& 20CA1942 LBA v. Landmark

20CA1803 & 20CA1942 LBA v Landmark 01-20-2022

COLORADO COURT OF APPEALS

Court of Appeals Nos. 20CA1803 & 20CA1942

City and County of Denver District Court Nos. 14CV32763 & 15CV30950

Honorable Morris B. Hoffman, Judge

Honorable Kandace C. Gerdes, Judge

LBA Realty Fund III-Company III, LLC, a Delaware limited liability company,

Appellant,

v.

Landmark American Insurance Company,

Intervenor-Appellee.

ORDERS REVERSED AND CASES

REMANDED WITH DIRECTIONS

Division V

Opinion by JUDGE YUN

Welling and Davidson*, JJ., concur

NOT PUBLISHED PURSUANT TO C.A.R. 35(e)

Announced January 20, 2022

Moye White LLP, Thomas M. List, Patrick J. Hickey, Denver, Colorado, for

Appellant

Traub Lieberman Straus & Shrewsberry LLP, Michael S. Knippen, Chicago,

Illinois, for Intervenor-Appellee

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.

VI, § 5(3), and § 24-51-1105, C.R.S. 2021.

1

¶ 1 In this consolidated appeal, LBA Realty Fund III-Company III,

LLC (LBA) appeals (1) the district court’s order in case number

15CV30950 concluding that a judgment under appeal was not a

garnishable asset; (2) the district court’s order in case number

14CV32763 granting a C.R.C.P. 12(c) motion for judgment on the

pleadings; and (3) the district court’s order denying LBA’s motion to

intervene in case number 14CV32763. We reverse the three orders

and remand the cases for further proceedings.

I. Background

¶ 2 This appeal has a complicated procedural history. We

describe it step by step.

A. The Lease Action

¶ 3 LBA is the former landlord of the Castle Law Group, LLC

(Castle Law). When Castle Law defaulted on its lease, LBA sued for

breach of contract (the Lease Action). In November 2015, the

district court entered judgment for LBA in the amount of

$1,594,213.81.

2

B. The State Action and LBA’s Attempts to Garnish the Attorney

Fee Award

¶ 4 In 2014, the State of Colorado sued Castle Law, alleging that

the firm had engaged in a deceptive scheme related to its

foreclosure legal work (the State Action). See State ex rel. Weiser v.

Castle L. Grp., LLC, 2019 COA 49, ¶¶ 4-6, superseded by statute,

Ch. 268, sec. 1, § 6-1-103, 2019 Colo. Sess. Laws 2515, as stated

in State ex rel. Weiser v. Ctr. for Excellence in Higher Educ., Inc.,

2021 COA 117. Landmark American Insurance Company

(Landmark) is Castle Law’s liability insurer and provided Castle

Law’s defense in the State Action.

¶ 5 Following a bench trial, the district court ruled in Castle Law’s

favor on all but one of the claims asserted by the State, and the

judgment against Castle Law on the remaining claim was later

vacated on appeal. Id. at ¶¶ 2-3. After the trial, Castle Law asked

the district court to award attorney fees on the grounds that the

State’s claims lacked substantial justification under section

13-17-102, C.R.S. 2021. The district court awarded Castle Law

$1,454,809 in attorney fees.

3

¶ 6 The State then appealed the attorney fee award. During the

pendency of the appeal, LBA served multiple writs of garnishment

on the State to collect its November 2015 judgment from the Lease

Action.

¶ 7 In April 2018, LBA served the first writ of garnishment on the

State. The State responded that it was liable on the attorney fee

award but that the judgment was stayed pending appeal.

¶ 8 On May 15, 2019, LBA served a second writ of garnishment on

the State. Before the State answered the writ, a division of this

court affirmed in part and reversed in part the district court’s order

awarding attorney fees to Castle Law and remanded the case to the

district court for further proceedings on the attorney fee award.

State ex rel. Weiser v. Castle L. Grp., LLC, slip op. at ¶ 1 (Colo. App.

No. 18CA1026, Sept. 5, 2019) (not published pursuant to C.A.R.

35(e)). The State then responded to LBA’s second writ as follows:

a. On the date and time this Writ was

served upon you, did you possess or control

any personal property of the Judgment Debtor

[Castle Law] or did you owe any rents,

payments, obligations, debts or moneys other

than earnings to the Judgment Debtor?

X Yes ___ No

4

b. If YES, list all items of personal property

and their location(s) and/or describe the

nature and amount of the debt or

obligation: . . . Judgment in favor of The Castle

Law Group, LLC and against the State of

Colorado in the amount of $1,454,809.00 in

Denver District Court case No.

2014-CV-32763. Enforcement of this

judgment is stayed pending appeal. . . .

Judgment was reversed in part and affirmed in

part and remanded for further proceedings in

Case No. 2018COA1026. . . . Enforcement

remains stayed pending final court resolution.

¶ 9 On May 1, 2020, the State and Castle Law reached a

stipulation regarding the attorney fees incurred by Castle Law, and

the State filed a motion to deposit the funds into the court registry

to stop the accrual of postjudgment interest. The State attached

LBA’s writs of garnishment as exhibits to its motion and informed

the district court that it had received the writs “from a creditor of

[Castle Law] seeking the funds that the Court has ordered the State

to pay to [Castle Law].” The State further informed the court that it

had learned that Landmark, as Castle Law’s insurer, also asserted

ownership of the attorney fee award and was planning to intervene

in the State Action. The State argued, however, that the competing

claims did not affect the merits of its motion to deposit the funds

5

into the court registry “so they can be accessed by whichever

interested party is entitled to receive them.”

¶ 10 On May 15, 2020, the district court entered judgment in favor

of Castle Law in the amount of $277,243.61 plus postjudgment

interest. On May 22, LBA served a third writ of garnishment on the

State, again asserting its rights to the attorney fee award. On May

29, the district court granted the State’s motion to deposit the

funds into the court registry. On June 2, the State answered LBA’s

third writ and stated that although “[a]t the time of service the State

possessed funds, . . . it is not currently in possession of any funds

owed to the Judgment Creditor” because it had deposited the funds

into the court registry on May 29.

C. Landmark’s Intervention in the Lease Action

¶ 11 On May 4, 2020, Landmark filed a motion to intervene in the

Lease Action, including a traverse to the State’s answer to LBA’s

second writ. Landmark explained that it had paid to defend Castle

Law in the State Action and that it had an “understanding” with

Castle Law that, “as the entity funding the defense . . . [, it was] the

owner of the attorneys’ fee award.” It argued that the State’s

answer to LBA’s second writ “incorrectly describes the owner of the

6

personal property” (that is, the attorney fee award) as Castle Law,

when in fact “[a]n award of attorneys’ fees in the [State Action] in

favor of the Castle Defendants is actually an award of attorneys’

fees in favor of Landmark as the financier of that litigation.” To

permit LBA to garnish the attorney fee award, it argued, would be

contrary to “the notion that creditors can only obtain a security

interest in property that rightfully belongs to the debtor.”

¶ 12 The district court granted Landmark’s motion to intervene in

the Lease Action. LBA filed a reply to Landmark’s traverse, and

Landmark filed a brief in support of its traverse. The district court

scheduled a traverse hearing for October 2, 2020, to determine

whether LBA or Landmark held a priority interest in the attorney

fee award.

D. Landmark’s Intervention in the State Action

¶ 13 On May 4, 2020, Landmark also filed a motion to intervene

and a complaint in intervention in the State Action. Landmark

informed the district court of LBA’s approximately $1.5 million

judgment against Castle Law in the Lease Action and the writs of

garnishment LBA had filed in an attempt to satisfy its judgment

“from the attorneys’ fee award in this suit.” Landmark informed the

7

court that it was disputing the State’s answer to LBA’s second writ

of garnishment and that the court in the Lease Action had “not yet

entered a final judgment about LBA’s rights to the property sought

to be garnished.” It argued that “the award of attorneys’ fees

against the [State] belongs to Landmark” because, “[p]rior to the

institution of this lawsuit, the Castle Defendants promised their

rights to a future attorneys’ fee award to Landmark.” The district

court granted Landmark’s motion to intervene.

¶ 14 On August 28, 2020, Landmark filed an unopposed motion for

judgment on the pleadings in the State Action, asking the court

(1) to declare that the attorney fee award “is the property of

Landmark” and (2) to “requir[e] any and all portions of the

attorneys’ fee award paid into the Court Registry be paid to

Landmark.” Landmark attached a stipulation between itself and

Castle Law in which Castle Law agreed that the attorney fee award

“is the property of Landmark.” Landmark did not inform the

district court of the upcoming traverse hearing scheduled in the

Lease Action.

8

¶ 15 On September 1, the district court granted Landmark’s motion

for judgment on the pleadings. The court’s order stated, in its

entirety, as follows:

All of the proceeds currently in the registry of

the court are attorney fees to which Intervenor

Landmark American Insurance Company [is]

entitled. Those proceeds shall be released to

Landmark American Insurance Company.

E. LBA’s Attempt to Intervene in the State Action

¶ 16 Two days later, LBA filed its own motion to intervene in the

State Action. LBA explained that it was a judgment creditor of

Castle Law and that a traverse hearing was set for October 2 in the

Lease Action to determine whether “LBA’s interest in the [attorney

fee award] takes priority to Landmark’s interest.” LBA argued that

it would be prejudiced if Landmark was allowed to obtain the funds

before the hearing and asked the court to stay its order releasing

the funds to Landmark.

¶ 17 The court denied LBA’s motion the next day, stating: “The

motion is DENIED AS MOOT, the funds having already been

disbursed to Landmark American.”

9

F. The Traverse Hearing

¶ 18 Following the district court’s denial of LBA’s motion to

intervene in the State Action, Landmark moved to vacate the

October 2 traverse hearing in the Lease Action as moot. Landmark

argued that there was no longer an active dispute between LBA and

Landmark because the district court in the State Action had

determined that the attorney fee award belonged to Landmark

based on the stipulation between Landmark and Castle Law. The

district court denied the motion.

¶ 19 The day before the hearing, the district court ruled that

Landmark’s traverse was untimely filed and noted that, under

C.R.C.P. 103, § 8(a), “[t]he failure to timely file a traverse shall be

deemed an acceptance of the answer as true.” Because the

principals of Castle Law had also filed a traverse to the State’s

answer to LBA’s second writ of garnishment, however, the court

determined that the hearing was still necessary.

¶ 20 At the hearing, the district court determined that the key

question was whether, on May 16, 2019 — the day after LBA filed

its second writ of garnishment — the State “possess[ed] or

control[led] any personal property of the Castle [Law] Group, that

10

is[,] the judgment debtor.” The court noted that the judgment in

favor of Castle Law was stayed pending appeal at that time and

questioned LBA’s counsel by analogy about whether such a

judgment could constitute a garnishable asset:

Let’s say that in a bank account you[] serve a

garnishment on Monday. And the bank

responds we might have a deposit coming in

on Friday. Do you think you’re entitled to

money on Friday based upon what might be

known on Monday?

Ultimately, the court concluded as follows:

There was no money. There was an obligation.

An obligation is an anticipation. . . . The

anticipation of money is not equivalent to

money, and I accordingly find that no money

on May 16th, 2019 was in the possession of

the state of Colorado that should have been

turned over to the garnishor LBA on May 16th,

2019 as a result of LBA’s judgment. . . . And

therefore, THE COURT makes its finding that

there was no money due and owing to LBA on

its garnishment of May 16th, 2019. Therefore,

THE COURT has no reason to determine

priority in this case because it has no funds

before it to determine priority on.

¶ 21 LBA separately appealed the Lease Action and the State

Action, and the appeals were later consolidated.

11

II. Analysis

¶ 22 LBA contends that (1) the district court in the Lease Action

erred by concluding that, on May 16, 2019, the attorney fee award

was not a garnishable asset; (2) the district court in the State Action

erred by granting Landmark’s motion for judgment on the

pleadings; (3) the district court in the State Action erred by denying

LBA’s motion to intervene; and (4) the district court in the State

Action erred by failing to consider LBA’s claim about Landmark’s

lack of candor in denying LBA’s motion to intervene. We address

each contention in turn.

A. Garnishable Asset

¶ 23 LBA contends that the district court in the Lease Action erred

by concluding that, on May 16, 2019, the attorney fee award was

not a garnishable asset. We agree.

1. Standard of Review

¶ 24 Whether a judgment that is stayed pending appeal constitutes

a garnishable asset is a question of law. We review questions of law

de novo. Yen, LLC v. Jefferson Cnty. Bd. of Comm’rs, 2021 COA

107, ¶ 10.

12

2. Law and Discussion

¶ 25 Under C.R.C.P. 103, § 4(a), “a judgment creditor may garnish

any money owed a judgment debtor whether due at the time of

service of the writ or to become due thereafter.” Flanders Elec.

Motor Serv., Inc. v. Davall Controls & Eng’g, 831 P.2d 492, 495 (Colo.

App. 1992). “Contingent liabilities, however, are not garnishable.”

Id. (citing Haselden Langley Constructors, Inc. v. Graybar Elec. Co.,

662 P.2d 1064 (Colo. 1983)).

¶ 26 In Shawn v. 1776 Corp., 787 P.2d 183, 185 (Colo. App. 1989),

a division of this court held that a judgment under appeal

constitutes a garnishable asset. In reaching this conclusion, the

division rejected the argument that “pending appellate review

converts a judgment either to a contingent liability or to a debt that

becomes due in the future.” Id. Rather, the division held, “[a] debt

which has been reduced to judgment is within the purview of

garnishment proceedings. And, since a judgment is presumed valid

until reversed, the fact that the judgment is under appeal does not,

per se, invalidate it.” Id. (citation omitted). The court noted that, by

taking this approach, “both parties to a garnishment proceeding are

fully protected”:

13

The garnishee has the benefit of pursuing

appellate proceedings, and in the event of

reversal, the garnishment would be

discharged. If, however, the appeal is

unsuccessful, the garnishor is placed in the

position of the defendants in . . . collecting

upon the judgment . . . . Further, he is

protected by any priority that he may have by

virtue of the time of the filing of his

garnishment claim. Nor will . . . he be

required constantly to monitor the outcome of

the appeal to reinstitute garnishment

proceedings.

Id. (citation omitted). We agree with this reasoning.

¶ 27 Here, to collect its judgment from the Lease Action, LBA issued

multiple writs of garnishment, including the second writ on May 15,

2019, to the State. At that time, the judgment awarding attorney

fees was pending on appeal. Accordingly, because a judgment on

appeal is neither a contingent liability nor a debt that becomes due

in the future, id., the district court erred by concluding that the

attorney fee award was not a garnishable asset.

1

1

Landmark also contends that the district court’s order in the

Lease Action was not a final appealable order because it did not

resolve LBA’s claims against Castle Law. Initially, we note that a

motions division of this court has already determined that “this

appeal has now been perfected from a final, appealable judgment by

the entry on January 22, 2021, of the district court’s order re:

October 2, 2020, traverse hearing.” In any event, the January 22,

14

¶ 28 We are not persuaded otherwise by Landmark’s argument

that, because it financed Castle Law’s defense in the State Action, it

was the “true owner” of the attorney fee award. To the contrary,

Castle Law was the real party in interest with regard to those

attorney fees regardless of the contractual arrangement between

Castle Law and its liability insurer for the disbursement and

repayment of those fees. See Mullins v. Kessler, 83 P.3d 1203,

1204-05 (Colo. App. 2003) (holding that the defendant, as the

named party in the lawsuit and the party on whose behalf costs

were incurred, had the substantive right to recover costs regardless

of the arrangement between the defendant and his liability insurer

for the disbursement and repayment of those costs); Little v.

Fellman, 837 P.2d 197, 205 (Colo. App. 1991) (holding that the

defendant has the right to seek attorney fees as the real party in

interest even though his insurance company paid those fees),

overruled on other grounds by In re Marriage of Aldrich, 945 P.2d

2021 order resolved all remaining claims and issues because LBA’s

judgment against Castle Law was entered on November 4, 2015,

and there are no other pending postjudgment proceedings.

15

1370 (Colo. 1997). Thus, the attorney fee award was subject to

garnishment.

¶ 29 We therefore reverse the district court’s order and remand the

case for the district court to determine whether LBA, as a judgment

creditor of Castle Law, or Landmark, as Castle Law’s insurer, has a

priority interest in the attorney fee award in favor of Castle Law.

B. Judgment on the Pleadings

¶ 30 LBA contends that the district court in the State Action erred

by granting Landmark’s motion for judgment on the pleadings. We

agree.

1. Standard of Review

¶ 31 We review judgments on the pleadings under C.R.C.P. 12(c) de

novo. Paradine v. Goei, 2018 COA 55, ¶ 6.

2. Law and Discussion

¶ 32 Judgment on the pleadings under C.R.C.P. 12(c) is appropriate

“if, from the pleadings, the moving party is entitled to judgment as a

matter of law.” City & Cnty. of Denver v. Qwest Corp., 18 P.3d 748,

754 (Colo. 2001).

¶ 33 By the time Landmark moved for judgment on the pleadings

on August 28, 2020, the district court had already been informed

16

by both the State and Landmark that LBA, as a judgment creditor

of Castle Law, claimed an interest in the attorney fee award and

had filed multiple writs of garnishment. In its May 1, 2020, motion

to deposit funds into the court registry, the State told the court that

LBA was seeking the funds the court had ordered the State to pay

to Castle Law. In fact, the State attached LBA’s writs of

garnishment to its motion. And in its May 4, 2020, motion to

intervene in the State Action, Landmark told the court that it was

litigating the issue of LBA’s right to garnish the attorney fee award

in the Lease Action and that the district court in that case had “not

yet entered a final judgment about LBA’s rights to the property

sought to be garnished.”

¶ 34 In considering a C.R.C.P. 12(c) motion, a court “should not

grant the motion unless the pleadings themselves show that the

matter can be determined on the pleadings.” Melat, Pressman &

Higbie, L.L.P. v. Hannon L. Firm, L.L.C., 2012 CO 61, ¶ 17 (quoting

Conn. Gen. Life Ins. Co. v. A.A.A. Waterproofing, Inc., 911 P.2d 684,

687 (Colo. App. 1995)). The district court was aware or should have

been aware of LBA’s writs of garnishment and the active dispute

between LBA and Landmark in the Lease Action, and the pleadings

17

did not show that the dispute had been resolved. Accordingly, the

court acted prematurely by ordering that the funds be disbursed to

Landmark.

¶ 35 We therefore reverse the district court’s order disbursing the

funds to Landmark and remand the case for the district court to

await the determination of priority between LBA and Landmark in

the Lease Action before disbursing the funds to whichever party is

entitled to them.

C. Motion to Intervene

¶ 36 LBA contends that the district court in the State Action erred

by denying LBA’s motion to intervene. Again, we agree.

1. Standard of Review

¶ 37 We review de novo a district court’s denial of a motion to

intervene as of right under C.R.C.P. 24(a)(2). Feigin v. Alexa Grp.,

Ltd., 19P.3d 23, 28 (Colo. 2001).

2. Law and Discussion

¶ 38 A non-party may intervene in a civil action as a matter of right

if (1) the applicant claims an interest in the subject matter of the

litigation; (2) the disposition of the case may impede or impair the

applicant’s ability to protect that interest; and (3) the applicant’s

18

interest is not adequately represented by the existing parties.

C.R.C.P. 24(a)(2).

¶ 39 LBA explained in its motion to intervene that it claimed an

interest in the attorney fee award and that its interest was not

adequately represented by the existing parties. It further explained

that,

if LBA is not allowed to intervene to stop the

disbursement of the [attorney fee award], LBA

will be chasing money from Castle Law that is

already in the hands of Landmark. This

will . . . impair LBA’s ability to collect on [its

approximately $1.5 million judgment against

Castle Law in the Lease Action] and would

render the ongoing litigation in [the Lease

Action] essentially meaningless. Thus, LBA

will never have its day in court regarding

whether its right to the [attorney fee award]

takes priority over Landmark’s claimed

interest.

¶ 40 The court denied LBA’s motion as moot because the funds had

already been disbursed to Landmark. As explained above, however,

it was error for the district court to disburse the funds to

Landmark. The fact that the funds had been disbursed thus did

not render LBA’s motion moot. See C.R.C.P. 60(b) (permitting a

court to relieve a party from a final judgment on the grounds of

mistake). Rather, as LBA correctly noted in its motion, an issue

19

remained regarding its right to be heard on the question of whether

its writs of garnishment took priority over Landmark’s claimed

interest in the attorney fee award. Accordingly, we conclude that

the district court erred by denying LBA’s motion to intervene.

D. Lack of Candor

¶ 41 LBA further argues that Landmark failed to inform the district

court of the scheduled traverse hearing in the Lease Action and

argues that the court erred by failing to address this lack of candor

in its ruling on LBA’s motion to intervene. See Colo. RPC 3.3.

Since we have already concluded that the district court erred by

denying LBA’s motion, however, we need not address this additional

argument.

III. Conclusion

¶ 42 The orders are reversed, and the cases are remanded for

(1) the district court in the Lease Action to determine whether LBA

or Landmark has a priority interest in the attorney fee award in

favor of Castle Law and (2) the district court in the State Action to

grant LBA’s motion to intervene and disburse the funds as

appropriate once priority has been determined.

JUDGE WELLING and JUDGE DAVIDSON concur.