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EuroChem Trading USA Corp. v. Ganske

United States District Court, W.D. Wisconsin

July 27, 2018

EUROCHEM TRADING USA CORPORATION, Plaintiff,
v.
W. KENT GANSKE, individually and d/b/a and sole proprietor of AG CONSULTANTS, and JULIE L. GANSKE, Defendants. W. KENT GANSKE, individually and d/b/a AG CONSULTANTS, and JULIE GANSKE, Counter-Plaintiffs and Third-Party Plaintiffs, and WS AG CENTER, INC., Third-Party Plaintiffs,
v.
EUROCHEM TRADING USA CORPORATION, Plaintiff and Counter-Defendant, and EUROCHEM GROUP AG, SCOTT SIMON, IVAN BOASHERLIEV, BENTREI FERTILIZER, LLC and BEN-TREI, LTD., Third-Party Defendants.

          ORDER

          STEPHEN L. CROCKER MAGISTRATE JUDGE.

         Plaintiff EuroChem Trading USA Corporation (“ECTUS”) is a wholesaler of fertilizer and other agricultural chemicals to customers in the United States. From 2012 to 2017, ECTUS sold product to one or more agri-businesses owned or controlled by W. Kent Ganske, a Wisconsin resident. In this lawsuit, ECTUS seeks to recover more than $14 million that it says W. Kent Ganske and his companies owe it for product that ECTUS delivered but for which it was never paid. ECTUS is suing W. Kent Ganske and his wife, Julie Ganske because it asserts that the Ganskes have breached their personal guaranty to pay this outstanding debt. ECTUS is suing “W. Kent Ganske d/b/a and as sole proprietor of AG Consultants” for breach of contract, unjust enrichment, goods sold, accounts and accounts stated.

         Defendants have counterclaimed for fraud in the inducement and misrepresentation in conjunction with the guaranty, and they seek declaratory judgment that certain claims are subject to arbitration, [1] and a declaratory judgment that the guaranty is invalid for lack of consideration. Defendants have requested punitive damages. Dkt. 14.

         Before the court is ECTUS's motion under Fed.R.Civ.P. 64 and Wis.Stat. § 811.03 for issuance of a prejudgment writ of attachment against the property owned by the Ganskes and by W. Kent Ganske in his capacity as sole proprietor and d/b/a AG Consultants. Dkt. 40. ECTUS argues that preliminary relief is warranted because the debt owed by defendants was obtained by fraudulent statements by W. Kent Ganske. Defendants deny any fraudulent conduct, but assert that an attachment writ would be improper in any event because: (1) ECTUS waived its right to seek preliminary relief when it agreed not to seek a writ in a related arbitration action; (2) issuance of the writ would jeopardize the interests of defendants' secured creditors; (3) case law does not support the issuance of a writ under the facts alleged by ECTUS; and (4) a prejudgment writ would violate the 14th Amendment's guarantee of due process.

         As I discuss below, defendants' legal challenges to the writ are unpersuasive. As for the alleged factual basis for a writ, ECTUS has made at least a colorable showing that it meets the criteria for the issuance of a prejudgment writ of attachment under Wis.Stat. § 811.03(1)(d). Although defendants' affidavits in opposition are largely conclusory and fail in many respects to show a genuine dispute as to several material facts, defendants have put enough facts into dispute to warrant an evidentiary hearing, which the court will schedule with the parties' input.

         DISCUSSION

         I. Applicable Law

         Rule 64 of the Federal Rules of Civil Procedure authorizes provisional remedies at the commencement of and during the course of an action for the purpose of securing satisfaction of the judgment ultimately to be entered in that action. Fed.R.Civ.P. 64; 11A Wright, Miller & Kane, Federal Practice and Procedure § 2931 (2d ed. 2005). The kinds of remedies and the circumstances under which they can be used are matters of state law. Id.

         Wisconsin's attachment procedure is set forth in Wis.Stat. Ch. 811. Under the statute, a judge may issue a writ of attachment “on the request of the plaintiff at any time before final judgment and after a summons and a complaint are filed, ” Wis.Stat. § 811.02, provided that the plaintiff satisfies one of the statutory grounds set forth in Wis.Stat. § 811.03. ECTUS is proceeding under § 811.03(1)(d), which provides:

(1) On contract or judgment. Before any writ of attachment shall be executed the plaintiff or someone in the plaintiff's behalf shall make and annex thereto an affidavit setting forth specific factual allegations to show that the defendant is indebted, or that property of the defendant is available, to the plaintiff in a sum exceeding $50 specifying the amount above all setoffs, and that the same is due upon contract or upon a judgment and that the affiant knows or has good reason to believe . . .
(d) That the defendant fraudulently incurred the obligation respecting which the action is brought[.]

         Thus, in order to obtain a writ pursuant to a contractual claim under § 811.03(1)(d), a party must present evidence that:

(a) the party against whom attachment is sought is indebted or has property that is available to the party seeking attachment;
(b) the claim of the party seeking attachment exceeds $50, specifying the amount owed above all setoffs; and (c) the party whose assets are to be attached fraudulently incurred the obligation for which the action is brought.

         To satisfy this last requirement, the plaintiff must show, by clear and satisfactory evidence, that: (1) the party whose assets are to be attached made a statement of fact which was untrue; (2) it was made with intent to defraud and for the purpose of inducing plaintiff to act upon it; and (3) plaintiff did in fact rely upon it and was induced thereby to act to his damage. W. H. Hobbs Supply Co. v. Ernst, 270 Wis. 166, 169, 70 N.W.2d 615, 617 (1955) (citing Larson v. Splett, 267 Wis. 473, 66 N.W.2d 181 (1954)).

         Although ECTUS opted to file a motion with notice to defendants, the statute permits a court to issue a writ ex parte. In the event a writ is issued and executed, the defendant may move “at any time” to vacate or modify the writ “for any sufficient cause, ” Wis.Stat. § 811.18, with the court to hold a hearing on such a motion “forthwith.” Wis.Stat. § 811.19. The burden of proof lies with the plaintiff. Id. At least one court has interpreted the statute to require the plaintiff to show, in addition to the criteria above, a likelihood of success on the merits of the underlying action similar to that required by Fed.R.Civ.P. 65. Select Creations, Inc. v. Paliafito America, Inc., 828 F.Supp. 1301, 1356-57 (E.D. Wis. 1992).

         II. Defendants' Preliminary Objections

         Before addressing the parties' evidentiary submissions, it is necessary to consider defendants' global objections to ECTUS's motion. First, defendants argue that ECTUS somehow waived its right to seek preliminary relief in this action by agreeing to voluntarily withdraw its request for a prejudgment attachment in a pending arbitration proceeding between ECTUS and WSAG. In support, defendants have submitted emails exchanged between the parties and the arbitrator that memorializes an agreement reached by the parties in response to the arbitrator's conclusion that he lacked jurisdiction to decide whether the non-signatories (W. Kent Ganske and AG Consultants) were proper parties to the arbitration. See Exhs. 1 and 2 to Def.'s Opp. Br., dkt. 46. Under that agreement, ECTUS agreed that it would “not seek preliminary relief against WSAG in the arbitration” and would amend its pending federal court case to add AG Consultants and W. Kent Ganske as defendants on a claim based on liability on the invoices. Id., exh.2.

         These documents offer no support for defendants' claim that ECTUS agreed to forego a prejudgment writ of attachment against defendants in this case, a claim that ECTUS vehemently denies. Indeed, if, as defendants insist, “it was anticipated and agreed by the parties” that ECTUS would abandon its pursuit of prejudgment relief against any party in any forum, then one would have expected that term to have been included along with the other terms stipulated to by the parties in the arbitration proceeding. As defendants concede, that term is not there. Accordingly, this court has no basis on which to find that ECTUS knowingly and intentionally relinquished its right to seek a writ of attachment against the Ganskes in this federal court action. See CHH Indus. Am. LLC v. Jones Lang LaSalle Americas, Inc., 882 F.3d 692, 711 (7th Cir. 2018)(“Waiver entails the voluntary and intentional relinquishment of [a] known right.”).

         Second, defendants argue-without citing any legal authority-that issuance of the writ would jeopardize the interests of defendants' secured creditors by somehow permitting ECTUS to “leapfrog” ahead of defendants' secured creditors. Like defendants' first argument, this one is unfounded. As ECTUS points out, by law a prejudgment writ of attachment is subordinate to existing liens on personal property. See Wis. Stat. § 409.317(1)(b)1 (a lien creditor has priority only over an unperfected security interest); Kepler v. Travelers Indem. Co., No. 98-35139-7, 2000 WL 33950020, at *3 (Bankr. W.D. Wis. Mar. 21, 2000) (under Wisconsin law, attaching creditor is treated as having a lien in the property when the creditor levies upon the attachment). Any security interests that were perfected prior to the execution of the writ would continue to have priority.

         Third, defendants argue that “there is no authority” for a court to “impose[] a writ of attachment on a Wisconsin resident.” Defs.' Opp. Br., dkt. 46, at 14. Defendants are wrong. Wis.Stat. § 811.03 does not limit its application to non-Wisconsin residents, and in fact, Wisconsin courts have issued writs of attachment against Wisconsin residents. See, e.g., Schroeder v. Wacker, 2000 WI.App. 116, 235 Wis.2d 274, 616 N.W.2d 524 (Ct. App. April 26, 2000) (Table) (unpublished disposition) (writ issued against Wisconsin resident); Hobbs Supply, 270 Wis. 166, 70 N.W.2d 615 (trial court issued prejudgment writ of attachment against Wisconsin resident; court of appeals reversed trial court's finding that defendant incurred obligation by fraud). Further, ECTUS does not lose its motion merely because two federal cases it cites, Select Creations, Inc. v. Paliafito America, Inc., 828 F.Supp. 1301 (E.D. Wis. 1992), and Illumination Dynamics Co., Ltd. v. Pacific Lighting Solutions, L.L.C., No. 14-cv-613-wmc, 2014 WL 8795697 (W.D. Wis. 2014), involved facts different from this case. ECTUS would be entitled to a prejudgment writ of attachment if it satisfies the requirements of Wis.Stat. § 811.03(d); whether it can point to a reported case with identical facts is irrelevant.

         Finally, defendants argue that a prejudgment writ would violate their right to due process. Defendants rest their argument on United States General, Inc. v. Arndt, 417 F.Supp. 1300 (E.D. Wis. 1976), in which the court held that a prior version of the Wisconsin attachment statute violated the Due Process Clause of the Fourteenth Amendment. Relying on a trio of Supreme Court cases scrutinizing state prejudgment remedies[2], the Arndt court ruled that Wisconsin's prejudgment attachment scheme was unconstitutional because it provided neither notice and hearing prior to the writ's issuance, nor “adequate alternative safeguards . . . to prevent mistaken seizures of property.” Id. at 1312. The court found Wisconsin's attachment procedure deficient in the following respects: (1) it permitted the issuance of a writ on a conclusory supporting affidavit; (2) it permitted a writ to issue upon plaintiff's posting of a minimum bond of $250, which the court deemed wholly inadequate to assure the defendant had a reasonably adequate remedy in the event of a wrongful attachment; (3) it ...


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