Brandon Pierce v. Collection Associates, Inc.

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 13-6048
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In re: Brandon G. Pierce; Nicole L. Pierce
lllllllllllllllllllllDebtors
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Brandon G. Pierce; Nicole L. Pierce
lllllllllllllllllllll Plaintiffs - Appellants
v.
Collection Associates, Inc.
lllllllllllllllllllll Defendant - Appellee
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Appeal from United States Bankruptcy Court
for the District of Nebraska - Lincoln
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Submitted: December 10, 2013
Filed: January 30, 2013
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Before FEDERMAN, Chief Judge, KRESSEL and SHODEEN, Bankruptcy
Judges.
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KRESSEL, Bankruptcy Judge.
The debtors, Brandon G. Pierce and Nicole L. Pierce, appeal from an order of
the bankruptcy court1 denying their complaint to avoid and recover transfers of wages
to the appellee, Collection Associates, Inc.. For the reasons that follow, we affirm.
BACKGROUND
On December 10, 2012, the Pierces filed a chapter 13 bankruptcy petition.
Prior to the petition, Collection Associates filed a collection suit against Brandon
Pierce in Nebraska state court and obtained a judgment. Pursuant to a Nebraska court
order Collection Associates garnished Pierce’s employment wages. The garnishment
occurred partially during the 90 days prior to the bankruptcy filing. The garnishments
that took place during that time were in the following amounts:
Payroll Week Ending Check Date Amount Garnished
1. 9/23/2012 9/28/2012 $118.48
2. 10/7/2012 10/12/2012 $148.10
3. 10/21/2012 10/26/2012 $148.10
4. 11/4/2012 11/9/2012 $148.10
5. 11/18/2012 11/23/2012 $148.10
6. 12/2/2012 12/7/2012 $148.10
The total amount of the wage garnishments was $858.98. However, Collection
Associates did not receive that entire sum. Pursuant to Neb. Rev. Stat. Section 25-
1056, wages that are withheld by a garnishee must first be transferred to the court for
delivery to the judgment creditor. At the time of the bankruptcy filing the court had
only received and delivered $562.78 to Collection Associates.
Two days after the bankruptcy filing, on December 12, 2012, the court received
a check for $148.10 from Pierce’s employer, the garnishee. It did not deliver these
1
The Honorable Thomas L. Saladino, Chief Judge, United States
Bankruptcy Court for the District of Nebraska.
funds to Collection Associates. On December 21, 2012, Collection Associates filed
a cancellation of garnishment. Despite the cancellation, on December 26, 2012, the
court received another check for $148.10 from the garnishee. These funds also were
not transferred to Collection Associates. Instead, the court returned the two checks
to the garnishee. The garnishee then directly refunded the checks to Pierce.
On February 13, 2013, the Pierces filed an adversary proceeding seeking an
order avoiding the transfers of the garnished funds and requiring Collection
Associates to return $562.78 to them.2 On June 20, 2013, the parties submitted a
statement of stipulated facts. The case was tried on those stipulated facts on August
21, 2013. The bankruptcy court held that the transfers were not avoidable. On
September 3, 2013, the Pierces filed a timely notice of appeal.
Meanwhile, on August 21, 2013, the chapter 13 trustee filed a notice of
payment default. The Pierces failed to cure the default and on September 25, 2013
the bankruptcy case was dismissed. On October 23, 2013, the Pierces filed a “motion
to reinstate” their case. On November, 14, 2013, that motion was granted.
STANDARD OF REVIEW
We review the bankruptcy court’s factual findings for clear error and its
conclusions of law de novo. Blackwell v. Lurie (In re Popkin & Stern), 223 F.3d 764,
765 (8th Cir. 2000).
We may affirm the bankruptcy court’s order on any basis supported by the
record, even if that ground was not considered by the trial court. Mid-City Bank v.
Skyline Woods Homeowners Assoc. (In re Skyline Woods County Club, LLC), 431
B.R. 830, 836 n.16 (B.A.P. 8th Cir. 2010).
2
It is unclear what standing Nicole Pierce had in this adversary
proceeding. The garnishment was solely of Brandon Pierce’s employment wages.
ANALYSIS
Mootness
Collection Associates argues that this appeal is moot because on September 25,
2013 the bankruptcy case was dismissed. However, Collection Associates fails to
address the fact that the Pierces’ “motion to reinstate” the case was granted. There
is really no such procedure as “reinstating” a case. In effect, when the court granted
the “motion to reinstate” the order of dismissal was vacated. See F. R. Bank. P. 9023.
Therefore this appeal is not moot.
Avoidance of Transfers
Section 547(b) of the Bankruptcy Code provides that a trustee may avoid any
transfer of an interest of the debtor in property:
(1) To or for the benefit of a creditor;
(2) For or on account of an antecedent debt owed by the
debtor before such transfer was made;
(3) Made while the debtor was insolvent
(4) Made-
(A) on or within 90 days before the date of the
filing of the petition; or
(B) between 90 days and one year before the date of
the filing of the petition, is such creditor at the time
of such transfer was an insider.
(5) The enables such creditor to receive more than such
creditor would receive if -
(A) the case were a case under Chapter 7
(B) the transfer had not been made; and
(C) such creditor received payments of such debt to
the extent provided by the provisions of this title.
As provided by the statute, a trustee may bring an action to avoid a prepetition
transfer. However, 11 U.S.C. § 522(h), when read in conjunction with 11 U.S.C. §
522(g), allows a debtor to avoid prepetition preferential transfers if (1) the property
transferred would have been exempt; (2) the property was not transferred voluntarily;
and (3) the trustee has not sought to bring an avoidance action. See McCarthy v.
Brevik Law (In re McCarthy), 501 B.R. 89 (B.A.P. 8th Cir. 2013); see also 11 U.S.C.
§ 522(g)-(h).
The Pierces and Collection Associates agree that all elements of § 547(b) are
met with regard to the transfers of the garnished wages. However, even if the
elements of § 547(b) are met there are defenses to avoidance actions. The relevant
defense is found in 11 U.S.C. § 547(c)(8). It reads:
(c) a trustee may not avoid under this section a transfer -
(8) if, in a case filed by an individual debtor whose
debts are primarily consumer debts, the aggregate
value of all property that constitutes or is affected by
such transfer is less than $600.
The parties disagree on whether the above exception applies. The bankruptcy
court held that § 547(c)(8) did apply because Collection Associates did not get the
benefit or the value of $600 or more3.
Collection Associates agrees with the bankruptcy court and argues that §
547(c)(8) applies because they received less than $600. They argue that it is
irrelevant that $858.98 was garnished from Pierce’s wages because they only received
a portion of that amount. The amount received by Collection Associates does not
include the last two garnishment payments. Those payments, totaling $296.20, may
have been transferred to the court but they were never transferred to Collection
3
The parties, and as a result, the bankruptcy court operated under the
assumption that a debtor may aggregate multiple transfers to a single creditor
made during the preference period to determine whether the $600 threshold of §
547(c)(8) has been met. Since no one has raised this issue we too operate under
this assumption without deciding the issue.
Associates. In fact, the payments were returned to Pierce. For these reasons,
Collection Associates argues that § 547(c)(8) applies and the transfers cannot be
avoided.
The Pierces disagree. They argue that § 547(c)(8) does not apply because more
than $600 was transferred. According to the Pierces, all $858.98 was transferred
under the meaning of § 547(c)(8). The transfer occurred when Pierce’s employer
withheld his earnings because at that time Pierce was involuntarily parting with his
interest in those wages. It follows then, the Pierces argue, that the $296.20
transferred from the garnishee but never to Collection Associates should still be
included in the calculation of the amount of the transfer.
We agree with the Pierces that at one time all six wage garnishments, totaling
$858.98, constituted preferences. We have previously held that for preference
purposes, if the property transferred is the debtor’s wages then the transfer occurs
precisely when wages are earned. See Wade v. Midwest Acceptance Corp. (In re
Wade), 219 B.R. 815 (B.A.P. 8th Cir. 1998); see also James v. Planters Bank (In re
James), 257 B.R. 673 (B.A.P. 8th Cir. 2001). In this case, each garnishment was a
preference at the time Pierce earned his wages.
However, when the Pierces brought this preference action the garnishee had
already returned $296.20 to them. As the Pierces recognized, the only remedy
available to them was avoidance of the wages still in possession of Collection
Associates. Accordingly, their requested relief was for the return of $562.78, an
amount less than $600. Therefore, under any definition of the word transfer and
regardless of the benefit Collection Associates received § 547(c)(8) applies.
CONCLUSION
Because the amount sought be to recovered is less than $600, § 547(c)(8)
applies as a defense to this preference action. The bankruptcy court’s judgment is
affirmed.
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