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Katzman v. Comprehensive Care Corp.

United States District Court, M.D. Florida, Tampa Division

November 1, 2017




         Five and a half year ago in the Circuit Court for Hillsborough County, Jerry Katzman sued Comprehensive Care Corporation, a Florida citizen, for breach of contract. After protracted litigation (the state-court docket shows more than four hundred entries), the state court in March 2017 entered an $866, 052.83 judgment for Katzman.[1] According to Katzman, Comprehensive Care refused to satisfy the judgment and participate in post-judgment discovery, which refusal prompted Katzman to initiate in the state court a supplemental proceeding under Section 56.29, Florida Statutes.

         According to Katzman's motion for a supplemental proceeding, Comprehensive Care owns shares in Pharmacy Value Management Solutions. Also, Comprehensive Care continues to litigate a claim against Universal Health Care in another action; Katzman attributes “significant value” to the claim. Katzman requests that the state court declare that Katzman owns both the shares and the Universal claim. Alternatively, Katzman asks the state court to “place Compcare in a receivership” and to direct the liquidation of assets sufficient to satisfy the judgment. On July 12, 2017, the state court scheduled a September 6, 2017 hearing on Katzman's motion.

         The week before the hearing, Sherfam, a Canadian corporation, moved in the state court to intervene and to delay the hearing. According to the motion, Sherfam lent more than $2, 000, 000 to Comprehensive Care between 2011 and 2015. In the motion, Sherfam claims in the Pharmacy Value shares a perfected security interest superior to Katzman's interest. Finally, Sherfam's motion asserts that Comprehensive Care assigned the Universal claim to Sherfam before the judgment.

         On August 29, the state court granted Sherfam's motion to intervene but denied the request to continue the hearing. Sherfam renewed the request for a continuance, but the state court persisted in the ruling. On the eve of the hearing, Sherfam submitted a notice of removal (Doc. 1, the September 5, 2017 notice) and attempted to invoke diversity jurisdiction. Katzman moves (Doc. 9) to remand the dispute, and Sherfam opposes (Doc. 10) remand.


         The parties dispute the extent and effect of removal. Sherfam argues that the notice removed only the supplemental proceeding; Katzman responds that Sherfam removed the entire action (that is, both the breach-of-contract claim between Katzman and Comprehensive Care and the supplemental proceeding between Katzman, Comprehensive Care, and Sherfam). If Sherfam removed the entire action, the removal violates the “forum-defendant” prohibition in 28 U.S.C. § 1441(2), the requirement in 28 U.S.C. § 1446(2)(A) that “all defendants who have been properly joined and served” consent to removal, [2] and the one-year limitation in 28 U.S.C. § 1446(c)(1). Improper for other reasons, the removal of only the supplemental proceeding requires examining the purpose and form of a supplemental proceeding.

         I. Chancing the chancery court

         Before the 1919 enactment of Florida's supplemental-proceeding statute, a judgment creditor navigated a cumbersome process to collect a judgment. After entry of the judgment, the clerk issued a writ of execution, which the judgment creditor delivered to the sheriff. If the sheriff's investigation revealed assets insufficient to satisfy the judgment, the sheriff returned the writ of execution unsatisfied (“nulla bona”).

         The decisions illustrate that the judgment debtor often mischievously transferred assets to elude the sheriff's grasp. Immediately before the entry of judgment, the debtor might “sell” his property to a colluding relative who paid a conspiratorially low price. Because the judgment debtor formerly held title to the property, Florida's fraudulent-transfer law permitted the judgment creditor to attempt to void the fraudulent transfer. Barrow v. Bailey, 5 Fla. 9 (Fla. 1853). But the judgment creditor could void the fraudulent transfer only if he knew about the fraudulent transfer.

         In other instances the judgment debtor might store money in a bank account. Recognizing that the judgment creditor could garnish the account and that the sheriff could levy on property bought with the money, the judgment debtor, for example, might purchase property but direct the seller to convey title to another person (again, often a colluding relative or someone privy to the scheme). Because the judgment debtor never held legal title to the property, a fraudulent-conveyance action “at law” could not aid the judgment debtor.

         Unlike a court of law, a chancery court afforded relief: The judgment creditor could sue in chancery court for a “creditor's bill, ” which requested a declaration that the judgment debtor held “equitable title” to the property bought with the judgment debtor's money but titled in the third party's name. Neubert v. Massman, 19 So. 625 (Fla. 1896); Logan v. Logan, 22 Fla. 561 (Fla. 1886). If the judgment debtor successfully concealed the transaction, no suspicion attended the sudden disbursement of the debtor's money. Even if a vigilant creditor somehow learned about a dubious transaction, equity rarely afforded relief. Confusion about the distinction between legal and equitable remedies and about chancery procedure often resulted in the judgment creditor's recovering nothing after costly and prolonged litigation in the chancery court. E.g., George E. Sebring Co. v. O'Rourke, 101 Fla. 885 (Fla. 1931); Hewitt v. Punta Gorda State Bank, 108 Fla. 39 (Fla. 1933).

         II. The supplemental proceeding

         Obviating the need for a separate action to collect on the judgment, the supplemental proceeding provides a “speedy and direct proceeding in the same court in which the judgment was recovered.” Richard v. McNair, 121 Fla. 733, 743 (Fla. 1935). In the proceeding, the judgment creditor deposes the judgment debtor to “secur[e] information that would lead to the satisfaction, in whole or in part, of any [writ of] execution.” Reese v. Baker, 98 Fla. 52, 55 (Fla. 1929); accord Young v. McKenzie, 46 So.2d 184, 185 (Fla. 1950) (“[T]he purpose of the statutes, titled ‘Proceedings supplementary, ' is to aid the holder of a ‘valid and outstanding' execution to ferret out what assets the judgment debtor may have or what property of his others may be holding for him.”). If discovery reveals a hidden asset, ...

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