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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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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)
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Plaintiffs/Judgment Creditors, )
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vs.
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Greenberg Traurig, LLP, a New York)
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limited liability partnership, et.al.,
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Defendants,
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and
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Westchester Fire Insurance Company, )
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Garnishee
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Robert Facciola, et. al.,

No. CV-10-1025-PHX-FJM
ORDER

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This action was reassigned to the undersigned on March 31, 2011. The court has

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before it Westchester Fire Insurance Company's ("Westchester") motion to quash writ of

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garnishment and request for hearing (doc. 90), plaintiff's response (doc. 120), and

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Westchester's reply (doc. 137).

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Pursuant to A.R.S. § 12-1580, Garnishee Westchester objects to and moves to quash

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the Writ of Garnishment and Summons (Non-Earnings) ("Writ") filed by plaintiffs on August

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9, 2010 (docs. 53, 54). Plaintiffs brought a securities fraud action against a number of

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defendants who allegedly participated in a purported Ponzi scheme. One such defendant,

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Christopher Olsen, was an officer of one of the defendant companies, Mortgages Ltd.

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Westchester provided Mortgages Ltd. with a Business and Management Indemnity Policy.

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That policy included a Directors & Officers and Company Coverage Section. Despite the

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existence of this policy, Westchester denied any obligation to defend or indemnify Mr.

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Olsen. Mr. Olsen then entered into a Damron agreement, under which he stipulated to the

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entry of judgment against him in the amount of $5 million in exchange for plaintiffs'

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agreement not to execute except as to the insurance policy. See Damron v. Sledge, 105 Ariz.

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151, 460 P.2d 997 (1969). Plaintiffs now seek to enforce that judgment against Westchester

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as Olson's insurer. Westchester moves to quash the Writ arguing that the policy is not

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subject to garnishment because: (1) numerous people and entities claim common interests

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in the insurance policy and (2) Mr. Olsen's interest in the insurance policy is contingent.

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Westchester also disputes that the insurance policy covers the Olsen judgment but fails to

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fully brief the issue. Plaintiffs argue that the Olsen judgment is covered, not contingent but

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contested, and still subject to garnishment despite the possibility of other insureds.

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The validity of a writ of garnishment is governed by Arizona law. Rule 69(a),

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Fed.R.Civ.P. Under Arizona law, a garnishee is not liable unless at the time the writ of

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garnishment is served, there is "a clear, ascertainable debt" owed by the garnishee to the

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judgment debtor that is not "contingent on other events." Reeb v. Interchange Res., Inc., 106

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Ariz. 458, 459, 478 P.2d 82, 83 (1970). If an objection is filed, we must determine "what

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amount of nonexempt monies, if any, the garnishee. . . owed to the judgment debtor at the

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time the writ was served. . . " A.R.S. § 12-1584(B). The parties have not adequately briefed

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the issue of whether the Olsen judgment is covered under the insurance policy. Instead,

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Westchester argues that the debt is contingent simply because it initially denied coverage.

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Plaintiffs respond that this merely makes the debt contested. See Able Distr. Co. v. James

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Lampe, G.C., 160 Ariz. 399, 402, 773 P.2d 504, 507 (App. 1989) (stating that "merely

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because a debt is disputed does not mean that it is 'contingent'"). We agree with plaintiffs

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that the debt is not "contingent on other events" but simply disputed. While Westchester

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ultimately may not be found responsible for Olsen's judgment, thus leading to the quashing

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of the Writ, we must resolve the issue of underlying liability first. We may do so within the

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context of this garnishment proceeding. See e.g., Parking Concepts, Inc. v. Tenny, 207 Ariz.

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19, 26, 83 P.3d 19, 26 (2004) (remanding a case to address the issue of reasonableness under
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a Morris agreement within a garnishment proceeding); see also Sackin v. Kersting, 105 Ariz.

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566, 567, 468 P.2d 925, 926 (1970) (stating that the scope of inquiry in garnishment

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proceedings includes all issues relevant to a final determination of the garnishee's rights).1

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Accordingly, we deny Westchester's motion to quash. We order the parties to submit

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memoranda on the issue of coverage so that we may determine whether Westchester is liable.

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Plaintiffs bear the burden of proving the existence of a debt owed by the garnishee to the

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judgment debtor at the time the garnishment was issued. Falcon v. Beverly Hills Mortg.

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Corp., 168 Ariz. 527, 529, 815 P.2d 896, 898 (1991); A.R.S. § 12-1584(B). Plaintiffs also

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bear the burden of showing that the stipulated judgment, pursuant to the Damron agreement,

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was not fraudulent or collusive. See Parking Concepts, 207 Ariz. 19, 22, 83 P.3d 19, 22.

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Therefore, plaintiffs must file a motion on these issues within 14 days of the date this order

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is entered. Westchester will then respond within 14 days. Finally, plaintiffs will have 7 days

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to file a reply. The parties shall comply with the page limits prescribed by LRCiv. 7.2(e).

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Accordingly, IT IS ORDERED DENYING Westchester's motion to quash (doc. 90).

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It is FURTHER ORDERED that the parties will abide by the above mentioned briefing

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schedule.

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DATED this 12th day of May, 2011.

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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.
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