Facciola, et al v. Greenberg Traurig, LLP, et al

Filing 178

ORDER denying 90 Westchester's Motion to Quash. The parties to abide by briefing schedule. Signed by Judge Frederick J Martone on 5/12/11.(TLJ)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 16 ) ) Plaintiffs/Judgment Creditors, ) ) ) vs. ) Greenberg Traurig, LLP, a New York) ) limited liability partnership, et.al., ) ) Defendants, ) and ) Westchester Fire Insurance Company, ) ) ) Garnishee ) Robert Facciola, et. al., No. CV-10-1025-PHX-FJM ORDER 17 18 This action was reassigned to the undersigned on March 31, 2011. The court has 19 before it Westchester Fire Insurance Company's ("Westchester") motion to quash writ of 20 garnishment and request for hearing (doc. 90), plaintiff's response (doc. 120), and 21 Westchester's reply (doc. 137). 22 Pursuant to A.R.S. § 12-1580, Garnishee Westchester objects to and moves to quash 23 the Writ of Garnishment and Summons (Non-Earnings) ("Writ") filed by plaintiffs on August 24 9, 2010 (docs. 53, 54). Plaintiffs brought a securities fraud action against a number of 25 defendants who allegedly participated in a purported Ponzi scheme. One such defendant, 26 Christopher Olsen, was an officer of one of the defendant companies, Mortgages Ltd. 27 Westchester provided Mortgages Ltd. with a Business and Management Indemnity Policy. 28 That policy included a Directors & Officers and Company Coverage Section. Despite the 1 existence of this policy, Westchester denied any obligation to defend or indemnify Mr. 2 Olsen. Mr. Olsen then entered into a Damron agreement, under which he stipulated to the 3 entry of judgment against him in the amount of $5 million in exchange for plaintiffs' 4 agreement not to execute except as to the insurance policy. See Damron v. Sledge, 105 Ariz. 5 151, 460 P.2d 997 (1969). Plaintiffs now seek to enforce that judgment against Westchester 6 as Olson's insurer. Westchester moves to quash the Writ arguing that the policy is not 7 subject to garnishment because: (1) numerous people and entities claim common interests 8 in the insurance policy and (2) Mr. Olsen's interest in the insurance policy is contingent. 9 Westchester also disputes that the insurance policy covers the Olsen judgment but fails to 10 fully brief the issue. Plaintiffs argue that the Olsen judgment is covered, not contingent but 11 contested, and still subject to garnishment despite the possibility of other insureds. 12 The validity of a writ of garnishment is governed by Arizona law. Rule 69(a), 13 Fed.R.Civ.P. Under Arizona law, a garnishee is not liable unless at the time the writ of 14 garnishment is served, there is "a clear, ascertainable debt" owed by the garnishee to the 15 judgment debtor that is not "contingent on other events." Reeb v. Interchange Res., Inc., 106 16 Ariz. 458, 459, 478 P.2d 82, 83 (1970). If an objection is filed, we must determine "what 17 amount of nonexempt monies, if any, the garnishee. . . owed to the judgment debtor at the 18 time the writ was served. . . " A.R.S. § 12-1584(B). The parties have not adequately briefed 19 the issue of whether the Olsen judgment is covered under the insurance policy. Instead, 20 Westchester argues that the debt is contingent simply because it initially denied coverage. 21 Plaintiffs respond that this merely makes the debt contested. See Able Distr. Co. v. James 22 Lampe, G.C., 160 Ariz. 399, 402, 773 P.2d 504, 507 (App. 1989) (stating that "merely 23 because a debt is disputed does not mean that it is 'contingent'"). We agree with plaintiffs 24 that the debt is not "contingent on other events" but simply disputed. While Westchester 25 ultimately may not be found responsible for Olsen's judgment, thus leading to the quashing 26 of the Writ, we must resolve the issue of underlying liability first. We may do so within the 27 context of this garnishment proceeding. See e.g., Parking Concepts, Inc. v. Tenny, 207 Ariz. 28 19, 26, 83 P.3d 19, 26 (2004) (remanding a case to address the issue of reasonableness under -2- 1 a Morris agreement within a garnishment proceeding); see also Sackin v. Kersting, 105 Ariz. 2 566, 567, 468 P.2d 925, 926 (1970) (stating that the scope of inquiry in garnishment 3 proceedings includes all issues relevant to a final determination of the garnishee's rights).1 4 Accordingly, we deny Westchester's motion to quash. We order the parties to submit 5 memoranda on the issue of coverage so that we may determine whether Westchester is liable. 6 Plaintiffs bear the burden of proving the existence of a debt owed by the garnishee to the 7 judgment debtor at the time the garnishment was issued. Falcon v. Beverly Hills Mortg. 8 Corp., 168 Ariz. 527, 529, 815 P.2d 896, 898 (1991); A.R.S. § 12-1584(B). Plaintiffs also 9 bear the burden of showing that the stipulated judgment, pursuant to the Damron agreement, 10 was not fraudulent or collusive. See Parking Concepts, 207 Ariz. 19, 22, 83 P.3d 19, 22. 11 Therefore, plaintiffs must file a motion on these issues within 14 days of the date this order 12 is entered. Westchester will then respond within 14 days. Finally, plaintiffs will have 7 days 13 to file a reply. The parties shall comply with the page limits prescribed by LRCiv. 7.2(e). 14 Accordingly, IT IS ORDERED DENYING Westchester's motion to quash (doc. 90). 15 It is FURTHER ORDERED that the parties will abide by the above mentioned briefing 16 schedule. 17 DATED this 12th day of May, 2011. 18 19 20 21 22 23 24 25 26 27 28 1 Westchester's first basis for quashing the Writ is that it has a good faith duty to provide other insureds with coverage. If the Writ is enforced it would exhaust the policy limits. This issue only becomes relevant if Westchester owed a debt at the time the garnishment was issued. -3-

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