Matthews v. Lewis

• Decision Date: 16 June 1981
• Docket Number: Nos. 80-SC-596-D,80-CA-1483-D,s. 80-SC-596-D
• Citation: 617 S.W.2d 43
• Parties: Evelyn D. MATTHEWS, Movant, v. Samuel L. LEWIS, et al., Respondents.
• Court: United States State Supreme Court — District of Kentucky

Page 43

617 S.W.2d 43

Evelyn D. MATTHEWS, Movant, v. Samuel L. LEWIS, et al., Respondents.

Nos. 80-SC-596-DG, 80-CA-1483-D

Supreme Court of Kentucky.

June 16, 1981.

Alan L. Schmitt, Legal Aid Society, Inc., Elizabethtown, for movant.

Walter L. Porter, Louisville, for respondents.

Bruce D. Atherton, Louisville, for amicus curiae.

OPINION OF THE COURT

The question presented by this case is whether assets received from a statutorily exempted source and placed by the recipient into his or her bank checking account lose their exempt status.

Movant Evelyn Matthews received a worker's compensation payment in the amount of $146.78 and deposited same to her checking account on May 14, 1979, increasing her balance to $149.19. Movant wrote a check for $36.00, which was paid on May 18, 1979, which reduced her checking account balance to $113.19. In other words, is the sum of $113.19 exempt from execution because it represents the proceeds of a worker's compensation benefit check, which is without question, beyond the reach of creditors?

Sometime prior to May 18, 1979, respondents Samuel L. and Martha Lewis obtained a civil judgment against movant in the Jefferson District Court. On that date an order of garnishment was issued against movant in which the bank was named as a garnishee. Pursuant to the garnishment, the bank paid into the district court the balance of $113.19. Thereupon, movant sought to have this money declared exempt and returned to her. Her motion was denied, and she appealed to the Jefferson Circuit Court where the action of the district court was affirmed on July 14, 1980. The Court of Appeals of Kentucky, on August 27, 1980, denied review. On January 8, 1981, this court granted review.

The workers' compensation statute (KRS 342.180), which we have under consideration, provides as follows:

"342.180. Compensation claim not assignable Exempt from debts. No claim for compensation under this chapter shall be assignable; and all compensation and claims therefor shall be exempt from all claims of creditors."

Before setting out to answer the issues, we need to consider the purpose for which an exemption statute is adopted.

The intent of the Kentucky Workers' Compensation Act is to provide a means of self-support to those who have been injured in the market place. The compensation payments are in lieu of wages that, were it not for the job-related injury, would be received regularly. This money must be available to the beneficiary upon receipt and thereafter if he is to provide for himself life's necessities of food, clothing, and shelter. A judgment debtor's interest in bare survival must invariably predominate over the interest of creditors in mere economy of debt collection. Benito Mining Co. v. Girdner, 271 Ky. 87, 111 S.W.2d 571 (1937); Black Mountain Corporation v. Adkins, 280 Ky. 617, 133 S.W.2d 900 (1939). The right to a subsistence way of life is considered fundamental. Finberg v. Sullivan, D.C., 461 F.Supp. 253 (1978). "The legislative objective in providing unemployment compensation and disability benefits to furnish the unemployed worker and his family with a stream of income to defray the cost of their subsistence would probably fail if creditors could seize that income and apply it to past debts. Consequently the Legislature provided that unemployment and disability benefits cannot be subjected to attachment or execution." Kruger v. Wells Fargo Bank, 11 Cal.3d 352, 113 Cal.Rptr. 449, 521 P.2d 441 (1974).

Our 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 given certain deserving victims from their creditors.

We now turn to a consideration of the arguments advanced by the parties before us and their able counsel.

In Ball v. Smiddy, Ky., 249 S.W.2d 715 (1952), this court held that real estate purchased with money received in a "lump sum" settlement of compensation payments was not exempt from judicial sale in order to satisfy a judgment upon a promissory note. In support thereof, this court quoted from Merrell Drug Co. v. Dixon, 131 Ky. 212, 115 S.W. 179 (1909), as follows:

"Our conclusion, then, is that the exemption contained ... in the statute does not apply to the fund after its form is changed and it is invested in other property...." (Emphasis added)

The Ball and the Merrell Drug Co. cases are distinguishable on their facts from the instant case, since in the instant case the worker's benefit check was deposited in movant's bank checking account and did not lose its identity or change its form, while in the Ball and Merrell Drug Co. cases the recipients of exempt funds used those funds to purchase real estate, thereby changing their form and losing their identity.

Respondents cite Robion v. Walker, 5 Ky.L.Rptr. 799, 82 Ky. 60 (1884), as additional authority that a change in form equals a loss of exempt status and refers us to a line of "factually similar cases," as follows: Hudspeth v. Harrison, 6 Ky.L.Rptr. 304, 13 Ky.Opin. 25 (1884); Herreld v. Skillem's Assignee, 6 Ky.L.Rptr. 666, 13 Ky.Opin. 353 (1885); Ashler v. Terry, 6 Ky.L.Rptr. 745 (1885); and Carter & Co. v. Strange, 7 Ky.L.Rptr. 302, 13 Ky.Opin. 650 (1885). These cases concerned the receipt of pension payments made by the United States government. In each case the pensioner used the money received from the government to purchase real estate. For the reason that there was a change in form, we agree that the holding in each of these cases finding the exemption not applicable was correct. However, these cases make the point that once payment enters the pensioner's hands, it loses its exemption. To the extent that these cases are in conflict with the holding enunciated in this opinion, they are overruled.

In Lawrence v. Shaw, 300 U.S. 245, 57 S.Ct. 443, 81 L.Ed. 623 (1937), the guardian of an incompetent war veteran had deposited payments received from the United States government in certain banks. The state of his domicile unsuccessfully attempted to levy a property tax thereon. The court stated:

"... We hold that the immunity from taxation does attach to bank credits of the veteran or his guardian which do not represent or flow his investments but result from the deposit of the warrants or checks received from the government when such deposits are made in the ordinary manner so that the proceeds of the collection are subject to draft upon demand for the veteran's use. In order to carry out the intent of the statute, the avails of the government warrants or checks must be deemed exempt until they are expended or invested."

The Supreme Court was interpreting Section 3 of the World War Veterans' Act of 1924, which stated in pertinent part, "Payments of benefits due or to become due ... shall be exempt from the claims of creditors ... either before or after receipt by the beneficiary." We feel that the same result is appropriate here under KRS 342.180, which states in pertinent part, "... all compensation and claims therefor shall be exempt from all claims of creditors." The statute is self-evident; all compensation shall be exempt from all claims of creditors. It would be sheer, ineffectual folly to argue that compensation is exempt until it touches the hands or the bank checking account and from that instant is completely available to a creditor possessing an attachment order. If that be the case, where is the exemption? It would be nonexistent and it would practically render KRS 342.180 u...