State ex rel. Dept. of Revenue v. Control Data Corp.

• Decision Date: 14 January 1986
• Parties: STATE of Oregon ex rel. DEPARTMENT OF REVENUE, Respondent. v. CONTROL DATA CORPORATION, Appellant. OTC 2182; SC S31596.
• Court: Oregon Supreme Court

Page 30

713 P.2d 30

300 Or. 471

STATE of Oregon ex rel. DEPARTMENT OF REVENUE, Respondent. v. CONTROL DATA CORPORATION, Appellant.

OTC 2182; SC S31596.

Supreme Court of Oregon,

In Banc.

Argued and Submitted Oct. 1, 1985.

Decided Jan. 14, 1986.

Scott G. Seidman, Portland, argued the cause and filed the brief for appellant. With him on the brief were Tonkon, Torp, Galen, Marmaduke & Booth.

Marilyn Harbur, Asst. Atty. Gen., Salem, argued the cause for respondent. With her on the brief was Dave Frohnmayer, Atty. Gen., Salem.

LINDE, Justice.

Control Data Corporation appeals from a judgment of the Oregon Tax Court on the Department of Revenue's garnishment of wages payable to one of Control Data's Minnesota employees, a former Oregon resident against whom the Department has a judgment for a tax deficiency incurred during his former residency in Oregon. ¹ Control Data resists enforcement of the garnishment on the grounds that the exercise of jurisdiction by Oregon courts would deprive the employee of property without due process of law, contrary to the 14th Amendment. The tax court rejected the jurisdictional challenge and entered judgment for the Department. We affirm.

We take the undisputed facts from the tax court's opinion:

"The defendant has its principal place of business in Minnesota but is authorized to do business in the State of Oregon. During the calendar year 1978 William K. Brest (Brest) lived in Oregon and earned income in Oregon subject to the state's income tax laws. In November 1978 Brest terminated his employment in Oregon and was rehired by defendant in Minnesota and has been an employee of defendant in Minnesota since July 18, 1979. Brest did not pay a state income tax deficiency assessed against him for the year 1978 and on November 12, 1980, the Department of Revenue issued a distraint warrant against Brest for the collection of $2,137.50 taxes plus interest.

The distraint warrant was docketed in Multnomah County and has the force and effect of a judgment against Brest under ORS 314.430.

"On March 13, 1984, a garnishment was served on defendant at its office in Portland and the defendant answered the writ stating that Oregon courts do not have jurisdiction to enforce garnishment proceedings because Brest, the debtor, 'does not currently reside and receive wages in the State of Oregon.'

"Thereafter and on August 21, 1984, plaintiff filed this suit against defendant Control Data Corporation seeking a judgment for the taxes due. Both parties have moved for a summary judgment."

Control Data does not contest that its activities in Oregon give Oregon courts jurisdiction over itself. It also does not dispute the validity of the judgment against its employee, Brest, for the unpaid Oregon income tax deficiency arising from Brest's prior residence and employment in Oregon. Control Data contests the garnishment of wages it owes Brest in Minnesota, because it fears liability to Brest if he can successfully assert that Oregon courts had no jurisdiction to reach his wages in the hands of his employer. What Control Data seeks in this appeal is our determination of the effect that the United States Supreme Court's decision in Rush v. Savchuk, 444 U.S. 320, 100 S.Ct. 571, 62 L.Ed.2d 516 (1980), has on wage garnishments by the courts of a state other than the state of the employee's residence.

In Rush, Savchuk had moved from Indiana to Minnesota after having been injured in Indiana in an accident involving an automobile driven by an Indiana resident and covered by a liability policy issued in Indiana. Savchuk then sued the driver in Minnesota, seeking to establish jurisdiction in Minnesota's courts by garnishing the obligation of the insurer, which did business in Minnesota, to defend and indemnify the Indiana driver. The purpose of the garnishment, in other words, was to give the Minnesota courts quasi in rem jurisdiction over a nonresident defendant who was not personally within their jurisdiction.

At the time, this way of acquiring state court jurisdiction to decide a resident's claim against a nonresident defendant appeared permissible under Harris v. Balk, 198 U.S. 215, 25 S.Ct. 625, 49 L.Ed. 1023 (1905), as the New York courts had held in Seider v. Roth, 17 N.Y.2d 111, 269 N.Y.S.2d 99, 216 N.E.2d 312 (1966), and Simpson v. Loehmann, 21 N.Y.2d 305, 287 N.Y.S.2d 633, 234 N.E.2d 669 (1967). Subsequently, however, the Supreme Court held in Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977), that quasi in rem jurisdiction as well as personal jurisdiction over an absent defendant depend on the defendant's "contacts" with the forum state so as to meet "traditional notions of fair play and substantial justice," the formula stated in International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). When the Minnesota Supreme Court, on remand to consider Savchuk's case in light of Shaffer, reaffirmed its jurisdiction, Savchuk v. Rush, 272 N.W.2d 888 (Minn.1978), the United States Supreme Court reversed.

Justice Marshall's opinion for the Court noted that neither Rush nor the auto accident giving rise to Savchuk's claim had any connection with Minnesota; the only connection was that Rush's insurance company did business in that state. Rush v. Savchuk, supra, 444 U.S. at 327-28, 100 S.Ct. at 577. It also rejected Savchuk's theory that, at least to the limits of Rush's liability insurance policy, the litigation was a direct action against the insurer in which the insured, Rush, was only a "nominal defendant." Id. at 330-31, 100 S.Ct. at 578. Because Rush...