Schanck v. Gayhart Case Analysis

In Schanck v. Gayhart, 245 So. 3d 970 (Fla. 1st DCA 2018), Florida’s First District Court of Appeal held that a court can order a judgment debtor to cancel stock and membership certificates kept abroad and reissue them.

The certificates for the debtor’s two companies had been moved to Canada. The order ran against the debtor, John Schanck, personally, without directly affecting title to the paper, and he could comply because he owned 100% of both companies. The Fourth District’s Sargeant v. Al-Saleh decision pointed the other way until the Florida Supreme Court adopted the same rule as Schanck in Shim v. Buechel four years later.

The Facts: A $2.5 Million Judgment and Certificates in Canada

John Schanck and Myong-He Gayhart divorced in 2015 through a Consent Final Judgment in Duval County. Gayhart, who was terminally ill, waived alimony and her claims to certain assets, including any interest in Stellar Recovery, Inc. In exchange, Schanck owed her an equalizing payment of $2.5 million, paid monthly. The settlement provided that the payments would survive her death and could be enforced by her estate.

After Gayhart died, Schanck missed payments. Her estate obtained a judgment for $207,862.64 in December 2016 covering five missed installments, which Schanck paid, and a second judgment for $74,475.81 when he missed two more.

The estate moved to compel Schanck to turn over the stock and membership certificates in two Florida entities he solely owned, Stellar Recovery, Inc. and DataSignals, LLC, or to reissue them if they were lost or could not be located. At his deposition in February 2017, Schanck had testified that he did not know where the certificates were. He then changed his story: the certificates, he asserted, had been moved to his new wife’s residence in Canada weeks before the deposition.

Because the certificates were physically outside Florida, Schanck contended the court lacked in rem jurisdiction to order their turnover. The estate answered that the court had personal jurisdiction over Schanck himself, and that § 678.1121(5), Florida Statutes, authorized the court to aid the estate in reaching the certificates by ordering him to act. The trial court, concluding the certificates could not be located, ordered Schanck to cancel the existing certificates, reissue them in his name, and deliver them to the estate’s counsel.

The Holding: § 678.1121(5) Authorizes Cancellation and Reissuance

The First DCA affirmed the trial court’s order in an opinion by Chief Judge B.L. Thomas, joined by Judges Bilbrey and Jay, resolving three arguments Schanck raised on appeal.

Due Process

Schanck argued that the estate’s motion sought only turnover, not cancellation and reissuance, and that the court violated due process by granting relief the estate had not requested. The court rejected this. The estate’s motion had explicitly requested, as an alternative, that if the certificates could not be located, the court should order reissuance. Schanck initially claimed the certificates could not be found, then changed his testimony to reveal their supposed location in Canada. Having been on notice that reissuance was a potential remedy, he could not claim a due process violation.

Statutory Authority Over Certificates Wherever Located

Section 678.1121(5) provides that a creditor whose debtor owns a certificated security is entitled to court aid “by injunction or otherwise” in reaching the security. The statute authorizes any lawful means to satisfy the claim when the property “cannot readily be reached by other legal process.”

The court held that “means allowed at law or in equity” includes ordering cancellation and reissuance of certificates. It makes no difference whether the originals cannot be seized because their location is unknown or because the debtor moved them beyond the court’s reach. The court relied on House v. Williams, 573 So. 2d 1012 (Fla. 5th DCA 1991). There the Fifth District had reached the same conclusion and disagreed with the Fourth District’s narrower reading in Florida Boca Raton Housing Ass’n v. Malone, 325 So. 2d 22 (Fla. 4th DCA 1976).

The order operated against Schanck personally, not against the certificates themselves. A court with personal jurisdiction over a defendant may order him to act on property outside its jurisdiction, as long as the order does not directly affect title to the property while it remains abroad. Cancellation and reissuance satisfied that rule, so the certificates’ location in Canada did not matter.

The Debtor Can Comply Personally

Schanck argued that only the corporation and the LLC themselves could reissue certificates, meaning the entities needed to be joined as parties. The court disagreed. Section 678.4051 requires the issuer to reissue certificates on request from the owner. Schanck owned 100% of both Stellar and DataSignals. He had previously told the court he could provide discovery on Stellar’s behalf “as if Stellar were a party.” A sole owner who controls the entity can direct it to reissue certificates. Separate joinder was unnecessary.

The Certificated-Interest Workaround That Schanck Killed

The Schanck decision ended a specific planning strategy that practitioners had developed in the years between Sargeant (2014) and Schanck (2018).

The sequence began with Sargeant v. Al-Saleh, 137 So. 3d 432 (Fla. 4th DCA 2014), where the Fourth District held that a Florida court could not order a judgment debtor to turn over stock certificates in foreign corporations. If the certificates were physically located abroad, the court said, the creditor had to pursue them in the foreign jurisdiction.

Then Wells Fargo Bank v. Barber (M.D. Fla. 2015) held that an LLC membership interest is intangible personal property that follows the owner. Florida law applied to a Nevis LLC because the debtor was a Florida resident. The conflict-of-laws authority the Barber court cited treats shares not embodied by a document as intangible property. Practitioners noticed the opening: Sargeant protected certificated interests in foreign entities, while Barber reached uncertificated interests.

The workaround was to issue physical certificates for LLC membership interests or corporate stock and place the certificates in a foreign jurisdiction. The theory: once the interest is represented by a physical certificate, it becomes tangible personal property located wherever the paper sits. If the paper sits in Canada, the Bahamas, or Nevis, a Florida court cannot reach it under Sargeant.

The Schanck court eliminated this workaround. Section 678.1121(5) gives the court legal and equitable authority to aid creditors in reaching certificated securities by any lawful means, including ordering the debtor to cancel and reissue. Moving the paper to Canada accomplished nothing because the court’s order targeted the debtor, not the paper.

From Schanck to Shim v. Buechel

The Schanck decision created a direct conflict with the Fourth District’s Sargeant ruling. The First DCA rejected Sargeant‘s reasoning outright: one district said a Florida court could not order debtors to act on assets located abroad, while the other said it could.

The Florida Supreme Court resolved the conflict four years later in Shim v. Buechel, 339 So. 3d 315 (Fla. 2022). The Court unanimously held that § 56.29(6) authorizes trial courts to order debtors to act on assets located anywhere in the world, provided the court has personal jurisdiction over the debtor. The Court disapproved Sargeant to the extent it held otherwise.

The Shim decision confirmed the broader principle that Schanck had applied in the certificated-securities context: a court’s enforcement power follows the debtor. Location of the property is irrelevant when the court has personal jurisdiction over the person who controls it.

Alper Law’s Involvement in Schanck

Alper Law served as co-counsel for the judgment debtor in Schanck v. Gayhart through the appellate proceedings on judgment collection and post-judgment enforcement.

What Schanck Means for Asset Protection

The Schanck decision, together with Barber and Shim, establishes that geography alone protects no asset a Florida judgment debtor personally controls. Physical certificates, uncertificated membership interests, bank accounts, negotiable instruments: a Florida court can order the debtor to act on any of them, wherever they sit. The same rule runs through judgment collection case law, and the rest of Florida asset protection case law draws the protective line at exemptions and at structures outside the debtor’s control.

The only structure that changes the outcome is one that removes the debtor’s legal control. A properly structured offshore trust does this by transferring ownership to an independent foreign trustee, and a Florida court’s orders do not bind that trustee. A court can still order the debtor to bring the assets back, and the debtor’s answer is that he no longer has the power to comply, a defense courts examine closely and often reject.

The charging order case law confirms that LLC interests follow the Florida-resident owner regardless of where the LLC is organized. After Schanck, certificated interests follow the debtor the same way. Together, the decisions close the location workarounds and leave the offshore trust as the only structure that places assets beyond a Florida court’s effective reach.