Usery v. First Nat. Bank of Arizona, 75-3763

• Decision Date: 03 November 1978
• Docket Number: No. 75-3763,75-3763
• Citation: 586 F.2d 107
• Parties: 23 Wage & Hour Cas. (BN 1265, 85 Lab.Cas. P 33,752 W. J. USERY, Jr., Secretary of Labor, United States Department of Labor, Appellant, v. FIRST NATIONAL BANK OF ARIZONA, a National Banking Association, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 107

586 F.2d 107

23 Wage & Hour Cas. (BN 1265, 85 Lab.Cas. P 33,752

W. J. USERY, Jr., Secretary of Labor, United States Department of Labor, Appellant, v. FIRST NATIONAL BANK OF ARIZONA, a National Banking Association, Appellee.

No. 75-3763.

United States Court of Appeals, Ninth Circuit.

Nov. 3, 1978.

Ronald G. Whiting (argued), Washington, D. C., for appellant.

Robert E. B. Allen (argued), of Streich, Lang, Weeks, Cardon & French, Phoenix, Ariz., for appellee.

Appeal from the United States District Court for the District of Arizona.

Before SNEED and KENNEDY, Circuit Judges, and HALL, ^* District Judge.

KENNEDY, Circuit Judge:

This case involves the enforcement and administration of the Consumer Credit Protection Act (Act), 15 U.S.C. § 1671 Et seq. The question presented is whether a bank served with a garnishment directed at a depositor's account is required to determine the depositor's right to a wage earner's exemption under the Act, and, if so, whether the bank is required to calculate the amount of that exemption before honoring the garnishment. Contrary to the position urged by the Secretary of Labor, we hold that a bank is not required to make such determinations, and we affirm the judgment of the district court.

The Secretary of Labor instituted the action pursuant to his authority to enforce the Act. 15 U.S.C. § 1676. The initial complaint alleged that the First National Bank of Arizona violated the Act by paying a garnishment attaching sums in the checking account of a depositor, a Mr. Hill, without first applying the Act's garnishment limitations, which provide certain exemptions for wages. The Secretary later amended the complaint to allege the bank had violated the Act continuously since about July 23, 1971 by honoring garnishments of accounts covered by the exemption. The complaint prayed for an injunction requiring the bank to comply with the Act as interpreted by the Secretary and further for an order requiring the bank to restore to its depositors any sums lost by excessive garnishment payments, together with interest. Except for Mr. Hill's account, the amended complaint did not name any specific instance in which the bank had violated the Act.

After three years of discovery in which all concerned sought to identify the depositors' accounts which had been garnished in alleged violation of the Act and to calculate the applicable exemption in each case, both parties moved for summary judgment. The district court entered judgment for the bank, holding that the statutory exemption applies to garnishments of the employer of a debtor but not to a bank which holds the debtor's deposits, and that even if the Act does apply to garnishment of compensation on deposit in the bank, the bank has no duty to assert the statutory defenses of the depositor.

The garnishment restrictions of section 303(a) are stated as follows:

Except as provided in subsection (b) of this section and in section 1675 of this title, the maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not exceed

(1) 25 per centum of his disposable earnings for that week, or

(2) the amount by which his disposable earnings for that week exceed thirty times the Federal minimum hourly wage prescribed by section 206(a)(1) of title 29 in effect at the time the earnings are payable,

whichever is less. In the case of earnings for any pay period other than a week, the Secretary of Labor shall by regulation prescribe a multiple of the Federal minimum hourly wage equivalent in effect to that set forth in paragraph (2).

15 U.S.C. § 1673(a). The "disposable earnings" of the employee are calculated from "earnings" by deducting "any amounts required by law to be withheld." Act § 302(b), 15 U.S.C. § 1672(b). Central to the Secretary's interpretation of section 302(a) is the definition of "earnings" as used in that section:

The term "earnings" means compensation Paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.

Act § 302(a), 15 U.S.C. § 1672(a) (emphasis supplied). The Secretary argues that compensation "paid" to an employee retains its character as "earnings" even after it is turned over to an employee or deposited directly in the employee's bank account, and hence that the garnishment restrictions of the Act apply to such funds.

Stressing that "garnishment" as defined in the Act is not limited to garnishment of the employer by any explicit language, the Department asks us to infer from this that Congress intended the employees' compensation to be traced from the employer into the hands of a third party and to require the third party to be bound by the Act. We think the statutory scheme, the legislative history, and the case law refute the Secretary's theory, as does the Secretary's own demonstrated inability to make a rational application of the Act to any of the accounts alleged to be within the Act's coverage in this case.

While the Act does not limit the exemption provisions to garnishment of employers, neither does it contain any reference, direct or indirect, to the duty of a nonemployer garnishee to comply with its provisions. The Act's formula for calculating garnishment restrictions requires information which far exceeds that which is ordinarily available to a financial institution. Moreover, the Act contains no suggestion as to how a bank could acquire such information or maintain records without impinging upon the privacy of its depositors. The restrictions of section 303 are defined in terms of a percentage of compensation for a weekly pay period and in terms of the minimum wage for a 30-hour week. These calculations bear no relation to the lump sum amount in a checking or savings account.

To underscore further the point that the statute is not designed so that a bank can calculate a wage earner's exemption, we note that the Secretary could not interpret the Act in various of its critical aspects as applied to this case. Thus, even assuming the bank were to obtain information as to its depositors' weekly compensation, it must further be determined how far back it is required to trace weekly wages deposited in the account. At oral argument before this court, counsel for the Department stated, somewhat hesitantly, that banks are required by the statute to calculate and apply garnishment restrictions for "several" prior pay periods. That ad hoc assertion provides inadequate guidelines for statutory compliance. The word "several" indicates an indefinite number; to subject a bank to potential civil liability for paying a garnishment in violation of a statute that is so loosely interpreted by the administrative agency or, alternatively, to require the bank to commence interpleader proceedings to protect it from liability, is not a result that we will consider within the contemplation of Congress. If, in the face of such an indefinite statutory duty banks were to commence interpleader proceedings as a normal response, the very wage earners who are within the protection of the Act would incur needless costs, thus undercutting the statutory purpose.

The statutory uncertainties inherent in the Department's construction do not end here. Assuming the bank could determine both the amount of wages deposited and the number of pay periods to which the Act applies, it would be required to make the further determination whether withdrawals from the account made during or after that period were allocable to earnings or to monies deposited in the account from other sources. The Secretary suggested that a first-in, first-out calculation could be used, but there is neither a statutory nor an administrative basis for this conclusion.

Finally, the Secretary attempted in this case to calculate for the court below the appropriate garnishment restriction for each of the accounts which, under his theory, the bank had allegedly garnished in violation of the Act. Despite three years of discovery, including depositions of various depositors, conducted at a great expense to the bank, all of the Secretary's calculations for all of the accounts in question were just...