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[F] von Gemmingen v. 1st Nat'l Bank of Anchorage (2/10/95), 890 P 2d 60
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NOTICE: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, (907)264-0607.
THE SUPREME COURT OF THE STATE OF ALASKA
H. VON GEMMINGEN, d/b/a )
VON'S REALTY, )
) Supreme Court No. S-5967
Appellant, )
) Superior Court No.
v. ) 3AN-85-13170 CI
)
FIRST NATIONAL BANK OF )
ANCHORAGE, ) O P I N I O N
)
Appellee. ) [No. 4165 - February 10, 1995]
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage, Dana Fabe, Judge.
Appearances: Brett von Gemmingen,
Anchorage, for Appellant. John R. Beard,
Anchorage, for Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Matthews, and Compton, Justices.
[Eastaugh,
Justice, not participating]
COMPTON, Justice.
A bank held escrow accounts in the names of judgment
debtors. The debtors had made assignments of proceeds from their
accounts to various creditors. A judgment creditor, H. von
Gemmingen, served a writ of attachment on the bank. The bank
continued to honor the prior assignments, and charge regular
escrow fees for the service. It applied any surplus funds in the
escrow accounts to the benefit of the judgment creditor. The
judgment creditor challenged the bank's right to continue making
payments to the assignee creditors. He asserted that he had the
right to the total deposits made to the judgment debtors'
accounts, irrespective of the prior assignments. Summary
judgment was awarded to the bank. The judgment creditor appeals.
We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. FACTUAL BACKGROUND
Mr. H. von Gemmingen obtained a judgment for $92,983.76
against Clint Finstad, Mary Finstad, Quality World Contractors,
Inc. (Quality World), Carmel Corp. (Carmel), and Forest Park
Hills, Inc. (Forest Park). Mr. von Gemmingen, doing business as
Von's Realty, acted as a real estate broker in the sale of the
judgment debtors' properties and was not paid his commission on
the sales. On May 6, 1987, Mr. von Gemmingen's agent served a
writ of attachment on First National Bank of Anchorage (First
National) garnishing1 all property of the judgment debtors in
First National's possession. von Gemmingen v. First Nat'l Bank
of Anchorage, 789 P.2d 353, 354 (Alaska 1990) (von Gemmingen I).
First National administered 144 escrow accounts in the
name of the judgment debtors; 125 for Forest Park and 19 for
Quality World or Carmel. These are styled "collection" escrow
accounts by First National. See id. at 355. As the purchasers
make payments under installment sales contracts, First National
disburses the funds to the judgment debtors under the terms of
the escrow agreements. Id. In each escrow account, First
National holds a deed to the property in favor of the purchasers.
When a purchaser fulfills the terms of the installment sales
contract, the deed is delivered to the purchaser and the escrow
account closed. At various times prior to the levy, the judgment
debtors assigned some portion of their interest in all but one of
the escrow accounts to various creditors, who incidentally
included both Mr. von Gemmingen and First National. First
National received notice of all of the judgment debtors'
assignments to the creditors prior to Mr. von Gemmingen's service
of the writ of attachment.
First National originally argued that the judgment
debtors' contractual right to receive funds pursuant to the
escrow agreements was not property subject to attachment. Id. at
355. Therefore, in response to the writ of attachment First
National answered that it possessed no property of the judgment
debtors.2 In von Gemmingen I, this court disagreed: "[W]e hold
that 'property' liable for execution includes not only funds
within named escrow accounts, but also the rights of and duties
owed to judgment debtors pursuant to the terms of those
accounts." Id. at 355-56. We directed the parties to proceed on
remand as follows:
[T]he bank should have transferred the
judgment debtors' interest in the named
escrow accounts to the peace officer
executing the writ. The bank is now liable
for the value of . . . any deposits placed in
levied accounts after the writ was served, in
an amount not exceeding the still unsatisfied
portion of the judgment. On remand, von
Gemmingen shall be accorded discovery of the
contents of the levied accounts, deposits
made to those accounts since the date of the
levy, and the [judgment debtors'] interests
in the levied accounts at the time the writ
of execution was served.
Id. at 357.
On remand First National provided an accounting as of
June 1, 1990.3 From May 6, 1987 to June 1, 1990, $130,869.32 had
been deposited in the escrow accounts. Pursuant to the escrow
agreements made before the writ of attachment was served, First
National made payments to various creditor assignees and deducted
escrow fees totalling $72,409.68. This left $58,459.64 belonging
to the judgment debtors: $49,232.23 in Forest Park's escrow
accounts and $9,227.41 in Quality World's and Carmel's escrow
accounts. The Quality World and Carmel accounts were not
complicated by post-levy events. First National paid $9,227.41
less $35.00 to the clerk of court. However, the Federal Deposit
Insurance Corporation (FDIC) had indicated it had a claim to the
Forest Park accounts. First National retained the money in these
accounts pending the resolution of the FDIC claims.
B. PROCEDURAL BACKGROUND
Mr. von Gemmingen moved for summary judgment. He
sought to hold First National liable for the entire unsatisfied
portion of his judgment, relying on the fact that "a total of
$130,869.32 had passed through the levied accounts since May 6,
1987." First National opposed summary judgment, noting that it
retained only $49,232.23 in funds belonging to the judgment
debtors. It also advised the court that FDIC asserted a
competing claim to the funds.
Superior Court Judge Victor Carlson granted Mr. von
Gemmingen's motion without explanation, and directed Mr. von
Gemmingen to file a proposed entry of judgment. Mr. von
Gemmingen submitted a proposed entry of judgment for
approximately $70,000, reflecting the full amount of the
unsatisfied judgment minus an interim payment of roughly $10,000.
First National opposed entry of the proposed judgment. It moved
for reconsideration of the original grant of summary judgment to
Mr. von Gemmingen. First National continued to assert that it
was liable only for the approximately $50,000 it held after
payment of pre-levy assignments and escrow fees.
FDIC moved to intervene during the pendency of these
motions. Because FDIC asserted a post-levy assignment as the
basis for its claim to the funds, the question of the effect of
an assignment again was placed before the court. Judge Carlson
granted FDIC's motion to intervene. He cancelled a hearing
scheduled to consider the motion to reconsider summary judgment
and the opposition to the entry of judgment.4 However, Judge
Carlson's order granting FDIC's motion implicitly acknowledged
that assignments, whether pre or post-levy, might affect the
debtors' interest in the account.
After FDIC's intervention, First National interpled Mr.
von Gemmingen and FDIC, and moved for summary judgment, offering
to deposit the disputed amount with the court. The FDIC did not
oppose this motion, but Mr. von Gemmingen did. He continued to
assert that First National was responsible for the entire
unsatisfied portion of the debt owed by the judgment debtors.
Superior Court Judge Dana Fabe, to whom the case had been
reassigned, granted First National's motion. First National
submitted the disputed funds to the court. Mr. von Gemmingen's
motion for reconsideration was denied without comment.
Mr. von Gemmingen was completely victorious in his
litigation with the FDIC. The FDIC appealed, but the appeal has
since been dismissed. Mr. von Gemmingen now appeals Judge Fabe's
grant of summary judgment to First National in the interpleader.
II. DISCUSSION
The parties agree that the court should apply its
independent judgment to this case. See Summers v. Hagen, 852
P.2d 1165, 1168-69 (Alaska 1993); Langdon v. Champion, 745 P.2d
1371, 1372 n.2 (Alaska 1987). In order to sustain the grant of
summary judgment, we must conclude that the evidence, viewed in
the light most favorable to Mr. von Gemmingen, the non-moving
party, does not allow for a dispute of material fact, and that
First National is entitled to summary judgment as a matter of
law. See Husky Oil N.P.R. Operations, Inc. v. Sea Airmotive,
Inc., 724 P.2d 531, 533 (Alaska 1986).
A. A JUDGMENT CREDITOR MAY RECOVER FROM A GARNISHEE ONLY
TO THE EXTENT OF THE JUDGMENT DEBTORS' INTEREST.
Each party emphasizes different language from von
Gemmingen I. Mr. von Gemmingen focuses on the statement, "The
bank is now liable for the value of . . . any deposits placed in
levied accounts after the writ was served, in an amount not
exceeding the still unsatisfied portion of the judgment." von
Gemmingen I, 789 P.2d at 357 (emphasis added). Mr. von Gemmingen
claims that First National must pay him the lesser of the
$130,869.32 "placed in the levied account"and the unsatisfied
debt owed him. Antithetically, First National concentrates on
the statement, "A valid levy subjects the judgment debtors' full
interest in such accounts to execution." Id. at 356 (emphasis
added). First National claims that the "judgment debtors' full
interest" is that portion remaining after payments from escrow
accounts to prior creditor assignees and charges for servicing
the escrow accounts.
First National's interpretation of von Gemmingen I is
persuasive. The decision allowed and directed discovery into
three different aspects of the escrow accounts: (1) the
"contents" of the accounts; (2) the "deposits" made into the
accounts since the levy date; and (3) the judgment debtors'
"interests in the levied accounts at the time the writ of
execution was served." Id. at 357. This distinction between
contents and deposits versus the judgment debtors' interest in
the account was a recognition that the judgment debtors may not
have a right to all of the money deposited to the account. von
Gemmingen I also suggests that the extent of the judgment
creditor's interest should be measured by the judgment debtors'
interest in the account. Id. at 356 n.9. This is simply another
way of saying that the judgment creditor may attach only property
actually owned by the judgment debtor.
Although the parties do not cite any case law directly
on point, Wittmayer v. Edwards, 781 P.2d 866 (Or. App. 1989), is
relevant to our consideration. Wittmayer was the personal
representative of a decedent's estate. Id. at 867. The estate
was the beneficial owner of an escrow account established to
collect and pay to the estate the monthly installments from a
land sale contract. Id. Wittmayer made a revocable assignment
of all rights to the proceeds of the escrow account to first
assignees, who in turn made a revocable assignment to second
assignees. Id. at 868. Edwards obtained a judgment against the
estate and served a writ of garnishment on the escrow holder.
Id. at 867. The court upheld the assignments and exempted the
escrow holder from the attachment. Id. at 869. In its opinion,
the court summarily accepted the conclusion that a valid
assignment exempts the assigned portion of the account from the
effect of a subsequent attachment by judgment creditors.
We are persuaded that the contractual basis of escrow
accounts and public policy reasons support First National's
position. In collection escrow accounts, the purchasers send
payments to First National pursuant to the terms of the
installment sales contract. Whether this is viewed as a trust or
a simple contractual relationship, the rights and duties of the
parties are defined by the agreement. Under a trust analogy,
First National holds legal title under the terms of the trust
agreement and the judgment debtors own equitable title to the
funds. Under a contract analogy, First National holds title to
the funds subject to a contractual obligation to transfer them to
the judgment debtors. Under either analogy, the interest of the
judgment debtor in the escrow accounts is defined by the escrow
agreement and any modifications to that agreement. A valid pre-
levy assignment of the right to receive escrow payments is a
modification of the escrow agreement. Thus, assignments modify
the judgment debtor's interest in the account. Mr. von
Gemmingen's argument that everything deposited into an escrow
account is the property of the original judgment debtor ignores
the fact that the judgment debtors' interest is created and
governed by the escrow agreement and any modifications of that
agreement.5
There are also sound policy reasons for rejecting Mr.
von Gemmingen's position. Allowing a judgment creditor to
nullify a prior, good faith assignment of rights under an escrow
agreement would discourage business persons from accepting such
assignments in business transactions. Allowing the judgment
creditor to preempt a bank's receipt of earned escrow fees would
make banks less likely to serve as escrow agents.
B. FIRST NATIONAL MET ITS BURDEN OF PROOF; MR. VON
GEMMINGEN DID NOT MEET HIS BURDEN OF PRODUCTION.
Although we have articulated a two-step approach to
garnishment cases which by its terms shifts the burden of proof
between the judgment creditor and garnishee, it is unclear from
the case law which party bears the burden of proof in the second
stage of these cases. We have held consistently that (1) a
judgment creditor bears the burden of showing that the garnishee
has property of the judgment debtor, and (2) the garnishee has
the burden of proving an affirmative defense to the garnishment
action. von Gemmingen I, 789 P.2d at 355; Steenmeyer Corp. v.
Mortenson-Neal, 731 P.2d 1221, 1225 (Alaska 1987); Anchorage
Helicopter Serv., Inc. v. Anchorage Westward Hotel, 417 P.2d 903
(Alaska 1966).
One legally cognizable affirmative defense is that the
garnishee paid the disputed money under "a good faith reliance on
a valid assignment." Steenmeyer Corp., 731 P.2d at 1226.
However, an examination of Steenmeyer Corp. and Anchorage
Helicopter reveals a confusion about which party ultimately must
bear the burden of proof on the question of "good faith
reliance."
In Anchorage Helicopter, a judgment creditor garnished
an employee's wages and the employer asserted a set-off for
previous advances granted to the employee.6 417 P.2d at 905.
The judgment creditor proved that the employer had property of
the employee, i.e., a contractual right to wages belonging to the
employee. The employer then proved that this contractual right
had been assigned to the employer prior to service of the levy.
Arguably we held that the judgment creditor then had the burden
of showing that the assignment was made in bad faith. Id. at 907-
8 ("Lack of good faith must in some manner be shown by the
evidence. No such showing was made here.")
In Steenmeyer Corp., judgment was entered against a
construction subcontractor. Steenmeyer Corp., 731 P.2d at 1222-
23. A general contractor owed a debt to the subcontractor for
work on a prior construction job. Knowing that this debt could
be attached, the subcontractor created a sham corporation and
assigned to the sham corporation its right to receive the debt.
The judgment creditor served the general contractor with a writ
of execution, garnishing the debt. The general contractor
responded that it no longer owed a debt to the subcontractor
because there had been a pre-levy assignment of rights to the
sham corporation. We held that the judgment creditor had proved
that the garnishee (the general contractor) had property (a debt)
of the subcontractor. We held that the burden remains on the
garnishee to show that any disputed money distributed to third-
parties was made in good faith. Id. at 1225. We concluded that
the general contractor had not met this burden. Id.
The decisions in Steenmeyer Corp. and Anchorage
Helicopter are difficult to reconcile. We attempted to do so in
Steenmeyer Corp.
"[The garnishee] argues that Anchorage
Helicopter requires that [the judgment
creditor] bear the burden of proving that
[the garnishee] acted in bad faith. [The
garnishee] mischaracterizes Anchorage
Helicopter. The Anchorage Helicopter court
explicitly held that the garnishee bore the
burden of an affirmative defense . . . ."
Steenmeyer Corp., 731 P.2d at 1225.
Reconciliation of these cases lies in the distinction
between the burden of production and the burden of persuasion.
The garnishee always has the ultimate burden of persuasion when
asserting an affirmative defense. However, as is the case here,
the judgment creditor may have a burden of production as to an
element of the garnishee's defense. For example, First National
must show that it acted on a good faith belief in the validity of
assignments and rights to escrow fees. Mr. von Gemmingen would
take this a step farther, and require First National to make a
detailed proof of the actual validity of the assignments,
disproving any inference of fraud or bad faith. However, he has
never produced any evidence of fraud or bad faith in the
assignments, or even alleged fraud or bad faith. Mr. von
Gemmingen had the burden to produce evidence of fraud or bad
faith before compelling First National to refute the charge in
detail. Drawing all inferences in Mr. von Gemmingen's favor, we
cannot find that he has presented any evidence from which we can
infer that there is a genuine issue of material fact regarding
First National's good faith reliance on the validity of the
assignments and escrow fees.
Under Steenmeyer Corp., First National had the burden
of showing that funds from the escrow accounts were disbursed
"under a good faith reliance on a valid assignment." See id. at
1226. First National has met this burden. At numerous points in
the record, First National presents accountings of the escrow
holdings, listing the date of the assignment, the name of the
assignee, and the amounts distributed to the assignee or retained
as escrow fees. III. CONCLUSION
On this record, First National acted responsibly as a
garnishee under levy. First National paid funds to assignee
creditors whose assignments were received before the levy, and
deducted fees for servicing the escrow accounts. Otherwise, it
retained the funds subject to the levy for the benefit of Mr. von
Gemmingen. The judgment of the superior court is AFFIRMED.
_______________________________
1 In von Gemmingen v. First National Bank of Anchorage,
789 P.2d 353 (Alaska 1990) (von Gemmingen I), we noted the
confusion in the case law and the civil rules over the use of the
terms "attachment,""garnishment,"and "execution." Id. at 354
n.2. For the purpose of this opinion, we do not intend any
distinction between the terms.
2 In addition to the deeds, 17 of the 19 Quality
World/Carmel escrow accounts contained promissory notes
originally payable to the judgment debtors. As of the date of
attachment, the judgment debtors had assigned to First National
their rights under the notes in 16 of these 17 accounts. The
note in one account remained payable to the judgment debtors.
First National later admitted that this note was attachable
property of the judgment debtors and held the note subject to von
Gemmingen's levy. von Gemmingen I, 789 P.2d at 355.
3 We use the June 1, 1990 numbers throughout this opinion
for consistency.
4 Judge Carlson never ruled explicitly on the motion for
reconsideration. Mr. von Gemmingen's only support for the
proposition that the motion was denied is a reference to First
National's motion for reconsideration. Because First National's
motion was filed more than 10 days after the grant of summary
judgment, and was therefore untimely under Alaska Civil Rule
77(k), Mr. von Gemmingen apparently believes that the motion was
denied by operation of the rule. This was not the case.
5 The Kansas Supreme Court has articulated two general
rules to be observed in garnishment cases. The first rule
applying to the assignment question states that "the creditor
takes the place and stands in the shoes of his debtor, taking
only what the latter could enforce." Harpster v. Reynolds, 524
P.2d 212, 215 (Kansas 1974). The second rule which pertains to
the propriety of deducting the escrow fees states:
Ordinarily a claim acquired by the
garnishee against the principal debtor after
the service of the garnishment proceedings
cannot be made available as a setoff.
However, there is an exception to the rule
where the garnishee's claim arises out of the
very contract upon which his liability to the
principal debtor accrued.
Id.
6 Viewed in the terminology of the present case, the
garnishee (employer) was asserting that the judgment debtor
(employee) had made a pre-levy assignment of a contractual right
(wages) to the garnishee (employer).
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