Brown v. Com., 1998-CA-000840-MR (Direct).

• Decision Date: 08 October 1999
• Docket Number: No. 1998-CA-000840-MR (Direct).,No. 1998-CA-000901-MR (Cross).,1998-CA-000840-MR (Direct).,1998-CA-000901-MR (Cross).
• Parties: Carl J. BROWN Appellant/Cross-Appellee, v. COMMONWEALTH of Kentucky, Natural Resources Andenvironmental Protection Cabinet, Appellee/Cross-Appellant.
• Court: Kentucky Court of Appeals

40 S.W.3d 873

Carl J. BROWN Appellant/Cross-Appellee, v. COMMONWEALTH of Kentucky, Natural Resources Andenvironmental Protection Cabinet, Appellee/Cross-Appellant.

No. 1998-CA-000840-MR (Direct).

No. 1998-CA-000901-MR (Cross).

Court of Appeals of Kentucky.

October 8, 1999.

COPYRIGHT MATERIAL OMITTED

Steve P. Robey, Valerie L. Bock, Law Office of Steve P. Robey, Providence, Kentucky, for appellant/cross-appellee.

Michael P. Wood, Natural Resources and Environmental Protection Cabinet, Frankfort, Kentucky, for appellee/Cross-Appellant.

Before: BUCKINGHAM, HUDDLESTON, and KNOPF, Judges.

OPINION

KNOPF, Judge:

Introduction

Carl Brown appeals and the Commonwealth's Natural Resources and Environmental Protection Cabinet (NREPC or the Cabinet) cross-appeals from March 12, 1998, and January 22, 1998, orders of Franklin Circuit Court subjecting portions of two (2) checking accounts owned by Brown and his wife to garnishment, and exempting from garnishment other portions of those accounts. Being persuaded that both Brown's appeal (1998-CA-000840) and the Cabinet's cross-appeal (1998-CA-000901) identify matters that must be corrected or reconsidered, we reverse in part and vacate in part the circuit court's orders and remand for additional proceedings.

In May 1997, the circuit court, on behalf of NREPC, found Brown liable for coal-mining violations and upheld penalties the Cabinet had assessed against him.¹ In July 1997, the circuit court issued orders of garnishment pursuant to the May judgment, which the Cabinet served on two (2) banks maintaining joint checking accounts for Brown and his wife. One of the banks surrendered the money it held ($322.39) to the Cabinet, and the other transferred its disputed funds ($1,473.27) to the court. Brown asserted (it has since been stipulated) that the accounts contained no funds except wages paid to Brown or his wife, and thus that they were protected by two (2) statutory exemptions: one protecting his wages pursuant to KRS 427.010, and one protecting his wife's wages pursuant to KRS 390.310. The trial court rejected Brown's claim with respect to his wife's wages, but agreed that KRS 427.010 precluded garnishment of the accounts to the extent that they could be shown to contain Brown's wages. Brown appeals from the determination that his wife's wages are subject to garnishment, the Cabinet from the determination that Brown's are not.

Discussion

Standard of Review

The trial court's interpretation of a garnishment or exemption statute is, of course, a question of law. This Court reviews the trial court's legal conclusions de novo. Louisville and Nashville Railroad Co. v. Commonwealth, ex rel Kentucky Railroad Commission, Ky., 314 S.W.2d 940, 943 (1958). When interpreting a statute, we look to the statute's express language and overall purpose. Democratic Party of Kentucky v. Graham, Ky., 976 S.W.2d 423 (1998); Kentucky Region Eight v. Commonwealth, Ky., 507 S.W.2d 489 (1974). The task begins with the language of the statute itself. When a statute's language is plain, "the sole function of the courts is to enforce it according to its terms." Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 194, 61 L.Ed. 442 (1917); Bailey v. Reeves, Ky., 662 S.W.2d 832 (1984). When the statute's language admits of more than one reasonable interpretation, however, courts attempt to understand the legislative intent by considering the legislative history, the statutory context, and, where the statute is plainly based on or intended to coordinate with legislation from another jurisdiction, the construction of similar statutes by other courts. Schmitt Furniture Company, Inc. v. Commonwealth of Kentucky Revenue Cabinet, Ky., 722 S.W.2d 889 (1987); Burke v. Stephenson, Ky., 305 S.W.2d 926 (1957); City of Owensboro v. Noffsinger, Ky., 280 S.W.2d 517 (1955); and City of Covington v. State Tax Commission, 257 Ky. 84, 77 S.W.2d 386 (1934).

Brown's Wages

We shall first address the issue concerning Brown's wages and KRS 427.010. KRS Chapter 427 is titled Exemptions, and section .010 of that chapter provides in pertinent part as follows:

(2) Except as provided in subsection

(3) of this section and KRS 427.050, the maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not exceed the lesser of either:

(a) Twenty-five percent of his disposable earnings for that week, or

(b) The amount by which his disposable earnings for that week exceed thirty times the federal minimum hourly wage prescribed by Section 6(a)(1) of the Fair Labor Standards Act of 1938 in effect at the time the earnings are payable. In the case of earnings for any pay period other than a week, the multiple of the federal Minimum hourly wage equivalent to that set forth in paragraph (b) of this subsection as prescribed by regulation by the federal secretary of labor shall apply.

(3) The restrictions of subsection

(2) of this section do not apply in the case of:

(a) Any order of any court for the support of any person.

(b) Any order of any court of bankruptcy under Chapter 13 of The Bankruptcy Code.

(c) Any debt due for any state or federal tax.

This statute is modeled upon the federal Consumer Creditor Protection Act (the "CCPA").² That act requires state garnishment exemption statutes to comply with federal limitations on amounts that may be garnished. Consequently, most state wage garnishment exemption statutes, including Kentucky's, track the language of the federal act. The Supreme Court interpreted the federal act in Kokoszka v. Belford, 417 U.S. 642, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974), and determined that a tax refund did not constitute "disposable earnings" under the CCPA and therefore was not exempt from administration in Kokoszka's bankruptcy case. In reaching this decision, the Supreme Court analyzed the purpose of the CCPA and stated that

[i]ndeed, Congress' concern [in passing the act] was not the administration of a bankrupt's estate but the prevention of a bankruptcy in the first place by eliminating "an essential element in the predatory extension of credit resulting in a disruption of employment, production, as well as consumption" and a consequent increase in personal bankruptcies.

Id. at 650, 94 S.Ct. at 2436 (footnote omitted) (citing H.R.Rep. No. 1040, 90th Cong., 1st Sess., 20 (1967)).

The Court, making further reference to the legislative history of the CCPA, went on to explain that

"[t]he limitations on the garnishment of wages adopted ... while permitting the continued orderly payment of consumer debts, will relieve countless honest debtors driven by economic desperation from plunging into bankruptcy in order to preserve their employment and insure a continued means of support for themselves and their families."

Id. at 651, 94 S.Ct. at 2436 (quoting H.R.Rep. No. 1040, 90th Cong., 1st Sess., 21 (1967)). From this history, the Supreme Court summarized that "Congress, in an effort to avoid the necessity of bankruptcy, sought to regulate garnishment in its usual sense as a levy on periodic payments of compensation needed to support the wage earner and his family on a week-to-week, month-to-month basis." Id.

As noted by the Supreme Court in Kokoszka, the federal CCPA did not create a true exemption applicable to bankruptcy proceedings, but sought instead to prevent bankruptcies by protecting the debtor's employment. This protection consisted of a limitation on the portion of earnings subject to the employer's garnishment and a prohibition against discharging employees because their earnings had been garnisheed for any one indebtedness. These provisions were not intended to create a new fund beyond the reach of creditors, but only to prevent creditors from unduly burdening the employment relationship.

The act's reference to wages "payable or paid" has also required interpretation. Is it applicable only to wages still under the employer's control, or is it meant to apply to wages even after they have been transferred to the employee? In light of the CCPA's limited purpose, virtually all of the courts to consider whether that act applies to wages deposited into bank accounts or otherwise removed from the employer's control have found that it does not. In re Lawrence, 219 B.R. 786 (Bankr.E.D.Tenn.1998) (collecting cases); Usery v. First National Bank of Arizona, 586 F.2d 107 (1978). The CCPA, however, establishes only a floor of debtor protection; states are free under the act to impose their own more rigorous restrictions on garnishment. The first question before us, therefore, becomes whether Kentucky's adoption of the CCPA evidences an intention to extend the act's protection to wages that have passed from the employer to the employee's bank account.

In ruling that it does, the trial court relied heavily upon our Supreme Court's opinion in Matthews v. Lewis, Ky., 617 S.W.2d 43 (1981). In that case, workers' compensation benefits in the appellant's checking account had been garnisheed, and the Court was asked to decide whether KRS 342.180 precluded the garnishment. That statute provided³ in part that "[n]o claim for compensation under this chapter shall be assignable; and all compensation and claims therefor shall be exempt from all claims of creditors." The Court ruled that this language was intended to preclude garnishment, and observed that

[o]ur society's contemporary social programs exhibit a philosophy of relief for the distressed, the impoverished, and the victims of personal and financial catastrophes among us. The Workers' Compensation Act is simply one aspect of those social programs. Kentucky's exemption statutes are simply another necessary instrument in the overall scheme of social welfare programs. They are the teeth in the prosecution [sic] given certain deserving victims from their creditors.

. . . .

We hold that unless they provide clearly to the contrary, Kentucky's exemption statutes, including but...