Opinion
MC-20-08003-PCT-DWL
11-07-2022
Eljen Group LLC, et al., Plaintiffs, v. No. 8 Mine LLC, et al., Defendants.
HONORABLE DOMINIC W. LANZA, UNITED STATES DISTRICT JUDGE
REPORT & RECOMMENDATION
Honorable John Z. Boyle United States Magistrate Judge
I. Summary of Conclusion.
Pending before the Court is Judgment Creditors Eljen Group LLC and Elven Jennings's (“Eljen Parties”) Objection to Garnishee American Bullion & Coin, LLC's (“ABC”) Answer to the Writ of Garnishment. (Docs. 29, 42.) The Court has held a hearing on the Objection (docs. 34, 39, 61, 75, 83) and received post-hearing briefing from the parties (docs. 88, 95, 96). The Court finds that Garnishee ABC has filed a false response to Judgment Creditor's Writ of Garnishment, and thus will recommend that the Objection be sustained, and that a judgment against ABC be entered in the amount of $35,153.07. The Court further concludes that Judgment Creditors' theory that ABC is the alter ego of David Tackett, is not appropriate for resolution in the context of a garnishment hearing, and will recommend that their objection to the answer to the Writ of Garnishment on that ground be denied.
II. Background.
A. Underlying Judgment.
On October 26, 2020, the United States District Court for the District of Nevada, in Case No. 3:18-cv-00104-WGC, entered judgment in favor of Judgment Creditor and against David Tackett and No. 8 Mine, LLC in the principal amount of $408,277.00, plus prejudgment interest in the amount of $78,409.60, plus post judgment interest at the statutory rate under Nevada Revised Statutes 17.130(2) (the Judgment).
B. This Action.
On December 9, 2020, Judgment Creditor initiated this action by registering the Judgment in the District of Arizona. (Doc. 1.)
C. Writ of Garnishment and Answer.
On April 28, 2021, the Court issued a Writ of Garnishment to Garnishee ABC. (Doc. 21.) The Writ states as follows:
TO THE GARNISHEE
YOU SHALL answer the following questions in writing, under oath, on a separate document. Your answer shall be filed with the Court Clerk within 10 business days after you are served with this Writ of Garnishment.
1. Have you identified the Judgment Debtor, and if not, what steps were taken to do so and why were they unsuccessful?
2. Did you employ Judgment Debtor on the date you received the Writ of Garnishment and Summons (Earnings)?
3. If not employed by you on that date, what was the last day on which you did employ the Judgment Debtor?
4. Will you owe earnings to the Judgment Debtor within 60 days of the date on which you received the Writ?
5. What will be the Judgment Debtor's next two paydays and what is the length of the judgment debtor's pay period (e.g. daily, weekly, bi-weekly, semi-monthly)?
6. Is the Judgment Debtor already subject to an existing wage assignment, garnishment, or levy, and if so, what is the name, address and telephone number of that judgment creditor?(Id. at 3-4.) On May 28, 2021, Judgment Debtor David Tackett, in his capacity as sole officer of Garnishee ABC, signed and filed ABC's Answer to the Writ of Garnishment. (Doc. 27.) Mr. Tackett answered as follows:
1. I am the garnishee, or I am authorized by the garnishee to complete and file this answer. . . I was served with the writ on May 10, 2021.
2. The statements checked below are true:
B. [X] I will not owe judgment debtor earnings within 60 days after service of the Writ and Summons. ...
3. According to the Writ and Summons, the total amount owed the judgment creditor is $486,686.60.
4. The judgment debtor's next two paydays are unknown and unknown.
5. The pay period is (Check the box that applies):
[X] Other (explain) Distributions, only when profit is made in excess Of cost of operation.
6. I have attached copies of any existing garnishments, wage assignments or levies against the judgment debtor which are known to me.
7. I request an answer fee in the amount of $0, as reasonable amount for the preparation and filing of this Answer.
I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge, information, and belief.(Id. at 2-4.)
D. Objection to Writ of Garnishment.
On June 2, 2021, Judgment Creditor filed an Objection to ABC's answer to the Writ of Garnishment. (Doc. 29.) Therein, Judgment Creditor asserted that “[o]n April 27, 2021, in relation to post-judgment discovery in the underlying litigation field in the District of Nevada case, David Tackett stated that he earns ‘about $1500 - $2000 per month from American Bullion & Coin, depending on how much business it does.'” (Id. at 2-3 (citing Doc. 29-2, Ex. 2, at 3 (Tackett Answer to Interrogatory No. 10 in a related matter)).) Judgment Creditor asserted that it has “reason to believe American Bullion & Coin, LLC pays David Tackett substantially more than he stated in his answer to Interrogatory No. 10.” (Doc. 29 at 3.) “When deposed a year ago, Mr. Tackett testified that he does $300,000 in business on a ‘typical Tuesday.', but that he does not keep records of such sales.” (Id. (citing Doc. 29-1, Ex. 1, at 3 (Tackett Deposition Transcript Excerpt in a related matter)).)
Judgment Creditors thus objected to ABC's Answer to the Writ of Garnishment “in light of the inconsistency between David Tackett's deposition testimony, his April 27, 2021 answer to Interrogatory No. 10, and American Bullion & Coin, LLC's answer to the Writ of Garnishment” and requested that the Court permit discovery before holding a hearing on the objection. (Doc. 29 at 4.)
E. Referral and Initial Hearing.
On June 10, 2021, the Honorable Dominic W. Lanza, presiding District Court Judge in this action, referred this matter to the undersigned for the purpose of conducting a garnishment hearing on the Objection. (Doc. 31.) That same day, the Court issued an order setting a telephonic garnishment hearing on the Objection. (Doc. 32.)
On June 14, 2021, the Court held the telephonic hearing. (Doc. 34.) Both the Eljen Parties, as Judgment Creditors, and David Tackett, as Judgment Debtor and sole representative for Garnishee ABC, appeared at the telephonic hearing. (Id.) At Judgment Debtor's request, the Court continued the hearing on the Objection to June 21, 2021. (See Docs. 36, 40.) The Court also granted Judgment Creditor's request to be permitted discovery in this action. (Doc. 36 at 2.)
F. June 21, 2021 Garnishment Hearing.
On June 21, 2021, the Court held a second hearing on the Objection. (Doc. 41.) Mr. Tackett was sworn and testified at the hearing, answering questions from both Judgment Creditor and the Court. (See id.) Mr. Tackett was unable to provide meaningful answers to the majority of Judgment Creditors' questions regarding specific transactions listed in the bank records of ABC. (See Doc. 90.) Ultimately, the Court provided Mr. Tackett with the opportunity to continue the hearing so that he may obtain and provide Judgement Creditors with the information necessary to answer their questions. (Id. at 66.) Mr. Tackett agreed that he would like “a little extra time” to obtain source documentation for the transactions at issue.
Additionally, Judgment Creditors' Exhibits 1, 2, 6, 8, and 10-14 were offered and admitted into evidence. (Id.) At the close of the hearing, the Court ordered Mr. Tackett to produce source documentation to Judgment Creditors counsel for all withdrawals/debits greater than $1,000.00, and all deposits/credits greater than $60,000.00, from the bank account of American Bullion & Coin, LLC, “for the time period beginning January 1, 2021 to present.” (Id. (referencing Judgment Creditor's Ex. 8, Wells Fargo Acct. ending in 0480).)
G. Supplement to the Objection.
On June 30, 2021, Judgment Creditor filed a Supplement to their Objection. (Doc. 42.) Therein, Judgment Creditor states “[i]n addition to the grounds stated in the original objection [(doc. 29)], Judgment Creditor also objects on the grounds that American Bullion & Coin, LLC is the alter ego of David Tackett and on the grounds of fraudulent conveyance.” (Doc. 42 at 2.) “Information obtained in Garnishee's discovery answers and from Mr. Tackett's testimony during the hearing held on June 21, 2021 shows that American Bullion & Coin, LLC is the alter ego of David Tackett and that American Bullion & Coin, LLC/Tackett have conveyed assets after entry of the underlying Judgment against David Tackett with intent to hinder, delay or defraud Judgment Creditor from collecting on the Judgment.” (Id.)
H. Delays and Discovery Disputes.
Between June 30, 2021 and March 22, 2022, the resumption and completion of the garnishment hearing was delayed by both the apparent vacatur of the underlying Judgment (see docs. 49, 51, 53, 54), the subsequent reissuing of that Judgment by the District of Nevada (doc. 56), and the zealous litigation of the parties regarding several discovery disputes before the Court (docs. 37, 39, 40, 41, 43, 48, 59, 61, 67, 70, 73, 75, 76, 77, 81).
I. Completion of the Garnishment Hearing.
On January 14, 2022, the Court held the first of two continuations of the Garnishment Hearing. (Doc. 61.) Mr. Tackett testified, answering questions from both Judgment Creditors and the Court. (Doc. 91.) At the end of the hearing, the Court resolved ongoing discovery issues and set a third hearing date. (See Doc. 61.)
On March 22, 2022, the Court held the final continuation of the Garnishment Hearing. (Doc. 83.) Mr. Tackett again testified, answering questions from both Judgment Creditors and the Court. (See Doc. 92.) The Court also admitted Exhibits 1, 2, 6, 8, 10, 11, 12, 13, 14, and 16-31. (Doc. 83.)
J. Post-Hearing Briefing.
At the conclusion of the March 22, 2022 hearing, the Court ordered post-hearing briefing from the parties. (Doc. 86.) That briefing is now complete. (See Docs. 88 (Judgment Creditor Post-Hearing Brief), 95 (Judgment Debtor/ABC Post-Hearing Response Brief), 96 (Judgment Creditor Post-Hearing Reply Brief).)
The Court notes that Judgment Creditors attach four additional exhibits to their posthearing brief (doc. 888). (See Docs. 88-1 (Exhibit 32), 88-2 (Exhibit 33), 88-3 (Exhibit 34), 88-4 (Exhibit 35).) These exhibits contain the full lease documents that were provided in part in Exhibits 28-31. Mr. Tackett raised no objection to these additional exhibits in his post-hearing Response. (Doc. 95.) The Court will accept and consider Exhibits 32 through 35 in this report.
II. Legal Standard.
Under Federal Rule of Civil Procedure 69, the procedures to be implemented by a federal court in relation to the enforcement of a judgment must accord with the procedure of the state where the court is located. Fed.R.Civ.P. 69(a)(1).
Arizona Revised Statute § 12-1598.08 provides that “the answer of the garnishee shall be under oath, in writing and signed by him and shall make true answers to the writ.” A.R.S. § 12-1598.08. A garnishee has a duty “to make a full and complete disclosure of the true facts in regard to it[s] financial relations” with a judgment debtor when served with a writ of garnishment. Regan v. First Nat'l. Bank, 55 Ariz. 320, 326 (1940).
III. Discussion.
The narrow issue before this Court is whether Judgment Creditors' Objection to Garnishee ABC's Answer to the Writ of Garnishment should be sustained. In support of their Objection, Judgment Creditor raises two arguments: (1) Judgment Debtor David Tackett, in his capacity as sole employee and executive of Garnishee ABC, falsely answered the Writ of Garnishment by stating that ABC would not owe David Tackett earnings within 60 days from the date of the Writ of Garnishment and summons; and (2) Judgment Debtor David Tackett and Garnishee ABC are alter egos, such that “it would work an injustice to treat David Tackett and American Bullion & Coin, LLC as separate entities for purposes of Judgment Creditor's collection of the Judgment.” (Doc. 88.) Based on the testimony at the hearing, the parties' submitted evidence, and the post-hearing briefing, the Court makes the following findings of fact and conclusions of law.
A. Findings of Fact.
The following facts are undisputed by the parties unless otherwise noted.
1. Mr. Tackett operates ABC in a manner intended to prevent collection of judgments against Mr. Tackett.
The record shows that Mr. Tackett engages in business practices at ABC intended to make income and profit nearly impossible to determine. Based on his testimony, the Court finds that it is more likely than not that these practices are used as a method to disguise income and prevent the collection of judgments against Mr. Tackett.
a. Mr. Tackett does not collect a regular paycheck from ABC, and does not know precisely what earnings he receives.
Mr. Tackett is the owner and sole employee of American Bullion & Coin, LLC. (Doc. 90 at 4 (June 21, 2021 Hearing Transcript).) Mr. Tackett does not receive a regular salary or paycheck from ABC. Instead, Mr. Tackett is paid indirectly by ABC, by using ABC's business account to pay his personal expenses. (See id. at 53.) Mr. Tackett has previously stated that he makes anywhere between $1,500-$2,000 a month from ABC (see Doc. 29-2, Exhibit 2, at 3), to as high as $10,000 a month (see Exhibit 6 at 2-3). When asked how he calculated the figures for his estimated income, Mr. Tackett testified “It was just from memory of what bills I end up having to pay personally.” (Doc. 90 at 22.)
April 27, 2021 Response to Interrogatory No. 10, stating “I get about $1500-$2000 per month from American Bullion and Coin, depending on how much business it does.”
January 14, 2019 Motion to Withdraw filed with the District of Nevada in Case No. 3:18-cv-00104-WGC, stating “In October I told them the maximum I could pay was up to $10,000 a month. . . . I was clear in that I only made $10,000 a month. I believe it was a miscommunication that I could actually pay 100% of my income.”
Mr. Tackett admits that ABC has never withheld taxes for any employee. (Id. at 5.) Further, ABC has not filed a tax return in the past three years. (Id. at 89.) Mr. Tackett testified that his wife, Kristen Tackett, occasionally does work for ABC and she is paid wages when she does. (Id. at 5.) Mr. Tackett/ABC keeps no records of how much it pays Ms. Tackett; but Mr. Tackett estimated that ABC has historically paid Ms. Tackett about the same amount of money as what it pays Mr. Tackett. (Doc. 90 at 46-47 (“I think that she probably, historically, has earned, you know, almost as much as me from the company, but between the two of us, between 3 and 4,000 a month would be more than sufficient.”).)
b. Mr. Tackett keeps no records or receipts of ABC's business transactions.
Mr. Tackett/ABC keeps no business records of financial transactions, save for bank statements and credit card statements. (Doc. 90 at 97-98.) Mr. Tackett does not keep any meaningful records or receipts for his customer or dealer transactions. (Id. at 94-98.) At the hearing, Mr. Tackett was shown a picture of a document he identified as “an open purchase form” for $24,718 (see Exhibit 14 at 144), and asked the following questions:
Q. Is it customary for ABC to use a document such as this to record purchases and sales?
A. Only while they're open. Once the purchase or sale is closed, to protect customer information, we have to destroy the - the hard copies. If someone were to break into the store and steal anything, the most valuable thing they could steal would be the information to what homes they could go to to steal gold and silver.
Q. So ABC's normal practice is to destroy all records of sales and purchases
A. No, just the customer information.
Q. Does ABC keep this document in any format?
A. I don't believe so.
Q. Does ABC record the information contained on this document -
A. Yes.
Q. -- in any format? How does it -
A. Through our bank accounts.
Q. Aside from your bank account - so if I look on you bank account, am
I going to see an entry for $24,718?
A. Or - or more. Sometimes they get combined. Our deposits are put together . . . . Like I was telling you earlier, if I deposit five checks together at the same time, the bank gives me one number that all five checks were. They don't break each one down into a new line item. We make all - all the information go through our bank account.(Doc. 90 at 94-95.) When asked whether he could keep records in a safe to prevent theft, Mr. Tackett stated “if I documented every little thing, I would have to buy a significant safe. We ran into this issue when we first started working back in 2014, we did our best to keep records and every little piece of paper possible, and it just becomes so overwhelming.” (Id. at 96.) Mr. Tackett's testimony makes clear that ABC destroys any record of individual transactions.
The Court notes that many of the Exhibits provided in this action have neither a Court ECF page numbers, or a bates stamp number for reference. Accordingly, the Court has determined and listed the page numbers of these Exhibits by counting toward the page referenced, beginning with the cover page of the Exhibit as 1.
Mr. Tackett also testified that he has not completed inventory of ABC's holdings in years. (See Doc. 92 at 14 (“Q. What is the value of the inventory that American Bullion & Coin retained? A. I have not been able to conduct proper inventory since my time has been inconvenienced for the last several years, so I don't have a proper answer for you.”).) Nor does Mr. Tackett have any documentation showing ownership of any of ABC's inventory. (See Doc. 90 at 97-98 (“Q. . . . Does ABC have any documentation to show that it owns title to any of the coins that you claim it owns? A. I guess not.”).)
c. Mr. Tackett/ABC's failure to keep records makes determining what transactions were for Mr. Tackett's personal benefit/income nearly impossible.
Because of Mr. Tackett's business practices, discerning what transactions done through ABC are for Mr. Tackett's personal benefit or for legitimate business actions is nearly impossible. Indeed, ABC's lack of transactional records was a frequent source of ambiguity during the hearing. At one point, Mr. Tackett was asked about several large transactions made about a month prior to the hearing, including a May 6, 2021 withdrawal of $80,000 from ABC's bank account:
Q. Let me drop you down to May the 6th. There is a withdrawal of $80,000. What does that transaction relate to?
A. I'm sure it was concluding old business.
Q. Where did that $80,000 go?
A. I don't know. I'm looking at the same screen you are.
Q. Okay. This is from a month ago, it's a transaction for $80,000, and you have no idea where the money went?
A. Correct. I believe that my memory is not as good as you would like it to be, and it's definitely not as good as I would like it to be. ...
Q. On May 6, 2021, there is another entry for a withdrawal of $2,100.
Q. Where did that money go?
A. I don't know.
Q. The next entry is from May 6th, appears to be a wire transfer of $30,000 at -- $30,086.95. What does that transaction relate to?
A. I don't know specifically. These are just typical transactions for American Bullion & Coin.(Id. at 58-60.)
Even after the Court permitted discovery to obtain copies of the checks from Mr. Tackett's bank, Mr. Tackett's failure to maintain any records of ABC's individual transactions still posed a significant deterrent to evaluating his income. For example, between January 2021 and August 2021, ABC (via checks signed by Mr. Tackett) made seven payments of $2,100.00 and one payment of $2,500.00 to Ms. Joele Goldman. (Exhibit 24.) Each of these payments were made at a regular monthly interval, between the 6th and 13 th day of the month. (Id.) Mr. Tackett testified that his father and brother “use” a home owned by Ms. Goldman, located in Happy Jack, Arizona. (Doc. 92 at 16.)
Judgment Creditors assert that these checks are evidence of monthly real estate payments made by Mr. Tackett for the personal benefit of his family members. (Doc. 88 at 16.) In response to Judgment Creditors' claim, Mr. Tackett testified that these payments to Ms. Goldman “are not for the purpose of any real estate[,]” but rather “are money that I would owe her from her business with American Bullion & Coin.” (Doc. 92 at 16.) However, Mr. Tackett's testimony cannot be substantiated because he obviously has no record of any transaction between ABC and Ms. Goldman. (Id. at 17 (“Q: And you don't have any records of . . . the transaction with Joele Goldman, you don't have any documents to substantiate the existence of that transaction? A: Correct. As I explained before, when customers purchase things from me, they expect that no one could break into my office and steal their personal information.”).
Mr. Tackett's failure to maintain transactional records also makes it impossible for anyone, including Mr. Tackett, to trace profits from a particular transaction. (See id. at 22.)
Q. I'm asking you how much you made off this transaction. Do you have a way of calculating that?
A. There would be no way of calculating it because it doesn't take into account any costs of the business. . . .
Q. . . . You can't go through your bank statements and determine how much profit you made on this transaction, correct?
A. Not that particular transaction, there is no way. You'd have to do a yearend inventory and calculate it based on your year start as to whether you were in profit or you were in loss.”(Id.)
When coupled with Mr. Tackett's ostensible short-term memory (see doc. 90 at 59), Mr. Tackett's failure to keep records of ABC's transactions creates a substantial hurdle to determining the true scope of income Mr. Tackett received from ABC. The Court finds it is more likely than not that these business practices are an intentional effort to avoid collection of judgments against Mr. Tackett.
This finding is made more likely by the fact that Mr. Tackett testified that he has actively taken steps to prevent collection of the judgment against him because he “is very bitter about the fact that they want to come after me, my assets, and anything else, when they don't deserve it.” (Doc. 92 at 30-31.)
Q. You purchased, between the Harringtons, Paul Sugar, and my clients, you acquired a couple hundred thousand pounds of No. 8 turquoise, correct?
A. Yes.
Q. And you don't know where it is?
A. I don't.
Q. You have no idea whatsoever?
A. I have no idea.
Q. When was the last time you saw the No. 8 turquoise that you acquired from my clients?
A. I feel like it's been several years.
Q. Where was it the last time you saw it?
A. On a truck.
Q. A truck heading where?
A. I don't know, didn't ask.
Q. Well, who was taking it?
A. I don't know. I didn't ask.
Q. So your testimony is that you allowed somebody else to drive your turquoise away in a truck, you don't know who it was and you don't know where they took it. Did I get that right?
A. Yes. This was a decision made just after, I believe, you had threatened to come after it. And I believed it was - it was safer to not know where it was or who had it, than to allow you the potential of coming after it.
Q. And the same is true with American Bullion & Coin, all of the - the things we talked about earlier, like with you hiring different attorneys, as you said, the purpose of that is to prevent judgment creditors from recovering anything; isn't that correct?
A. Yes. Within the law, I'm allowed to do things to protect my investments. And since I don't believe that your clients deserve this material, having won their case on a technicality rather than the merits, I'm very bitter about the fact that they want to come after me, my assets, and anything else, when they don't deserve it.(Id.)
2. ABC compensates Mr. Tackett indirectly by paying his personal expenses, and has continued to do so even following service of the Writ of Garnishment.
Despite Mr. Tackett's apparent efforts to disguise his true income from ABC, the record shows that Mr. Tackett is compensated indirectly by using ABC's business account to pay personal expenses, including mortgages on his personal property, personal loans, and personal insurance. As discussed in this subsection, the record further shows that Mr. Tackett has continued to pay these personal expenses through use of ABC's account, even after being served with the Writ of Garnishment.
a. Mr. Tackett admits he has emptied his personal bank account, and now uses ABC to pay personal expenses.
In March 2021, Mr. Tackett emptied his personal checking account. (Doc. 90 at 53; Exhibit 12 (March 31, 2021 Statement of Accounts at p.1 of 7, showing negative account balance of -$10.73).) Mr. Tackett testified that the account he emptied out is his only personal bank account. (Doc. 90 at 48.) Mr. Tackett further testified that he emptied his personal bank account to keep the money as cash for the payment of expenses. (Id.)
When asked how he was able to pay bills in subsequent months after emptying his bank account, Mr. Tackett testified “I've been paying cash and/or from savings, or checks, or from ABC. I mean, typical to any other month, except for I've not carried a balance in my personal account.” (Id. at 53 (emphasis added).)
b. Mr. Tackett has used ABC's bank account to pay his personal debts.
The record shows that ABC has continued to compensate Mr. Tackett by paying his personal debts to Mr. Greg Krill. On June 16, 2017, Mr. and Ms. Tackett executed a promissory note in favor of Mr. Krill in relation to a $500,000 loan to David and Kristen Tackett, individually. (See Doc. 91; Exhibit 17 (Krill Promissory Note).) The promissory note provides that the purpose of the loan was “proceeds towards the investment in a purchase of turquoise rock . . . purchased from Elven E. Jennings and was a quantity of 200,000+ pounds [for which] David Tackett will control and be responsible for the sale and marketing of the turquoise.” (Exhibit 17 at 2.) ABC was not a party to the turquoise transaction or the Greg Krill promissory note. (See Doc. 92 at 32; Exhibit 17.)
Mr. and Ms. Tackett defaulted on the promissory note to Greg Krill. (Exhibit 18 (January 17, 2019 Notice of Default).) Between January 1, 2021 and present, Mr. Tackett made payments from ABC's bank account to Greg Krill in the total amount of $41,000.00. (Exhibit 19.) $23,500 of those payments to Greg Krill were made after the service of the Writ of Garnishment to ABC on May 10, 2021. (Id. at 2-9 (showing eight checks to Mr. Krill from ABC's account posted between June 7, 2021 and February 9, 2022).) Mr. Tackett concedes that these payments were made toward satisfaction of the Krill Promissory Note. (Doc. 95 at 11, ¶¶ 26, 27.)
Mr. Tackett disputes Judgment Creditor's claim that his loan with Mr. Krill is a personal loan. (See Doc. 95 at 10, ¶ 21.) Specifically, Mr. Tackett argues that “[t]he loan from Greg Krill went directly to American Bullion & Coin, LLC and therefore the payments made back to Mr. Krill are made by the business.” (Id.) Mr. Tackett concedes that the loan was “personally guaranteed” but insists that it was “redirected to American Bullion & Coin, LLC[.]” (Id.) The Court finds that Mr. Tackett's argument is not credible. As discussed above, the promissory note plainly states the terms of the loan. (See Exhibit 17.) Nothing in the record, save for Mr. Tackett's own unsubstantiated claims, support that the loan was amended to be a business loan to ABC, rather than a personal loan to Mr. and Ms. Tackett. Indeed, when Mr. and Ms. Tackett defaulted on the loan, it was them and only them who were implicated in the collection effort. (See Exhibit 18.)
The Court finds that the loan from Greg Krill to Mr. and Ms. Tackett was a personal loan. Therefore, payments from ABC's bank account to Greg Krill towards the balance of that loan were made to satisfy a personal debt of Mr. Tackett, and thus constitute payment of compensation by ABC to Mr. Tackett.
c. ABC's payment of Mr. Tackett's mortgage for his personal residence constituted payment of compensation to Mr. Tackett by ABC.
The record shows that Mr. Tackett made multiple payments from ABC's bank account to Freedom Mortgage between January 2021 and May 2021, totaling $10,297.25. (Exhibit 22.) Mr. Tackett testified that these payments were for the mortgage on Mr. Tackett's personal residence. (Doc. 92 at 14.) It is undisputed that these payments constitute payment of compensation to Mr. Tackett by ABC. (See id. at 14-15; Exhibit 13.)
d. ABC's payment of Mr. Tackett's mortgage for a separate property located at 2605 E. Larkin, Flagstaff, Arizona, constituted payment of compensation to Mr. Tackett by ABC.
The record also shows that ABC/Mr. Tackett has used ABC's bank account to pay the personal mortgage of at least one other property individually owned by Mr. and Ms. Tackett. Judgment Creditors have submitted evidence of 12 separate payments from ABC's bank account to Pioneer Title Company between March 2021 and February 2022. (See Exhibit 23.) At the hearing, Mr. Tackett confirmed that these payments by ABC were made on the mortgage for a property that he and his wife individually own - the 2605 E. Lakin property (see Exhibit 27). (See Doc. 92 at 15; Doc. 91 at 5-6.) In total, Mr. Tackett used ABC's bank account to pay $16,846.93 to Pioneer Title Agency for the mortgage or mortgage interest on the 2605 E. Lakin property. (Exhibit 23.) Of that total amount, eight checks amounting to $11,653.07 were posted after May 10, 2021, when the Writ of Garnishment was served. (Id. at 2-9)
The Court notes that there is a discrepancy in the record regarding the specific address of the property at issue in this subsection. During testimony, Mr. Tackett affirmed that the address of the mortgaged property is “2706 Lakin Street” (doc. 92 at 15); however, in the parties' post-hearing briefing, Judgment Creditors reference the property address as “2605 E. Lakin, Flagstaff, Arizona' (doc. 88 at 12). It appears that the latter address is correct. (See Exhibit 27 (Warranty Deed and Deed of Trust listing 2605 E. Lakin).) Despite the confusion as to the actual address, it is uncontested that the property at issue is owned by Mr. and Ms. Tackett individually. (See Doc. 92 at 15; Doc. 95 at 11.)
Mr. Tackett argues that these payments on his personal mortgage do not constitute income to him, because a lease exists between him and ABC for the 2605 E. Lakin property; however, the lease is currently lost and he cannot find it. (See Exhibit 26 at 5-6 (Response to Interrogatory No. 6: “There is a written agreement between myself personally and American Bullion and Coin, LLC for the rental of the storage space on 2605 E. Lakin Dr. The business rents the space and pays the monthly payments to Pioneer Title company as its rent payments. I can't find my copy of the agreement right now, despite my efforts to search for it, but I will continue to try to find it.”); Doc. 95 at 12 (“A lease was made when American Bullion & Coin, LLC started using the property. If I could have located it, I would have produced it. I answered honestly and my inability to find it does not negate the fact that it was created and does exist, I just can't located it.”).)
The Court finds that Mr. Tackett's claims that a lease exists are not credible. Mr. Tackett was afforded every opportunity to locate and produce a source document detailing the lease between ABC and himself. In the Court's March 17, 2022 Order, the Court denied Judgment Creditors' request to compel Mr. Tackett to produce the lease between himself and ABC for the 2605 E. Lakin property, or to precluded Mr. Tackett from testifying that the lease exists. (See Doc. 81 at 6-7.) However, the Court warned Mr. Tackett that “if no document is produced to support the existence of an agreement between Mr. Tackett and ABC, it will be left to the Court to make a credibility determination on Mr. Tackett's testimony regarding such an agreement's existence.” (Id. at 7.) It was incumbent on Mr. Tackett to produce evidence of the alleged lease. There is no such evidence in the record.
What is more, on January 14, 2022, Mr. Tackett testified that nothing is stored in that storage facility, “[s]o, as soon as the lease is up, it won't be needing to be paid anymore.” (See Doc. 91 at 5-6.) But Mr. Tackett provided no explanation how he knew the terms of the lease without maintaining a copy of the document. And the record shows that ABC made at least three more payments to Pioneer Title Company between the time of Mr. Tackett's testimony and February 2022. (See Exhibit 23 at 11-13.) It seems unlikely that ABC would continue paying for an empty storage facility it is not using. That fact that it did makes it less likely that a lease existed between Mr. Tackett and ABC.
Based on the evidence - and more importantly, lack of evidence - in the record regarding a lease between ABC and Mr. Tackett for the use of the property at 2605 E. Lakin, the Court finds that Mr. Tackett's claim that the payments were made pursuant to a lease are not credible. Thus, ABC's payments of Mr. Tackett's personal mortgage on the 2605 E. Lakin property constituted payment of compensation to Mr. Tackett by ABC.
e. Mr. Tackett's removal of petty cash from ABC for personal use constituted payment of compensation to Mr. Tackett by ABC.
The record shows that Mr. Tackett will take cash out of ABC's petty cash fund for his personal use, but Mr. Tackett does not keep any lasting record of those withdrawals. During the hearing, Mr. Tackett testified that he will withdraw $1000-2000 in cash from ABC's bank account as petty cash, and store it in a safe. (Doc. 90 at 46.) Mr. Tackett will then make occasional withdrawals from the petty cash, and write a record of the transaction on the envelope provided by the bank when he takes out money. (Id.) However, when the money inside the envelope is depleted, Mr. Tackett throws the envelope (and any record of when and how much money Mr. Tackett took out) in the trash. (Id. at 46-47.)
Mr. Tackett concedes that these withdrawals of cash from ABC's petty cash fund constitute a payment of compensation to Mr. Tackett by ABC. (See Exhibit 13.)
f. ABC compensates Mr. Tackett by paying his personal insurance, medical, and homeowner's association's expenses.
The record shows that Mr. Tackett made payments from ABC's credit card account to pay for personal insurance from American Family Insurance in the amounts of $998.10, $912.00 and $298.55, totaling $2,208.65. (Doc. 90 at 23, 42-43; Ex. 11(credit card transactions dated 1/25/21).) On January 25, 2021, Mr. Tackett made a payment of $300 from ABC's bank account to SimonMed Imaging to pay his personal medical expenses. (Doc. 90 at 42.) On January 28, 2021, Mr. Tackett made a payment of $960 from ABC's bank account for his homeowner's association dues. (Id. at 43.)
Mr. Tackett concedes that these payments of personal insurance and medical expenses constitute payment of compensation to Mr. Tackett by ABC. (See Exhibit 13.)
g. ABC compensates Mr. Tackett by paying his personal legal expenses.
The record shows that between February 5, 2021 and April 6, 2021, Mr. Tackett used ABC's bank account to pay approximately $26,000 to various law firms, many of whom are attorneys of record for Mr. Tackett, individually, in active cases at the time of payment. (See Doc. 90 at 44-45; Doc. 92 at 3-6; Exhibits 20, 21.)
i. Kathryn Mahady of the law firm Aspey, Watkins & Diesel PLLC.
On February 5, 2021, Mr. Tackett/ABC paid $20,000 to attorney Kathryn Mahady of the law firm Aspey, Watkins & Diesel PLLC. (Exhibit 20.) Ms. Mahady represented Mr. Tackett in his appeal of the underlying judgment to the Ninth Circuit. See No. 8 Mine, LLC c. The Eljen Group, Case No. 21-15275 (9th Cir.) [ECF No. 4] (Kathryn Mahady's Entry of Appearance on behalf of David Tackett, filed March 8, 2021); [ECF No. 6] (Motion for Extension filed by Kathryn Mahady on behalf of David Tackett); [ECF No. 8] (Stipulated Dismissal of Appeal filed by Kathryn Mahady on behalf of David Tacket).
The Court will take judicial notice of the pleadings filed in Mr. Tackett's appeal of the related case. See United States ex rel. Robinson Rancheria v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 2002) (a court may take judicial notice of pleadings filed in related cases).
Mr. Tackett testified that the payment to Ms. Mahady's law firm was not for his personal litigation, but rather was for legal services for ABC. (Doc. 90 at 27-28.) Mr. Tackett's testimony is not credible. Ms. Mahady's entry of appearance in the appeal action was filed just 31 days after receiving the $20,000 payment. Ms. Mahady has never entered an appearance on behalf of ABC in the proceedings pending before this Court. Plaintiff states that Ms. Mahady returned $9,540.95 of the $20,000 retainer fee. (Doc. 95 at 13.) As it so happens, Mr. Tackett voluntarily dismissed his appeal on March 23, 2021 (see No. 8 Mine, LLC, Case No. 21-15275 (9th Cir.) [ECF No. 8] (March 23, 2021 Stipulated Dismissal of Appeal filed by Kathryn Mahady on behalf of David Tackett.).
The suggestion that Mr. Tackett's payment of $20,000 to Ms. Mahady had no attachment to his ongoing appeal, for which she appeared and represented Mr. Tackett, strains credulity. The fact that Mr. Tackett's appeal was voluntarily dismissed less than three weeks from the date of Ms. Mahady's appearance and then Ms. Mahady returned nearly half of the proffered retainer fee to Mr. Tackett makes it far more likely that the retainer was associated with his personal appeal. What is more, as discussed below, on March 4, 2021, at Ms. Mahady's recommendation, Mr. Tackett spent $5,000 on a retainer fee for another law firm for legal services to ABC. (See Doc. 95 at 13.) The fact that Ms. Mahady recommended separate counsel for services to ABC less than 30 days after receiving a $20,000 retainer, and days before entering an appearance in the Ninth Circuit Court of Appeals on behalf of Mr. Tackett personally, make it highly unlikely that the payment she received was solely for her services rendered to ABC.
To be sure, Mr. Tackett's failure to keep any records of his financial transactions makes it nearly impossible to discern the truth completely; however, based on this record, the Court finds it is more likely than not that Mr. Tackett's used ABC's bank account to pay personal legal fees to Ms. Mahady for her representation of him individually in his appeal.
ii. Michael Danoff of the Law Offices of Michael Danoff + Associates.
On March 4, 2021, Mr. Tackett used ABC's bank account to pay a $1000 retainer to the Law Offices of Michael Danoff + Associates. (Exhibit 20.) Michael Danoff is a New Mexico attorney who was representing David Tackett, individually, in a lawsuit filed by Paul Sugar in the United States District Court for the District of New Mexico. (Doc. 92 at 3.) ABC is not a party to the New Mexico lawsuit. (Id. at 4.) The memo line on the ABC check used to pay the retainer states “David Tackett.” (See Exhibit 20 at 2.)
Mr. Tackett testified that the payment to Michael Danoff was not for his personal legal services, but rather was for legal services for ABC. (Doc. 92 at 4.) He states “I think this particular payment was made on behalf of American Bullion & Coin because we needed advice for how to keep the company out of litigation.” (Id.) When asked by Judgment Creditors whether he made any other payments to Mr. Danoff besides the $1,000 payment from ABC, and if so, from what source, Mr. Tackett said that he had and “I believe it would have been my personal account.” (Id.)
The Court is skeptical of Mr. Tackett's testimony, but ultimately concludes that Mr. Tackett's payment to Michael Danhoff was likely for the purpose of seeking counsel for ABC. To be sure, Mr. Tackett's personal account has been emptied since March 2021. (See Doc. 90 at 53; Exhibit 12.) And review of the record shows no evidence of payment for Mr. Tackett's legal fees from anywhere other than ABC's account. However, in his posthearing Response, Mr. Tackett argues that “the cost for my personal representation from [Mr. Danhoff] were far greater than just $1000.” (Doc. 95 at 13.) That argument has the ring of truth. It is unlikely that any litigant would be able to limit their attorneys' fees in a federal civil action to just $1000. Accordingly, the Court finds it is more likely than not that Mr. Tackett's payment to Michael Danhoff was not for his own personal legal expenses.
iii. Frazer, Ryan, Goldberg and Arnold, LLP.
On March 4, 2021, Mr. Tackett used ABC's bank account to pay a separate $5000 retainer to the law firm of Frazer, Ryan, Goldberg and Arnold, LLP (FRGA). (Exhibit 20 at 4.) The memo line of the check used to pay the retainer states it is for “David Tackett security deposit.” (Id.)
Mr. Tackett argues that the FRGA law firm was recommended to him by Kathryn Mahady to represent ABC. (Doc. 95 at 13.) This fact makes it more likely that Mr. Tackett's $5,000 payment to FRGA was for legal services rendered to ABC; however, it also makes it more likely that Ms. Mahady was representing Mr. Tackett in his individual capacity, not ABC. But as discussed above, the fact that Mr. Tackett wrote the check to FRGA on March 4, 2021 - less than 30 days after paying Ms. Mahady a $20,000 retainer, and days before Ms. Mahady entered an appearance in the Ninth Circuit Court of Appeals on behalf of Mr. Tackett individually - makes Mr. Tackett's claims that Ms. Mahady was representing ABC at that time incredible.
Accordingly, the Court finds that it is more likely than not that Mr. Tackett's March 4, 2022 payment to FRGA law firm was for legal services provided to ABC, and not for Mr. Tackett's personal legal expenses.
iv. Griffin & Associates.
On April 6, 2021, Mr. Tackett used ABC's bank account to pay Griffin & Associates $309 for a deposition transcript in the case captioned Paul Sugar v. David Tackett. (See Doc. 90 at 44-45.) Mr. Tackett concedes that this payment was for his personal legal expenses, but stresses that it occurred prior to the Writ of Garnishment being issued. (Id.; Doc. 95 at 12.)
v. Summary.
In summary, the Court finds that Mr. Tackett used ABC's bank account to pay personal legal expenses in the amount of $20,309 between February 5, 2021 and April 6, 2021.
3. Mr. Tackett disregards the distinction between himself and ABC.
The record shows that Mr. Tackett disregards the distinction between himself, individually, and ABC as a company. This fact is evidenced by Mr. Tackett's failure to track transactions and income received from ABC. As discussed above, Mr. Tackett regularly writes checks from ABC's business account for personal expenses, rather than drawing a paycheck and using his own finances to cover those expenses. (See supra § III(A)(2).)
Mr. Tackett's disregard for the distinction between himself and ABC is further evidenced by his interchangeable usage of his name and ABC's name on rental leases with tenants of 2711 E. Lakin. (See Exhibits 28, 29, 30, 31, 32, 33, 34, 35.) Mr. Tackett has provided copies of four leases to Judgment Creditors for the various rental spaces at 2711 E. Lakin. (Id.) In the first lease, signed January 2, 2018, the landlord is identified as “David Tackett (ABC).” (Exhibits 29, 33.) In the second lease, signed March 29, 2019, the landlord is similarly identified as “David Tackett - ABC.” (Exhibits 31, 35.) But in the third lease, signed September 5, 2019, the landlord is identified as “David Lee Tackett, an individual residing in Arizona.” (Exhibits 28, 32.) And in the fourth lease, dated June 1, 2021, the landlord is initially identified as “American Bullion and Coin LLC;” however, in the First Addendum to the Lease, also dated June 1, 2021, the parties identify “David Tackett as Landlord.” (Exhibits 30, 34.)
Mr. Tackett argues that “these leases have only small discrepancies in wording, since they were created at different times and by different people[,]” but “the intention is clear that they were all written with American Bullion & Coin, LLC as the landlord. It is on each lease somewhere, and most importantly all lease payments have gone directly to American Bullion & Coin, LLC.” (Doc. 95 at 15, ¶ 71.) Mr. Tackett's argument is well taken in part, but it highlights the overarching issue. Indeed, it seems clear that the intent of these leases was for ABC to rent these spaces to the tenants; but Mr. Tackett views himself as ABC, and treats himself as such, even in legal documentation.
To the extent Mr. Tackett argues that “all lease payments have gone directly to American Bullion & Coin, LLC[,]” that statement is unable to be substantiated by the record because Mr. Tackett/ABC's failure to keep any records of their business transactions. (See Doc. 90 at 70. (“Q. Can you show us where on your bank statement the incoming payments from the tenants are? A. I believe they would be in the deposits section. And as far as labeling which exact deposit, I believe the bank lumps them all together, so it would be very difficult to -- to tell where the checks came in. For instance, on May 10th there was a deposit for $5,450, and that easily could have contained checks from any of the renters.”).) And should any of the checks have been cashed by Mr. Tackett, rather than deposited into ABC's checking account, there would be no method of verifying that income.
Given Mr. Tackett's apparent aversion to documentation of ABC's business transactions, his laissez faire attitude toward the usage of ABC's business account to pay for his own personal expenses, and his interchangeable usage of his name as an individual and ABC's business name on legal documentation such as the lease agreements in the record here, the Court finds that Mr. Tackett disregards the distinction between himself and the business, ABC.
B. Conclusions of Law.
Having established the Court's findings of fact based on the record, the Court must now determine its conclusions of law on the issues at bar. First, the Court must decide if Mr. Tackett, in his role as sole employee and officer of ABC, falsely answered the Writ of Garnishment served on ABC by the Judgment Creditors. (See Doc. 29.) Second, the Court must evaluate whether ABC should be considered the alter ego of Mr. Tackett under Arizona law. (See Doc. 42.)
For the reasons discussed below, and after consideration of Mr. Tackett's testimony (docs. 90, 91, 92), evidence submitted at the hearing (Exhibits 1, 2, 6, 8, 10, 11, 12, 13, 14, 16-31), and the parties' post-hearing briefs (docs. 88, 95, 96), the Court finds that Garnishee ABC did provided false information in its Answer to the Writ of Garnishment. However, Judgment Creditors' second objection on the basis of alter ego is beyond the “appropriate scope of a garnishment proceeding[,]” and thus will be overruled. Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Excel Staffing Servs., Inc., No. MC-09-00087-PHX-GMS, 2011 WL 31192, at *3 (D. Ariz. Jan. 5, 2011) (“A garnishment proceeding is not an appropriate action in which [a judgment creditor] may seek to establish the prerequisites necessary to. . . execute their current judgment against the assets of [a garnishee] based on any theory of alter ego or successor liability.”).
1. ABC's Answer to the Writ of Garnishment was False.
Judgement Creditors objected to ABC's Answer to the Writ of Garnishment, initially asserting that the Answer was inconsistent with Mr. Tackett's prior representations, and thus likely false. (See Doc. 29.) After conducting discovery and participating in the Garnishment Hearing detailed above, Judgment Creditors assert that ABC's Answer is demonstrably false based on the record that has been developed. (Doc. 88.) The Court agrees.
a. Legal Standard.
Pursuant to Fed. R. Civ P. 69, the procedures to be implemented by a federal court in relation to enforcement of a judgment must accord with the procedure of the state where the court is located. Fed.R.Civ.P. 69(a).
A.R.S. §12-1598.08 provides that “the answer of the garnishee shall be under oath, in writing and signed by him and shall make true answers to the writ.” A.R.S. § 12-1598.08. A garnishee has a duty “to make a full and complete disclosure of the true facts in regard to it financial relations” with a judgment debtor when served with a writ of garnishment. See Stannard v. Corner Off. AZ Inc., No. 1 CA-CV 14-0148, 2015 WL 1516520, at *2 (Ariz.Ct.App. Apr. 2, 2015) (quoting Regan v. First Nat'l. Bank, 55 Ariz. 320, 326 (1940)).
In a proceeding where a garnishee employer, in good faith, but erroneously responds to a writ of garnishment, the court, after a hearing, must make findings regarding the validity of the writ, the amount of the judgment, the judgment debtor's employment and earnings, and may issue an order directing the garnishee to pay over to the Judgment Creditor non-exempt earnings from the date of service of the writ, and a continuing lien in relation to non-exempt future earnings. A.R.S. §12-1598.10.
b. Discussion.
Here, the record makes clear that Mr. Tackett/ABC falsely answered the Writ of Garnishment. In the Answer to the Writ of Garnishment, Mr. Tackett averred that ABC “will not owe judgment debtor earnings within 60 days after the Writ and Summons.” (Doc. 27 at 2.) However, as discussed in the Court's findings of fact, ABC did in fact pay Mr. Tackett compensation within 60 days after service of the Writ on May 10, 2021 (see doc. 24).
On June 7, 2021, ABC issued a check for $3500 to Mr. Greg Krill in payment on Mr. Tackett's personal loan. (Exhibit 19 at 9.) On May 11, 2021, and June 8, 2021, and July 7, 2021, three checks issued by ABC to Pioneer Title Company were posted in the amounts of $2,603.46, $1,289.23, and $1,289.23, respectively, in payment of a mortgage on a property owned by Mr. and Ms. Tackett personally. (See Exhibit 23 at 7-9.) Thus, within 60 days of the Writ of Garnishment being served, ABC paid Mr. Tackett no less than $8,681.92. In total, ABC has paid Mr. Tackett not less than $35,153.07 since being served with the Writ of Garnishment. This figure does not include potential withdrawals from petty cash or payments made to Ms. Tackett because, despite acknowledging that such payments occurred, Mr. Tackett/ABC maintain no records of such payments. Additionally, this figure does not include unexplained major withdrawals, such as the $80,000 withdrawal made on May 6, 2021, for which Mr. Tackett was able to provide neither explanation nor source documentation. (See Exhibit 8 at 3.)
This total figure is calculated based on the amounts paid to Mr. Greg Krill and Pioneer Title Company after May 10, 2021. (See Exhibit 19 at 2-9 (showing eight checks totaling $23,500 to Mr. Krill from ABC's account posted between June 7, 2021 and February 9, 2022); Exhibit 23 at 2-9 (showing eight checks to Pioneer Title Company totaling $11,653.07 posted between May 11, 2021 and December 13, 2021).)
To the extent Mr. Tackett argues that the payments listed here are not personal income, the Court has addressed those arguments in its findings of fact and discarded them as not credible.
The Court further concludes that Mr. Tackett/ABC's false answers were intentionally provided, and not the product of a good faith, but erroneous effort. See A.R.S. § 12-1598.10. Indeed, Mr. Tackett testified that he is “very bitter about the fact that they want to come after me, my assets, and anything else, when they don't deserve it.” (Doc. 92 at 31.) Given the dearth of records Mr. Tackett keeps regarding the business transactions of ABC, and Mr. Tackett's demonstrated animosity toward the Judgment Creditors for their collection efforts, the Court finds it is more likely than not that Mr. Tackett intentionally answered the Writ of Garnishment in such a way as he believed would result in the least amount of collection.
c. Remedy.
Having concluded that Mr. Tackett/ABC has intentionally provided false answers the Writ of Garnishment, the Court must determine the remedy for Mr. Tackett's action. Review of Arizona's garnishment statutes does not uncover a clear choice. Indeed, no where in the garnishment statutes does the law provide for a predetermined remedy in the event of a bad faith answer of a garnishee - particularly when the judgment debtor is the sole employee and officer of that garnishee. See generally A.R.S. § 12-1589 et. seq. A.R.S. § 12-1584 (B) states:
If a timely objection is filed the court, after hearing evidence and argument, shall determine whether the writ is valid against the judgment debtor, what amount is presently due and owing on the underlying judgment and what amount of nonexempt monies, if any, the garnishee was holding for or owed to the judgment debtor at the time the writ was served, and the court shall enter judgment on the writ against the garnishee for that amount or enter an order discharging the garnishee if no nonexempt monies are determined owing.A.R.S. § 12-1584 (B). But determination of what Mr. Tackett was “owed” at the time of service of the Writ of Garnishment is made nearly impossible in this instance by the lack of documentation by ABC, and the inconsistent indirect payment system preferred by Mr. Tackett. The Court knows that Mr. Tackett was paid by ABC. The Court also knows that Mr. Tackett was likely paid more than can be confirmed (due to Mr. Tackett's failure to maintain sufficient records).
Here, Judgment Creditors ask the Court to “enter an order striking American Bullion & Coin, LLC's answer and hold[] it liable for the entirety of the judgment.” (Doc. 88 at 4.) In support of their request, Judgment Creditors rely on a single case: Stannard v. Corner Office AZ Inc., No. 1 CA-CV 14-0148, 2015 WL 1516520, at *2 (Ariz.Ct.App. Apr. 2, 2015). In Stannard, the Arizona Court of Appeals was faced with a fact pattern broadly similar to this action.
In Stannard, the plaintiff obtained a judgment against two individuals (the judgment debtor) and their closely held LLCs. Id. at *1. The two LLCs then filed bankruptcy. Id. The judgment debtor then used a straw man to create two new business entities - ISIA and COA. Id. The judgment creditor served a writ of garnishment to each of the two new businesses, in response to which COA falsely denied employing the judgment debtor and ISIA claimed to pay the judgment debtor at the minimum wage rate. Id. After allowing discovery and holding a hearing, the trial court determined that the garnishees' answers to the writ of garnishment were false and that the garnishees compensated the judgment debtor indirectly (by directly paying for the judgment debtor's vehicles and insurance, repayment of “loans” due the judgment debtor, and payments made from the businesses to “cash” which were then endorsed by judgment debtor and deposited in the judgment debtor's personal bank account). Id. at *1, fn.2. The trial court sustained the plaintiff's objection against ISIA, for underreporting judgment debtor's income, and held them liable for a portion of the judgment. Id. at *1. However, the trial court struck COA's answer as false under Ariz. R. Civ. P. 12(f), because they had denied employing judgment debtor at all, and held COA liable for the entirety of the underlying judgment. Id.
The Arizona Court of Appeals upheld the trial court's order striking COA's false answers and holding COA liable for the entire judgment. Id. at *4. The Stannard court reasoned that the trial court did not error by sanctioning COA - presumably pursuant to the court's inherent power to sanction, although supporting law is not cited - for its false answer by obligating them to pay the underlying judgment in full. Id. at *3-4.
The Court is not convinced that the remedy applied in Stannard is appropriate in this instance. Unlike in Stannard, where the judgment debtor set up COA through a straw man to avoid collection and then COA denied any employment of the judgment debtor at all, here, Mr. Tackett admitted that he was employed, and simply understated his income from ABC in the 60 days following service of the Writ of Garnishment. To be sure, Mr. Tackett/ABC's answer is still false, but it is more akin to the answer provided by ISIA in Stannard than COA.
The trouble is, as discussed above, due to Mr. Tackett's own business record choices, the Court cannot determine the true amount owed to Mr. Tackett during that time period between May 10, 2021 and July 10, 2021. At a minimum, Judgment Creditor is entitled to the $8,681.92 that ABC paid to Mr. Tackett during that time. But the Court is convinced that Mr. Tackett's true compensation, incalculable as it may be, far exceeded that figure.
A garnishee who fails to answer a writ of garnishment and fails to appear is held liable for the entire judgment. See A.R.S. § 12-1598.13(H) (“If the garnishee fails to appear or file and serve the answer after the service of the order requiring the appearance in person or answer on the garnishee, the court may render judgment by default against the garnishee for the full amount of the judgment against the judgment debtor.”). It seems odd to the Court that a law would impose the entirety of the judgment on a garnishee who merely fails to show up or answer but afford a much lighter penalty on another garnishee that intentionally files a fraudulent answer in an attempt to thwart the garnishment process.
Nonetheless, the Court can find no published authority standing for the proposition effected in Stannard, and the parties have provided none. Accordingly, the Court will recommend that Judgment Creditors' objection to ABC's Answer to the Writ of Garnishment be sustained on the ground that the Answer is false. The Court will further recommend, pursuant to A.R.S. § 12-1584(B), that the Court find ABC was holding no less than $35,153.07 due to judgment debtor at the time of service of the writ of garnishment, and enter a judgment in that amount against Garnishee ABC.
The Court notes that Stannard is a memorandum decision, containing the disclaimer “Notice: Not for official publication. Under Arizona Rule of the Supreme Court 111(c), this decision is not precedential and may be cited only as authorized by rule.” See 2015 WL 1516520.
2. Alter Ego Analysis is Not Appropriate for a Garnishment Hearing.
On June 30, 2021, Judgment Creditors filed a Notice of Supplemental Objection to Garnishee's Answer adding allegations that “American Bullion & Coin, LLC is the alter ego of Judgment Debtor David Tackett and that American Bullion & Coin, LLC and David Tackett conveyed assets with intent to hinder, delay or defraud collection of the Judgment.” (Doc. 42 at 2-3.) But “[a] garnishment proceeding is not an appropriate action in which [a judgment creditor] may seek to establish the prerequisites necessary to obtain independent judgments or execute their current judgment against the assets of [a garnishee] based on any theory of alter ego or successor liability.” Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Excel Staffing Servs., Inc., No. MC-09-00087-PHX-GMS, 2011 WL 31192, at *3 (D. Ariz. Jan. 5, 2011).
Judgment Creditors argue that “[u]nder Arizona Law, the alter ego doctrine is not a separate cause of action, but rather is a means of imposing liability where two entities are in reality alter egos of each other.” (Doc. 88 at 5 (citing Specialty Companies Group, LLC v. Meritage Homes of Arizona, Inc., 461 P.3d 454 (Ariz.Ct.App. 2020), rev'd on other grounds 492 P.3d 308, 251 Ariz. 365 (2021).) But the authority cited by Judgment Creditors does not stand for that proposition. Instead, the court in Specialty Companies Group, LLC stated “[a]lthough we have not found any Arizona authority explicitly holding so, the principles discussed above illustrate that an alter-ego claim is not a separate cause of action, but ‘a means of imposing liability on an underlying cause of action such as a tort or breach of contract.'” See Specialty Companies Grp. LLC, 461 P.3d at 459 (emphasis added). The Court could find no other authority from an Arizona court permitting a party to resolve its alter ego claims in the context of a garnishment action.
Judgment Creditors argue that the Court in Gun Bo, LLC v. Cork applied the alter ego theory between a judgment debtor and judgment debtor's family trust, holding that garnishment of the trust assets was appropriate. (See Doc. 88 at 5 (citing Gun Bo, LLC v. Cork, No. 1 CA-CV 10-0571, 2011 WL 2119030, at *4 (Ariz.Ct.App. May 19, 2011).) But again, Judgment Creditors misstate the holdings of that opinion.
The Gun Bo court never reached the issue of whether the lower court erred by “improperly treat[ing] the [family trust] and the [judgment debtor] as alter egos for purposes of ordering the garnishment.” Gun Bo, LLC, 2011 WL 2119030 at *2. Instead, the Gun Bo court found that it did not need to reach the issue of whether the family trust and the judgment debtor were alter egos, because “reasonable evidence” had been presented to the trial court that the garnishee/appellant was indebted to the judgment debtor, not the family trust. Id. at *4-5 (“The court's determination, therefore, that Appellant was indebted to John Cork, not the Los Cabos trust, was supported by reasonable evidence. . . . Due to our resolution of this matter on the grounds stated above, we need not address Appellant's arguments that the court erred in ordering a writ of garnishment on a debt that Appellant owed to the Los Cabos trust pursuant to the second judgment or that the court, in ordering the second judgment, treated the Los Cabos trust and the Corks as alter egos.”).
“Garnishment is a creature of the statute, and is regulated by the terms of the statute.” Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 2011 WL 31192, at *3 (quoting Davis v. Chilson, 62 P.2d 127, 129 (1936)). And “a garnishment proceeding is not an appropriate action in which [a judgment creditor] may seek to establish the prerequisites necessary to. . . execute their current judgment against the assets of [a garnishee] based on any theory of alter ego or successor liability.” Id.
C. Recommendation.
Accordingly, based on the foregoing findings of fact and conclusions of law, IT IS RECOMMENDED that Judgment Creditors' Objection to American Bullion & Coin, LLC's Answer to the Writ of Garnishment (docs. 29) be sustained on the ground that the Answer is false.
IT IS FURTHER RECOMMENDED that, pursuant to A.R.S. § 12-1584(B), that the Court find American Bullion & Coin, LLC was holding no less than $35,153.07 due to judgment debtor at the time of service of the writ of garnishment, and enter a judgment in that amount against Garnishee American Bullion & Coin, LLC.
IT IS FURTHER RECOMMENDED that Judgment Creditors' Supplemental Objection American Bullion & Coin, LLC's Answer to the Writ of Garnishment on the theory that American Bullion & Coin, LLC is the alter ego of Judgment Debtor David Tackett (docs. 42) be overruled.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Fed. R. App. P. 4(a)(1) should not be filed until entry of the District Court's judgment. The parties shall have 14 days from the date of service of a copy of this recommendation within which to file specific written objections with the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6, 72. Thereafter, the parties have 14 days within which to file a response to the objections.
Failure to file timely objections to the Magistrate Judge's Report and Recommendation may result in the acceptance of the Report and Recommendation by the District Court without further review. See United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). Failure to file timely objections to any factual determinations of the Magistrate Judge may 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 Magistrate Judge's recommendation. See Fed.R.Civ.P. 72.