Opinion
1 CA-CV 23-0463
05-23-2024
ADVANCE RESTAURANT FINANCE, LLC, Plaintiff/Appellant, v. C&C RESTAURANT GROUP, et al., Defendants/Appellees.
DeConcini McDonald Yetwin &Lacy, P.C., Tucson By Steven J. Itkin, Clayton R. Kramer Counsel for Plaintiff/Appellant James Portman Webster Law Office PLC, Mesa By James Portman Webster Counsel for Defendants/Appellees
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Maricopa County No. CV2013-094553 The Honorable Brian Kaiser, Judge Pro Tempore
DeConcini McDonald Yetwin &Lacy, P.C., Tucson By Steven J. Itkin, Clayton R. Kramer Counsel for Plaintiff/Appellant
James Portman Webster Law Office PLC, Mesa By James Portman Webster Counsel for Defendants/Appellees
Presiding Judge Andrew M. Jacobs delivered the decision of the Court, in which Judge Jennifer M. Perkins and Judge David D. Weinzweig joined.
MEMORANDUM DECISION
JACOBS, JUDGE
¶1 Advance Restaurant Finance, LLC ("Advance") appeals the superior court's order under Arizona Rule of Civil Procedure Rule 60(b)(6) reducing the amount of a garnishment judgment previously entered against JP Morgan Chase Bank, National Association ("Chase"). Granting a Rule 60(b)(6) motion, the court found that a portion of the funds in Christiana and Charles Chiu's (the "Chius") Chase bank account were not subject to garnishment because they belonged to their son, Ricky Chiu ("Ricky"). Because this conclusion rests on a misconstruction of the garnishment statutes, we reverse.
FACTS AND PROCEDURAL HISTORY
¶2 On August 26, 2013, Advance obtained a judgment against the Chius and seven business entities not a party to this suit in the Maricopa County Superior Court. Before seeking the garnishment at issue, Advance provided evidence that by January 27, 2023, the outstanding balance of the judgment was $1,046,652.81, including accrued interest and allowable costs.
The other judgment debtors were C&C Restaurant Group, LLC; C&C International Group, LLC; Kyoto Bowl Restaurant Group, Inc.; Kyoto Bowl Corp.; Kyoto Bowl Investments, Inc.; Kyoto Bowl Franchise Corp.; and Kyoto Bowl Foods Corp.
¶3 On January 30, 2023, Advance applied for a writ of garnishment for non-earnings held by Chase on behalf of the Chius. Advance made its application pursuant to the garnishment statutes, A.R.S. §§ 12-1572 to -1597. Advance's application recited, pursuant to the garnishment statutes, that the monies Chase held for the Chius were "not exempt from collection." Chase answered as the garnishee, revealing that Christiana's account had a balance of $245,009.45.
¶4 On March 6, 2023, Advance applied for entry of judgment against Chase to direct Chase to turn $245,009.45 over to Advance and for an award of $1,480.50 in attorney fees and costs. The superior court granted its application for the garnishment judgment. The Chius promptly moved to set aside the garnishment judgment under Rule 60(b), arguing that the application for judgment was filed prematurely and that the funds in Christiana's bank account did not belong to the Chius, but their son, Ricky, and requested a hearing. Advance responded, arguing that its application for judgment was timely filed and complied with the garnishment statutes, and that the Chius did not set forth a meritorious basis for relief from the judgment under Rule 60(b).
¶5 On May 15, 2023, the court held a hearing to determine whether to set aside the garnishment judgment. The court rejected the Chius' argument that the application for judgment was untimely. However, the court set an evidentiary hearing to determine if the Chius had a meritorious defense to the judgment.
¶6 On June 26, 2023, the court held an evidentiary hearing. Ricky testified he took advantage of a promotion conducted by Chase bank that gave him $2,000 to open a new account. In November 2021, he gave $250,000 to his father, Charles, to open an account with Chase to receive the promotional bonus of $2,000. Charles was the only name listed on the account title, but it indicated that it was payable on death to Christiana and Ricky. Charles returned the money to Ricky after it remained in the account for the required promotional period. Charles received a 1099-INT from Chase that showed the promotional credit he received.
¶7 In November 2022, Ricky took advantage of this promotion again with the help of his mother, Christiana. Ricky gave Christiana a cashier's check payable to her in the amount of $241,000, which she deposited into a new Chase bank account. The only name listed on the account title was Christiana and that it indicated the account was payable on death to Charles. Ricky was not on the account title, and nothing indicated that the account was held in trust for him. The address on file for the account was the Chius' home address. The Chius regularly received other bank statements from Chase accounts at this home address. Christiana testified she opened the account to help Ricky get the promotional bonus, so she did not consider it her money and did not spend any of it. Ricky testified the money was not a gift, that he considered the money his own, and he did not know about the judgment against his father.
¶8 The court found that $241,000 of the funds, the amount of the cashier's check that was deposited into Christiana's account, belonged to Ricky. The court found under Rule 60(b)(6), the funds should be removed from judgment against Chase. The court's order did not analyze the application of the garnishment statutes to this garnishment. The court altered the amount of the judgment from $245,009.45 to $4,009.45.
¶9 Advance appealed. We have jurisdiction under A.R.S. § 12- 2101(A)(2) and Article 6, Section 9 of the Arizona Constitution.
DISCUSSION
¶10 We review the superior court's decision on a motion for relief from judgment under Arizona Rules of Civil Procedure Rule 60(b) for an abuse of discretion. Gonzalez v. Nguyen, 243 Ariz. 531, 533 ¶¶ 8-9 (2018). We view the facts in the light most favorable to upholding the court's ruling. Ezell v. Quon, 224 Ariz. 532, 534 ¶ 2 (App. 2010). But we review de novo the interpretation of statutes and rules. In re $11,660.00 U.S. Currency v. Frye, 251 Ariz. 106, 108 ¶ 8 (App. 2021). And "[a]n abuse of discretion occurs when the court commits an error of law in reaching a discretionary decision." DeLuna v. Petitto, 247 Ariz. 420, 423 ¶ 9 (App. 2019).
"The Arizona Rules of Civil Procedure changed in 2016, reorganizing Rule 60(c) as Rule 60(b), without substantive change." Gonzalez v. Nguyen, 243 Ariz. 531, 532 ¶ 1 n.1 (2018).
I. The Superior Court Abused Its Discretion When It Granted the Chius Relief from the Garnishment Judgment Under Rule 60(b)(6).
¶11 To obtain relief from a default judgment under Arizona Rule of Civil Procedure 55(c), a party must show: (1) its failure to answer was excused by one of the grounds set forth in Rule 60; (2) it acted promptly in seeking relief from the default judgment; and (3) it had a meritorious defense. Webb v. Erickson, 134 Ariz. 182, 186 (1982). Here, the Chius claim their meritorious defense to garnishment under A.R.S. §§ 12-1572 and -1584 was not owning the funds in the Chase account Advance garnished. They argue that the funds were either not exempt or not held for the Chius by Chase. As we explain next, the Chius' argument fails under A.R.S. §§ 121572 and -1584.
A. The Superior Court Erred When It Found the Chius Had a Meritorious Defense Because A.R.S. § 12-1572 and A.R.S. § 12-1584 Apply to the Funds in Christiana's Account.
1. Garnishment Is Governed By Statute.
¶12 "Garnishment is a creature of statute" and thus "governed by the terms of those statutes." Schooley v. Pena, 253 Ariz. 185, 190 ¶ 17 (App. 2022) (cleaned up). We review de novo statutory interpretation because "it involves legal rather than factual questions." Libra Group, Inc. v. State, 167 Ariz. 176, 179 (App. 1991). When determining whether garnishment statutes apply, we look primarily to the legislature's intent. Jackson v. Phoenixflight Prods., Inc., 145 Ariz. 242, 245 (1985). Regarding statutory construction, we "effectuate the text if it is clear and unambiguous." BSI Holdings, LLC v. Arizona Dep't of Transp., 244 Ariz. 17, 19 ¶ 9 (2018).
¶13 Under A.R.S. § 12-1572, a judgment debtor, like Advance here, may obtain a writ of garnishment to be served upon a garnishee, like Chase, if they "hold[] nonexempt monies on behalf of" "judgment debtor[s]" like the Chius. A.R.S. § 12-1572(2)(b) (emphasis added). Operating in tandem, A.R.S. § 12-1584 authorizes judgments against garnishees "for the amount of the nonexempt monies of the judgment debtor owed or held by the garnishee at the time of the service of the writ" of garnishment, here, February 9, 2024. A.R.S. § 12-1584(A) (emphasis added).
2. The Funds in the Chius' Account Were Nonexempt.
¶14 Whether A.R.S. §§ 12-1572 and -1584 apply depends substantially on the existence of "nonexempt monies" of the debtor held by the garnishee. See A.R.S. §§ 12-1572(2)(b),-1584(A). "Nonexempt monies or property" means "monies or property which are not restricted by law from judicial process." A.R.S. § 12-1570(7). The legislature has identified many specific types of monies and property that are exempt from execution through judicial processes. A.R.S. § 33-1126(A) (exempting ten categories of monies and annuity contracts from execution through judicial processes); A.R.S. § 33-1127 (exempting school equipment from execution through judicial process); A.R.S. § 33-1128 (exempting firefighting equipment); A.R.S. § 33-1129 (exempting public property, including courthouses, cemeteries, public squares, and other property of a public character); A.R.S. § 33-1130 (exempting, as used in a trade or business, property including websites, farm equipment, and arms required to be kept by a debtor); A.R.S. § 33-1131 (exempting a percentage of a debtor's disposable earnings). In the parlance of A.R.S. § 12-1570(7), these are examples of exempt monies or property.
¶15 The Chius argue that the funds in Christiana's bank account are exempt from garnishment because the funds are held for their son. This argument lacks any basis in A.R.S. §§ 12-1572 and-1584. While the legislature exempted a host of categories of monies and property from attachment, Advance correctly argues that the Chius point to no exemption that applies to the garnished funds in their account. Neither did the order on appeal explain how the funds were exempt. Lacking any statutory exemption or case authority or argument by the Chius that a statutory exemption applies, we hold that the garnished funds were nonexempt. See Schooley, 253 Ariz. at 190 ¶ 17 (explaining statutory nature of garnishment).
3. Chase Held the Nonexempt Funds for the Chius.
¶16 Whether the garnishment was valid also depends on whether Chase was holding the garnished funds for the Chius. A.R.S. § 12-1572(2)(b) (requiring an application for a garnishment to recite that "the garnishee is holding nonexempt monies on behalf of the judgment debtor."). By arguing that Ricky's claimed ownership of the funds exempts them from garnishment, the Chius (without citing the statutes at issue) are in substance arguing that A.R.S. § 12-1572 and A.R.S. § 12-1584 do not permit Advance to garnish the funds in their Chase account because Chase was not holding the funds for the Chius.
¶17 The Chius' argument fails in light of our decision in Universal Mktg. &Ent., Inc. v. Bank One of Arizona, N.A., 203 Ariz. 266 (App. 2002). In Universal Marketing, we rejected the argument that an accountholder could shield funds in their bank account from garnishment by claiming they held the funds for someone not named on any instrument concerning the account. See id. at 270-71 ¶ 18. In Universal Marketing, Universal deposited $50,000 by wire into an unrestricted bank account belonging to the judgment debtor, Wensel. Id. at 268 ¶ 3. The funds were a loan to a third-party that Universal was working to acquire, with Wensel serving as an escrow agent. Id. Before Wensel could release the funds, a judgment creditor garnished his bank account. Id. at 268 ¶ 4. We held the judgment creditor did not work a conversion by garnishing the funds in Wensel's account, because Universal "relinquished" its interest in the funds when it deposited them into Wensel's account in an "unsegregated and undifferentiated" manner. Id. at 269 ¶ 13. We noted Universal and Wensel could segregate and protect the $50,000 deposit, by noting on the account information that it was held in trust, but failed to do so. Id. at 270 ¶ 17. Given those failures, the account was "unprotected" and "the entire account became fair game for any creditor of Wensel." Id. at 270-71 ¶¶ 1718.
¶18 Universal Marketing controls here. Christiana is a judgment debtor, and the account title was solely in her name. The Chius deposited the funds into the account and chose not to include Ricky. They failed to communicate to Chase in any way their theory that they held the money in trust for him. In short, the Chius did nothing in setting up the account with Chase, or in communicating with Chase, to make the account anything other than "monies [held] . . . on behalf of the judgment debtor" by "the garnishee," Chase. See A.R.S. § 12-1572(2)(b). Because Chase held the nonexempt funds for the Chius under A.R.S. § 12-1572(2)(b), the order relieving the Chius from the garnishment rests on an incorrect construction of the garnishment statutes.
B. The Superior Court Erred When It Granted Relief Under Rule 60(b)(6) Because the Chius Failed to Establish Extraordinary Circumstances.
¶19 Under Rule 60(b)(6), a court may grant relief from a final judgment if a movant shows "a reason for setting aside the judgment other than one of the reasons set forth in the preceding five clauses of [R]ule 60[(b)]" and "extraordinary circumstances of hardship or injustice justifying relief." Skydive Ariz., Inc. v. Hogue, 238 Ariz. 357, 364 ¶ 25 (App. 2015) (cleaned up). Our law has "consistently bounded a trial court's discretion under Rule 60[(b)](6) by requiring a defendant to assert a meritorious defense." Gonzalez, 243 Ariz. at 534 ¶ 12. Because the court's order relieving the Chius from the garnishment rests on a misconstruction of A.R.S. § 12-1572(2)(b), the Chius lack a meritorious defense. Rule 60(b)(6) provides no basis to affirm.
CONCLUSION
¶20 For these reasons, we reverse the grant of the Rule 60(b)(6) motion amending the judgment and remand for proceedings consistent with this decision. Advance requests an award of attorneys' fees in this court under A.R.S. § 12-1580(E). Given that the Chius prevailed below, we deny the request. Advance is entitled to recover its appellate costs upon compliance with ARCAP 21(b). A.R.S. § 12-341.