Koethe v. Johnson

• Decision Date: 22 December 1982
• Docket Number: No. 67493,67493
• Citation: 328 N.W.2d 293
• Parties: Lemar KOETHE, d/b/a Carmel Heights Apartments, Appellant, v. Harold E. JOHNSON, Defendant, and Des Moines Water Works, Garnishee-Appellee.
• Court: Iowa Supreme Court

Page 293

328 N.W.2d 293

Lemar KOETHE, d/b/a Carmel Heights Apartments, Appellant, v. Harold E. JOHNSON, Defendant, and Des Moines Water Works, Garnishee-Appellee.

No. 67493.

Supreme Court of Iowa.

Dec. 22, 1982.

William H. Michelson, Des Moines, for appellant.

John R. Mackaman and Barbara G. Barrett of Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, for garnishee-appellee.

Considered by LeGRAND, P.J., and UHLENHOPP, HARRIS, McGIVERIN, and CARTER, JJ.

McGIVERIN, Justice.

The district court dismissed a garnishment action by plaintiff creditor against the public employer of the debtor. This discretionary review in a small claims case involves the interplay between the Iowa garnishment statute, Iowa Code ch. 642 (1981), and restrictions on garnishment under the federal Consumer Protection Act, 15 U.S.C. §§ 1671-77 (Supp. IV 1980). The basic issues raised by plaintiff Lemar Koethe, d/b/a Carmel Heights Apartments, are (1) the effect of a prior assignment of wages for child support on a creditor's ability to garnish a debtor's wages, and (2) the applicability and proper construction of the statute governing garnishment of public employers. Iowa Code § 642.2. We affirm the judgment of the district court.

On December 11, 1980, plaintiff obtained a $300 small claims judgment against Harold E. Johnson who had broken his lease with plaintiff without notice. Johnson made only two $50 payments on the judgment, and on April 22, 1981, a wage garnishment proceeding under Iowa Code chapter 642 for the remaining $200 of the judgment, plus interest and costs, was commenced against Des Moines Water Works, Johnson's employer. Johnson is paid every two weeks. At the time of the garnishment his net earnings were approximately $345 per pay period; the amount varied somewhat due to overtime worked.

The notice of garnishment was served on Water Works four days into a pay period. Water Works answered the garnishment questions, Iowa Code § 642.5, stating that it owed Johnson $127.92. This figure was determined by subtracting from Johnson's gross earnings, owed for the pay period up to the time of the garnishment, a $130 biweekly wage assignment for child support, that previously had been ordered in a dissolution of marriage action. The result of this method of computation was to exempt all of Johnson's wages from garnishment under 15 U.S.C. section 1673.

Plaintiff filed a petition controverting the answers of Water Works under Iowa Code section 642.11, and a hearing was held in small claims division of district court. ¹ The court ruled that Johnson's wages, after appropriate deductions, were insufficient to be reached by plaintiff's garnishment.

Plaintiff appealed to a district court judge. Iowa Code § 631.13. That court ruled that Johnson's unpaid earnings, at the time of garnishment, amounted to $257.92 ($127.92 plus the $130 assigned as child support). In addition, the court found that Water Works was a public employer and that under Iowa Code section 642.2(5) the more stringent wage exemption standards of Iowa Code section 537.5105 applied, leaving nothing for plaintiff to garnish.

Plaintiff sought and we granted discretionary review. Iowa Code § 631.16.

I. Standard of review. The standard of review of a discretionary review appeal of a small claims action depends on the nature of the case. If the action is a law case, as in the present action, we review the judgment of the district court judge on error. Roeder v. Nolan, 321 N.W.2d 1, 3 (Iowa 1982). Consequently, the district court judge's findings of facts have the force of a jury verdict and are binding if supported by substantial evidence. Ravreby v. United Airlines, Inc., 293 N.W.2d 260, 262 (Iowa 1980).

II. Effect of prior assignment for support. In essence, plaintiff contends that Johnson's wages should be subject to garnishment by a judgment creditor even though a prior court order requires that Johnson assign more than 25% of his disposable earnings to child support obligations. We conclude that Iowa Code chapter 642 and the federal Consumer Protection Act do not support such a contention.

A. We initially examine the federal act. The primary purpose of the Consumer Protection Act was to limit the ills which flowed from the unrestricted garnishment of wages; ² no effort was made to protect the rights of creditors. ³ The Act works in tandem with state law. It provides the minimum protection afforded a debtor; in any state that provides stricter laws against garnishment, the Act will yield to state law. 15 U.S.C. § 1677.

The principal provision of the Act is 15 U.S.C. section 1673, which, as amended in 1977, provides in pertinent part as follows:

(a) 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 subject 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 hours wage ....

(b)(1) The restrictions of subsection (a) of this section do not apply in the case of

(A) any order for the support of any person issued by a court of competent jurisdiction or in accordance with an administrative procedure, which is established by State law, which affords substantial due process, and which is subject to judicial review.

* * *

* * *

(2) The maximum part of the aggregate disposable earnings of an individual for any workweek which is subject to garnishment to enforce any order for the support of any person shall not exceed--

(A) where such individual is supporting his spouse or dependent child (other than a spouse or child with respect to whose support such order is used), 50 per centum of such individual's disposable earnings for that week; and

(B) where such individual is not supporting such a spouse or dependent child described in clause (A), 60 per centum of such individual's disposable earnings for that week;

except that, with respect to the disposable earnings of any workweek, the 50 per centum specified in clause (A) shall be deemed to be 55 per centum and the 60 per centum specified in clause (B) shall be deemed to be 65 per centum, if and to the extent that such earnings are subject to garnishment to enforce a support order with respect to a period which is prior to the twelve-week period which ends with the beginning of such workweek.

We note that the Act does not establish any order of priority among garnishments; thus the matter of priority between garnishments is to be determined by state law. 29 C.F.R. § 870.11(b)(2) (1981); Long Island Trust Co. v. United States Postal Service, 647 F.2d 336, 338 (2d Cir.1981). In Iowa, the garnishment right first acquired is, as a general rule, superior. Verschoor v. Miller, 259 Iowa 170, 177, 143 N.W.2d 385, 389 (1966). The rights to priority date from the date the garnishment was first levied against the garnishee. Briley v. Madrid Improvement Co., 255 Iowa 388, 396, 122 N.W.2d 824, 828 (1963).

B. The issues raised by plaintiff next require the construction of two key terms within the Act: "garnishment" and "disposable earnings."

We turn first to the question of whether an order to assign wages to meet support obligations is a "garnishment." "Garnishment" is defined in 15 U.S.C. section 1672(c) as "any legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of any debt."

The following language in Marshall v. District Court for Forty-First-b Judicial District of Michigan, 444 F.Supp. 1110, 1116 (E.D.Mich.1978) is persuasive:

Any order for support of any person within the scope of section 303(b)(1) of the Act [15 U.S.C. § 1673(b)(1) ] as enacted (or section 303(b)(1)(A) of the Act [15 U.S.C. § 1673(b)(1)(A) ] as amended effective June 1, 1977) is an order falling within the definition of "garnishment" order contained in section 302(c) of the Act [15 U.S.C. § 1672(c) ] if, pursuant to it, the earnings of any individual are required to be withheld to meet the requirements of the order.

We conclude that the wage assignment made by Johnson to satisfy his support obligations was a garnishment within the meaning of 15 U.S.C. section 1672(c). For the purposes of this Act, it is immaterial whether the court order orders or merely coerces a principal defendant to assign a portion of his wages for support. Marshall, 444 F.Supp. at 1116.

Second, we must consider the meaning of "disposable earnings." We affirm the district court's finding that the $130 assigned for support is a part of Johnson's disposable earnings.

"Disposable earnings" is defined in 15 U.S.C. section 1672(b) as that part of an individual's gross compensation for personal services that remains after deduction of amounts required by law to be withheld. For the purposes of this definition, amounts withheld pursuant to an order of support are not "required by law to be withheld." Marshall, 444 F.Supp. at 1115. For the purposes of 15 U.S.C. section 1672(b) "amounts required by law to be withheld" clearly include deductions for federal, state and local withholding taxes, and social security taxes. Marshall, 444 F.Supp. at 1115; First National Bank v. Hasty, 415 F.Supp. 170, 173, aff'd, 573 F.2d 1310 (6th Cir.1976).

If support, withheld pursuant to a court order, were included in the definition of "amounts required by law to be withheld" the result would be contrary to the purposes of the Act. Up to sixty-five percent of the employee's after-tax earnings could be withheld for support, 15 U.S.C. § 1673(b), and since this amount would be subtracted to determine "disposable earnings" an additional twenty-five percent of these disposable earnings could be garnished by general creditors. This hypothetical result is clearly an incorrect reading of the Act. It would be inconsistent with Congress's overall purpose of...