United States District Court, D. Arizona
Marcus Labertew aka Mark Labertew and Jane Doe Labertew, husband and wife; John McDermott aka Jack McDermott and Jennifer McDermott, husband and wife, Plaintiffs/Judgment Creditors,
Loral Langemeier, Defendant/Judgment Debtor. Chartis Property Casualty Company, otherwise known as AIG Casualty Company, and 21st Century North America Insurance Company, formerly known as American International Insurance Company, Garnishees.
REPORT AND RECOMMENDATION
MICHELLE H. BURNS, Magistrate Judge.
This matter arises on Garnishees Chartis Property Casualty Company, otherwise known as AIG Casualty Company, and 21st Century North America Insurance Company, formerly known as American International Insurance Company's (together "Garnishees") Notice of Lodging Judgment Pursuant to A.R.S. §12-1581(A). (Doc. 9.) Plaintiffs/Judgment Creditors (hereinafter "Plaintiffs") filed a Response, (Doc. 17), and Garnishees filed a Reply (Doc. 18). The matter was referred to this Court by presiding District Court Judge Campbell on December 9, 2013. (Doc. 19.)
On March 11, 2010, Plaintiffs filed a Complaint in the Maricopa County Superior Court of Arizona against Fred R. Auzenne and Loral Langemeier (hereinafter the "state litigation"). (Doc. 1-1, at 2.) The matter proceeded to trial, but settled before completion, and on May 30, 2013, the parties entered into a stipulated judgment in favor of Plaintiffs on their claims of defamation, false arrest, false imprisonment and malicious prosecution, and tortuous interference with contractual relations against Defendant Loral Langemeier ("Defendant/Judgment Debtor" in this litigation) in the amount of $1, 500, 000.00 with post-judgment interest. (Doc. 1-16, at 9, 27-28.) The remaining claims and defendants were dismissed. (Id., at 10-27.)
On July 29, 2013, Plaintiffs filed Applications for Writs of Garnishment, and corresponding Writs of Garnishment, against Garnishees in state court, seeking to recover on the stipulated judgment. (Doc. 1-16, at 31-55.) The applications asserted that Plaintiffs had reason to believe that Garnishees were indebted to Plaintiffs for non-earnings. Plaintiffs asserted that Defendant/Judgment Debtor had tendered her defense to the complaint in the state litigation to Garnishees, notifying Garnishees of the Complaint and providing excerpts from Plaintiff McDermott's deposition in which he claimed to have suffered a stroke as a result of Defendant/Judgment Debtor's actions. (Id., at 32.) Plaintiffs assert that Garnishees denied insurance coverage "without seeking any additional information from [Defendant/Judgment Debtor] or her representatives, " and "owed a duty to defend her from all potentially covered claims alleged in the [state litigation]." (Id.)
As part of this settlement in the state litigation, Plaintiffs asserted that Defendant/Judgment Debtor "assigned her claims against Garnishees to Plaintiffs pursuant to Damron v. Sledge, 105 Ariz. 11, 460 P.2d 997 (1969)" (hereinafter "Damron Agreement"). (Doc. 1-1, at, at 33.) The claims assigned, according to Plaintiffs, included claims that "Garnishees failed to timely and properly investigate the claims against [Defendant/Judgment Debtor]; improperly denied coverage; failed to comply with the reasonable expectations of [Defendant/Judgment Debtor]; failed to investigate the duties it owed under the insurance policies; failed to adequately communicate with and/or advise [Defendant/Judgment Debtor] regarding the policies; failed to give equal consideration to the interests of [Defendant/Judgment Debtor]; failed to consider the applicable authority addressing the relevant issues; failed to satisfy its obligations, inter alia, to defend and indemnify [Defendant/Judgment Debtor]; and violated state and federal law related to unfair claims handling practices." (Id.)
Garnishees then removed the matters to federal court based upon diversity of jurisdiction. (Do. 1, at 1-7.) On September 4, 2013, Garnishees filed their Answers to the Writs of Garnishment. (Docs. 6-7.) In their Answers, Garnishees denied being indebted to or otherwise being in possession of monies belonging to Defendant/Judgment Debtor. (Id.) On September 11, 2013, Garnishees filed a Demand for Jury Trial. (Doc. 8.) On October 1, 2013, Garnishees filed a Notice of Lodging Judgment Pursuant to A.R.S. § 12-1581(A), requesting therein that the Court lodge judgment in favor of Garnishees in light of no timely written objection by Plaintiffs to their Answers, as "mandated by Arizona law." (Doc. 9, at 2.)
A.R.S. §12-1581(A) provides that any party having an objection to the answer of a garnishee has ten days to file a written objection and request for hearing. "[I]f no written objection to the answer is timely filed, the court shall enter judgment discharging the garnishee." Since Plaintiffs did not file an objection and timely request for hearing within ten days of the filing of Garnishees' Answers (and have not as of this date), Garnishees argue that the Court must enter judgment in their favor. Garnishees also cite Moody v. Lloyd's of London , 61 Ariz. 534 (1944) in support of their assertion. In Moody, the Arizona Supreme Court held that "garnishment is strictly a statutory proceedings and all pleadings under it must be in accordance with the statue." 61 Ariz. at 540 (construing Arizona Code 1939 §25-209, now A.R.S. §12-1581, which provided that when the answer of a garnishee is not controverted, the court must enter judgment discharging the garnishee).
Plaintiffs argue in their response that, once this garnishment action was removed to federal court, the Federal Rules of Civil Procedure govern the time limits, not the state court garnishment procedures, "for Answers and Replies to Answers." (Doc. 17, at 3.) Plaintiffs cite Granny Goose Foods, Inc. v. Brotherhood of Teamsters, et al. , 415 U.S. 423 (1974), Wallace v. Microsoft Corp. , 596 F.3d 703, 706 (10th Cir. 2010), Richard v. Harper , 864 F.2d 85, 87 (9th Cir. 1988), and Beecher v. Wallace , 381 F.2d 372 (9th Cir. 1967), in support of its position.
The Supreme Court's decision in Granny Goose Foods, Inc., does not support Plaintiffs' sweeping proposition that the Federal Rules of Civil Procedure, not the state court garnishment statutes apply once a case is removed to federal court. The case did not involve a garnishment proceeding, but a restraining order that was issued by the state court, and the question of whether or not a federal statute was intended to allow state-issued injunctions to remain in effect longer than that intended under state law. 415 U.S. at 423. The Court found that it did not, and that the restraining order should remain in effect no longer than the time period provided by the state rule, but in any event no longer than the time limitations imposed by the federal rule, measured from the date of removal. Id., at 439-440.
The Ninth Circuit decisions in Richards and Beecher likewise have very little applicability here. The Court in Harper analyzed the applicability of the federal rules to service of process, and announced, generally, that "[a]fter removal, federal rather than state law governs the course of the later proceedings." 864 F.2d at 87. The Court in Beecher also discussed the interplay between state and federal rules relating to service of process, and held that when a defendant has never been served process prior to removal, the federal court can not "complete" the state process, but must issue new process pursuant to the federal rules. Beecher , 381 F.2d at 373. The 10th Circuit case cited by Plaintiffs also involved a service of process issue similar to Beecher, and in fact cited Beecher as authority in reaching the same conclusion. Wallace , 596 F.3d at 707.
Plaintiffs also argue that a Damron case can be litigated in federal court as a bad faith and breach of contract case, a declaratory judgment proceeding, or as a garnishment proceeding. Although the cases cited by Plaintiffs in support of this assertion are cases in which the appellate court was reviewing Damron agreements in the context of a breach of contract case, a declaratory judgment proceeding, and a garnishment proceeding, the fact remains that Plaintiffs filed this action as a garnishment proceeding. Plaintiffs cite no authority for the proposition that a garnishment proceeding is similar enough in substance to the other forms of action, to be treated as such. For instance, there are many federal rules that apply to civil actions initiated by a civil complaint, that have no applicability to writs of garnishment.
Plaintiffs argue that the removal to federal court "brought into play F.R.Civ.P. 81(c) and (c)(2), " ...