No. 86-423
TN T H E S U P R E F E COURT O F T H E S T A T E O F MONTANA
S T A T E O F MONTANA, DEPARTMENT O F
REVENUE,
P l - a i n t i f f and A p p e l l a n t ,
-vs-
KENNETH J O H N FRANK,
D e f e n d a n t and R e s p o n d e n t .
A P P E A L FROM: D i s t r i c t C o u r t of t h e E i g h t h J u d i c i a l ~ i s t r i c t ,
I n and f o r t h e C o u n t y of C a s c a d e ,
T h e H o n o r a b l e T h o m a s M. V c K i t t r i c k , Judqe p r e s i d i n g .
COUNSEL O F RECORD:
For A p p e l l a n t :
John D . K o c h , C h i l d E n f o r c e m e n t P r o g r a m , G r e a t F a l l s ,
Montana
For R e s p o n d e n t :
R a n d a l l 0. S k o r h e i m , G r e a t F a l l s , M o n t a n a
S u b m i t t e d on B r i e f s : Dec. 1 8 , 1986
Decided: A n r i l 2 , 1987
Filed :
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
In this case we uphold the determination of the District
Court, Eighth Judicial District, Cascade County, that there
was an accord and satisfaction of the claim of the Department
of Revenue against Kenneth Frank for recoupment of monies
paid by the State as Aid to Families of Dependent Children
.
(AFDC)
We also pass upon the propriety of the proced-ures used
by the Department in attempting recoupment where there exists
a District Court order for child support arising out of a
marital dissolution proceeding.
The marriage of Judith and Kenneth Frank was dissolved
in 1979. The District Court decree awarded custody of the
three minor children to Judith, and Kenneth was ordered to
pay child support in the amount of $100 per month per child
until the children reached majority. The children are not of
the age of majority at the time of this appeal.
Three months after the dissolution, in November, 1979,
Judith became a recipient of AFDC funds, and assigned her
right of child support from Kenneth to the Department of
Revenue.
On February 27, 1980, the Department issued a "Notice of
Support Debt" for $374. The notice, however, was not served
1 YOU ARE HEREBY notified that the Department of Revenue
finds that you are in arrears $ 374.00 in the child
support which you were ordered to pay in Cause No.
BDR-79-653 , entered in the EIGHTH DISTRICT Court ,
CASCADE County, State of MONTANA .This Decree
ordered you to pay $300.00 per w~ek/month/y~ax
for the
support of your minor children
Bobby, Jimmv and Lori Frank
on Kenneth until six weeks later, on April 8, 1980. Kenneth
did not request a hearing on the support debt pursuant to the
notice. On June 12, 1980, the Department filed in the
District Court of Cascade County, its warrant of distraint
for a debt of $1,340 and requested a writ of execution
directed to the sheriff of Cascade County to attach any
accounts in which Kenneth might possess an interest. The
writ of execution was requested by the Department on April
21, 1981, and was returned without any funds being collected.
On May 31, 1983, the Department requested a further writ
of execution, which, issued on June 9, 1983, was returned "no
accounts." On June 8, 1983, the Department filed an "Amended
Warrant for Distraint" against Kenneth for a claimed debt of
$7,040. On June 27, 1984, the Department filed with the
Clerk of the District Court its "Second Amended Warrant of
Distraint" against Kenneth, claiming $14,240 of debt due.
Aside from the original communication to Kenneth from
the Department specifying a $374 debt, no further "Notice of
You are required to pay the Department of Revenue this
$374.00 arrearage debt within 20 days. You are also
required to make current support payments each w~ek/monthto
the Department of ~evenue-- the amount of $300.00
in .
Section 40-5-222, MCA. The Department of Revenue is
subrogated to or' assigned the right to collect the child
support payments which you are obligated to pay.
You are further given notice that should you fail to
respond to this order for payment within 20 days from the
date you are served with this Notice, the State of Montana
may subject your property to distraint, seizure, and sale.
Any net proceeds will be applied to the satisfaction of your
support debt.
THEREFORE, be advised that should you fail to pay your
support debt within 20 days of receipt of this Notice or
refusal of Notice, that distraint, seizure, and sale of your
property will be lawful without further Notice.
DATED this 27th day of February .
, 19 80
Signed: /S/ Clarice Milligan
Title: Investigator
Support Debt" was served upon Kenneth with respect to the
accruing support payments, and the Department further failed
(with respect to each filing of distraint warrant) to give
any notice to Kenneth of a right to a hearing on each
warrant.
Other events occurred which affected Kenneth's ability
to make child support payments. He was a painter and.
suffered an industrial accident in August, 1980, which left
him totally disabled. He was unable to return to work until
January, 1985. Until February, 1984, his only income was
$219 per week from Workers' Compensation benefits. He
entered into a lump sum settlement with the State Insurance
Fund on his compensation claim. When Kenneth submitted his
petition for lump sum settlement, he submitted an affidavit
in which he indicated he believed $8,500 would be required to
make up his child support arrearages. At the time, the
Department had calculated his arrearages to be $7,040.
Another important event related to Judith. She
remarried three times while a recipient of AFDC funds without
notifying the agency of her marriages. Her failure to notify
the Department is an apparent violation of § 53-4-237, MCA,
which provides:
... in the administration of this part the
department may consider the income and resources of
stepparents and other individuals who reside in the
home as resources and income available to the
household.
Moreover, Judith did not steadily receive AFDC funds.
She was an AFDC recipient in November and December, 1979, and
during the years 1980 and 1981. She did not receive any AFDC
funds during 1982 and most of 1983. She received a $425
grant in December, 1983, and a $425 grant in January, 1984.
Over the entire period, the Department retained its assigned
interest in the support payments, and Kenneth's debt to the
Department was calculated as accruing in periods when Judith
was not receiving any AFDC funds.
A third important event was that in April, 1984, Kenneth
petitioned for and was granted custody of the minor children.
Because Judith moved to another state to prevent enforcement
of the change of custody, Kenneth spent approximately $3,000
to have the children returned to his care.
In the fall of 1983, a Department investigator wrote
Kenneth's attorney informing him that the arrearage had grown
to $7,040 and indicated an interest in negotiating a
settlement. In February, 1984, another Department
investigator wrote Kenneth's attorney informing him that the
debt had grown to $7,640. According to the Department's
testimony, this letter indicated that there was a possibility
that the debt amount might be discounted to encourage
settlement. A month later, on March 24, 1984, Kenneth's
attorney sent to the Department a check for $1,000
accompanied by a letter stating that the check was offered as
a full and final compromise payment. The Department cashed
2 March 26, 1984
Lori Hoard Posey
Investigator
Department of Revenue
Legal Divison/Child Support Enforcement
503 First Avenue North, Suite 407
Great Falls, Montana 59401
Dear Ms. Posey:
Re: Kenneth J. Frank -Back Child Support
Enclosed please find a check made out to your office in
the sum of $1,000.00 as full and final compromise payment of
the above referenced debt. Negotiation of this check will
the check and did not communicate further with Kenneth until
it began garnishing his wages in January, 1985. The
Department never informed Kenneth, either formally or
informally, that his letter offer of March 26, 1984 had been
rejected.
Kenneth reentered the work force in January, 1985, as a
painting supervisor. He had remarried and had custody of the
three minor children of his previous marriage. He was
earning $336 per week.
The Department, through its regional supervisor in Great
Falls, served upon Kenneth's employer a notice of levy which
commanded the employer to withhold from Kenneth's paycheck
50% of the net proceeds then and in the future.
On February 8, 1985, Kenneth, through his attorney,
moved the District Court for relief from the warrants of
distraint and for stay of enforcement. The District Court
granted a temporary stay and set the matter down for hearing.
The Department filed its motion to dissolve the temporary
restraining order and further moved that Kenneth be required
to furnish a bond. The motion to dissolve the temporary
represent your consent to this matter being fully compromised
for this amount and for Mr. Frank's no longer owing you
anything.
Be advised that, as you well know, Workers' Compensation
benefits or the proceeds thereof, are not attachable. Mr.
Frank hasn't worked for three and a half years and is still
unemployed because of his injuries. This is why we feel that
the $1,000.00 payment is the best that Mr. Frank can do and
even that amount will work a hardship on him and his family.
If you have any questions, please feel free to contact
me at your convenience. Again, negotiation of this check
represents full and final compromise settlement of any claims
you may have against Mr. Frank as of the date of this check.
Yours truly,
OVERFELT LAW FIFW
restraining order and to require a bond were denied. At. a
hearing held before the District Court on March 28, 1985, the
motion for permanent injunction was taken under advisement
and on July 30, 1986, the District Court issued its findings
of fact, conclusions and the order which is the subject of
this appeal.
The Department of Revenue urges five issues on appeal.:
1. The District Court lost jurisdiction of the cause
under Rule 60 (c), M.R.Civ.P. when it issued its findings of
fact, conclusions of law and order more than 45 days after
the motion filed on February 8, 1985.
2. The District Court's determination that Kenneth
should not receive due process was incorrect.
3. Neither the fraud of Judith nor the mistake of the
Department eliminates Kenneth's obligation to make chi1.d
support payments.
4. The court erred in determining that there had been
an accord and satisfaction.
5. The court erred in determining that Kenneth was
entitled to attorneys fees and costs.
JURISDICTION
The first issue relates to whether the District Court
had jurisdiction under the time restraints of Rule 60(c),
M.R.Civ.P. to set aside the judgment effect of the filing of
a warrant of distraint. Rule 60 (c), M.R.Civ.P. provides:
- - determining motions. Motions provided by
Time for
subdivision (b) of this rule shall be determined
within the times provided by Rule 59 in the case of
motions for new trials and amendment of judgment
and if the court shall fail to rule on the motion
within the 45 day period, the motion shall be
deemed denied.
The Department argues that the time elapsing between the
date of the father's motion for relief from judgment,
February 8, 1985, and the hearing on the motion, March 28,
1985 was 48 days, and the order itself did not come down
until July 30, 1986, and that thereby the District Court lost
jurisdiction of the cause.
In cases for collections for delinquent taxes, or the
recoupment of AFDC payments as here, where the collection is
based upon warrants of distraint, a judgment as such is not
actually entered by a District Court. Instead, the
Department of Revenue files a warrant of distraint with the
Clerk of the District Court, whose duty is then to file the
warrant in the judgment docket with the name of the taxpayer
or parent listed as the judgment debtor. Section 15-1-704,
MCA. Upon the filing thereof, there is a lien against all
real and personal property of the delinquent taxpayer or
nonpaying parent in the county where the warrant is filed.
Section 15-1-701(2), MCA. Thus, the filing of the warrant by
the Department with the District Court has the same lien
effect as a properly docketed judgment and the Department may
collect delinquent taxes and enforce the tax lien or recoup
AFDC funds in the same manner as a judgment is enforced.
Section 15-1-701(2), MCA; 5 40-5-241, MCA.
In this case, the effect of the motion of Kenneth for
relief from judgment and a stay of enforcement is the same as
the situation of a person seeking relief from a judgment of
the District Court under Rule 60 (b), M.R.Civ.P. It is,
however, provided in Rule 60(b) that the rule
... does not limit the power of a court to
entertain an independent action to relieve a party
from a judgment, order, or proceeding, or to grant
relief to a defendant not actually personally
notified as may be required by law .. .
The time limitations provided in Rule 60(c) must be read
in light of the principle set out in Rule 60(b), which
provides for such an i-ndependentaction. The residual power
of the District Court therein preserved is a complete
reservation of the District Court's independent power. Its
purpose is to protect equity by "not enforcing a judgment
obtained against the public conscience.'' Thomas v. Savage
(1973), 161 Mont. 192, 505 P. 2d 118, 120; Elliston Lime
Company v. Prentice Lumber (1971), 157 Mont. 64, 483 P.2d
264. The residual power portion of Rule 60 (b) was enacted
particularly to prevent an injustice. For that reason, we
hold that Kenneth's motion to set aside enforcement of an
unserved warrant of distraint was an independent action, and
thus is not subject to the 45 day time lj-mitation of Rule
60 (c), M.R.Civ.P.
DUE PROCESS
The District Court concluded that because the defendant
had never heen personally served with the amended warrants of
distraint or afforded. an opportunity for a hearing before
their entry that his right to due process under both federal
and state constitutions was violated.
The Department argues that there is no post-judgment
right to notice of hearing before levy of execution, relying
on Endicott-Johnson Corporation v. Encyclopedia Press (1924),
266 U.S. 285, 45 S.Ct. 61, 69 L.Ed.2d 288. It argues that
under Mathews v. Eldridge (19761, 424 U.S. 319, 96 S.Ct. 893,
47 L.Ed.2d 18, which concerns administrative procedures,
there must be a balance of governmental and private interests
to determine whether they are constitutionally sufficient for
due process. The Department contends that because it made
AFDC payments, it was automatically subrogated to the wife's
right to press for collection of her dissolution decree
judgment under 5 40-5-222, MCA. It further contends that the
notice served on Kenneth on April 8, 1980, is a sufficient
notice of the assignment and all accruing support payments
thereafter due under the District Court order in the
dissolution proceedings. The Department also points to the
case of Duranceau v. Wallace (9th Cir. 1984), 743 F.2d 709,
holding that the State of Washington's administrative
procedures for collecting past due child support did not
violate the due process clause of the United States
Constitution.
Montana participates in the use of federal grants and
other sources to make AFDC payments. The program in our
statutes for the recoupment of AFDC funds from parents who in
dissolution proceedings or other custody matters have been
ordered to make child support payments grows out of the
necessity to comply with the federal programs. Thus, under
federal law, a n applicant for AFDC funds must assign all
.
rights to accrued support at the time of payment to the state
agency. 42-602 (26)(A) U.S.C. The assignment by the
recipient to the state allows the state to make collections
which are on behalf of the state and the federal government.
42-654 (5) U. S.C. The amounts collected thereby are
distributed to the state and federal agencies until the AFDC
funds and other costs are recovered, the balance to be
distributed under certain rules to the family. 42-657(b)
U.S.C.
The state has two avenues under its state statutes, to
gain recoupment of AFDC payments. If there has been no
District Court order, the Department can proceed under S
40-5-223, MCA, to serve a notice of liability and undertake
subsequent recoupment proceedings. If there is a district
court order, as in this case, the Department proceeds under S
40-5-222, MCA. Under that statute, the Department is
empowered to send out a "notice of debt" which includes a
statement of the support debt accrued or accruing, and which
informs the del-inquent parent that he is entitled to a fair
hearing. In this case such a notice of debt was sent out and
Kenneth did not request any further hearing. When 31 days
have elapsed after service of the notice of debt, the
Department may issue a warrant for distraint based on the
amount of the support debt. Section 40-5-241, MCA. Such a
warrant, however, is subject to the provisions of S§
15-1-701, 15-1-704, 15-1-708, and 15-1-709, MCA. Section
40-5-241, supra.
The sections which appear in Title 15, referred to in S
40-5-241, relate to the collection of delinquent - tax
payments, which is also a function of the Department of
Revenue. It is $ 15-1.-701 which provides that a distraint
warrant, upon filing with the County Clerk and Recorder,
becomes a lien against real and personal property of the
delinquent parent. It appears strange that 5 40-5-241, MCA,
in incorporating for delinquent support payments the
procedures used to collect delinquent taxes, did not include
$ 15-1-705, MCA. That section provides that the judgment
debtor after the filing of a distraint warrant is entitled to
a hearing. It states:
The Department must provide notice of the right to
hearing to the taxpayer. A request for hearing
must be made in writing within 30 days of the date
of the notice. This notice may be given prior to
the notice referred to in 15-1-702 ...
In recoupment cases, the judgment that is obtained by
the Department through the filing of a distraint warrant with
the Clerk of the District Court is to be distinquished from a
judgment that is lodged and entered through an order of the
District Court. In the case of a judgment issued by a
district court, there is provision made for notice of entry
of judgment, although it is true that execution may occur
before the notice of entry of judgment has been served.
However, a judgment entered by a district court occurs
presumably after a f u l l . opportunity (unless the judgment
debtor has defaulted) for notice and hearing on the claim
which results in the judgment. In the case of a warrant of
distraint for recoupment, no such opportunity is afforded the
alleged delinquent parent. This case illustrates the
necessity of notice of hearing upon the filing of the
distraint warrant to the parent who thereby becomes a
judgment debtor. If S 15-1-705, MCA, had also been made part
of the procedure for recoupment under 40-5-241, Kenneth would
have been notified with the filing of each distraint warrant
and given an opportunity to present the arguments that are
now presented as to why he should not be held liable for
those payments. Because Kenneth was never given notice of
the filing of the distraint warrants against him in the
office of the Clerk of the District Court, and was not given
any further notice of accruing debt after the first notice
had been served upon him, we hold that Kenneth was deprived
of notice and opportunity for hearing which would have
accorded him due process. We uphold the District Court in
its conclusion.
ACCORD AND SATISFACTION
We skip to the next issue of accord and satisfaction,
because it is determinative in this case. The Department
contends that the District Court was in error in finding that
the debt owing to the State for AFDC payments was fully and
finally satisfied by accord and satisfaction. The Department
argues that the debt was liquidated and accordingly
satisfaction was impossible without the Department's written
acceptance. Section 28-1-1403, MCA. Because of its claim
that the indebtedness owed by Kenneth is liquidated, the
Department relies on Sawyer v. Somrners Lumber Co. (19291, 86
Mont. 169, 282 P. R52. The statement in - -
Sawyer is, of
course, illuminating:
An accord and satisfaction is founded upon
contract, and a consideration therefor is
necessary. By the great weight of authority, if
the indebtedness is unliquidated or in dispute,
payment by the debtor of an amount less than
claimed by the creditor, and the receipt by the
latter of such amount under such circumstances that
he is bound to know that the intention was to make
the payment in full settlement of the claim, will
discharge the whole claim, and the creditor may not
thereafter maintain an action to collect additional
sums. Under these circumstances there is an
agreement to compromise the dFfferences between the
parties, and, there being a dispute, a
consideration for the agreement exists. (Citing
authority. )
If plaintiff's claim was unliquidated, his
acceptance of the check under the circumstances
disclosed by the record constituted an accord and
satisfaction. If the claim was liquidated, it
could be discharged only by payment in full or by
payment of a lesser amount and acceptance thereof
in writing. (Citing authority.) There was not an
acceptance in writing. The indorsement of the
check by plaintiff for the purpose of cashing it is
not such a writing as is contemplated by [quoting a
statute] and it follows that the only question for
determination is: Was the claim liquidated or
unliquidated?
A claim is liquidated when the amount due is fixed
by law or has been ascertained and. agreed upon by
the parties. (Citing authority.) .
. .
86 Mont. at 177, 2 8 2 P. at 8 5 4 .
The letter of March 26, 1984, sent by Kenneth's attorney
to the Department clearly indicated that the $1,000 was
offered as full settlement. It pointed out that the lump sum
settlement which Kenneth had received. for his compensation
claim was not attachable, and the letter was notice given
separately from the check itself that negotiation of the
check would represent consent to a full compromise of the
Department's claim against Kenneth. There was more here to
the cashing of the check than the mere endorsement by the
Department. The separate letter was notice that negotiation
and acceptance of the check constituted an accord and
satisfaction. Further, although Kenneth's support payments
were set by a decree of the District Court, and in effect
were thereby made certain, the question of the right to
recoupment in this case is not certain. Kenneth would surely
not be liable to the Department if Judith had obtained
payments through fraud and it is very uncertain that Judith
could have enforced the support judgment. A subrogee, if the
Department is a subrogee, stands in the shoes of the
subrogor.
We determine and agree with the District Court that the
Department's claim against Kenneth was a disputed and
unliquidated claim and acceptance by the Department of the
check, which was accompanied by the letter of March 26, 1984,
does in fact create an accord and satisfaction.
ATTORNEY FEES
The District Court has ordered that Kenneth receive his
attorney fees and costs, although the amount of attorney fees
has not yet been decided by the District Court. The
Department appeals from the award of attorney fees,
contending that no statute authorizes awarding attorney fees
to the prevailing party in a Rule 60 (b) motion, that no
contract exists between the parties under which the
reciprocal payment of attorney fees would be allowed, and
because no statutory or contractual authority exists, the
award of attorney fees should be reversed. State ex rel.
Foss v. District Court (Mont. 1985), 701 P.2d 342, 42 St.Rep.
845; In Re Marriage of Canon (Mont. 1985), 697 P.2d 901, 42
St.Rep. 348.
Und.er S 25-10-711, MCA, an award of costs, including
attorney fees, may be granted against governmental entity
if the person prevails against the governmental entity and
the court finds the claim or defense of the governmental
entity frivolous or pursued in bad faith. The court order
stated:
4. That, because of the foregoing accord and
satisfaction, the defendant is awarded costs and
attorney fees . ..
The award of the attorney fees by the District Court
implies that the court found that the state acted in bad
faith in this matter. After receiving the check and cashing
the same in an accord and satisfaction, the Department, about
one year later, levied execution upon the wages of Kenneth
from his newly-found job. Moreover, although under the
restraining order of the court, the Department was to hold in
abeyance any attempts at collection or enforcement of the
distraint warrant, the Department received, from the Internal
Revenue Service as a result of action taken by the Department
prior to the entry of the stay order, $1,593.38 representing
Kenneth's 1985 income tax refund. Moreover, the Department
received his state income tax refund of $401.50. The
Department moved the District Court for an order to pay the
monies into court, which was granted. As of the date of the
Department's brief, a total of $3,598.31 has been paid into
court under the Department's motion to prevent the funds from
falling into Kenneth's hands.
In State ex rel. Florence Carlton Consolidated Schools
District v. District Court (Mont. 1981), 632 P.2d 318, 38
St.Rep. 1204, we stated that if under all the circumstances
of a case, justice would require the imposition of costs,
equity can further provide in extreme cases, to allow
attorney fees as an element of those costs. We have here a
case where the Department has lodged judgments against
Kenneth, which constitute lj-ens on his real and personal
property. They have garnished his wages and intercepted his
federal and state income tax refunds. The levy of execution
applied not only to his accrued wages, at the time of the
levy, but to any future wages he might receive (a point not
raised by Kenneth but open to question; ordinarily an
execution cannot reach future credits, but only accrued
credits). He has further been forced to this appeal and the
delay thereby engendered. In all the circumstances, it
appears that the District Court was correct and that equity
demands that Kenneth be awarded attorney fees both for the
proceedings in District Court and for this appeal. Such an
award is within the sound discretion of the trial court.
Joseph Russell Realty Co. v. Kenneally (1980), 185 Mont. 496,
605 P.2d 1107; Foy v. Anderson (1978), 176 Mont. 507, 580
P.2d 114.
We need not consider the further issue raised by the
Department relating to whether Judith acted fraudulently or
the Department made a mistake. That issue has no bearing on
the outcome of this appeal.
Accordingly, we affirm the District Court and remand
this cause for the determination of costs and attorney fees
in a-ccordance with this Opinion. See F-ule 33,
M.R.App.Civ.P., for the collection sts on appeal.
We Concur: A
Mr. Justice Fred J. Weber specially concurs as follows:
I agree with the conclusion of the majority opinion that
the issue of accord and satisfaction is determinative in this
case. I further agree with the determination of the majority
opinion that the claim was a disputed and unliquidated claim
and that acceptance by the department of the check created an
accord and satisfaction. In addition I concur with the
affirmation by the majority of the attorney's fee
determination by the District Court. As a result, I concur
in the majority opinion.
I do not join in the majority conclusion that the motion
to set aside enforcement was an independent action and not
subject to the limitations of Rule 60(c) M.R.Civ.P. In
particular, I do not agree with the majority conclusion that
the absence of personal service of the amended warrants of
distraint constituted a violation of the defendant's rights
to due process.
Mr. Justice L. C. Gulbrandson
special concurrence.
1