Opinion
No. 29377.
December 8, 1998.
Appeal from an order of the district court granting respondent's petition for pre-judgment writ of attachment and writ of garnishment. Eighth Judicial District Court, Clark County; Gene T. Porter, Judge.
Affirmed.MAUPIN, J., dissented in part. ROSE and YOUNG, JJ., dissented.
Frankie Sue Del Papa, Attorney General, and Jon M. Okazaki, Deputy Attorney General, Carson City, for Appellant. Garcia-Mendoza Associates and Luther M. Snavely, III, Las Vegas, for Respondent.
OPINION
This is an appeal from an order of the district court granting respondent's petition for a writ of attachment and writ of garnishment. The Department of Motor Vehicles and Public Safety ("DMV") levied administrative fines against Kirk Pittman, dba Credit Auto Sales, a used automobile dealer, and attempted to satisfy the fines from the dealer's cash bond in the form of a certificate of deposit. At the same time, the dealer's attorney, Eva Garcia-Mendoza, Chtd., attempted to garnish the dealer's cash bond to satisfy a judgment for unpaid attorney's fees. Eventually, the district court granted Garcia-Mendoza's motion and ordered the director of the DMV to pay Garcia-Mendoza $44,354.85 from Pittman's $50,000.00 cash bond.
The DMV'S interest in the bond
Prior to obtaining a license, a used car dealer must post a bond, or deposit in lieu of a bond, in the amount of $50,000.00 with the DMV. See generally NRS 482.345 and 482.346. Pursuant to NRS 482.345(5):
The bond must provide that any person injured by the action of the dealer, distributor, rebuilder, manufacturer, representative or salesman in violation of any provisions of this chapter may apply to the director [of the DMV], for good cause shown and after notice and opportunity for hearing, for compensation from the bond. The director may determine the amount of compensation and the person to whom it is to be paid. The surety shall then make the payment.
Similarly, pursuant to NRS 482.346(2), a deposit in lieu of a bond "may be disbursed by the director, for good cause shown and after notice and opportunity for hearing, in an amount determined by him to compensate a person injured by an action of the licensee. . . ." NRS 482.346 also sets forth specific circumstances in which a deposit in lieu of a bond may be "released" or "refunded."
The DMV, as garnishee, contends that it has valid claims against Pittman and his salesman Mestas, arising out of the DMV's enforcement actions, which it was entitled to offset prior to surrendering Pittman's cash bond to Garcia-Mendoza as garnishor. Garcia-Mendoza contends, and the district court agreed, that, although the DMV may have had valid claims against Pittman individually, the DMV failed to follow the statutorily mandated procedures for executing on Pittman's cash bond in satisfaction of its claims. Therefore, according to Garcia-Mendoza and the district court, the director of the DMV, as custodian of Pittman's cash bond, never really had any claims to offset against Garcia-Mendoza's garnishment of Pittman's interest in the cash bond. We agree.
The DMV relies on NRS 31.360, which provides that, even after service of a proper writ of garnishment, the garnishee is entitled to offset any other demands against the judgment debtor's property, including its own. The DMV also relies on Board of Trustees v. Durable Developers, 102 Nev. 401, 724 P.2d 736 (1986), wherein this court, relying on NRS 31.360, upheld such an offset after service of a proper writ of garnishment. This court stated:
Garnishment invests a plaintiff-garnishor with the right to satisfy his claim against a defendant with the debts due from a third-person, the garnishee, to the defendant. As against the garnishee, the garnishor occupies the same position as the defendant, and is subject to any defenses available to the garnishee against the defendant.
Id. at 410, 724 P.2d at 743 (citations omitted). Based upon the foregoing authorities, the DMV asserts its judgments against Pittman and Mestas, which it had obtained prior to service of Garcia-Mendoza's earliest writ of attachment, as proper offsets. The DMV further contends that whether it made a proper claim on Pittman's cash bond is not an issue in deciding whether the DMV is entitled to Pittman's cash bond, so long as the DMV had some outstanding claims against Pittman.
We conclude that, until the DMV executes upon a cash bond in a manner authorized by NRS 482.345 and NRS 482.346, or itself garnishes a dealer's interest in a cash bond, the DMV's only "claim" to or interest in the cash bond is to see that it is preserved and distributed in the manner prescribed by the Legislature and the DMV's own regulations. In other words, absent a valid claim on the cash bond itself, the DMV's only defense against garnishment of Pittman's cash bond is that the order to release the bond is inconsistent with the procedures set forth by the regulatory statutes creating the bonding requirement.
THE HONORABLE JUSTICE ROSE argues, in dissent, that the DMV had priority over Garcia-Mendoza because the DMV has a prior right to set-off and its claim was prior in time. This is not the case for two reasons. First, although it is true that the DMV had an earlier claim against the dealer, the DMV did not have an earlier claim against the bond. In fact, the DMV has never made a proper claim against the bond, because, as discussed below, the DMV did not attempt to follow the statutory procedures specifically set forth for making such a claim. Instead, in an exercise of power unsupported by authority, the DMV simply helped itself to the money. Second, the DMV's common law right to set-off cannot take precedence over its statutory duty to pay out on the bond in the manner established by the legislature. In this case, Garcia-Mendoza followed the statutory procedures for executing upon the bond; the DMV did not. In short, Garcia-Mendoza perfected her claim first and is entitled to priority to the money.
The DMV's withdrawal of funds from the cash bond account
Alternatively, the DMV contends that it properly executed on the cash bond, pursuant to the statutorily mandated procedures, by either "disbursing" or "releasing" the cash bond to itself. This contention is without merit. NRS 482.346(2) provides that a cash deposit in lieu of a bond:
[M]ay be disbursed by the director, for good cause shown and after notice and opportunity for hearing, in an amount determined by him to compensate a person injured by an action of the licensee, or released upon receipt of:
(a) A court order requiring the director to release all or a specified portion of the deposit; or
(b) A statement signed by the person or persons under whose name the deposit is made and acknowledged before any person authorized to take acknowledgments in this state, requesting the director to release the deposit, or a specified portion thereof, and stating the purpose for which the release is requested.
(Emphases added.) We conclude that the DMV cannot have properly "disbursed" Pittman's cash bond to itself because payment of an administrative fine cannot reasonably be said to "compensate" the DMV for statutory violations, nor is the DMV "injured" by such violations. The bond requirement for automobile dealers was clearly intended to ensure compensation for defrauded consumers, not the DMV. In other words, under the plain meaning of the statute, administrative fines are not payable by way of a "disbursement" from a dealer's cash bond.
We also note that a dealer's bond and, presumably, a cash deposit in lieu of a bond, is only available to satisfy a claim of fraud or a claim arising out of a violation of the provisions of Chapter 482 of NRS. See NRS 482.345(5) and NRS 482.345(6). The DMV has not been damaged by fraud. Moreover, a close reading of the judgments against Pittman and Mestas reveals that each was fined for violations of the engine emission control statutes in Chapter 445B of NRS and administrative regulations promulgated thereunder; the purported violations of Chapter 482 of NRS in the district court's judgments reference licensing provisions, not proscribed practices, and thus, are not, themselves, violations.
Moreover, the DMV's invasion of Pittman's cash bond cannot be construed as a "release," as that term is used in the statute. The plain meaning of the term "release" in NRS 482.346(2)(b) is a release of the DMV's interest in or control of a cash bond, not the dealer's interest. Finally, the DMV's contention that the court in the Mestas case ordered the director to "release" the last remaining $20,000.00 of Pittman's cash bond is simply not true. That order merely directed judgment against Mestas in the amount of $27,000.00 — it made no reference to Pittman's cash bond at all.
Such a release would be proper, for example, if the DMV concluded, pursuant to NRS 482.345(1), that the amount of the dealer's bond should be reduced because he had conducted his business satisfactorily over the past five years.
The district court's order
NRS 482.346(2)(a) provides that the director may release a dealer's cash bond upon receipt of "[a] court order requiring the director to release all or a specified portion of the deposit." As set forth above, the DMV's various alleged claims did not render the district court's issuance of such an order improper in this case. We have, however, considered whether, for other reasons, the district court may have exceeded its authority in ordering a release of Pittman's cash bond.
Although the statutory scheme places no express restriction on when a court may order a release, we believe it to be self evident that such a release would be improper if it carried with it the danger that the underlying purpose of the bond requirement would be thwarted. For example, if release of the bond to a mere contractual claimant such as Garcia-Mendoza (who, like the DMV, is not in this case an intended beneficiary of the bond requirement) is likely to result in "injured persons" not being compensated, then release of the bond would be improper.
In the present case, the DMV was queried as to whether any automobile purchasers, injured by reliance upon fraudulent smog certificates provided by Credit Auto Sales, had made claims against Pittman's cash bond. The district court specifically found that there were no claims outstanding against the $50,000.00 cash bond. However, at oral argument, the department conceded that it had not undertaken any substantial efforts to locate the auto purchasers defrauded by Credit Auto Sales or to inform them that money was available to compensate them for their deficient smog systems. We hope that the approximately $5,654.00, plus interest, remaining in the cash bond account will not be executed upon to satisfy the DMV's administrative fines until the department has made a good faith effort to locate these people and to inform them of their right to make a claim against Pittman's cash bond.
In conclusion, we emphasize to the DMV that its status as a would-be creditor of an automobile dealer's victim compensation fund cannot take precedence over its statutory fiduciary duties in regard to management of the fund. When asserting its rights as a mere creditor, as it does in a case such as this, the department stands on the same basis as any other creditor who would make a claim on the statutorily created fund. As such, it must, as did the attorney claimants in this case, perfect and execute upon its claim consistent with the lawful procedures set forth in NRS 482.346. It cannot simply help itself to the money it controls for the benefit of others. Therefore, we affirm the judgment of the district court.
SHEARING, J., concurs.
NRS 482.345 and 482.346 require, as a condition of licensure, the posting of a bond or cash deposit to compensate "persons injured" by violations of NRS chapter 482. This requirement is clearly intended to compensate defrauded consumers, not satisfy DMV fine collections. Thus, the issue to be decided does not involve whether the parties below had priority to lodge claims against the deposit, or whether the Nevada garnishment statutes have been followed. Rather, the issue is whether any release of the monies should have been allowed.
I conclude that the DMV had no right to satisfy its fines out of the bond and no right to preempt a garnishment by simply paying a portion of the cash bond to itself. I also conclude that, even without a right of setoff by the DMV, the attorney's claimed right of garnishment must likewise fail. This result is required by the fact that disbursements from a dealer's bond or deposit may only occur upon approval by the DMV of a claim of consumer fraud or upon final or partial release under NRS 482.345(1). Because neither party to this appeal qualifies as a person injured under the statute, because the bond or deposit must remain in place until a full or partial release, and because no such release has been ordered in compliance with the statute, both claims to the proceeds are invalid.
This is not to say that the proceeds of the deposit are not subject to the lien process to be foreclosed upon when the funds are properly released. In this connection, I disagree with the conclusion reached by ROSE, J., that agreements approved by the district court gave the DMV priority status. These agreements, whereby the dealer admitted violations, terminated business and stipulated that the fines be paid from the deposit were not in compliance with NRS 482.345 and NRS 482.346. Before such a stipulation could be approved, a separate hearing should have been conducted to determine whether a release of the funds could adequately address outstanding consumer complaints.
The district court found that no claims against the bond were outstanding. Such a finding would ordinarily justify release because the department has the inherent authority upon cessation of a licensee's business to make determinations that continuation of deposits are not required. Here, however, the extent of violations was so profound that precautions to insure that consumer complaints could be addressed should have been taken. Thus, I agree with YOUNG, J., that the district court failed to make sufficient findings of fact to justify the release of the funds to the DMV.
There appear to be no statutory priorities as between these parties. Thus, I would remand to have the district court (1) determine whether a release of the funds will satisfy the intent of the statute; and (2) to determine the proportionate shares of these parties to the deposit proceeds.
Rather than stimulate another "race" to execute upon the deposit, the district court should conclude that both claims are of equal priority, unless it concludes that the DMV has not perfected its right to execute.
The right to set-off has been recognized at common law and in many of our cases. See Board of Trustees v. Durable Developers, 102 Nev. 401, 410, 724 P.2d 736, 743 (1986) (discussing the existence of both a common law and statutory right to set-off); Contrail Leasing v. Executive Service, 100 Nev. 545, 550, 688 P.2d 765, 768 (1984) (explaining the rationale underlying the common law right to set-off). It is also contained in our garnishment statutes. See NRS 31.360. Therefore, I begin my analysis with the assumption that the right to set-off was available to the Department of Motor Vehicles (DMV), whether based on a specific statute or not, as it would be to any other citizen of this state.
The primary issue on appeal concerns the priority of conflicting claims between the DMV and the former attorney for the used car salesman. Prior to service of the writ of garnishment upon the DMV and the bank by the attorney, the DMV and the car salesman reached an agreement whereby the car dealer admitted to the violations that had been asserted by the DMV, stipulated that he would terminate business, and agreed to pay a fine of $30,000.00 from the cash bond on deposit. The stipulated agreement was approved by the district court and the bank holding the cash bond accordingly disbursed $30,000.00 from it to the DMV pursuant to the court approved stipulation. It was not until then that the former attorney for the used car salesman served the writ of garnishment upon the DMV.
Given this scenario, it seems clear that the DMV had priority over the conflicting claim by the former attorney because the DMV had the common law right to set-off and its claim was prior in time.
JUSTICE YOUNG'S dissent emphasizes that consumers have a primary right over both claimants, and I agree. However, the car salesman's violations consisted of securing phony air emission inspection certificates, thereby permitting cars on the road that had not passed the requisite emission standards. In this case, it appears that the car salesman's violations inflicted more harm upon the environment and the public at large, rather than on the specific individuals who received the fraudulent emission certificates. No consumer claims have been filed against the used car salesman, and the claims of the parties can now be determined.
I believe that the district court abused its discretion by releasing the funds at issue without making any findings as to whether the amount of money remaining was sufficient to cover future claims against the fund by persons injured by the fraudulent activity of Pittman, dba Credit Auto Sales ("CAS"), or his associates.
The pool of money that is the subject matter of this dispute is a cash deposit which CAS made pursuant to NRS 482.345 and NRS 482.346. These statutes provide that in order to acquire a license to sell automobiles, a dealer must either post a $50,000.00 bond (NRS 482.345) or deposit $50,000.00, in lieu of a bond, with the Department of Motor Vehicles ("the Department") (NRS 482.346). When a person is injured by an action of the dealer which violates a provision of NRS Chapter 482, that person may, upon good cause shown, be compensated for his injury from the bond or deposit. NRS 482.345(5) and NRS 482.346(2). As the majority states, the intent of this legislation is clearly to protect consumers from fraud and sharp practice on the part of auto dealers.
It is well established that when interpreting a statute, "`[t]he entire subject matter and the policy of the law may also be involved to aid in its interpretation, and it should always be construed as to avoid absurd results.'" Moody v. Manny's Auto Repair, 110 Nev. 320, 325, 871 P.2d 935, 938 (1994) (quoting Welfare Div. v. Washoe Co. Welfare Dep't., 88 Nev. 635, 638, 503 P.2d 457, 459 (1972)).
NRS 482.346(2)(a) provides that funds from the deposit may be released upon receipt of "a court order requiring the director [of the Department] to release all or a specified portion of the deposit." This statute does not contain language which explicitly guides the district court's discretion in issuing such an order. However, as the majority indicates, it is absurd to suppose that the legislature intended to grant the district court the discretion to release the funds from a deposit in such a manner as would leave consumers without the protection afforded them by these statutes; such legislation would be self-defeating. Thus, the statutory scheme necessarily implies that the goals of consumer protection operate as guideposts for the district court's discretion in this context. Accordingly, I believe that the district court abuses its discretion when it orders the release of funds from a deposit without determining that sufficient funds remain in the deposit to cover any outstanding claims by injured consumers against the depositor dealer. Were this not the rule, every district court judge would have the discretion to thwart the legislative goals that are furthered by NRS 482.345 and NRS 482.346.
In this case, Pittman opted to deposit a $50,000.00 certificate of deposit with the Department. It was later discovered that CAS had sold at least twenty vehicles with fraudulently obtained smog certificates. The Department initially fined Pittman $45,000.00. However, after some negotiation, Pittman and the Department stipulated to a $30,000.00 fine, to be satisfied from the deposit Pittman had made pursuant to NRS 482.346.
Shortly after this settlement was reached, Pittman's former attorney, Garcia-Mendoza, filed a motion to attach by lien Pittman's deposit in order to pay outstanding attorney's fees. Garcia-Mendoza later filed suit against Pittman, seeking to recover attorney's fees. The Department opposed the lien motion and sought to intervene in Garcia-Mendoza's action against Pittman. Ultimately, the district court determined that Garcia-Mendoza's claim to the funds in the deposit was superior to that of the Department. Accordingly, the district court ordered the Department to pay Garcia-Mendoza $44,354.85 from Pittman's deposit.
I do not contest the majority's conclusion that Garcia-Mendoza's claim to the funds in Pittman's deposit was superior to that of the Department. However, I believe that the district court did not make sufficient findings of fact to justify the release of these funds in the first place. The district court merely found that there were no outstanding claims against the fund by consumers who had purchased automobiles with fraudulent smog certificates. There is no evidence in the record that the Department had made any effort to notify potentially injured consumers of the availability of the funds from Pittman's deposit. Thus, there could well exist a number of persons injured by Pittman's fraudulent activity who brought no claim against the fund because they were unaware of its existence. Therefore, in my view, the district court's bare finding that no claims were outstanding is insufficient to support its order releasing those funds to Garcia-Mendoza. Therefore, I conclude that the district court abused its discretion by ordering the release of these funds.
It seems to me that the majority's ruling today will effectively eviscerate the protection which NRS 482.345 and NRS 482.346 were designed to afford the customers of unscrupulous auto dealers. Therefore, I respectfully dissent.