Judgment Collection Defense
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A. Introduction
Efforts at collecting judgments obtained in the past 10-15 years appear to have increased significantly. In particular, judgment creditors have been seeking to garnish the checking and savings accounts of judgment creditors and to obtain turnover orders with turnover receivers. There are defenses to these collection mechanisms, some based on the invalidity of the underlying judgment and some based on the procedure utilized in seeking collection. In addition, new procedural rules governing garnishment and turnover are required to be issued by the end of next year.
B. Garnishment
Judgment creditors seek writs of garnishment under Tex. Civ. Prac. & Rem. Code § 63.001(3) which permit the issuance of such writs when “a plaintiff has a valid, subsisting judgment and makes an affidavit stating that, within the plaintiff’s personal knowledge, the defendant does not possess property in Texas subject to execution sufficient to satisfy the judgment.” Rules 657-679 govern the process for obtaining writs of garnishment, challenges to such writs and the ultimate resolution of garnishment proceedings.[1]
The current process is as follows: A judgment creditor applies ex parte to the court that issued the underlying judgment for the issuance of a writ of garnishment. Tex.R.Civ.P. 658. The writ should then be served by a sheriff or constable on the garnishee, usually a financial institution. Tex.R.Civ.P. 662 and 663. The applicant should then send “as soon as practicable” a specific notice of the garnishment to the judgment debtor either by service of citation or as provided by Rule 21a. Tex.R.Civ.P. 663a.
Once the judgment debtor has received notice,[2]she can seek to obtain the release the funds frozen by the writ either by seeking replevy through the filing of a bond (an unlikely prospect for our clients)[3] or by filing a motion to dissolve the writ of garnishment. Tex.R.Civ.P. 664 and 664a. The filing of the motion stays any further proceedings under the writ, and the hearing on a motion to dissolve a writ is supposed to be heard within 10 days.[4] Tex.R.Civ.P. 664a. Failure to hold a hearing on a motion to dissolve writ of garnishment filed before entry of judgment is reversible error, because the filing of the motion is supposed to stay all further proceedings. Wease v. Bank of America, 2015 WL 4051974, *3 (Tex. App. – Dallas 2015, no pet.).[5]
Typically, banks also file answers which admit or deny that the judgment debtor has money on file with them and then work out agreed judgments. Tex.R.Civ.P. 665 and 668. When the bank reports that the judgment debtor has no money on deposit, the garnishment proceeding is usually non-suited. When an agreed judgment is entered, the bank usually is paid some sum of money as attorney’s fees from the frozen funds. Tex.R.Civ.P. 677.
1. Garnishment proceedings must strictly comply with statutes and rules.
The Texas Supreme Court has held that garnishment proceedings “cannot be sustained unless they are in strict compliance with statutory requirements.” Beggs v. Fite, 106 S.W.2d 1039, 1042 (Tex. 1937). The Texas Rules of Civil Procedure have the same force and effect as statutes. In re City of Georgetown, 53 S.W.3d 328, 332 (Tex. 2001). Thus, the courts have found that failing to comply with the garnishment statutes or rules provide a basis for dissolving the writ of garnishment. Strobach v. WesTex Community Credit Union, 621 S.W.3d 856, 870 (Tex. App. – El Paso 2021, pet. pending); BBX Operating, LLC v. American Fluorite, Inc., 2021 WL 3196513, *2 (Tex. App. – Beaumont 2021, no pet. history); Aycock v. EECU, 510 S.W.3d 636, 638 (Tex. App. – El Paso 2016, no pet.); Pallida, LLC v. Uballe, 2018 WL 6816680, *1 (Tex. App. – Austin 2018, no pet.); In re Tasty Moments, LLC, 2011 Tex. App. LEXIS 2377, *13-20 (Tex. App. – Corpus Christi 2011, orig. proc.); Lease Finance Group, LLC v. Childers, 310 S.W.3d 120, 124-128 (Tex. App. – Fort Worth 2010, no pet.); Zeecon Wireless Internet, LLC v. American Bank of Texas, N.A., 305 S.W.3d 813, 816-820 (Tex. App. – Austin 2010, no pet.); Abdullah v. State of Texas, 211 S.W.3d 938, 942-943 (Tex. App. – Texarkana 2007, no pet.); Requena v. Salomon Smith Barney, Inc., 2002 WL 356696, *3 (Tex. App. – Houston [1st Dist.] 2002, no pet.); Mendoza v. Fruia Investments, Inc., 962 S.W.2d 650, 651-652 (Tex. App. – Corpus Christi 1998, no pet.); Walnut Equipment Leasing v. J-V Dirt & Loam, 907 S.W.2d 912, 915 (Tex. App. – Austin 1995, writ denied).
As observed by one appellate court, “[i]t has long been the law of the State that if a judgment-creditor intends to avail himself of the State’s aid in effecting a deprivation of property, he must strictly comply with the pertinent rules.” Hering v. Norbanco Austin I, Ltd., 735 S.W.2d 638, 641 (Tex. App. – Austin 1987, writ denied). Likewise, another court has found that a judgment of garnishment should be set aside if there was an absence of strict compliance with Rule 663a. Childers, 310 S.W.3d at 123-128.
2. Burden of Proof at Hearing on Motion to Dissolve Writ of Garnishment
While the judgment debtor has the burden of pleading some error in the issuance or service of the writ, the burden of proof on the motion to dissolve is actually shifted to the judgment creditor/applicant. “Rule 664a provides a writ [of garnishment] shall be dissolved unless at the hearing on the motion to dissolve the garnishor proves the grounds relied upon for its issuance. . . . Since the garnishor has the burden of proof, any failure on its part to carry that burden requires the trial court to dissolve the writ.” Cadle Company v. Davis, 2010 WL 5545389, *5 (Tex. App. – San Antonio 2010, no pet.)(emphasis added); Thompson v. Harco National Insurance Company, 997 S.W.2d 607, 612 (Tex. App. – Dallas 1998, pet. denied). This means that the garnishor/applicant/judgment creditor has the burden of establishing the elements of CPRC § 63.001(3): (a) it has a valid, subsisting judgment, and (b) the judgment debtor, to the knowledge of the garnishor, does not possess property in the state subject to execution sufficient to satisfy the judgment. Id.
Practice Note: To have much chance of success, a judgment debtor needs to file a motion to dissolve as quickly as possible to prevent the passage of money from the bank to the judgment creditor. In addition, since the judgment debtor is not technically a party even though she has the right to file a motion for new trial or an appeal, Childers, 310 S.W.3d at 123-128, and Williamson v. State, 2010 WL 4644502, *1-2 (Tex. App. – Amarillo 2010, no pet.), notice of the entry of judgment need not be given to a judgment debtor. This means the judgment debtor may not know when judgment is rendered and may waive the right to file a motion for new trial or appeal.
3. Invalid judgment
The best attack on a writ of garnishment is an attack on the validity of the underlying judgment. If the underlying judgment is not valid, then there is no basis for issuing a writ of garnishment under CPRC § 63.001(3).[6] Since post-judgment writs of garnishment usually issue well after the underlying judgment is final, it is usually too late to file a motion for new trial or an appeal. Nevertheless, a judgment debtor has at least 2 means of attacking the validity of an underlying judgment, a petition for bill of review within 4 years and a collateral attack after 4 years. In my experience, these attacks work best when there is a serious question about service or notice of trial in the underlying case.[7]
a. Bill of Review
“A bill of review is an equitable proceeding brought by a party seeking to set aside a prior judgment that is no longer subject to challenge by a motion for new trial or appeal.” Caldwell v. Barnes, 154 S.W.3d 93, 96 (Tex.2004) (per curiam). Ordinarily, bill-of-review plaintiffs must plead and prove “(1) a meritorious defense to the underlying cause of action, (2) which the plaintiffs were prevented from making by the fraud, accident or wrongful act of the opposing party or official mistake, (3) unmixed with any fault or negligence on their own part.” Id.
Bill-of-review plaintiffs who claim they were not served need not present a meritorious defense or evidence of fraud, accident, or mistake. Id. at 96–97. Furthermore, plaintiffs who prove non-service thereby conclusively establish their lack of fault or negligence. Id. at 97. Thus, proof of non-service conclusively establishes the “only element that bill of review plaintiffs are required to prove when they are asserting lack of service of process as their only defense.” Id.
The bill-of-review plaintiff bears the burden of proving that he was not served with process. Id. Because a bill of review constitutes a direct attack on a judgment, no presumption applies in favor of the valid issuance, service, or return of the citation. Min v. Avila, 991 S.W.2d 495, 499 (Tex. App .- Houston [1st Dist.] 1999, no pet.). A “bill-of-review petitioner may therefore demonstrate that the judgment is invalid for lack of proper service of process, whether or not the face of the record discloses the invalidity and despite recitals of proper service in the judgment under attack.” Id. at 499–500.
Nonetheless, a plaintiff's bare denial of service is inadequate to carry her burden in the face of a valid return of service. Id. at 501. In order to overcome a prima facie showing of service of process established by the recitals in the officer's return, the plaintiff must come forward with “evidence of supporting facts and circumstances” to corroborate his denial. Id. This evidence may be circumstantial and need not consist of the testimony of other witnesses. See id. at 501, 503. Indeed, the court in Min v. Avila, 991 S.W.2d 495 (Tex. App.-Houston [1st Dist.] 1999, no pet.), observed that the plaintiff's own testimony may serve as corroborating evidence in this regard: “The prohibition against considering the challenger's evidence applies only if the evidence does not rise above mere denial of service, or mere denial of service buttressed only by the serving officer's inability to remember serving that particular party.” Id. at 503. Whatever the source of the evidence, the definitive test “is whether it demonstrates independent facts and circumstances that support, and thus corroborate, the challenger's claim.” Id. For example, the bill-of-review plaintiff in Min corroborated his denial of service with his own testimony that he had moved away from the apartment where he purportedly was served, that he had discontinued electrical service there, and that another family was living there at the time of the purported service. Id.
b. Collateral Attack
A void judgment may be attacked collaterally at any time. PNS Stores, Inc. v. Rivera, 379 S.W.3d 267, 271 (Tex. 2012). A judgment rendered without proper service or notice can be collaterally attacked as a void judgment. Id.; Cade v. Stone, 2013 WL 3009853, *7 (Tex. App. – Corpus Christi 2013, no pet.)(“Stone is correct that the issue of lack of notice, being a challenge to personal jurisdiction of the trial court that rendered the original judgment, may be raised via collateral attack.”); Sozanski v. Plesh, 394 S.W.3d 601, 604 (Tex. App. – Houston [1st Dist.] 2012, no pet.)(“if the record establishes that the plaintiff was not served, the judgment is void.”).
4. Improper or untimely notice of garnishment
As a part of the process of applying for a writ of garnishment, Rule 663a[8]also requires the applicant to serve a notice of rights with specified language to the judgment debtor “in any manner prescribed for service of citation or as provided in Rule 21a with a copy of the writ of garnishment, the application, accompanying affidavits and orders of the court as soon as practicablefollowing the service of the writ.” (emphasis added) Rule 21a permits service of materials not filed electronically, such as a writ of garnishment issued by this Court, either by commercial delivery service, e-mail, fax or certified mail to the party. Tex.R.Civ.P. 21a(a)(2). It further provides the party or attorney providing service in this manner to “certify compliance with this rule in writing over signature and on the filed instrument.” Tex.R.Civ.P. 21a(e).
a. Timing and attachments
Courts have held that giving proper notice under Rule 663a 15 days or more after the writ of garnishment was invalid, because the notice was not given “as soon as practicable.” Arriaga v. Jess Enterprises, 2014 WL 1875917, *2 (N.D. Tex. 2014)(applying Texas law); Childers, 310 S.W.3d at 127; Requena, 2002 WL 356696, *4. Likewise, one court found that the failure to provide a date for service demonstrates that notice was not given “as soon as practicable.” Childers, 310 S.W.3d at 127. More recently, the Fort Worth Court of Appeals found that an 18-day delay in providing this notice was acceptable. Carlson v. Schellhammer, 2016 WL 6648754, *5-6 (Tex. App. – Fort Worth 2016, no pet.).
Another court has found that the giving of the form notice under Rule 663a is still not adequate if it was not accompanied by copies of the writ that was issued and the application for the writ. Zeecon, 305 S.W.3d at 817-818. In short, the failure to send the notice more than 14 days after the writ was served and the failure to attach copies of the application, its attachments and the writ are enough to dissolve the writ.
NOTE: One judgment creditor has argued that a judgment debtor lacks standing to challenge a garnishment judgment unless she intervenes before the entry of judgment. Barrow v. Wells Fargo Bank, N.A., 587 S.W.3d 137 (Tex. App. – Fort Worth 2019, no pet.). At least when lack of notice is raised as a ground for contesting the writ of garnishment, the Fort Worth court of appeals found that a judgment debtor had standing to file a motion for new trial and an appeal. Id. at 140-141.
b. Returned certified mail
Rule 663a permits its required notice to be given by any means permitted by Rule 21a, and that includes service by certified mail. What happens when the judgment creditor/garnishor attempts to give Rule 663a notice via certified mail as permitted by Rule, but the notice is returned undelivered? While mailing an envelope with proper postage raises a presumption that the document was served in compliance with Tex.R.Civ.P. 21a, Cliff v. Huggins, 724 S.W.2d 778, 780 (Tex. 1987), it may not establish adequate service where the envelope is returned.
Specifically, assume there is evidence the first mailing was never received in that (a) the letter was returned to the sender with the notation “UNCLAIMED” and (b) the judgment debtor denied actual receipt. Arguably, such evidence rebuts any presumption of service arising from the mailing of such notice by certified mail on May 8th. In re E.A., 287 S.W.3d 1, 5 (Tex. 2009), citing to Huggins, 724 S.W.2d at 780 (“The presumption of service under Rule 21a . . . vanishes when opposing evidence is introduced that [a document] was not received.”); Approximately $14,980.00 v. State, 261 S.W.3d 182, 189 (Tex. App. – Houston [14th Dist.] 2008, no pet.), citing to Etheridge v. Hidden Valley Airpark Association, 169 S.W.3d 378, 382 (Tex. App. – Fort Worth 2005, pet. denied)(“Notice sent by certified mail and returned ‘unclaimed’ does not provide the notice required by Rule 21a.”). This could mean that no service of the Rule 663a notice was given.[9]
c. Improper placement of notice
Rule 663a actually provides that a notice of rights should be placed “on the face of the writ.” In some cases, the Rule 663a notice is nowhere to be found on the writ (and then given by the judgment creditor’s counsel on a separate pleading or letter) or is on a subsequent page of the writ. The absence of notice on the face of the writ demonstrates a lack of strict compliance and could lead to dissolution of the writ. Counsel for the judgment creditor may argue that this mistake is a mistake of the court and his client should not suffer as a result. I argue that it is the duty of the applicant to assure strict compliance, and that means the judgment creditor should have moved for the issuance of an alias writ with the notice on the face of the writ or leave to tape a copy of the required notice to the writ.
NOTE: Other possible violations include the failure to file a certificate of service in compliance with Rule 21a, giving the notice prematurely, and false certification of service.
5. Service of the writ of garnishment by a private process server is invalid.
Rule 662 provides that writs of garnishment may be delivered to a sheriff or constable or be delivered to the plaintiff or his attorney “for that purpose,” and Rule 663 provides that writs of garnishment may executed by a sheriff or constable. Based on these rules, the courts have uniformly held that a sheriff or constable must deliver the writ of garnishment to the garnishee and that private process servers are prohibited from doing so. American Bank v. Dryden, 2004 WL 1901425, *2 (Tex. App. – Corpus Christi 2004, no pet.); Requena v. Salomon Smith Barney, Inc., 2002 WL 356696, *3 (Tex. App. – Houston [1st Dist.] 2002, no pet.); Moody National Bank v. Riebschlager, 946 S.W.2d 521, 523 n. 1 (Tex. App. – Houston [14thDist.] 1997, writ denied); Lawyers Civil Process, Inc. v. State, 690 S.W.2d 939, 944 (Tex. App. – Dallas 1985, no writ). When a writ of garnishment is served by a private process server, the garnishor has not strictly complied with the rules, the court has not acquired jurisdiction over the funds and the writ of garnishment should be dissolved. Dryden, 2004 WL 1901425 at *2.
6. Money in account is exempt.
Many forms of public benefits are exempt from seizure. For example, under 31 C.F.R. § 212.1 et seq., banks are required to protect up to 2 months’ worth Social Security benefits from seizure in the account which received the benefits electronically from the U.S. Treasury. If there are additional funds in the account or they have been transferred to another account, Social Security benefits remain exempt from garnishment under 42 U.S.C. § 407(a). Philpott v. Essex County Welfare Board, 409 U.S. 413, 417 (1973)(“. . .§ 407 . . . imposes a broad bar against the use of any legal process to reach all social security benefits.”)(emphasis added). As another court found in construing this provision, “Congress saw fit to provide that . . . Social Security benefits . . . are exempt from execution, levy, attachment, garnishment, other legal process . . . .” Hambrick v. First Security Bank, 336 F.Supp.2d 890, 893 (W.D. Ark. 2004). In short, “Section 407 thus provides comprehensive protection that places payments of Social Security benefits beyond the reach of creditors.” Id. Similarly, unlike most forms of exempt income, Social Security benefits do not lose their exempt status under § 407 once they are deposited into an account. In re McFarland, 481 B.R. 242, 250 (Bank. S.D. Ga. 2012). Transferring Social Security funds into a savings account or retaining more than 2 months’ worth of benefits in the receiving account merely puts the burden on the judgment debtor to assert the exemption in response to the writ of garnishment.
Other forms of public benefits exempt from seizure include:
(a) workers’ compensation benefits, Tex. Labor Code § 408.201;
(b) unemployment compensation, Tex. Labor Code § 207.075(c);
(c) veterans’ benefits, 38 U.S.C. § 5301(a);[10]
(d) railroad retirement benefits, 45 U.S.C. § 231m(a); and
(e) FEMA benefits, 44 C.F.R. § 206.110(g).
Similarly, other funds are also exempt from seizure, such as funds held in an IRA or a pension under 29 U.S.C. § 1056(d) and Texas Prop. Code § 42.0021(a) and (g). Edgefield Holdings, LLC v. Gilbert, 2018 WL 4495566, *1, 7-8 (Tex. App. – Fort Worth 2018), judgment vacated pursuant to settlement, opinion not withdrawn, 2018 WL 5298360. This exemption covers both the assets held in a pension or IRA and also the payments from such plans. Tex. Prop. Code § 42.0021(e); see also Leibman v. Grand, 981 S.W.2d 426, 435-436 (Tex. App. – El Paso 1998, no writ)(this statute “provides an exemption for the assets held in, and payments from, qualified retirement plans”). Likewise, college savings plans are not subject to seizure. Tex. Prop. Code § 42.0021(a)(8)-(10).
In addition, alimony and child support are exempt from seizure. Tex. Prop. Code § 42.001(b)(3); In re D.M., 2001 WL 543675, *2 n. 10 (Tex. App. Houston [14th Dist.] 2001, no pet.)(“support received by the debtor for support of the debtor’s dependent is exempt from seizure”). Moreover, some insurance proceeds are exempt from seizure. Tex. Ins. Code § 1108.051. This statute, though, has been construed to cover only the proceeds from life, health and accident insurance contracts and annuities and not to cover the proceeds from casualty insurance. Rotella v. Cutting, 2011 WL 3836456, *2-3 (Tex. App. – Fort Worth 2011, no pet.).
In tracing exempt funds, several courts presume that non-exempt funds are spent first. In re Stokesberry, 2013 WL 4806426, *3 (S.D. Tex. Bank. 2013). In addition, Texas courts apply a liberal rule of construction to state exemptions statutes. Llanes v. Benge, 2009 WL 200916, *2 (Tex. App. – Corpus Christi 2009, no pet.); GE Capital Corporation v. ICO Inc., 230 S.W.3d 702, 706 (Tex. App. – Houston [14th Dist.] 2007, pet. denied); Lozano v. Lozano, 915 S.W.2d 63, 68 (Tex. App. – Houston [14th Dist.] 1998, pet. denied); In re Volpe, 943 F.2d 1451, 1453 (5th Cir. 1991).
NOTE: The current procedure for challenging writs of garnishment may deny constitutional due process, because judgment debtors are not informed of the exemptions that they may assert. A similar scheme in Georgia has been held to be unconstitutional for this very defect. Strickland v. Alexander, 2015 WL 5256836, 6-16 (N.D. Ga. 2015).
7. Money in account is not the property of the judgment debtor.
Money in joint accounts do not always belong to all of the account holders. A “joint account” as defined by Tex. Estates Code § 113.004(2) is one that is “payable on request to one or more of two or more parties, regardless of whether there is a right of survivorship.” Id. As such, if all of the account holders are currently alive, the funds in the joint account belong to the parties in proportion to the net contributions by each party to sums on deposit, absent clear and convincing contrary evidence. Tex. Estates Code § 113.102. If the judgment debtor made no contribution to the funds in the joint account subject to garnishment, she actually owns none of the money in the joint account. Bechem v. Reliant Energy Retail Services, LLC, 441 S.W.3d 839, 845 (Tex. App. – Houston [14th Dist.] 2014, no pet.); In re Marriage of McNelly, 2014 WL 2039855, *7 (Tex. App. – Houston [14th Dist.] 2014, pet. denied). This is true, even though she had the right to withdraw funds from that account. Id. Under these circumstances, the garnishor/judgment creditor is not entitled to garnish any of the funds in the joint account. Republic Bank Dallas v. National Bank of Daingerfield, 705 S.W.2d 310, 311-312 (Tex. App. – Texarkana 1986, no writ)(applying the predecessor statute, Tex. Probate Code § 438). See Enright v. Lehmann, 735 N.W.2d 326, 330-336 and n. 5 (Minn. 2007)(applying similar Minn. statute, court held that funds in joint account not deposited by judgment debtor were not subject to garnishment)(Note: Enright is cited affirmatively in Bechem).
NOTE: In addition, a bank that allows money belonging to other joint account holders may be liable for breach of contract for failing to use ordinary care in allowing disbursements from the account. Strobach, 621 S.W.3d at 870-877.
8. Raising a fact issue prevents the entry of a judgment agreed to by the judgment creditor and the bank.
Most commonly in garnishment proceedings, when the judgment debtor does not appear, the judgment creditor and the bank work out an agreed judgment after the bank answers. That can be prevented if you file an answer or motion that raises a factual issue about any matter set forth in the bank’s answer. For example, when the judgment debtor raises a factual issue as to who owns the money in a joint account, there is a need for a trial to determine that factual issue and a trial court errs in entering a judgment agreed to by the judgment creditor and the bank. Strobach, 621 S.W.3d at 869-870; Aycock v. EECU, 510 S.W.3d at 638-639; Bechem, 441 S.W.3d at 843-844.[11] This can be raised in an answer or by a motion to dissolve writ of garnishment under Rule 164a.
C. Turnover
The Texas turnover statute is a procedural device to assist judgment creditors in post-judgment collection. A judgment creditor is entitled to receive aid from a court in order to reach property to obtain satisfaction on a judgment “if the judgment debtor owns property . . . that: (1) cannot readily be attached or levied on by ordinary legal process; and (2) is not exempt from attachment, execution, or seizure for the satisfaction of liabilities.” CPRC § 31.002(a). Specifically, the statute empowers the courts to order a judgment debtor to turn over nonexempt property that is in the debtor’s possession or control. CPRC § 31.002(b)(1). It also allows a court to appoint a receiver “with the authority to take possession of the nonexempt property, sell it and pay the proceeds to the judgment creditor to satisfy the judgment.” CPRC § 31.002(b)(3).
To obtain turnover relief, the judgment creditor must establish through some evidentiary showing “that the conditions or section 31.002(a) . . . exist, namely, (1) the entity that is to receive aid must be a judgment creditor; (2) the court that would grant aid must be one of appropriate jurisdiction; (3) the aid to be given must be in order to reach property to obtain satisfaction on the judgment; and (4) the judgment debtor must own property . . . that: (a) cannot be readily attached or levied on by ordinary legal process and (b) is not exempt from attachment, execution, or seizure for the satisfaction of liabilities.” Tanner v. McCarthy, 274 S.W.3d 311, 322 (Tex. App. – Houston [1st Dist.] 2008, no pet.). Since June 15, 2017, however, judgment creditors no longer have to prove that the judgment debtor owns property that “cannot be readily attached or levied on by ordinary legal process[,]” because that element was deleted by the Legislature. Hamilton Metals, Inc. v. Global Metal Services, Ltd., 597 S.W.3d 870, 875-876 (Tex. App. – Houston 2019, pet. pending). While a trial court granting this relief need not identify the specific property subject to turnover in its order, such relief cannot be afforded unless the judgment creditor presents some evidence that the judgment debtor possesses some non-exempt property. Id. at 878-884; Gillet v. ZUPT, LLC, 2017 WL 716633, *3 (Tex. App. – Houston [14thDist.] 2017, no pet.); Fitzgerald v. Cadle Company, 2017 WL 4675513, *5 (Tex. App. – Tyler 2017, no pet.).[12]
Likewise, if there are competing claims of ownership to a property by the parties and/or a third party who is not a judgment debtor, a turnover order should not issue without an initial, separate proceeding to determine ownership. Van Dyke v. Littlemill Limited, 579 S.W.3d 639, 643-651 (Tex. App. – Houston [14th Dist.] 2019, no pet.); Alexander DuBose Jefferson & Townsend LLP v. Chevron Phillips Chemical Company LP, 2019 WL 1181730, *4-7 (Tex. App. – Beaumont 2019, pet. granted, judg. set aside, remanded by agrmt.). That effectively means “[a] judgment may be enforced against a non-party to the judgment only by bringing a separate suit alleging a basis for enforcing the judgment against the party.” In re Karlseng, 2014 WL 1018321, *3 (Tex. App. – Dallas 2014, orig. proc.).
1. Notice and hearing
Texas appellate courts have repeatedly ruled that no notice and hearing is required by the statute before or after a turnover order is issued. Goodman v. Compass Bank, 2016 WL 4142243, *4 (Tex. App. – Dallas 2016, no pet.); Black v. Schor, 443 S.W>3d 170, 181 (Tex. App. – Corpus Christi 2013, no pet.); Main Place Custom Homes, Inc. v. Honaker, 192 S.W.3d 604, 628 (Tex. App. – Fort Worth 2006, pet. denied); Thomas v. Thomas, 917 S.W.2d 425, 433-434 (Tex. App. – Waco 1996, no writ); Plaza Court, Ltd. v. West, 879 S.W.2d 271, 276 (Tex. App. – Houston [14th Dist.] 1994, no writ); Ross v. 3D Tower Limited, 824 S.W.2d 270, 272 (Tex. App. – Houston [14thDist.] 1992, no writ).
Many of these courts have dodged the constitutional due process question by observing that the trial court below had actually given a hearing before or after the turnover order was issued. Ex parte Johnson, 654 S.W.2d 415, 418 (Tex. 1983)(pre-issuance hearing); Thomas, 917 S.W.2d at 433-434; Ross, 824 S.W.2d at 271-272 (hearings before and after issuance).
In obiter dictum, though, the Texas Supreme Court and the Waco Court of Appeals argued that there was no denial of constitutional due process if no prior notice and opportunity to be heard was afforded to judgment debtors in turnover proceedings, citing to Endicott-Johnson Corp. v. Encyclopedia Press, Inc., 266 U.S. 285, 288-290 (1924) for the proposition that the judgment debtor was provided sufficient notice in the lawsuit that led to the underlying judgment. Johnson, 654 S.W.2d at 418 n. 1; Thomas, 917 S.W.2d at 433. Accord: Schulze, D.C. v. Cap CollectionJV7, 2004 WL 2108730, *6 (Tex. App. – Austin 2004, no pet.)(turnover statute is constitutional, relying on Endicott-Johnson); Sivley v. Beacom, 972 S.W.2d 850, 860-861 (Tex. App. – Tyler 1998)(turnover procedure not unconstitutional for failing to provide prior notice and opportunity to be heard on application); Pitts v. Dallas Nurseries Garden Center, Inc., 545 S.W.2d 34, 37 (Tex. Civ. App. – Texarkana 1976, no writ)(post-judgment garnishment scheme constitutional, relying upon Endicott-Johnson).
The Waco court of appeals, though, did recognize that constitutional due process would be compromised if there was no notice and opportunity to be heard before property can be divested. Id. at 434. In short, this court found that a post-turnover, pre-release hearing satisfied due process, and a number of courts have followed Thomas on this issue. Gore v. Scotland Golf, Inc., 2003 WL 22238916, *3 (Tex. App. – San Antonio 2003, no pet.); Trinity Financial Services, Inc. v. Crockett, 2000 WL 140505, *2 n. 3 (Tex. App. – Dallas 2000, no pet.)(“if no notice is provided before the turnover order is granted, notice and an opportunity for hearing are required before divesting the judgment debtor of the property”); Universe Life Insurance Company v. Giles, 982 S.W.2d 488, 493-494 (Tex. App. - Texarkana 1998, pet. denied).
Outside of Texas, though, a number of courts have found post-collection remedies that provided no notice and opportunity to be heard denied constitutional process. Dorwart v. Caraway, 966 P.2d 1121, 1141-1147 (Mont. 1998)(post-judgment execution procedure unconstitutional for failing to provide post-seizure hearing on exemptions); Hutchison v. Cox, 784 F.Supp. 1339, 1341-1344 (S.D. Ohio 1992)(same); Aacen v. San Juan Sheriff’s Department, 944 F.2d 691, 694-699 (10thCir. 1991)(post-judgment execution procedure gives inadequate notice of exemption rights); Finberg v. Sullivan, 634 F.2d 50, 56-62 (3rd Cir. 1980)(post-judgment garnishment proceeding unconstitutional for not providing notice of exemptions and a prompt exemption hearing). These cases find that the judgment debtor’s interest in applying statutory exemptions to avoid seizure of property is a property interest that should not be taken without adequate due process.
In practice, many trial courts in Texas require hearings with notice before turnover orders are issued. To the extent that procedure is applied, there is no claim of a constitutional due process violation. On the other hand, if a trial court does not maintain such a practice, this issue does arise. To avoid this constitutional issue, there should be notice and an opportunity for a hearing given to the judgment debtor and the notice should point out all available exemptions. Alternatively, notice of available exemptions and the means of enforcing those exemptions should be given after seizure. Unfortunately, there is no recognized procedure for disputing the entry of a turnover order other than a motion for new trial or appeal.
2. Exemptions
More exemptions are available in the context of a turnover order than with garnishment or attachment. For example, CPRC § 31.002(f) provides an exemption from turnover of “the proceeds of, or the disbursement of, property exempt under any statute, including Section 42.0021, Property Code.” Through this provision, the Legislature “. . . intended to specifically exempt [from the turnover statute] paychecks, retirement checks, individual retirement accounts and other such property exempt under the bankruptcy code.” Caulley v. Caulley, 806 S.W.2d 795, 798 (Tex. 1991). Accord: Goebel v. Brandley, 174 S.W.3d 359, 364-365 (Tex. App. – Houston [14th Dist.] 2005, pet. denied); Leibman v. Grand, 981 S.W.2d 426, 435 (Tex. App. – El Paso 1998, no pet.)(paychecks received by debtor are exempt from turnover under subsection (f)); Burns v. Miller, Hiersche, Martens & Hayward, P.C., 948 S.W.2d 317, 323 (Tex. App. – Dallas 1997, writ denied). In other words, once wages are paid to a judgment debtor, they become the proceeds (or disbursements) of exempt property and thereby not subject to turnover. Marrs v. Marrs, 401 S.W.3d 122, 124-127 (Tex. App. – Houston [14thDist.] 2011, no pet.). In addition, at least 2 courts of appeal have assumed that taking the proceeds of a paycheck from a judgment debtor’s bank account by way of a turnover order might violate section 31.002(f), but the more limited exemption for current wages did not preclude garnishment of those proceeds. Guiberson v. Bohnefeld, 1993 WL 175242, *1-2 (Tex. App. – Dallas 1993, no writ); American Express Travel Related Services v. Harris, 831 S.W.2d 531, 532-533 (Tex. App. – Houston [14th Dist.] 1992, no writ). In short, the use of the terms “proceeds” and “disbursements” should protect wages, retirement account withdrawals and pension payments from turnover, even after they are deposited into a bank account.[13]
NOTE: Several courts have held that the judgment debtor has the burden of proving that the property at risk of turnover is exempt and that it is not the judgment creditor’s burden to show that the property subject to turnover was not exempt. Robison, 2021 WL 2117936 at *5; Heilman, 2020 WL 6293446 at *6; Standley, 314 S.W.3d at 667; Goodman, 2016 WL 4142243 at *5.
3. Claims of Third Parties
The Texas Supreme Court has ruled that the substantive ownership rights of third parties cannot be determined in turnover receivership proceedings. Alexander Dubose Jefferson & Townsend LLP v. Chevron Phillips Chemical Company, L.P., 540 S.W.3d 577, 582 (Tex. 2018). Consequently, the ownership rights of third parties in funds held in joint accounts should not be decided in turnover receivership proceedings.
4. Finality
Many, if not most, of the turnover receiver appointment orders are issued by justice courts. In my practice, I generally file motions to return exempt funds in the justice court when a turnover receiver refuses to return what I think is exempt.[14] A number of times those motions have been denied in justice court. When I have attempted to appeal as of right, the justice court has refused to send the case on appeal, presumably for the reason that the order denying the motion is not final. See Rule 506.1 (“A party may appeal a judgment ….”). To get around recalcitrant justices of the peace, I have filed two discretionary appeals in county court by applying for a writ of certiorari under Rule 506.4. In both cases, the judgment creditor or the turnover receiver has sought to dismiss the writ under Rule 506.4(i) primarily by arguing that the underlying order was not final. See Rule 506.4(a)(“after final judgment in a case …, a party may apply … for a writ of certiorari”). In one case, I persuaded a county judge to rule my way and the other side settled. In the other, more recent case, the county judge dismissed the writ without explaining her reasoning. It is my guess that the potential lack of finality in an order denying a motion to return exempt funds is the basis for the denial of the writ. As such, seeking review of a justice court decision on the validity of a turnover seizure may turn on the issue of finality.
Initially, there is an argument that orders resolving post-judgment controversies over exemptions are final. The Texas Supreme Court has ruled that “what qualifies as ‘final’ in the turnover context necessarily diverges from the more traditional concept of finality [with final judgments].” Alexander Dubose Jefferson & Townsend LLP v. Chevron Phillips Chemical Company, L.P., 540 S.W.3d 577, 582 (Tex. 2018). A post-judgment turnover order that acts as a mandatory injunction is considered final and appealable. In re DEK-M Nationwide, Ltd., ___ S.W.3d ___, 2021 WL 2008965, *4 (Tex. App. – Houston [14th Dist.] May 20, 2021, orig. proc.), citing to Alexander Dubose Jefferson & Townsend LLP, 540 S.W.3d at 582. A post-judgment turnover order has this effect when it resolves property rights and imposes obligations on the judgment creditor or interested third parties. In re DEK-M Nationwide, 2021 WL 2008965 at *4, citing to Jack M. Sanders Family Limited Partnership v. Jack T. Fridholm Revocable Living Trust, 434 S.W.3d 236, 242 (Tex. App. – Houston [14th Dist.] 2014, no pet.). Likewise, a post-judgment order also meets this test of finality if it imposes obligations in addition to or in excess of those in the judgment, provided that the order disposes of all pending issues and parties. In re DEK-M Nationwide, 2021 WL 2008965 at *4, citing to McFaddin v. Broadway Coffeehouse, LLC, 539 S.W.3d 278, 284 (Tex. 2018). Similarly, orders signed in the course of a receivership proceedings may be appealed if they decide discrete issues that adjudicate substantial rights, but they are interlocutory and not appealable if they merely lead to further hearings on the issue. Mitchell v. Turbine Resources Unlimited Inc., 523 S.W.3d 189, 196 (Tex. App. – Houston [14th Dist.] 2017, pet. denied), citing to Huston v. FDIC, 800 S.W.2d 845, 847 (Tex. 1990).
Orders denying a motion to return exempt funds reasonably meet both tests of finality. First, by deciding that funds seized by a turnover receiver were not exempt, a trial court resolves property rights and imposes an obligation on the judgment debtor, namely to cease his efforts at claiming the seized funds were exempt. (I contend that the Sanders test should be extended to include orders that impose obligations on judgment debtors.) Second, this order denying that seized funds were exempt was imposing an obligation in excess of what the original judgment provided --- namely, it was deciding that certain funds were subject to seizure over a claim of exemption, even though there was no ruling on that matter in the underlying judgment. Moreover, this order disposes of all pending issues between the parties to the post-judgment turnover receivership. Third, an order denying a motion to return exempt funds decides a discrete issue in the receivership that does not lead to additional hearings.
Alternatively or in combination with an attempted appeal, an order denying a motion to return exempt funds could be challenged through a petition for writ of mandamus. For a justice court order, the judgment debtor could file a petition for writ of mandamus in county court. See, e.g., Houston v. Southwest Outdoor, Inc., 2016 WL 2591243, *2 (Tex. App. – Dallas 2016, no pet.). For a county or district court order, it could be raised through a petition for writ of mandamus filed in the applicable court of appeals.
D. New Developments
Several bills relating to garnishment and turnover were introduced in the last session, including one that apparently sought to end the wage and retirement exemption from turnover. See H.B. 2918 (which did not pass). The only bill relating to garnishment and turnover to pass was H.B. 3774, the omnibus judiciary bill, which was signed on June 18th by Governor Abbott and is effective on September 1st. Sections 15.01 and 15.02 provide as follows:
SECTION 15.01. Subchapter A, Chapter 22, Government Code, is amended by adding Section 22.0042 to read as follows:
Sec. 22.0042. RULES REGARDING EXEMPTIONS FROM SEIZURE OF PROPERTY; FORM. (a) The supreme court shall adopt rules that:
(1) establish a simple and expedited procedure for a judgment debtor to assert an exemption to the seizure of personal property by a judgment creditor or a receiver appointed under Section 31.002, Civil Practice and Remedies Code;
(2) require a court to stay a proceeding, for a reasonable period, to allow for the assertion of an exemption under Subdivision (1); and
(3) require a court to promptly set a hearing and stay proceedings until a hearing is held, if a judgment debtor timely asserts an exemption under Subdivision (1).
(b) Rules adopted under this section shall require the provision of a notice in plain language to a judgment debtor regarding the right of the judgment debtor to assert one or more exemptions under Subsection (a)(1). The notice must:
(1) be in English with an integrated Spanish translation that can be readily understood by the public and the court;
(2) include the form promulgated under Subsection (c);
(3) list all exemptions under state and federal law to the seizure of personal property; and
(4) provide information for accessing free or low-cost legal assistance.
(c) Rules adopted under this section shall include the promulgation of a form in plain language for asserting an exemption under Subsection (a)(1). A form promulgated under this subsection must:
(1) be in English with an integrated Spanish translation that can be readily understood by the public and the court; and
(2) include instructions for the use of the form.
(d) A court shall accept a form promulgated under Subsection (c) unless the form has been completed in a manner that causes a substantive defect that cannot be cured.
SECTION 15.02. Not later than May 1, 2022, the Supreme Court of Texas shall adopt rules and promulgate forms under Section 22.0042, Government Code, as added by this article.
So what does this mean? It means that new rules providing for a simpler procedure for asserting exemptions in garnishment and turnover proceedings must issue by May 1, 2022. With any luck, pro se judgment debtors will be able to assert their exemption rights effectively in the future without any involvement of attorneys.
[1] While Chapter 63 of the CPRC and the garnishment rules also govern pre-judgment garnishment, the focus of this paper is limited to those obtained after judgment.
[2] While not required by law, many financial institutions give notice of the service of writs of garnishment and the effect on access to the account. In my experience, this notice is usually more prompt than the notice from the judgment creditor/applicant for the writ.
[3] The opportunity to post bonds to unfreeze an account is of no use to our clients, and indeed I have never seen an example of a bond being posted under Rule 664. The only real remedy for our clients under the current rules is a motion to dissolve writ of garnishment under Rule 664a.
[4] While Rule 664a provides that the hearing on a motion to dissolve is to be held within 10 days, that often does not occur. The failure of a judgment debtor movant to obtain a hearing within that time period, however, does not justify denial of the motion. Williamson v. State, 2010 WL 4644502, *1 (Tex. App. – Amarillo 2010, no pet.), citing to Cloughly v. NBC Bank-Seguin, N.A., 773 S.W.2d 652, 658 (Tex. App. – San Antonio 1989, writ denied) and Kyanize Paints, Inc. v. Denton, 1992 Tex. App. LEXIS 1379, 1992 WL 105764 (Tex. App. – Houston [14thDist.] 1992, no writ). As the Amarillo Court of Appeals noted, “[t]he inability of a court’s docket to hear the motion within ten days should not be used to punish the debtor.” Williamson, 2010 WL 4644502 at *1. In other words, the hortatory requirement of a hearing within 10 days cannot be used against a judgment debtor that cannot persuade a trial court to set a hearing within 10 days.
[5] This is one of those unusual appeals where a pro se appellant beat a represented appellee.
[6] If there is no valid judgment against the actual owner of the account at issue, there is no basis for issuing the writ of garnishment. For example, the legal owner of an account in one case had an account seized by garnishment, even though the underlying judgment did not apply to her. See Strobach, 621 S.W.3d 866-872. In such a case, the harmed third party may file a motion to dissolve the writ of garnishment under Rule 664a as “an intervening party who claims an interest in such property or account.”
[7] Another issue to consider is the age of the judgment. It can no longer be enforced after 10 years, as it becomes dormant. CPRC § 34.001(a). Dormancy may be avoided through the issuance of a writ of execution before the date of expiration, as that renews the judgment for another 10 years. Id. A dormant judgment can be revived by obtaining a writ of scire facias within 2 years after the judgment became dormant. CPRC § 31.006. Surprisingly, issuance of a writ of execution requires that it be prepared by the clerk and delivered to an officer for execution. Hawthorne v. Guenther, 461 S.W.3d 218, 221 (Tex. App. – San Antonio 2015, pet. denied); Williams v. Short, 730 S.W.2d 98, 99-100 (Tex. App. – Houston [14th Dist.] 1987, writ denied).
[8] Rule 663a is made subject to the Justice Courts by Rule 505.2, which provides that “[j]ustice court judgments are enforceable in the same method as county and district court.”
[9] On the other hand, in a recent case in which there was evidence that a judgment debtor’s refused to accept certified mail and avoided in-person service, an appellate court found constructive notice of garnishment. Jacobs v. Jacobs, 448 S.W.3d 626, 631-636 (Tex. App. – Houston [14th Dist.] 2014, no pet.).
[10] See Ruby v. Ryan, 2016 WL 11448151, *8 (S.D. Calif. 2016).
[11] In addition, garnishment judgments are not self-executing and do not become final for at least 30 days, giving judgment debtors a short time to file for relief in bankruptcy court to discharge the underlying judgment and the basis for garnishment. Leslie Wm. Adams & Associates v. AMOCO Federal Credit Union, 537 S.W.3d 571, 572-577 (Tex. App. – Houston [14th Dist.] 2017, no pet.).
[12] Two other appellate courts have held that, if the judgment creditor proves that a judgment debtor has property, the burden then shifts to the judgment debtor to prove the property is exempt from seizure. Robison v. Watson, 2021 WL 2117936, *5 (Tex. App. – San Antonio 2021, no pet. hist.); Heilman v. Heilman, 2020 WL 6293446, *6 (Tex. App. – San Antonio 2020, no pet.); Standley v. Reef Securities, Inc., 314 S.W.3d 659, 667 (Tex. App. – Dallas 2010, no pet.).
[13] One recent appellate court relied upon subsection (f) to find that a royalty payment constituted the proceeds from a homestead and was thereby exempt from turnover. Fitzgerald v. Cadle Company, 2017 WL 4675513, *1-3 (Tex. App. – Tyler 2017, no pet.).
[14] I have gone to hearings on such motions usually over the seizure of wages, which turnover receivers vehemently deny are exempt, but also over the seizure of unemployment compensation and stimulus payments. In addition, turnover receivers often contest that other parties may own all or most of the money in joint accounts.