Stannard v. Corner ( 2015 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
SARAH STANNARD,
Plaintiff/Judgment Creditor/Appellee,
v.
CORNER OFFICE AZ INCORPORATED and
INTERSTATE SYSTEMS INSTALLATION AZ, INCORPORATED,
Garnishees/Appellants.
No. 1 CA-CV 14-0148
FILED 4-2-2015
Appeal from the Superior Court in Maricopa County
No. CV2011-054356
The Honorable John R. Doody, Commissioner
AFFIRMED
COUNSEL
Sarah Stannard
Plaintiff/Appellee
Boates Law Firm, Anthem
By Craighton T. Boates
Counsel for Garnishees/Appellants
STANNARD v. CORNER et al.
Decision of the Court
MEMORANDUM DECISION
Judge Patricia A. Orozco delivered the decision of the Court, in which
Presiding Judge Samuel A. Thumma and Judge Michael J. Brown joined.
O R O Z C O, Judge:
FACTS AND PROCEDURAL HISTORY
¶1 Sarah Stannard obtained a judgment for $366,157.37 jointly
and severally against Aaron Ingersoll, Kirby Ingersoll, The Corner Office,
LLC. (TCO), and Interstate Systems Installation, LLC. (ISI) on June 27,
2011.1 One month later, Stannard filed an application for writ of
garnishment listing Corner Office AZ, Inc. (COA) as a garnishee by virtue
of employing the Ingersolls. Stannard also filed an additional application
for writ of garnishment listing Interstate Systems Installation AZ, Inc. (ISIA)
as Aaron’s employer. After the writs were issued, both garnishees filed
answers, which included Aaron’s non-exempt earnings. ISIA
acknowledged under oath that Aaron was an employee on the date the writ
was served, but COA denied under oath employing the Ingersolls.
¶2 Stannard filed objections to both ISIA’s and COA’s
(hereinafter collectively referred to as Garnishees) non-exempt earnings
statements. Stannard contended ISIA paid earnings to Aaron that were not
included in the statement and that ISIA was paying him “under the table”
in cash and by making checks payable to “cash.” She further claimed she
had “reason to believe that [COA] has paid and/or will pay earnings” to
the Ingersolls.
¶3 At the hearing on Stannard’s objections, Rudy Soto testified
that he incorporated Garnishees after TCO and ISI filed for bankruptcy.
Soto further testified that he hired Aaron as a manager for both Garnishees,
and for which Aaron purportedly was compensated from ISIA only and in
the amount of $7.25 an hour.
1 Aaron Ingersoll owned TCO and ISI. However, both entities filed
for bankruptcy and two new entities, Corner Office AZ, Inc. and Interstate
Systems Installation AZ, Inc., were formed shortly thereafter.
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STANNARD v. CORNER et al.
Decision of the Court
¶4 The trial court found that Rudy Soto was a straw man and
that Aaron owned Garnishees to the same extent he owned TCO and ISI.
The court sustained Stannard’s objections in the amount of $51,777.36
against ISIA and found COA paid $164,009.60 to or for the benefit of Aaron
from January 2012 to October 20132 and struck COA’s answer as false
pursuant to Arizona Rule of Civil Procedure 12(f). Garnishees filed a
motion to reconsider, which the trial court denied. The trial court entered
judgments against ISIA for $58,025.17 and COA for $409,827.07.3
Garnishees timely appealed and we have jurisdiction pursuant to Article 6,
Section 9 of the Arizona Constitution and Arizona Revised Statutes (A.R.S.)
sections 12-120.21.A.1. and -2101.A.1. (West 2015).4
DISCUSSION
¶5 We review a trial court’s garnishment judgment for an abuse
of discretion. See Cota v. S. Ariz. Bank & Trust Co., 17 Ariz. App. 326, 327
(App. 1972). However, we review issues of statutory construction de novo.
Vortex Corp. v. Denkewicz, 235 Ariz. 551, 555-56, ¶ 12 (App. 2014). We defer
to the trial court’s factual findings so long as they are not clearly erroneous.
John C. Lincoln Hosp. & Health Corp. v. Maricopa Cnty., 208 Ariz. 532, 537, ¶
10 (App. 2004).
I. Fraud
¶6 Citing Arizona Rule of Civil Procedure 9(b), Garnishees argue
the trial court erred by “research[ing] and rul[ing] upon other issues of
Fraud and Alter Ego that were never pled by [Stannard] and not within the
2 These funds included payments on Aaron’s vehicle and insurance,
payments through a “Loan to Manager Account,” and checks made payable
to “Cash” endorsed by Aaron that he deposited into his personal accounts.
3 The judgment against ISIA included an award for Stannard’s
attorney fees, costs, and sanctions in the amount of $5,000. The judgment
against COA included an award for the full outstanding balance due on the
June 2, 2011 judgment, attorney fees, expenses, and “additional damages.”
The trial court noted that COA would be entitled to a credit against the
award in the amount of any recovery by Stannard on the June 2, 2011
judgment.
4 We cite to the current version of applicable statutes when no
revisions material to this decision have since occurred.
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STANNARD v. CORNER et al.
Decision of the Court
purpose of [the] garnishment hearing.” Under Rule 9(b), “[i]n all averments
of fraud or mistake, the circumstances constituting fraud or mistake shall
be stated with particularity.”
¶7 Although Garnishees correctly argue that Stannard never
explicitly brought a fraud claim against them, the trial court found:
Stripped to its bare essentials, the dispute in this case boiled
down to whether the forms used by the Garnishees matched
the substance of what they purported to be . . . When, for
example, Stannard objected that [COA’s] verified answer of
garnishee falsely denied employing or compensating Aaron
Ingersoll, she put [COA] on fair notice – with specific
allegations of conduct (circumstances) – that the truth of the
answer was at issue and that equitable theories of substance
over form were brought into play.
¶8 A garnishee files an answer under oath and the answer “shall
make true answers to the writ.” A.R.S. § 12-1579.A. (West 2015). Moreover,
a garnishee has a duty “to make a full and complete disclosure of the true
facts in regard to it financial relations” with a judgment debtor when served
with a writ of garnishment. See Regan v. First Nat’l. Bank, 55 Ariz. 320, 326
(1940). Thus, Stannard’s objections to Garnishees’ non-exempt earnings
statements challenged the veracity of their claimed financial relationship
with Aaron and put Garnishees on notice of her belief Aaron was being
“paid under the table” and was a COA employee.
¶9 Moreover, the trial court was tasked with determining the
amount Stannard was owed on the underlying judgment and the amount
of nonexempt monies, if any, Garnishees owed Stannard at the time the
writs of garnishment were served. See A.R.S. § 12-1584.B. (West 2015). This
determination required the trial court to ascertain if Garnishees were
holding non-exempt funds and the nature of Aaron’s ownership interest, if
any, in Garnishees.
¶10 Furthermore, the trial court stated in the order denying the
motion to reconsider:
But the Court questions the suggestion that the Court had [to]
find fraud or alter ego to re-characterize the forms used by the
Garnishees to fit the reality of what they were doing. For
example, there’s no need to find that the loans to Mr. Ingersoll
were fraudulent in order to reclassify them as compensation
within the meaning of the garnishment statute if that’s what
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STANNARD v. CORNER et al.
Decision of the Court
they actually were. That’s all that the Court really did. The
fact that the evidence also supported fraud and alter ego
removes any doubts and enhances the essential justice of the
remedies ordered by the Court, all of which were well within
the remedies authorized by the garnishment statutes.
Thus, while the court did not need to find fraud or alter ego to come to the
conclusion that it did, noting the fact that there was evidence of fraud and
alter ego was not error.
II. Due Process
¶11 Garnishees argue their due process rights were violated
because the trial court entered judgment against them “without the
opportunity to submit arguments via memorandum on the issues raised, or
even voice those argument[s] at a hearing on Fraud and Alter Ego.” They
contend that they were not given notice or an opportunity to be heard
concerning these issues.
¶12 Due process requires notice and an opportunity to be heard,
but is a “flexible concept and calls for such procedural protections as
particular situations demand.” Able Distrib. Co., Inc. v. Lampe, 160 Ariz. 399,
407 (App. 1989). Garnishees were given due process upon receiving notice
of Stannard’s objections to their non-exempt earning statements and
attending a hearing to that effect.
¶13 Garnishees further contend the trial court erred by failing to
provide COA an opportunity to be heard after striking its answer.
However, due process does not require a trial court to grant a garnishee a
hearing after striking its answer for acting in bad faith. See Groat v. Equity
Am. Ins. Co., 180 Ariz. 342, 347-48 (App. 1994) (finding that the court needed
only to give notice of the application of default judgment after striking
garnishee’s answer for a bad faith discovery violation). Thus, the trial court
did not violate COA’s due process rights by striking an answer it deemed
to be “false and made with a reckless disregard for [the] truth.”
III. Purported Default Judgment
¶14 Garnishees next argue that the trial court erred by entering a
default judgment against COA without following the procedures required
by A.R.S. § 12-1598.13.H, rendering the judgment void. Garnishees contend
that the trial court rendered a default judgment against COA by virtue of
striking its answer. However, Garnishees mischaracterize the trial court’s
actions as it never entered a default judgment.
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STANNARD v. CORNER et al.
Decision of the Court
¶15 Instead, the court afforded Garnishees an opportunity to be
heard, permitted them to present evidence and witnesses, and ultimately
concluded:
[COA’s] verified answer of Garnishee falsely denied that
Aaron Ingersoll was employed or compensated by [COA].
The remedy for submitting a false answer of garnishee, and
for standing on that answer even in the face of what
ultimately proved to be a valid objection by [Stannard]- is to
make [COA] liable for the full amount of the underlying
judgment against the judgment debtors. . . at the time the writ
was served on [COA].
Because the trial court did not enter a default judgment, Garnishees’
argument is irrelevant. Finding no error, we affirm the trial court’s
judgment against COA.
IV. Judgment Amount
¶16 Garnishees next contend the trial court erred by awarding
Stannard funds COA paid to Aaron before it was served the writ of
garnishment. Specifically, Garnishees argue:
[T]he Trial Court awarded [Stannard] an amount that
included [six] separate payments which were made by [COA]
to [Aaron]. A majority of the [six] payments made to [Aaron]
by COA, and awarded to [Stannard], occurred in 2012 well
before service of the Writ of Garnishment of [COA]. . .
Therefore, Garnishee [COA] asserts that at least $140,967.35
was improperly considered earnings by the Trial Court, as
this was the amount paid prior to the date that the Writ of
Garnishment was served upon [COA].
¶17 Garnishees again mischaracterize the trial court’s actions.
Although the trial court found COA paid Aaron $164,009.60 from January
2012 to October 2013, it did so only to show that COA’s answer contained
false information:
While it is true. . .that many of the payments. . .were made by
[COA] before the service of the earnings garnishment on
[COA,]. . .the sheer volume of those payments, along with the
evidence that Aaron Ingersoll actively managed the affairs of
[COA], collectively sustain the Court’s finding that Aaron
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STANNARD v. CORNER et al.
Decision of the Court
Ingersoll was in fact employed by [COA], and that therefore
the answer of Garnishee [COA] filed. . .was false.
The trial court reiterated this point when it denied Garnishees’ motion to
reconsider. At no point did the trial court order COA to pay Stannard funds
it paid to Aaron prior to being served with the writ of garnishment. Instead,
it provided a valid remedy to Stannard in response to COA’s decision to
file a false answer. See supra ¶ 15.
CONCLUSION
¶18 For the above mentioned reasons, we affirm the trial court’s
judgments against Garnishees.
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