Court: Court of Appeals of Arizona; July 27, 1995; Arizona; State Appellate Court
Premier Financial Services obtained a garnishment judgment for $86,461.40 against Citibank (Arizona) and Jacque Rosholm, following a prior deficiency judgment against Jacque's parents, Harry and Margie Rosholm. The trial court found that funds held by Jacque had been fraudulently conveyed to her by her parents and that Citibank had been aware of the ownership dispute. Consequently, the court ruled against Citibank for disbursing the funds to Jacque instead of withholding them pending a court determination of rightful ownership.
Jacque Rosholm appealed, raising three issues: the sufficiency of evidence supporting the fraudulent conveyance finding, the denial of her motion to reopen the hearing for additional evidence, and the rejection of a stipulation regarding attorney's fees. Citibank's appeal focused solely on its liability for failing to retain the disputed funds. The court affirmed the judgment against Jacque but reversed the judgment against Citibank.
The underlying case involved a judicial foreclosure on a deed of trust from Harry and Margie Rosholm, leading to the deficiency judgment. Southwest Savings initially garnished Citibank in November 1991, but upon discovering the Rosholms had closed their accounts, the garnishment was dismissed. Citibank's records revealed a $100,000 certificate of deposit held in the Rosholms' names until shortly before the court's ruling, but the subsequent inquiry confirmed that the Rosholms were merely contingent beneficiaries on the account, complicating the ownership status of the funds.
Ms. Janic did not disclose the name of the trustee on the certificate of deposit to Southwest, which subsequently refused to dismiss a garnishment and required Citibank to respond. Citibank claimed no debt to Harry and Margie Rosholm, prompting Southwest to file an objection and request a hearing. It was revealed that Citibank had voided the original certificate on February 5, 1991, reissuing it as a trust account with Jacque Rosholm as trustee for Harry and Margie. On April 13, 1992, while the garnishment was pending, Jacque requested to withdraw all funds from the certificate, incurring nearly $2,000 in penalties for early withdrawal.
Southwest also garnished Jacque and attempted to serve her. A process server mistakenly left the papers at her veterinary clinic, believing he had found her. Jacque later received the papers and filed an answer on April 17, 1992, asserting she owed no debt to her parents, but did not contest the service's sufficiency. Southwest objected to her answer and sought a consolidated hearing, which was approved. Jacque proceeded pro se at the hearing, presenting her testimony and that of her father to argue the funds were rightfully hers, stemming from money she had given her parents in 1984 due to her cancer diagnosis.
Jacque claimed the money was intended for her parents’ use, and the trust account designation was unrelated to the lawsuit against them, made for practical access and estate planning reasons. She testified to having loaned her parents over $100,000, suggesting the funds in the certificate were a repayment, and sought to clarify that her withdrawal was not in response to the garnishment, stating she was unaware of it until days later. Jacque contended there was no evidence that she knew of the writ before her withdrawal and asserted that the withdrawal, despite penalties, was necessary for a real estate transaction.
The trial court determined that Southwest demonstrated clear and satisfactory evidence of a fraudulent conveyance under Ariz. Rev. Stat. Ann. A.R.S. § 44-1004. It found that funds deposited in a certificate of deposit belonged to judgment debtors Harry and Margie Rosholm and that the transfer to their daughter Jacque was made with intent to hinder, delay, or defraud Southwest. The court identified multiple "badges of fraud" supporting this conclusion, including: the transfer to an "insider" (Jacque), the fact that the debtors were already under lawsuit, the timing of the transfer just before a ruling on summary judgment, the debtors' presumptive insolvency post-transfer, the withdrawal of funds coinciding with a writ of garnishment notice, and the substantial penalty incurred from early withdrawal of the CD.
Jacque and her father's evidence failed to counter the established inference of fraudulent intent. Additionally, Citibank was found liable for not holding the funds upon receiving notice of the potential fraudulent transfer. After the trial court denied Jacque's motion to reopen the hearing with new evidence, it entered a final judgment. Subsequently, a new judgment was submitted for entry nunc pro tunc, which required Jacque to pay Citibank's attorney fees. However, the court withheld signing this judgment pending a decision on the attorney fee amount.
On appeal, Jacque contended that the evidence was insufficient for proving fraudulent conveyance, but the appellate court upheld the trial court's findings, emphasizing that it must view the evidence in a light favorable to the trial court's judgment. The appellate court noted that while fraud must be proven by clear evidence, circumstantial evidence is sufficient to infer fraud, thus supporting the trial court's decision.
Several indicators of potential fraudulent conveyance were identified in the case involving Harry and Margie Rosholm's certificate of deposit, which was altered shortly after a lawsuit against them was initiated. The Rosholms transferred the certificate, originally valued at $100,000, to their daughter, Jacque, during a pending motion for summary judgment. Jacque left the funds untouched until an attempt by Southwest to garnish them, subsequently withdrawing the funds just before the certificate's expiration, incurring a penalty. The trial court determined that this withdrawal rendered the elder Rosholms insolvent and asserted that the existence of "badges of fraud" negated Jacque's presumption of honesty in the transaction. The court found that the circumstances warranted an inference of fraud, which Jacque failed to adequately dispel with her and her father's testimony regarding fund ownership. The court concluded that the transfer was indeed fraudulent.
Jacque's request to reopen the hearing to present new evidence, primarily checks written to her father, was denied by the trial court. She claimed insufficient preparation time and lack of understanding of the issues as reasons for her inability to present evidence. The court determined that her reasons did not undermine the finality of the judicial proceedings and noted that she had adequate notice and was aware of the issues before the hearing. Additionally, Jacque did not express a need for legal counsel or seek a continuance. On appeal, she argued that the new evidence was crucial to the determination of fund ownership and that equity demanded its consideration for a fair judgment.
Jacque's appeal is denied on several grounds. She failed to argue in the trial court for relief under Rule 59(b) of the Arizona Rules of Civil Procedure without first demonstrating grounds under 59(a), which precludes consideration of those arguments now. Additionally, the documents she sought to introduce, which were primarily checks written to her father between 1979 and 1985, do not substantiate her claim that she transferred money to him in 1984, justifying the trial court's refusal to reopen the hearing.
Regarding attorney's fees, Jacque's objection to the trial court's omission of language in the nunc pro tunc judgment concerning her previous payments to Citibank's attorney is unfounded, as she has not succeeded in her appeal. Even if the trial court had jurisdiction over the nunc pro tunc judgment, it could not mandate that Jacque pay Citibank's attorney's fees since that issue was not addressed during the prior rulings.
In Citibank's appeal, it contends that the trial court erred by ruling that a call from Southwest's attorney regarding potential fraudulent conversion necessitated holding the account funds until a decision was made on their entitlement. The trial court's conclusion was a legal matter, and this Court is not bound by it. Citibank is not liable as a garnishee unless it owes a clear, ascertainable debt to its judgment debtors, which was not the case here due to the revocable nature of the trust. The trial court's liability determination was based on the allegation of fraudulent transfers, aligning Citibank's situation with precedent from prior cases.
The Arizona Supreme Court determined that when a garnishee bank is made aware that funds in a third-party account may belong to a judgment debtor, the bank must retain the funds until a court resolves the ownership issue. Failure to do so could result in liability to the judgment creditor if it is later established that the judgment debtor had an interest in those funds. The court criticized the trial court for incorrectly applying this principle from Parthum, which requires the garnishee to retain funds only if there is actual knowledge or sufficient notice regarding the debtor's ownership. In the case at hand, Citibank lacked such knowledge, as it had only received vague allegations regarding the ownership of the funds, which did not meet the threshold of actual notice.
Moreover, the excerpt highlights that the legal landscape has changed due to the Arizona Legislature's enactment of the adverse claimant statute (A.R.S. § 6-233), which protects banks from liability concerning adverse claims unless directed by a court order. This statute applies to situations where a judgment creditor seeks to garnish funds held in a third-party bank account. Additionally, it references prior cases that support this interpretation, emphasizing that simply filing a complaint or making allegations of ownership is insufficient to impose liability on a trustee or garnishee without a lawful court directive.
A writ cannot be issued without a judgment unless the judgment creditor posts a bond equal to the claimed debt to cover potential damages if the creditor fails to prove entitlement to the garnished funds. This requirement applies as Southwest did not secure a judgment against Jacque Rosholm before garnishing her certificate of deposit. The court's ruling in Wilcox v. Waldman established that a trustee may be liable for disbursing trust funds if the trust is invalid or known to be fraudulent. However, merely filing a complaint does not create reasonable doubt about a trust's validity for a trustee's liability. This principle is similarly applicable to garnishees, who are not liable for failing to withhold funds based solely on allegations of fraudulent conveyance unless they have direct knowledge of the fraud or facts indicating fraud. This interpretation aligns with A.R.S. § 44-1007(A)(1), which permits garnishment against fraudulent transferees. Regarding attorney's fees, A.R.S. § 12-1580(E) allows a prevailing party to recover reasonable fees, which the court awards to Citibank against Southwest's receiver and to the receiver against Jacque Rosholm. The judgment against Rosholm is affirmed while the judgment against Citibank is reversed. The document concludes with a note that "badges of fraud" are indicative facts that suggest fraudulent intent but require conclusive evidence when multiple indicators are present in a transaction.
