Inorganic Fruit: Statute That Allows Creditor To Seize Property From Third Party Rec'd From The Debtor Is A Taking

by Robert Thomas, Inverse Condemnation, August 3, 2021

You just have to love any case that starts with the sentence," Dried mangoes form the core of this commercial dispute, which involves a Fifth Amendment challenge..." Shades of Horne!

Well, you can add mangoes to your "healthy snack" list (hat tip CJ Roberts) and include the Supreme Court of Guam's opinions in Western Sales Trading Co. v. Genpro Int'l, Inc. (Guam), No. CVA19-023 (July 28, 2021), in your oeuvre of fruit/takings cases, because the court held that a Guam statute permitting a judgment creditor to take property from a third party (who obtained it from the judgment debtor) was a taking.

In the court concluded that Guam Code Ann. §§ 23401-23406 (the "turnover statute") works an unconstitutional taking in violation of the Fifth Amendment and the Guam Organic Act. Follow along.

The statute allows a judgment creditor to apply to the Guam courts for an order compelling the turnover of assets of the judgment debtor even where the assets are held by a third person (and not the judgment debtor):

A Guam judgment creditor is specifically authorized to file a motion for an order to show cause ... to compel any person who holds the assets of the judgment debtor to turn over those assets.

With respect to a person who holds the assets of the judgment debtor, a Guam court may issue an order requiring any person to deliver such assets, or to convert said assets to money for payment of the judgment. The court shall require any person to turn over the assets, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor. Disobedience of a turnover order is contempt of court and punishable as such.

Guam Code Ann. § 23403(a)-(b) (emphasis original).

The statute also allows the third party to be reimbursed for its purchase costs of the turned-over asset.

Western Sales obtained a default civil judgment against FPD Food International for beach of a contract for dried mangoes, after FPD didn't deliver the mangoes as promised. To collect that judgment, Western Sales went after the aforementioned dried mangoes, which Genpro purchased from FPD. The Guam Superior Court applied the turnover statute and ordered Genpro to cough up the mangoes.

Now hold on a minute, argued Genpro to the Supreme Court, we have nothing to do with the fight between Western Sales and FPD, and a statute that requires us to turn over our validly-purchased mangoes to satisfy the judgment is a taking. You can't take our property to pay another person's debt.

After dispensing with a challenge to the court's appellate jurisdiction, the Supreme Court agreed with Genpro that the statute worked a taking of its dried mangoes. Citing Horne, the court held that "the Takings Clause applies to both real and personal property, including dried fruits." Slip op. at 7. Can't overlook those dried fruits!

The court concluded that "where a statute enacts such a transfer from one private party to another without satisfying the 'public use' and 'just compensation' requirements, it is unconstitutional and inorganic." Slip op. at 7. "Inorganic." Whole Foods alert!

The debtor argued this isn't anything more than a run-of-the-mill process to collect a judgment, and that this situation lacks a "state action," meaning this can't be a taking. Only a government can "take" property in violation of the Fifth Amendment, right? No, the court concluded, while takings for the government's own use obviously implicate the Takings Clause, "it is not confined to this scenario." Slip op. at 8. Here, the "government-mediated realignment of property rights--legislatively or judicially--between private parties is subject to the Fifth Amendment's limits on takings." Slip op. at 8-9.  (This reminds us of a challenge now pending in the federal courts, in which the Commonwealth of Virginia adopted a statute that legislatively rewrote existing express electric utility easements to also allow installation of fiber-optic equipment and prohibited recourse to Virginia's eminent domain procedures.)

This is a physical taking: "[i]n the case before us, the government is not merely restricting what Genpro may do with its dried mangoes, it is compelling the physical surrender of the mangoes to WSTCO." Slip op. at 10. "The turnover statute permits the government facilitation of taking property from one private entity, without their consent, and reallocating that property to another." Id. at 11. The court goofs a bit when it analyzes the case under Penn Central (see id. at 11) even though this is a permanent physical deprivation, but since this opinion was issued while we were all still digesting Cedar Point Nursery, we'll let that one slide. In any event, however the court analyzed it, it concluded effected a taking.

The taking was not for public use. This was a purely private taking. It doesn't benefit the public, but is for the creditor's benefit. There's a one-to-one transfer from A to B. "This is one of the evils the Takings Clause was designed to prevent." Slip op. at 14. Yeah, the turnover statute was designed to aid creditors in collecting a valid debt. But that doesn't immunize it from the public use requirements, and this one is for the creditor's benefit alone.  

And finally, there was not just compensation, so the turnover statute violates the other part of the Fifth Amendment and is doubly inorganic. "Even from the time of the Magna Carta, just compensation for agricultural products--often taken to feed the military--must be tendered in case before confiscation." Slip op. at 15. The court rejected the argument that the third party's ability to be reimbursed its purchase costs qualified as just compensation. Reimbursement of purchase costs doesn't qualify as the full and perfect equivalent for the property taken (valued on the date of the taking), and the statute does not allow for interest, either. "The formula setting compensation as "the purchase price of the turnover property' is not compensation." Slip op. at 16 (citation omitted). 

Take a read of this one. We think the Guam court got it pretty much right (despite that Penn Central hiccup).

Time to go bake us some mango turnovers (sorry, couldn't resist that one - here's a recipe).

Western Sales Trading Co. v. Genpro Int'l, Inc. (Guam), No. CVA19-023 (Guam July 28, 2021)