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.

The Availability of Florida's Tenancy by the Entireties Exemption to Nonresidents for Property Located in Florida

Recently, a client who resides in another state inquired into its ability to claim a tenancy by the entireties exemption for property owned jointly by the client and the client's spouse, in order to protect the property from the claim of a creditor of the client individually. The research revealed a paucity of caselaw resolving the question to my satisfaction, thus making for an interesting topic for this blog.  A brief discussion of the questions follows.

Nature of the Entireties Exemption

Property held as a tenancy by the entireties possesses six characteristics: (1) unity of possession (joint ownership and control); (2) unity of interest (the interests in the property must be identical); (3) unity of title (the interests must have originated in the same instrument); (4) unity of time (the interests must have commenced simultaneously); (5) survivorship; and (6) unity of marriage (the parties must have been married at the time the property became titled in their joint names). Beal Bank, SSB v. Almand & Assoc., 780 So. 2d 45, 53 (Fla. 2001). When a married couple holds property as tenants by the entireties, each spouse is said to hold it “per tout,” meaning that each spouse holds the “whole or the entirety, and not a share, moiety, or divisible part.” Bailey v. Smith, 103 So. 833, 834 (Fla. 1925). Thus, property held by husband and wife as tenants by the entireties belongs to neither spouse individually, but each spouse is seized of the whole. Therefore, when property is held as a tenancy by the entireties, only the creditors of both the husband and the wife, jointly, may attach the property; it is not divisible on behalf of one spouse alone, and therefore it cannot be reached to satisfy the obligation of only one spouse. See Winters v. Parks, 91 So. 2d 649, 651 (Fla. 1956).

The tenancy by the entireties form of ownership exists with respect to real property and personal property. With respect to real property, “[a] conveyance to spouses as husband and wife creates an estate by the entirety in the absence of express language showing a contrary intent.” In re Estate of Suggs, 405 So. 2d 1360, 1361 (Fla. 5th DCA 1981). With respect to a bank account, “as between the debtor and a third-party creditor (other than the financial institution into which the deposits have been made), if the signature card of the account does not expressly disclaim the tenancy by the entireties form of ownership, a presumption arises that a bank account titled in the names of both spouses is held as a tenancy by the entireties as long as the account is established by husband and wife in accordance with the unities of possession, interest, title, and time and with right of survivorship.” Beal Bank, SSB, 780 So. 2d at 54. As such, when these elements are satisfied, the burden of proof is on the creditor to prove by a preponderance of the evidence that a tenancy by the entireties does not exist. Id.

All proceeds from the sale or rental of entireties property are also entireties property. Passalino v. Protective Group Sec., Inc., 886 So. 2d 295, 297 (Fla. 4th DCA 2004)

Application of the Entireties Exemption to Nonresidents

The tenancy by the entireties exemption is a creature of common law, not set forth in the Florida Constitution or in the Florida Statutes, and therefore not subject to their limitation to Florida residents. Beal Bank, SSB, 780 So. 2d at 53; In re Cauley, 374 B.R. 311, 316 (Bankr. M.D. Fla. 2007). The Cauley court reasoned:

“[The Florida Statutes do] not apply to tenancy by the entirety property and do[] not therefore preclude a non-resident of Florida from claiming property located in Florida as exempt as tenancy by the entirety. Additionally, the Court has not found any authority to support the proposition that an individual, claiming Florida real property exempt as tenancy by the entireties must be a resident of Florida. The Court finds that no such requirement exists.”

Accord Republic Credit Corp. I v. Upshaw, 10 So. 3d 1103 (Fla. 4th DCA 2009) (finding that judgment debtors could not claim a tenancy by the entireties exemption in Florida litigation for proceeds from the sale of real property located in California, because California law does not recognize such an exemption). This reasoning is consistent with the general principal that with respect to real property, the situs of the property dictates the laws that are applicable to it. See Connor v. Elliott, 85 So. 164 (Fla. 1920) (“So far as real estate or immovable property is concerned, the laws of the state where it is situated furnish the rules which govern its descent, alienation, and transfer, the construction, validity, and effect of conveyances thereof, and the capacity of the parties to such contracts or conveyances, as well as their rights under the same”).

Conversely, with respect to personal property, the domicile of the owners of the property dictates the laws that are applicable to it. See In re Estate of Siegel, 350 So.2d 89 (Fla. 4th DCA 1977). That means that if the proceeds from the sale of entireties property in Florida are removed to a jurisdiction that does not recognize the tenancy by the entireties form of ownership, the proceeds will lose their entireties protection. But it also means that they will not be subject to garnishment in Florida. See APR Energy, LLC v. Pakistan Power Resources, LLC, 2009 WL 425975 (M. D. Fla. Feb. 20, 2009); Skulas v. Loiselle, No. 09-60096-CIV, 2010 WL 1790439 (S.D. Fla. April 9, 2010).

Conclusion

Based upon the foregoing authority, it appears that Florida real property owned by a married couple as tenants by the entireties is not subject to execution to satisfy a debt owed by one spouse, no matter where the couple resides. Furthermore, any proceeds from the sale of said property will likely be protected by the tenancy by the entireties as long as the proceeds are located in Florida, and unreachable through a Florida garnishment once they are removed.

The Life of a Judgment (Lien) in Florida

A recent case decided by the Fifth District Court of Appeals discusses the statutory framework for perfecting and maintaining a judgment lien on real property in Florida. The opinion, Sun Glow Const., Inc. v. Cypress Recovery Corp., --- So. 3d ----, 2010 WL 4536803 (Fla. 5th DCA 2010) is found here.

According to Fla. Stat. § 55.10, a judgment becomes a lien on real property in any county when a certified copy of it is recorded in the official records or judgment lien record of that county and operates as a lien for an initial period of 10 years from the date of the recording; and the judgment creditor may extend the 10 year period by complying with Fla. Stat. § 55.10(2):

"The lien provided for in subsection (1) or an extension of that lien as provided by this subsection may be extended for an additional period of 10 years, subject to the limitation in subsection (3), by rerecording a certified copy of the judgment, order, or decree prior to the expiration of the lien or the expiration of the extended lien and by simultaneously recording an affidavit with the current address of the person who has a lien as a result of the judgment, order, or decree. The extension shall be effective from the date the certified copy of the judgment, order, or decree is rerecorded."

The question presented in the Sun Glow Construction case was whether the judgment creditor could rerecord its judgment after the expiration of the initial 10 year period, and thereby establish a new lien on real property. Because the statute doesn't specifically foreclose this possibility, the court allowed the judgment creditor to do so. According to the court, the only effect of the judgment creditor's failure to rerecord the judgment prior to the expiration of the initial 10 year period was to cause the judgment creditor to lose the priority over subsequent lienholders created by the earlier recording and to establish priority only over liens established after the later recording.

This ruling discusses the ability to maintain a judgment lien on real property for the life of the judgment, but it does not discuss the life of the judgment itself. That matter is contained in a separate statute- Fla. Stat. § 95.11(1), which sets a 20 year statute of limitations on judgment enforcement actions. But the analysis doesn't end there. There is caselaw allowing a judgment creditor to file an action on a judgment prior to its expiration and actually renew the judgment, by way of a new judgment, good for another 20 years. See Petersen v. Whitson, 14 So. 3d 300 (Fla. 2d DCA 2009). And presumably, based on the Petersen court's rationale, when the second judgment is set to lapse, the judgment creditor may file another new suit and obtain a third judgment (and so on).

Based on these statutes and cases, read together, a judgment in Florida can essentially be good forever. Likewise, a judgment lien can be good forever, limited by its recording only in terms of its priority. This analysis applies equally to judgments originating in Florida, judgments entered in other states recorded in Florida pursuant to the Uniform Enforcement of Foreign Judgments Act, see Haigh v. Planning Bd. of Town of Medfield, 940 So. 2d 1230 (Fla. 5th DCA 2006), and judgments entered in foreign countries recorded in Florida pursuant to the Uniform Foreign Money Judgments Recognition Act, see Nadd v. Le Credit Lyonnais, S.A., 804 So. 2d 1226 (Fla. 2001).

Upcoming Telephonic Seminar: Judgment and Fair Debt Collection Practices

Jorge Abril is scheduled to speak the afternoon of November 10 at a telephonic seminar sponsored by the Rossdale Group, entitled Judgment and Fair Debt Collection Practices. "This live telephonic seminar describes the laws governing the process [of judgment and debt collection] and outlines the best practices to avoid lawsuits from debtors. Our nationally recognized faculty will cover actions available to consumers and strategies for attorneys representing consumers. Our faculty will also discuss judgment collections, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, ethical rules, trust account procedures, other regulatory issues, and provide an opportunity for the audience to ask live questions." Jorge's lecture focuses on the following topics:

• Judgment Liens and Perfection of Liens
• Execution and Dormancy of Judgments
• Garnishment of Wages
• Compliance with Garnishment Laws
• Bank Accounts
• Obtaining Other Assets
• Domesticating Foreign Judgments

A complete agenda, including registration instructions, can be found here. We have prepared a slideshow outlining Jorge's discussion.

Seminar

View more presentations from Jorge M. Abril, P.A..

Recent Florida Appeals Court Decision Construes Assignment for the Benefit of Creditors Statute

In Moffatt & Nichol, Inc. v. BEA International Corp., --- So.3d ---- (Fla. 3d DCA 2010), decided last week, Florida's Third District Court of Appeal held that Florida's Assignment for the Benefit of Creditors statute, Chapter 727, Florida Statutes, precludes a creditor from bringing an action against a third party under the Uniform Fraudulent Transfer Act when an assignment has been filed. The case highlights recent amendments to the assignment statute aligning it with Federal Bankruptcy law. There have been few reported cases discussing the assignment statute, so this case presents a rare opportunity for practitioners to educate themselves on this apparently underutilized tool.

Chapter 727 allows a debtor to assign its assets to an assignee of its choosing for the purposes of liquidating the assets and satisfying the claims of its creditors from the proceeds, similar to Federal Bankruptcy law. A written assignment is executed between the assignor and the assignee in the statutory form, listing all known creditors and describing their claims, and a proceeding is commenced (in State court), where creditor claims, with certain exceptions, must be filed or be forever barred. The proceeding acts as a stay against levy, execution, attachment or the like in respect of any judgment against assets of the estate in the possession, custody, or control of the assignee, similar to the Bankruptcy Code's automatic stay provision, with the exception that unlike the Bankruptcy Code, the assignment statute does not stay foreclosure proceedings based upon a consensual lien. The court before which the assignment is pending is given numerous powers under Fla. Stat. § 727.109, including the power to adjudicate claim priority in accordance with the statute and to hear actions brought by the assignee to require third parties to turn over assets belonging to the estate and to avoid fraudulent conveyances.

Which brings us to the instant case. A judgment creditor of the assignor sought, in a case separate from the assignment action, proceedings supplementary to execution to implead third parties alleged to have received fraudulent transfers from the assignor. Under Chapter 726, Florida Statutes, Florida's Uniform Fraudulent Transfer Act, a debtor may not transfer assets to third parties with the actual intent to hinder, delay, or defraud current or known future creditors or without receiving reasonably equivalent value when the debtor knows it is insolvent or will soon become insolvent.

The creditor in this case argued that it should be allowed to proceed against third parties alleged to have received fraudulent transfers despite the existence of the assignment proceeding, because the assets sought in the third party action were not assets of the estate. The court disagreed. According to amendments to the assignment statute passed in 2007, "asset" as defined under Fla. Stat. § 727.103(1), includes "claims and causes of action, whether arising by contract or in tort, wherever located, and by whomever held at the date of the assignment." The court held based upon this definition that once an assignment proceeding is instituted in which all assets are assigned, only the assignee has standing to pursue fraudulent transfer claims on behalf of the estate. To hold otherwise, reasoned the court, would allow one creditor to improperly 'cut in line', in contravention of the spirit of the assignment statute. Analogy was drawn to Bankruptcy law, under which the trustee has exclusive authority to prosecute avoidance actions on behalf of the estate and its creditors.

In some instances, an assignment for the benefit of creditors provides an economical alternative to business bankruptcy, and businesses considering bankruptcy should explore this and all other options. Similarly, creditor's attorneys should familiarize themselves with their clients' rights under the assignment statute, as reorganization becomes necessary for more and more small businesses in this economy.