Merchant Transaction Systems Incorporated v. Nelcela Incorporated, et al.

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Merchant Transaction Systems Incorporated, No. CV-02-01954-PHX-DJH 10 Plaintiff, ORDER 11 v. 12 Nelcela Incorporated, et al., 13 Defendants. [14] 15 Before the Court is Judgment Debtor Alec Dollarhide’s (“Dollarhide”) Motion to 16 Enforce and/or Motion for Order to Show Cause. (Doc. 1069). Judgment Creditor 17 MLGGLC, LLC (“MLGGLC”) has filed a Response, (Doc. 1071), and Dollarhide has filed 18 a Reply (Doc. 1073). For the reasons set forth below, the Court will grant Dollarhide’s 19 Motion in part and deny it in part. 20 I. Background 21 Merchant Transaction Systems, Inc. (“MTSI”), and later Lexcel Solutions, Inc., by 22 intervening, (collectively “Plaintiffs”) brought an action against Nelcela, Inc., Alec B. 23 Dollarhide, Diane M. Dollarhide, Leonard M. Campagna, and Helga Terry Campagna for 24 copyright infringement, misappropriation of trade secrets, unfair competition, breach of 25 contract, and conversion. (Doc. 277 at 7–11). A jury found Dollarhide guilty of a litany of 26 charges that resulted in him being liable for damages plus post-judgment interest. (Doc. 27 746; Doc. 861). To collect on the judgment, MTSI, along with POST Integrations 28 (“POST”), formed MLGGLC to aid in its efforts to recover money from Dollarhide. (Doc. 1 1071 at 2). When MLGGLC started its garnishment of Dollarhide’s wages, the statute that 2 effectuated that process was A.R.S. § 33-1131(B). This statute was amended by Arizona 3 voters in 2022. See Prop. 209, § 6 (initiative measure approved November 8, 2022). 4 Proposition 209, also known as the Predatory Debt Collection Act, (“Prop. 209”) was 5 passed to address the interest cap rate on medical debt. Id. It also decreased the amount of 6 non-exempt earnings in garnishment proceedings from 25% of discretionary income to 7 10%. Id. 8 A series of litigation following Prop. 209’s passage required the Arizona courts to 9 address ongoing confusion and questions regarding Prop. 209’s impact. First, the Arizona 10 Court of Appeal ruled on the constitutionality of Prop. 209’s Savings Clause, ultimately 11 finding it constitutional and finding that the Proposition only applied prospectively. Ariz. 12 Creditors Bar Ass'n, Inc. v. State, 549 P.3d 205 , 211 (Ariz. Ct. App. 2024). In another 13 case, the Court addressed garnishment proceedings rooted in a judgment obtained before 14 the Prop. passed, but with ongoing garnishment proceedings after the Prop.’s passage. HJ 15 Ventures, LLC v. Candelario, 2024 WL 449970 , at *2, ¶¶ 13–14 (Ariz. Ct. App. Feb. 6, 16 2024). Finally, and importantly for the disposition of Dollarhide’s Motion, the Court most 17 recently decided what happens in garnishment proceedings when both the judgment and 18 the garnishment proceedings arise before the effective date of Prop. 209. Silence v. Betts, [19] 553 P.3d 192 , 194 (Ariz. Ct. App. 2024), as amended (July 26, 2024). The Court concluded 20 that after Prop. 209’s effective date, an employer may only garnish and impound the 21 portion of wages that are nonexempt under the statute. Id. at 197. This change in the law is 22 the basis of Dollarhide’s current Motion. 23 II. Legal Standard 24 Generally, equitable tolling is presumed in every federal statute. In re Milby, 875 25 F.3d 1229, 1232 (9th Cir. 2017). However, when deciding the applicability of equitable 26 tolling against the backdrop of a state statute, federal courts apply a forum state’s equitable 27 tolling law. Fink v. Shedler, 192 F.3d 911, 914 (9th Cir. 1999), as amended on denial of 28 reh'g and reh'g en banc (Dec. 13, 1999); see also Pangerl v. Peoria Unified Sch. Dist., [1] 2016 WL 11628043 , at *2 (D. Ariz. June 15, 2016); Cf. Bacon v. City of Los Angeles, 843 2 F.2d 372, 374 (9th Cir. 1988). Arizona courts and the federal courts use almost the same 3 standards for applying equitable tolling: (1) extraordinary circumstances existed that were 4 beyond the plaintiff’s control and (2) plaintiff acted diligently in pursuing his rights. 5 Pangerl, 2016 WL 11628043 , at *2. In determining the second prong, the court must ask 6 if plaintiff “acted as diligently as reasonably could have been expected under the 7 circumstances.” Doe v. Busby, 661 F.3d 1001, 1013 (9th Cir. 2011). 1 8 III. Discussion 9 Dollarhide asks the Court to require MLGGLC to disgorge $74,247.092 in exempt 10 wages that were garnished from him between 2023 until the pay period ending on 11 November 10, 2024. (Doc. 1069 at 3). He argues that because Prop. 209 lowered the 12 amount of discretionary non-exempt wages from a garnishment rate of 25% to 10%, 13 MLGCC should have only taken 10% of his wages from when the Proposition went into 14 effect up until they themselves changed the rate of garnishment to 10%. (Id.) Lastly, he 15 advances the argument that MLGGLC did not provide him with written reports as required 16 by this Court’s Order and A.R.S. § 12-1598.12. (Id. at 2). 17 A. Required Reports 18 Addressing Dollarhide’s second argument first, MLGGLC counters that, although 19 it did not provide him with quarterly garnishment reports as required by the statute, it did 20 provide him with detailed spreadsheets, which fulfill its requirements under the statute. [21] 1 An Arizona Court of Appeal case from 2007, when trying to determine whether equitable 22 tolling was appropriate, used case law from the Ninth Circuit, and other federal law, to determine that it was. McCloud v. State, Ariz. Dep't of Pub. Safety, 170 P.3d 691, 696 (Ariz. 23 Ct. App. 2007) Notably, the Arizona Court of Appeal cited to Ninth Circuit case law stating that when there is a lack of clarity on the law, equitable tolling is indeed appropriate. Id. [24] 2 Dollarhide has not shown the Court where the figure of $74,247.09 comes from. Even 25 examining the exhibits attached to MLGGLC’s Judgment Renewal Affidavit (Doc. 1072) and other exhibits attached to MLGGLC’s Response, the Court cannot make out a figure 26 that is close to $74,247.09. Neither Dollarhide’s Motion, nor his Reply in support of his Motion attach any exhibits that would allow the Court to determine the accuracy of this 27 amount. That makes the Court extremely apprehensive in ordering MLGGGLC to turn over the exact amount requested by Dollarhide. Dollarhide only attached his Declaration (Doc. 28 1069-1) to his Motion, but Dollarhide should have provided the Court with a more thorough accounting instead of having the Court rely on his word. 1 (Doc. 1071 at 2). MLGGLC says that these spreadsheets included detailed information 2 like collection activities, garnishment payments, and how those garnishment payments 3 were applied to the judgment overall, according to MLGGLC. (Id.) However, MLGGLC 4 concedes to providing Dollarhide with the information in a different format, quarterly 5 garnishment reports, if he so desires, instead of the spreadsheets. (Id.) MLGGLC has 6 avowed to the Court that MLGCC will turn over those reports as required3, in the exact 7 format required. (Doc. 1071 at 5). The concession takes care of Dollarhide’s objection that 8 MLGGLC did not provide him with the required reports.4 9 B. Equitable Tolling 10 In response to Dollarhide’s second argument, MLGGLC admits that there was a 11 change in the law, set off by Prop. 209, and flushed out by the Court in Silence, that reduced 12 Dollarhide’s liability from 25% to 10% of his discretionary income. (Doc. 1071 at 6–7). 13 MLGGLC combats this however, by stating that according to the governing statute, A.R.S. 14 § 12-1598.07, Dollarhide failed to timely object to the garnishment. (Id.) Because he 15 waited for so long to do so, MLGLCC contends that the Dollarhide has waived his 16 objections to the garnishment amount.5 (Id.) Further, MLGLCC argues that its conduct 17 was always in line with its legal obligations. (Id.) After the Court clarified the effect of 18 Prop. 209 in Silence, MLGGLC and Dollarhide’s employer changed the garnished amount 19 from 25% to 10% sometime in late 2024. (Id. at 8). [20] 3 Under the statute, MLGGLC was required to turn over the following information: 1. The 21 beginning and ending date of the reporting period for that report. The beginning date of the first reporting period is the date the writ was served. 2. The date and amount of each 22 payment received during the reporting period. 3. The total amount credited to the judgment balance for that reporting period. 4. The interest, attorney fees and costs accrued during 23 that reporting period. 5. The total outstanding balance due on the judgment as of the ending date of the reporting period. A.R.S. § 12-1598.12. [24] 4 The Court notes that MLGGLC has already filed three notices on the docket in relation 25 to providing Dollarhide the quarterly garnishment reports in the format he requests. (Docs. 1074, 1076, and 1077). [26] 5 When a judgment debtor has an objection to a nonexempt earnings statement, they are 27 required to make that objection “no later than ten days after receipt of the answer or nonexempt earnings statement objected to unless good cause for filing the request later is 28 shown.” A.R.S. § 12-1598.07. 1 In resolving the main dispute between the parties, the Court’s reading of the Arizona 2 Court of Appeals decision in Silence compels the Court to pay particular attention to this 3 part of this case: 4 “Thus, the amounts subject to garnishment each pay period after Proposition 209 became effective had not yet matured, 5 and Proposition 209's changes therefore affect the garnishment prospectively. This Court concludes that after Proposition 6 209's effective date, Betts's employer must impound and pay only those portions of Betts's wages that are nonexempt 7 under the statute as amended by Proposition 209.” [8] Silence, 553 P.3d at 197 (emphasis added). Essentially, the above passage means that every [9] pay period after the passage of Prop. 209, must be subject to the lower garnishment amount [10] of 10% for discretionary non-exempt income. The Court’s reading is also supported by [11] another Court to since look at the repercussions of the decision. See In re Portch, No. 2:2312 BK-02120-DPC, 2025 WL 409995 , at *8 (Bankr. D. Ariz. Feb. 5, 2025) (“The court held [13] that Prop 209 wage exemption amounts applied to garnished wages earned after the [14] effective date of Prop 209, even though a continuing wage garnishment order was obtained [15] before the effective date of Prop 209.”) MLGGLC admits that it only started garnishing [16] 10% after the Silence decision, not after the passage of Prop. 209. And while that is [17] understandable given the confusion around the change in the law, it does not mean that it [18] can remain justified now that the confusion has been dispelled. Nor does it mean that [19] Dollarhide now has no recourse simply because he failed to object to the higher [20] garnishment amount within the timeframe dictated by statute.6 [21] The Court finds that the applicable statute, A.R.S. § 33-1131, should be subject to [22] equitable tolling given the circumstances. The circumstance that specifically stands out to [23] the Court is the change in the law with a resolution not being offered by the Arizona Court [24] 25 6 As part of his argument, Dollarhide states in a footnote that the deadlines set forth by Rule 59 and Rule 60 are not implicated. (Doc. 1073 at 4, fn, 1). The Court is not certain 26 what Dollarhide means, but believes he is referring to the proscription against extending a statute of limitations listed in Federal Rule of Civil Procedure 6. However, it is well-settled 27 that Federal Rule of Civil Procedure 6 cannot extend deadlines and time limits set by statute. See Gensler, Steven S., “Federl Rules of Civil procedure: Rules and Commentary” 28 (2024). 1 of Appeal until June 27, 2024, despite the Proposition going into effect on December 5, 2 2022.7 To address the argument advanced by MLGGLC that Dollarhide is asking for 3 equitable relief while at the same time trying to shield his assets from garnishment, that is 4 not the issue in front of the Court at this time. (Doc. 1071 at 4). The very narrow issue is 5 how Prop. 209 applies to the period of limbo between when Prop. 209 went into effect and 6 when the Silence discussion was issued, to Dollarhide’s paycheck. 7 A case that the Court finds particularly instructive is Capital Tracing. Cap. 8 Tracing, Inc. v. United States, 63 F.3d 859, 862 (9th Cir. 1995). There, plaintiff filed a 9 wrongful levy action against the Internal Revenue Service (“IRS”) on August 22, 1985. 10 The district court dismissed the action, noting that the time to file a wrongful levy had 11 lapsed on May 22, 1986. The Ninth Circuit decided that equitable tolling applied because 12 it had issued a decision on April 16, 1991, clarifying when the IRS can levy a bail bond 13 and under which statute a plaintiff can bring a wrongful levy action. United States v. 14 Badger, 930 F.2d 754, 757 (9th Cir. 1991). Importantly, the Ninth Circuit found that 15 statutory limitations can be equitably tolled when there is a lack of clear precedent in the 16 circuit regarding the issue. Cap. Tracing, Inc., 63 F.3d at 862 ; see also Dempsey v. Pacific 17 Bell Co., 789 F.2d 1451 (9th Cir.1986). The Court finds that because there was a lack of 18 clarity surrounding the impact of Prop. 209 on garnishment proceedings, this is exactly the 19 type of extraordinary circumstance that warrants equitable tolling. 20 Turning to the second prong of the equitable tolling test, diligence, the Court finds 21 that Dollarhide acted diligently to assert his rights. In reading the case law on reasonable 22 diligence, the Court notes that it is diligence during the extraordinary circumstance that is 23 given more weight than diligence after the extraordinary circumstance is lifted. In re 24 Milby, 875 F.3d 1229, 1234 (9th Cir. 2017); see also Gibbs v. Legrand, 767 F.3d 879 , 891 25 (9th Cir. 2014) (stating that diligence during the extraordinary circumstance is the key 26 consideration). Diligence after the extraordinary circumstance has been lifted can be 27 considered by the court as one factor in its broader diligence assessment. Gibbs, 767 F.3d 28 7 See Arizona Judicial Branch, Garnishment, Proposition 209 Information Sheet (last visited Oct. 27, 2025) https://www.azcourts.gov/selfservicecenter/Garnishment. 1 at 892. Looking purely at Dollarhide’s conduct after the passage of the Silence decision, 2 the Court does not have enough facts to make an assessment on his post-extraordinary 3 circumstance conduct. It is not clear to the Court, nor has either party argued, when 4 Dollarhide obtained counsel to object to the higher garnishment takings after either the 5 passage of Prop. 209 or after the Silence decision. 6 However, focusing on Dollarhide’s conduct during the extraordinary circumstance, 7 the Court finds that because the law was unclear, a reasonable person under the 8 circumstances would not have done anything more than monitor a change in the law after 9 Prop. 209’s passage. Doe, 661 F. 3d at 1013 . The Court finds that Dollarhide’s conduct 10 satisfies the diligence requirement under this prong. And now, after finding that the 11 applicable statute should be equitably tolled to allow Dollarhide redress, the Court also 12 finds that MLGGLC wrongfully deducted more than it was legally allowed to deduct from 13 Dollarhide. MLGGLC is ordered to return the balance between what it was rightfully owed 14 and what it took in excess, back to Dollarhide for the period following when Prop. 209 15 went into effect and before MLGGLC started deducting only 10% of Dollarhide’s 16 nonexempt discretionary income in late 2024. 17 As a final matter, the Court declines Dollarhide’s request to order MLGGLC to pay 18 Dollarhide’s attorney fees and costs associated with filing his current Motion. MLGGLC, 19 as stated in its Response, immediately adjusted its garnishment from 25% to 10% after it 20 was informed of the Silence decision. (Doc. 1071 at 3). Additionally, the statute under 21 which Dollarhide seeks to have MLGGLC pay for his attorney fees, is a discretionary 22 statute. The discretion is made clear by the plain text of the statute, which states that a 23 prevailing party may be awarded costs and attorney fees, and the discretion has been 24 confirmed by the Ninth Circuit. A.R.S. § 12-1598.07; Zizlsperger v. Maxwell & Morgan 25 PC, 565 F. App'x 633, 636 (9th Cir. 2014). Using its discretion, because neither party was 26 aware of the applicable law prior to the Silence decision, the Court will not grant 27 Dollarhide’s request for attorney fees and costs associated with his Motion. [28] 1 Accordingly, 2 IT IS ORDERED that Alec Dollarhide’s Motion to Enforce Garnishment || Requirements and Order of Continuing Lien (Doc. 1069) is granted in part and denied in 4|| part. 5 IT IS FURTHER ORDERED that Alec Dollarhide’s request to require MLGGLC 6 || to provide quarterly garnishment reports as required by A.R.S. § 12-1598.12. is granted. || MLGGLC should continue to provide Judgment Debtor Alec Dollarhide with quarterly 8 || garnishment reports in compliance with A.R.S. § 12-1598.12. 9 IT IS FURTHER ORDERED that Alec Dollarhide’s request that MLGGLC return 10 || to Alec Dollarhide the amount that it garnished in excess of the allowable 10% after 11 || Proposition 209 went into effect and the pay period ending November 10, 2024, is also granted. 13 IT IS FINALLY ORDERED that Alec Dollarhide’s request for attorney fees and costs for the filing of this Motion (Doc. 1069) is denied. 15 Dated this 6th day of November, 2025. [16] 18 norable' Dian¢g4. Hurmetewa 19 United States District Judge [28] -8-