Schaefer Shapiro v. Ball , 305 Neb. 669 ( 2020 )


Menu:
  • Nebraska Supreme Court Online Library
    www.nebraska.gov/apps-courts-epub/
    05/15/2020 08:08 AM CDT
    - 669 -
    Nebraska Supreme Court Advance Sheets
    305 Nebraska Reports
    SCHAEFER SHAPIRO v. BALL
    Cite as 
    305 Neb. 669
    Schaefer Shapiro LLP, a Nebraska limited
    liability partnership, appellant,
    v. Rodien Ball, appellee.
    ___ N.W.2d ___
    Filed April 23, 2020.    No. S-19-547.
    1. Garnishment: Appeal and Error. Garnishment is a legal proceeding.
    To the extent factual issues are involved, the findings of a garnishment
    hearing judge have the effect of findings by a jury and, on appeal, will
    not be set aside unless clearly wrong.
    2. Courts: Appeal and Error. The district court and higher appellate
    courts generally review appeals from the county court for error appear-
    ing on the record.
    3. Judgments: Appeal and Error. When reviewing a judgment for errors
    appearing on the record, the inquiry is whether the decision conforms
    to the law, is supported by competent evidence, and is neither arbitrary,
    capricious, nor unreasonable.
    4. Garnishment: Social Security. As a general rule, Social Security pay-
    ments to a recipient on deposit with a bank are exempt from garnish-
    ment under both federal and state law.
    5. ____: ____. Exempt funds such as Social Security payments remain
    exempt from garnishment, even when commingled with nonexempt
    funds, so long as the source of the exempt funds is reasonably traceable.
    6. Garnishment: Attachments: Proof. One who seeks exemption from
    attachment and garnishment should prove entitlement to the exemption.
    7. Verdicts: Appeal and Error. In determining the sufficiency of the evi-
    dence to sustain a verdict in a civil case, an appellate court considers the
    evidence most favorably to the successful party and resolves evidential
    conflicts in favor of such party, who is entitled to every reasonable
    inference deducible from the evidence.
    Appeal from the District Court for Douglas County, Leigh
    Ann Retelsdorf, Judge, on appeal thereto from the County
    - 670 -
    Nebraska Supreme Court Advance Sheets
    305 Nebraska Reports
    SCHAEFER SHAPIRO v. BALL
    Cite as 
    305 Neb. 669
    Court for Douglas County, Lawrence E. Barrett, Judge.
    Judgment of District Court affirmed.
    James E. Riha and Michael J. Wilson, of Schaefer Shapiro,
    L.L.P., for appellant.
    No appearance for appellee.
    Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
    Papik, and Freudenberg, JJ.
    Cassel, J.
    INTRODUCTION
    A judgment creditor sought to garnish the judgment debtor’s
    bank account, which at one time contained funds both exempt
    and nonexempt from garnishment. We hold that funds exempt
    from garnishment remain exempt, even when commingled with
    nonexempt funds, so long as the source of exempt funds is rea-
    sonably traceable. Because competent evidence supported the
    county court’s finding that the bank account consisted solely of
    exempt funds, we affirm.
    BACKGROUND
    Schaefer Shapiro LLP (Schaefer) obtained a judgment
    against Rodien Ball. On December 26, 2018, Schaefer filed
    an affidavit and praecipe for summons in garnishment, assert-
    ing that the judgment against Ball totaled $1,994.99 and that a
    bank held assets of Ball.
    The bank answered garnishment interrogatories indicating
    that Ball’s account contained funds other than wages in excess
    of $1,994.99. Upon Schaefer’s application to deliver nonex-
    empt funds, the court ordered that “the non-exempt earnings,
    property, credits, or money withheld by the garnishee in the
    amount of $1,994.99 be transferred to the Court.”
    Ball requested a hearing, claiming that the funds were
    exempt from garnishment. At the January 2019 hearing, Ball
    testified that he received $1,790 in Social Security every month
    and that the only funds in his garnished account were Social
    - 671 -
    Nebraska Supreme Court Advance Sheets
    305 Nebraska Reports
    SCHAEFER SHAPIRO v. BALL
    Cite as 
    305 Neb. 669
    Security payments. He estimated that the total balance in the
    garnished bank account was “[$]30,000, probably.” In October
    2017, Ball sold real estate and received “[p]robably about a
    hundred thousand.” Although Ball deposited those proceeds
    into the same bank account as his Social Security payments, he
    testified: “[I]t’s all gone. Been spent, and I owed bills.” Ball
    iterated that he spent the sale proceeds but did not spend Social
    Security funds. The county court ruled from the bench: “Show
    that the testimony’s been given that the funds are exempt. They
    are ruled exempt.”
    Upon Schaefer’s appeal, the district court affirmed the county
    court’s judgment. The district court highlighted the absence of
    evidence regarding how much money was in the bank account
    in October 2017, or anytime thereafter, aside from Ball’s esti-
    mation. And there was no evidence as to how much money was
    in the account before any commingling occurred or at the time
    the interrogatories were completed. The district court observed
    that the county court apparently found Ball to be credible, and
    the district court found no error by the county court appearing
    on the record.
    Schaefer appealed, and we moved the case to our docket. 1
    ASSIGNMENT OF ERROR
    Schaefer assigns that the lower courts erred because the
    act of depositing and commingling otherwise exempt Social
    Security funds into the same bank account as nonexempt pro-
    ceeds from the sale of real estate removes the exempt status,
    thereby allowing garnishment of the Social Security funds
    unless the garnishee proves the exempt status of the funds.
    STANDARD OF REVIEW
    [1] Garnishment is a legal proceeding. To the extent factual
    issues are involved, the findings of a garnishment hearing
    judge have the effect of findings by a jury and, on appeal, will
    not be set aside unless clearly wrong. 2
    1
    See 
    Neb. Rev. Stat. § 24-1106
    (3) (Cum. Supp. 2018).
    2
    ML Manager v. Jensen, 
    287 Neb. 171
    , 
    842 N.W.2d 566
     (2014).
    - 672 -
    Nebraska Supreme Court Advance Sheets
    305 Nebraska Reports
    SCHAEFER SHAPIRO v. BALL
    Cite as 
    305 Neb. 669
    [2,3] The district court and higher appellate courts generally
    review appeals from the county court for error appearing on
    the record. 3 When reviewing a judgment for errors appearing
    on the record, the inquiry is whether the decision conforms
    to the law, is supported by competent evidence, and is neither
    arbitrary, capricious, nor unreasonable. 4
    ANALYSIS
    [4] As a general rule, Social Security payments to a recipi-
    ent on deposit with a bank are exempt from garnishment under
    both federal and state law. 5 In an earlier case decided by this
    court, 6 there was no dispute that the bank account consisted
    solely of checks directly deposited by the Social Security
    Administration. This appeal presents a twist: What is the
    effect, if any, on exempt funds when commingled with nonex-
    empt funds?
    [5] The majority of federal 7 and state 8 courts have deter-
    mined that Social Security benefits maintain their exempt
    status, even if commingled with nonexempt funds. A Virginia
    court took the contrary view, 9 but the continued validity of that
    3
    Houser v. American Paving Asphalt, 
    299 Neb. 1
    , 
    907 N.W.2d 16
     (2018);
    Millard Gutter Co. v. Farm Bureau Prop. & Cas. Ins. Co., 
    295 Neb. 419
    ,
    
    889 N.W.2d 596
     (2016).
    4
    
    Id.
    5
    See, Philpott v. Essex County Welfare Board, 
    409 U.S. 413
    , 
    93 S. Ct. 590
    , 
    34 L. Ed. 2d 608
     (1973) (implementing 
    42 U.S.C. § 407
    (a) (2018));
    Havelock Bank v. Hog Confinement Systems, 
    214 Neb. 783
    , 
    335 N.W.2d 765
     (1983).
    6
    Havelock Bank v. Hog Confinement Systems, 
    supra note 5
    .
    7
    See, S & S Diversified Services, L.L.C. v. Taylor, 
    897 F. Supp. 549
     (D.
    Wyo. 1995); NCNB Financial Services, Inc. v. Shumate, 
    829 F. Supp. 178
    (W.D. Va. 1993); In re Lichtenberger, 
    337 B.R. 322
     (C.D. Ill. 2006); In re
    Moore, 
    214 B.R. 628
     (D. Kan. 1997).
    8
    See, In re Estate of Merritt, 
    272 Ill. App. 3d 1017
    , 
    651 N.E.2d 680
    , 
    209 Ill. Dec. 502
     (1995); Dean v. Fred’s Towing, 
    245 Mont. 366
    , 
    801 P.2d 579
    (1990); General Motors Acceptance Corp. v. Deskins, 
    16 Ohio App. 3d 132
    , 
    474 N.E.2d 1207
     (1984).
    9
    Bernardini v. Central Nat. Bank, Etc., 
    223 Va. 519
    , 
    290 S.E.2d 863
     (1982).
    - 673 -
    Nebraska Supreme Court Advance Sheets
    305 Nebraska Reports
    SCHAEFER SHAPIRO v. BALL
    Cite as 
    305 Neb. 669
    decision has been questioned due to later legislation. 10 Most
    courts, however, require that the exempt source of the funds
    be traceable. 11 We now hold that exempt funds such as Social
    Security payments remain exempt from garnishment, even
    when commingled with nonexempt funds, so long as the source
    of the exempt funds is reasonably traceable.
    [6] When there is a dispute about whether funds are exempt,
    which party carries the burden of proof becomes key. One
    who seeks exemption from attachment and garnishment should
    prove entitlement to the exemption. 12 This is in accord with the
    general rule that the burden of proving an exemption rests on
    the party claiming it. 13 It is also in line with the teaching of a
    treatise concerning Social Security: “[O]nce it is determined
    that an account contains commingled funds, the burden shifts
    to the claimant to prove that the remaining funds constitute
    exempt social security funds.” 14 Ball, as the party claiming
    that the funds were exempt, had the burden to prove that they
    were exempt.
    [7] In considering whether Ball met his burden, we are
    constrained by our standard of review. The county court deter-
    mined that all of the funds in the bank account were exempt.
    And the findings of the county court have the effect of findings
    10
    See, In re Delima, 
    561 B.R. 647
     (E.D. Va. 2016); In re Meyer, 
    211 B.R. 203
     (E.D. Va. 1997).
    11
    See, In re Lichtenberger, supra note 7; In re Moore, supra note 7; In re
    Estate of Merritt, 
    supra note 8
    ; Dean v. Fred’s Towing, 
    supra note 8
    ;
    General Motors Acceptance Corp. v. Deskins, 
    supra note 8
    .
    12
    See Novak v. Novak, 
    2 Neb. App. 21
    , 
    508 N.W.2d 283
     (1993), affirmed in
    part and in part reversed and remanded 
    245 Neb. 366
    , 
    513 N.W.2d 303
    (1994). See, also, Scottsbluff Nat. Bank v. Pfeifer, 
    126 Neb. 852
    , 
    254 N.W. 494
     (1934); Stull v. Miller, 
    55 Neb. 30
    , 
    75 N.W. 239
     (1898).
    13
    See, State v. Erpelding, 
    292 Neb. 351
    , 
    874 N.W.2d 265
     (2015) (exemption
    to criminal nonsupport); Hamilton Cty. EMS Assoc. v. Hamilton Cty., 
    291 Neb. 495
    , 
    866 N.W.2d 523
     (2015) (Industrial Relations Act exemption);
    Fort Calhoun Bapt. Ch. v. Washington Cty. Bd. of Eq., 
    277 Neb. 25
    , 
    759 N.W.2d 475
     (2009) (tax exemption).
    14
    2A Social Security Law and Practice § 34:8 (2019).
    - 674 -
    Nebraska Supreme Court Advance Sheets
    305 Nebraska Reports
    SCHAEFER SHAPIRO v. BALL
    Cite as 
    305 Neb. 669
    by a jury—they will not be set aside unless clearly wrong. 15
    With respect to a jury verdict, we have stated that it is suffi-
    cient if there is competent evidence presented to the jury upon
    which it could find for the successful party. 16 And in determin-
    ing the sufficiency of the evidence to sustain a verdict in a civil
    case, an appellate court considers the evidence most favorably
    to the successful party and resolves evidential conflicts in favor
    of such party, who is entitled to every reasonable inference
    deducible from the evidence. 17
    Viewing the evidence most favorably to Ball and giving
    him the benefit of every reasonably inference, we cannot say
    that the county court’s finding was clearly wrong. Ball testi-
    fied that the bank account contained only his Social Security
    payments and that he spent all of the nonexempt money that
    had been deposited in the account. The county court accepted
    this testimony.
    Schaefer argues that it is “mathematically impossible” for
    the $30,000 balance in the account to consist solely of exempt
    Social Security funds. 18 According to Schaefer, it would take
    at least 17 months for the account balance to go from $0 to
    $30,000 at $1,790 per month, but that only 14 months passed
    from the commingling of the funds in October 2017 to the
    filing of the garnishment in December 2018. Presumably,
    then, it would be mathematically possible for Ball’s account
    to contain $25,060 as of December 2018 (time of service of
    garnishee summons) or $26,850 as of January 2019 (time
    of hearing).
    The county court was not bound to accept Ball’s estima-
    tion of the account balance. The question posed at the hear-
    ing was, “And how much is in the account?” The question
    inquired about the present balance of the account rather than
    the balance at the time of the garnishment filing, although that
    15
    See ML Manager v. Jensen, supra note 2.
    16
    See Wulf v. Kunnath, 
    285 Neb. 472
    , 
    827 N.W.2d 248
     (2013).
    17
    
    Id.
    18
    Brief for appellant at 5.
    - 675 -
    Nebraska Supreme Court Advance Sheets
    305 Nebraska Reports
    SCHAEFER SHAPIRO v. BALL
    Cite as 
    305 Neb. 669
    hearing occurred approximately 3 weeks later. Ball answered,
    “I don’t know. Thirty — 30,000, probably.” The county court
    may have believed that the account contained an amount lesser
    than $30,000.
    Schaefer further argues that federal law should govern a
    bank’s review of an account to determine whether an exempt
    benefit was paid during the 2-month lookback period. 19 Under
    federal regulations, a financial institution must issue a notice to
    the account holder named in the garnishment order where (1)
    a benefit agency deposited a benefit payment into an account
    during the lookback period, (2) the balance in the account on
    the date of the account review was above $0 and the finan-
    cial institution established a protected amount, and (3) there
    are funds in the account in excess of the protected amount. 20
    Schaefer asserts that applying the 2-month lookback period to
    Ball’s Social Security benefits would leave any amount in the
    bank account over $3,580 ($1,790 per month × 2 months) sub-
    ject to being garnished.
    It is not clear from the record whether the federal regu-
    lations apply here. The federal regulations were added “to
    implement statutory provisions that protect Federal benefits
    from garnishment by establishing procedures that a financial
    institution must follow when served a garnishment order
    against an account holder into whose account a Federal
    benefit payment has been directly deposited.” 21 The regula-
    tions specify:
    Benefit payment means a Federal benefit payment
    referred to in § 212.2(b) paid by direct deposit to an
    account with the character “XX” encoded in positions 54
    and 55 of the Company Entry Description field and the
    number “2” encoded in the Originator Status Code field
    of the Batch Header Record of the direct deposit entry. 22
    19
    See 
    31 C.F.R. § 212.3
     (2018).
    20
    
    31 C.F.R. § 212.7
    (a) (2018).
    21
    
    31 C.F.R. § 212.1
     (2018) (emphasis supplied).
    22
    
    31 C.F.R. § 212.3
     (emphasis omitted) (emphasis supplied).
    - 676 -
    Nebraska Supreme Court Advance Sheets
    305 Nebraska Reports
    SCHAEFER SHAPIRO v. BALL
    Cite as 
    305 Neb. 669
    Because our record contains no evidence that Ball’s Social
    Security payments were directly deposited into his account,
    we cannot speak to whether the federal regulations apply. But
    even if they did apply, exempt funds remain exempt, 23 and
    Ball testified that his account contained only Social Security
    funds.
    The parties presented scant evidence to the county court.
    But Ball’s testimony that the account contained only exempt
    funds, if believed, provided a basis for the county court to rule
    accordingly. We cannot say that the county court’s finding was
    clearly wrong. Like the district court, we see no error appear-
    ing on the record.
    CONCLUSION
    Because the county court’s decision conforms to the law,
    is supported by competent evidence, and is neither arbitrary,
    capricious, nor unreasonable, we affirm the decision of the dis-
    trict court affirming the judgment of the county court.
    Affirmed.
    23
    See, 
    42 U.S.C. § 407
    (a); Tuan Thai v. Ashcroft, 
    366 F.3d 790
     (9th Cir.
    2004) (federal regulation cannot empower action prohibited by federal
    statute).