Court Opinion

ID: 4098823
Source: CourtListenerOpinion
Date Created: 2016-11-16 19:28:26.111472+00
Date Added: 2024-06-11T07:46:01.095881
License: Public Domain

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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