In re Pettit

• Decision Date: 14 August 1998
• Docket Number: Bankruptcy No. 97-8710-3F7.
• Citation: 224 BR 834
• Parties: In re Algernon Mordaunt PETTIT, III and Jean Bengston Pettit, Debtors.
• Court: U.S. Bankruptcy Court — Middle District of Florida

224 B.R. 834 (1998)

In re Algernon Mordaunt PETTIT, III and Jean Bengston Pettit, Debtors.

Bankruptcy No. 97-8710-3F7.

United States Bankruptcy Court, M.D. Florida, Jacksonville Division.

August 14, 1998.

S. Hunter Malin, Jacksonville, Fl, for George Carter.

James A. Fischette, Jacksonville, Fl, for Debtors.

Aaron R. Cohen, Jacksonville, Fl, trustee.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JERRY A. FUNK, Bankruptcy Judge.

This Case is before the Court upon Amended Objection to Debtors' Exemptions. (Doc. 16.) A hearing was held on June 9, 1998, at which time the Court directed the parties to submit proposed Findings of Fact and Conclusions of Law. Upon the evidence presented, the Court enters the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

On November 13, 1997 Algernon Pettit ("Pettit") and Jean Pettit ("Mrs. Pettit") filed a Chapter 7 Bankruptcy Petition. (Doc. 1). On their Bankruptcy Schedules, Debtors claimed exemptions of $23,392.43 in Pettit's Wage Account, $1000 in Debtors' joint checking account, hereinafter "Operating Account" and $352,049.06 in Pettit's Prudential Securities IRA/SEP Account. (Doc. 2.)

On January 21, 1998 George Carter ("Carter"), a secured judgment creditor, filed Objection to Debtors' Exemptions. (Doc. 9). On March 31, 1998 Carter filed Amended Objection to Debtors' Exemptions. (Doc. 16). Carter objects to the exemptions for the Wage Account, the Operating Account, and the Prudential Securities IRA/SEP Account. (Doc. 16).

Since January of 1996 Pettit has worked for Mark DeBiase, Inc., doing business as Joint Venture, as a salesperson of orthopedic implants and medical equipment. (Carter's Ex. 49 at 8.) Although there is no written employment agreement between Pettit and Joint Venture, there is a verbal agreement that Pettit is an independent contractor and that he will not compete with Joint Venture as long as Mark DeBiase treats him appropriately. (Carter's Ex. 52 at 22.) Joint Venture does not withhold employment taxes from Pettit's compensation and issues him a 1099 Miscellaneous statement for tax purposes. (Carter's Ex. 52 at 20, Carter's Ex. 49 at 9.) Joint Venture does not provide any benefits such as health insurance, disability insurance, or a pension or profit sharing plan to Pettit. (Id. at 12-13.) Joint Venture has no control over the number of hours Pettit works. (Carter's Ex. 50 at 3.) Pettit has no ownership interest in Joint Venture. (Carter's Ex. 49 at 11.)

Pettit's work is structured as follows. He performs sales presentations after which the customer decides whether to purchase the product. (Carter's Ex. 50 at 4.) If the customer purchases the product, the customer informs Pettit where to deliver the product. (Id.) If the customer reorders without requesting a second sales presentation, Pettit receives credit for the sale even though he performed no additional work. (Id. at 5.) All orders in the Jacksonville area are credited to Pettit whether he or another salesperson takes the order or performs the sales presentation. (Id. at 8.) Pettit is paid a $12,500 monthly commission, a $10,000 quarterly bonus, and is reimbursed for business expenses. (Carter's Ex. 49 at 8-9, 13.) From May of 1996 to November of 1997, nine of Pettit's checks included expense reimbursements. (Carter's Ex. 45.)

In May of 1996, Pettit opened the Andy Pettit Wage Account ("Wage Account") into which he deposited his checks from Joint Venture. (Carter's Ex. 49 at 18.) With the exception of the $10,000 bonus check he received on May 2, 1997 and deposited on May 30, 1997, Pettit deposited all of his commission and bonus checks from May of 1996 until November of 1997 no later than 10 days after the date he received them. (Carter's Ex. 45.)

Debtors have a joint checking account ("Operating Account") that is funded primarily by Pettit's Wage Account. (Carter's Ex. 49 at 42-43.) Pettit writes checks made payable to himself from the Wage Account and then deposits them into the Operating Account. (Id. at 40-41.) However, on at least one occasion, a deposit for which Debtors have no explanation was made into the Operating Account. (Transcript of 6/09/98 hearing hereinafter "Tr." at 43-44.) Debtors' only source of cash is withdrawals from the Operating Account. (Carter's Ex. 49 at 42.)

On November 11, 1997 Pettit received from Joint Venture a $14,042.43 check, $12,500 of which represented his October commission, and $1,542.43 of which represented expense reimbursement. (Carter's Ex. 50 at 50.) On November 13, 1997 the monthly beginning balance in the Wage Account was $306.74. (Carter's Ex. 43.) On that day Debtors made two deposits into the Wage Account. (Id.) The first deposit was for $23,042.43. $14,042.43 of the first deposit represented the November 11, 1997 payment. (Id.) The second deposit was for $2,000. (Id.)

On October 28, 1997 the monthly beginning balance in Debtors' Operating Account was $49.81. (Carter's Ex. 42.) On October 28, 1997 a $4,000 deposit was made. (Id.) On November 6, 1997 a $600 deposit was made. (Id.) On November 12, 1997 a $6,000 deposit was made. (Id.) On November 13, 1997 a $6000 deposit was made. (Id.)

On or about November 23, 1993 Pettit transferred approximately $200,000 from his SEP/IRA account at J.C. Bradford & Co. into a Prudential Securities Account. (Carter's Ex. 49 at 178.) From the inception of the Prudential Account until the date of the Bankruptcy Petition, Pettit made no additional contributions. (Id. at 178-180.) The approximate value of the account on the date of Debtors' Petition was $ 352,049.06. (Carter's Ex. 49.)

When Pettit opened his Prudential Securities Account, he completed and was given a copy of a New Client Record and a SEP/IRA Application. (Carter's Ex. 46, Carter's Ex. 50 at 28, 29.) He also signed and was given a copy of a Client Opening Account Agreement and a Disclosure Statement. (Id.) Pettit did not receive any other documents. (Carter's Ex. 50 at 29.)

CONCLUSIONS OF LAW

The first issue in this Case is whether the commissions and bonuses earned by Pettit are exempt pursuant to § 222.11 Florida Statutes. The statute, entitled "Exemption of Wages from Garnishment" provides in pertinent part:

(1) As used in this section the term:

(a) "Earnings" includes compensation paid or payable, in money of a sum certain, for personal services or labor whether denominated as wages, salary, commission or bonus.

(2)(a) All of the disposable earnings of a head of family whose disposable earnings are less than or equal to $500 a week are exempt from attachment or garnishment.

(b) Disposable earnings of a head of family, which are greater than $500 a week, may not be attached or garnished unless such person has agreed otherwise in writing.

(3) Earnings that are exempt under subsection (2) and are credited or deposited in any financial institution are exempt from attachment or garnishment for 6 months after the earnings are received by the financial institution if the funds can be traced and properly identified as earnings. Commingling of earnings with other funds does not by itself defeat the ability of a head of family to trace earnings.

Fla.Stat.Ann. § 222.11 (West 1998).

There is no dispute as to Pettit's status as head of household. The issue is whether his commissions and bonuses are earnings within the meaning of the statute. The only Florida Supreme Court case to address the issue is Patten Package Co. v. Houser, 102 Fla. 603, 136 So. 353 (1931). In Houser, the court interpreted the predecessor to § 222.11.¹ The debtor defendant, Houser, delivered petroleum products to Gulf Refining Company, the garnishee. Id., 136 So. at 354. The creditor garnished $ 703.19 owed to Houser. Id. Houser claimed that the money owed to him was exempt pursuant to § 222.11. Id. Although the court noted that Houser was an independent contractor, its decision that the money owed to him was not exempt was based on the fact that the court was unable to determine how much was attributable to his personal labor or service. Id. at 355. The court stated:

The $703.19 was not to come to him as compensation for his personal labor and services. It was to come to him as compensation for delivery of the petroleum products for the Gulf Refining Company, but was to pay the expenses which he had advanced or incurred in and about making such delivery with the net amount left thereafter to be divided equally between himself and his son. Therefore, it was for the expense account, for the services of the adult son, and for his services rendered.

Id.

However, most Florida Bankruptcy courts have interpreted Houser to hold that money due for personal labor or services can only be earned by an employee and consequently that the payment of wages to an employee is exempt, whereas compensation to an independent contractor is not. See In re Montoya, 77 B.R. 926 (Bankr.M.D.Fla.1987), In re Moriarty, 27 B.R. 73 (Bankr.M.D.Fla.1983), In re Parker, 147 B.R. 810 (Bankr.M.D.Fla. 1992). But see In re Glickman, 126 B.R. 124 (Bankr.M.D.Fla.1991) (holding that payments to head of family for personal labor and services are exempt whether the head of family is an employee or an independent contractor).

In 1993, in In re Schlein, the Eleventh Circuit Court of Appeals addressed the issue of whether § 222.11 exempts compensation of independent contractors. In re Schlein, 8 F.3d 745 (11th Cir.1993). Schlein conceded that he was an independent contractor but argued that the phrase "money due for personal labor or services" was not limited to earnings of employees. Id. at 754. The court disagreed and held that the "earnings" of an independent contractor are not money due for personal labor or services and are thus not exempt pursuant to § 222.11. Id. at 755-56. The court based its decision in part on Refco v. Sarmiento, 487 So.2d 75 (Fla.3d Dist.Ct.App.1986). Id. at 755. Although Refco held that the debtor was an employee whose wages were exempt, it interpreted Houser's...