In re Pruss
| Decision Date | 08 June 1999 |
| Docket Number | BAP No. 98-6070NE. |
| Citation | 235 BR 430 |
| Parties | In re Marion F. PRUSS, Debtor. Marion F. Pruss, Appellant, v. Richard J. Butler, and Kathleen Laughlin, Trustee, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
Janice Matya Woolley, Steven J. Woolley, Marion F. Pruss, Omaha, NE, for appellant.
Derrick J. Hahn, Lynne R. Fritz, Richard Butler, for appellee.
Before KRESSEL, SCHERMER and DREHER, Bankruptcy Judges.
Marion F. Pruss, ("Ms. Pruss" or the "Debtor") a practicing attorney and debtor under Chapter 13 of the United States Bankruptcy Code appeals from an order of the bankruptcy court denying her claim of exemption in a portion of her accounts receivable. The Debtor claimed the accounts receivable exempt under Neb.Rev. Stat. § 25-1558 which limits garnishment on earnings from personal services, whether denominated as wages, salary, or otherwise. The bankruptcy court held the accounts receivable were not the equivalent of wages or salary and therefore were not exempt under the Nebraska statute. Because we interpret Neb.Rev.Stat. § 25-1558 as excepting from garnishment the portion of Ms. Pruss' accounts receivable attributable to her personal services as a self-employed individual, we reverse and remand.
Ms. Pruss is an attorney engaged in the practice of law as a sole practitioner. When she filed a Chapter 13 bankruptcy petition on January 30, 1998, she owned accounts receivable from legal services billed to her clients. The scheduled value of these receivables was $41,000, of which Ms. Pruss claimed 75% exempt pursuant to Neb.Rev.Stat. § 25-1558. Her claim of exemption was, however, subject to the secured claim of Packer's Bank to whom Ms. Pruss pledged her accounts receivable for a past and current (post-petition) operating loan. The Chapter 13 Trustee, Kathleen Laughlin (the "Trustee"), and Richard Butler ("Mr. Butler"), the Chapter 7 Trustee of two other bankruptcy estates which are creditors of Ms. Pruss, objected to her claim of exemption on the grounds that the accounts receivable of a professional person who does not work for wages do not constitute disposable earnings as defined in Neb.Rev.Stat. § 25-1558. The Trustee and Mr. Butler, (collectively, the "Objectors") maintained that § 25-1558 was intended to protect only the periodic income stream of individuals in a traditional employee-employer relationship and did not encompass accounts receivable of the self-employed.
The bankruptcy court agreed with the Objectors and denied the claim of exemption on three grounds. First, the court found significant that the statute speaks of "disposable earnings of an individual for any workweek" and concluded that the statute did not apply to the Debtor as a self-employed professional because there was no evidence that the accounts receivable were directly related to any particular workweek. Second, the court found that the accounts receivable did not fit within the statutory definition of "disposable earnings." Disposable earnings are defined in Neb.Rev.Stat. § 25-1558(4)(b) as "that part of the earnings of any individual remaining after deducting . . . any amounts required by law to be withheld," and as a self-employed professional, the bankruptcy court concluded that although Ms. Pruss would be required to make certain estimated tax deposits, she was not required to "withhold" any amounts from her gross receivables. Third, the court reasoned that Ms. Pruss' prior pledge of the accounts receivable as collateral was inconsistent with Neb.Rev.Stat. § 25-1558(5) which prohibits assignment of wages or salary. On this last point, the court reflected that the Debtor could not have it both ways; claiming the accounts partially exempt from garnishment as earnings from personal services while at the same time pledging the accounts as collateral for a loan.
On appeal, the Objectors echo the bankruptcy court's interpretation of the Nebraska statute, urging its application only to traditional employee situations. Conversely, Ms. Pruss places emphasis on the rationale of the statute and urges that its purpose of protecting the periodic income of individuals applies equally well to the self-employed as to those in traditional master-servant relationships.
The bankruptcy court's interpretation of the Nebraska garnishment and exemption statute is a question of law. We review the bankruptcy court's legal conclusions de novo. First Nat'l Bank of Olathe v. Pontow, 111 F.3d 604, 609 (8th Cir.1997). When interpreting a statute on appeal, this court looks to the statute's express language and overall purpose. In re Martin (Martin v. Cox), 140 F.3d 806, 807-08 (8th Cir.1998). See Graven v. Fink (In re Graven), 936 F.2d 378, 384-85 (8th Cir.1991). The task begins where all such inquires must begin: with the language of the statute itself. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). When a statute's language is plain, "`the sole function of the courts is to enforce it according to its terms.'" Id. (quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 194, 61 L.Ed. 442 (1917)). In relevant part, the Nebraska statute states:
Neb.Rev.Stat. § 25-1558 (West WESTLAW through 1998 1st Sess.).1
Our analysis of this statute begins with the definition of "earnings." Section 25-1558(4)(a) defines "earnings" to mean "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 plan." Neb.Rev.Stat. § 25-1558(4)(a) (emphasis added). In this case, Ms. Pruss concedes that her accounts receivable are not salary or wages, but she asserts that the receivables (at least the portion attributable to the legal services which she rendered, as contrasted with costs advanced on behalf of clients or fees billed for other attorneys) are nevertheless, compensation for Ms. Pruss' personal services.
This court agrees and finds that when an attorney performs legal services, the fees generated constitute "earnings" from the attorney's personal services. As such, the portion of the fees associated with the attorney's personal labor fall squarely within the statutory definition of "earnings" in Neb.Rev.Stat. § 25-1558. Labeling the Debtor's earnings as "accounts receivable" rather than "accrued compensation" does not change the essential fact that these funds constitute compensation earned by the Debtor for rendering personal services. Indeed, every wage earner and salaried employee whose compensation is paid in arrears holds an account receivable; yet, the existence of such a receivable does not change the character of the compensation from earnings to some other category of income.2
Having established that the Ms. Pruss' receivables constitute "earnings," we next consider whether those earnings are "disposable earnings" for which the Nebraska statute provides exemption. Paragraph 4(b) of § 25-1558 defines "disposable earnings" to mean "that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld." Because a self-employed individual is not required to withhold federal income tax or social security, the court and the Objectors concluded that self-employed individuals do not have "disposable earnings" subject to protection under this statute. Similarly, because paragraph (1) of the statute couches its limitations on garnishment in terms of weekly wages, the bankruptcy court and Objectors reasoned that the statute protects only those in traditional employee/employer transactions whose compensation is related to particular work periods.
This court disagrees with these approaches because they look to the definition of disposable earnings in paragraph (4)(b) and use the method stated therein to determine what percentage of earnings are subject to garnishment, in order to define whether certain categories of earnings fall within the statute's protection in the first place. In other words, these approaches superimpose concepts from ...
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