Condaire, Inc. v. Allied Piping, Inc.

This case requires us to consider how registration in the United States District Court for the Eastern District of Michigan, under 28 U.S.C. § 1963, affects the enforcement of a valid judgment obtained in the United States District Court for the Eastern District of Missouri. We conclude that the plain language of the statute, in combination with Fed. R. Civ. P. 69(a), requires the application of Michigan law in the enforcement proceedings of a judgment registered pursuant to 28 U.S.C. § 1963. Because the district court did not apply Michigan law in the enforcement proceeding, we will order that the decision of the court be vacated and remanded for a determination of the parties' rights under the Michigan Building Contract Fund Act, Mich. Comp. Laws § 570.151. NBD Bank held a perfected security interest in the present and future accounts receivable of Allied Piping, Inc., by filing a financial statement with the Secretary of State in Lansing, Michigan, on October 7, 1993. Allied granted NBD the security interest in exchange for a $1,500,000 working capital loan. Allied initially entered into a contract to provide construction services to AEG Automation Systems Corp., which operated as the general contractor at Chrysler's St. Louis assembly plant in Fenton, Missouri. Condaire, Inc., a Missouri corporation, subcontracted with Allied, a Michigan corporation, to provide materials and equipment in connection with piping assembly and installation work at the St. Louis plant. Upon completion of the St. Louis project, Allied owed an estimated $820,279 to its subcontractors and suppliers.

When Allied failed to make the required payments under the contract, Condaire filed an action in the United States District Court for the Eastern District of Missouri to recover the amount due it, or $111,418.10. Pursuant to a settlement agreement, Allied was required to make a payment of $31,460.34 before June 30, 1996, and a second payment of $79,957.76 before December 15, 1996. Allied made the first payment, but did not remit the second payment. Consequently, Condaire filed a motion for judgment in accordance with the settlement agreement. A magistrate judge ordered Allied to pay $79,957.76, plus nine percent annual interest.

Before this order was entered, Allied brought an action against AEG in the circuit court of St. Louis County, Missouri, for monies due under their separate 1994 contract. Allied and AEG entered into a settlement agreement requiring AEG to pay $98,948.17 to Allied via NBD Bank. NBD received the funds from AEG, but instead of paying Allied, the bank applied them against a loan balance Allied owed NBD.

Pursuant to 28 U.S.C. § 1963, Condaire filed a petition for registration of the Missouri judgment in the United States District Court for the Eastern District of Michigan, and subsequently served NBD with a writ of garnishment. NBD served its garnishment disclosure on Condaire indicating that it was indebted on an account in the name of Allied in the amount of $3,104.57. Then, in an amended disclosure, NBD denied any indebtedness to Condaire and indicated that the $3,104.57 was applied as a setoff against Allied's indebtedness, in the amount of $150,000, to NBD pursuant to the terms of their original loan agreement.

When NBD refused to pay, Condaire filed a motion for summary judgment in the United States District Court for the Eastern District of Michigan, seeking recovery of the $79,957.76, plus statutory interest under the Michigan Building Contract Fund Act, Mich. Comp. Laws § 570.151. NBD filed a cross-motion for summary judgment asserting that Missouri law governed the relationship between Condaire and Allied and consequently the Act did not apply.

The magistrate judge, in his report and recommendation, denied Condaire's motion for summary judgment and granted the defendants' cross-motion for summary judgment, holding that under Michigan choice of law rules, the Restatement (Second) of Conflict of Laws § 188 (1971) mandated the application of Missouri law to the relationship between Allied and Condaire. The district court judge essentially made a wholesale adoption of the magistrate judge's recommendations and Condaire filed this timely appeal.

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The magistrate judge, in his report and recommendation, denied Condaire's motion for summary judgment and granted the defendants' cross-motion for summary judgment, holding that under Michigan choice of law rules, the Restatement (Second) of Conflict of Laws § 188 (1971) mandated the application of Missouri law to the relationship between Allied and Condaire. The district court judge essentially made a wholesale adoption of the magistrate judge's recommendations and Condaire filed this timely appeal.

Before the enactment of 28 U.S.C. § 1963, litigants who had obtained a valid judgment and wanted to recover money or property located in another district were generally required to bring an action on the judgment and to obtain a new judgment of the forum. Home Port Rentals, Inc. v. Int'l Yachting Group, Inc., 252 F.3d 399, 404 (5th Cir. 2001). Hoping to simplify the process of enforcing judgments, Congress enacted 28 U.S.C. § 1963 (1948). As amended, the statute provides in relevant part:

A judgment in an action for the recovery of money or property entered in any . . . district court . . . may be registered by filing a certified copy of the judgment in any other district . . . when the judgment has become final by appeal or expiration of the time for appeal or when ordered by the court that entered the judgment for good cause shown. . . . A judgment so registered shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner.

28 U.S.C. § 1963 (West Supp. 2001) (emphasis added).

The Senate Judiciary Committee, when considering a 1954 amendment to § 1963, stated that the purpose of the statute "is that both creditors and debtors are relieved of the additional cost and harassment of further litigation which would otherwise be required by way of an action on the judgment in a district other than that where the judgment was originally obtained." S. Rep. No. 1917 (1954), reprinted in 1954 U.S.C.C.A.N. 3142; see Ohio Hoist Mfg. Co. v. LiRocchi, 490 F.2d 105, 107 (6th Cir. 1974); Hanes Supply Co. v. Valley Evaporating Co., 261 F.2d 29, 30 (5th Cir. 1958). The Hanes court reasoned that § 1963 intends to provide the benefits of a local judgment on a foreign judgment without the expense of a second lawsuit. Hanes, 261 F.2d at 30. There is some scholarship to the same effect. "'It seems to be conceded that the purposes of § 1963 were to simplify and facilitate the enforcement of federal judgments, . . . to eliminate the necessity and expense of a second lawsuit, and to avoid the impediments, such as diversity of citizenship, which new and distinct federal litigation might otherwise encounter.'" Hershel Shanks & Steven A. Standiford, Schizophrenia in Federal Judgment Enforcement: Registration of Foreign Judgments Under 28 U.S.C. § 1963, 59 Notre Dame L. Rev. 851, 857 (1984) (quoting Stanford v. Utley, 341 F.2d 265, 270 (8th Cir. 1965)).

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Click the case caption above for the full text of the Court's opinion.

For the above stated reasons, the judgment of the district court is VACATED and the case is REMANDED for a determination of the parties' rights under the Michigan Building Contract Fund Act.

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