In contested probate proceedings, if someone’s asserting a jurisdictional defense it’s probably coming up in one of two contexts. Either your judge lacked personal jurisdiction over one of the litigants (see here, here, here for past examples), or your judge lacked in rem jurisdiction over certain property (see here for past examples). And because nothing’s ever easy in probate, sometimes both concepts play themselves out in a single case. That’s what happened here.
Schanck v. Gayhart, — So.3d —- 2018 WL 1999841 (Fla. 1st DCA April 30, 2018):
This case involved a breach-of-contract action by the estate against the decedent’s ex-husband, who wasn’t paying up on his side of a marital settlement agreement. The estate ultimately obtained a judgment against ex-husband, then set about trying to collect.
As part of its collection efforts the estate filed a motion asking the probate judge to order ex-husband to turn over the stock and membership certificates of two Florida entities owned solely by ex-husband. Ex-husband claimed his new wife had taken the certificates to her place in Canada, which meant the Florida probate court lacked in rem jurisdiction over the certificates. According to ex-husband, if the estate wanted to get its hands on the certificates it had to go to Canada to get them.
Relying on the broad language of F.S. 678.1121, which authorizes a court to aid creditors trying to collect against certificated security interests, the estate countered by arguing that if the Florida probate judge didn’t have in rem jurisdiction over the certificates in Canada, it certainly had personal jurisdiction over ex-husband, and could use that authority to order him (as the sole owner) to simply cancel the certificates and re-issue new ones to the estate in Florida.
Did this end-run around the in rem jurisdiction barrier work? Yup. But it wasn’t easy. The debtor had three primary defenses. And struck out on all three. Here’s why.
Can a Florida probate judge order you to turn over property located in Canada? YES
The first line of defense was purely jurisdictional. According to debtor, a Florida court can’t use its authority over a Florida litigant to force that litigant to return assets located in Canada. This argument isn’t crazy, and it has worked in at least one other case cited by the defendant. So did it work this time? Nope. Strike one. Here’s why:
This Court has recognized that it is permissible for a trial court to direct a defendant over whom it has personal jurisdiction to act on property located outside its jurisdiction, if the title to the property is not directly affected while the property remains in the foreign jurisdiction. See, e.g., Ciungu v. Bulea, 162 So.3d 290, 294 (Fla. 1st DCA 2015). In Ciungu, this Court held that a probate court had authority to direct a party to effect distribution of property located in Romania by virtue of its personal jurisdiction over the party:
‘It has long been established … that a court which has obtained in personam jurisdiction over a defendant may order that defendant to act on property that is outside of the court’s jurisdiction, provided that the court does not directly affect the title to the property while it remains in the foreign jurisdiction.’
Id. (quoting Gen. Elec. Capital Corp. v. Advance Petroleum, Inc., 660 So.2d 1139, 1142 (Fla. 3d DCA 1995) ) (emphasis in original).
… Accordingly, while the only issue before us is whether the court properly ordered the alternative relief of reissuance, we observe that the court had jurisdiction to either order Appellant to return or reissue the certificates, as neither remedy would directly affect title to the certificates while they remained in Canada. See id.
Does section 678.1121 authorize a court to compel you to re-issue stock certificates? YES
OK, so a judge can order you to turn over out-of-state property generally, but the specific statute at play in this probate/debt-collection case was F.S. 678.1121, and the specific order at play in this case compelled the defendant to re-issue the certificates, not turn them over. Defendant argued section 678.1121 requires actual seizure of the certificates, it doesn’t authorize a court to order cancellation and re-issuance. Wrong answer. Strike two. So saith the 1st DCA:
[The] … Fifth District … [has] conclud[ed] that where one debtor refused to respond to discovery and the other indicated she did not know where the stock was, the trial court could order the corporation to reissue the stock certificate. House v. Williams, 573 So.2d 1012, 1012 (Fla. 5th DCA 1991) …
As in House, the securities here could not “readily be reached by ordinary legal process,” — that is, by seizure of the certificates. We hold that section 678.1121(5) authorizes a court to aid the creditor “in reaching the security or in satisfying the claim by means allowed by law or in equity,” including by ordering their reissuance, regardless of whether securities cannot be seized because their location is unknown or because the debtor has attempted to move them outside the court’s reach.
If the sole shareholder’s a party to your case, do you also need to implead the corporation/LLC? NO
If all else fails, call a time out because an indispensable party hasn’t been joined to the case. Here, defendant argued that because stock and membership certificates are issued by a corporation or LLC, not by shareholders or members (see sections 607.0603(1) and 605.0502(4)), the court was required to direct its order to the entities rather than to him, which means these entities needed to be made parties to the case. And since they’re not parties to the case, he gets a walk.
Did this last ditch defense work? Nope. Why not? Because if, as in this case, the defendant’s the sole owner, he’s in control. Which means he’s the one guy who can force the corporation/LLC to re-issue certificates whenever he wants. Strike three — plaintiff wins — so saith the 1st DCA:
The issuer of a certificated security must reissue a certificate upon request from the owner of the certificate. See § 678.4051, Fla. Stat. (providing procedure for reissuance of a lost, destroyed, or wrongfully taken security certificate). [Defendant] undisputedly owns and controls 100% of both Stellar and DataSignals. Notably, when [the estate] sought to add Stellar as a party during the dissolution proceedings, [defendant] represented that he would—and thus could—provide discovery on Stellar’s behalf “as if Stellar were a party” to the action. As such, we reject [defendant’s] contention he lacks the ability to comply with the court’s order, both on statutory and equitable grounds.