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Carey v. Soucy - 10/30/2018

The Arizona Court of Appeals Division One holds that there is no right to a jury trial in garnishment proceedings with respect to whether an assignment would constitute a fraudulent transfer.


A judgment debtor stipulated to a $175,000 judgment against him in favor of the judgment creditor.  Later, the judgment debtor entered into a settlement agreement with an estate, under which the judgment debtor would receive two $50,000 payments.  The next month, the judgment debtor’s attorney received the first payment and, after settling his account, paid the judgment debtor the remaining amount.  Days later, the judgment creditor served the attorney with a writ of garnishment to collect on the judgment.  The attorney answered that he did not possess monies belonging to the judgment debtor.  Subsequently, the judgment debtor, the attorney, and an LLC (whose sole member was the attorney) entered into an assignment agreement under which the judgment debtor assigned the remaining $50,000 payment to the LLC in exchange for a $40,000 loan to the judgment debtor. 

Two months later, the judgment creditor served a writ of garnishment on the estate, which answered that it possessed the remaining $50,000 owed to the judgment debtor.  The estate also noted evidence of the assignment agreement.

The judgment debtor objected and requested a hearing with a jury demand.  The superior court denied the judgment debtor’s jury demand.  The court held that the assignment was a fraudulent transfer, that the LLC did not take the transfer in good faith, and that the transfer was not for reasonably equivalent value.  The judgment debtor timely appealed.

The Court of Appeals affirmed.  The Court held that the judgment debtor was not entitled to a jury trial on the fraudulent transfer issue in a garnishment proceeding.  By statute, the superior court shall decide all issues of fact and law in a garnishment proceeding.  A.R.S. § 12-1584(E).  And because garnishment was not a remedy that existed at common law, it was not subject to constitutional protections of the right to a jury trial for causes of action that existed when the Constitution was adopted in 1910.  See Ariz. Const. art. II, §§ 23­–24.

Analyzing the statutory factors used to determine whether a transfer by a debtor was made with actual intent to hinder, delay, or defraud a creditor, the Court held that the superior court’s finding of a fraudulent transfer was supported by substantial evidence.  The Court also held that the superior court did not abuse its discretion in concluding that the transaction was supported by other badges of fraud.  Finally, the Court held that the superior court’s finding that the assignment was not taken in good faith by the LLC was supported by substantial evidence.

Judge Winthrop authored the opinion, in which Judges Perkins and Thompson joined.

Posted by:  Phillip W. Londen

Posted On: 11/15/2018