Amos v. Swagerty, 1 CA-CV 09-0498

Decision Date29 July 2010
Docket Number1 CA-CV 09-0498
PartiesBARRY AMOS, an individual;RUSSELL BROCK, an individual;M.RICHARD VAIL, an individual; and RICHARD DAVIS, an individual,Plaintiffs/Appellees, v. KATHI SWAGERTY,Defendant/Appellant,
CourtCourt of Appeals of Arizona

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

(Not for Publication-Rule 28, Arizona Rules of Civil Appellate Procedure)

Appeal from the Superior Court in Maricopa County

Cause No. CV2004-016064

Commissioner Lindsay Best Ellis, Retired

REVERSED AND REMANDED

Warner Angle Hallam Jackson & Formanek, PLC

By Jack D. Klausner J. Brent Welker

Attorneys for Plaintiffs/Appellees

Jaburg & Wilk, PC Phoenix

By Roger L. Cohen Kathi M. Sandweiss

Attorneys for Defendant/Appellant

SWANN, Judge

¶1 Kathi Swagerty appeals from the superior court's order denying her motion to quash a writ of garnishment against her wages. She contends that her sole and separate property may not be garnished to collect on a domesticated North Carolina bankruptcy judgment entered against Robert Swagerty, from whom she is legally separated. Despite Kathi's discharge from the underlying debt, the superior court determined that Robert's creditors could garnish Kathi's post-separation wages to collect on the judgment. For the reasons that follow, we reverse the court's order and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶2 In January 2002, Robert and Kathi Swagerty, then married and residents of North Carolina, filed for Chapter 7 Bankruptcy in the United States Bankruptcy Court, Eastern District of North Carolina. The Swagertys listed Barry Amos, Russell Brock, M. Richard Vail, and Richard Davis (collectively, "Appellees") as creditors. On July 26, 2002, the bankruptcy court discharged the Swagertys' debts. Appellees, however, filed an adversary proceeding seeking to have their claims declared non-dischargeable. After a trial, the bankruptcy court declared Appellees' claims non-dischargeable against Robert only pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(4) based onRobert's fraudulent actions against Appellees.1 The bankruptcy court issued a judgment in favor of Appellees and against Robert for over $1,700,000 ("bankruptcy judgment"). The bankruptcy judgment ran against Robert only, and expressly denied Appellees' request to grant an exception to discharge with respect to claims against Kathi.

¶3 At some point during the adversary proceeding, the Swagertys moved to Arizona. Appellees domesticated the bankruptcy judgment in Arizona. See Revised Uniform Enforcement of Foreign Judgments Act, A.R.S. §§ 12-1701 to-1708 (2003).

¶4 On June 7, 2007, Appellees filed applications for writ of garnishment seeking to garnish stock the Swagertys owned as well as Robert's wages. The Swagertys objected and argued that their community property could not be garnished. The court overruled the Swagertys' objection and found that their community property could be garnished because "the tort committed by Robert Swagerty was done for the benefit of the marital community and... the debt would be community ifincurred in Arizona." The Swagertys filed an appeal, but later abandoned the appeal.

¶5 Thereafter, the Swagertys filed a motion for relief from the garnishment order pursuant to Ariz. R. Civ. P. 60(c)(4) or (6), arguing that the order was void because Kathi was discharged from the bankruptcy judgment and, therefore, the debt was not enforceable against her after-acquired community property. The court denied the motion, finding:

[S]ubsequently acquired community property of Kathi Swagerty is properly subject to garnishment under Arizona Law and that this is consistent with current bankruptcy law as it relates to the innocent spouse's community property being subject to garnishment while her separate property remains protected.

The Swagertys appealed from this order, but later withdrew the appeal.

¶6 On September 11, 2008, Appellees filed an application for writ of garnishment seeking to garnish Kathi's wages. The Swagertys objected, and the court ultimately determined that Kathi's wages were subject to garnishment.

¶7 In February 2009, Robert and Kathi entered into a consent decree of legal separation. Thereafter, Kathi moved to quash the writ of garnishment against her wages. She argued that her wages were now her separate property, and therefore were not subject to garnishment to satisfy the bankruptcyjudgment. After oral argument, the court denied the motion to quash, explaining:

[U]nder Hamlin v. Community Garden Bank, 182 Ariz. 627, 898 P.2d 1005 (App. 1995), [the Swagertys'] legal separation agreement does not affect [Appellees'] rights to pursue collection of the North Carolina Bankruptcy Judgment ("Debt"). This Court has already ruled on September 15, 2008... and it is law of the case, that the post-petition community property of Defendant Kathi A. Swagerty is properly subject to garnishment for payment of the Debt. Thus, despite the Legal Separation Agreement, the separate property wages of Kathi A. Swagerty are subject to continuing garnishment until the Debt is satisfied.

Kathi timely appeals. We have jurisdiction pursuant to A.R.S. § 12-2101(F)(3).

DISCUSSION

¶8 Kathi contends that the superior court erred as a matter of law by permitting Appellees to garnish her sole and separate wages. Specifically, Kathi contends: (1) the

bankruptcy judgment is Robert's separate debt; (2) the garnishment order conflicts with the United States Bankruptcy Code ("Code") and the bankruptcy judgment, and therefore violates the doctrine of federal preemption; and (3) the superior court erred by applying Hamlin. These are issues of law that we review de novo. Cmty. Guardian Bank v. Hamlin, 182 Ariz. 627, 630, 898 P.2d 1005, 1008 (App. 1995) (we review issues of law de novo); In re Marriage of Pownall, 197 Ariz. 577, 581, ¶ 15, 5 P.3d 911, 915 (App. 2000) (propertycharacterization is an issue of law that we review de novo); Hutto v. Francisco, 210 Ariz. 88, 90, ¶ 7, 107 P.3d 934, 936 (App. 2005) (we review federal preemption issues de novo); Paczosa v. Cartwright Elementary Sch. Dist. No. 83, 222 Ariz. 73, 77, ¶ 14, 213 P.3d 222, 226 (App. 2009) (we review the court's application of law to facts de novo).

A. Nature of the Debt

¶9 First, Kathi contends that the bankruptcy judgment constitutes Robert's separate debt. Based on its prior rulings, the superior court determined the bankruptcy judgment was a community debt. There was no error in this finding.

¶10 Pursuant to A.R.S. § 25-215(C) (2007), "[t]he community property is liable for a spouse's debts incurred outside of this state during the marriage which would have been community debts if incurred in this state." Similarly, the community is liable for intentional torts of either spouse if the act was intended to benefit the community. Selby v. Savard, 134 Ariz. 222, 229, 655 P.2d 342, 349 (1982).

¶11 In its earlier rulings, the court had found the debt would have been a community debt had it been incurred in Arizona. Additionally, the court found that the Swagertys' community property was liable for the debt because Robert's tort benefitted the community. Therefore, the court determined that the debt was community. See Wine v. Wine, 14 Ariz. App. 103, 105, 480 P.2d 1020, 1022 (1971) (defining community debt as "obligations incurred during a marriage for the community or by virtue of the community property or income"). The court's rulings are consistent with Arizona law. See, e.g., Nat'l Union Fire Ins. Co. of Pittsburgh v. Greene, 195 Ariz. 105, 108, ¶ 12, 985 P.2d 590, 593 (App. 1999) (holding that a domesticated foreign judgment against one spouse could be enforced against community property).

¶12 Similarly, the characterization of a debt as community in nature under Arizona law does not conflict with the Code or the bankruptcy judgment. Under the Code, community property is liable for a debt if a debt constitutes a community claim. In re Maready, 122 B.R. 378, 381 (B.A.P. 9th Cir. 1991); see also 11 U.S.C. § 101(7) (2006) (a "community claim" is one that arises prior to the commencement of a bankruptcy proceeding for which community property is liable). Generally, "[i]f the debtor's property is liable for a claim against either [the debtor or the debtor's spouse], that claim is a 'community claim.'" In re Sweitzer, 111 B.R. 792, 793 (Bankr. W.D. Wis. 1990) (citation omitted). State law determines whether a creditor holds a community claim. In re Soderling, 998 F.2d 730, 733 (9th Cir. 1993) (citing Sweitzer, 111 B.R. at 793); In re Rollinson, 322 B.R. 879, 882 (Bankr. D. Ariz. 2005). Further, subsequently acquired community property may be used tosatisfy a debt from which one spouse is discharged and the other spouse is not. See In re LeSueur, 53 B.R. 414, 416 (Bankr. D. Ariz. 1985) ("[T]he Code's clear policy is that the economic sins of either spouse shall be visited upon the community when a discharge is denied.").

¶13 Here, the superior court, applying Arizona law, appropriately determined that Appellees hold a community claim. There was no error in the court's previous rulings allowing Appellees to garnish the Swagertys' community property to satisfy the bankruptcy judgment.2

B. Federal Preemption

¶14 Next, Kathi contends that the court's order allowing garnishment of her sole and separate wages conflicts with the bankruptcy judgment and the Code, and therefore violates the doctrine of federal preemption. Appellees contend that this argument is waived.

¶15 Addressing Appellees' argument first, we decline to find this argument waived. Generally, arguments not raised in the superior court are waived on appeal. Sobol v. Marsh, 212 Ariz. 301, 303, ¶ 7, 130 P.3d 1000, 1002 (App. 2006). This rule is procedural, not jurisdictional. Id. at ¶ 8. Here, although Kathi did not raise the federal...

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