20CA1803 & 20CA1942 LBA v Landmark 01-20-2022
COLORADO COURT OF APPEALS
Court of Appeals Nos. 20CA1803 & 20CA1942
City and County of Denver District Court Nos. 14CV32763 & 15CV30950
Honorable Morris B. Hoffman, Judge
Honorable Kandace C. Gerdes, Judge
LBA Realty Fund III-Company III, LLC, a Delaware limited liability company,
Appellant,
v.
Landmark American Insurance Company,
Intervenor-Appellee.
ORDERS REVERSED AND CASES
REMANDED WITH DIRECTIONS
Division V
Opinion by JUDGE YUN
Welling and Davidson*, JJ., concur
NOT PUBLISHED PURSUANT TO C.A.R. 35(e)
Announced January 20, 2022
Moye White LLP, Thomas M. List, Patrick J. Hickey, Denver, Colorado, for
Appellant
Traub Lieberman Straus & Shrewsberry LLP, Michael S. Knippen, Chicago,
Illinois, for Intervenor-Appellee
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2021.
1
¶ 1 In this consolidated appeal, LBA Realty Fund III-Company III,
LLC (LBA) appeals (1) the district court’s order in case number
15CV30950 concluding that a judgment under appeal was not a
garnishable asset; (2) the district court’s order in case number
14CV32763 granting a C.R.C.P. 12(c) motion for judgment on the
pleadings; and (3) the district court’s order denying LBA’s motion to
intervene in case number 14CV32763. We reverse the three orders
and remand the cases for further proceedings.
I. Background
¶ 2 This appeal has a complicated procedural history. We
describe it step by step.
A. The Lease Action
¶ 3 LBA is the former landlord of the Castle Law Group, LLC
(Castle Law). When Castle Law defaulted on its lease, LBA sued for
breach of contract (the Lease Action). In November 2015, the
district court entered judgment for LBA in the amount of
$1,594,213.81.
2
B. The State Action and LBA’s Attempts to Garnish the Attorney
Fee Award
¶ 4 In 2014, the State of Colorado sued Castle Law, alleging that
the firm had engaged in a deceptive scheme related to its
foreclosure legal work (the State Action). See State ex rel. Weiser v.
Castle L. Grp., LLC, 2019 COA 49, ¶¶ 4-6, superseded by statute,
Ch. 268, sec. 1, § 6-1-103, 2019 Colo. Sess. Laws 2515, as stated
in State ex rel. Weiser v. Ctr. for Excellence in Higher Educ., Inc.,
2021 COA 117. Landmark American Insurance Company
(Landmark) is Castle Law’s liability insurer and provided Castle
Law’s defense in the State Action.
¶ 5 Following a bench trial, the district court ruled in Castle Law’s
favor on all but one of the claims asserted by the State, and the
judgment against Castle Law on the remaining claim was later
vacated on appeal. Id. at ¶¶ 2-3. After the trial, Castle Law asked
the district court to award attorney fees on the grounds that the
State’s claims lacked substantial justification under section
13-17-102, C.R.S. 2021. The district court awarded Castle Law
$1,454,809 in attorney fees.
3
¶ 6 The State then appealed the attorney fee award. During the
pendency of the appeal, LBA served multiple writs of garnishment
on the State to collect its November 2015 judgment from the Lease
Action.
¶ 7 In April 2018, LBA served the first writ of garnishment on the
State. The State responded that it was liable on the attorney fee
award but that the judgment was stayed pending appeal.
¶ 8 On May 15, 2019, LBA served a second writ of garnishment on
the State. Before the State answered the writ, a division of this
court affirmed in part and reversed in part the district court’s order
awarding attorney fees to Castle Law and remanded the case to the
district court for further proceedings on the attorney fee award.
State ex rel. Weiser v. Castle L. Grp., LLC, slip op. at ¶ 1 (Colo. App.
No. 18CA1026, Sept. 5, 2019) (not published pursuant to C.A.R.
35(e)). The State then responded to LBA’s second writ as follows:
a. On the date and time this Writ was
served upon you, did you possess or control
any personal property of the Judgment Debtor
[Castle Law] or did you owe any rents,
payments, obligations, debts or moneys other
than earnings to the Judgment Debtor?
X Yes ___ No
4
b. If YES, list all items of personal property
and their location(s) and/or describe the
nature and amount of the debt or
obligation: . . . Judgment in favor of The Castle
Law Group, LLC and against the State of
Colorado in the amount of $1,454,809.00 in
Denver District Court case No.
2014-CV-32763. Enforcement of this
judgment is stayed pending appeal. . . .
Judgment was reversed in part and affirmed in
part and remanded for further proceedings in
Case No. 2018COA1026. . . . Enforcement
remains stayed pending final court resolution.
¶ 9 On May 1, 2020, the State and Castle Law reached a
stipulation regarding the attorney fees incurred by Castle Law, and
the State filed a motion to deposit the funds into the court registry
to stop the accrual of postjudgment interest. The State attached
LBA’s writs of garnishment as exhibits to its motion and informed
the district court that it had received the writs “from a creditor of
[Castle Law] seeking the funds that the Court has ordered the State
to pay to [Castle Law].” The State further informed the court that it
had learned that Landmark, as Castle Law’s insurer, also asserted
ownership of the attorney fee award and was planning to intervene
in the State Action. The State argued, however, that the competing
claims did not affect the merits of its motion to deposit the funds
5
into the court registry “so they can be accessed by whichever
interested party is entitled to receive them.”
¶ 10 On May 15, 2020, the district court entered judgment in favor
of Castle Law in the amount of $277,243.61 plus postjudgment
interest. On May 22, LBA served a third writ of garnishment on the
State, again asserting its rights to the attorney fee award. On May
29, the district court granted the State’s motion to deposit the
funds into the court registry. On June 2, the State answered LBA’s
third writ and stated that although “[a]t the time of service the State
possessed funds, . . . it is not currently in possession of any funds
owed to the Judgment Creditor” because it had deposited the funds
into the court registry on May 29.
C. Landmark’s Intervention in the Lease Action
¶ 11 On May 4, 2020, Landmark filed a motion to intervene in the
Lease Action, including a traverse to the State’s answer to LBA’s
second writ. Landmark explained that it had paid to defend Castle
Law in the State Action and that it had an “understanding” with
Castle Law that, “as the entity funding the defense . . . [, it was] the
owner of the attorneys’ fee award.” It argued that the State’s
answer to LBA’s second writ “incorrectly describes the owner of the
6
personal property” (that is, the attorney fee award) as Castle Law,
when in fact “[a]n award of attorneys’ fees in the [State Action] in
favor of the Castle Defendants is actually an award of attorneys’
fees in favor of Landmark as the financier of that litigation.” To
permit LBA to garnish the attorney fee award, it argued, would be
contrary to “the notion that creditors can only obtain a security
interest in property that rightfully belongs to the debtor.”
¶ 12 The district court granted Landmark’s motion to intervene in
the Lease Action. LBA filed a reply to Landmark’s traverse, and
Landmark filed a brief in support of its traverse. The district court
scheduled a traverse hearing for October 2, 2020, to determine
whether LBA or Landmark held a priority interest in the attorney
fee award.
D. Landmark’s Intervention in the State Action
¶ 13 On May 4, 2020, Landmark also filed a motion to intervene
and a complaint in intervention in the State Action. Landmark
informed the district court of LBA’s approximately $1.5 million
judgment against Castle Law in the Lease Action and the writs of
garnishment LBA had filed in an attempt to satisfy its judgment
“from the attorneys’ fee award in this suit.” Landmark informed the
7
court that it was disputing the State’s answer to LBA’s second writ
of garnishment and that the court in the Lease Action had “not yet
entered a final judgment about LBA’s rights to the property sought
to be garnished.” It argued that “the award of attorneys’ fees
against the [State] belongs to Landmark” because, “[p]rior to the
institution of this lawsuit, the Castle Defendants promised their
rights to a future attorneys’ fee award to Landmark.” The district
court granted Landmark’s motion to intervene.
¶ 14 On August 28, 2020, Landmark filed an unopposed motion for
judgment on the pleadings in the State Action, asking the court
(1) to declare that the attorney fee award “is the property of
Landmark” and (2) to “requir[e] any and all portions of the
attorneys’ fee award paid into the Court Registry be paid to
Landmark.” Landmark attached a stipulation between itself and
Castle Law in which Castle Law agreed that the attorney fee award
“is the property of Landmark.” Landmark did not inform the
district court of the upcoming traverse hearing scheduled in the
Lease Action.
8
¶ 15 On September 1, the district court granted Landmark’s motion
for judgment on the pleadings. The court’s order stated, in its
entirety, as follows:
All of the proceeds currently in the registry of
the court are attorney fees to which Intervenor
Landmark American Insurance Company [is]
entitled. Those proceeds shall be released to
Landmark American Insurance Company.
E. LBA’s Attempt to Intervene in the State Action
¶ 16 Two days later, LBA filed its own motion to intervene in the
State Action. LBA explained that it was a judgment creditor of
Castle Law and that a traverse hearing was set for October 2 in the
Lease Action to determine whether “LBA’s interest in the [attorney
fee award] takes priority to Landmark’s interest.” LBA argued that
it would be prejudiced if Landmark was allowed to obtain the funds
before the hearing and asked the court to stay its order releasing
the funds to Landmark.
¶ 17 The court denied LBA’s motion the next day, stating: “The
motion is DENIED AS MOOT, the funds having already been
disbursed to Landmark American.”
9
F. The Traverse Hearing
¶ 18 Following the district court’s denial of LBA’s motion to
intervene in the State Action, Landmark moved to vacate the
October 2 traverse hearing in the Lease Action as moot. Landmark
argued that there was no longer an active dispute between LBA and
Landmark because the district court in the State Action had
determined that the attorney fee award belonged to Landmark
based on the stipulation between Landmark and Castle Law. The
district court denied the motion.
¶ 19 The day before the hearing, the district court ruled that
Landmark’s traverse was untimely filed and noted that, under
C.R.C.P. 103, § 8(a), “[t]he failure to timely file a traverse shall be
deemed an acceptance of the answer as true.” Because the
principals of Castle Law had also filed a traverse to the State’s
answer to LBA’s second writ of garnishment, however, the court
determined that the hearing was still necessary.
¶ 20 At the hearing, the district court determined that the key
question was whether, on May 16, 2019 — the day after LBA filed
its second writ of garnishment — the State “possess[ed] or
control[led] any personal property of the Castle [Law] Group, that
10
is[,] the judgment debtor.” The court noted that the judgment in
favor of Castle Law was stayed pending appeal at that time and
questioned LBA’s counsel by analogy about whether such a
judgment could constitute a garnishable asset:
Let’s say that in a bank account you[] serve a
garnishment on Monday. And the bank
responds we might have a deposit coming in
on Friday. Do you think you’re entitled to
money on Friday based upon what might be
known on Monday?
Ultimately, the court concluded as follows:
There was no money. There was an obligation.
An obligation is an anticipation. . . . The
anticipation of money is not equivalent to
money, and I accordingly find that no money
on May 16th, 2019 was in the possession of
the state of Colorado that should have been
turned over to the garnishor LBA on May 16th,
2019 as a result of LBA’s judgment. . . . And
therefore, THE COURT makes its finding that
there was no money due and owing to LBA on
its garnishment of May 16th, 2019. Therefore,
THE COURT has no reason to determine
priority in this case because it has no funds
before it to determine priority on.
¶ 21 LBA separately appealed the Lease Action and the State
Action, and the appeals were later consolidated.
11
II. Analysis
¶ 22 LBA contends that (1) the district court in the Lease Action
erred by concluding that, on May 16, 2019, the attorney fee award
was not a garnishable asset; (2) the district court in the State Action
erred by granting Landmark’s motion for judgment on the
pleadings; (3) the district court in the State Action erred by denying
LBA’s motion to intervene; and (4) the district court in the State
Action erred by failing to consider LBA’s claim about Landmark’s
lack of candor in denying LBA’s motion to intervene. We address
each contention in turn.
A. Garnishable Asset
¶ 23 LBA contends that the district court in the Lease Action erred
by concluding that, on May 16, 2019, the attorney fee award was
not a garnishable asset. We agree.
1. Standard of Review
¶ 24 Whether a judgment that is stayed pending appeal constitutes
a garnishable asset is a question of law. We review questions of law
de novo. Yen, LLC v. Jefferson Cnty. Bd. of Comm’rs, 2021 COA
107, ¶ 10.
12
2. Law and Discussion
¶ 25 Under C.R.C.P. 103, § 4(a), “a judgment creditor may garnish
any money owed a judgment debtor whether due at the time of
service of the writ or to become due thereafter.” Flanders Elec.
App. 1992). “Contingent liabilities, however, are not garnishable.”
Id. (citing Haselden Langley Constructors, Inc. v. Graybar Elec. Co.,
662 P.2d 1064 (Colo. 1983)).
¶ 26 In Shawn v. 1776 Corp., 787 P.2d 183, 185 (Colo. App. 1989),
a division of this court held that a judgment under appeal
constitutes a garnishable asset. In reaching this conclusion, the
division rejected the argument that “pending appellate review
converts a judgment either to a contingent liability or to a debt that
becomes due in the future.” Id. Rather, the division held, “[a] debt
which has been reduced to judgment is within the purview of
garnishment proceedings. And, since a judgment is presumed valid
until reversed, the fact that the judgment is under appeal does not,
per se, invalidate it.” Id. (citation omitted). The court noted that, by
taking this approach, “both parties to a garnishment proceeding are
fully protected”:
13
The garnishee has the benefit of pursuing
appellate proceedings, and in the event of
reversal, the garnishment would be
discharged. If, however, the appeal is
unsuccessful, the garnishor is placed in the
position of the defendants in . . . collecting
upon the judgment . . . . Further, he is
protected by any priority that he may have by
virtue of the time of the filing of his
garnishment claim. Nor will . . . he be
required constantly to monitor the outcome of
the appeal to reinstitute garnishment
proceedings.
Id. (citation omitted). We agree with this reasoning.
¶ 27 Here, to collect its judgment from the Lease Action, LBA issued
multiple writs of garnishment, including the second writ on May 15,
2019, to the State. At that time, the judgment awarding attorney
fees was pending on appeal. Accordingly, because a judgment on
appeal is neither a contingent liability nor a debt that becomes due
in the future, id., the district court erred by concluding that the
attorney fee award was not a garnishable asset.
1
1
Landmark also contends that the district court’s order in the
Lease Action was not a final appealable order because it did not
resolve LBA’s claims against Castle Law. Initially, we note that a
motions division of this court has already determined that “this
appeal has now been perfected from a final, appealable judgment by
the entry on January 22, 2021, of the district court’s order re:
October 2, 2020, traverse hearing.” In any event, the January 22,
14
¶ 28 We are not persuaded otherwise by Landmark’s argument
that, because it financed Castle Law’s defense in the State Action, it
was the “true owner” of the attorney fee award. To the contrary,
Castle Law was the real party in interest with regard to those
attorney fees regardless of the contractual arrangement between
Castle Law and its liability insurer for the disbursement and
1204-05 (Colo. App. 2003) (holding that the defendant, as the
named party in the lawsuit and the party on whose behalf costs
were incurred, had the substantive right to recover costs regardless
of the arrangement between the defendant and his liability insurer
for the disbursement and repayment of those costs); Little v.
Fellman, 837 P.2d 197, 205 (Colo. App. 1991) (holding that the
defendant has the right to seek attorney fees as the real party in
interest even though his insurance company paid those fees),
overruled on other grounds by In re Marriage of Aldrich, 945 P.2d
2021 order resolved all remaining claims and issues because LBA’s
judgment against Castle Law was entered on November 4, 2015,
and there are no other pending postjudgment proceedings.
15
1370 (Colo. 1997). Thus, the attorney fee award was subject to
garnishment.
¶ 29 We therefore reverse the district court’s order and remand the
case for the district court to determine whether LBA, as a judgment
creditor of Castle Law, or Landmark, as Castle Law’s insurer, has a
priority interest in the attorney fee award in favor of Castle Law.
B. Judgment on the Pleadings
¶ 30 LBA contends that the district court in the State Action erred
by granting Landmark’s motion for judgment on the pleadings. We
agree.
1. Standard of Review
¶ 31 We review judgments on the pleadings under C.R.C.P. 12(c) de
novo. Paradine v. Goei, 2018 COA 55, ¶ 6.
2. Law and Discussion
¶ 32 Judgment on the pleadings under C.R.C.P. 12(c) is appropriate
“if, from the pleadings, the moving party is entitled to judgment as a
matter of law.” City & Cnty. of Denver v. Qwest Corp., 18 P.3d 748,
754 (Colo. 2001).
¶ 33 By the time Landmark moved for judgment on the pleadings
on August 28, 2020, the district court had already been informed
16
by both the State and Landmark that LBA, as a judgment creditor
of Castle Law, claimed an interest in the attorney fee award and
had filed multiple writs of garnishment. In its May 1, 2020, motion
to deposit funds into the court registry, the State told the court that
LBA was seeking the funds the court had ordered the State to pay
to Castle Law. In fact, the State attached LBA’s writs of
garnishment to its motion. And in its May 4, 2020, motion to
intervene in the State Action, Landmark told the court that it was
litigating the issue of LBA’s right to garnish the attorney fee award
in the Lease Action and that the district court in that case had “not
yet entered a final judgment about LBA’s rights to the property
sought to be garnished.”
¶ 34 In considering a C.R.C.P. 12(c) motion, a court “should not
grant the motion unless the pleadings themselves show that the
matter can be determined on the pleadings.” Melat, Pressman &
Higbie, L.L.P. v. Hannon L. Firm, L.L.C., 2012 CO 61, ¶ 17 (quoting
Conn. Gen. Life Ins. Co. v. A.A.A. Waterproofing, Inc., 911 P.2d 684,
687 (Colo. App. 1995)). The district court was aware or should have
been aware of LBA’s writs of garnishment and the active dispute
between LBA and Landmark in the Lease Action, and the pleadings
17
did not show that the dispute had been resolved. Accordingly, the
court acted prematurely by ordering that the funds be disbursed to
Landmark.
¶ 35 We therefore reverse the district court’s order disbursing the
funds to Landmark and remand the case for the district court to
await the determination of priority between LBA and Landmark in
the Lease Action before disbursing the funds to whichever party is
entitled to them.
C. Motion to Intervene
¶ 36 LBA contends that the district court in the State Action erred
by denying LBA’s motion to intervene. Again, we agree.
1. Standard of Review
¶ 37 We review de novo a district court’s denial of a motion to
intervene as of right under C.R.C.P. 24(a)(2). Feigin v. Alexa Grp.,
Ltd., 19P.3d 23, 28 (Colo. 2001).
2. Law and Discussion
¶ 38 A non-party may intervene in a civil action as a matter of right
if (1) the applicant claims an interest in the subject matter of the
litigation; (2) the disposition of the case may impede or impair the
applicant’s ability to protect that interest; and (3) the applicant’s
18
interest is not adequately represented by the existing parties.
C.R.C.P. 24(a)(2).
¶ 39 LBA explained in its motion to intervene that it claimed an
interest in the attorney fee award and that its interest was not
adequately represented by the existing parties. It further explained
that,
if LBA is not allowed to intervene to stop the
disbursement of the [attorney fee award], LBA
will be chasing money from Castle Law that is
already in the hands of Landmark. This
will . . . impair LBA’s ability to collect on [its
approximately $1.5 million judgment against
Castle Law in the Lease Action] and would
render the ongoing litigation in [the Lease
Action] essentially meaningless. Thus, LBA
will never have its day in court regarding
whether its right to the [attorney fee award]
takes priority over Landmark’s claimed
interest.
¶ 40 The court denied LBA’s motion as moot because the funds had
already been disbursed to Landmark. As explained above, however,
it was error for the district court to disburse the funds to
Landmark. The fact that the funds had been disbursed thus did
not render LBA’s motion moot. See C.R.C.P. 60(b) (permitting a
court to relieve a party from a final judgment on the grounds of
mistake). Rather, as LBA correctly noted in its motion, an issue
19
remained regarding its right to be heard on the question of whether
its writs of garnishment took priority over Landmark’s claimed
interest in the attorney fee award. Accordingly, we conclude that
the district court erred by denying LBA’s motion to intervene.
D. Lack of Candor
¶ 41 LBA further argues that Landmark failed to inform the district
court of the scheduled traverse hearing in the Lease Action and
argues that the court erred by failing to address this lack of candor
in its ruling on LBA’s motion to intervene. See Colo. RPC 3.3.
Since we have already concluded that the district court erred by
denying LBA’s motion, however, we need not address this additional
argument.
III. Conclusion
¶ 42 The orders are reversed, and the cases are remanded for
(1) the district court in the Lease Action to determine whether LBA
or Landmark has a priority interest in the attorney fee award in
favor of Castle Law and (2) the district court in the State Action to
grant LBA’s motion to intervene and disburse the funds as
appropriate once priority has been determined.
JUDGE WELLING and JUDGE DAVIDSON concur.
