Aequitas Enters., LLC v. Interstate Inv. Grp., LLC

2011 UT 82

267 P.3d 923

699 Utah Adv. Rep. 5

AEQUITAS ENTERPRISES, LLC, Plaintiff and Respondent,

v.INTERSTATE INVESTMENT GROUP, LLC; and George A. Kastanes, Defendants and Petitioner.

No. 20090947.

Supreme Court of Utah.

Dec. 23, 2011.

Justin D. Heideman, R. Brett Evanson, Provo, for plaintiff.

Morgan Fife, Jamis M. Gardner, Provo, for petitioner.

Justice NEHRING, opinion of the Court:

¶ 1 Aequitas Enterprises, LLC, and Interstate Investment Group, LLC, entered into a real estate contract for the sale of 388 properties, all located outside the state of Utah. Aequitas subsequently sued Interstate Investment Group for breach of contract. To protect its interest in the properties, Aequitas also filed a motion requesting an extraterritorial prejudgment writ of attachment on all the properties. The district court granted Aequitas's motion for prejudgment writ of attachment and entered an order vesting title to all the properties in Aequitas. We hold that the district court lacked the requisite authority to enter an order directly affecting interests in real property located in other states. Therefore, we reverse the district court's decision and vacate its order.

BACKGROUND

¶ 2 Aequitas Enterprises, LLC, is a limited liability company located in Provo, Utah. Interstate Investment Group, LLC, is a limited liability company located in South Carolina. In November 2008, Aequitas and Interstate entered into a contract for the sale of 388 real estate properties. The properties are located in twenty-eight states across the nation; none of the properties is located in Utah. Most of the properties are “Real Estate Owned,” which typically refers to a property owned by a bank after an unsuccessful foreclosure sale. The parties' contract was a “bulk deal” in which Aequitas agreed to pay approximately $2.6 million in exchange for title to all the properties. Aequitas paid the amount due under the contract but claims that Interstate failed to deliver title to the properties as promised. Aequitas blames Interstate for this failure, and Interstate argues that its failure to deliver title to all the properties was due to reasons beyond its control.

¶ 3 In July 2009, Aequitas sued Interstate in personam for breach of contract. Aequitas sought damages and, to protect its interests in the properties, filed a motion for a prejudgment writ of attachment. Aequitas asked the court to attach all 388 properties and declare that title to the properties immediately vest in Aequitas. Aequitas argued that a prejudgment writ of attachment was necessary “to secure its place in the chain of title.”

¶ 4 At a hearing on Aequitas's motion, Interstate argued that the court lacked jurisdiction to issue a writ on property located outside the territorial boundaries of the state. The trial court asked the parties to brief this issue. A few days later, Interstate moved to dismiss Aequitas's complaint, arguing that Interstate did not have sufficient minimum contacts with the state of Utah and therefore the court lacked in personam jurisdiction. Complying with the court's request for full briefing, Interstate submitted a memorandum in opposition to Aequitas's motion for a prejudgment writ of attachment. Interstate asserted that an attachment proceeding is “in the nature of an in rem proceeding,” and that a state only has jurisdictional power to attach property that is within the territorial limits of its jurisdiction.

¶ 5 The district court granted Aequitas's motion to attach the properties. In its findings, the district court concluded it had “jurisdiction to issue [the w]rit, even though the subject properties involved ... may be located outside of the State of Utah.” The district court did not explain how it reached this conclusion. The district court also vested legal title to all 388 properties in Aequitas effective immediately and authorized the manager of Aequitas “to sign warranty deeds or other records of conveyance on [Interstate]'s ... behalf in order to facilitate transfer of legal documents conveying title for the 388 properties.”

¶ 6 Interstate filed its petition for permission to appeal the interlocutory order and also moved the district court to rule on the question of personal jurisdiction, which it had not yet done. We granted the interlocutory appeal. Subsequently, the district court determined that Interstate had sufficient minimum contacts with the state of Utah, and that the court, therefore, had personal jurisdiction. Interstate has not appealed this ruling. We have jurisdiction under Utah Code section 78A–3–102(3)(j).

ISSUE AND STANDARD OF REVIEW

¶ 7 Interstate asks us to determine whether the district court erred when it issued prejudgment writs of attachment for real property located outside Utah. Any such authority stems from the Utah Rules of Civil Procedure. ¹ A district court's interpretation of a rule of civil procedure presents a question of law that is reviewed for correctness.²

¶ 8 Interstate also asks us to determine whether the trial court erred when it granted an order allowing Aequitas to convey and deed Interstate's real property, vesting title in Aequitas. Because we conclude that the district court lacked the authority to issue the extraterritorial prejudgment writ of attachment, we necessarily conclude that the district court lacked authority to take the further step of vesting title to the properties in Aequitas. It is therefore unnecessary to address this issue.

ANALYSIS

¶ 9 We begin by noting that the district court determined that it had personal jurisdiction over the parties and that Interstate has not appealed that decision. Instead, on appeal, Interstate asserts that a Utah court lacks in rem jurisdiction to attach extraterritorial property. Interstate cites our decision in Employers Mutual of Wassau v. Montrose Steel Co.,³ in which we stated that “ ‘[a] proceeding by which jurisdiction is sought by attaching property, whether tangible or intangible, such as a debt, is essentially a proceeding in rem; that is, a proceeding against a thing which is brought into the custody of the law and hence within the jurisdiction of the court.’ ” ⁴ We further explained that “[t]he court cannot adjudicate the liability of nonresidents over whom it [has] not otherwise obtained jurisdiction and who have no property within the state.” ⁵ The relevance of that case to this one, however, is limited by its own language, which confines its scope to “proceeding[s] by which jurisdiction is sought by attaching property.” In this case, the court has “otherwise obtained jurisdiction.” Jurisdiction is not sought by attaching the property; rather, in personam jurisdiction has been sought, obtained, and not challenged.

¶ 10 The distinction between in rem and in personam jurisdiction is critical:

A judgment in personam imposes a personal liability or obligation on one person in favor of another. A judgment in rem affects the interests of all persons in designated property. A judgment quasi in rem affects the interests of particular persons in designated property. The latter is of two types. In one the plaintiff is seeking to secure a pre-existing claim in the subject property and to extinguish or establish the nonexistence of similar interests of particular persons. In the other the plaintiff seeks to apply what he concedes to be the property of the defendant to the satisfaction of a claim against him.⁶

In other words, if a court has jurisdiction over only the property, the case is an in rem proceeding and the court may act only on that property. By contrast, when a court has personal jurisdiction over the parties to a case, the court has jurisdiction to adjudicate the parties' interests in real property, even if the property is not located in that state.⁷ Here, the court unquestionably has personal jurisdiction and therefore has the ability to order the parties to act on their property. The court would not, however, have in rem jurisdiction, because the property is not in Utah, and “[t]he basis of [in rem] jurisdiction is the presence of the subject property within the territorial jurisdiction of the forum State.” ⁸

¶ 11 Because no one disputes that the court has personal jurisdiction over these parties, the next question before us is whether the district court had authority to enter an extraterritorial prejudgment writ of attachment in a proceeding in which it had in personam jurisdiction over the parties. The authority to issue writs of attachment is grounded entirely in state law.⁹ Utah's procedure for obtaining a writ of attachment appears in Utah Rules of Civil Procedure 64 (Writs in general), 64A (Prejudgment writs in general), and 64C (Writ of attachment). “When interpreting a rule of civil procedure, we look to the express language of that procedural rule and to the cases interpreting it.” ¹⁰

¶ 12 Rule 64A(b) states that “[t]o obtain a writ of replevin, attachment or garnishment before judgment, plaintiff shall file a motion ... and an affidavit stating facts showing the grounds for relief and other information required by these rules.” ¹¹ The “grounds for relief” are enumerated in rules 64A(c) and 64C(b). Rule 64A(c) authorizes a prejudgment writ upon a showing of “all of the requirements listed in subsections (c)(1) through (c)(3) and at least one of the requirements listed in subsections (c)(4) through (c)(10)”:

(c)(1) that the property is not earnings and not exempt from execution; and

(c)(2) that the writ is not sought to hinder, delay or defraud a creditor of the defendant; and

(c)(3) a substantial likelihood that the plaintiff will prevail on the merits of the underlying claim; and

(c)(4) that the defendant is avoiding service of process; or

(c)(5) that the defendant has assigned, disposed of or concealed, or is about to assign, dispose of or conceal, the property with intent to defraud creditors; or

(c)(6) that the defendant has left or is about to leave the state with intent to defraud creditors; or

(...