Opinion
No. CX-02-600.
Filed December 3, 2002.
Appeal from the District Court, Winona County, File No. C400562.
Charles A. Bird, Bird Jacobsen, (for respondent Casey Catherine Peterson)
Steven M. Pederson, Pflughoeft, Pederson Johnsrud, (for respondent Wilson Township)
Richard J. Kruger, Moore, Warner Kruger, (for appellant)
Considered and decided by Minge, Presiding Judge, Willis, Judge, and Wright, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd.3 (2002)
UNPUBLISHED OPINION
On appeal from summary judgment in favor of respondent Casey Catherine Peterson, appellant argues that respondent was precluded from serving subsequent garnishment summonses after appellant had been discharged in the first garnishment action when respondent failed to challenge the garnishment disclosure within the 20-day period in accordance with the garnishee discharge provisions under Minn. Stat. § 571.79 (1998). Because, by operation of the 1998 garnishment statute, appellant-garnishee was discharged from any further obligation to respondent-creditor, and appellant is not entitled to relief due to excusable neglect, we affirm in part and reverse in part.
FACTS
On June 23, 1996, respondent Catherine Peterson was injured in a motor-vehicle accident with Lance Henderson, who was driving while intoxicated. Shortly before the accident, Henderson was drinking beer at the 15th annual Wilson Daze, a celebration sponsored by the Wilson Township's volunteer fire department squad (Wilson Fire Department). Because Wilson Township sold beer to Henderson while he was obviously intoxicated, Peterson sued Wilson Township under the Minnesota Dram Shop Act, Minn. Stat. § 340A.801 (1996).
Wilson Township held a township commercial package policy issued by appellant Mutual Service Casualty Insurance Company (MSI) that contained a liquor liability exclusion. The Wilson Fire Department, an agent of Wilson Township, held a liquor liability insurance policy for the event with the Minnesota Joint Underwriting Association (MJUA). MJUA accepted the defense of the Wilson Fire Department. MSI refused to defend Wilson Township and initiated a declaratory judgment action, disputing coverage for Peterson's injuries based on the liquor liability exclusion.
While the declaratory judgment action was pending, Wilson Township, MJUA, and Peterson entered into settlement negotiations. MSI declined to participate in the negotiations to provide funds to settle Peterson's claims against Wilson Township. On June 30, 1998, Wilson Township settled the claims with Peterson and stipulated to a judgment in the amount of $265,000 pursuant to a Miller-Shugart agreement. The agreement required MJUA to pay $72,500. Peterson agreed to seek collection of the unsatisfied portion of the judgment ($192,500) exclusively from the proceeds of the MSI policy and from no other property of Wilson Township. On December 21, 1999, this court affirmed coverage for Peterson's injuries in Mut. Serv. Cas. Ins. Co. v. Wilson Township, 603 N.W.2d 151 (Minn.App. 1999), review denied (Minn. Mar. 14, 2000) holding that the liquor liability exclusion did not apply to the Wilson Daze events. On April 20, 2000, judgment was entered in favor of Peterson against Wilson Township in the amount of $192,500 pursuant to the terms of the Miller- Shugart agreement.
On April 21, 2000, Peterson served a garnishment summons on MSI. In its garnishment non-earnings disclosure statement filed on May 12, 2000, MSI admitted the existence of coverage and agreed on a settlement in the amount of $15,305.47 owed to Wilson Township for attorney fees and expenses arising from the declaratory judgment action. MSI also claimed a setoff in the amount of $192,500, stating that the Miller-Shugart agreement was invalid and unenforceable as a matter of law. Almost two months later, on June 29, 2000, in response to the MSI garnishment disclosure, Peterson served a motion for leave to file a supplemental complaint. On October 27, 2000, the district court denied Peterson's motion as untimely pursuant to Minn. Stat. § 571.79(b) (1998) because Peterson failed to file her motion within the 20-day period as required by Minn. Stat. § 571.80 (1998). The district court specifically ruled that "[w]ith respect to the Miller-Shugart setoff, MSI was discharged."
On November 22, 2000, Peterson served a second garnishment summons on MSI. MSI filed a second non-earnings disclosure on December 11, 2000, in which it (1) cited the district court's discharge of MSI in the October 27, 2000, order; (2) claimed a setoff for the amount of the Miller-Shugart agreement on the ground that it was invalid as a matter of law; and (3) objected to Peterson's failure to pay the statutorily required fees.
On December 12, 2000, Peterson served a third garnishment summons on MSI. MSI once again admitted coverage in the garnishment disclosure, but claimed that it had been discharged with respect to the Miller-Shugart settlement setoff in the first garnishment action. On December 19, 2000, Peterson again filed a motion seeking leave to file a supplemental complaint. After a hearing on January 30, 2001, the district court, in its May 7, 2001, order, granted Peterson's motion to file a supplemental complaint, finding that although MSI was discharged in the prior action, nothing precluded Peterson from filing subsequent garnishment summonses pursuant to the provisions of Minn. Stat. § 571.79 (2000). In reaching its decision, the district court relied on revised provisions of the garnishment statute that became effective in August 2000.
Peterson served a supplemental complaint on May 25, 2001. In its answer, MSI alleged that it was discharged from any obligation to Peterson based on the district court's order of October 27, 2000. In addition, MSI alleged that the Miller-Shugart settlement was fraudulent and collusive as a matter of law. Peterson then moved for summary judgment on her supplemental complaint. On January 10, 2002, the district court granted summary judgment in favor of Peterson in the amount of $192,500. This appeal followed.
DECISION
On review from summary judgment, we consider whether genuine issues of material fact exist and whether the district court erred in applying the law. State v. Joseph, 636 N.W.2d 322, 326 (Minn. 2001). The main issue before this court arises from the district court's retroactive application of the garnishment discharge provisions of Minn. Stat. § 571.79 (2000). The application of a statute to undisputed facts involves a question of law, which this court reviews de novo. Boubelik v. Liberty State Bank, 553 N.W.2d 393, 402 (Minn. 1996).
I.
Minnesota's garnishment statute, Minn. Stat. §§ 571.71-.932 (1998), may be used by injured plaintiffs as a means to reach the defendant's insurer. Miller v. Shugart, 316 N.W.2d 729, 732 (Minn. 1982); Knudson v. Anderson, 199 Minn. 479, 484, 272 N.W.2d 376, 379 (1937). When, in garnishment proceedings relating to personal injury actions, a creditor-plaintiff serves a garnishment summons on a garnishee-insurer, the garnishee-insurer is required to (1) make a garnishment disclosure of any indebtedness to the defendant-judgment debtor; (2) retain nonexempt property; and (3) ultimately remit the funds retained. Minn. Stat. §§ 571.72, subd. 2, 571.78 (1998). In response to Peterson's first garnishment summons, MSI admitted the existence of coverage, but claimed a setoff for the entire Miller-Shugart settlement amount of $192,500. MSI's disclosure was consistent with Minn. Stat. § 571.79 (1998), which provides that
[s]ubject to sections 571.78 and 571.80, the garnishee, after disclosure, shall be discharged of any further obligation to the creditor when one of the following conditions are met:
* * *
(b) The garnishee discloses that the garnishee is indebted to the debtor as indicated on the garnishment disclosure form. The disclosure is conclusive against the creditor and discharges the garnishee from any further obligation to the creditor other than to retain all nonexempt disposable earnings, indebtedness, money, and property of the debtor that was disclosed.
(Emphasis added.) The relevant exception to discharge of a garnishee is set forth in Minn. Stat. § 571.80 (1998), which provides that
[t]he garnishee is not discharged if: (a) [ w] ithin 20 days of the service of the garnishee's disclosure, an interested person serves a motion relating to the garnishment. The hearing on the motion must be scheduled to be heard within 30 days of the service of the motion.
(Emphasis added.)
Because Peterson failed to serve a motion for leave to file a supplemental complaint under Minn. Stat. § 571.80 within 20 days, MSI argues that it was discharged with respect to the $192,500 setoff by the operation of the statute. Peterson counters that even though MSI was discharged in the first garnishment action, nothing prevents her from bringing additional summonses, because her failure to contest the initial disclosure merely discharged MSI's retention obligation with respect to the setoff. For support, Peterson points to the amendments of Minn. Stat. § 571.79, effective August 1, 2000, on which the district court relied in granting Peterson's motion to file a supplemental complaint in the third garnishment action. 2000 Minn. Laws ch. 405, § 20. Although her garnishment action started prior to the effective date of the amended statute, Peterson argues that the 2000 provisions are, nevertheless, applicable because the 2000 amendments were intended to clarify the prior garnishment law, not to change it. We disagree.
2000 Amendments to Minn. Stat. § 571.79
In hearings before the Senate Judiciary Committee, Senator Knutson introduced the proposed amendments as a "clean-up bill for the garnishment statutes." Hearing on S.F. 3116 Before the Senate Comm. on the Judiciary (Mar. 10 , 2000). In addition, the chair of the bar association committee that drafted the amendment testified at the hearing in 2000 that the "changes really just incorporate what the law is today, clarifies the law." Id. (statement of Tom Hoffman). We, however, "are not bound by the legislature's characterization of an amendment as a clarification." Ubel v. State, 547 N.W.2d 366, 370 (Minn. 1996) (quotation and citation omitted). A subsequent legislature is not the interpreter of laws enacted by a prior legislature. Id. (citing Anderson v. Firle, 174 Minn. 333, 337, 219 N.W. 284, 285 (1928)). Moreover, "[t]o simply adopt the legislature's 'clarification' would constitute an abandonment of [the court's] duty to interpret and apply the law." Ubel, 547 N.W.2d at 370. Careful consideration of the 1998 version of Minn. Stat. § 571.79, the 2000 amendments, and the decisions interpreting the pre-2000 versions of the garnishment statute leads us to conclude that the amendment of the garnishment statute did not simply constitute a clarification of the prior law, rather it made a substantive change with respect to the effect of a garnishee's discharge.
Under the 1998 version of the statute, a discharge operates to relieve a garnishee "of any further obligation to the creditor" when one of the enumerated conditions is met. Minn. Stat. § 571.79 (a)-(f) (1998). Unless the creditor files a supplemental complaint motion within 20 days after being served with the garnishment disclosure, the discharge of a garnishee is conclusive. See Lynch v. Hetman, 559 N.W.2d 124, 127 (Minn.App. 1997) (following creditor's failure to challenge disclosure, garnishee discharged with respect to setoff for voting shares and able to act pursuant to security agreement with judgment debtor), review denied (Minn. Mar. 26, 1997); Ceridian Corp. v. SCSC Corp., 212 F.3d 398, 407 (8th Cir. 2000) (interpreting Minnesota law and holding that insurer discharged from liability after creditor failed to challenge disclosure within statutory time limits).
Under the 1998 garnishment statute, multiple garnishment summonses are permissible with respect to wages or bank accounts, because "a garnishment impounds only those assets in possession of the garnishee at the time of the service of the garnishment summons." Johnson v. Dutch Mill Dairy, 237 Minn. 117, 121, 54 N.W.2d 1, 3 (1952). Likewise, the discharge is with respect to those assets in the garnishee's possession when the garnishment summons is served. Prior to the 2000 amendments to the 1998 garnishment statute, nothing prevented a creditor from serving a subsequent garnishment summons on a bank after the judgment debtor deposited funds that were not present when a previous garnishment summons was served. Id. at 121, 54 N.W.2d at 3. With respect to static property, however, such as an insurance policy, multiple summonses are not permissible under Minn. Stat. § 571.79 (1998), because such an action involves the same garnishee, involves the same property, and is based on the same grounds. See Ceridian, 212 F.3d at 405. Under such circumstances, no matter how many times the summonses are served, the garnishee's disclosure remains the same. Id.
In contrast, the amended garnishment statute, which became effective August 1, 2000, provides that a garnishee is discharged solely of "any further retention obligation" with respect to "a specific garnishment summons." Minn. Stat. § 571.79 (2000). Further, paragraph (g) was added, providing that the discharge is not determinative as to the rights of the garnishee with respect to other garnishment summonses "unless and to the extent adjudicated" under the procedures described in paragraph (h), which allow the creditor to seek leave to file a supplemental complaint. Minn. Stat. § 571.79(g), (h) (2000).
The 2000 amendments to the garnishment statute explicitly allow a creditor to file subsequent garnishment actions against the same static asset, such as an insurance policy, thereby removing the finality of the discharge that existed in the 1998 version when a creditor failed to serve a supplemental complaint motion within the 20-day period after disclosure. See Nordstrom v. Eaton, 652 N.W.2d 79, 84 (Minn.App. 2002). Because the 2000 amendments did not simply clarify the law, but rather changed it, Minn. Stat. § 571.79 (2000) is inapplicable to Peterson's action. See Spurck v. Civil Serv. Bd., 231 Minn. 183, 188, 42 N.W.2d 720, 723 (1950) (an amendatory act may not be retroactively construed where changes made by amendment were substantial); Minn. Stat. § 645.21 (2000) (laws shall not be construed as retroactive unless clearly and manifestly intended by legislature). The district court erred in retroactively applying the 2000 garnishment statute in the instant case. We, therefore, must analyze MSI's discharge in accordance with the 1998 version of the garnishment statute.
Application of 1998 version of Minn. Stat. § 571.79 to MSI's discharge
Based on the discharge provisions of Minn. Stat. § 571.79, Peterson may not file subsequent summonses against MSI because her failure to challenge MSI's disclosure in the first garnishment action completely discharged MSI from any further obligation to Peterson with respect to the Miller-Shugart settlement setoff. When the terms of a statute in their application are free from ambiguity, the letter of the law should not be disregarded to follow the spirit of the law. Minn. Stat. § 645.16; s ee In re Robledo, 611 N.W.2d 67, 69 (Minn.App. 2000) (when a statute is free from ambiguity, the court looks only at its plain language). We conclude that MSI's obligation to Peterson was discharged after the April 2000 garnishment action based on the plain language of Minn. Stat. § 571.79 as well as interpretations of pre-2000 versions of the garnishment law by state and federal courts.
Courts have construed the garnishee discharge provision prior to the 2000 amendments consistently with the policy of favoring the garnishee, to protect its "rights as a neutral or unwilling litigant." Lynch, 559 N.W.2d at 126 (citing Henderson v. Northwest Airlines, Inc., 231 Minn. 503, 510, 43 N.W.2d 786, 791-92 (1950)). A garnishee did not become indebted to the creditor unless every procedural step had been properly followed. Lyon Dev. Corp. v. Ricke's Inc., 296 Minn. 75, 85, 207 N.W.2d 273, 279 (1973). While the 1998 garnishment statute allowed the garnishee to claim any defenses or setoffs in its disclosure, Minn. Stat. § 571.75, subd. 1 (1998), the garnishment statute did not leave creditors without a remedy. If, for example, a creditor believed that a garnishee's disclosure was incorrect, the statute provided a specific mechanism for the creditor to challenge the garnishee's defenses and setoff within the 20-day period after the disclosure. Minn. Stat. §§ 571.75, subd. 4, 571.80 (1998); see also Ceridian, 212 F.3d at 406. Under the 1998 statute, creditors' rights in contesting the adequacy of the disclosure were not prejudiced by the requirement to file a motion within 20 days after the garnishment disclosure. Ceridian Corp. v. SCSC Corp., 38 F. Supp.2d 1113, 1119 (D.Minn. 1999). While garnishment statutes may offer "unusual hazards" for personal injury claimants, these hazards do not give authority to the court to disregard statutory law. Id. (citation omitted). By failing to adhere to the strict requirements of the garnishment statute, Peterson lost her right to the insurance proceeds from MSI based on the Miller-Shugart settlement agreement, because MSI was discharged from any further obligation to Peterson. Minn. Stat. §§ 571.79(b) (1998), 571.80(a). The district court, therefore, erred in granting summary judgment in favor of Peterson.
II.
As an alternative to the complete discharge of MSI under the garnishment statute, Peterson argues that she is entitled to supplemental relief based on the declaratory judgment in Wilson Township, 603 N.W.2d at 155. Supplemental relief based on the declaratory judgment is available pursuant to Minn. Stat. § 555.08 (2000), which specifically provides that
[f]urther relief based on a declaratory judgment or decree may be granted whenever necessary or proper. The application therefor shall be by petition to a court having jurisdiction to grant the relief. If the application be deemed sufficient, the court shall, on reasonable notice, require any adverse party whose rights have been adjudicated by the declaratory judgment or decree, to show cause why further relief should not be granted forthwith.
(Emphasis added.) Peterson's argument is unpersuasive because her right to receive the Miller-Shugart settlement from MSI was not adjudicated by the declaratory action in Wilson Township.
Declaratory judgment is available to resolve the issue of whether insurance coverage is available to indemnify an insured. See Joseph, 636 N.W.2d at 329 (holding that earlier declaratory judgment banned relitigation of coverage issue in later garnishment proceeding). Thus, when MSI denied coverage to Wilson Township, a declaratory judgment action was proper to determine the extent of the coverage under the insurance contract between Wilson Township and MSI. While the declaratory judgment adjudicated the rights of Wilson Township with respect to the insurance coverage, the validity of the Miller-Shugart agreement, which MSI has contested in each garnishment non-earnings disclosure statement it has served, and Peterson's right to receive Wilson Township's insurance proceeds based on the Miller-Shugart settlement agreement were not adjudicated in the declaratory judgment action. Moreover, the judgment obtained by Peterson following the declaratory judgment action was against Wilson Township in the amount of $192,500, not MSI. Peterson has no basis to obtain supplemental relief based on the declaratory judgment adjudicating the rights of Wilson Township. Peterson's sole means of obtaining the $192,500 of the Miller-Shugart settlement proceeds from MSI was through garnishment action, because Peterson had a judgment against Wilson Township, MSI held Wilson Township's property, namely the insurance coverage, and Peterson agreed to collect these funds solely from the MSI insurance policy, and no other property of Wilson Township. See Miller, 316 N.W.2d at 732 (when tort claim between parties has been reduced to judgment, plaintiff may seek to collect on judgment in garnishment proceeding against insurer) (citing Northwestern Nat'l Bank v. Hilton Assocs., 271 Minn. 564, 136 N.W.2d 646 (1965)). Apart from that, Peterson has no direct claim against MSI. Thus, the district court did not err in denying Peterson relief under Minn. Stat. § 555.08.
MSI argues on appeal that the Miller-Shugart agreement is invalid because it is the product of fraud and collusion. We decline to reach this issue in light of our rulings that MSI was discharged from any further obligation to Peterson as a result of the April 2000 garnishment action and supplemental relief is not available to Peterson based on the declaratory judgment in Wilson Township . See also Section IV, infra .
III.
As a second alternative, Peterson attempts to vacate the district court order from October 27, 2000, and obtain relief based on excusable neglect under rule 60.02 of the Minnesota Rules of Civil Procedure. An application to vacate a default judgment is addressed to the sound discretion of the district court, and will not be disturbed by this court in the absence of a clear abuse of discretion. Lyon, 207 N.W.2d at 278.
Peterson seeks to vacate the judgment in an attempt to invalidate MSI's discharge from the garnishment proceeding. The discharge, however, occurred by operation of law and not by any order of the district court. Ceridian, 38 F. Supp.2d at 1119. Even if Peterson prevailed in her argument that her rule 60.02 motion should be granted, it would have no effect on MSI's discharge from any further obligation to Peterson. From our review of the entire record, we conclude that the district court did not abuse its discretion in denying the motion for relief pursuant to rule 60.02.
IV.
Finally, both parties addressed an issue of reasonableness of the Miller-Shugart agreement entered into by Peterson, Wilson Township, and MJUA. In light of our holding that MSI was completely discharged from any obligation to Peterson with respect to the Miller-Shugart agreement, we need not reach this issue.
The district court's grant of summary judgment in favor of Peterson is reversed, and its denial of relief under Minn. Stat. 555.08 and for excusable neglect is affirmed.
Affirmed in part and reversed in part.
I respectfully dissent. The majority's reading of the Minnesota garnishment statute in this case is not compelled by the law or the setting.
As the majority opinion states, the law in effect when this case arose provided that under certain circumstances the garnishee is "discharged [from] any further obligation to the creditor." Minn. Stat. § 571.79 (1998). The majority construes this to be a bar against any further claim that the creditor may have against the garnishee in the underlying action. I submit it should only be read as a release of the garnishee from any further obligation to the creditor with respect to the particular garnishment summons. The situation demands a quick end to the requirement that the garnishee hold assets pursuant to a specific garnishment summons. Unless the garnishor does not back up the demand in the garnishment summons, the garnishor cannot expect the garnishee to continue to hold the assets. However, the garnishor should be able to start a subsequent garnishment action. Otherwise, this law imposes a quick statute of limitations on what in many cases may be a critical collection remedy.
All agree that Minn. Stat. ch. 571 is not a model of clarity. It has been amended several times. Recently the legislature sought to eliminate the ambiguities that are at the heart of this case. 2000 Minn. Laws 405. However, as the bar committee author indicated, the 2000 amendment to the statute should be viewed as a clarification, not a substantive change. See Hearing on S.F. No. 3116 Before the Senate Comm. on Judiciary (Mar. 10, 2000) (statement of Tom Hoffman).
There are no reported decisions of this court or the Minnesota Supreme Court dealing with the exact issue that we face. The closest case is Lynch v. Hetman, 559 N.W.2d 124 (Minn.App. 1996), review denied (Mar. 26, 1997). In that litigation, this court absolved a bank garnishee from liability with respect to corporate stock that it had held as collateral for a loan. After the expiration of the retention period specified in the initial garnishment summons, the bank sold its loan and interest in the stock. The garnishor then served another garnishment on the bank and sought to hold the bank responsible notwithstanding the sale. This court rejected the garnishor's subsequent efforts. The Lynch case did not turn on the question of whether a garnishee who has a continuing obligation to the same debtor is immune from subsequent claims.
I disagree with the reliance of the majority on the interpretation of the Minnesota garnishment statute by the federal courts in Ceridian Corp. v. SCSC Corp., 212 F.3d 398 (8th Cir. 2000), aff'g 38 F. Supp.2d 1113 (D.Minn. 1999). In deciding that case, the federal court introduced the concept of "static" versus "fluid" assets and ruled that an insurance policy obligation is static. Although this distinction may be useful in allowing multiple garnishments to reach wages and fluctuating bank accounts of debtors and thus to distinguish the multiple garnishment practice in that species of collection litigation, the static asset distinction has no basis in the text of the historic Minnesota garnishment law.
I submit that the garnishment statute is most appropriately read in light of its purposes. These are to facilitate creditor's claims against third parties holding assets of debtors and to protect third-party stakeholders from multiple claims and from unnecessarily vexing litigation. In this case, the stakeholder has a contractual obligation to its policyholder and arguably to an injured member of the public. After giving the insurance company appropriate notice and opportunity to participate, the policyholder and the injured party have settled on the damages. The insurer is well aware it has a looming stakeholder responsibility under its policy for the unique benefit of the respondent. In a protracted cat and mouse game, this stakeholder is now sidestepping responsibility under the policy because the injured party failed to meet requirements arising out of a tight reading of a poorly drafted garnishment statute. The statute could and should be read to allow for multiple garnishments in this setting.