Monday, January 5, 2015

Trustee Process Run Amok?

Stroup v. Doran, 2014 VT 92

By Jeffrey M. Messina

This case is about the limits of what Trustee Process can do for a judgment creditor, stemming out of an appeal from an order of the Superior Court denying Plaintiff’s motion for default judgment (DefJay? Def Jam!?! Never mind . . .) against Trustee Brattleboro Savings and Loan (“BSL”).

Plaintiff won a judgment against Defendants for breach of contract, fraud, and consumer fraud after Defendants failed to perform landscaping. When Defendants failed to pay the judgment, Plaintiffs obtained a writ of execution, and the court approved Plaintiff's motion for Trustee Process to attach funds owned by Defendants and held by BSL.

BSL disclosed that it held the balance of $2,853.05 in a checking account in the name of one of the Defendants, and the parties stipulated that BSL would release $750 to Plaintiffs, and be discharged as Trustee - with Defendant’s account free of any lien or charge. Defendants also agreed to pay $3,500 to Plaintiffs before January 31, 2008. BSL paid the $750, but you can already see what’s coming next: Defendants never paid the remainder of the debt.

Plaintiffs served BSL with another trustee summons, to which BSL did not reply within the 30-day time period, and Plaintiffs moved for default against BSL and entry of judgment against it as Trustee for the balance due under the judgment; $24,155.12, to be exact. The Court ordered a hearing on the motion, and directed that a copy of Plaintiff's motion and the notice of hearing be served on BSL.

A few days later, BSL filed the Trustee Disclosure, stating it did not have any of Defendant’s property in its possession. As a result, the Court denied the motion for default judgment, reasoning "although Trustee failed to make a timely disclosure, its disclosure now made in response to Plaintiff['s] motion for default shows it holds no assets for the benefit of Defendant[s]. Default judgment under these circumstances would be inequitable." Plaintiff appealed, arguing the trial court got it wrong by denying the motion for default because Vermont law makes default mandatory when a trustee fails to serve the disclosure within 30 days. The question before SCOV is whether the default is mandatory.

Vermont's trustee process statute provides that "[w]hen a person summoned as trustee does not serve his disclosure within such time as the supreme court may by rule provide, he shall be defaulted and adjudged the trustee." Another rule requires a trustee to serve the disclosure "within 30 days after the service of the trustee summons upon trustee, unless the court otherwise directs." A person who is adjudged trustee by default is liable "for the amount of damages and costs recovered by the plaintiff in the action, and payable in money at the time the judgment is rendered against the principal defendant." The majority states that under the plain language of the rule, the lower-court has discretion to extend the 30 day deadline for service of the trustee disclosure, and further asserts that the trial court here effectively extended the deadline by ordering that BSL be notified of Plaintiff's motion for default and accepting BSL's late disclosure. The majority proclaims there was no abuse of discretion.

The majority decides the trial court acted within its discretion to extend the deadline and accept the late disclosure because BSL in fact held no funds belonging to Defendants. The majority goes on to say that while the trial court was not obligated to extend the deadline, its decision to accept late filing did not violate the statutory scheme. The High Court points out that the only deadline is contained in the associated rule, which the trial court appropriately applied in a liberal fashion “in order to avoid an unjust result.”

Then, in preparation for the dissenting opinion, the majority discusses a few Maine cases and determines they are inapplicable to the case at bar mainly due to procedural differences. As such, the majority concludes the trial court acted appropriately and did not abuse its discretion.

Justice Dooley and Justice Skoglund disagree, thank you very much.

The dissenting Justices concede their desire to resolve litigation on the merits and avoid default judgments. However, they state a trial court's discretion to give relief from default judgment needs limits and be should be governed by standards otherwise, in Justice Dooley's words, "we simply create injustice under the guise of preventing it." The dissenters do not agree with “the standardless, unlimited discretion” which here the majority creates.

Justice Dooley begins by pointing out Defendant is a bank and the bank is in the business of holding money for customers, and is routinely subjected to attempts by creditors to find funds used to pay judgments by bank customer. The bank's obligation was standard and routine and should have been very familiar.

The dissenters focus on the governing statute which provides that the alleged trustee must disclose within the time limit SCOV provides by rule or "he shall be defaulted, and adjudged a trustee." Further, Vermont Rules of Civil Procedure rule 4.2 (F) requires the bank to "serve the disclosure under oath within 30 days after the service of the trustee summons" but also adds "unless the (lower) court otherwise directs." Accordingly, the dissenters have three reasons they conclude the bank's failure to either disclose or seek an extension of time in which to disclose within 30 days made it a trustee as a matter of law.

First, the Rule provides the bank "shall be defaulted" unless it discloses during the time period established by rule, which is 30 days unless otherwise ordered. The 30 days expired with no order of a different time. At that time, the mandatory consequence went into effect. Second, the majority's theory gives “standardless discretion” to the trial judge where such a blanket authority is unnecessary because any Defendant who is defaulted and is required to pay a judgment may file a Rule 55(c) motion to set aside the default and seek discretionary relief based on the cause of the failure to make a timely disclosure, and Defendants would have to show excusable neglect or comparable grounds.

As an asideand to contradict its majority counterpartsthe Justices state no Maine decision authorized the trial judge to retroactively change the disclosure deadline. Instead, the Maine courts have held that a trustee seeking relief from an entry of default must meet the "good cause" standard contained in the applicable Maine civil rule.

After a brief Maine history lesson and case synopsis, the dissenters come back to the case at hand. They reiterate the majority interpretation of the Maine cases arise in situations that are "procedurally different" and, therefore, irrelevant to this case; but, Justice Dooley calls Shenanigans! Well, he actually calls it a “quibble,” but I know what he meant.

Nothing in the majority decision suggests that if there had been an entry of default as authorized by the Rule, the judge would have lost the discretionary power to retroactively declare that the Trustee's response was timely. Justice Dooley agrees that BSL should have the opportunity to seek relief from the default judgment, but that the opportunity should occur through a motion to set aside the judgment under Rule 55(c), and the bank should have to demonstrate good cause or compliance with applicable rules.

The third rationale for the dissent is that the majority's decision sends out "exactly the wrong message to financial institutions" because Trustee Process only works if banks and other financial institutions “adopt systems to respond promptly, accurately, and transparently” to trustee process summons. Letting banks off with no demonstrated showing that it has a system to respond in the future, in Justice Dooley's judgment, is a missed opportunity to induce compliance, and that creates the inequality.

1 comment:

  1. Classic Vermont. Deadlines aren't really deadlines. As a former NY and MA practitioner this loosey goosey approach to civil procedure is incredibly frustrating.