Labertew v. Langemeier

• Decision Date: 20 January 2017
• Docket Number: No. 14-15879,14-15879
• Citation: 846 F.3d 1028
• Parties: Marcus LABERTEW, Judgment Creditor, aka Mark Labertew; Jane Doe Labertew, husband and wife; John McDermott, Judgment Creditor, aka Jack McDermott ; Jennifer McDermott, husband and wife, Plaintiffs–Appellants, v. Loral LANGEMEIER, Defendant, Chartis Property Casualty Company, Garnishee, fka AIG Casualty Company; 21st Century North America Insurance Company, Garnishee, fka American International Insurance Company, Third Parties– Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

846 F.3d 1028

Marcus LABERTEW, Judgment Creditor, aka Mark Labertew; Jane Doe Labertew, husband and wife; John McDermott, Judgment Creditor, aka Jack McDermott ; Jennifer McDermott, husband and wife, Plaintiffs–Appellants,

v. Loral LANGEMEIER, Defendant,Chartis Property Casualty Company, Garnishee, fka AIG Casualty Company; 21st Century North America Insurance Company, Garnishee, fka American International Insurance Company, Third Parties– Appellees.

No. 14-15879

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 11, 2016, San Francisco, California

Filed January 20, 2017

Philip J. Nathanson (argued), The Nathanson Law Firm, Scottsdale, Arizona, for Plaintiffs–Appellants.

Randy Lee Kingery (argued), Steven G. Mesaros, and Kelli K. Williams, Renaud Cook Drury Mesaros PA, Phoenix, Arizona, for Third Parties–Appellees.

Before: Andrew J. Kleinfeld, Sandra S. Ikuta, and Paul J. Watford, Circuit Judges.

OPINION

KLEINFELD, Senior Circuit Judge:

We address removability and procedural law for garnishment.

Facts.

Marcus Labertew, his wife, and John and Jennifer McDermott sued Fred R. Auzenne and Loral Langemeier in the Superior Court for the State of Arizona. They claimed that Auzenne and Langemeier defrauded Marcus Labertew and John McDermott to get them to work for Auzenne and Langemeier's multilevel health-products company, defamed them regarding their employment at the company, owed them salary and expense money, and got John McDermott falsely arrested and imprisoned in Korea while on a business trip for the company.

The Labertews, the McDermotts, and Langemeier settled the case with what in Arizona is called a " Damron agreement," after the case accepting the validity of this procedure.¹ Under the agreement, plaintiffs dismissed their case, they and defendant Langemeier² stipulated to a judgment against her for $1.5 million, a covenant not to execute against her personally and an assignment by her to plaintiffs of her rights against her liability insurers Chartis Property Casualty Co. and 21st Century N.A. Insurance Co.

Such cases are often followed by new lawsuits by the assignees, that is, the injured plaintiffs holding the assignment, against the insurance company. The Labertews and the McDermotts, though, did not pursue that course. Instead, they applied in state court for writs of garnishment against the insurers. Garnishment is commonly used by successful plaintiffs such as collection companies, to garnish wages from judgment debtors' employers and savings from judgment debtors' bank accounts. The Labertews and the McDermotts' theory was that because they had a judgment against Langemeier for $1.5 million, and the insurers owed Langemeier this much, the insurance companies should pay them this money as Langemeier's judgment creditors.

Arizona has a procedure for contesting garnishment, as when a bank has no funds in an account owned by the judgment debtor, or a putative employer no longer employs the judgment debtor and owes no wages to him. The procedure is that within ten days, the garnishee answers, and if the garnishee claims it owes the debtor nothing or less than the full amount, then the judgment creditor has ten days to file an objection to the answer.³ If no objection to such an answer is timely filed, then the garnishee is discharged.⁴

The insurance companies removed the garnishment proceedings to federal district court, and answered that they owed nothing. The Labertews and the McDermotts never objected to this answer. The district court concluded that it had jurisdiction, and that pursuant to Federal Rule of Civil Procedure 69, Arizona garnishment law applied; therefore, because the Labertews and the McDermotts had missed their ten day window for objecting, the garnishment failed, and under Arizona law the garnishees were discharged.⁵

The Labertews and the McDermotts appeal.

Analysis.

The Labertews and the McDermotts make two arguments: first, the district court lacked jurisdiction because the garnishment was not removable; second, if the garnishment was removable, then their failure to file an objection was immaterial, because the federal procedural rules did not import this Arizona requirement. We review both issues de novo.⁶

1. Jurisdiction.

Only a "civil action" can be removed from state court to federal court.⁷ Garnishment of wages or money in a bank account is ordinarily a collection device completed within the same proceeding as the case against the judgment debtor, not a separate action. This suggests a question of whether the garnishment in this case is removable.

We answered that question "yes," in Swanson v. Liberty National Insurance Co.⁸ In Swanson , as in this case, a tort plaintiff obtained judgment, then sought to garnish, in state court, the amount of the judgment from the defendant's liability insurer.⁹ The insurer removed, federal jurisdiction was contested, and we held that the federal district court did indeed have jurisdiction over the garnishment issue: "We comment that the labels the case had in the state court and the fact that the whole sequence had only one case number there are not determinative of the question of whether the garnishment issue is separable from the [tort liability] issue ... and thus can be considered an independent action."¹⁰ Following the Eighth Circuit, we held that "separability, so far as it affects removal, is in the end a federal question."¹¹

This case is not distinguishable from Swanson . Swanson arose from Alaska's garnishment procedures, and this case arises out of Arizona's procedures, but the differences between the state procedural rules are not material to the analysis.¹² Our sister circuits generally agree with the position taken by Swanson ,¹³ as do the treatises.¹⁴ To the extent that Arizona law may differ from the Alaska garnishment procedures construed in Swanson , and to the extent that it might matter, removability is even clearer here. We noted in Swanson that Alaska had not yet characterized its garnishment proceedings as to separability,¹⁵ but Arizona holds that "a garnishment proceeding, after its inception, is treated in all respects, except its title, as an original independent action."¹⁶

Treating the garnishment as a separate civil action for purposes of removal makes sense. Langemeier, the defendant in the Arizona action, has no interest in the dispute, being protected by a covenant not to execute. The insurance companies were not parties to the Arizona case. Though the complaint in the Arizona action may affect the coverage and duty to defend issues in the garnishment, the issues at most overlap, and are not congruent. The insurers' duties, which will control the garnishment, were not relevant to and did not arise in the Arizona tort case. The insurers may be entitled to a jury trial—which they have already requested—as well as discovery, addressing coverage and duty to defend procedures rarely needed in routine wage and bank account garnishments. The amount in controversy and complete diversity requirements between the insurance companies and the Labertews and McDermotts have not been disputed. The lack of diversity between the Labertews and McDermotts and Langemeier is immaterial, because Langemeier is a "nominal part [y] with nothing at stake."¹⁷

Under Swanson , the garnishment proceeding against the insurers is, for purposes of removal, a separate and independent civil action from the suit by the Labertews and McDermotts against Langemeier. As such, it was removable, and the district court had jurisdiction.

2. Failure to object.

Now that we have concluded that the federal district court had jurisdiction, what shall we make of the Labertews and McDermotts' failure to object to the answer of the garnishee insurance companies? Under Arizona law, if the garnishee answers that it does not owe the money claimed against the judgment debtor, which Langemeier's insurers did, then the judgment creditor has ten days to object to the answer.¹⁸ "[I]f no written objection to the answer is timely filed, the court shall enter judgment discharging the garnishee."¹⁹ The Labertews and McDermotts did not make a written objection to the insurers' answer (subsequent to removal) that they did not owe Langemeier any money. The insurers take the position that they are discharged because Federal Rule of Civil Procedure 69 adopts state procedure for execution on judgments, and state procedure discharges a garnishee whose unobjected to answer denies owing the money.

Much of the argument addresses, in effect, whether Rule 69 means what it says. It does. The rule says that the procedure for execution on a money judgment, including such supplementary proceedings as garnishment, "must accord with the procedure of the state where the court is located," subject to federal statutes to the contrary (of which there are none relevant to this case).²⁰ Thus for execution on "a money judgment," the District Court for the District of Arizona must turn, subject to federal law to the contrary, to Arizona law.

But that begs the question that controls this case. When Federal Rule of Civil Procedure 69 says "[a] money judgment," does it refer to the judgment of any court? Any federal district court? Any state court? Or only the particular district court in which execution is sought? The last is correct. The only judgment in this case is the one by the Superior Court of the State of Arizona in favor of the Labertews and McDermotts for $1.5 million. There has never been a federal judgment in the District of Arizona to that effect, nor is there any judgment anywhere in this case against Langemeier's liability insurers.

Ordinarily a court enforces its own judgments. Garnishments from other courts are ordinarily turned into judgments of a new court by separate actions for debt on a judgment,²¹ registration,²² or even mere filing of an authenticated copy.²³ But the judgments are not executed upon in courts that did not issue them.

There is no federal judgment in this...