Wednesday, June 8, 2011

On the Lighter Side: Florida Consumer Levies on Assets at Local Bank of America Branch

I've been told that the subjects we usually discuss here are boring to many readers. With that in mind, it's nice to be able to post something funny (ok, it's probably still boring).

I recently read a story on naked capitalism about a Florida consumer levying on the assets of Bank of America to satisfy an attorney's fee award. The bank instituted a foreclosure case that it shouldn't have (hard to believe, I know), because the house they were seeking to foreclosure had actually been purchased cash. The homeowner obtained an attorney's fee award based on the meritless lawsuit, but the bank didn't pay (again, shocking). As a result, the homeowner invoked its rights under Chapter 56, Florida Statutes, which we encourage our creditor clients to consider under certain circumstances, and sent the sheriff to a local bank branch to levy upon the property there. At that point, as I understand it, the bank manager cut a check for the attorney's fees.

The story is funny to me, because it represents a reversal of the roles typically played by consumers and institutions; but there is also a lesson to be learned from it: creditors and debtors alike need to be mindful of their rights and available remedies.

Tuesday, June 7, 2011

Florida Statutory Health Care Reimbursement Dispute Resolution Process Held Constitutional


Recently, a Florida court considered the constitutionality of the dispute resolution process outlined in Fla. Stat. § 408.757 (2010). That section allows a medical provider or health insurer to submit disputed claims for review and determination by an independent organization appointed by The Agency for Health Care Administration (AHCA).

After Maximus (the organization chosen by AHCA) issued a decision favorable to the healthcare providers and ACHA adopted Maximus's decision, Blue Cross Blue Shield of Florida (BCBS) appealed the decision to the First District Court of Appeals, challenging the statute's constitutionality. The court held that inasmuch as the statute gave BCBS the right to withdraw from the dispute resolution process and file a lawsuit at any time, the statute passed constitutional muster and BCBS would be bound by Maximus's decision. The full opinion can be read here.

Providers and health plans should be aware of their rights should a payment dispute arise. In addition to the legal rights existing under ERISA and the Florida HMO Act (and other state law), alternative dispute resolution may be available, and is often a successful tool in amicably resolving payment disputes, both under contracts between the provider and the payor and under non-contracted provider payment rules.

Thursday, June 2, 2011

Florida Court Holds that Creditor, Not Creditor's Attorney, Must Sign Sworn Denial of Garnishment Exemption

A very recent ruling by Florida's Fourth District Court of Appeals discusses the procedure for denying a judgment debtor's head of household exemption to garnishment, and spells trouble for creditor's attorneys, especially attorneys representing major banks and credit card companies. At issue in Caproc Third Ave., LLC v. Donisi Ins., Inc., ___ So. 3d ____ (Fla. 4th DCA June 1, 2011) (pdf), was Fla. Stat. § 222.12, which provides that,
"When such an affidavit [of head of household] is made [by a judgment debtor facing a writ of garnishment], notice of same shall be forthwith given to the party, or her or his attorney, who sued out the process, and if the facts set forth in such affidavit are not denied under oath within 2 business days after the service of said notice, the process shall be returned, and all proceedings under the same shall cease. If the facts stated in the affidavit are denied by the party who sued out the process within the time above set forth and under oath, then the matter shall be tried by the court from which the writ or process issued, in like manner as claims to property levied upon by writ of execution are tried, and the money or thing attached shall remain subject to the process until released by the judgment of the court which shall try the issue."
The creditor's attorney attempted to file an affidavit denying the exemption himself, rather than having his client do so. Most creditors attorneys that we know have in the past done it that way. After this case, however, that practice appears to be no longer viable. The court ruled that the attorney was not "the party who sued out the process," and therefore he could not sign the affidavit of denial. As a result, the writ of garnishment was immediately dissolved without the need for an evidentiary hearing. The court also noted that the affidavit filed by the attorney was insufficient because he himself had no basis for personal knowledge as to the defendant's claim of exemption.

As a practical matter, given the strict time constraints for filing the sworn denial - 2 days - the requirements imposed by this case will make it difficult for the attorney who represents a hard to reach client to defeat a claim of head of household exemption [regardless of the claim's merit].

Friday, May 27, 2011

Florida Legislature Updates Limited Liability Company (LLC) Statute in the Wake of Last Year's Olmstead Decision of the Florida Supreme Court

Asset protection attorney Jonathan Alper, Esq. has posted an article on the Florida Asset Protection Blog reporting that the Florida Legislature has amended the LLC Statute to limit the reach of the holding of the Supreme Court's decision in Olmstead v. Federal Trade Commission, 44 So. 3d 76 (Fla. 2010), which we previously blogged about here.

The holding expanded the remedies available to creditors of the members of an LLC to include the forced sale of the member's interest. The new legislation limits application of the Olmstead remedy to single member LLCs only. It provides that the charging lien is the only remedy available to creditors of a member of a multi-member LLC.

The new legislation can be viewed here. Prior articles discussing Olmstead can be read here, here, and here.

Tuesday, May 24, 2011

United States Supreme Court Expands Remedies Available to Healthcare Providers and Patients Under ERISA


The United States Supreme Court recently ruled in CIGNA Corp. v. Amara, 563 U.S. ____, 348 Fed. Appx. 627 (May 16, 2011), that a fiduciary of an Employee Benefits Plan (including a Health Plan) can be sued for unpaid benefits under ERISA § 503(a)(3). Previously, courts had been reluctant to order payment of money under this section, which by its terms authorizes "other appropriate equitable relief," on the ground that the payment of money was traditionally a legal remedy, not an equitable one. The Supreme Court has now dismissed that idea, discussing in detail the history of courts of equity, and stating that, "[t]he power to reform contracts (as contrasted with the power to enforce contracts as written) is a traditional power of an equity court, not a court of law," and further, "[e]quity courts possessed the power to provide relief in the form of monetary compensation for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment." Therefore, a suit may now be maintained under § 503(a)(3) for reformation of a contract and for the payment of money, among other things.

This holding is of utmost importance to healthcare providers and patients who have been denied payment by a health insurance company. The only recourse for payment of benefits prior to this ruling was a lawsuit under § 503(a)(1)(B) for wrongful denial of benefits. But this lawsuit could only be brought against the Plan itself, and not necessarily against a plan administrator or fiduciary. Now, it would seem, recourse is available against the plan fiduciary as well as the Plain itself.

Healthcare providers, including hospitals, ancillary care providers, physician practice groups, and individual practitioners, are encouraged to carefully follow up on denied claims, and to seek third party review wherever possible. Medical Accounts Systems provides this service on a contingency fee basis (a fee is only owed if recovery is made), and when necessary, Jorge M. Abril, P.A. files suit in Federal Court to recover payment for services provided to ERISA participants and beneficiaries.

Thursday, March 24, 2011

New Federal Rule Makes It More Difficult for Judgment Creditors to Garnish Consumer Bank Accounts

Florida is one of the most consumer-friendly States in the Union, when it comes to debtor-creditor relations. Article X Section 4 of the Florida Constitution exempts from forced sale a person's primary residence, without regard to the value (subject only to an acreage limitation that very rarely applies). Separately, Section 222.11 of the Florida Statutes provides protection over and above the Federal Wage Garnishment restrictions, exempting from garnishment 100% of the wages of a head of household, unless that person has agreed to have his wages garnished (a scenario I have yet to come across). And if that weren't enough, the commonlaw tenancy by the entireties form of property ownership protects the property of a married couple from creditors of one spouse. We have blogged about each of these exemptions here, here, and here, respectively.

One exception to this pro-debtor body of law is the Garnishment statute itself. Many states require either notice to the debtor or a specific showing by the creditor of entitlement to would-be-garnished funds - including the lack of any available exemption - prior to garnishing wages or bank account funds (some states may require both). Florida requires neither. The creditor need only show the existence of an outstanding judgment in order to obtain a Writ of Garnishment, and he can obtain the Writ without notice to the debtor. Only after the garnishee (the party possessing the debtor's property to be taken) has been served with the Writ does the debtor receive notice, and it is then up to the debtor to raise his exemptions in a timely fashion and prove them in accordance with the statute or lose the right to the funds. And while this litigation takes place, the funds are frozen in the debtor's bank account and are therefore unavailable to him for some time. As such, a bank account garnishment is an effective creditor's remedy in Florida.

New Federal Regulations becoming effective in May 2011 will lessen its effectiveness, however, at least as it pertains to Social Security payments and other Federal benefits. The interim final rule requires a bank, upon receipt of a Writ of Garnishment, to conduct its own inquiry into the source of the funds in the garnished account, and if it determines that the account contains Federal benefit payments, to release the freeze on two months' worth of payments immediately, without any showing by the debtor.

Both Florida and Federal law have for some time exempted many kinds of Federal benefit payments from garnishment, even after they are deposited into an account, so this interim final rule does not represent a drastic change in the law. But inasmuch as it relieves the debtor of the obligation to prove that the funds are exempt before regaining access to at least a portion of them, its effect will be felt by creditors- many times the debtor is unable to prove that the funds are exempt, has taken an action that would otherwise make the exemption unavailable, or (unfortunately) is simply unaware of or incapable of complying with the procedure for obtaining judicial recognition of the exemption. Additionally, this rule should be of interest to banks, who should be hard at work learning their duties under the regulations and implementing procedures to carry them out.

The interim final rule was published in the Federal Register, and is available, along with comments submitted to the implementing agencies, here.

Monday, February 7, 2011

Update: Florida Supreme Court Answers Certified Question re: Homestead Owner's Ability to Claim the Wildcard Personal Property Exemption in Bankruptcy

Earlier today, we published an article composed last week regarding the ability of a bankruptcy debtor who owns a homestead but does not claim a homestead exemption under the Florida Constitution to claim the enhanced personal property exemption set forth in Fla. Stat. § 222.25. In the article, we referenced a pending case in the Florida Supreme Court regarding the meaning of 'receives the benefits' for the purposes of the personal property exemption statute. This morning, we received news that that case has been decided by the Florida Supreme Court. A link to a pdf of the opinion, Osborne v. Dumoulin, --- So.3d ----, 2011 WL 320986 (Fla. 2011), is available here.

The Court decided that, "if under the facts of the case the article X homestead exemption does not otherwise present an obstacle to the bankruptcy trustee's administration of the estate, then the debtor in bankruptcy is not receiving the benefits of the homestead exemption and is eligible to claim the statutory personal property exemption of section 222.25(4)."

This ruling does not appear to be limited by its wording to the specific facts set forth in Dumoulin, where the debtor chose to surrender his homestead in the bankruptcy, but applies more broadly to any bankruptcy case in which the trustee is not prevented by the homestead exemption from administering the property as part of the estate, including the Iuliano case (pdf), discussed in our previous blog post, where the debtor actually stated an intent to keep the property.

The Supreme Court rephrased the question certified by the Eleventh Circuit in In re Dumoulin, 326 Fed. Appx. 498 (11th Cir. 2009) as follows:
"Whether for the purpose of the statutory personal property exemption in section 222.25(4), a debtor in bankruptcy receives the benefits of Florida's article X, section 4, constitutional homestead exemption where the debtor owns homestead property but does not claim the homestead exemption in bankruptcy and the trustee's administration of the property is not otherwise impeded by the existence of the homestead exemption."
The court answered the rephrased question in the negative.

The Availability of Florida's Wildcard Personal Property Exemption to Debtors Owning Homestead Property and Not Claiming a Homestead Exemption in Bankruptcy

Recently, a Florida Bankruptcy Court discussed whether a debtor in bankruptcy who owns a home worth less than the balance on his mortgage may claim the wildcard personal property exemption found in Fla. Stat. § 222.25 and still keep his homestead in his bankruptcy case. In re Iuliano, 2010 WL 5452726 (Bkrtcy. M.D. Fla. Dec 28, 2010) (pdf).

The facts of the case are unfortunately very common in 2011. The debtor purchased his primary residence several years ago, when the housing market was booming, and established the property as his homestead under Art. X, s. 4(a)(1) of the Florida Constitution, which exempts from forced sale and from judgment lien the primary residence of an individual and his family, and therefore excludes the residence from property of the individual's bankruptcy estate. The debtor mortgaged the property up to the then-current value, but since then, the property value has decreased at a rate much higher than the rate at which the mortgage is being paid down. As a result, the property is 'underwater'- the balance on the mortgage is substantially higher than the current value of the property, and the debtor therefore has no equity in the property.

At some point, the debtor ran into financial difficulties and filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code, seeking a discharge of his debt. In completing his bankruptcy schedules, the debtor did not claim the homestead exemption. If he had, the bankruptcy trustee could make no claim on the debtor's residence under the Florida Constitution. However, if the debtor claimed the homestead exemption on real property, the debtor could only exempt his personal property up to $1,000 in value, under Art. X, s. 4(a)(2) of the Florida Constitution. Choosing not to claim the homestead allows the debtor to exempt personal property up to $4,000 in value, according to Fla. Stat. § 222.25(4) (the "wildcard exemption"), which exempts:
"[a] debtor’s interest in personal property, not to exceed $4,000, if the debtor does not claim or receive the benefits of a homestead exemption under s. 4, Art. X of the State Constitution."
The bankruptcy trustee objected to the debtor's wildcard exemption claim and moved in the alternative for an order directing the debtor to turnover his homestead property, arguing that the debtor can't have his cake and eat it too- he is not entitled to claim the wildcard property exemption and keep his homestead. The debtor countered that he is not "claim[ing] or receiv[ing] the benefits of" the homestead exemption, inasmuch as there is no equity in his property for him to exempt, and he is therefore entitled to the wildcard exemption.

Some time ago, in In re Dumoulin, 326 Fed. Appx. 498 (11th Cir. 2009), the Eleventh Circuit Court of Appeals certified a similar question to the Florida Supreme Court:
"Whether a debtor who elects not to claim a homestead exemption and indicates an intent to surrender the property is entitled to the additional exemptions for personal property under Fla. Stat. § 222.25(4)."
The issue in that case is similar, although not identical. In Dumoulin, the debtor indicated his intent to surrender his residence; in this case, he wants to keep it. The Florida Supreme court has not issued an opinion in Dumoulin, although oral argument has been concluded, and an opinion is therefore expected any time. The docket sheet can be accessed on the Florida Supreme Court's website (Case No. SC09-751), and the briefs, including an Amicus brief filed by the Business Law Section of the Florida Bar arguing that the debtor should be allowed the wildcard exemption under the facts of Dumoulin, can be accessed here.

A resolution of the issue turns on the meaning of 'receives the benefits' in the statute. The trustee argues that this phrase should be construed broadly to mean that anyone who owns a homestead and claims the homestead exemption for tax purposes and for asset protection purposes outside of bankruptcy, or otherwise treats the property as a homestead, has received the benefits of the homestead exemption and is therefore not entitled to the wildcard exemption, without regard to the debtor's intentions in the bankruptcy case. The debtor argues for a narrow construction of the phrase to mean that inasmuch as the debtor does not specifically schedule the property as exempt under the Florida Constitution in his bankruptcy case, the trustee may take it, and therefore the debtor is not receiving the benefits of the homestead exemption. There is a split among Florida bankruptcy courts on this issue, with substantial authority for both arguments. See In re Abbott, 408 B.R. 903 (Bkrtcy. S.D. Fla. 2009) for a brief survey of cases.

The Iuliano court refused to wait for the Florida Supreme Court, noting that the resolution of the certified question in Dumoulin would not be dispositive of the issue in Iuliano, inasmuch as the court's finding that the debtor can claim the wildcard exemption in a case where he is surrendering his homestead would not apply to a debtor who was keeping his homestead. Additionally, the Iuliano court found that the bankruptcy courts could not sit around and wait indefinitely for the Florida Supreme court, suggesting that an opinion in Dumoulin is overdue.

The Court chose to construe the statute narrowly, allowing the debtor to claim the wildcard exemption despite his stated intention to keep his residence. The Court reasoned that in general, exemptions are to be construed liberally in favor of the party claiming the exemption, and that where there is no equity in a property to exempt, the debtor does not receive the benefits of the homestead exemption. Therefore, the trustee's objection to the debtor's wildcard exemption was overruled. Incidentally, the court held that the debtor's declining to claim the homestead exemption subjected the property to the possibility of administration by the trustee as part of the estate, but that the trustee cannot liquidate property when doing so would have no benefit to the estate, and therefore, since the debtor has no equity in the property that would accrue to the estate through a sale of the property, the trustee must abandon the property. The court did give the trustee time to find a buyer for the property that would result in satisfaction of the mortgage and additional proceeds to the estate, but not surprisingly, no such buyer could be found.

Obviously this case has broad implications for debtors, as the circumstances here are all too common. Readers can expect to see more discussion of the issue on this blog to the extent this case, or one similar, is appealed. Furthermore, we await the decision of the Florida Supreme Court in Dumoulin, and will report on it when it is delivered.

Monday, January 31, 2011

Florida Court Rules Commissions are Wages for Purposes of State Garnishment Statute

Florida's Fourth District Court of Appeals recently ruled in Baker v. Storfer, --- So.3d ----, 2011 WL 222324 (Fla. 4th DCA 2011) that commissions are 'wages,' for purposes of Section 77.0305, Florida Statutes, and are therefore subject to a continuing Writ of Garnishment. Baker obtained a judgment against Storfer and attempted to collect the judgment by applying to the court for a Continuing Writ of Garnishment under Section 77.0305, which provides:
"Notwithstanding any other provision of this chapter, if salary or wages are to be garnished to satisfy a judgment, the court shall issue a continuing writ of garnishment to the judgment debtor's employer which provides for the periodic payment of a portion of the salary or wages of the judgment debtor as the salary or wages become due until the judgment is satisfied or until otherwise provided by court order."
The statute is useful to creditors because it requires the garnishee (the Defendant/debtor's employer) to make payments to the Plaintiff/creditor from each future paycheck (up to the maximum allowed by the Federal wage garnishment restrictions found in 15 U.S.C. § 1673), upon the service of a single Writ. The continuing Writ remains in effect until the judgment is paid in full, as opposed to an individual Writ of Garnishment under Section 77.04, Florida Statutes, which only requires that:
"the garnishee...serve an answer to it on plaintiff within 20 days after service stating whether he or she is indebted to defendant at the time of the answer, or was indebted at the time of service of the writ, plus sufficient time not to exceed 1 business day for the garnishee to act expeditiously on the writ, or at any time between such times."
Note the difference: the individual Writ only references amounts due at the time the answer is filed or before; the continuing Writ references amounts due in the future as well. The question in this case was whether the debtor's commissions constituted wages for the purposes of the garnishment statute. If so, Section 77.0305 would require the employer to make future commission payments to the creditor. If not, the employer would only be required to pay to the creditor what was due at the time of the answer for prior commissions. The trial court found that the commissions did not constitute wages, and therefore the garnishment action would not reach future commissions. The appeals court disagreed. It held that while discretionary distributions from closely held corporations, draws, expense reimbursements, and capital account disbursements do not constitute wages, commissions do. The court employed a plain meaning argument, finding that commissions are paid for labor or services and are therefore wages.

On the one hand, this is a victory for creditors. Had the court found that the debtor's commissions were not wages, Section 77.0305 would not have applied, and the creditor would have been forced to serve individual Writs of Garnishment in advance of each and every commission payment due to the debtor. This would be extremely costly, and crafty debtors could likely alter the timing of the commission payments and thereby avoid losing their commissions. On the other hand, since the debtor's commission payments are wages, they are subject to the head of household exemption found in Section 222.11, Florida Statutes. See Refco, Inc. v. Sarimiento, 487 So. 2d 75 (Fla. 3d DCA 1986). The Baker court did not discuss whether the debtor in that case was head of household; if so, the creditor would recover nothing in the garnishment, despite the court's ruling.