Schaerrer v. Westman Com'n Co.

• Citation: 769 P.2d 1058
• Decision Date: 27 February 1989
• Docket Number: No. 87SC315,87SC315
• Parties: , 52 Ed. Law Rep. 742 Irma L. SCHAERRER, Petitioner, v. WESTMAN COMMISSION COMPANY, Respondent.
• Court: Supreme Court of Colorado

Page 1058

769 P.2d 1058

57 USLW 2517, 52 Ed. Law Rep. 742

Irma L. SCHAERRER, Petitioner, v. WESTMAN COMMISSION COMPANY, Respondent.

No. 87SC315.

Supreme Court of Colorado,

En Banc.

Feb. 27, 1989.

Bernard A. Poskus, Legal Aid Society of Metropolitan Denver, Denver, for petitioner.

Joan M. Norman, Lirtzman, Nehls & Meyrich, Boulder, for respondent.

MULLARKEY, Justice.

We granted certiorari to determine whether a creditor may garnish the proceeds of a student's federally guaranteed student loan (GSL) in order to collect an antecedent business debt owed by the student. We reverse the court of appeals and hold that the use of state garnishment procedures to attach GSL funds for such purpose is clearly inconsistent with the federal law governing the GSL program and thus the garnishment cannot be permitted.

I.

In August 1985, Irma L. Schaerrer applied for and obtained a $2,500 GSL for the express purpose of pursuing a college education at Red Rocks Community College. She deposited the funds in her checking account along with her monthly Social Security disability benefits check. On September 18, 1985, respondent Westman Commission Company (Westman), a restaurant supply company, served a writ of garnishment on Schaerrer's bank account and garnished all of the funds, which totalled $2,073.92. Westman had obtained the garnishment order to collect a judgment against Schaerrer and her ex-husband for a debt they had incurred two years earlier while operating a restaurant. None of the debt was incurred for educational purposes.

Schaerrer filed a pro se claim of exemption to the garnishment, asserting that the entire amount in her checking account was exempt from garnishment. She claimed that $572 of her account was exempt as Social Security benefits under 42 U.S.C. § 407 (1983), and that the remainder in her account consisted of GSL funds exempt from garnishment under Title IV of the Higher Education Act of 1965, 20 U.S.C. §§ 1071-1097 (1978 & Supp.1988). The trial court agreed that the Social Security funds were exempt, but refused to prevent the garnishment of the GSL funds.

Schaerrer, with the assistance of a Legal Aid attorney, appealed to the court of appeals. The court of appeals affirmed the judgment of the district court, relying upon the fact that the relevant federal and state statutes had no express exemption from garnishment for GSL funds. The court of appeals reasoned that the language in the federal statutes requiring the funds to be used solely for educational purposes pertains only to student borrowers, and not to their business creditors. Westman Com'n Co. v. Schaerrer, 748 P.2d 1316 (Colo.App.1987).

Before this court, Schaerrer contends that GSL funds may not be garnished for non-educational purposes by a student's prior business creditor because such garnishment conflicts with the federal statutory scheme which created the GSL program. Westman responds that if Congress had intended to exempt GSL funds from garnishment by third party creditors, it could have created such exemption simply and explicitly, as it did for Social Security benefits under 42 U.S.C. § 407 (1983). In the absence of an express exemption, Westman argues that the state garnishment law applies and permits garnishment of GSL proceeds to collect a business debt. To resolve this case, we first must establish the proper framework for our analysis.

II.

A.

Whether the proceeds of a federally established program may be garnished pursuant to state garnishment procedures is a question of federal law. Mackey v. Lanier Collections Agency & Serv., Inc., 486 U.S. 825, 108 S.Ct. 2182, 2186, 100 L.Ed.2d 836 (1988). This question implicates the Supremacy Clause of the United States Constitution because, if federal law prohibits garnishment, a state law permitting garnishment is in conflict with the federal law and cannot stand. Bennett v. Arkansas, 485 U.S. 395, 108 S.Ct. 1204, 99 L.Ed.2d 455 (1988) (per curiam). See also Philpott v. Essex County Welfare Bd., 409 U.S. 413, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973) (question of whether state agency can garnish welfare recipient's Social Security benefits is controlled by federal law).

Since this is a matter of federal law, our consideration of the case now before us must follow the analytical approach taken by the United States Supreme Court in resolving a similar garnishment question in its recent Mackey decision. As a review of that case will show, the Supreme Court's holding and analysis require us to undertake a careful consideration of the language, legislative history and purposes of the Guaranteed Student Loan Program (GSL Program) before we can conclude whether garnishment of GSL funds is permitted under federal law. Under Mackey, the fact that Congress did not create an express exemption from state garnishment for the proceeds of guaranteed student loans is not conclusive.

B.

In Mackey, a collection agency sought to garnish an employee welfare benefit plan, as defined in 29 U.S.C. § 1002(1) (1985) of the Employee Retirement Income Security Act of 1974 (ERISA), in order to collect money judgments against twenty-three plan participants. Even though ERISA by its terms pre-empts any state law to the extent that it "relate[s] to" ERISA benefit plans, 29 U.S.C. § 1144(a), the Court did not conclude its analysis of the garnishment question there. The Court went on to consider the language of ERISA and its legislative history and purpose before concluding that ERISA pension plans are exempt from garnishment but "that Congress did not intend to preclude state-law attachment of ERISA welfare plan benefits." 108 S.Ct. at 2189 (emphasis added).

In deciding what it described as a close question, the Court compared and contrasted ERISA's treatment of employee welfare benefit plans with its treatment of pension benefit plans. With respect to pension benefit plans, the Court's examination of the garnishment question emphasized section 206(d)(1) of ERISA, 29 U.S.C. § 1056(d)(1), which states that "benefits provided under the plan may not be assigned or alienated." Although no express language prohibits the use of state garnishment procedures, the Court found that pension plan benefits could not be garnished, stating:

Section 206(d)(1) bars the assignment or alienation of pension plan benefits, and thus prohibits the use of state enforcement mechanisms only in so far as they prevent those benefits from being paid to plan participants.

108 S.Ct. at 2188-89 (emphasis in original). The Court's conclusion that ERISA pension plan benefits are not subject to garnishment is consistent with the majority rule of lower federal and state courts which have considered the same question. 7 Debtor-Creditor Law § 29.03[B] at 29-31 (T. Eisenberg ed.1988). See, e.g., General Motors Corp. v. Buha, 623 F.2d 455 (6th Cir.1980).

With respect to employee welfare benefit plans, however, the Court in Mackey observed that ERISA has no anti-alienation language similar to that applying to pension plans. Based on the statutory language permitting employee welfare benefit plans to sue and be sued, as well as the history and purposes of welfare benefit plans, the Court held that the collection agency could garnish the employee welfare benefit plan.

Four members of the Court dissented in Mackey. Employing the same type of analysis as the majority, the dissent argued that allowing garnishment was inconsistent with congressional intent and would subject welfare benefit plans to significant administrative burdens and costs. 108 S.Ct. at 2192-93 (Kennedy, J., dissenting). For those reasons, the dissent would have found that welfare benefit plans, like pension plans, are not subject to garnishment. Neither the majority nor the dissent found the absence of an express exemption from garnishment to be conclusive. Rather, the analysis undertaken by both was consistent with the Supreme Court's frequently repeated admonishment that, in construing a federal statute, a court must " 'look to the provisions of the whole law, and to its object and policy' " with the objective of "ascertain[ing] the congressional intent and giv[ing] effect to the legislative will." Philbrook v. Glodgett, 421 U.S. 707, 713, 95 S.Ct. 1893, 1898, 44 L.Ed.2d 525 (1975) (quoting, in part, United States v. Heirs of Boisdore, 49 U.S. (8 How.) 116, 125, 12 L.Ed. 1009 (1849)).

Thus, contrary to Westman's argument, the absence of an express federal exemption from garnishment for GSL proceeds is not controlling. In this case of apparent first impression, the language, history and purposes of the GSL Program must be examined to determine if GSL proceeds may be garnished.

III.

Congress created the GSL Program, 20 U.S.C. §§ 1071-1097 (1978 & Supp.1988), as part of the Higher Education Act of 1965 (the Act). Although the Act does not have a provision pre-empting state laws like the one found in ERISA, Mackey indicates that the existence of a pre-emption provision is a relevant, but not dispositive, factor to be considered in determining congressional intent. In the face of ERISA's express pre-emption of state laws, the Supreme Court in Mackey found that one ERISA fund was garnishable under the general garnishment laws of Georgia and that another ERISA fund was not garnishable. Pursuant to Bennett, 108 S.Ct. 1204, the question presented by the garnishment issue is whether there is a conflict between the state law and the federal law. A "clear inconsistency" between the two laws "amounts to a 'conflict' under the Supremacy Clause--a conflict that the State cannot win." Id. at 1205. Thus, we must determine whether garnishment of GSL proceeds to collect a business debt is clearly inconsistent with the GSL Program.

Since its inception almost twenty-five years ago, the GSL Program has been dedicated to making funds available to qualified individuals to pursue education or job training beyond high school. ¹ H.R.Rep. No. 520, 96th Cong., 2d Sess. 5, reprinted in 1980 U.S.Code...