Bjorgen v. Kinsey

• Citation: 491 N.W.2d 389
• Decision Date: 01 October 1992
• Docket Number: No. 910426,910426
• Parties: Anita BJORGEN, Plaintiff and Appellee, v. Robert W. KINSEY and Robert W. Kinsey, a professional corporation, Defendants and Appellants. Civ.
• Court: United States State Supreme Court of North Dakota

Page 389

491 N.W.2d 389

Anita BJORGEN, Plaintiff and Appellee, v. Robert W. KINSEY and Robert W. Kinsey, a professional

corporation, Defendants and Appellants.

Civ. No. 910426.

Supreme Court of North Dakota.

Oct. 1, 1992.

Kent A. Reierson (argued), of Winkjer, McKennett, Stenehjem, Trotter & Reierson, Williston, for plaintiff and appellee.

Michael R. Hoffman (argued), Bismarck, for defendants and appellants.

LEVINE, Justice.

Robert W. Kinsey and Robert W. Kinsey, a professional corporation [defendants] appeal from an order denying their motion for reconsideration of the appointment of a receiver and from an order finding them in civil contempt of court. We affirm.

Anita Bjorgen obtained a judgment in excess of $500,000 against the defendants after a jury found the defendants liable for legal malpractice and deceit or collusion. We affirmed that judgment in Bjorgen v. Kinsey, 466 N.W.2d 553 (N.D.1991).

When Bjorgen's post-judgment collection efforts were unsuccessful, she moved for appointment of a receiver to aid in execution of the judgment, alleging that the defendants had refused to apply their property to satisfy the judgment. On December 5, 1990, the trial court denied her motion for appointment of a receiver, but ordered the defendants not to transfer "any funds in any accounts, other than funds transferred in or out of Defendants' ongoing business account at First National Bank in Crosby, North Dakota, in the normal course of day-to-day business."

Bjorgen's subsequent attempts to satisfy the judgment were also unsuccessful and she again moved for appointment of a receiver to aid in execution of the judgment. She contended that Kinsey had "refused to apply his property in satisfaction of the Judgment and is transferring property to avoid application of the property to the Judgment." The defendants obtained two continuances and then resisted Bjorgen's motion, contending that the alleged transfers had occurred before the December 5, 1990 order and that Bjorgen had not exhausted her legal remedies. On July 22, 1991, Bjorgen filed a supplemental affidavit, averring that during the continuances, Kinsey had withdrawn approximately $250,000 in cash from a Rochester, Minnesota bank and deposited the money in a safety deposit box in a Minneapolis bank; that Kinsey had never identified the Rochester bank account in his answers to discovery requests; and that on July 18, 1991, the IRS seized the money.

After notice and a hearing on July 23, 1991, the court appointed Richard Olson as receiver and granted him authority to locate all of Kinsey's bank accounts and to transfer any money to an account in Divide County. The defendants subsequently objected to the appointment of Olson as receiver because Olson had represented Bjorgen in Kinsey's 1990 bankruptcy.

On July 29, 1991, Olson filed an ex parte request to eliminate the restrictions on his powers as receiver to investigate and gather Kinsey's assets. Olson submitted the affidavit of James Lindquist, an IRS agent, which stated that Kinsey had recently transferred money in Minnesota and that he had attempted to secure a Minnesota driver's license under a different name. Olson requested modification of his powers as receiver "as soon as possible."

After an ex parte telephonic hearing on July 29, 1991, the court ordered Kinsey "not to take steps either personally, through an attorney or through any other person to obtain the approximately $250,000.00 held by the IRS [without court approval] ... [or] interfere with the efforts of the Receiver to obtain the funds." The court eliminated the restrictions on Olson's power to investigate and gather the defendants' assets. The court also authorized Olson to make a claim for the money held by the IRS and to hire an attorney for that purpose. Bjorgen requested a transcript of the hearing for the defendants and she served them with notice of entry of the orders on August 8, 1991.

The defendants petitioned for a supervisory writ, requesting this court to vacate the trial court's July 23 and July 29 orders. We denied the petition. The defendants then asked the trial court to reconsider those orders. After a hearing on November 15, 1991, the court ratified the appointment of Olson as the receiver, finding that Olson's prior representation of Bjorgen in Kinsey's 1990 bankruptcy had terminated before Olson's appointment as a receiver and did not interfere with his ability to act as a receiver. The court denied the defendants' motion for reconsideration of its order appointing Olson as receiver and approved Olson's employment of a Minneapolis law firm to attempt to recover the $250,000 from the IRS.

While the defendants' motion for reconsideration was pending, Bjorgen moved for an order to show cause why Kinsey should not be held in civil contempt of court. Bjorgen submitted an affidavit, alleging that Kinsey had transferred money in various bank accounts in violation of the court's December 5, 1990 order and that Kinsey had interfered with the receiver's efforts to obtain the $250,000 held by the IRS in violation of the July 29, 1991 order. After a hearing on November 27, 1991, the court found Kinsey in civil contempt for having violated the December 5, 1990 order proscribing the transfer of funds and the July 29, 1991 order prohibiting the interference with the efforts of the receiver to obtain the funds held by the IRS. The court ordered Kinsey incarcerated until he purged himself of the contempt by cooperating with the receiver and disclaiming all interest in the seized funds. The defendants appealed from the civil contempt order and from the denial of their motion for reconsideration of the appointment of Olson as a receiver.

APPOINTMENT OF RECEIVER

Chapter 28-25 is entitled "Proceedings Supplementary to the Execution." Section 28-25-12, N.D.C.C., provides for the appointment of a receiver in the same manner and with the same authority as contained in Section 32-10-01, N.D.C.C. Section 32-10-01(4), N.D.C.C., authorizes appointment of a receiver "[a]fter judgment ... in proceedings in aid of execution, when an execution has been returned unsatisfied, or when the judgment debtor refuses to apply his property in satisfaction of the judgment."

The decision to appoint a receiver rests in the discretion of the trial court. Olson v. Brodell, 128 N.W.2d 169 (N.D.1964); see 30 Am.Jur.2d, Executions, Sec. 851 (1967); 65 Am.Jur.2d, Receivers, Sec. 19 (1972). We review a trial court's exercise of discretion under the abuse of discretion standard. Wall v. Pennsylvania Life Insurance Co., 274 N.W.2d 208 (N.D.1979).

A trial court abuses its discretion when it acts in an arbitrary, capricious, or unreasonable manner. Id.

The defendants rely on Minkler v. United States Sheep Co., 4 N.D. 507, 62 N.W. 594 (1895), for the proposition that a party must exhaust its legal remedies before it is entitled to the equitable relief of the appointment of a receiver. They argue that Bjorgen failed to show that she had exhausted her legal remedies and, therefore, she did not qualify for equitable relief.

In Minkler, this court reversed an order appointing a receiver in proceedings in aid of execution of a judgment because the judgment creditor had made no effort to execute on the judgment in the county of the judgment debtor's residence. The court observed that the appointment of a receiver is equitable in nature and that before a receiver can be appointed in proceedings in aid of execution of a judgment, the judgment creditor must exhaust legal "remedies." But, it further explained that while an unsatisfied execution in a county other than the debtor's residence is insufficient to show a bona fide effort by the creditor to exhaust "his remedy at law," the issuance and return of execution unsatisfied in the county of the debtor's residence is "the best evidence that the creditor has in good faith exhausted his remedy at law...." Id., 62 N.W. at 595. Consequently, a creditor must allege either that an execution has been returned unsatisfied from the county of the debtor's residence or must show exceptional circumstances which excuse that action.

Here, there were sheriffs' executions in Divide County, Kinsey's residence, which were returned unsatisfied. That fact satisfies the Minkler prerequisite of exhausting one's legal remedy, namely, obtaining an execution unsatisfied from the county of the debtor's residence. Moreover, this record indicates that Bjorgen has made other attempts to locate Kinsey's assets and to satisfy her judgment, but that Kinsey's evasive responses to discovery requests have undermined her attempts. The trial court refused to appoint a receiver on December 5, 1990; however, in support of her second motion for appointment of a receiver, Bjorgen presented evidence that Kinsey had been evasive about the existence and location of his assets and had recently diverted money through other bank accounts. There was evidence that during one of the two continuances on this motion, Kinsey transferred approximately $250,000 between Minnesota banks and attempted to obtain false identification in Minnesota. The evidence establishes a recalcitrant judgment debtor who has secreted and diverted assets to avoid execution. Under these circumstances, Minkler offers no support to the defendants. In fact, it supports the appointment of the receiver in aid of execution of the judgment. Consequently, we conclude that the trial court did not act arbitrarily, capriciously, or unreasonably and did not abuse its discretion in appointing the receiver in aid of execution of the judgment.

The defendants contend that Bjorgen failed to show assets amenable to receivership. However, there was evidence that the IRS seized approximately $250,000 from Kinsey and that Kinsey had diverted other funds through other bank accounts. The uncertainty over the existence and location of those funds is attributable to Kinsey's evasiveness in responding to ...