The opinion of the court was delivered by: MCGLYNN
Seeking to enforce a judgment entered against Thai Teak Products Company and Forest Products Company (judgment debtors), Strick Corporation (plaintiff-garnishor) served a writ of execution and interrogatories upon garnishee, Bangkok Industries, Inc. Significantly, Strick attached
not only the property of the nominal defendants, but also the assets of Dumrong Trading Co. and Dumrong Phanich Sawmill Company, two companies Strick contends are "alter egos" of the judgment debtors. The garnishee (Bangkok) concedes that the writ of execution and interrogatories are proper with respect to its relations with the judgment debtors, but it challenges Strick's authority to attach debts owed to the alleged "alter egos" and to compel answers to interrogatories directed to its relationships with those companies. Bangkok has raised preliminary objections challenging the procedures while Strick has requested sanctions against Bangkok for failure to answer the interrogatories.
Federal Rule of Civil Procedure 69 governs the procedures to enforce judgments in federal courts. Under Rule 69 the parties are referred to state practice for proceedings in aid of judgment. In addition, the judgment creditor may utilize either federal or state discovery rules. See generally, 7 Moore's Federal Practice P 69.05(1). Of central concern in the present case is the method under Pennsylvania law for attaching the property of companies alleged to be "alter egos" of judgment debtors. The parties dispute what procedure is authorized and whether that procedure affords due process of law.
Before submitting these procedures to constitutional scrutiny, we must first examine whether the writ was issued in accordance with Pennsylvania law. The garnishee notes that the rules provide only for garnishment of the property of "defendant". Under a literal reading of the rule, attachment of the Dumrong companies' property is not authorized since they were not nominally defendants in the original action. The garnishee contends that execution upon their property is permitted only if Strick proves prior to attachment that an alter ego relationship exists. Strick, on the contrary, argues that alleged alter egos are considered "defendants" under Pennsylvania rules for purposes of attachment. It also asserts that Bangkok may not challenge the attachment or the interrogatories by means of preliminary objections.
Pennsylvania cases provide support for both of Strick's arguments. Under circumstances similar to those in the present case, Pennsylvania courts have permitted judgment creditors to attach the property of alleged alter egos before proving the existence of the alter ego relationship and have even limited the methods for contesting the attachment after it occurs. For example, in Fleming v. Quaid, 204 Pa.Super. 19, 201 A.2d 252 (1964), the Superior Court examined a writ of attachment execution directing the sheriff to attach the property of both a corporation (the alleged alter ego) and its sole shareholder (the judgment debtor). Even though the corporation disputed the allegation that it was the shareholder's alter ego, the court refused to permit the corporation to use either preliminary objections
or a petition to set aside the writ (Pa.R.Civ.Pro. 3121(d)) to raise the issue of ownership of the attached assets. It set forth the proper procedure as follows:
"The corporation's remedy is to intervene formally under Pa.R.C.P. No. 2326 et seq., and either (1) dissolve the attachment by giving security under Pa.R.C.P. No. 3143(b), after which the trustee will be in a position to pay the money to the corporation, leaving the issue of ownership as between the corporation and the judgment debtor to be determined in subsequent proceedings under the attachment; (2) file answers to the interrogatories stating that the property sought to be attached is the property of the corporation, not of the judgment debtor, and move for trial on this issue; or (3) move for trial upon the interrogatories and the garnishee's answers."
Id. at 255. In other cases, courts have followed the Fleming reasoning. See, e.g., Unity Mutual Life Insurance Co. v. DiDomenico, 274 Pa.Super. 263, 418 A.2d 397, (1980); Copeland v. Banks, 74 Pa. D&C 2d 348 (Phila.Co.), aff'd., 235 Pa.Super. 736, 345 A.2d 230 (1975); Lantzy v. Velest Coal Co., Inc., 45 Pa. D&C 2d 502, 504 (Cambria Co. 1968) (dicta). Although some question may remain as to the propriety of determining the ownership of the property at a post-attachment hearing on preliminary objections,
Pennsylvania law clearly authorizes without prior notice or hearing the attachment of property not nominally owned by the judgment debtors. Thus we must examine whether the procedures utilized comport with the Due Process Clause of the Fourteenth Amendment.
In a series of cases concerning pre-judgment attachment, the Supreme Court defined the contours of due process requirements. The first of these cases, Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969), invalidated a statute permitting the garnishment of wages without notice and opportunity for hearing. In Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983, 32 L. Ed. 2d 556 (1972), the Court extended its Sniadach reasoning, finding unconstitutional Pennsylvania and Florida replevin statutes which permitted a secured seller to repossess goods by obtaining a writ from the court clerk. By a 4-3 majority the Fuentes court set forth the requirement of notice and hearing in sweeping terms, stating: "(T)he Court has traditionally insisted that, whatever its form, opportunity for that hearing must be provided before the deprivation at issue takes effect."
Id. at 82, 92 S. Ct. at 1995. The holding in Fuentes was narrowed significantly two terms later in Mitchell v. W. T. Grant Co., 416 U.S. 600, 94 S. Ct. 1895, 40 L. Ed. 2d 406 (1974). Mitchell, like Fuentes, involved the seizure of property based upon allegations by a secured vendor. The statute in Mitchell, however, contained procedural safeguards not found in the statute invalidated by Fuentes. The Mitchell law required the creditor to set forth in an affidavit the specific facts entitling him to sequestration and to present that affidavit to a judge for review. An immediate post seizure hearing was also required. The Court held that these safeguards adequately protected the debtor against mistaken deprivation. The dissent, on the contrary, argued that Fuentes required a prior hearing absent extraordinary circumstances.
The final case in this line brought Fuentes back to life, albeit in weakened form. In North Georgia Finishing v. Di-Chem, 419 U.S. 601, 95 S. Ct. 719, 42 L. Ed. 2d 751 (1975), the Court relied on Fuentes to invalidate a Georgia garnishment statute. The statute permitted the creditor to garnish the bank account of the debtor by filing an affidavit with the court. No provision existed for notice, opportunity for early hearing or participation by a judicial officer. Where not even the Mitchell procedures protected the debtor's interest, due process did not permit deprivation of his property by a writ of garnishment.
For assistance in reconciling these holdings, we look to the decision of the Court of Appeals for the Third Circuit in Jonnet v. Dollar Savings Bank of City of New York, 530 F.2d 1123 (3d Cir. 1976). In Jonnet our Third Circuit declared constitutionally infirm Pennsylvania foreign attachment procedures
authorizing prejudgment attachment by the prothonotary based upon an affidavit containing only conclusory allegations and offering no opportunity for prompt hearing. The court first noted that even a temporary, nonfinal deprivation of property warranted scrutiny under the Due Process Clause. Id. at 1126 citing Fuentes, 407 U.S. at 84-87, 92 S. Ct. at 1996-1997. It then adopted a balancing approach to determine what procedures were constitutionally required. Plaintiff's interests in establishing jurisdiction and restraining property for eventual payment were weighed against defendant's interest in maintaining control of his property and defending the lawsuit without the burden of attachment. After balancing these interests, the court concluded that to offer sufficient protection for a debtor, the Pennsylvania statute at a minimum must provide the following: that process be instituted by first presenting to a legally trained official for his approval a sworn document stating substantially the facts; that a procedure be established to indemnify plaintiff for wrongful attachment; that a prompt hearing after seizure be held, and that some means not prejudicial to the plaintiff's interests be available by which he can dissolve the attachment.
The balancing approach adopted by the Third Circuit in Jonnet after review of the garnishment cases foreshadowed the Supreme Court's opinion in Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976). Although Mathews involved procedures for determining eligibility for Social Security payments, the Court described as follows the factors ...