Nextgear v. Owens ( 2023 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
NEXTGEAR CAPITAL, INC., Plaintiff/Appellee,
v.
CARRIE OWENS, et al., Defendants/Appellants.
No. 1 CA-CV 22-0662
FILED 10-19-2023
Appeal from the Superior Court in Maricopa County
No. CV2021-004854
The Honorable Gary L. Popham, Jr., Judge Pro Tempore
AFFIRMED
COUNSEL
Lorona Mead, PLC, Phoenix
By Jess A. Lorona
Counsel for Defendants/Appellants
Jennings Haug Keleher McLeod LLP, Phoenix
By Brian D. Myers
Counsel for Plaintiff/Appellee
NEXTGEAR v. OWENS
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Jennifer B. Campbell delivered the decision of the Court,
in which Judge Kent E. Cattani and Judge Anni Hill Foster joined.
C A M P B E L L, Judge:
¶1 Carrie and Timothy Owens appeal the garnishment judgment
against Hazel Management, LLC (the LLC), ordering an execution sale of
the Owens’ home (the Property). For the reasons below, we affirm.
BACKGROUND1
¶2 In Indiana, NextGear Capital, Inc. obtained summary
judgment against Owens in 2018 (the Indiana judgment). In that judgment,
NextGear was awarded its attorney’s fees and costs “in an amount to be
determined.” However, the judgment “designate[d] the issues or claims
upon which it f[ound] no genuine issue as to any material facts” and recited
that “[t]here is no just reason for delay, and a final judgment shall be and
hereby is entered as set forth herein.” See Ind. R. Trial P. 56(c).
¶3 NextGear domesticated and recorded the Indiana judgment
in 2021 in Arizona. See A.R.S. §§ 12-1702, -1703. Wanting “to avoid an
execution sale,” the Owens subsequently conveyed the Property via
quitclaim deed to the LLC. The LLC has two managers—both of the
Owens—and the “Owens Family Trust” as its sole member.
¶4 Citing its belief that the conveyance was fraudulent,
NextGear initiated garnishment proceedings against the LLC seeking to
execute on the Property for satisfaction of the Indiana judgment. See A.R.S.
§ 44-1007(A)(1). The LLC answered, attesting only that “Garnishee is an
LLC in which the [Owens] do not own membership interest[.] ”See A.R.S.
§ 12-1579(D) (requiring, at least, phone number and mailing address).
NextGear filed an objection and requested a hearing. See A.R.S.
§ 12-1598.07(A).
1 The Owens did not provide hearing transcripts, and “we assume [the
missing transcripts] would support the court’s findings and conclusions.”
See Baker v. Baker, 183 Ariz. 70, 73 (App. 1995); ARCAP 11.
2
NEXTGEAR v. OWENS
Decision of the Court
¶5 The LLC did not provide notice of counsel nor did counsel
appear at the hearing. See State v. Eazy Bail Bonds, 224 Ariz. 227, 229, ¶ 12
(App. 2010) (noting corporate entities cannot appear “except through
counsel”). The Owens appeared in their individual capacities and argued
first, that the Indiana judgment was not a final order under Arizona law;
and second, that there was no “transfer” because the Owens retained
control over the Property. The court disagreed and ordered NextGear to file
an application for entry of judgment and a proposed form of judgment.
¶6 In its motion for entry of judgment, NextGear argued the
judgment was final under Indiana law, and therefore, the Indiana judgment
was entitled to full faith and credit in Arizona. NextGear also emphasized
the LLC was a legally distinct entity, albeit an insider, and identified six
“badges of fraud.” See A.R.S. § 44-1004(B)(1), (2), (4), (5), (8), (9).
¶7 In response, the Owens again contended the writ of
garnishment was invalid because the Indiana judgment was not final
because it did not resolve the attorney’s fees issue. The Owens did not deny
or refute the “badges of fraud” allegations and admitted to conveying the
Property “to save their home from execution.” Even so, they argued that
because their family trust was the LLC’s sole member, they merely
“transfer[red] the house from themselves (legal tit[]le) to themselves
(equitable title) . . . to take advantage of a legislatively created exemption or
protection.” For the first time, they argued “the ONLY way a debt of a
member of the LLC can be reached is a charging order,” citing A.R.S.
§ 29-655 as support. They also claimed a homestead exemption in the
Property.
¶8 NextGear, in its reply, noted that A.R.S. § 29-655 had been
repealed and replaced with A.R.S. § 29-3503. Quoting the current version of
the statute, NextGear emphasized that a charging order is “the exclusive
remedy . . . [to] satisfy the judgment from the judgment debtor’s transferable
interest.” A.R.S. § 29-3503(E) (emphasis added). Finally, NextGear argued
the Owens had abandoned their homestead exemption by conveying the
Property to the LLC. See A.R.S. § 33-1104(A)(2).
¶9 At the time scheduled for oral argument on the proposed
entry of judgment, only NextGear appeared. The court proceeded against
the LLC, the current titled owner of the Property, in absentia. See A.R.S.
§ 12-1583 (permitting judgment by default if garnishee fails to appear after
filing answer); see also Ariz. R. Civ. P. 55(b)(2). Concluding that the Indiana
judgment was entitled to full faith and credit and that the conveyance was
fraudulent, the court granted judgment against the LLC. The court noted
3
NEXTGEAR v. OWENS
Decision of the Court
that NextGear “established several ‘badges of fraud’” evincing the Owens’
“actual intent to hinder, delay or defraud,” see A.R.S. § 44-1004(A)(1), and
that the Owens abandoned their homestead exemption by transferring their
ownership interest in the Property to the LLC. The court ordered an
execution sale of the Property, noting also that the Owens were “not
entitled to receive any amounts from the sale of the Property for [the
abandoned homestead] exemption.”
¶10 The Owens and the LLC timely appealed but failed to pay
filing fees. In the meantime, the Owens regained title to the Property in their
individual capacities and recorded a Declaration of Homestead. On the
Owens’ motion, we reinstated the appeal and dismissed the LLC as a party.
As a condition of the supersedeas bond, the superior court required the
Owens to return title to the Property to the LLC.
DISCUSSION
¶11 The Owens argue (1) the writ was invalid because the Indiana
judgment was not final; (2) the conveyance was not fraudulent; and (3) a
charging order is the only means to recover a member’s debt from an LLC.
We address each argument in turn.
I. The Writ of Execution Is Based On a Final Judgment
¶12 Seeking to invalidate the writ of garnishment, the Owens
argue the Indiana judgment is not a “final judgment” entitled to full faith
and credit.2 We review de novo whether a foreign judgment is entitled to
full faith and credit. Grynberg v. Shaffer, 216 Ariz. 256, 257, ¶ 5 (App. 2007).
¶13 “The Full Faith and Credit Clause of the United States
Constitution requires that a judgment validly rendered in one state’s court
be accorded the same validity and effect in every other court in the country
as it had in the state rendering it.” McDaniel v. Banes, 249 Ariz. 497, 500, ¶ 9
(App. 2020) (internal quotation and citation omitted). “[T]he judgment of a
sister state must be final before full faith and credit attaches.” Grynberg, 216
Ariz. at 258, ¶ 8.
2 According to NextGear, the Indiana judgment resolved three claims
and left one claim outstanding. However, the Owens fail to mention this
issue, thereby waiving any argument that the outstanding claim affects the
finality of the Indiana judgment. See BMO Harris Bank N.A. v. Espiau, 251
Ariz. 588, 593–94, ¶ 25 (App. 2021). We therefore limit our discussion to the
outstanding fees and costs.
4
NEXTGEAR v. OWENS
Decision of the Court
¶14 The Owens argue that Arizona law governs, and that absent
resolution of attorney’s fees, the Indiana judgment was not final. See Field v.
Oates, 230 Ariz. 411, 414, ¶ 10 (App. 2012) (concluding order that did not
resolve attorney’s fees or contain Rule 54(b) language was not final); Ariz.
R. Civ. P. 54(b). They contend that, under the Uniform Enforcement of
Foreign Judgments Act (the UEFJA), foreign judgments are subject to the
same “finality procedures” as local judgments. But the UEFJA is not
designed to make “all judgments equal in rights and procedures,” as they
claim. Rather, it is a mechanism for ensuring all judgments “entitled to full
faith and credit in this state” are “treat[ed] . . . in the same manner” as local
judgments. See A.R.S. §§ 12-1701, -1702 (emphasis added); Jones v. Roach,
118 Ariz. 146, 149 (App. 1977). The UEFJA bears on enforcement, not
finality, of foreign judgments. See Nat’l Union Fire Ins. Co. of Pittsburgh v.
Greene, 195 Ariz. 105, 108, ¶ 12 (App. 1999) (“Recognizing a foreign
judgment and enforcing it are two different concepts.”).
¶15 To determine whether the judgment was final, we look to the
law of the issuing state—in this case, Indiana. See Grynberg, 216 Ariz. at 258,
¶ 8; Restatement (Second) of Conflict of Laws, § 107 cmt. e (1971). Under
Indiana Trial Rule 56(c), a summary judgment on “less than all the issues
or claims” may be final if “the court in writing expressly determines that
there is no just reason for delay and in writing expressly directs entry of
judgment as to less than all the issues, claims or parties.” Although the
judgment here did not finalize the amount of attorney’s fees and expenses,
it included the requisite “magic language” rendering it a final enforceable
judgment in Indiana. See Indy Auto Man, LLC v. Keown & Kratz, LLC, 84
N.E.3d 718, 721, ¶ 11 (Ind. Ct. App. 2017).
¶16 The Owens nevertheless argue that “important state
interests” compel application of Arizona law. See Restatement (Second) of
Conflicts of Law § 103, cmt. a (1971) (noting “rare exception” to the full faith
and credit clause). We disagree. Exceptions to the full faith and credit clause
are “few and far between” because “the very purpose of [the full faith and
credit clause] was to . . . make [the several states] integral parts of a single
nation.” Williams v. North Carolina, 317 U.S. 287, 294–95 (1942). That a
foreign judgment conflicts with local law is not a sufficient reason to deny
it full faith and credit. See, e.g., State v. Drury, 110 Ariz. 447, 452–53 (1974)
(recognizing ex parte divorce decree).
¶17 Moreover, the difference between Arizona and Indiana’s
procedural rules is de minimis. In Arizona, a decision resolving “fewer than
all” claims may still be a final, appealable judgment if the superior court
“expressly determines there is no just reason for delay and recites that the
5
NEXTGEAR v. OWENS
Decision of the Court
judgment is entered under Rule 54(b).” See, e.g., Field, 230 Ariz. at 414, ¶ 10
(“[A] party may immediately appeal a judgment on the merits even when
an attorneys’ fees issue is still pending if the court certifies the judgment as
final pursuant to Rule 54(b).”). Given that the only element missing here is a
recital of which procedural rule applies, recognizing the Indiana judgment
does not violate public policy in Arizona. We conclude the Indiana
judgment is a final judgment entitled to full faith and credit in Arizona.
II. Transferring the Property to the LLC Was Fraudulent
¶18 Next, we turn to the Owens’ argument that the conveyance of
the Property to the LLC was not fraudulent. “We review the superior
court’s garnishment judgment for an abuse of discretion.” Carey v. Soucy,
245 Ariz. 547, 552, ¶ 19 (App. 2018). “A court abuses its discretion where
the record fails to provide substantial support for its decision or the court
commits an error of law in reaching the decision.” Id.¶19 Under A.R.S. § 44-1004(A)(1), a transfer is fraudulent “if the
debtor made the transfer . . . [w]ith actual intent to hinder, delay or defraud
any creditor.” In determining “actual intent,” courts may consider “badges
of fraud.” See A.R.S. § 44-1004(B) (enumerating eleven non-exclusive
factors). “A single [badge of fraud] may establish and stamp a transaction
as fraudulent, [but w]hen several are found in the same transaction, strong,
clear evidence will be required to repel the conclusion of fraudulent intent.”
Gerow v. Covill, 192 Ariz. 9, 17, ¶ 34 (App. 1998) (citation omitted).
¶20 Here the record provides clear and convincing evidence of a
fraudulent transfer of title. To begin, the Owens admit that the conveyance
“was done to avoid an execution sale by [NextGear].” They also failed to
refute NextGear’s allegations of fraud before the superior court. See Harris
v. Cochise Health Sys., 215 Ariz. 344, 349–50, ¶ 18 (App. 2007) (noting
appellate courts need not address arguments conceded below). The Owens
conceded that the transfer (1) was to an insider, with the Owens retaining
control over the Property; (2) took place after monetary judgment in
NextGear’s favor; and (3) was for nominal consideration. See A.R.S.
§ 44-1004(B)(1), (2), (4), (8). Most egregiously, the Owens failed to refute
NextGear’s allegations that they were “insolvent or became insolvent
shortly after the transfer” and “the transfer was of substantially all of [their]
assets.” See A.R.S. § 44-1004(B)(5), (9). The record supports the superior
court’s conclusion that the Owens fraudulently conveyed the Property to
the LLC to evade execution on the Property pursuant to the domesticated
Indiana judgment in favor of NextGear.
6
NEXTGEAR v. OWENS
Decision of the Court
III. NextGear Could Proceed Via Garnishment
¶21 The Owens further argue they were merely “mov[ing] things
around within the law to minimize exposure to creditors.” But “[t]he fact
that the agreement is authorized by statute and, absent fraud, would
otherwise be legal, does not take the transaction out of the realm of the
[governing legislative act].” State ex rel. Indus. Comm’n of Ariz. v. Wright, 202
Ariz. 255, 259, ¶ 20 (App. 2002). Citing A.R.S. § 29-655, the Owens argue a
charging order “is the only exclusive, and statutorily prescribed, relief a
creditor can achieve” against members of an LLC. In turn, they claim the
Property is “beyond [NextGear’s] reach” because charging orders cannot
be used to force the sale of an LLC’s property. We disagree.
¶22 The Owens cannot rely on A.R.S. § 29-655. Section 29-655 has
been repealed and replaced with A.R.S. § 29-3503. See 2018 Ariz. Sess. Laws,
ch. 168, §§ 3–4 (2d Reg. Sess.) (S.B. 1353). Regardless of when the LLC was
formed, it did not acquire the Property until March 2022. See id. § 6
(applying repealed version only to “rights and obligations . . . relating to
matters arising and events occurring before September 1, 2020”). In any
case, A.R.S. § 29-655 limits judgment creditors seeking to recover from
members of an LLC. Cf. A.R.S. § 29-3903 (applying to judgment creditors of
“member[s] or transferee[s]”). Here, the LLC’s sole member is the Owens
Family Trust, which is not a party. As a result, A.R.S. § 29-655 is
inapplicable.
¶23 Similarly, a charging order is not proper in this case. A
charging order is “the exclusive remedy” for judgment creditors seeking to
reach a “judgment debtor’s transferable interest,” which is “the right . . . to
receive distributions from a limited liability company.” See A.R.S.
§§ 29-3501, -3503. But § 29-3503 does not apply to real estate fraudulently
conveyed to an LLC to shield it from the grantee’s creditors. Section
29-3503 assumes that an LLC has a “transferable interest” that can be
conveyed to a member/judgment debtor; it does not purport to provide a
remedy for an improper transfer of assets to the LLC. Cf. A.R.S.
§ 44-1007(A)(1) (listing “[g]arnishment against the fraudulent transferee” as
a remedy). NextGear was not limited to a charging order, and the superior
court did not err in ordering an execution sale of the Property in its
garnishment judgment.3
3 Given this conclusion, we need not address the Owens’ argument
that a charging order cannot be used to force a sale of LLC assets.
7
NEXTGEAR v. OWENS
Decision of the Court
CONCLUSION
¶24 For the reasons above, we affirm. NextGear requests its
attorney’s fees and costs under ARCAP 21 and A.R.S. § 12-1580(E). We may
“award attorney’s fees and costs against a judgment debtor on appeal from
a judgment of garnishment, so long as the court finds that the appeal was
brought ‘solely for the purpose of delay or to harass the judgment
creditor.’” Kellin v. Lynch, 247 Ariz. 393, 398, ¶ 18 (App. 2019) (quoting
A.R.S. § 12-1580(E)). On this issue, we note the Owens’ efforts to frustrate
the purpose of the writ by conveying the Property back to themselves after
entry of the garnishment judgment and their continued reliance on the
repealed version of an inapplicable statute. We therefore conclude their
appeal was for the purpose of delay or harassment. As the prevailing party,
NextGear is entitled to its attorney’s fees and costs upon compliance with
ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
8