Supplemental examination of business records authorized where defendant owned two companies 

By Joe Forward, Legal Writer, State Bar of Wisconsin

Dec. 9, 2010 – To ascertain the existence of a judgment debtor’s assets, circuit courts and court commissioners have authority to compel supplemental examination of a corporate entity’s books and records if the entity shares common ownership with the judgment debtor.

Douglas Larson was the sole member of Wisconsin-based Orion Construction LLC, which constructs cell phone towers. Larson also owned Orion Logistics LLC, a related business.

Crown Castle USA, Inc. obtained a default judgment against Orion Construction in Pennsylvania based on Crown Castle’s claim that Orion Construction constructed faulty cell towers.

Thus, Orion Construction became a judgment debtor, and the court commissioner ordered an accounting of Orion Construction’s assets for payment of the judgment. Orion Construction indicated that it had no assets, and no books or records pertaining to its assets.

Orion Construction’s tax returns indicated that it generated only $188,000 in gross receipts in 2007 after generating millions in 2005 and 2006. Orion Logistics’ 2007 tax return indicated $15 million in gross receipts.

Crown Castle believed Larson made fraudulent transfers to conceal assets, and sought examination of the books and records of Orion Logistics LLC. The Outagamie County Circuit Court granted Crown Castle’s request, and Orion Logistics appealed.

Satisfaction of judgment 

In Crown Castle USA, Inc. v. Orion Logistics LLC, 2009AP3029 (Dec. 7, 2010), the District III Wisconsin appeals court held that the circuit court had authority to require Orion Logistics to submit to supplemental examination of its books and records.

Wis. Stat. sections 816.03 and 816.06 set forth the procedures that can be applied to satisfy a judgment, the appeals court explained. Whether these statutes permit the court commissioner and circuit court “to order a third-party company under common ownership with the judgment debtor to produce its books and disclose its finances is a matter of statutory interpretation.”

The appeals court relied on Courtyard Condo. Assoc., Inc. v. Draper, 2001 WI App 115, 244 Wis. 2d 153, 629 N.W.2d 38, a case in which the court concluded that a judgment creditor may examine the assets of a judgment debtor’s spouse to satisfy a judgment from marital property.

“Property transfers between a judgment debtor and related business entities present the same risk of fraud as those between spouses,” wrote Judge Edward Brunner. “Examination of the alleged third-party recipient may be the only method available to a judgment creditor to ascertain whether a fraudulent transfer has occurred.”