has not prevented them from selling assets of Garfinkle's various corporations, however, as Benjamin Garfinkle recently sold a mortgage, which he acknowledged to have a fair market value of over $ 350,000, for the sum of $ 200,000. Of the proceeds, certain amounts went to satisfy the obligations of other Garfinkle corporations, and still other funds went to the personal use of Benjamin and Barbara Garfinkle.
During post-judgment discovery, Benjamin and Barbara Garfinkle forbade Cyrus West, the nominal president of many of the shell corporations, to comply with an order of this court that he bring certain corporate records with him to his deposition. They continued to forbid West to produce the documents even after he was cited for contempt and faced the prospect of imprisonment. Benjamin Garfinkle testified to his belief that he had authority to conduct the affairs of the Garfinkle corporations both because he was a partial owner of them, and because he was either an officer or director of them. However, he could not demonstrate that any stock had ever been issued, and could not specify what positions he held with any of the corporations. The record is plain that although Cyrus West is nominally the president of most if not all of the Garfinkle corporations, both he and the Garfinkle family view his job as being to follow whatever orders are issued by the Garfinkles, regardless of the legal formalities for conducting corporate business.
In short, the record is replete with evidence of fraud, and since the entry of judgment the Garfinkle interests have not only done everything in their power to frustrate Levin's attempts lawfully to discover assets and to execute, they have also attempted to obstruct the orders of this court.
Being satisfied that Levin is entitled to extraordinary relief, the far more difficult question is what form it should take. First, as to Levin's motion under Rule 25(c) to substitute as defendants the various shell corporations on the ground that they are the transferees of Garfinkle's interests, I agree as a general matter that Rule 25 can be employed after entry of judgment to substitute parties to whom a defendant's assets have been transferred for the purpose of avoiding execution. Panther Pumps & Equipment, Inc. v. Hydrocraft, 566 F.2d 8 (7th Cir. 1977). I do not agree that Rule 25(c) is applicable in this case. A motion under Rule 25(c) is grounded on the theory that there has been a transfer in ownership of assets. Here, Levin's theory throughout has been that the various corporate entities in question are the alter ego of Howard Garfinkle, and that this court should consider any action by them to be an action by Howard Garfinkle. It is anomalous for Levin now to contend that these entities are anything other than a manifestation of Howard Garfinkle himself. Accordingly, Levin's motion for substitution under Rule 25(c) will be denied.
As to Levin's request that I appoint a receiver, it is well-settled that appointment of a receiver is within the inherent equitable powers of any federal court. Tanzer v. Huffines, 408 F.2d 42 (3d Cir. 1969). Federal district courts have not hesitated to appoint receivers in cases where there is evidence of fraud which could lead to the dissipation of assets. E. g., Bookout v. Atlas Financial Corp., 395 F. Supp. 1338 (D.Ga.1974), aff'd, 514 F.2d 757 (5th Cir. 1975); Haase v. Chapman, 308 F. Supp. 399 (W.D.Mo.1969).
Appointment of a receiver is a drastic remedy which should be invoked only under unusual circumstances. Mintzer v. Arthur L. Wright Co., 263 F.2d 823 (3d Cir. 1959). As noted above, this case certainly qualifies as one in which an extraordinary remedy is justified. The Garfinkle interests have persisted in conduct which makes clear their intention to frustrate Levin's attempts to execute upon his judgment. Assets of various Garfinkle corporations are now being sold by Garfinkle family members who have no apparent legal authority to sell them, and the proceeds are now being distributed at the whim of the Garfinkles. Mere injunctive relief is not likely to suffice, because the Garfinkle interests have demonstrated that they do not consider themselves subject to the orders of this court.
Defendants oppose the appointment of a receiver on several grounds. First, they contend that I lack jurisdiction over the various corporations which are the subject of Levin's motion. In technical legal terms there is some merit to this argument. Although the corporations have been properly served, there is no evidence that they, as independent legal entities, are present in the Commonwealth of Pennsylvania. Accordingly, it would appear that this court has no basis for asserting jurisdiction over them. To accept this argument however would require me to overlook what is painfully obvious on the face of this record that these corporations have no independent legal existence, but are in every respect the alter ego of Howard Garfinkle. Cyrus West, president of the corporations which are the subject of Levin's motion, concedes that all actions taken by these corporations were taken at Garfinkle's direction; that West has no knowledge of who the shareholders are; that the assets and funds of the corporations were distributed solely at the direction of Howard Garfinkle and for his use; and that whatever decision Garfinkle made was final. Deposition of Cyrus West, February 18, 1981, pp. 3-20. At this point, the affairs of these corporations should be controlled by Garfinkle's personal representative, whom Levin has moved to substitute as a defendant in this action. But a personal representative is not before this court because the Garfinkle interests have deliberately failed to qualify a representative in what appears to be an attempt to liquidate Garfinkle's assets without judicial scrutiny. In effect, therefore, the defendants' position is that this court, in exercising its equitable powers, should adhere to a rigid concept of jurisdiction which gives them the benefit of the corporate formalities which they themselves have blatantly ignored. Quite clearly the Garfinkle interests are not entitled to have it both ways, and their argument that the corporations have a separate identity is rejected.
Rejection of defendants' jurisdictional arguments does not offend principles of due process. Plainly both the corporations, such as they are, and the principals who in reality control those corporations had notice of these proceedings and the opportunity to be heard. The corporations are not traditional businesses rooted in a geographical area, but paper creations which operated wherever Howard Garfinkle happened to be. Subjecting them to the jurisdiction of this court in no way differs from subjecting whomever ultimately appears as the personal representative of the late Howard Garfinkle.
Defendants further argue that Levin has failed to show that each of the corporations he wishes placed in receivership is merely an alter ego of Howard Garfinkle. I find this position puzzling, inasmuch as Cyrus West, who is purportedly president of all of the corporations in question, has conceded that the corporations had no existence apart from Howard Garfinkle, and that he now takes orders from the Garfinkle family, orders which he follows even when faced with the threat of imprisonment. Moreover, defendants have not produced a shred of evidence to the contrary; there are no stock certificates, no minutes, and no general corporate records. The only record apparently kept is one of cash disbursements, and it reflects that corporate formalities are ignored, funds are commingled, and the proceeds of sales are diverted to personal use. I fail to see what further proof Levin should be required to produce.
The defendants next argue that the proceeds from sales to date have been properly accounted for because the cash disbursement record reflects where the funds went. As noted above, what the records reflect is that the funds have been spent on a variety of things other than corporate business, including personal bills of the Garfinkles. To suggest that this is an acceptable use of funds which are purported to be corporate funds is absurd.
Defendants further contend that in seeking the aid of this court, Levin is attempting to circumvent available state court procedures for execution and protection of a judgment. Levin has once already sought to have local New York officials take control of Garfinkle's estate, but failed. Defendants contend that Levin's recourse is to bring suit in New York seeking a declaration that the various corporate entities are alter egos of Howard Garfinkle, and seeking to enjoin those conveyances which Levin deems fraudulent.
I agree with defendants that, in theory, there are state court remedies which Levin can pursue. The issue in deciding whether to grant equitable relief, however, is whether those remedies are adequate, and I find that they are not. By the time Levin commences an action in New York and is heard on his claims, there is a substantial likelihood that Garfinkle's assets would be completely dissipated, because the defendants have made clear their intention to exhaust every means at their disposal to block Levin's execution. It has taken Levin over three years to win a judgment from Garfinkle, and to expose him to further risk of fraud at the hands of the defendants would be inequitable.
Moreover, I see little purpose to be served by relitigating many of the issues in this suit in the New York courts. As noted above, the record in this case is voluminous. The defendants have been given ample opportunity to establish the independent existence of these corporations in this court, and it is plain that they are in fact alter egos of the late Howard Garfinkle. It is also obvious that Barbara Garfinkle and Benjamin Garfinkle, at this juncture, lack authority to conduct the affairs of these corporations or of Howard Garfinkle's estate, but they are nonetheless selling assets. On a record such as this one, I cannot refrain from protecting a judgment of this court simply on the ground of comity, because whatever respect may be due the courts of New York state, there is a strong probability that this case will not reach them until it is too late for their action to be meaningful.
Defendants further contend that appointment of a receiver by this court will interfere with the orderly administration of Garfinkle's estate as directed by the New York Surrogate Court. This does not follow, because my purpose in appointing a receiver is to conserve the assets of the estate to allow for orderly administration, not to substitute the judgment of this court for that of the Surrogate Court in New York. Once it becomes clear that the further protection of this court is unnecessary because of proceedings in the Surrogate Court, the receivership will be dissolved.
In view of the foregoing, I will enter an order appointing a receiver to assume control of all personal assets of the late Howard Garfinkle. For purposes of this order, the following corporations and their assets are to be considered as personal assets of the late Howard Garfinkle:
O.R. Management, Inc. WAW Corporation
R.W. Realty, Inc. Carolina & Tennessee Realty
QMB Realty, Inc. Dallas & Abilene Realty
Edgewater Park, Inc. Forest & Greenville Realty
Edgewater Park Associates Guardian & Johnstown Realty
Indiana & Evansville Realty Huckleberry Farm, Inc.
PRQ Realty Inc. Chestnut Grove Realty, Inc.
Alabama & Missouri Realty A.E.I. Laundry Associates
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