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Arcticorp v. C Care Services, LLC

Supreme Court of Alaska

July 20, 2018

ARCTICORP, Appellant,
v.
C CARE SERVICES, LLC and STATE OF ALASKA, DEPARTMENT OF HEALTH & SOCIAL SERVICES, Appellees.

          Appeal from the Superior Court No. 3AN-15-05556 CI of the State of Alaska, Third Judicial District, Anchorage, Eric A. Aarseth, Judge.

          Douglas R. McMillan and John W. Colver, Colver & McMillan, LLC, Anchorage, for Appellant.

          Scott D. Friend, Assistant Attorney General, Anchorage, and Jahna Lindemuth, Attorney General, Juneau, for Appellee. State of Alaska, Department of Health & Social Services.

         No appearance by Appellee C Care Services, LLC.

          Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.

          OPINION

          WINFREE, JUSTICE.

         I. INTRODUCTION

         A commercial tenant breached its lease and owed unpaid rent. The landlord sued and obtained a writ of attachment against any funds owed the tenant from Alaska's Department of Health and Social Services (DHSS). DHSS replied to the writ by stating it owed nothing to the tenant because a recent audit showed the tenant owed DHSS $ 1.4 million. Without responding to DHS S's reply the landlord moved for a writ of execution against DHSS, which the superior court denied after finding there were no funds to attach. The court denied the landlord's motion for reconsideration, as well as its request for a hearing to examine DHSS. The landlord appeals the denial of its motion for reconsideration and seeks a remand for a hearing to examine DHSS. We affirm the superior court's orders.

         II. FACTS AND PROCEEDINGS

         Arcticorp, a commercial real estate company, leased property to C Care Services, LLC for a five-year term beginning July 1, 2014. The following month the federal government apparently shut down C Care pending a criminal investigation for Medicare and Medicaid billing fraud. Unable to operate, C Care failed to pay rent after October 2014.

         Arcticorp filed a complaint for breach of contract in March 2015 and simultaneously moved for a prejudgment writ of attachment against C Care under Alaska Civil Rule 89[1] and AS 09.40.010.[2] Arcticorp also sought to attach any funds DHSS may have owed for services C Care rendered prior to its forced closure. Arcticorp did not attempt to serve DHSS the writ papers.

         Around the time Arcticorp filed its complaint, DHSS was seeking to recover funds it was owed by C Care for Medicaid billing fraud. After an audit, in mid-March DHSS informed C Care that Medicaid overpayments made to C Care exceeded $1.4 million. Before DHSS began its recovery process C Care had an opportunity to appeal that determination, but it did not. The decision not to appeal may have been a consequence of a plea agreement C Care's owner entered into in May in a state criminal case against her. According to Arcticorp's summary of the plea agreement, C Care's owner agreed not to appeal certain overpayment and restitution findings and to forward any funds received from others to pay C Care's debt to DHSS.

         In early April C Care answered Arcticorp's complaint and admitted to all allegations of breach and money owed. Shortly thereafter the superior court issued a writ of attachment, ordering DHSS's accounting department to attach any and all accounts owed to C Care to satisfy its debt to Arcticorp. Later that month Arcticorp wrote a letter notifying DHSS of the writ; it was addressed "To Whom It May Concern" and mailed to a post office box of the "Alaska Department of Health and Social Services." Arcticorp did not attempt to serve the writ on DHSS according to the Civil Rules.[3] In August C Care confessed judgment in Arcticorp's favor, and both parties entered a stipulation and covenant not to execute.

         In September, five months after the court issued the writ of attachment, DHSS replied to Arcticorp that no money was owed C Care and that there were no funds to attach. DHSS explained that the Office of the Attorney General serves as counsel for DHSS and that the writ of attachment, although sent to DHSS, had not been forwarded to the Office of the Attorney General until August. DHSS further noted that before the writ of attachment was issued DHSS had audited C Care and determined C Care owed DHSS over $1.4 million. DHSS's reply included the affidavit of its medical assistance administrator who conducted the audit, as well as its correspondence with C Care concerning the audit results.

         In October, after receiving DHSS's reply, Arcticorp requested an entry of a final judgment on confession against C Care; the court entered the final judgment in December.

         Arcticorp moved for a writ of execution against DHSS in May 2016, eight months after DHSS had indicated there were no funds to attach in response to Arcticorp's writ. The court denied the motion. It found credible DHSS's explanation that no funds were payable to C Care. The court reasoned that "[b]ecause no funds exist and because [DHSS] bears no duty otherwise to pay the defendant's debts, entry of the requested order would be futile." The court also observed that Arcticorp had not properly served DHSS the original motion for a writ of attachment, delaying the court's receipt of important information until after it entered the writ of attachment and denying DHSS "due process within which to confirm or deny that such funds existed." But the court noted DHSS had not asked that the writ be vacated.

         Arcticorp moved for reconsideration, advancing three arguments. First, Arcticorp had no duty to serve the motion for a writ of attachment on DHSS because DHS S was not a required party to the action. Second, the court should ignore DHS S's reply because DHSS, a non-party, had not properly intervened under Alaska Civil Rule 24. Finally, DHSS had not met its burden to show that it owed C Care no funds. Arcticorp also requested a garnishee proceeding, requiring DHSS to "show cause and submit evidence in support of [its] position" that it owed C Care no funds. The court invited C Care and DHSS to respond to Arcticorp's motion, but neither did so.

         The superior court denied Arcticorp's motion for reconsideration. The court found Arcticorp had not provided DHSS proper notice of the original motion for a writ of attachment and characterized Arcticorp's Rule 24 intervention argument as "absurd," given that it "invited DHSS['s] participation in the case when it sought the [w]rit of [attachment." Questioning Arcticorp's standing to "challenge DHSS['s] determination that it does not owe [C Care] money," the court rejected Arcticorp's "contention that the burden of proof falls on DHSS." The court held that DHSS had provided "sufficient evidence to show that execution is not warranted" and that, although the "[w]rit... froze any money DHSS might owe" C Care, "the [w]rit did not establish that in fact DHSS actually held money owed to [C Care]."

         Arcticorp seeks reversal of the order denying its motion for reconsideration, arguing that DHSS failed to timely intervene under Rule 24. Arcticorp also seeks remand for a garnishee proceeding to examine DHSS.

         III. STANDARD OF REVIEW

         "The respective burdens to be borne by 'garnisher' . .. and 'garnishee'" involve questions of statutory interpretation.[4] We apply our independent judgment to such questions, reviewing a court's interpretation of statutes de novo and "adopting the rule of law that is most persuasive in light of precedent, reason, and policy."[5] We also apply our "independent judgment to decide whether it was error not to hold an evidentiary hearing" to resolve a disputed factual issue.[6]

         IV. DISCUSSION

         We begin our analysis with an overview of writs of attachment and garnishee proceedings. After a civil action commences, Rule 89 permits a plaintiff to apply to the court to "attach" the property of the defendant "as security for satisfaction of a judgment that may be recovered."[7] The plaintiff must file a motion with an affidavit showing the existence of a contractual debt and the plaintiffs right to recover it.[8] A court may issue the writ of attachment only after the defendant is (1) served notice of the motion and a copy of the affidavit, and (2) given an opportunity for a judicial hearing.[9]At the hearing the plaintiff must "establish by a preponderance of the evidence the probable validity of the plaintiffs claim for relief in the action and the absence of any reasonable probability that a successful defense can be asserted by the defendant."[10]Upon this showing the court must issue a writ of attachment against the defendant, which "shall be directed to a peace officer and shall require the peace officer to attach and safely keep property of the defendant not exempt from execution."[11] Debts owed by third parties to the defendant may be attached.[12]

         Third-party debtors holding property that cannot be taken into custody must be served a writ of attachment and a notice specifying the property attached.[13] Upon service of the writ and notice, AS 09.40.060 provides that the third party "shall within a reasonable time and in any event within 24 hours furnish ... a statement designating the amount and description of any personal property ... belonging to the defendant, or any debt the person owes to the defendant." If the plaintiff is unsatisfied by the third party's response, or the third ...


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