Midfirst v. Barness ( 2014 )

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE
LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
MIDFIRST BANK, a federally chartered savings association,
Plaintiff (in CV2011-019600)/Appellant
SMS FINANCIAL XX, LLC,
Plaintiff (in CV2010-051104)/Appellant
RICHARD C. GOODMAN, CELIA GOODMAN and THEODORE
WORTRICH,
Plaintiff (in CV2009-018049)/Appellant,
v.
DARON P. BARNESS, Defendant/Appellee.
No. 1 CA-CV-13-0287
FILED 11-18-2014
Appeal from the Superior Court in Maricopa County
No. CV2011-019600
No. CV2010-051104
No. CV2009-018049
The Honorable James R. Morrow, Commissioner
AFFIRMED
COUNSEL
STINSON MORRISON HECKER LLP, Phoenix
By Craig A. Morgan, Sharon W. Ng
Counsel for Plaintiff/Appellant MidFirst Bank
LAW OFFICE OF BARBARA MARONEY, P.C.
By Barbara R. Maroney
Counsel for Plaintiff/Appellant SMS Financial XX, LLC
HOLCOMB LAW FIRM
By K. Alan Holcomb
Counsel for Plaintiff/Appellant Goodman
AIKEN SCHENK HAWKINS & RICCIARDI P.C., Phoenix
By Philip R. Rupprecht, Robert C. Van Voorhees
Counsel for Defendant/Appellee
MEMORANDUM DECISION
Judge Jon W. Thompson delivered the decision of the Court, in which
Presiding Judge Randall M. Howe and Judge Michael J. Brown joined.
T H O M P S O N, Judge:
¶1 Appellants MidFirst Bank, SMS Financial XX, LLC, and
Richard C. Goodman, Celia Goodman and Theodore Wortrich (collectively,
creditors) appeal from the trial court’s determination that they have no
right to the life insurance funds paid out as a result of the death of Ron
Barness. Specifically, the trial court dismissed the Writs of Garnishment as
to both Northwestern Mutual Life Insurance and Shelea T. Ross as Trustee
for the Ron Nathan Barness Irrevocable Trust (Trust), overruled the
objections of the creditors, and found no violation of the Arizona Uniform
Fraudulent Transfer Act by either Ron Barness or Shelea Ross. Creditors
further object to the award of attorneys’ fees to Daron Barness on the basis
that the trial court erred in determining the merits. Finding no error, we
affirm.
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Decision of the Court
FACTUAL AND PROCEDURAL HISTORY
¶2 This appeal concerns Maricopa County Superior Court
Actions numbered CV2011-019600, CV2010-051104 and CV2009-018049
(MidFirst). Each of those matters concern the default by Ron and Daron
Barness to each of the creditors on one or more loans.
¶3 MidFirst asserts Ron and his wife Daron Barness defaulted on
three commercial loans. MidFirst obtained a default judgment in CV2011-
019600 in February 2012. The MidFirst judgment was in the amount of
$7,428,308.58 plus attorneys’ fees, costs, and interest at 15 percent. Ron
Barness died in October of 2012 leaving a life insurance policy through
Northwestern with the beneficiary being the Trust.
¶4 MidFirst then filed for, and received, a Writ of Garnishment
against Northwestern whom it asserted was holding non-exempt funds in
the form of life insurance proceeds. Certain of the Barnesses’ other creditors
were then allowed to consolidate their actions with CV2011-019600 for the
purpose of litigating their own applications for garnishment.1 Both
Northwestern and the Trustee responded to the Writs by denying they held
funds belonging to judgment debtor Ron Barness. Creditors objected to
Northwestern and the Trustee’s answers and requested an expedited
hearing.
¶5 A hearing was held. The trial court took evidence and heard
argument. The trial court found the following facts:
Mr. Barness formerly owned a term life insurance
policy issued by Northwestern numbered 14186483
(“Policy”). Mr. Barness applied to Northwestern for issuance
of the Policy on April 11, 1997, and Daron P. Barness was
identified as the beneficiary of the Policy. . . .
1 The judgment in CV2009-018049, the Goodman matter, was a joint and
several award against Ron and Daron Barness and Alex and Roxane
Papakyriakou in the amount of approximately $6 million dollars plus
interest and attorneys’ fees and costs. The stipulated judgment in CV2010-
051104, the SMS Financial matter, was likewise a joint and several award
against the two couples, in the amount of $1,922,500 plus 18 percent interest
per annum, and attorneys’ fees and costs. The MidFirst judgment was
against Ron and Daron Barness exclusively.
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In 2011, Mr. Barness took steps to transfer ownership
of the Policy to the Trust. In January 2011, Mr. Barness
established the Trust. . . . The Trust Agreement identified Ms.
Barness as the beneficiary of the Trust, and Shelea T. Ross, Ms.
Barness’ sister, as the trustee. On March 8, 2011, Mr. Barness
signed a document designating the Trust as the owner of the
Policy. Based on the evidence before the Court, Ms. Barness
remained the beneficiary of the Policy throughout 2011 and
well into 2012.
Mr. Barness gave money to Ms. Ross in order for the
Trust to pay the premiums on the Policy. A premium of
$2,104 was paid on April 21, 2011; and a premium of $2,241.22
was paid on April 16, 2012. In consideration for these
premium payments, the Policy remained in effect, and, as of
the dates of these payments, Ms. Barness remained the
beneficiary of the Policy.
Mr. Barness answered Creditors’ questions concerning
the Trust and Policy during depositions that occurred after
ownership of the Policy had been transferred to the Trust. In
the deposition of November 4, 2011, Mr. Barness
acknowledged that he had formed the Trust as part of an asset
planning strategy in light of creditor claims. He testified that
he had a term life insurance that had a present value of “zero.”
He acknowledged that he conveyed the Policy to the Trust so
that his creditors could not get to the Policy “[w]hen if pays
off.”. . . At the time of the November 4, 2011, deposition, Mr.
Barness apparently believed that the proceeds from the Policy
would be paid to the Trust upon his death. During his
deposition 7 months later on June 6, 2012, however, Mr.
Barness testified that his “wife” is the beneficiary of the
Policy.
Just weeks before Mr. Barness’ death, the designation
of Ms. Barness as the beneficiary of the Policy was revoked.
On September 7, 2012, Ms. Ross, as trustee, signed a
document revoking the prior beneficiary designation for
death proceeds and identified the Trust as the designated
beneficiary of the Policy. Mr. Barness died on October 3, 2012.
On November 2, 2012, Ms. Ross, as trustee, signed a
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MIDFIRST BANK v. BARNESS
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beneficiary claim statement asking that the proceeds from the
Policy be sent to her as trustee of the Trust, which is identified
as the beneficiary of the Policy. (Internal citations omitted.)
The trial court concluded that the proceeds from the Policy were exempt
from garnishment by Mr. Barness’ creditors to satisfy either his debt or Mrs.
Barness’. The trial court awarded attorneys’ fees against the creditors.
Creditors appealed.
DISCUSSION
¶6 Creditors assert on appeal, as they did below, that Ron
Barness formed the Trust for the exclusive purpose of hindering, delaying,
and defrauding his creditors in violation of Arizona’s Uniform Fraudulent
Transfer Act, Arizona Revised Statutes (A.R.S.) § 44-1004(A) (1) (2013),2 and
that, in so doing, creditors now have a right to funds from Ron Barness’
term life insurance policy from Northwestern. Creditors also assert that
rather than attempting to garnish proceeds of Ron’s, they are attempting to
garnish the life insurance proceeds to satisfy Daron’s personal debts and,
for these reasons, such proceeds are not protected under A.R.S. § 20-1131
(2010).
¶7 We review the dismissal of a Writ of Garnishment for an
abuse of discretion. Old Republic Nat’l Title Ins. Co. v. New Falls Corp., 224
Ariz. 526, 528, ¶ 9, 233 P.3d 639, 641 (App. 2010). We defer to the trial court's
factual findings unless they are clearly erroneous. See Ahwatukee Custom
Estates Mgmt. Ass'n Inc. v. Turner, 196 Ariz. 631, 634, ¶ 5, 2 P.3d 1276, 1279
(App. 2000). A factual finding is clearly erroneous only where no
substantial evidence supports it. See Visco v. Universal Refuse Removal Co.,
11 Ariz.App. 73, 75, 462 P.2d 90, 92 (1969).
2 Arizona's Uniform Fraudulent Transfer Act, A.R.S. § 44–1004(A) reads:
A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, whether the creditor's claim arose
before or after the transfer was made or the obligation was
incurred, if the debtor made the transfer or incurred the
obligation under any of the following:
1. With actual intent to hinder, delay or defraud any creditor
of the debtor.
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MIDFIRST BANK v. BARNESS
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¶8 Statutory interpretation is a question of law that we review de
novo. People's Choice TV Corp. v. City of Tucson, 202 Ariz. 401, 403, ¶ 7, 46
P.3d 412, 414 (2002). Where the statutory language is clear, we hold to the
plain meaning of its terms. Rineer v. Leonardo, 194 Ariz. 45, 46, ¶ 7, 977 P.2d
767, 768 (1999). “Our goal in interpreting statutes is to fulfill the intent and
purpose of the legislature” and we do so by, first, looking to the plain
language of the statute “as the most reliable indicator of its meaning.”
Garden Lakes Cmty. Ass'n, Inc. v. Madigan, 204 Ariz. 238, 241, ¶ 14, 62 P.3d
983, 986 (App. 2003); New Sun Bus. Park, LLC v. Yuma Cnty., 221 Ariz. 43,
46, ¶ 12, 209 P.3d 179, 182 (App. 2009).
¶9 Section 20-1131(A), which outlines the exemption of life
insurance proceeds from creditors, reads:
If a policy of life insurance is effected by any person on the
person's own life or on another life in favor of another person
having an insurable interest in the policy, or made payable by
assignment, change of beneficiary or other means to a third
person, the lawful beneficiary or such third person, other than
the person effecting the insurance or the person's legal
representatives, is entitled to its proceeds against the creditors
and representatives of the person effecting the insurance.
¶10 The trial court determined that the proceeds were exempt
from creditors’ claims as to either Ron or Daron Barness pursuant to A.R.S.
§ 20-1131(A) and In re Estate of King, 228 Ariz. 565, 269 P.3d 1189 (App. 2012)
(addressing whether A.R.S. § 20–1131 protects life insurance proceeds from
the insured's creditors when the proceeds are paid to a trust whose
beneficiary is a third party). The trial court’s ruling was based on its
conclusion that: (1) neither the establishment of the Trust nor the transfer
of the Policy to the Trust by Ron Barness were fraudulent transfers under
A.R.S. § 44-1004, (2) the actions taken by Ron Barness in an effort to secure
future funds for his wife were legal under A.R.S § 20-1131 and King, and (3)
the change of the beneficiary from Daron Barness to the Trust could not be
a fraudulent transfer under A.R.S. § 40-1004(A) because it was made by the
trustee, not the debtor, as the plain language of the fraudulent transfer
statutes requires. As the trial court pointed out:
In 2011, Mr. Barness had no legal duty . . . to keep the Policy
in place until he died for the benefit of his and/or his wife’s
creditors. He could have simply allowed the Policy to lapse .
. . the beneficiary of the Policy had been changed to the
Trust—a non-debtor—prior to the death of Mr. Barness.
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MIDFIRST BANK v. BARNESS
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¶11 Creditors dismiss King in three sentences in their reply brief,
stating:
Nor do In re Estate of King or In re Jones Estate [10 Ariz. App.
480, 482, 460 P.2d 16, 18 (App. 1969)] support Daron. Neither
case concerns fraudulent transfers. King held that A.R.S. § 20-
1131 applied as against decedent’s creditors when insurance
proceeds were filtered through a trust to the beneficiary, and
that the decedent’s position as trustee of that trust did not
affect the proceeds’ exempt status because she was never
entitled to them.
¶12 We agree with the trial court that this matter is squarely
within the holding of In re Estate of King. Here, as there, the decedent was
“upside down” financially with an estate that was unable to satisfy the
debts and had a term life insurance policy that paid into a trust and named
the trust as the beneficiary of the policy. Id. at 567, ¶ 3, 269 P.3d at 1191.
¶13 The court in King explained that not only are “[l]ife insurance
proceeds paid to a decedent's beneficiary [] exempt from claims of creditors
of the decedent's estate pursuant to A.R.S. § 20–1131(A)” but “also
protect[s] such proceeds when they are paid to a trust created by the
insured in which the beneficiary is a third party.” Id. at 568, ¶ 10, 269 P.3d
at 1192, citing May v. Ellis, 208 Ariz. 229, 230-31, ¶¶ 1, 11, 92 P.3d 859, 860-
61 (2004). The King court went on to say:
We disagree with Creditors' argument that A.R.S. § 20–
1131(A) does not protect the life insurance proceeds because
King was the trustee of the Trust at the time she effected the
policy, the Trust was the owner and beneficiary of the policy,
and the policy was an asset of the Trust. As the Louisiana
Court of Appeals aptly stated, an insured's creditors cannot
reach life insurance proceeds on the life of the insured because
the proceeds “do not come into existence during his life, never
belong to him, and pass by virtue of the contractual
agreement between the insured and the insurer to the named
beneficiary.” T.L. James & Co. v. Montgomery, 332 So. 2d 834,
847 (La. 1976).
The proceeds of the life insurance proceeds were never King's
nor [subsequent Trustee] Reed's. Although King bought the
life insurance policy and named the Trust as beneficiary when
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MIDFIRST BANK v. BARNESS
Decision of the Court
she was the trustee, only her death triggered payment of the
proceeds and a change in the trustee to Reed, her personal
representative. However, Reed was not the beneficiary of the
life insurance proceeds, the Trust was the beneficiary. Neither
Reed nor King was the beneficiary of the Trust; the sole
beneficiary was King's minor son. Although the policy may
have been an asset of the Trust, that does not affect the
applicability of § 20–1131(A). Therefore, neither King (who
purchased the policy) nor her personal representative (Reed)
was the beneficiary of the policy proceeds and § 20–1131(A)
protects the policy proceeds.
Id. at 568-69, ¶¶ 14-15, 269 P.3d at 1192-93. In King, as here, the proceeds
were never the decedent’s, as they did not exist until the insured’s death.3
There as here, the Trust was the beneficiary of the Policy proceeds. When
Ron Barness transferred the life insurance contract to the trust it had no
legal effect on these creditors. Despite creditors’ assertions to the contrary,
they didn’t suffer any actual harm by the transfer to the trust. For these
reasons, we agree with the trial court that A.R.S. § 20-1131 protects these
proceeds from creditors and that that conclusion is not altered by Ron
Barness’ testimony that he was attempting to provide for his wife after his
death. The trial court is affirmed.
Attorneys’ Fees
¶14 Creditors next assert that the trial court erred in awarding
Daron Barness her fees in the amount of $21,511 pursuant to A.R.S. §§ 12-
341.01 and -1580(E) (attorneys’ fees to prevailing party on garnishment).
Creditors primary objection to the fees was that the trial court erred on the
merits and, secondarily, that the fees requested in some instances were
unreasonable. We review attorneys’ fees awards under an abuse of
discretion. Jones v. Burk, 164 Ariz. 595, 597-98, 795 P.2d 238, 240-41 (App.
1990). Finding no abuse of discretion in the award below to Daron Barness,
we affirm.
On appeal, both creditors and Daron Barness seek their fees. Appellee
Daron Barness having prevailed on appeal, is entitled to seek her
3 As to creditors’ claims at oral argument that they could have seized the
life insurance contract prior to Ron Barness’ death, we are unpersuaded.
See ML Servicing Co., Inc. v. Coles, ___ Ariz. ___, ___ P.3d ___ (App. 2014)
(September 16, 2014).
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MIDFIRST BANK v. BARNESS
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reasonable attorneys’ fees and costs in an amount to be determined after
compliance with Rule 21, Arizona Rules of Civil Appellate Procedure.
CONCLUSION
¶15 For the above stated reasons, the trial court is affirmed.
:gsh
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