Elmwood v. Elmwood , 295 N.C. 168 ( 1978 )

244 S.E.2d 668 (1978) 295 N.C. 168

Rea J. ELMWOOD
v.
Robert E. ELMWOOD.

No. 49.

Supreme Court of North Carolina.

June 6, 1978.

Nance, Collier, Singleton, Kirkman & Herndon by James R. Nance and James D. Little, Fayetteville, for plaintiff.

Donald W. Grimes, Raleigh, for defendant.

LAKE, Justice.

Upon this appeal we are not concerned with the validity of the order of 20 February 1968 directing the defendant to make monthly payments to the plaintiff for her separate support and maintenance and for the support of the two children. The defendant did not appeal from that order and the record discloses no effort by him to procure a modification of it.

In response to the order of the District Court directing him to appear before it and show cause why he should not be adjudged in wilful contempt for his failure to abide by the provisions of that order of 20 February 1968, the defendant appeared and presented evidence by testimony and affidavit. Thereupon, the District Court adjudged him to be in wilful contempt and ordered him to be confined in the Cumberland County jail for 30 days, commitment not to issue until further orders so as to give the defendant an opportunity to purge himself of such contempt in the manner prescribed. The District Court found that the defendant, at that time, in addition to his military retirement pay, was earning $700.00 per month from private employment in North Carolina. The findings of the District Court set forth in that order are supported by the evidence in the record and these, in turn, support its conclusion that the defendant was then in wilful contempt and the sentencing of the defendant to 30 days in jail therefor. This sentence is, therefore, affirmed.

After the defendant was so adjudged in contempt, he filed with the District Court his authorization and direction to the Marine Corps Finance Center and its disbursing officer to pay to the Clerk of the Superior Court 20% of all of the defendant's accrued retirement pay, for disbursement to the plaintiff for the benefit and support of his adopted son, Karl Elmwood, to withhold 20% of his future retirement earnings, as the same become due, to pay such future withholdings to the Clerk of the Superior Court until the entire arrearage in child support payments be fully paid and, further, to withhold $100.00 per month or 20% of his retirement earnings (whichever is less) after all such arrearages in child support payments are fully satisfied and pay that amount to the Clerk of the Superior Court of Cumberland County for disbursement to the plaintiff for the benefit and support of Karl.

This authorization does not fully conform to the provisions of the order of the District Court setting forth the way whereby the defendant might purge himself from his contempt of that court. The record does not show whether the District Court has considered the sufficiency of this act of the plaintiff to purge him from his contempt. If not, that matter is, initially, for determination by the District Court and is not presently before us.

We turn now to consideration of the validity of the garnishment order of the District Court.

42 U.S.C. § 659 provides:

"Consent by United States to garnishment and similar proceedings for enforcement of child support and alimony obligations.

"Notwithstanding any other provision of law, effective January 1, 1975, monies (the entitlement to which is based upon the remuneration for employment) due from, or payable by, the United States (including any agency or instrumentality thereof and any wholly owned Federal corporation) to any individual, including members of the Armed Services, shall be subject, in like manner and to the same extent as if the United States were a private person, to legal process brought for the enforcement, against such individual of his legal obligations to provide child support or make alimony payments."

This Act of Congress does not create a right in the plaintiff, or the children of the parties, to garnish the defendant's military retirement pay. It merely removes the barrier of sovereign immunity so as to place the United States in the same position as a private employer for purposes of the garnishment, for child support and alimony, of money due as "remuneration for employment." Whether or not the monthly payments which the defendant is entitled to receive from the United States are "remuneration for employment" is governed by Federal law. If they are, their susceptibility to garnishment in this proceeding is governed by the law of this State.

Our attention has been directed to no Federal court decision dealing specifically, in this connection, with payments a retired officer receives from the United States on account of disability. 42 U.S.C. § 662(f)(2) appears to exclude such payments from "remuneration for employment" in absence of circumstances not appearing in this record. We conclude that this defendant's disability payments are not "remuneration for employment" and, therefore, the United States is not subject to state garnishment proceedings on account of such payments under 42 U.S.C. § 659. Such disability payments, in our opinion, are more closely akin to benefits payable, pursuant to the Workmen's Compensation Act, for disability by accident arising out of and in the course of employment then they are to wages.

On the other hand, retirement pay received by a retired regular officer of the Military Services (more accurately designated as "retired" pay) is "remuneration for employment." In this respect, the Federal authorities make a distinction between payments to a retired officer of the Regular Army (or other branch of the regular military service) and retired reserve officers.

In an opinion of the Comptroller General on this subject, it is said:

"Retired pay * * * is paid to retired officers of the Regular Army as current compensation or pay for their continued service as officers after retirement and only while they remain in the service, whereas the retirement pay * * for officers * * * other than officers in the Regular Army * * * is not conditioned upon their remaining in the service, but is more in the nature of a pension." 23 Comp.Gen. 284, 286 (1943). See also, United States v. Tyler, 105 U.S. 244, 245, 26 L.Ed. 985 (1881).

A retired officer of the Regular Army (or other branch of the regular military service) remains subject to the Uniform Code of Military Justice; that is, to military discipline. He may be court-martialed for conduct after retirement. 10 U.S.C. §§ 802, 3966; Hostinsky v. United States, 292 F.2d 508, 154 Ct.Cl. 443 (1961). He is still an officer in his branch of the service and is subject to recall to active duty under certain circumstances, this not being true of retired reserve officers. Thus, his retirement pay has been held by the Federal courts to be remuneration for his current employment as a retired officer, not a pension for past services. Watson v. Watson, 424 F.Supp. 866 (E.D.N.C.1976); Hostinsky v. United States, supra; Chambers v. Russell, 192 F.Supp. 425 (N.D.Cal.1961); Hooper v. Hartman, 163 F.Supp. 437 (S.D.Cal. 1958), aff'd 274 F.2d 429 (9th Cir. 1959); Lemly v. United States, 75 F.Supp. 248, 109 Ct.Cl. 760 (1948). See also, In re Marriage of Ellis, 36 Colo.App. 234, 538 P.2d 1347 (1975).

Thus, we conclude that the retirement pay of the defendant is "remuneration for employment," currently earned, and the defendant has no vested right therein until it is so earned. It is, therefore, subject to garnishment in proceedings instituted in the courts of this State to the extent, and only to the extent, that compensation for services currently rendered to a private employer are so subject.

The nature of garnishment is thus stated in Goodwin v. Claytor, 137 N.C. 224, 49 S.E. 173 (1904), wherein Justice Walker, speaking for the Court, said:

"[A] garnishment is, in effect, a suit by the principal debtor, the defendant in the action, in the name of the plaintiff, and for his use and benefit, against the garnishee, to recover the debt due to the plaintiff's debtor, and apply it to the satisfaction of the plaintiff's demand. It would appear to be a necessary corollary from the proposition thus stated that the plaintiff in the garnishment is, in his relation to the garnishee, substituted merely to the rights of his own debtor, and can enforce no claim against the garnishee which the debtor himself, if suing, would not be entitled to recover. [Citations omitted.] The garnishee can be placed in no worse position by reason of the garnishment than he occupied as a debtor to the defendant, nor subjected to any greater liability."

In Ward v. Manufacturing Co., 267 N.C. 131, 184 S.E.2d 27 (1966), speaking through Justice Higgins, we said that in order to subject a debt to garnishment "the principal defendant, who is the plaintiff's debtor, must himself have the right to sue the garnishee, his debtor, in this state, for the recovery of the debt." Obviously, the defendant in the present action could not maintain a suit against the United States (treating the United States as a private employer) for retirement pay which he anticipates he will become entitled to receive in the future. Since his retirement pay is deemed to be compensation for services currently rendered, his present entitlement to future payments is obviously contingent upon his rendition of services in the future. Thus, his entitlement to future retirement payments may be defeated by a number of possible developments; e. g., his death, resignation, dismissal pursuant to court-martial or change in the Federal law.

In McIntosh, North Carolina Practice and Procedure, 2d, § 2124 (1946), it is said, "If the money due from the garnishee is payable at a future day, or the property is to be delivered at a future day, a conditional judgment may be entered against the garnishee." This statement relates to an obligation presently fixed so that, with the mere passage of time, the principal debtor's right to enforce payment will become absolute, such as an unmatured note. It does not relate to a claim which is presently contingent upon the happening of an event not certain to occur or the continuation of a status such as the employment of the principal debtor by the garnishee. Thus, in Motor Finance Co. v. Putnam, 229 N.C. 555, 557, 50 S.E.2d 670, 671 (1948), speaking through Justice Ervin, this Court said, concerning supplemental proceedings in execution: "[I]t is plain that a supplemental proceeding against a third person is designed to reach and apply to the satisfaction of the judgment property of the judgment debtor in the hands of the third person or debts due to the judgment debtor by the third person at the time of the issuance and service of the order for the examination of the third person. Prospective earnings of a judgment debtor are entirely hypothetical. They are neither property nor a debt." See also, 38 C.J.S. Garnishment §§ 87, 97 (1943); Watson v. Watson, supra; In re Marriage of Ellis, supra.

Thus, nothing else appearing, the anticipated retirement pay, for a future period, of a regular officer, retired from a branch of the military service, is not subject to garnishment. Accumulated, unpaid retirement pay for past periods of service is subject to garnishment, except as limited by statutes relating to such proceedings.

The applicable statutes are G.S. §§ 1-440.1; 1-440.2; 1-440.4; 1-440.21; 1-440.28(a); 1-362 and 110-136. The pertinent provisions of these sections are:

G.S. 1-440.21. "Nature of garnishment. — (a) Garnishment is not an independent action but is a proceeding ancillary to attachment and is the remedy for discovering and subjecting to attachment * * * (2) Any indebtedness to the defendant * * *"

G.S. 1-440.1. "Nature of attachment. — (a) Attachment is a proceeding ancillary to a pending principal action, is in the nature of a preliminary execution against property, and is intended to bring property of a defendant within the legal custody of the court in order that it may subsequently be applied to the satisfaction of any judgment for money which may be rendered against the defendant in the principal action."

G.S. 1-440.2. "Actions in which attachment may be had. — Attachment may be had in any action the purpose of which, in whole or in part, or in the alternative, is to secure a judgment for money, or in any action for alimony or for maintenance and support, or an action for the support of a minor child, but not in any other action."

G.S. 1-440.4. "Property subject to attachment. — All of a defendant's property within this State which, is subject to levy under execution, or which in supplemental proceedings in aid of execution is subject to the satisfaction of a judgment for money, is subject to attachment under the conditions prescribed by this article."

G.S. 1-440.28. "Admission by garnishee; set-off; lien. — (a) When a garnishee admits in his answer that he is indebted to the defendant, or was indebted to the defendant at the time of service of garnishment process upon him or at some date subsequent thereto, the clerk of the court shall enter judgment against the garnishee for the smaller of the two following amounts:

(1) The amount which the garnishee admits that he owes the defendant or has owed the defendant at any time from the date of the service of the garnishment process to the date of answer by the garnishee, or

(2) the full amount for which the plaintiff has prayed judgment against the defendant, together with such amount as in the opinion of the clerk will be sufficient to cover the plaintiff's costs."

G.S. 1-362. "Debtor's property ordered sold. — The court or judge may order any property, whether subject or not to be sold under execution (except the homestead and personal property exemptions of the judgment debtor), in the hands of the judgment debtor or of any other person, or due to the judgment debtor, to be applied towards the satisfaction of the judgment; except that the earnings of the debtor for his personal services, at any time within sixty days next preceding the order, cannot be so applied when it appears, by the debtor's affidavit or otherwise, that these earnings are necessary for the use of a family supported wholly or partly by his labor."

G.S. 110-136. "Garnishment for enforcement of child-support obligation. — (a) Notwithstanding any other provision of the law, in any case in which a responsible parent is under a court order or has entered into a written agreement pursuant to G.S. 110-132 or 110-133 to provide child support, a judge of the district court in the county where the mother of the child resides or is found, or in the county where the father resides or is found, or in the county where the child resides or is found may enter an order of garnishment whereby no more than 20 percent (20%) of the responsible parent's monthly disposable earnings shall be garnished for the support of his minor child. For purposes of this section, ``disposable earnings' is defined as that part of the compensation paid or payable to the responsible parent for personal services, whether denominated as wages, salary, commission, bonus, or otherwise (including periodic payments pursuant to a pension or retirement program) which remains after the deduction of any amounts required by law to be withheld. The garnishee is the person, firm, association, or corporation by whom the responsible parent is employed.

* * * * * *

(c) A hearing on the petition shall be held within ten days after the time for response has elapsed or within ten days after the responses of both the responsible parent and the garnishee have actually been filed. Following the hearing the court may enter an order of garnishment not to exceed 20 percent (20%) of the responsible parent's monthly disposable earnings. * * * The order shall set forth sufficient findings of fact to support the action by the court and the amount to be garnished for each pay period."

In Goodwin v. Claytor, supra, this Court said with reference to G.S. 1-362 (then Code § 493):

"The humane and beneficent provisions of the law in regard to exemptions, being remedial in their nature and founded upon a sound public policy, should always receive a liberal construction, so as to embrace all persons coming fairly within their scope. Black, Interp. of Laws, 311. This court has uniformly held that, where property is exempted from seizure under final process it is similarly exempt from levy or seizure under any mesne process issued for the purpose of placing it in the custody of the court, and thus preserving it until it can finally be applied to the satisfaction of the plaintiff's debt. Chemical Co. v. Sloan, 136 N.C. 122, 48 S.E. 577. Supplementary proceedings are in the nature of final process, when viewed either as a substitute for a creditor's bill to enforce the payment of a judgment at law or as a proceeding having the essential qualities of an equitable fi. fa., and if the defendant comes within the general description of the persons designated in the act, there is no good reason for denying him the exemption under the garnishment." 137 N.C. at 236, 49 S.E. at 177.

G.S. 1-362 expressly exempts from sale under execution (and so, from garnishment) the earnings of a debtor from his personal services within 60 days next preceding the order when it appears by the debtor's affidavit "that these earnings are necessary for the use of a family supported wholly or partly by his labor." (Emphasis added.) It would seem reasonable to suppose that what the Legislature of 1870-71 had in mind, in enacting this exemption was to protect the wage-earner's family from want as against the claims, however just, of his other creditors and that it was not contemplated that the needs of a wage-earner's second family should be supplied at the expense of the legitimate claims of his first family. However, the language of G.S. 1-362 is explicit and, according to Goodwin v. Claytor, supra, is to be given a liberal construction favorable to the exemption.

Thus, we are compelled to hold that this defendant's retirement pay for the 60 day period next preceding the order of garnishment was exempt therefrom, except as hereinafter noted, it plainly appearing from the defendant's affidavit that his retirement pay was necessary for the use of "a family supported wholly or partly by his labor." For the reasons above mentioned, his retirement pay earned after the garnishment order was not subject thereto, except as hereinafter noted. Consequently, except as hereinafter noted, the defendant's retirement pay, from and after the period beginning 60 days prior to the service of the garnishment order, was not subject to garnishment either for alimony or for child support, as such retirement pay earned in the 60 days prior to the service of the garnishment order would have been, pursuant to G.S. 1-440.2 and G.S. 1-440.21 but for the exemption contained in G.S. 1-362. Consequently, it was error to garnish and distribute to the plaintiff the whole of the $1,871.61 (sometimes shown in the record as $1,871.63) paid into the court by the garnishee. If this paramounting of the needs of a husband-father's second family over the needs of his first family be deemed inequitable, the remedy must be supplied by the Legislature by an amendment to G.S. 1-362.

With reference to child support, however, something else does appear in G.S. 110-136, above quoted. As this statute provides, "Notwithstanding any other provision of the law," which would conclude the exemption provision of G.S. 1-362, up to 20% of the defendant's "monthly disposable earnings" were garnishable for the support "of his minor child." We think the only reasonable interpretation of this statute is that the Legislature intended 80% of the parent's "monthly disposable earnings" to be beyond the reach of such garnishment order, even though there be more than one minor child entitled to support from him.

Subsection (c) of G.S. 110-136 seems clearly to contemplate the entry of a continuing order of garnishment reaching earnings for future pay periods, thus changing the former law of this State, as above set forth, with reference to the garnishment of, as yet, unaccrued wages. The liability of the garnishee under such an order would, of course, as to future pay periods, be contingent upon the actual accrual of the defendant employee's earnings in such future pay period.

It appears from the answers of the United States Attorney and of the United States Marine Corps that the defendant's net retirement pay, at that time, was $801.52, per month, and the total indebtedness of the Marine Corps to the defendant, on account of retirement pay, as of the date its answer was filed, was $1,049.80. Thus, it is clear that the retirement pay then accrued was for a period less than 60 days. Consequently, it was exempt from garnishment for alimony under the provisions of G.S. 1-362 and not more than 20% thereof was subject to garnishment for child support under the provisions of G.S. 110-136.

The remainder of the total sum of $1,871.61 ($821.81) which has been paid in to the Clerk of the Superior Court by the United States and distributed by the Clerk to the plaintiff, pursuant to the order of the District Court, was retirement pay for then future pay periods and so, for the reasons above mentioned, was not subject to garnishment except to the extent of 20% thereof for child support pursuant to G.S. 110-136.

In his supplemental brief, filed in the Court of Appeals, the defendant stated:

"Appellant [the defendant] has never contested his basic liability under [G.S.] § 110-136 to provide up to twenty percent (20%) of his retired pay for child support. Appellant has authorized the continuous withholding and disbursement of twenty percent (20%) of his retired and disability pay for past and present obligations. By doing so appellant waives any and all objections to said ``garnishment' including possible exemptions." (Emphasis added.)

By the above mentioned "authorization for disbursement of earnings," filed in the District Court 27 October 1976, the defendant authorized and directed the Marine Corps Finance Center to pay over to the Clerk of the Superior Court of Cumberland County "20% of all of Respondent's accrued retirement earnings which have been withheld pursuant to garnishment/attachment proceedings in this case to the end that said sum may be forthwith disbursed to Plaintiff for the benefit and support of Karl Robert Elmwood" and further authorized the withholding of 20% of his then future retirement earnings and payment thereof to the Clerk of the Superior Court until the arrearage in child support due from the defendant be fully paid, plus a further withholding, after the payment of all such arrearages, and during the minority of Karl, of 20% of the defendant's retirement earnings or $100.00 per month, whichever is less, for payment to the Clerk of the Superior Court for the benefit and support of Karl.

We conclude that the District Court erred in ordering the disbursement to the plaintiff of the entire $1,871.61 paid into the court by the garnishee, but the Court of Appeals also erred in its holding that the defendant's motion for dissolution of the order of attachment should have been allowed in its entirety. By virtue of G.S. 110-136, 20% of this $1,871.61, or the amount allowed for child support, for the pay periods in which this amount was earned, pursuant to the order of the District Court entered 20 February 1968, whichever is less, was subject to garnishment and distribution to the plaintiff, as was 20% of subsequent retirement pay accruals (or the amount of child support for such pay periods ordered by the District Court in its order of 20 February 1968, whichever is less). From the amount which is now withheld by the Marine Corps Finance Center and, as yet, undistributed, there should be paid over to the defendant an amount equal to the portion of the $1,871.61 heretofore distributed to the plaintiff which was improperly so distributed to her. Of the remainder of such presently accrued withholdings, 20% should be paid to the Clerk for distribution to the plaintiff and 80% to the defendant. Of future retirement pay installments, 20% should be withheld and paid over to the Clerk for distribution to the plaintiff until all arrearages in child support payments are fully paid and Karl Elmwood has reached the age of 18. Thereafter, the defendant's then future retirement pay should be paid to him free from the order of garnishment.

The order of the District Court dated 9 March 1976 and entitled "Order Vesting Title" was erroneous and is, hereby vacated. As the Court of Appeals held, the order of the District Court dated 20 October 1976 and entitled "Order Confirming Disbursement" by which the District Court purported to confirm the disbursement to the plaintiff of the sum of $1,871.61 paid by the garnishee into the Office of the Clerk of the Superior Court of Cumberland County, was also erroneous and is, hereby, vacated. The Court of Appeals, however, erred in holding that the District Court should have allowed the defendant's motion for dissolution of the order of attachment entered by the District Court 14 July 1975. That order should have been modified so as to limit it to the maximum amount subject to garnishment pursuant to G.S. 110-136. The garnishee should now be directed to make payments to the Clerk of the Superior Court of Cumberland County and to the defendant as above stated. The Clerk should be directed to make distributions to the plaintiff as above stated.

The Court of Appeals erred in its holding that the District Court should have allowed the defendant's motion for dissolution of the attachment order. That order, entered 14 July 1975, modified to limit its effect to the maximum amount subject to garnishment, pursuant to G.S. 110-136, was within the authority of the District Court and proper.

This matter is, therefore, remanded to the Court of Appeals with direction that it enter its judgment further remanding the matter to the District Court for the entry of an order in conformity with this opinion.

MODIFIED AND REMANDED.