Opinion
1 CA-CV 23-0469
04-09-2024
PKC ENTERPRISES, INC., an Arizona corporation, d/b/a DIAMOND BROOKS DRINKING WATER, Plaintiff/Appellee, v. ROOFING TECHNOLOGIES, LLC; RAYMOND GREGGORY WOLFF; CHARLENE WOLFF, Defendants/Appellants.
Schneider &Onofry PC, Phoenix, AZ By Charles D. Onofry Counsel for Plaintiff/Appellee Law Office of Collin T. Welch, Oklahoma City, OK By Robert W. Fischer III Counsel for Defendants/Appellants
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Yuma County No. S1400CV202100028 The Honorable Lawrence C. Kenworthy, Judge
Schneider &Onofry PC, Phoenix, AZ By Charles D. Onofry Counsel for Plaintiff/Appellee
Law Office of Collin T. Welch, Oklahoma City, OK By Robert W. Fischer III Counsel for Defendants/Appellants
Judge Jennifer M. Perkins delivered the decision of the Court, in which Presiding Judge Andrew M. Jacobs and Judge David D. Weinzweig joined.
MEMORANDUM DECISION
PERKINS, Judge:
¶1 Roofing Technologies, LLC, Raymond Greggory Wolff, and Charlene Wolff (collectively "Defendants") challenge the superior court's post-judgment ruling denying their motion to compel satisfaction of a judgment. For the following reasons, we reverse with instructions to enter a satisfaction of the judgment.
FACTS AND PROCEDURAL BACKGROUND
¶2 PKC Enterprises, Inc. ("PKC") sued Defendants for damages stemming from an auto accident. Defendants admitted liability, and the parties tried the issue of damages. The jury awarded PKC approximately $160,000, and the superior court entered judgment on that award.
¶3 Two months later, Defendants' insurer, Farmers Insurance Group ("Farmers"), received an IRS notice of levy against Philip and Suzanne Clark that referenced this case. Philip Clark owned and operated PKC. Defendants moved to stay judgment enforcement proceedings, representing that Farmers "was ready and able to pay the full amount owed on the Judgment" but was "awaiting guidance from the IRS." PKC crossmoved for declaratory relief, arguing the levy did not apply to money owed to PKC or contingency fees earned by PKC's counsel. The court denied both motions.
¶4 In January 2023, Farmers paid one-third of the judgment amount to PKC's counsel and the remaining two-thirds to the IRS. Roughly two months later, Defendants moved to compel satisfaction of the judgment. They contended Farmers' payment to the IRS was proper because the levy arose "from Philip Clark's . . . failure to pay taxes owed by and through [PKC] and/or his ownership/management of [PKC]" and attached "to any and all property owned by Philip and Suzanne Clark, including Philip Clark's sole, complete ownership of [PKC]." Defendants also contended (1) Farmers was "obligated to honor the levy"; (2) Farmers' two payments formed a "prima facie case of payment in full satisfaction of the judgment"; and (3) PKC could only challenge the levy in federal court.
¶5 Unpersuaded by Defendants' reliance on federal case law, the superior court denied the motion to compel a satisfaction of the judgment. It found, "[n]either those decisions, [n]or the record in this case, persuade this [court] as to the likely outcome of any federal district court proceedings." Defendants timely appealed. We have jurisdiction under A.R.S. § 12-2101(A)(2); Choy Lan Yee v. Yee, 251 Ariz. 71, 75, ¶ 10 (App. 2021).
DISCUSSION
¶6 A satisfaction of judgment is "a document indicating that [a] judgment has been paid." W.F. Conelly Constr. Co. v. L. Harvey Concrete, Inc., 162 Ariz. 574, 576 (App. 1989). We review the denial of a motion to compel a satisfaction of judgment for an abuse of discretion. See John Munic Enter., Inc. v. Laos, 235 Ariz. 12, 15, ¶ 5 (App. 2014) (abuse of discretion review applies to the denial of an Arizona Rule of Civil Procedure 60(c)(5) motion, which seeks relief from a judgment that has been "satisfied, released, or discharged").
¶7 Defendants contend the superior court improperly considered PKC's wrongful levy claim in denying its motion to compel a satisfaction of the judgment. PKC certainly argued the levy did not apply, but the court did not grant PKC's wrongful levy claim. It instead stated that "assuming [federal court] proceedings result in a portion of [Defendants'] payment being deemed owned by PKC, . . . a finding that Defendant[s] satisfied the judgment would be in error." It thus appears the court acknowledged PKC would need to challenge the levy elsewhere. PKC also began challenging the levy through the proper channels. Its counsel wrote the IRS in November 2022 to contend the levy did not reach funds collected to satisfy PKC's judgment. See 26 C.F.R. § 301.6343-3(h) (stating that requests for the return of levied property must be "made in writing to the address on the levy form"). The issue we must resolve is whether the court properly declined to enter a satisfaction of the judgment based on PKC's apparent dispute with the IRS.
¶8 "Levy may be made by serving a notice of levy on any person in possession of . . . property or rights to property subject to levy, including receivables, bank accounts, evidences of debt, securities, and salaries, wages, commissions, or other compensation." 26 C.F.R. § 301.6331-1(a)(1). Once served with a notice of levy, a person "in possession of (or obligated with respect to) property or rights to property subject to levy . . . shall . . . surrender the property or rights (or discharge the obligation) . . . except that part of the property or rights (or obligation) which, at the time of the demand, is actually or constructively under the jurisdiction of a court because of an attachment or execution under any judicial process." 26 C.F.R. § 301.6331-1(a)(1); see also 26 U.S.C. § 6332(a).
¶9 Noncompliance with a levy is justified only if (1) the served person is not in possession of the taxpayer's property or property in which the taxpayer has any interest, or (2) the property is subject to a prior judicial attachment or execution. United States v. Nat'l Bank of Com., 472 U.S. 713, 722 (1985). And anyone who improperly fails to surrender levied property "shall be liable in his own person and estate . . . in a sum equal to the value of the property or rights not so surrendered, . . . together with costs and interest." 26 U.S.C. § 6332(d)(1); 26 C.F.R. § 301.6332-1(b).
¶10 "Taxpayers and third parties who have an interest in property surrendered in response to a levy" can either "secure from the [IRS] the administrative relief provided for in [26 U.S.C.] section 6343(b) or . . . bring suit to recover the property under [26 U.S.C.] section 7426." 26 C.F.R. § 301.6332-1(c)(3). Defendants thus contend the superior court erroneously "granted PKC's wrongful levy claim," arguing that wrongful levy claims "must be asserted against the IRS itself, not against the person upon whom the notice of levy is served." Dietz v. Conn. Gen. Life Ins. Co., 179 F.Supp.2d 532, 533 (D. Md. 2001).
¶11 We find persuasive Geiersbach v. Blue Cross/Blue Shield of Kan. City, 58 S.W.3d 636 (Mo.Ct.App. 2001), on which Defendants rely. In Geiersbach, after receiving three notices of levy, an employer remitted commissions earned by one of its agents to the IRS. Id. at 637. The agent sued the employer for fraudulent conversion, alleging it "was obligated to investigate and determine, prior to delivery of his commissions to the IRS, the legal propriety of the levy." Id. The court rejected that argument, finding the employer "fully complied with the statute in that it withheld and remitted [the agent's] commissions to the IRS upon three separate demands." Id. at 640. And while the court noted the agent "may have legitimate defenses to the levies which may be asserted against the IRS," it stated that "such defenses do not affect [the employer's] obligation to honor the levy." Id.
¶12 PKC does not dispute that Farmers paid the full judgment amount between PKC's counsel and the IRS. And while it argues Farmers "chose to send those funds to the IRS," it cites no authority to suggest Farmers had any legitimate basis to refuse to comply with the levy. See Nat'l Bank of Com., 472 U.S. at 722. Indeed, a party cannot refuse to comply with a levy simply because "other parties may have competing claims to the property." Kentucky ex rel. United Pac. Ins. Co. v. Laurel Cnty., 805 F.2d 628, 635 (6th Cir. 1986). Because Defendants, through their insurer, paid the full judgment amount in compliance with the levy, they were entitled to a satisfaction of the judgment. See Dep't of Transp. v. White Oak Corp., 213 A.3d 459, 463 (Conn. 2019) (a satisfaction of judgment is appropriate if the judgment debtor "paid the amount of th[e] judgment" via "actual payment to the judgment creditor or a payment equivalent thereto").
¶13 The superior court erred in denying the motion requesting a satisfaction of the judgment.
¶14 PKC also reasserts its direct challenges to the levy on appeal, including that PKC and the Clarks are "completely different taxpayers." We do not address these challenges because PKC must pursue them in an administrative proceeding or a lawsuit against the IRS. 26 C.F.R. § 301.6332-1(c)(3); see also A.F.A.B., Inc. v. Town of Old Orchard Beach, 777 A.2d 831, 835 (Me. 2001) ("The appropriate remedy for one who believes a notice of levy to be wrongful is to surrender the property and bring an action against the federal government.").
CONCLUSION
¶15 We reverse and remand with instructions to enter a satisfaction of the judgment. Defendants may recover their taxable costs incurred in this appeal upon compliance with ARCAP 21.