Judgment creditors can’t compel testimony from a non-judgment debtor

By Joe Forward, Legal Writer, State Bar of Wisconsin

March 27, 2012 – A creditor with a judgment against a debtor corporation sought to compel testimony from a third-party entity with the same owner hoping to uncover information about the debtor corporation’s assets. Recently, the Wisconsin Supreme Court ruled that such testimony could not be compelled.

In what is known as “supplementary proceedings,” judgment debtors who do not satisfy judgments against them can be forced to testify about their property and assets.

But according to a recent 4-3 decision by the state supreme court, a judgment creditor can’t compel non-judgment debtors to testify under Wis. Stat. section 816.06. “We conclude that Wis. Stat. § 816.06 does not grant a judgment creditor the right to compel a non-judgment debtor third party to testify at supplemental proceedings,” wrote Justice Michael Gableman in Crown Castle USA Inc. v. Orion Construction Group LLC, 2012 WI 29 (March 22, 2012).

Three justices dissented, including Chief Justice Shirley Abrahamson, arguing that the “anti-creditor” majority opinion “emasculates Chapter 816 of the statutes” and “empowers debtors to hide their assets from creditors who have procured valid, enforceable judgments.”

But the majority – Justices Gableman, Patience Roggensack, David Prosser, and Annette Ziegler – noted that statutory rights are not created without express language from the legislature, and section 816.06 is silent on the right to compel the testimony of third parties.

“No language in Wis. Stat. § 816.06 grants this right to a judgment creditor,” the Justice Gableman explained for the majority.

Supplemental hearing and third parties

Sections 816.05 and 816.06 allow a judgment creditor to examine a judgment “debtor and witnesses” if “there is reason to believe that the judgment debtor has property which the judgment debtor unjustly refuses to apply to such judgment.”

The plaintiff Crown Castle USA Inc. (Crown Castle) obtained a judgment of nearly $500,000 against Orion Construction Group LLC (Orion Construction) in Pennsylvania to satisfy an account receivable. Crown Castle then filed a notice of judgment in Wisconsin.

Douglas Larson owned Orion Construction as its sole member. Larson also owned Orion Logistics, a Wisconsin limited liability company not related to Orion Construction other than its common owner. Orion Construction dealt in cell phone towers, Orion Logistics wind turbines.

Ultimately, a court commissioner ordered Orion Logistics to provide books, records, and documents relating to its financial assets, affairs, and transactions based on ch. 816. A circuit court upheld the order and compelled the information, and a state appeals court affirmed.

But the supreme court reversed, ruling that while Crown Castle could compel Orion Construction (through its member Larson) to testify and produce records for a supplemental proceeding, it could not compel Orion Logistics, a non-judgment third party debtor, to do so.

“[T]he judgment creditor must be able to compel testimony from individuals who, because of their relationship to the judgment debtor corporation, have information relevant to the judgment debtor’s property that could satisfy the judgment,” Justice Gableman wrote.

That did not include Orion Logistics, even though Larson was a common owner of both companies, according to the majority. “The scope of testimony these individuals may provide, however, is limited to that information relevant to the judgment debtor corporation, that is, the actual entity that is subject to the supplemental proceeding.”

Dissent

Chief Justice Abrahamson, Justice Patrick Crooks and Justice Ann Walsh Bradley were not convinced that section 818.06 does not grant a right to compel third party testimony.

“The text of Wis. Stat. § 816.06, the purpose of supplemental proceedings, and the statutory history of § 816.06 lead to the conclusion that the statutes permit the compelled examination of third parties who have information about the judgment debtor’s property,” the chief wrote.

Attorneys

Charles Koehler and Michael Menghini of Herrling Clark Law Firm Ltd., Appleton, and Nicholas Wagener of Bollenbeck, Wagener, Spaude & Fyfe S.C., Appleton, represented the appellant-petitioner Orion Logistics LLC. Eric McLeod and Nathan Moenck of Michael Best & Friedrich LLP, Madison, represented plaintiff-respondent Crown Castle USA.

Related article:

• Supplemental examination of business records authorized where defendant owned two companies – WisBar News, Dec. 9, 2010