Free Report and Recommendation - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In General. Process to enforce a judgment for the payment of money shall be a writ of execution, unless the court directs otherwise. The procedure on execution, in proceedings supplementary to and in aid of a judgment, and in proceedings on and in aid of execution shall be in accordance with the practice and procedure of the state in which the district court is held, existing at the time the remedy is sought,. . . . (emphasis added).
Case 2:03-cv-02390-JAT Document 818 Filed 11/07/2007 Page 1 of 7

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

) ) ) Judgment Creditor, ) ) vs. ) ) ) Michael Alaniz; Paul Richard; et al., ) ) Judgment Debtors. __________________________________) ) American Investors Life Insurance) ) Company, Inc., ) ) Garnishee. ) Lawrence J. Warfield, a Receiver,

No. CV-03-2390-PHX-JAT (LOA) REPORT AND RECOMMENDATION

This matter arises on pro se1 Judgment-Debtor Paul Richard's Request for Hearing on Garnishment of Non-Earnings and Objection to Garnishment, timely filed on October 15, 2007 and October 26, 2007, respectively, pursuant to Rule 69(a),2 FED.R.CIV.P.,

Judgment-Debtor Paul Richard's former counsel, Burton M. Bentley, was withdrawn as Mr. Richard's counsel of record on October 4, 2007 by Peter L. Shaw, Appellate Commissioner. (docket # 790)
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Rule 69(a), FED.R.CIV.P., provides in relevant part:

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and A.R.S. §12-1580(A). (docket # 805 and # 814) Judgment-Debtor Paul Richard objects to the garnishment of, and entry of judgment against Garnishee American Investors Life Insurance Company, Inc. ("AIL"), the "AIL Fixed Annuity # 347825, Value: $19,099.40." (Answer of Garnishee AIL; docket # 803 at 2) Judgment-Creditor Lawrence J. Warfield failed to timely file a mandatory written Response to Judgment-Debtor Paul Richard's Objection or even extend to the Court the professional courtesy of advising that he had no objection to the issue in order to eliminate unnecessary preparation in advance of the hearing. On September 13, 2007, the Hon. James A. Teilborg, the United States District Judge assigned to this case, broadly referred this case, and subsequently this particular Motion, to the undersigned "to resolve any issues regarding the writs of garnishment in this matter." (docket # 761and # 807) An evidentiary hearing was scheduled for Wednesday, November 7, 2007. With prior leave of the Court, pro se Judgment-Debtor Richard was permitted to appear at the hearing telephonically. The hearing was subsequently vacated by formal order as a result of Judgment-Creditor Lawrence J. Warfield's failure to timely file a mandatory written Response to Judgment-Debtor Paul Richard's Objection. The matter taken under advisement pending the preparation of this Report and Recommendation to Judge Teilborg. On July 26, 2007, Amended Judgment was entered against Judgment-Debtor Richard and "in favor of the Receiver, Lawrence J. Warfield, in the amount of the highest verdict, $64,700, plus post-judgment interest from February 28, 2007 at the rate of 5.05% per annum, together with costs taxed by the Clerk and prejudgment interest of $23,139." (docket # 624 at 2) A Notice of Appeal has been filed by Judgment-Debtor Richard and others. The appeal is pending before the Ninth Circuit but no supersedeas bond has been posted and/or order entered staying execution of the Amended Judgment upon the property of JudgmentDebtor Richard. (docket # 588) On August 19, 2007, Judgment-Creditor Warfield requested a writ of garnishment against Garnishee AIL, alleging, inter alia, that the total amount due to Judgment-Creditor Warfield from Judgment-Debtor Richard as of August 20, 2007 is the sum -2Case 2:03-cv-02390-JAT Document 818 Filed 11/07/2007 Page 2 of 7

of $112,239.19. (docket # 639 at ¶ 2) A copy of the Application for Writ of Garnishment was 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (4) The interest of an individual in the balance in his account is nonforfeitable. 26 27 28 -3Case 2:03-cv-02390-JAT Document 818 Filed 11/07/2007 Page 3 of 7
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electronically mailed to Judgment-Debtor Richard's agent and then counsel of record, Burton M. Bentley, that same day. On October 9, 2007, Garnishee AIL filed its Answer, indicating, among other things, that on August 30, 2007, "the total amount of indebtedness or monies of the judgment debtor [Richard] in the possession of garnishee [AIL] at the time the writ was served" was "$19,099.40." (docket # 803 at 1) The Answer also claimed this property was the "personal property of the judgment debtor." (Id. at 2, ¶ 6) Judgment-Debtor Richard's Objection to Garnishment alleged that the AIL annuity, valued at $19,099.40, is exempt from garnishment under Arizona law. Specifically, Judgment-Debtor Richard cites A.R.S. § 33-1126(B) which provides in relevant part: B. Any money or other assets payable to a participant in or beneficiary of, or any interest of any participant or beneficiary in, a retirement plan under § 401(a), 403(a), 403(b), 408,3 408A or 409 or a deferred compensation plan

Title 26 U.S.C. § 408, the Internal Revenue Code, provides in part:

(a) Individual retirement account.--For purposes of this section, the term "individual retirement account" means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements: 1) Except in the case of a rollover contribution described in subsection (d)(3), in section 402(c), 403(a)(4), 403(b)(8), and 457(e)(16), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A). (2) The trustee is a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section. (3) No part of the trust funds will be invested in life insurance contracts.

(5) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.

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under § 457 of the United States internal revenue code of 1986, as amended, shall be exempt from any and all claims of creditors of the beneficiary or participant. A.R.S. § 33-1126(B).

(6) Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of an individual for whose benefit the trust is maintained. b) Individual retirement annuity.--For purposes of this section, the term "individual retirement annuity" means an annuity contract, or an endowment contract (as determined under regulations prescribed by the Secretary), issued by an insurance company which meets the following requirements: (1) The contract is not transferable by the owner. (2) Under the contract-(A) the premiums are not fixed, (B) the annual premium on behalf of any individual will not exceed the dollar amount in effect under section 219(b)(1)(A), and (C) any refund of premiums will be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits. (3) Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of the owner. (4) The entire interest of the owner is nonforfeitable. Such term does not include such an annuity contract for any taxable year of the owner in which it is disqualified on the application of subsection (e) or for any subsequent taxable year. For purposes of this subsection, no contract shall be treated as an endowment contract if it matures later than the taxable year in which the individual in whose name such contract is purchased attains age 70 1/2; if it is not for the exclusive benefit of the individual in whose name it is purchased or his beneficiaries; or if the aggregate annual premiums under all such contracts purchased in the name of such individual for any taxable year exceed the dollar amount in effect under section 219(b)(1)(A). -4Case 2:03-cv-02390-JAT Document 818 Filed 11/07/2007 Page 4 of 7

Judgment-Debtor Richard's Objection to Garnishment provided an attachment 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SEP/IRA means Simplified Employee Pension/Individual Retirement Account. Specifically, § 408(k) defines and lists the requirements of a "simplified employee pension" or SEP. Title 26 U.S.C. § 408(k). In 1985, Arizona's post-judgment garnishment procedures were held unconstitutional in Neeley v. Century Fin. Co., 606 F.Supp. 1453, 1469-70 (D. Ariz. 1985). In 1986, the Arizona legislature extensively amended §§ 12-1571 et seq. and added new provisions governing the garnishment of earnings. A.R.S. §§ 12-1598 et seq.; Frazer, Ryan, Goldberg Keyt & Lawless v. Smith, 184 Ariz. 181, 183, 907 P.2d 1384, 1386 (Ariz. App. 1995). -5Case 2:03-cv-02390-JAT Document 818 Filed 11/07/2007 Page 5 of 7
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of an AIL form indicating that the subject property held by AIL is an annuity purchased by Richard's Individual Retirement Account ("IRA") through himself on April 5, 2000 for a cash premium of $16,139.00 in the name of "Paul E. Richard" as the annuitant with his wife, Patricia Richard, as the primary beneficiary. A box on the AIL form is checked presumptively indicating that the subject annuity was purchased from funds in Judgment-Debtor Paul Richard's "SEP/IRA." 4 Judgment-Creditor Warfield has provided the Court with no evidence or argument that Judgment-Debtor Richard's IRA annuity is not exempt from process under Arizona law or is preempted by federal law, e.g., Employee Retirement Income Security Act ("ERISA"), subjecting the value of the annuity to garnishment. See, Lampkins v. Golden, 28 Fed. Appx. 408 (6th Cir. 2002) (holding that the SEP in that case fell under IRS Code 26 U.S.C. § 408(k), meaning that it was exempt from ERISA's anti-alienation provisions, therefore, could be garnished under ERISA)); contra, In re Tomlin, 315 B.R. 439 (Bankr. E.D. Mich. 2004); also see 113 A.L.R. 5th 487, Individual Retirement Accounts as Exempt from Money Judgments In State Courts, (2002). Generally, a federal writ of garnishment is governed by the law of the state in which the district court sits. Fed. R. Civ. P. 69(a); Hilao v. Estate of Marcos, 95 F.3d 848 (9th Cir. 1996). Arizona's statutory scheme regarding garnishment of non-earnings and

garnishment of earnings are located at Arizona Revised Statutes ("A.R.S.") §§ 12-1571-1597 and §§ 1598-1598.17.5 Under Arizona law, a "party who has an objection to the writ of garnishment [of non-earnings], the answer of the garnishee or the amount held by the

garnishee or a party claiming an exemption from garnishment" may file a "written objection 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6Case 2:03-cv-02390-JAT Document 818 Filed 11/07/2007 Page 6 of 7

and request a hearing" "not later than ten days after receipt of the answer." A.R.S. § 121580(A); 12-1598.07(A) deals with earnings. "One purpose of [such a] hearing is to determine whether the garnishee was indebted to the judgment debtor when the writ was served." Able Distributing Co., Inc. v. James Lampe, General Contractor, 160 Ariz. 399, 403, 773 P.2d 504, 508 (Ariz. App. Ct. 1989). The Court finds that Judgment-Debtor Richard has made a prima facie showing that his Objection to Garnishment should be sustained as the subject IRA annuity is exempt from garnishment under Arizona law. Moreover, Judgment-Creditor Warfield has failed to present any evidence or argument to rebut Judgment-Debtor Richard's prima facie showing that the subject IRA annuity is exempt from garnishment under Arizona law. In accordance with the foregoing, IT IS HEREBY RECOMMENDED that Judgment-Debtor Paul Richard's Objection to Garnishment, docket # 814, be SUSTAINED. This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of the District Court's judgment. The parties shall have ten (10) days from the date of service of a copy of this recommendation within which to file specific written objections with the Court. 28 U.S.C. ' 636(b)(1); Rules 72, 6(a) and (e), Federal Rules of Civil Procedure. Thereafter, the parties have ten (10) days within which to file a response to the objections. Failure to timely file objections to this Magistrate Judge's Report and Recommendation may result in the acceptance of this Report and Recommendation by the assigned District Judge without further review. United States v. Reyna- Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003); Thomas v. Arn, 474 U.S. 140, 149 (1985) (district courts are not required to conduct "any review at all . . . of any issue that is not the subject of an objection."). Failure to timely file objections to any factual determinations of this Magistrate Judge will be considered a waiver of a party's right to

appellate review of the findings of fact in an order or judgment entered pursuant to the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7Case 2:03-cv-02390-JAT Document 818 Filed 11/07/2007 Page 7 of 7

Magistrate Judge's recommendation. Rule 72, Federal Rules of Civil Procedure. Dated this 7th day of November, 2007.