GRW KENTUCKY, INC.; GRW INTERNATIONAL, INC.; and GRANT R. WILSON v. STEEL TECHNOLOGIES, INC.; and LAW FINANCE GROUP, INC.
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RENDERED: JULY 2, 2004; 2:00 p.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NOS.
2002-CA-002121-MR
and
2003-CA-000315-MR
GRW KENTUCKY, INC.;
GRW INTERNATIONAL, INC.;
and GRANT R. WILSON
APPELLANTS
APPEALS FROM FRANKLIN CIRCUIT COURT
HONORABLE ROGER L. CRITTENDEN, JUDGE
ACTION NO. 97-CI-01830
v.
STEEL TECHNOLOGIES, INC.;
and LAW FINANCE GROUP, INC.
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BARBER, SCHRODER AND VANMETER, JUDGES.
VANMETER, JUDGE:
These are appeals from a judgment and a
postjudgment order entered by the Franklin Circuit Court
regarding the parties’ rights to the proceeds of a court
judgment.
For the reasons stated hereafter, we affirm as to
both appeals.
The voluminous record and the convoluted facts were
well summarized by the circuit court in the findings of fact set
out in its judgment entered on July 16, 2002, as follows:
1. On November 27, 2001, the Defendants in
this action, Douglas Wise, DJSJ, Inc., Jeri
M. Wise, the Jeri M. Wise Irrevocable Trust
Agreement No. 1, and Jeri M. Wise 1998
Qualified Annuity Trust Agreement (the “Wise
Defendants”) deposited the amount of
$1,116,947.09 with this Court in
satisfaction of a judgment entered against
the Wise Defendants on March 9, 2000 in the
amount of $950,000, plus interest (the
“Wilson v. Wise” Judgment). The Wilson v.
Wise Judgment was affirmed by the Kentucky
Court of Appeals in an Opinion rendered
October 5, 2001. The Wilson v. Wise
Judgment is final and no longer subject to
appeal or change.
2. On January 9, 2002, the Court ordered
that $481,658.40 be paid to Wilson’s
attorney in satisfaction of his statutory
attorney’s lien.
3. The remaining funds (the “Court Funds”)
in the amount of $635,288.69 plus any
interest accrued are the subject of
competing claims asserted by Steel Tech, GRW
Intl., LFG, and Central Bank and Trust
Company (“Central Bank”).
4. Steel Tech obtained a judgment dated
March 19, 1992, against Wilson,
individually, in Franklin Circuit Court,
Case Number 91-CI-01184 in the amount of
$589,255.88, plus interest at the rate of
12% per annum from November 27, 1991, until
paid (the “Steel Tech Judgment”). The value
of the judgment and interest calculated as
of February 27, 2002, was $1,885,043.50.
The action was brought by Steel Tech to
pierce the corporate veil of GRW Industries,
Inc. and hold Wilson personally liable for
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failing to pay Steel Tech for steel
purchased. The Steel Tech Judgment was
upheld by the Kentucky Court of Appeals in
an Opinion dated June 25, 1993.
5. Proceeds from a Sheriff’s sale reduced
the amount owed to Steel Tech to $569,827
plus interest. Steel Tech was unable to
recover any other amounts. In September
2000, Steel Tech discovered that Wilson had
obtained a judgment against the Wise
Defendants, the Wilson v. Wise judgment.
6. The Wilson v. Wise Judgment was
subsequently appealed by the Wise
Defendants; however, a supersedeas bond was
posted at that time.
7. Steel Tech served garnishments to all
Wise Defendants on September 8, 2000. A
letter was sent to Wilson’s counsel on
September 11, 2000, informing Wilson that
Steel Tech had served the garnishments upon
the Wise Defendants. In addition, Steel
Tech filed the garnishments, along with a
Notice of Filing to all parties including
Wilson’s counsel, in the Wilson v. Wise case
on September 20, 2000. At the time the
garnishments were filed, no assignments or
liens against the judgments were filed of
record in the Wilson v. Wise judgment.
8. The Wise Defendants submitted their
affidavits of return of the garnishments
stating that a supersedeas bond had been
posted “so that any funds being held by the
Garnishee” would not be remitted to Steel
Tech. The supersedeas bond was posted by
Ohio Casualty Insurance Company.
9. Steel Tech subsequently served
garnishments to Ohio Casualty Insurance and
Ohio Casualty Bonding Company. The Ohio
Casualty Bonding garnishment was returned
without funds.
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10. The Wilson v. Wise decision was
affirmed by the Court of Appeals on October
5, 2001. Steel Tech sent and filed a demand
letter on the Wise Defendants asserting the
September 8, 2000, garnishment lien. Steel
Tech also served a second series of
garnishments to the Wise Defendants, Ohio
Casualty Insurance, and Ohio Casualty
Bonding Company on October 16, 2001. Steel
Tech also filed the garnishments, along with
a Notice of Filing in Wilson v. Wise and
served the notice on all parties on October
16, 2001. Wilson subsequently filed a
Motion to Quash the October 16, 2001
garnishments, which was denied.
11. The Wise Defendants decided not to file
a Motion for Discretionary Review with the
Kentucky Supreme Court.
12. After the Wise Defendants deposited the
Court Funds, Steel Tech served a third
series of garnishments to the Franklin
Circuit Court Clerk and filed the
garnishments, along with a Notice of Filing,
in the Wilson v. Wise action on November 29,
2001.
13. LFG’s claim to the Court Funds arises
out of a Partial Assignment of Judgment
executed by Wilson and GRW KY on October 19,
2000, executed by LFG on November 21, 2000,
and filed with the Court in the Wilson v.
Wise action on or about November 26, 2000.
14. Prior to execution of the Partial
Assignment of Judgment, Wilson’s counsel had
received the Notice of Filing of Steel
Tech’s garnishments served on the Wise
Defendants. In addition, the garnishments
had been filed in Wilson v. Wise and LFG had
been notified of the Steel Tech Judgment.
15. The Partial Assignment of Judgment
assigned the first $310,000 of the Wilson v.
Wise judgment to LFG.
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16. In return for the Partial Assignment of
Judgment, LFG paid Wilson and GRW KY
$155,000. LFG’s President, Michael Blum,
testified that LFG recognized that it was
taking “all the risk” and that, if
successful, LFG essentially would double its
investment.
17. LFG
Kentucky
2000 and
November
filed financing statements with the
Secretary of State on November 27,
the Franklin County Clerk on
27, 2000.
18. GRW Intl., a company in which Wilson
has a 75% ownership interest, also asserts a
claim to the Court Funds. The claim of GRW
Intl. arises from a promissory note and
security agreement executed by GRW Intl. on
November 17, 1989, in the amount of
$500,000. The security agreement grants GRW
Intl. a security interest in the following
assets of GRW KY (located in Frankfort,
Kentucky at the time of execution): a)
equipment b) inventory c) present and future
intangibles, including accounts receivable,
chattel paper, contract rights and other
choses in action and d) charges in favor of
the creditor.
19. GRW Intl. did not file a financing
statement at the time of the 1989 loan
transaction with GRW KY. GRW Intl. filed a
financing statement on January 18, 1990.
This financing statement filed in London,
Ontario, covers GRW KY’s “buildings, land,
equipment, office equipment, accounts
receivables and corporate shares.” A second
financing statement was filed by GRW Intl.
in the Franklin County Clerk’s office on
June 21, 2001. The second financing
statement did describe the Wilson v. Wise
judgment in the description of collateral.
20. Central Bank is the final claimant to a
portion of the Court Funds pursuant to a
Notice of Partial Assignment of Judgment
filed in the Wilson v. Wise action on
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November 14, 2001, in the amount of
$13,450.08 plus interest in the amount of
$3.62 per day thereafter.
The court then made the following conclusions of law:
1. The garnishments served by Steel Tech to
the Wise Defendants on September 8, 2000,
created a garnishment lien, as the
garnishments were served upon the garnishees
(the Wise Defendants) who were indebted to
Grant Wilson at the time the garnishments
were served [KRS 425.501(5)].
2. The supersedeas bond filed by the Wise
Defendants stayed execution on the Wilson v.
Wise judgment. The garnishment lien was not
released because a supersedeas bond stayed
execution during the appeal process. Steel
Tech’s garnishment lien remains in effect
both because the bond stayed the garnishment
and because Steel Tech filed additional
garnishments as soon as the Wilson v. Wise
appeal was concluded. Steel Tech’s actions
preserved and protected its garnishment
lien.
3. The case relied upon by GRW Intl.,
Wilson and LFG, South Bay Enterprises, Inc.
v. Mirada Bay Petroleum, Inc., Ky. Ct. App.,
957 S.W.2d 287 (1997), does not result in
Steel Tech losing its lien creditor status
when the September 8, 2000 garnishments were
returned by the garnishees. In South Bay,
an execution was returned and marked “no
property found” by the garnishee. The Court
held that the garnishor lost its status as a
lien creditor when the execution was
returned, because the garnishee had no
property capable of attachment. This is not
the situation with the Steel Tech
garnishments. The Wise Defendants had
assets available to satisfy the
garnishments, but could delay remitting
funds while a supersedeas bond was in place.
The Court in South Bay noted that if the
garnishor had continued to issue executions
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until it found property of the garnishee,
the garnishor would have maintained its
status as a lien creditor. Id. at 289.
4. Steel Tech did maintain its status as a
lien creditor by re-issuing garnishments on
October 16, 2001, after the Court of Appeals
affirmed this Court’s decision, and again on
November 29, 2001, when the Wise Defendants
deposited the amount of the judgment into
the Court.
5. Both LFG and Central Bank attempted to
receive assignments of the proceeds of the
Wilson v. Wise judgment after Steel Tech
served its garnishments on September 8,
2000. The concept of “first in time, first
in right” has historically applied to
priorities among competing liens or claims,
meaning that the first creditor to file has
priority over subsequently filed liens. The
relevant time for purposes of determining
whether a garnishment has priority over
later liens is the time when the notice of
garnishment is served. Freedom Group, Inc.
v. Lapham-Hickey Steel Corporation, 50 F.3d
408, 411 (7th Cir. 1995).
6. The “first in time, first in right” rule
is applicable in this case. See
Midland-Guardian Company v. McElroy, Ky.
App., 563 S.W.2d 752, 754 (1978) and United
States Fidelity & Guaranty Co. v. McHayne,
Ky., 97 S.W.2d 831, 834 (1936). LFG and
Central Bank had notice of Steel Tech’s
garnishment liens at the time they executed
assignments with Wilson and GRW KY because
all garnishment liens were either on file in
Wilson v. Wise or were actually sent to
known parties with an asserted interest in
the judgment. Wilson and his attorney had
knowledge of Steel Tech’s judgment and
garnishment lien when he agreed to assign a
portion of the Wilson v. Wise judgment to
LFG and Central Bank. The garnishments were
filed as a matter of public record in Wilson
v. Wise, thus LFG and Central Bank were
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charged with notice of the garnishments.
Most importantly, Wilson’s counsel
specifically informed LFG of the Steel Tech
Judgment against Wilson prior to execution
and filing of the LFG Partial Assignment of
Judgment in documentation sent to LFG prior
to LFG’s execution of the assignment.
7. The Court finds that Steel Tech’s
September 8, 2000, garnishments created a
garnishment lien in the Court Funds, which
has priority over the assignments
subsequently executed and filed by LFG and
Central Bank.
8. Steel Tech’s garnishment lien also has
priority over GRW Intl.’s asserted security
interest in the Court Funds. In order to
have a perfected security interest in the
assets of GRW KY enumerated in the November,
1989 security agreement, GRW Intl. would
have been required to file a financing
statement in the appropriate location. Over
a decade after the promissory note and
security agreement were executed, GRW Intl.
filed financing statements in London,
Ontario and Franklin County, Kentucky. The
first financing statement did not contain a
description of the collateral sufficient to
give GRW Intl. a perfected security interest
in the Court Funds [KRS 355.9-108(2)]. The
second financing statement (filed in June,
2001) was filed after Steel Tech obtained
its garnishment lien; thus, it is
subordinate to Steel Tech’s lien
[KRS 355.9-317(1)(b)].
9. Both financing statements filed by GRW
Intl. are invalid, as they were filed in the
wrong location. KRS 355.9-401(1)(c), in
effect at the time of the filing, required a
creditor to file a financing statement “in
the county of the debtor’s residence.” GRW
KY’s county of residence was listed in the
Kentucky Secretary of State’s records as
Fayette County, Kentucky at the time the
financing statements were filed. Therefore,
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the financing statements should have been
filed in Fayette County, rather than Ontario
and Franklin County.
10. The Court finds that Steel Tech’s
garnishment lien created on September 8,
2000, has priority over GRW Intl.’s
unperfected security interest in the Court
Funds.
11. Wilson and GRW KY, jointly, obtained a
judgment in a jury trial against the Wise
Defendants on March 9, 2000, in this Court
and the Court of Appeals affirmed this
Court’s judgment in favor of Wilson and GRW
KY in an Opinion rendered October 5, 2001.
The judgment is a matter of public record.
Wilson was a named plaintiff at all stages
of this case, from the complaint to the
appellate brief. In joint pleadings, GRW KY
requested that both GRW KY and Grant Wilson
be granted judgment in favor of both
parties. GRW KY failed to file a motion to
dismiss Grant Wilson during the case. Grant
Wilson failed to request a voluntary
dismissal prior to or at trial (even if he
would have had to remain a counterclaim
defendant). The judgment and appellate
decision are final. The Plaintiffs jointly
obtained their judgment. The Plaintiffs
jointly had their joint judgment upheld on
appeal. Lienholders of either have the
right to garnish the entire judgment. Steel
Tech is entitled to garnish the judgment of
Grant Wilson and has effectively done so.
12. As Steel Tech’s garnishment lien has
priority over the liens and claims asserted
by GRW Intl., LFG and Central Bank, Steel
Tech is entitled to be paid the entirety of
the Court Funds in the amount of
$635,288.67, plus interest accumulated to
the date of payment.
The circuit court denied the joint motion of appellants GRW
Kentucky, Inc., GRW International, Inc. and Grant R. Wilson to
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alter, amend or vacate its judgment.
The court subsequently
entered a postjudgment order directing that “approximately
$133,410.00 currently held by the Franklin County Circuit Clerk
in this action” should be paid to appellee Law Finance Group,
Inc. (LFG).
These appeals followed.
First, in Appeal No. 2002-CA-002121 appellants contend
that the trial court erred by failing to find that GRW Kentucky,
rather than Wilson, is the real party in interest.
They assert
in their brief on appeal:
GRW Kentucky is the real party in interest
regarding the contract claims, jury findings
and subsequent rulings from the Court of
Appeals. Wilson was an employee, as an
officer and director, of GRW Kentucky.
Despite his listing as a plaintiff in this
action, his status neither afforded the
right nor the ability for him to personally
maintain a separate cause of action for
breach of contract against Wise. . . . He
has no legal right to recover personally for
GRW Kentucky’s contract causes of action.
Despite this claim, it is clear from this court’s October 5,
2001, final opinion that the parties in the previous appeal and
cross-appeal to this court, including GRW Kentucky and Wilson,
never disputed that GRW Kentucky and Wilson were both real
parties in interest with separate rights of recovery.
In fact,
a review of our 2001 opinion plainly shows that Wilson actively
and personally participated in the matters addressed by the
prior proceedings.
Clearly, there is no merit to appellants’
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contentions that the trial court erred by failing to find that
Wilson is not a real party in interest herein, or by concluding
that GRW Kentucky and Wilson are joint owners of the earlier
judgment in their favor.
Next, appellants contend that the trial court erred by
failing to find that Steel Tech’s garnishment liens are invalid.
We disagree.
As noted by the trial court, in 1993 this court upheld
a money judgment in favor of Steel Tech against Wilson
individually, but Steel Tech was able to recover little.
However, on September 8, 2000, after learning of the Wilson v.
Wise judgment which was then pending on appeal, Steel Tech
served garnishments on the Wise defendants.
On September 20
Steel Tech filed in the Wilson case the garnishments and notices
of filing to all parties, including Wilson’s counsel.
At that
point no other assignments or liens had been filed against the
judgment.
Because a supersedeas bond had been posted, the Wise
defendants declined to remit funds to Steel Tech.
Steel Tech
then served garnishments on Ohio Casualty Insurance Company,
which had posted the bond, and on Ohio Casualty Bonding Company.
The bonding company garnishment was returned without funds.
In October 2001, after the Wilson case was affirmed on
appeal, Steel Tech sent the Wise defendants a demand letter
reasserting its September 2000 garnishment lien.
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On October 16,
Steel Tech served a second series of garnishments on Ohio
Casualty Insurance Company, Ohio Casualty Bonding Company, and
the Wise defendants.
Steel Tech served notice on all parties
and filed copies of the new garnishments and notices in the
record.
After Wilson’s motion to quash the October 16
garnishments was denied, the Wise defendants deposited the
amount of the judgment with the circuit court clerk.
On
November 29, Steel Tech filed garnishments in the record and
served a series of garnishments on the court clerk.
Despite Steel Tech’s continued efforts to preserve its
status as a lien creditor with superior rights, appellants argue
that under South Bay Enterprises, Inc. v. Mirada Bay Petroleum,
Inc., Ky. App., 957 S.W.2d 287 (1997), those rights were lost
when Steel Tech’s garnishment was returned without funds by Ohio
Casualty Bonding Company.
We disagree.
South Bay was a lien creditor which delivered a writ
of execution to the Fayette County Sheriff seeking to attach or
levy Mirada’s property in satisfaction of a default judgment.
The writ was returned with the notation of “no property found to
satisfy this.”
South Bay took no further action to establish
the priority of its interests, and its claim was found to be
subordinate to that of another creditor since the funds which
South Bay attempted to attach did not exist.
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Here, unlike South Bay, the judgment funds which Steel
Tech attempted to attach did exist, and they would have been
available to Steel Tech but for the fact that a supersedeas bond
had been posted pending resolution of the judgment’s appeal.
Although as in South Bay, Steel Tech’s bonding company
garnishment was returned without funds, that fact is immaterial
to the outcome since Steel Tech also served a garnishment on the
insurer which actually posted the supersedeas bond.
Further,
since Steel Tech on two subsequent occasions reasserted its
garnishments on the parties, counsel and the court, it simply
cannot be argued that Steel Tech somehow subsequently lost its
priority status by failing to create and maintain a valid levy
on the property.
Moreover, we are not persuaded by appellants’ reliance
on Keiser v. Shaw, 104 Ky. 119, 46 S.W. 524 (1898), which
addressed the futility of judgment creditors’ attempts to
prematurely garnish future annual payments to a debtor.
That
case is inapposite to the matter now before us, where funds had
been ordered to be paid but simply were not yet subject to
distribution due to the existence of a pending appeal and a
supersedeas bond.
Further, we are not persuaded by appellants’ assertion
that Steel Tech failed to comply with KRS 425.501 when it served
garnishments on appellants’ attorney, rather that on appellants
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individually.
Although KRS 425.501(3) requires an order of
garnishment to be served “on the persons named as garnishees,”
KRS 425.501(7) specifies that such service should be “in
accordance with the Rules of Civil Procedure.”
CR 5.02 in turn
provides that “[w]henever under these rules service is required
or permitted to be made upon a party represented by an
attorney, . . . the service shall be made upon the attorney
unless service upon the party himself is ordered by the court.”
Thus, Steel Tech’s service of garnishments on appellants’
attorney was sufficient.
Next, appellants contend that the trial court erred by
failing to find that GRW International had a valid January 1990
lien against the Wilson v. Wise judgment which took priority
over any lien held by Steel Tech.
Appellants assert that the
trial court erred by concluding in its judgment that GRW
International filed a financing statement in Ontario “[o]ver a
decade after the [November 1989] promissory note and security
agreement were executed.”
This conclusion was contradicted by
the court’s earlier finding in the same judgment that “GRW Intl.
filed a financing statement on January 18, 1990 . . . . in
London, Ontario, [which] covers GRW KY’s ‘buildings, land,
equipment, office equipment, accounts receivables and corporate
shares.’”
However, the discrepancy and apparent error in the
court’s finding and conclusion were not prejudicial since, in
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any event, GRW International’s January 1990 lien and security
agreement did not describe, and was not enforceable against, the
Wilson judgment which was rendered ten years later in 2000.
Even if we assume that appellants properly filed liens in June
2001, such liens have secondary status to the garnishment liens
properly obtained by Steel Tech in September 2000.
Moreover,
since Steel Tech was found to be entitled to the entire value of
the Wilson judgment, appellants’ arguments regarding the
priority of their claims against those of other claimants such
as LFG are rendered moot.
Finally, in Appeal No. 97-CI-000315-MR appellants
contend that the trial court erred by entering a postjudgment
order directing that “approximately $133,410.00 currently held
by the Franklin County Circuit Clerk in this action” should be
paid to LFG.
Appellants assert that LFG “was a losing party
that did not appeal,” that “the stipulation was only enforceable
as between the GRW entities,” that the award is not supported by
“case law or court’s findings,” and that the court’s order
leaves appellants without further recourse.
We disagree.
As noted above, the trial court awarded Steel Tech
“the entirety of the Court Funds in the amount of $635,288.67,
plus interest accumulated to the date of payment.”
Not
mentioned in the judgment is the fact that some three months
earlier, Steel Tech and LFG entered into a partial settlement
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agreement which provided that if Steel Tech prevailed and was
found entitled to the total Wilson judgment of $635,288 plus
interest, Steel Tech and LFG would divide that sum so that Steel
Tech would receive $501,877, and LFG would receive $133,410.
Therefore, the court’s postjudgment distribution of $500,000 to
Steel Tech, and $133,410 to LFG, was simply an order enforcing
an agreed out-of-court settlement between those two parties to
divide proceeds awarded to one of the parties.
As we are affirming the trial court’s award to Steel
Tech of the entire amount held by the circuit court clerk,
appellants’ challenge to the distribution of those funds in
accordance with a private settlement agreement is rendered moot.
Given these circumstances, we also conclude that appellants’
remaining contentions, regarding the court’s failure to require
LFG to file a supersedeas bond, are also rendered moot.
The court’s judgment and postjudgment order are
affirmed.
ALL CONCUR.
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BRIEF FOR APPELLANTS:
Sam P. Burchett
Lexington, Kentucky
BRIEF FOR APPELLEE STEEL
TECHNOLOGIES, INC.:
Jonathan Goldberg
Goldberg & Simpson, P.S.C.
Louisville, Kentucky
BRIEF FOR APPELLEE LAW FINANCE
GROUP, INC.:
Donald L. Cox
William H. Mooney
Lynch, Cox, Gilman & Mahan,
P.S.C.
Louisville, Kentucky
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