, upon his executing a bond to the plaintiff . . . ." OHIO REV. CODE ANN. § 2715.32 (Page, Lexis Advance through File 3 of the 135th General Assembly (2023-2024)) (emphasis added). For these reasons, this Court finds that considering the totality of the factors that there has been substantial compliance with the state statutes governing prejudgment attachment.
Trustee relies on DaimlerChrysler Servs. N. Am. v. Provident Bank, 3:02CV7235, 2003 WL 22182492, 2003 U.S. Dist. LEXIS 16596 (N.D. Ohio Sept. 12, 2003) in support of his contention that failing to follow the proper attachment procedure may invalidate the attachment lien. In Daimler, a creditor, US Bank, filed a prejudgment attachment proceeding in state court against a defunct car dealership and sought attachment of the car dealership's bank account at Provident Bank. The sheriff served the attachment order on Provident Bank but did not leave a notice with the bank to appear in court and answer as required by O.R.C. § 2715.091(A). Provident Bank then moved in state court to modify the court's order of attachment and attempted to assert its claim to the proceeds in the account as well. US Bank opposed Provident Bank's motion on the basis that the state court did not have jurisdiction over Provident Bank. The state court denied Provident Bank's motion and held that it would need to file an independent attachment proceeding to assert its claim to the account proceeds.
Then, DaimlerChrysler Services ("DCS") filed an action in federal district court against the same defunct car dealership and one of its principals seeking a judgment for monies owed to it. DCS obtained a judgment and initiated a post judgment garnishment proceeding. DCS served an order of garnishment on Provident Bank seeking to obtain the funds in the bank account maintained by Provident Bank which was also the subject of the prejudgment attachment by US Bank. In the garnishment proceeding with DCS, Provident Bank claimed that it had a right to have the funds in the bank account applied as a setoff. US Bank was permitted by the district court to participate in the garnishment proceedings due to its competing claim in the funds. The district court ultimately determined that the attachment proceeding in state court was defective and ordered that the funds be disbursed to DCS subject to Provident Bank's right to set off. The district court specifically held that "US Bank, having first failed to satisfy the statute and then having successfully urged the state court to deny the due process that the statute protects, should not profit from its actions." DaimlerChrysler, 2003 WL 22182492, at *3, 2003 U.S. Dist. LEXIS 16596, at *10.
This case is distinguishable for many reasons. First, Daimler involved three creditors all claiming an interest in funds that were subject to multiple actions (i.e., a garnishment proceeding and attachment proceeding). The garnishee in Daimler was a creditor of debtor and failure to provide notice to garnishee violated the due process rights of the garnishee to assert its claims. In this case, Stifel was the only creditor asserting an interest in the Schwab Funds, and the attachment proceeding in District Court was the only action involving same. The garnishee here, Schwab, did not have a claim against Debtor. Most notably, the court in Daimler based its decision in part on the fact that the attaching creditor, US Bank, had convinced the state court to ignore the due process rights of the garnishee and the notice to appear and answer was designed to protect those very rights. As discussed above, neither Schwab, nor any other party in this case, has asserted that its due process rights were disregarded during the attachment proceeding in District Court. And in fact, Schwab did eventually appear and answer, so there are no concerns about due process violations with respect to this case. The Daimler case also involves a federal court's review of a state court order. Finally, the Daimler case is distinguishable because the court did not discuss, let alone, analyze statutory language that provides that the attachment order binds the property when it is served. This Court is not persuaded by the Daimler case.
F. Stifel is Entitled to Judgment as a Matter of Law
Stifel is entitled to judgment as a matter of law because the Amended Order entered by District Court created a lien when the sheriff served it on Schwab on December 24, 2018. The creation of the attachment lien is outside the preference period, and the subsequent garnishment relates back to that date. Consequently, Trustee, as a matter of law, has not met the statutory requirement of 11 U.S.C. § 547(b)(4). The parties agreed that if this Court determined that the Orders, and specifically the Amended Order, created an attachment lien in the Schwab Funds that the later garnishment would not have enabled Stifel to receive more than it would have received if the garnishment had not been issued by District Court and the claim of Stifel had been paid pursuant to the Bankruptcy Code. As a matter of law, Trustee cannot satisfy the statutory requirement of 11 U.S.C. § 547(b)(5). Accordingly, this Court must grant the Second Cross-Motion and grant judgment for Stifel.
V. CONCLUSION
For all these reasons, this Court finds that there are no genuine issues of material fact and that Defendant, Stifel Financial Corporation, is entitled to judgment as a matter of law. Accordingly, it is
ORDERED AND ADJUDGED that the Second Cross-Motion filed by the Defendant, Stifel Corporation, is GRANTED, and the Second MSJ filed by Plaintiff, James A. Coutinho, Chapter 7 Trustee, is DENIED. A separate final judgment will be entered in accordance with the foregoing.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.