IN THE DISTRICT COURT OF THE UNITED STATES
FOR THE
DISTRICT OF NEW MEXICO
WILLIAM H. PAYNE and ARTHUR R. MORALES,
Plaintiffs,
V.
CIVIL NO. 97-266 MCA/LFG
NATIONAL SECURITY AGENCY,
Defendant,
UNITED STATES OF AMERICA,
Gamishor,
and,
SANDIA LABORATORY FEDERAL CREDIT UNION
AND ITS SUCCESSORS OR ASSIGNS
ATTENTION: LOSS PREVENTION,
Gamishee.
PRE-HEARING MEMORANDUM OF LAW ON UNITED STATES'
OBJECTION TO CLAIMS OF EXEMPTION
Plaintiffs William H. Payne and Arthur R. Morales, the
debtors in this garnishment proceeding, have presented affidavits to Sandia
Laboratory Federal Credit Union ("Credit Union"), the Gamishee, claiming that
the funds held by the Gamishee pursuant to the Writ of Garnishment are exempt.
Gamishee has filed these documents with the Court. See Supplement to File,
Docket No. 133. The United States filed an Objection to Claims of Exemption and
Request for Hearing. Docket No. 135. The Court has now set a hearing for March
25, 2008, on the claims of exemption pursuant to 28 U.S.C. § 3014(b)(2).
Docket No. .142.
Under the Federal Debt Collection Procedures Act, 28 U.S.C.
§§ 3001, et seq. ("FDCPA"), the United States has the right to
garnish property in the hands of third parties to enforce a judgment debt. See
28 U.S.C. § 3205(a). Property is defined as including community property.
28 U.S.C. § 3002(12). The Act further provides that: "Co-owned property
shall be subject to garnishment to the same extent as co-owned property is
subject to garnishment under the law of the State in which such property is
located." 28 U.S.C. § 3205(a); see also 28 U.S.C. § 3010(a). Under
New Mexico law, community property is generally subject to garnishment or
execution for community debts. N.M.Stat. Ann §40-3-11. Community debts
include debts incurred during marriage by either party subject to certain
limited exceptions not applicable here. N.M. Stat. Ann § 40-3-9. The FDCPA
allows an individual debtor to elect to exempt property listed in either 28
U.S.C. § 3014(a)(l) (property specified in the Bankruptcy Code at 11
U.S.C. § 522(d)) or 28 U.S.C. § 3014(a)(2) (any property exempt under
other Federal, State or local law). Further, the burden is on the debtors to
establish the applicability of any exemption claimed unless it is reasonably
evident that the exemption applies. 28 U.S.C. § 3014(b(2).
The basis for the claim of exemption by Mr. Morales appears
to be that the source of $11,018 of the funds in one of his Credit Union
accounts was a distribution from a retirement account. Docket No. 133,
Affidavit of Arthur R. Morales, ^2. The answer filed by the Credit Union states
that Mr. Morales had three deposit accounts totaling $24,921.75 as of the date
of the answer. Docket No. 132, p. 3. Mr. Morales does not state the nature of
the retirement account or 2 the statutory or other basis for his claim of
exemption. However, even if the claims of exemption were allowed in the amounts
stated in the affidavit of Mr. Morales, funds sufficient to pay the $11,018
which the United States seeks to garnish, from Mr. Morales were still available
in his Credit Union accounts.
The basis of the claim of exemption by Mr. Payne appears to
be that the source of $ 1,950 of the funds in one of his Credit Union accounts
was a distribution from a traditional IRA. Docket No. 133, Affidavit of William
H. Payne, ^ 2. The answer filed by the Credit Union states that Mr. Payne had
five deposit accounts totaling $20,819.32 as of the date of the answer. Docket
No. 131, p. 3. Again Mr. Payne does not state the statutory or other basis for
his claim of exemption. However, the United States again notes that, based on
the Credit Union's answers, funds sufficient to pay the $11,018 which it seeks
to garnish from Mr. Payne were available in o his Credit Union accounts even if
the claims of exemption were allowed in the amount stated in Mr. Payne's
affidavit. Mr. Payne acknowledges that $9,068 in the account was subject to
garnishment since its source was his wife's wages. Docket No. 133, Affidavit of
William H. Payne, T3. ..
If this language is a mistake and Mr. Payne intended to claim
some exemption for the amounts deposited in the account from his wife's wages,
the only exemption for wages under New Mexico law is for a percentage of
"disposable earnings" paid by the employer, not earnings deposited and
commingled in a community bank account. N.M. Stat. Ann § 35-12-7. This
exemption is based on the Consumer Credit Protection Act, 15 U.S.C. §
1673. It has been long established that the protection of such earnings does
not extend to deposits in the debtor's bank 3 o ' ' . ' o '1 k accounts after
the earnings have been paid by the employer. Kokoszka v. Belford. 417 U.S. 642,
651 (1974) (earnings are "limited to periodic payments of compensation and [do]
not pertain to every asset that is traceable in some way to such
compensation."); Userv v. First Nat'1 Bank of Ariz.. 586 F.2d 107, 109 (9th
Cir. 1978); United States v. Laws. 352 F. Supp. 2d 707, 713 (E.D. Va.2004).
Further, there is no general exemption under New Mexico law
for retirement accounts, see N.M. Stat. Ann. §§ 42-10-1, et seq., but
only for state administered retirement accounts of state and local governmental
employees. See, e.g., N.M. Stat. Ann. § 11-10-135 and § 22-11-42.
Thus, the only basis for claiming an exemption would be under the Bankruptcy
Code or other federal law.
If the debtors are claiming an exemption under the bankruptcy
laws at 11 U.S.C. § 522(d)(10) for payments under a pension plan, that
exemption is limited by its express terms to "[t]he debtor's right to receive"
such payments. As stated in In re Cesare. 170 B.R. 37, 39 (D. Conn. 1994):
"Under the plain language of the statute, any funds due a debtor under such a
plan or contract lose their exempt character once the debtor receives the
fund." The court there also noted that the immediately following exemption
section of the Bankruptcy Code did expressly include "traceability" language,
unlike 11 U.S.C. § 522(d)(10). See also, In re Ekanger, No. 99- 10571-SSM,
1999 WL 671866, at * 2 (E.D. Va. May 17,1999); In re McCollum. 287 B.R. 750,
753-54 (E.D. Mo. 2002). Likewise, the Bankruptcy Code exempts "[r]etirement
funds to the extent that those funds are in a fund or account that is exempt
from taxation." 11 U.S.C. § 522(d)(l 1). Debtors have not asserted that
any of their Credit Union accounts are exempt from 4 taxation. Finally, under
11 U.S.C. § 522(d)(10)(E), the exemption for the right to payments under
pension plans is also limited to "the extent reasonably necessary for the
support of the debtor and any dependent." Debtors have made no claim or showing
that the funds on deposit in the Credit Union accounts are reasonably necessary
for their support.
Likewise, if the debtors are asserting an exemption under the
anti-assignment provisions for ERISA-qualified pension plans, see 29 U.S.C.
§ 1056(d), these provisions do not apply to garnishment of pension
benefits once they are paid to and received by the beneficiary. Guidrv v. Sheet
Metal Workers Nat'1 Pension Fund. 39 F.3d 1078, 1083 (10th Cir. 1994) (ERISA
qualified pension benefits protected "from garnishment only until paid to and
received by plan participants or beneficiaries."), cert. denied. 514 U.S. 1063
(1995).
In addition to the exemptions, Mr, Payne raises in another
affidavit what appear to be objections to the service of the garnishment
paperwork on him. Docket No. 136. First, in a letter incorrectly filed in
another case. Morales et al v. Baca. CIV 01-634 WFD (Docket No. 76), Mr. Payne
asserts that the package he received did not actually include the form "Notice
of Garnishment and Instructions for Objecting to the Answer." When this alleged
error was brought to the attention of undersigned counsel, Mr. Payne was
re-served by certified mail, return receipt requested, on February 13, 2008,
with a copy of the form "Notice of Garnishment and Instructions for Objecting
to the Answer." See Declaration ofLois Agnes attached hereto as Exhibit A.
Copies of the letters to Mr. Payne and the postal return receipts signed by him
are attached to Ms. Agnes' Declaration. While Mr. Payne in his subsequent
affidavit (Docket No. 136) asserts that the certification of service originally
filed on January 28, 2008 is therefore 5 wrong, the attached Declaration from
Ms. Agnes is adequate proof of the dates of original service and re-service
upon him of all the documents.
In any event, the FDCPA does not require that the debtor be
served with a particular document entitled " Notice Of Garnishment and
Instructions For Objecting To The Answer." 28 U.S.C. § 3205(c)(3) merely
requires:
(3) Service of writ.-The United States shall serve
the gamishee and the judgment debtor with a copy of the writ of garnishment and
shall certify to the court that this service was made. The writ shall be
accompanied by- (A) an instruction explaining the requirement that the gamishee
submit a written answer to the writ; and (B) instructions to the judgment
debtor for objecting to the answer of the gamishee and for obtaining a hearing
on the objections. The Declaration of Ms. Agnes reflects
that the debtors were served, at the very least, with a copy of the Writ of
Garnishment and the Clerk's Notice of Post-Judgment Garnishment and
Instructions to Debtor on January 28, 2008, whether or not the form "Notice Of
Garnishment and Instructions For Objecting To The Answer" was inadvertently
omitted. See Exhibit A. Postings on the debtor's website reflect that Mr. Payne
did receive the Writ of Garnishment and the Clerk's Notice of Post-Judgment
Garnishment and Instruction to Debtor on January 29, 2008. See Exhibit B
attached hereto. The Clerk's Notice of Post-Judgment Garnishment and
Instruction to Debtor includes instructions to the judgment debtor for
objecting to the garnishment, claiming exemptions and requesting a hearing.
These instructions satisfy the requirements of the statute. This information is
virtually the same information included in the 6 Notice of Garnishment and
Instructions for Objecting to the Answer. Whether or not Mr. Payne received a
separate document entitled "Notice of Garnishment and Instructions for
Objecting to the Answer" duplicating the instructions contained in the Clerk's
Notice, the requirements for notice under the FDCPA were met.
Further, there is no prejudice from any purported error in
service. Mr. Payne obviously has received documents satisfying the FDCPA's
notice requirements and has in fact asserted exemptions and had an opportunity
to raise objections. The United States has requested a hearing and the Court
has now set a hearing on the applicability of any claimed exemptions by debtors
and Mr. Payne will have a further opportunity to challenge the garnishment of
the Credit Union accounts at that time. Likewise, the Garnishee has timely
answered andwill have an opportunity to appear at the hearing as well. The
Declaration ofLois Agnes is sufficient evidence of proper service under the
FDCPA in light of these facts.
Similarly, Mr. Morales complains in an affidavit he has filed
some of the documents with which he was served had the wrong names or addresses
on them. See Docket No. 137. Again the Declaration of Ms. Agnes reflects that
the letter serving the documents was mailed to the correct address and Mr.
Morales in fact signed a postal return receipt form. Further, Mr. Morales has
acknowledged in his affidavit that he did actually receive the package with the
document forms. See Docket No. 137 ("Yet the Department of Justice was aware of
my address because the certified envelope in which these writs of garnishment
were enclosed had my proper current address..."). He has not asserted that he
was confused or unable to assert exemptions or objections, and in fact he has
done so. As noted above with respect to Mr. Payne, 7 Mr. Morales will have a
further opportunity to challenge the garnishment of the Credit Union accounts
at the hearing set in this matter. Thus, any typographical errors in the
documents were harmless and have not deprived Mr. Morales of an opportunity to
be heard on his claim of exemption or any objections.
WHEREFORE, the United States requests that the claims of
exemption by the debtors be disallowed, that the technical objections they have
raised with respect to service or typographical errors in the garnishment
paperwork be denied, and that the Court enter an order directing the Garnishee
to pay to the United States the funds held pursuant to the Writ in the amount
of $11,018 as to each debtor, and for such other and further relief as may be
appropriate.
Respectfully submitted,
GREGORY J. FOURATT
United States Attorney
Electronically file
JOHN ZAVITZ
Assistant United States Attorney j
P.O.
Box 607 !
Albuquerque, New Mexico 87103-0607
(505)224-1414
(505)
346-6884 (facsimile)
E-mail: john.zavitz@usdoj.gov
I HEREBY CERTIFY that a true copy of the foregoing pleading
was mailed, postage prepaid, on March 6,2008, to the following non-participants
in the CM/ECF electronic fling system: William H. Payne at 13015 Calle De
Sandias NE, Albuquerque, New Mexico 87111-2924; Arthur Morales at 1400 Camino
Amparo NW, Albuquerque, New Mexico 87107-2608; and Sandia Laboratory Federal
Credit Union, c/o Kevin D. Hammar, Attorney for Garnishee, 1212 Pennsylvania
NE, Albuquerque, New Mexico 87110. |
