In Re: 2920 ER, L.L.C. , 607 F. App'x 349 ( 2015 )

Case: 14-20734 Document: 00512991621 Page: 1 Date Filed: 04/02/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 2, 2015
No. 14-20734
Lyle W. Cayce
Clerk
In re: 2920 ER, L.L.C., doing business as Trinity Healthcare Network,
Petitioner.
Petition for a Writ of Mandamus
to the United States District Court
for the Southern District of Texas
U.S.D.C. No. 4:12-CV-2451
Before PRADO, OWEN, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Defendant–Petitioner 2920 ER, L.L.C., (“Petitioner” or “2920”) petitions
for a writ of mandamus. Petitioner argues that the district court lacked the
authority to grant “post-judgment discovery” or “damages discovery” and
lacked authority to order Petitioner to refrain from transferring funds “other
than to pay bills in the ordinary course of its business” without first obtaining
the court’s “permission.” The district court has not yet entered final judgment,
and it denied 2920’s request for interlocutory appeal. We construe the
mandamus petition as a notice of interlocutory appeal under 28 U.S.C.
§ 1292(a)(1). Because district courts ordinarily lack the authority to order
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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postjudgment remedies before a final judgment unless the court follows the
strictures required for a preliminary injunction or for prejudgment remedies
under Federal Rule of Civil Procedure 64, we vacate the district court’s orders
and remand.
I. BACKGROUND
The following factual background is drawn from the district court’s
“opinion on partial judgment” filed on August 20, 2014. This case concerns a
small, four-bed hospital in Cleveland, Texas called Cleveland Imaging and
three unlicensed clinics, including the Petitioner’s.
Cleveland Imaging allegedly used its billing codes (derived from its
Texas hospital license) to allow neighboring clinics—operating without Texas
hospital licenses—to bill insurers illicitly. Using the hospital’s billing number,
the unlicensed clinics made it appear as though their patients were treated at
a full-service hospital rather than at an unlicensed clinic. This was an
apparently lucrative difference: The hospital, acting on behalf of the unlicensed
clinics, billed more than $9.2 million to an insurer in two years—whereas the
year before, the unlicensed clinics billed that insurer only $387,000. The
hospital does not own or operate the unlicensed clinics, but it received a
kickback of about 15% of each bill under the terms of a contract.
After Texas threatened to revoke the hospital’s license, Cleveland
Imaging canceled this arrangement. The insurance company, Plaintiff–
Respondent Aetna Life Insurance Co. (“Aetna”), sued the unlicensed clinics
(including Petitioner) and the hospital in federal district court for money had
and received, fraud, negligent misrepresentation, unjust enrichment, and civil
conspiracy.
The district court granted what it called “partial judgment” in a five-page
opinion in response to several motions for partial summary judgment filed by
Aetna. Addressing only the money-had-and-received claim, the court concluded
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that: “Doctors and clinics may not contract to use a hospital’s billing code to
recover fees designed to compensate hospitals for expenses that they do not
have.” The court ordered that “Aetna Life Insurance Co. will take
$8,412,116.01” from the defendants.
II. THE DISTRICT COURT’S “POSTJUDGMENT” ORDERS
After the district court entered its order granting “partial judgment,” the
Receiver for Cleveland Imaging filed a “suggestion of bankruptcy” to notify the
court of Cleveland Imaging’s voluntary petition for Chapter 11 bankruptcy.
Therein, the Receiver “suggest[ed] that the action against Cleveland Imaging”
had been “stayed” pursuant to the automatic bankruptcy-stay provision, 11
U.S.C. § 362.
The district court then withdrew the reference to the bankruptcy court
and lifted the automatic stay. Out of concern about “where the defendants have
assets to satisfy [the district court’s] judgment,” Aetna asked for “postjudgment
discovery” to obtain documents concerning whether the defendants “have
transferred money out of their business entities to other persons.”
Meanwhile, 2920 filed a motion asking the district court to certify its
“partial judgment” as “final and appealable” under Federal Rule of Civil
Procedure 54(b) and 28 U.S.C. § 1292(b). The district court denied the motions
to certify partial judgment for interlocutory appeal without explanation two
days later.
The district court also granted Aetna’s motion for “postjudgment
discovery” in a very brief order that same day without explanation. The district
court held a hearing in which Aetna’s counsel represented that, following the
district court’s “partial judgment” opinion, 2920 started “sending large round
numbers out of 2920 to an entity called Spring Klein Surgery Center, which is
listed [at a particular] address. But when you go out there, there’s no hospital.”
Aetna’s counsel represented that wire transfers of large round numbers
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totaling “over $6 million ha[d] gone to [Spring Klein Surgery Center],” and that
Aetna expects “that another [$]6 million in checks has gone to that same
entity.” Accordingly, Aetna asked the court for “some monitoring if [2920 is]
going to continue to send money out to this entity or any other entity in these
round numbers” and that 2920 “get approval from you before they do so.”
The district court then essentially ordered an asset freeze from the
bench. The court ordered: “No payments to Spring Klein until some
explanation has been made of what they’re for, no transfers that are not in
response to a purchase order or some other objective commercial transaction.”
After 2920 filed objections, the district court signed Aetna’s proposed
order on November 13, 2014, and thereby ordered that “[t]here shall be no
further transfer of funds from 2920 other than to pay bills in the ordinary
course of its business (i.e., rent and payroll), including no further transfer of
funds to Spring Klein Surgical Hospital, without permission from the Court.”
Petitioner 2920 seeks mandamus relief from these orders. Importantly,
at no point has Aetna moved for a preliminary injunction or temporary
restraining order (TRO), and at no point has the district court issued a TRO or
expressly granted a motion for a preliminary injunction.
III. MANDAMUS RELIEF AND JURISDICTION
Mandamus relief is an “extraordinary remedy,” Will v. United States, 389
U.S. 90, 95 (1967), that is only available if three criteria are met:
(1) First, the party seeking issuance of the writ [must] have no
other adequate means to attain the relief he desires—a
condition designed to ensure that the writ will not be used
as a substitute for the regular appeals process.
(2) Second, the petitioner must satisfy the burden of showing
that [his] right to issuance of the writ is clear and
indisputable.
(3) Third, even if the first two prerequisites have been met, the
issuing court, in the exercise of its discretion, must be
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satisfied that the writ is appropriate under the
circumstances.
Cheney v. U.S. Dist. Court for D.C., 542 U.S. 367, 380–81 (2004) (citations and
internal quotation marks omitted). “These hurdles, however demanding, are
not insuperable.” In re Volkswagen of Am., Inc., 545 F.3d 304, 311 (5th Cir.
2008) (en banc) (quoting Cheney, 542 U.S. at 381).
The first criterion presents a threshold question whether mandamus
relief is inappropriate here because 2920 had other means to attain relief—
namely, an ordinary interlocutory appeal. See Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 8 n.6 (1983) (“[A] court of appeals has no
occasion to engage in extraordinary review by mandamus . . . when it can
exercise the same review by a contemporaneous ordinary appeal.”). As noted
above, the district court denied Petitioner’s request for interlocutory appeal
under 28 U.S.C. § 1292(b); however, that does not indicate whether there was
interlocutory appellate jurisdiction under § 1292(a).
In response to 2920’s petition for writ of mandamus, Aetna argues that
the district court’s “order freezing assets is an appealable interlocutory order”
under 28 U.S.C. § 1292(a)(1), apparently presuming that the district court
“grant[ed] [an] injunction[],” since that is what § 1292(a)(1) exclusively refers
to. We agree.
Under 28 U.S.C. § 1292(a)(1) interlocutory injunctions are immediately
appealable. “That the district court here did not label its order an injunction is
not dispositive. In determining whether an order is appealable under section
1292(a)(1), we consider the substantial effect of the order.” Calderon v. U.S.
Dist. Court for Cent. Dist. of Cal., 137 F.3d 1420, 1421 (9th Cir. 1998) (Kozinski,
J.); accord 11A Charles Alan Wright et al., Federal Practice and Procedure
§ 2962 & n.11 (3d ed. 2014) [hereinafter Wright & Miller] (collecting cases that
“make it clear that the court will look at the actual effect of the order that is
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issued by the district court when determining whether an appeal should be
allowed.” (collecting cases)); see also McCoy v. La. State Bd. of Educ., 345 F.2d
720, 721 (5th Cir. 1965) (per curiam) (“In determining what is an appealable
order under 28 U.S.C. [§] 1292(a)(1), courts look not to terminology, but to ‘the
substantial effect of the order made.’”). As discussed below, the substantial
effect of the district court’s order here was the same as a preliminary
injunction—it essentially froze 2920’s assets before the entry of final judgment.
See Rosen v. Cascade Int’l, Inc., 21 F.3d 1520, 1526 (11th Cir. 1994) (treating
an asset freeze as a preliminary injunction). Thus, because 2920 “could have
obtained review of the district court’s order through an ordinary [interlocutory]
appeal, mandamus is not available,” Calderon, 137 F.3d at 1422.
Therefore, the petition for writ of mandamus must be denied.
This does not end the matter, however. “A petition for mandamus filed
in this court . . . may also satisfy the notice of appeal requirement,” provided
that it is filed within thirty days of the order to be appealed from. Yates v.
Mobile Cnty. Pers. Bd., 658 F.2d 298, 299 (5th Cir. 1981) (per curiam) (noting
that this is “especially” important “when the appellant is proceeding pro se . . .
and is thus generally ignorant of procedural rules”); see Fed. R. App. P. 4(a)(1);
see also Helstoski v. Meanor, 442 U.S. 500, 508 n.4 (1979) (suggesting that a
“petition for a writ of mandamus [could be] treated as an appeal” if it was filed
on time); Cobb v. Lewis, 488 F.2d 41, 45 (5th Cir. 1974) (“Other courts have
held that the requirement of notice of appeal is satisfied by[, inter alia,] a
petition for mandamus filed in the Court of Appeals . . . . These cases teach
that the notice of appeal requirement may be satisfied by any statement, made
either to the district court or to the Court of Appeals, that clearly evinces the
party’s intent to appeal.” (citations omitted)); In re Clark, No. 11-10407, 2011
WL 3861616, at *1 (5th Cir. July 8, 2011) (per curiam) (unpublished) (“We
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construe Clark’s mandamus petition . . . as a notice of appeal from those
orders.” (citing Yates, 658 F.2d at 299)).
Here, we think it is appropriate to construe 2920’s mandamus petition—
which was filed within thirty days of the challenged interlocutory orders—as a
notice of appeal from those orders. Though 2920 is not proceeding pro se, cf.
Yates, 658 F.2d at 299, we note that 2920 specifically requested permission
from the district court to appeal the court’s interlocutory orders, which were
not labeled preliminary injunctions, and the district court denied its requests.
The petition clearly evinces 2920’s intent to appeal. See Cobb, 488 F.2d at 45.
We further note that, “when the petition was filed, it was not unreasonable for
the petitioner to believe that the district court’s order was reviewable only by
mandamus, not by direct appeal,” in light of the district court’s orders denying
interlocutory appeal, see Compania Mexicana De Aviacion, S.A. v. U.S. Dist.
Court for Cent. Dist. of Cal., 859 F.2d 1354, 1357–58 (9th Cir. 1988) (per
curiam) (citing Clorox Co. v. U.S. Dist. Court for N. Dist. of Cal., 779 F.2d 517,
520 (9th Cir. 1985)). Moreover, we note that in this case, as in Compania
Mexicana De Aviacion, the time for notice of an interlocutory appeal has now
expired, so 2920 lost its right to interlocutory appeal during the pendency of
its mandamus petition and a “harsh result . . . would obtain if [its] mandamus
petition were simply denied.” Id.
Therefore, we conclude that 2920’s petition for writ of mandamus has
provided adequate notice to the parties and the court of its intent to appeal, see
Cobb, 488 F.2d at 45, and we accordingly treat the petition as a notice of
appeal. Thus, this Court has appellate jurisdiction to review the district court’s
interlocutory order under 28 U.S.C. § 1292(a)(1).
IV. DISCUSSION
We review decisions granting preliminary relief for abuse of discretion.
See Bluefield Water Ass’n, Inc. v. City of Starkville, Miss., 577 F.3d 250, 253
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(5th Cir. 2009). We can think of only three avenues that may justify the district
court’s orders here: preliminary injunctive relief under Rule 65, prejudgment
relief under Rule 64, or postjudgment relief under Rule 69. The Federal Rules
of Civil Procedure set up a dichotomy. Rules 64 and 65 provides for
prejudgment remedies, and Rule 69 provides for postjudgment remedies.
Because prejudgment remedies by definition are available before the entry of
judgment (and all of the preceding procedural protections that entails along
the way), prejudgment remedies are more limited and are available only if the
law of the state in which the district court sits so provides. Fed. R. Civ. P. 64;
see 11A Wright & Miller, supra, § 2931 (“What these [prejudgment,
provisional] remedies are, and the circumstances under which they are
available, is determined by the law of the state in which the district court is
held . . . .”). Since postjudgment remedies are, by definition, available only after
judgment and the significant procedural protections that entails—including
the right to appeal the judgment and to seek a supersedeas appeal bond—Rule
69 provides for remedies under both state and federal law. Fed. R. Civ. P. 69(a)
(“[T]he judgment creditor or a successor in interest whose interest appears of
record may obtain discovery from any person—including the judgment
debtor—as provided in these rules or by the procedure of the state where the
court is located.” (emphasis added)); see 11A Wright & Miller, supra, § 3012
(explaining that “questions that arise in the enforcement of a money judgment”
may be answered by resort to either federal statutes and rules or state law).
The federal rules reflect the tradition of American common law. As the
Supreme Court explained in Grupo Mexicano de Desarrollo S.A. v. Alliance
Bond Fund, Inc., “as a general rule, a creditor’s bill could be brought only by a
creditor who had already obtained a judgment establishing the debt.” 527 U.S.
308, 319 (1999) (emphasis added) (collecting cases).
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The rule requiring a judgment was a product, not just of the
procedural requirement that remedies at law had to be exhausted
before equitable remedies could be pursued, but also of the
substantive rule that a general creditor (one without a judgment)
had no cognizable interest, either at law or in equity, in the
property of his debtor, and therefore could not interfere with the
debtor’s use of that property. As stated by Chancellor Kent: “The
reason of the rule seems to be, that until the creditor has
established his title, he has no right to interfere, and it would lead
to an unnecessary, and, perhaps, a fruitless and oppressive
interruption of the exercise of the debtor’s rights.”
Id. at 319–20 (quoting Wiggins v. Armstrong, 2 Johns. Ch. 144, 145–46 (N.Y.
Ch. 1816)).
In the Grupo case, the Supreme Court held that federal courts lack
authority even to issue a preliminary injunction freezing assets in an action
for money damages. Id. at 333 (“[W]e hold that the District Court had no
authority to issue a preliminary injunction preventing petitioners from
disposing of their assets pending adjudication of respondents’ contract claim
for money damages.”). Similarly, in De Beers Consolidated Mines v. United
States, the Supreme Court held “Rule 70 of the Rules of Civil Procedure, which
permits the issu[ance] of a writ of attachment or sequestration against the
property of a disobedient party to compel satisfaction of a judgment, is
operative only after a judgment is entered.” 325 U.S. 212, 218 (1945) (emphasis
added) (footnote omitted).
These principles, taken together, establish that the prejudgment relief
awarded by the district court here—though styled as “postjudgment relief”—
was not authorized by federal law. Federal law authorizes the prejudgment
freezing of Petitioners assets only if the relief requested “was traditionally
exercised by courts of equity,” id. at 219, and then only if the district court
follows the procedural requirements for a preliminary injunction under Rule
65.
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Rule 65’s requirements were not followed here. The movant did not post
“security in an amount that the court considers proper to pay the costs and
damages sustained by any party found to have been wrongfully enjoined or
restrained,” Fed. R. Civ. P. 65(c). And the district court did not specifically find
that the movant, Aetna, had shown:
(1) a substantial likelihood of success on the merits,
(2) a substantial threat of irreparable injury if the injunction is not
issued,
(3) that the threatened injury if the injunction is denied outweighs any
harm that will result if the injunction is granted, [or]
(4) that the grant of an injunction will not disserve the public interest.
Janvey v. Alguire, 647 F.3d 585, 595 (5th Cir. 2011) (quoting Byrum, 566 F.3d
at 445). We have vacated a district court’s injunction before because the district
court “failed to enter findings of fact and conclusions of law in compliance with
[Rule] 52(a) in its ruling.” Software Dev. Techs. v. TriZetto Corp., 590 F. App’x
342, 345 (5th Cir. 2014) (per curiam). The district court there imposed the
injunction following a telephone conference. Id. We vacated the injunction
reasoning that, even “[t]hough the district court did subsequently memorialize
the telephone conference in a written order, it did not elaborate to include any
specific findings” on the preliminary-injunction elements. Id. at 344–45.
The differences between the process the district court followed here and
that required to issue a preliminary injunction are important. As noted, the
movant Aetna would have been required to post security to obtain a
preliminary injunction. Fed. R. Civ. P. 65(c). Further, had 2920 known that the
district court was entering a preliminary injunction, 2920 would have also
realized that the order was immediately appealable under 28 U.S.C.
§ 1292(a)(1). And with the right to appeal comes the right to stay the judgment
by posting a supersedeas appeal bond, MM Steel, L.P. v. JSW Steel (USA) Inc.,
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771 F.3d 301, 303 (5th Cir. 2014) (per curiam) (citing Fed. R. Civ. P. 62(d)).
And, as noted, the district court is required to make specific findings on the
elements of a preliminary injunction, Software Dev. Techs., 590 F. App’x at
344–45; the district court did not do so here.
State law does not provide authority for the district court’s discovery
order. As noted, under Rule 64, federal courts must look to state law to provide
prejudgment remedies, if any. Texas law is clear that a trial court abuses its
discretion, and “mandamus is appropriate,” if the trial court compels
postjudgment discovery of the type the district court ordered in this case. In re
Elmer, 158 S.W.3d 603, 605 (Tex. App. 2005—San Antonio, no pet.) (“We
conclude that the trial court abused its discretion in compelling answers to
interrogatories in aid of judgment in the absence of a final, appealable
judgment.”).
In its response, Aetna directs this Court to no contrary Texas authority
except to point out that the Petitioner’s argument “rests on a single case from
the San Antonio court of appeals.” Not so. Although Petitioner only cites
Elmer—which happens to be directly apposite 1—Elmer has been followed in at
least one other Texas case. In In re El Caballero Ranch, Inc., a Texas appeals
court recently confronted similar facts; as in this case, there, “[t]he trial court
made it clear that its amended order granting [the defendant’s] motion for
summary judgment was interlocutory, and additional claims remained to be
determined.” No. 04-14-00584-CV, 2014 WL 6687242, at *3 (Tex. App.—San
Antonio Nov. 26, 2014, no pet. h.). “Accordingly,” the court held, “there is no
final judgment subject to direct appeal and the procedural tools available for
1 See Howe ex rel. Howe v. Scottsdale Ins. Co., 204 F.3d 624, 628 (5th Cir. 2000)
(concluding in an Erie-guess context that “[w]e cannot disregard . . . precedent provided by
the intermediate appellate courts of Louisiana when the appellant offers nothing to suggest
why the Louisiana Supreme Court would decide this case differently”).
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suspension of enforcement have not been triggered.” Id. Moreover, this
conclusion is consistent with federal principles which teach that “[a] judgment
creditor may obtain discovery from any person, including the judgment debtor,
in aid of the judgment or execution . . . only after judgment.” 12 Wright &
Miller, supra, § 3014 (emphasis added).
Aetna also argues that a Fifth Circuit unpublished decision authorizes
the relief fashioned by the district court here. This argument is unavailing. In
Animale Group Inc. v. Sunny’s Perfume Inc., 256 F. App’x 707 (5th Cir. 2007)
(per curiam), a panel of this Court observed that “Supreme Court precedent
authoriz[es] pre-judgment asset restraints” in cases in which the plaintiff
seeks “equitable relief . . . , not just money damages.” Id. at 708–09. Aetna
further maintains that it seeks equitable relief through its money-had-and-
received claim, which this Court has previously held “is an equitable doctrine
applied to prevent unjust enrichment” under Texas law. Bank of Saipan v.
CNG Fin. Corp., 380 F.3d 836, 840 (5th Cir. 2004) (internal quotation marks
omitted).
But this argument overlooks the fact that the district court in Animale
followed Rule 65 and made the required findings on the preliminary-injunction
elements. See 256 F. App’x at 708. In contrast, here, as discussed above, the
district court’s perfunctory orders did not analyze the required preliminary-
injunction elements or make the required findings. See Software Dev. Techs.,
590 F. App’x at 344–45. The district court also repeatedly denied the
Petitioner’s requests for certification for interlocutory appeal. Thus, Animale
does not lend support to the district court’s orders.
The Texas cases cited by Aetna supporting the issuance of a “temporary
injunction . . . to preserve the status quo pending an award of damages at trial,”
(quoting Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993) (per curiam)), are
similarly unavailing. The relief granted by the district court in this case
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neither followed the required preliminary-injunction procedures nor afforded
2920 the procedural protections of Rule 65—as the district court repeatedly
made clear by denying requests for interlocutory appeal. Thus, neither
Animale nor the cited Texas cases authorize the district court’s orders here. 2
In sum, the district court may have had authority to issue an explicit
preliminary injunction before entering final judgment, but only if it found
Aetna’s action to be equitable in nature and it followed Rule 65’s procedural
protections. See Animale, 256 F. App’x at 708. Because the district court did
not have authority to freeze assets before judgment without following the
requirements of Rule 65, the decision was an abuse of discretion that we must
vacate.
To the extent Aetna claims that this result would set the “judgment
debtor . . . free to transfer assets to affiliated entities to make itself judgment-
proof, safe in the knowledge that the court can do nothing to enjoin the
transfers,” that is simply not so. First, as discussed above, Aetna could file for
a preliminary injunction under Rule 65—though it may have to post security
and the order would be immediately appealable. Additionally, 2920 would
presumably be subject to potential civil and criminal liability if it attempts to
transfer money to avoid judgment creditors under the Uniform Fraudulent
Transfer Act, which Texas has adopted and which “invalidate[s] a debtor’s
transfers made for less than reasonably equivalent value.” In re Soza, 542 F.3d
1060, 1064 (5th Cir. 2008) (citing Tex. Bus. & Com. Code Ann. § 24.005(a)(2)).
2 We also reject Aetna’s mootness and waiver arguments. As 2920 points out in reply,
the discovery and injunctive issues are not moot because 2920’s obligations to comply with
the district court’s orders are ongoing. Further, that 2920 voluntarily agreed to comply with
the district court’s injunction and discovery orders after they were issued does not mean that
2920 has waived any objections to those orders: the record is replete with 2920’s objections
before the orders were issued, motions for reconsideration after those orders were issued, and
requests to interlocutory appeal those orders. Aetna’s mootness and waiver arguments
simply find no support in the record.
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Additionally, Aetna may avail itself of Texas prejudgment remedies. Fed. R.
Civ. P. 64. In short, Aetna has many means at its disposal to secure its partial,
and possibly final, judgment. These means are more onerous and entail more
hurdles; however, those procedural hurdles protect judgment debtors from
potentially abusive creditors. See Grupo Mexicano, 527 U.S. at 320.
Though the factual record developed below points to some troubling
behavior on the part of 2920, we are obligated to vacate the district court’s
orders because these orders did not comply with Rule 65. On remand, Aetna’s
concerns may be addressed by prompt application of appropriate procedures.
V. CONCLUSION
For the foregoing reasons, the petition for mandamus relief is DENIED,
and the district court’s order signed on November 13, 2014, prohibiting 2920
from transferring funds is VACATED, as are its orders compelling
“postjudgment discovery”—except to the extent that such discovery is
reasonably necessary to investigate pending claims under Rule 26. We
REMAND to the district court for further proceedings consistent with this
opinion.
VACATED and REMANDED.
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