Filter Results

13.5.2 The Constitutional Balancing of Interests

CategoriesCart
Highlight Updates
  1. Collection Actions
  2. Chapters
  3. Chapter 13 Enforcement of Judgments: General Principles, Constitutional Issues
  4. 13.5 Due Process Protections from Garnishment or Execution on Exempt Property
  5. 13.5.2 The Constitutional Balancing of Interests

13.5.2 The Constitutional Balancing of Interests

It is clear that a debtor has a significant property interest in assets which are exempt from garnishment,248 and that garnishment involves state action sufficient to invoke Fourteenth Amendment protections.249 Nevertheless, it is only since the late 1970s that courts have seriously considered the due process rights of judgment debtors. The relative dearth of earlier litigation and analysis was largely the result of a 1924 Supreme Court decision, Endicott-Johnson Corp. v. Encyclopedia Press, Inc.,250 which held that a judgment debtor has had his day in court and has, in effect, been given “notice of what will follow, no further notice being necessary to advance justice.”251 Thus, the view of many courts was that the original service and proceedings in an action on a debt provided all the process the debtor was constitutionally due.252

The blanket application of Endicott has, however, been seriously undermined by the influence of more recent Supreme Court due process decisions analyzing property deprivation in general and prejudgment garnishment in particular.253 In addition, there is a growing judicial recognition that the garnishment involved in Endicott, which was decided before the legislative creation of most federal property exemptions and which did not refer to the possibility of exemptions, is facially distinguishable from modern garnishment cases involving potentially exempt property.254 Moreover, the question that Endicott answered was only whether notice and an opportunity for a hearing were required before issuance of a writ of execution, not whether it might be required at some point in the process.

Since the Third Circuit’s 1980 decision in Finberg v. Sullivan,255 the erosion of Endicott has proceeded rapidly. Although Endicott has not been expressly overruled, all circuits that have considered postjudgment garnishment or execution on potentially exempt property since 1976 have recognized the significant property interests of judgment debtors and have applied a balancing-of-interests analysis to determine the extent of debtors’ due process rights to notice and hearing.256 This approach has also been expressly adopted by virtually all federal district courts and state courts that have considered the issue after the Finberg decision.257

The due process analysis for postjudgment garnishment and execution procedures relating to exempt property incorporates the balancing test set out by the Supreme Court in 1976 in Matthews v. Eldridge.258 Under this three-pronged approach, a court considering the process due when a person is deprived of property must weigh:

  • • The competing interests involved and the effect of state action on these interests;
  • • The risk of erroneous deprivation of property under the existing system and the probable value of additional or substitute procedures; and
  • • The cost and administrative burden of the new procedures in comparison to their probable value.

A creditor has a clear interest in the prompt and inexpensive satisfaction of judgments it has obtained,259 and a state has a parallel interest in seeing that judgments that it issues are given effect. However, the creditor has no interest whatsoever in the debtor’s exempt property, and depriving a debtor of exempt assets may both endanger the debtor’s subsistence and frustrate the legislative policies upon which the exemptions are based.

The strength of creditor and debtor property interests may be modified, at least in part, by the facts of a particular case. For example, creditor interests appear to be stronger when garnishment is for child support than when it is for an ordinary civil judgment.260 On the debtor’s side of the equation, some courts have suggested that bank accounts containing exempt funds deserve even stronger protection than a debtor’s wages because the garnishment of such an account may deprive the debtor of all money needed immediately for food and shelter, whereas a partial wage garnishment would still leave the debtor with most of their salary.261

Applying the Matthews tests, courts generally hold that postjudgment garnishment and execution must comply with four procedural requirements. These standards are discussed in the next four subsections. Section 13.5.7, infra, discusses the due process issues when a bank account containing exempt funds is frozen upon the bank’s receipt of a garnishment order.

Footnotes

  • 248 Cahoo v. SAS Analytics Inc., 912 F.3d 887 (6th Cir. 2019) (unemployment compensation recipients had protected property interest in benefits, tax refunds, and wages that were wrongfully garnished as a result of seriously flawed automated fraud detection system); Dionne v. Bouley, 757 F.2d 1344 (1st Cir. 1985); Mayers v. N.Y. Cmty. Bancorp, Inc., 2005 WL 2105810 (E.D.N.Y. Aug. 31, 2005) (exemption for Social Security benefits in bank account is property right protected by due process clause), later decision at 2006 WL 2013734 (E.D.N.Y. July 18, 2006) (denying defendants’ motion for interlocutory appeal).

  • 249 See, e.g., Lugar v. Edmondson Oil Co., 457 U.S. 922, 932–933, 102 S. Ct. 2744, 73 L. Ed. 2d 482 (1982) (“the constitutional requirements of due process apply to garnishment and prejudgment attachment procedures whenever officers of the State act jointly with a creditor in securing the property in dispute”); Sniadach v. Family Fin. Corp., 395 U.S. 337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969); New v. Gemini Capital Grp., 859 F. Supp. 2d 990 (S.D. Iowa 2012) (denying judgment creditor’s motion for summary judgment; state action shown when judgment creditor jointly participated with state officials to seize disputed property under statute challenged as unconstitutional); Mayers v. N.Y. Cmty. Bancorp, Inc., 2005 WL 2105810 (E.D.N.Y. Aug. 31, 2005) (procedure for pre-garnishment bank account freeze was state action; state coercion present because bank that disregarded notice could be sanctioned for contempt), later decision at 2006 WL 2013734 (E.D.N.Y. July 18, 2006) (denying defendants’ motion for interlocutory appeal); Doyle v. Schultz, 97 F. Supp. 2d 763 (W.D. La. 2000) (creditor and attorney were state actors when they set in motion state execution procedure that was unconstitutional as applied). But cf. Sykes v. Bank of Am., 723 F.3d 399 (2d Cir. 2013) (when judgment debtor is not challenging constitutionality of the procedure, garnishee bank is not acting under color of state law when it complies with state child support enforcement agency’s improper garnishment order); McCarthy v. Wachovia Bank, 2008 WL 5145602 (E.D.N.Y. Dec. 4, 2008) (misuse of state procedure to garnish bank account would not be action under color of state law; fact question here); Christensen v. Arizona Cent. Credit Union, 2008 WL 4853414 (D. Ariz. Nov. 10, 2008) (misuse of state garnishment procedure to freeze account containing exempt Social Security not action under color of state law). See generally National Consumer Law Center, Fair Debt Collection § 14.11.2.1 (9th ed. 2018), updated at www.nclc.org/library.

  • 250 Endicott-Johnson Corp. v. Encyclopedia Press, Inc., 266 U.S. 285, 45 S. Ct. 61, 69 L. Ed. 288 (1924).

  • 251 Id. 266 U.S. at 288.

  • 252 See, e.g., Pitts v. Dallas Nurseries Garden Ctr., 545 S.W.2d 34 (Tex. App. 1976).

  • 253 N. Ga. Finishing Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S. Ct. 719, 42 L. Ed. 2d 751 (1975); Mitchell v. W.T. Grant Co., 416 U.S. 600, 94 S. Ct. 1895, 40 L. Ed. 2d 406 (1974); Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983, 32 L. Ed. 2d 556 (1972); Sniadach v. Family Fin. Corp., 395 U.S. 337, 89 S. Ct. 1820, 23 L. Ed. 2d 349 (1969). See also Connecticut v. Doehr, 501 U.S. 1, 111 S. Ct. 2105, 115 L. Ed. 2d 1 (1991) (Connecticut statute allowing ex parte prejudgment attachment of realty in absence of exigent circumstances and without bond is unconstitutional).

  • 254 Adkins v. Rumsfield, 464 F.3d 456 (4th Cir. 2006) (although Endicott not overruled, Supreme Court has “significantly revised” approach to due process in garnishment cases; applying Matthews balancing test and upholding procedure for enforcing state domestic relations orders); Dionne v. Bouley, 757 F.2d 1344 (1st Cir. 1985); New v. Gemini Capital Grp., 859 F. Supp. 2d 990 (S.D. Iowa 2012); Dorwart v. Caraway, 966 P.2d 1121 (Mont. 1998) (distinguishing Endicott and questioning its continuing validity; Montana postjudgment procedure violates due process by failing to require prompt post-seizure notice of exemptions and procedure for claiming them).

  • 255 Finberg v. Sullivan, 634 F.2d 50 (3d Cir. 1980).

  • 256 Aacen v. San Juan Cty. Sheriff’s Dep’t, 944 F.2d 691 (10th Cir. 1991) (due process violation when notice failed to reveal existence of exemptions other than homestead exemption, or how to claim them); Reigh v. Schleigh, 784 F.2d 1191 (4th Cir. 1986) (new garnishment statute complied with due process); McCahey v. L.P. Inv’rs, 774 F.2d 543 (2d Cir. 1985) (procedures satisfied due process); Dionne v. Bouley, 757 F.2d 1344 (1st Cir. 1985) (finding due process violation); Duranceau v. Wallace, 743 F.2d 709 (9th Cir. 1984) (procedures satisfied due process); Finberg v. Sullivan, 634 F.2d 50 (3d Cir. 1980) (finding due process violation); Brown v. Liberty Loan Corp. of Duval, 539 F.2d 1355 (5th Cir. 1976) (procedures satisfied due process). See also Revis v. Meldrum, 489 F.3d 273 (6th Cir. 2007) (Endicott inapplicable to postjudgment seizure of home; notice and opportunity for hearing necessary before removing debtor from home); Adkins v. Rumsfield, 464 F.3d 456 (4th Cir. 2006) (applying Matthews balancing test and concluding that Defense Department may implement state domestic relations garnishment orders without giving them more than facial scrutiny). Cf. Walsh v. Wal-Mart Stores, Inc., 836 F.2d 1152 (8th Cir. 1988) (no claim stated against employer for due process noncompliance in a garnishment proceeding; claim was against creditor).

  • 257 See, e.g., Strickland v. Alexander, 153 F. Supp. 3d 1397, 1406–1407 (N.D. Ga. 2015), as amended by 154 F. Supp. 3d 1347 (N.D. Ga. 2015); Mayers v. N.Y. Cmty. Bancorp, Inc., 2005 WL 2105810 (E.D.N.Y. Aug. 31, 2005) (plaintiffs sufficiently stated due process claim challenging New York’s postjudgment garnishment procedure after rebalancing interests in light of technological changes), later decision at 2006 WL 2013734 (E.D.N.Y. July 18, 2006) (denying defendants’ motion for interlocutory appeal); Hutchinson v. Cox, 784 F. Supp. 1339 (S.D. Ohio 1992) (due process requires that judgment debtor be informed, during postjudgment execution, of available exemptions and right to hearing); Jacobson v. Johnson, 798 F. Supp. 500 (C.D. Ill. 1991); Cristiano v. Courts of the Justice of the Peace, 669 F. Supp. 662 (D. Del. 1987) (courts’ process for garnishment of wages invalid for failure to provide prompt post-deprivation hearing and sufficient notice of procedure for challenge); Follette v. Cooper, 658 F. Supp. 514 (N.D.N.Y. 1987); Follette v. Vitanza, 658 F. Supp. 492 (N.D.N.Y. 1987) (failure to give notice of federal wage garnishment exemptions and state procedures to assert them unconstitutional); Davis v. Paschall, 640 F. Supp. 198 (E.D. Ark. 1986); Fry’s Food Stores v. CBM, Inc., 636 F. Supp. 168 (D. Ariz. 1986) (supplementary process statute unconstitutional); Green v. Harbin, 615 F. Supp. 719 (D. Ala. 1985); Neeley v. Century Fin. Co., 606 F. Supp. 1453 (D. Ariz. 1985) (garnishment statute unconstitutional; Endicott applies only when no exemptions possible); Clay v. Fisher, 584 F. Supp. 730 (S.D. Ohio 1984); Harris v. Bailey, 574 F. Supp. 966 (W.D. Va. 1983); Deary v. Guardian Loan Co., 534 F. Supp. 1178 (S.D.N.Y. 1982); Betts v. Coltes, 467 F. Supp. 544 (D. Haw. 1979); Betts v. Tom, 431 F. Supp. 1369 (D. Haw. 1977); Dorwart v. Caraway, 966 P.2d 1121 (Mont. 1998) (Montana postjudgment procedure violates U.S. and Montana due process clauses by failing to require prompt post-seizure notice of exemptions, procedure for claiming them, and availability of hearing). See also Parikh v. Frosh, 2017 WL 4124238 (D. Md. Sept. 15, 2017) (applying Matthews balancing to find that Maryland’s prejudgment attachment statute satisfied due process requirements), aff’d per curiam, 715 Fed. Appx. 288 (4th Cir. 2018); Roy v. Smith, 735 F. Supp. 313 (C.D. Ill. 1990) (wages); Kirby v. Sprouls, 722 F. Supp. 516 (C.D. Ill. 1989) (state statute violated due process requirements when it failed to require notice of garnishment proceeding, notice of exemption rights under state and federal law, notice of debtor’s right to exercise those rights and a prompt hearing); Burris v. Mahaney, 716 F. Supp. 1051 (M.D. Tenn. 1989); Jones v. Marion Cty. Small Claims Ct., 701 F. Supp. 1414 (S.D. Ind. 1988) (state statute for garnishment of bank accounts violated due process requirements of prompt notice and hearing); Imperial Bank v. Pim Elec., Inc., 39 Cal. Rptr. 3d 432 (Cal. Ct. App. 1995); Cole v. Goldberger, Pederson & Hochron, 410 N.Y.S.2d 950 (N.Y. Sup. Ct. 1978); Layne v. W. Va. Child Support Enf’t Div., 518 S.E.2d 357 (W. Va. 1998) (due process requires notice and an opportunity for hearing before disability benefits can be garnished for child support arrearage). Cf. Bell v. Beightler, 2003 WL 116146 (Ohio Ct. App. Jan. 14, 2003) (upholding procedures for garnishment of prison inmate’s account; administrative hearing on exemptions is sufficient). But see Aga v. Steele, 2009 WL 649914 (D. Haw. Mar. 12, 2009) (Endicott still good law; for judgment debt, right to prompt post-garnishment notice and hearing not “clearly established”); Haines v. Gen. Motors Corp., 603 F. Supp. 471 (S.D. Ohio 1983) (Endicott is controlling). But cf. Huggins v. Pataki, 2002 WL 1732804 (E.D.N.Y. July 11, 2002) (New York’s bank account garnishment procedure, which requires creditor to send notice to debtor after account is frozen, is constitutional even though bank could have determined that account consisted entirely of directly-deposited Social Security funds, and even though creditor failed to send the required notice); In re Thelen, 156 B.R. 786 (Bankr. W.D. Mich. 1993) (Endicott still good law, no notice or hearing required for seizure of clearly non-exempt property; distinguishing cases requiring notice of possible exemptions).

    Earlier decisions generally rejected due process challenges but had no uniform rationale for doing so. See, e.g., First Nat’l Bank v. Hasty, 410 F. Supp. 482 (E.D. Mich. 1976) (rejecting pre-garnishment hearing under Mitchell); Phillips v. Bartolomie, 121 Cal. Rptr. 56 (Cal. Ct. App. 1975) (debtor may be required to file exemption claim); Raigoza v. Sperl, 110 Cal. Rptr. 296 (Cal. Ct. App. 1973) (statute contained sufficient due process protections); Warner/Elektra/Atl. Corp. v. B. & B. Record & Tape Merchandisers, 570 P.2d 1320 (Colo. App. 1977) (no exemption issue); Wilson v. Grimes, 207 S.E.2d 5 (Ga. 1974); Bittner v. Butts, 514 S.W.2d 556 (Mo. 1974); Plaza Hotel Assocs. v. Wellington Assocs., 378 N.Y.S.2d 859 (N.Y. Sup. Ct. 1975); Hehr v. Tucker, 472 P.2d 797 (Or. 1970); Pitts v. Dallas Nurseries Garden Ctr., 545 S.W.2d 34 (Tex. App. 1976); Dep’t of Social & Health Servs. v. Gerlack, 612 P.2d 382 (Wash. Ct. App. 1980). See also McCahey v. L.P. Inv’rs, 774 F.2d 543, 547 n.5 (2d Cir. 1985).

  • 258 Matthews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976).

  • 259 McCahey v. L.P. Inv’rs, 774 F.2d 543, 549 (2d Cir. 1985) (creditor has interest in reaching bank accounts and other liquid assets because this is lowest-cost method of satisfying judgments).

  • 260 This observation, while frequently not acknowledged by courts, seems to be borne out by the results in child support cases. See, e.g., DeTienne v. DeTienne, 815 F. Supp. 394 (D. Kan. 1993) (Social Security disability benefits are subject to garnishment for child support and alimony). See also Levy v. San Joaquin Cty. Dep’t of Child Support Servs., 2013 WL 1891402 (N.D. Cal. May 6, 2013) (if debtor owed child support, he had no protectable property interest in licenses and garnished wages because he had no entitlement to them); Green v. Harbin, 615 F. Supp. 719 (D. Ala. 1985) (adopting consent decree that imposed due process protections on garnishment but excluded garnishment for child and spousal support).

  • 261 Reigh v. Schleigh, 595 F. Supp. 1535 (D. Md. 1984), rev’d on other grounds, 784 F.2d 1191 (4th Cir. 1986); Harris v. Bailey, 574 F. Supp. 966 (W.D. Va. 1983). But cf. Neeley v. Century Fin. Co., 606 F. Supp. 1453 (D. Ariz. 1985) (wages entitled to greater protection than other assets).