MidAmerica Sav. Bank v. Miehe, 88-391

• Decision Date: 19 April 1989
• Docket Number: No. 88-391,88-391
• Citation: 438 N.W.2d 837
• Parties: MIDAMERICA SAVINGS BANK f/k/a Home Savings and Loan Association, Appellee, v. Ronald W. MIEHE, Appellant.
• Court: Iowa Supreme Court

Page 837

438 N.W.2d 837

MIDAMERICA SAVINGS BANK f/k/a Home Savings and Loan Association, Appellee, v. Ronald W. MIEHE, Appellant.

No. 88-391.

Supreme Court of Iowa.

April 19, 1989.

Rehearing Denied May 12, 1989.

Larry F. Woods, Oelwein, for appellant.

Jon Fister of Beecher, Beecher, Holmes & Rathert, Waterloo, for appellee.

Considered by HARRIS, P.J., and LARSON, CARTER, NEUMAN, and SNELL, JJ.

CARTER, Justice.

Defendant, Ronald W. Miehe, appeals from an order denying his contention that a personal bank account consisted of personal earnings exempt from garnishment under Iowa Code section 642.21 (1987). After considering the arguments of the parties, we reverse the order of the district court and remand the dispute to that court for further proceedings.

Miehe purchased a home in 1981 in a transaction in which he assumed the existing mortgage obligation of the previous owners. He later defaulted on the payments. The plaintiff, MidAmerica Savings Bank, as successor to the original mortgagee, commenced an action against Miehe seeking personal judgment on the mortgage indebtedness and foreclosure of the mortgage. Following a judgment and decree of foreclosure, the property was sold pursuant to special execution. A deficiency judgment of more than $18,000 against Miehe resulted. During the balance of this opinion, Miehe will sometimes be referred to as the judgment debtor and MidAmerica as the judgment creditor.

On January 4, 1988, pursuant to a writ of general execution issued on the deficiency judgment, the sheriff garnished a bank account of the judgment debtor which had a balance of $9473. The judgment debtor filed objections to the release of the garnished funds to the judgment creditor. He asserted that all of the funds in the account represented an accumulation of disposable earnings, a portion of which were exempt from garnishment under Iowa Code section 642.21 (1987) and the Federal Consumer Protection Act, 15 U.S.C. §§ 1671-77.

At the hearing on these objections, the parties stipulated that, for purposes of the pending dispute, all the funds in the account could be traced from the judgment debtor's "disposable earnings" as defined in Iowa Code section 642.21(3)(b) (1987). On February 8, 1988, the district court denied the objections to the garnishment and confirmed the judgment creditor's right to the proceeds of the bank account.

In seeking to overturn the district court's order, the judgment debtor relies on the decision of this court in Staton v. Vernon, 209 Iowa 1123, 229 N.W. 763 (1930), holding that exempt earnings retain that status after being deposited in a bank account. The judgment creditor urges that the Staton case was decided under statutes which have since been repealed. It notes that the Iowa statute limiting garnishment of personal earnings incorporates by reference the provisions of the Federal Consumer Protection Act. The judgment creditor suggests that cases interpreting this federal legislation have held that personal earnings lose their exempt character upon being deposited in a bank account.

One of the federal decisions relied on by the judgment creditor is Usery v. First National Bank of Arizona, 586 F.2d 107 (9th Cir.1978). In that case, the federal court interpreted the Federal Consumer Protection Act and concluded that wages exempt from garnishment under these provisions of federal law did not retain their exempt status after being deposited in a bank account. The court determined that the exemption only applied to amounts which have accrued on the employer's books, and have not been transmitted to the employee. Id. at 110. The Usery case was followed by the Supreme Court of Wisconsin in applying a similarly worded state statute. John O. Melby & Co. Bank v. Anderson, 88 Wis.2d 252, 276 N.W.2d 274 (1979).

The judgment debtor urges that his claim to exemption is not based on federal law but rather depends on Iowa law which has adopted by reference some provisions of the Federal Consumer Protection Act but has also granted additional protections to wage earners not contained in the federal law. The judgment debtor further notes that the Usery decision relied at least in part on the decision of the Supreme Court in Kokoszka v. Belford, 417 U.S. 642, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974), which involved income tax refunds traceable to exempt wages. The Court in that case held that the term "earnings" was intended to mean only "periodic payments of compensation needed to support the wage earner and his family on a week-to-week, or month-to-month basis," and did not extend to every asset that is in some way traceable to the exempt compensation. Id. at 651, 94 S.Ct. at 2436, 41 L.Ed.2d at 382. The judgment debtor urges that the Kokoszka case is distinguishable from the present situation. He suggests that, while a tax refund is not ordinarily relied upon by a wage earner for subsistence in the same manner as periodic earnings, it is a common practice for a wage earner to deposit earnings relied upon for subsistence in a bank account.

We agree with the judgment debtor's contention that we must resort to Iowa law rather than federal law to resolve the present dispute. The legislature, in enacting and later amending Iowa Code section 642.21, has adopted federal law for some, but certainly not all, purposes to protect wage earners from creditors levying on their wages. Moreover, the issue in the present case is not limited to determining what wages are exempt but, in addition, requires a determination of when, and under what circumstances, the exempt character of these liquid assets is lost. The latter issue is one with which neither the federal nor Iowa statutes deal directly, thus leaving this court free to seek a sound result consistent with the broad policy considerations which weigh on the issue.

We have recognized that in some instances exempt funds will lose that status if their form is changed by investment in other property. In Iowa Methodist Hospital v. Long, 234 Iowa 843, 12 N.W.2d 171 (1943), the trial court had ruled that United States savings bonds purchased with a defendant's earnings were exempt to the same extent as the wages had been. That ruling was reversed on appeal. We held that the wages invested in the savings bond had lost their exempt character. Id. at 852, 12 N.W.2d at 175.

We have applied a different rule, however, with respect to the deposit of personal earnings in a bank account. In Staton v. Vernon, 209 Iowa 1123, 229 N.W.2d 763 (1930), the judgment debtor had established that all of the funds in a garnished bank account were deposited from his personal earnings received within a...