ANDERSON BONELESS BEEF v. Sunshine

Citation: 878 P.2d 98Docket: 93CA0575

Court: Colorado Court of Appeals; March 9, 1994; Colorado; State Appellate Court

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Anderson Boneless Beef, Inc. (Anderson) appealed a trial court's sanctions for its attempts to garnish an account at Omnibank Denver related to a judgment against Sunshine Health Care Center, Inc. (Sunshine). After Sunshine ceased operations, federal checks continued to be issued to it as the representative payee for Medicaid patients, which Eden Foundation, Inc. (Eden) was depositing into its Omnibank account. Anderson served a writ of garnishment on the bank, which denied holding Sunshine's funds. During the hearing, Anderson argued that the checks, marked 'deposit only,' did not constitute an endorsement and that the bank's crediting of Eden's account was akin to payment on a forged instrument, making the bank liable for conversion. The court, however, focused on whether the bank correctly stated it had no funds belonging to Sunshine, noting that Anderson's writ did not specify an account number. Consequently, the court discharged the garnishment, ruling that the bank had fulfilled its obligation.

After this ruling, Anderson issued a second writ that identified Eden's account number. Eden moved to discharge this writ and sought attorney fees as a sanction for wrongful garnishment. The court agreed, finding that Anderson's attorney should have known the second garnishment was baseless, leading to sanctions against both Anderson and its attorney under the attorney fees act. The appeal followed, with the court rejecting Anderson's claim that the second garnishment attempt was not frivolous, emphasizing that the bank's liability as a garnishee depended on Sunshine's rights.

In *Martinez v. Dixon*, 710 P.2d 498 (Colo. App. 1985), it was established that after the initial writ hearing, Anderson's attorney was aware that Sunshine had no legal claim against the bank, as Sunshine's designation as representative payee resulted from a clerical error and did not cause any harm. The federal payments intended for Medicaid patients were processed correctly, and under the Uniform Commercial Code, no action can arise from a forged endorsement if the check proceeds reach the rightful payee. Consequently, the trial court properly deemed the second writ of garnishment frivolous and imposed sanctions.

Anderson's argument that the sanctions order should be overturned due to Eden's motion lacking a clear basis for fees was dismissed. C.R.C.P. 121 mandates that motions for attorney fees provide sufficient notice for the opposing party to respond. Eden's motion, which sought fees as a sanction for wrongful garnishment, was deemed adequate despite not explicitly citing the attorney fees act. Anderson's attorney acknowledged the issue of wrongful garnishment during the hearing and did not request a continuance, suggesting no surprise. The court allowed Anderson time to argue its responsibility and contest the fee amount, leading to the conclusion that any notice deficiencies were harmless and waived.

Furthermore, Anderson's contention that the attorney fees act, applicable only to "civil actions," could not justify sanctions in garnishment proceedings was rejected. Although garnishment was previously ruled as an ancillary proceeding outside the original attorney fees act's scope, amendments in 1984 expanded the act to encompass any part of any civil action lacking justification. Thus, garnishment, while ancillary, qualifies under the attorney fees act.

Anderson argues on appeal that the attorney fees act enacted by the General Assembly violates the separation of powers by infringing on the supreme court's rule-making authority and is unconstitutional for not requiring a hearing before imposing fees for groundless or frivolous actions. However, these issues are not addressed because they were not raised in the trial court, as established in prior case law. Additionally, Anderson claims the trial court erred by assessing sanctions jointly against both the attorney and Anderson, rather than solely against the attorney. The appellate court agrees, noting that the attorney fees act allows for sanctions against the attorney, the client, or both, but requires allocation based on their respective responsibilities. Since Anderson's attorney accepted full responsibility for the decision to proceed with the garnishment, the trial court erred in imposing sanctions against Anderson. Consequently, the portion of the order assessing attorney fees against Anderson is reversed, while the remainder of the order is affirmed. HUME and RULAND, JJ., concur.