Bank of America v. Stine

BELL, C.J. I. The limited issue that has been certified to this court by the United States Circuit Court of Appeals for the Fourth Circuit, and which we must answer, is whether, when a garnishment is avoided as a preferential transfer, a debtor in bankruptcy, pursuant to Maryland Code (1973, 1998 Replacement Volume), § 11-504 of the Courts and Judicial Proceedings Article (“Courts”), may claim as exempt from the bankruptcy estate, ⁸⁰ wages previously garnished by a judgment creditor, pursuant to Maryland Code (1975, 2000 Replacement Volume), §§ 15-601-607 of the Commercial Law Article (“CL”).

II

The facts are not in dispute. In February, 1998, the appellant, NationsBank, obtained a judgment against the appellee, Kenneth Stine, in the District Court of Maryland. It thereafter filed a Writ of Garnishment to enforce its judgment and, pursuant that writ, attached 25% of the appellee’s wages, the amount allowable by law. CL § 15-601.1(b) exempts from attachment 75% of the debtor’s disposable wages. 1 On December 23, 1998, the appellee filed for relief under Chapter 7 of the United States Bankruptcy Code.

Pursuant to 11 U.S.C. § 522 (h), which empowers a debtor to avoid a transfer of property when the bankruptcy trustee could have, but chose not to avoid such a transfer, the appellee sought to recover the $1,064.05 of his wages that the appellant had garnished within the 90 days preceding the appellee’s bankruptcy filing. The United States Bankruptcy Court entered judgment in favor of the appellee. ⁸¹ The appellant noted an appeal to the United States District Court for the District of Maryland, arguing that the appellee could not recover his wages under 11 U.S.C. § 522 (h) because, although the trustee could have avoided the transfer, the appellee could not, because the wages were not exempt under the Maryland exemption scheme. More particularly, the appellant argued that the clear and unambiguous language of Maryland’s exemption scheme, codified at Courts § 11-504, expressly prohibits a debtor from claiming an exemption in wage garnishments. Further, the appellant argued that the appellee had already availed himself of the only exemption to which he was entitled, when 75% of his net wages were exempted pursuant to CL § 15-601.1 in connection with the appellant’s garnishment.

Conceding that, as written, the language of § ll-504(e) disallows the exemption of wage garnishments, the appellee argued, nevertheless, that the exception did not mean that wage garnishments could never be exempted. To the contrary, he submits, relying on the decision of the District Court in this case, see Bank of Am., N.A. v. Stine, 252 B.R. 902, 904 (D.Md.2000), that the language of § ll-504(e) simply prevents a judgment creditor from claiming § 11-504 exemptions “at the time of the attachment”. Id. at 904. The appellee also asserted that, once a debtor files for bankruptcy, that subsection does not protect a creditor’s interest in a preferential transfer, to which the creditor is not entitled under federal bankruptcy law.

To accept the appellant’s interpretation, argued the appellee, would mean that the § 11-504 exemption scheme would protect the wage garnishment as a preferential transfer, “... to the detriment of the bankruptcy estate and the debtor’s right to emerge from bankruptcy with adequate possessions to begin his fresh start, as was Congress’ intent.” [the appellee’s brief at 7]. The United States District Court agreed with the appellee and affirmed the Bankruptcy Court decision. See Stine, supra., 252 B.R. 902 . In so doing, the court explained that § ll-504(e) was intended to prevent a non-bankruptcy judgment debtor from claiming exemption from wage attachment, ⁸² 75% of his wages as allowed under CL § 15-601.1 and then also claiming an exemption from attachment under § 11-504(e) so as to prevent the creditor from attaching the 25% of the wages CL § 15-601.1 makes available to a judgment creditor.

Id. at 904. Further, the court stated that Courts § ll-504(e) did not prevent a bankruptcy debtor from claiming an exemption in attached wages which, in bankruptcy, amounted to a preferential transfer. Id. at 904-05. The court opined: “Section 11-504 (e) ... provides a shield for a creditor who has properly garnished wages under section 15-601.1 against a debtor’s misuse of section 11-504 exemptions.

The shield is a critical part of the statutory scheme and must be honored. NationsBank, however, is seeking to use the shield as a sword to frustrate the policy of federal bankruptcy law of avoiding preferential transfers. This is not a case in which Stine asserted section ll-504(e) exemptions to defeat a lawful garnishment at the time his wages were attached. Rather, his aim is to undo preferential transfers to which NationsBank is not entitled under federal law.” Id., 252 B.R. at 904 .

The court further elucidated that “when enacting sections 11-504 and 15-601.1 the Maryland General Assembly did not intend unnecessarily to undermine a fundamental policy of federal bankruptcy law. Therefore, if section 11- 504 can be read in a manner that reconciles both federal and state interests, it is that reading that must govern.” Id. The appellant timely noted an appeal to the United States Court of Appeals for the Fourth Circuit. In turn, pursuant to Maryland Code, (1973, 1998 Replacement Volume) §§ 12-603, 12- 605 and 12-606 of the Courts and Judicial Proceedings Article, that court certified the following question of law for our determination: “Whether a debtor in bankruptcy may claim as exempt from the bankruptcy estate, pursuant to Maryland Code Annotated, Courts and Judicial Proceedings § 11-504 (1998) wages previously garnished by a judgment creditor pursuant to Maryland Code Annotated, Commercial Law II ⁸³ §§ 15-601-607 (2000), when the garnishment is avoided as a preferential transfer.” We agree with the appellee, the Bankruptcy Court, and the District Court and hold that Maryland’s exemption scheme disallows the exemption of wage attachments only to the extent that it applies to a non-bankruptcy judgment debtor under § 15-601.1, but that when a debtor files for bankruptcy, any wage attachment, as a pre-petition judgment, becomes a preferential transfer in the form of earned wages, which is avoidable by the trustee and derivatively avoidable by the debtor within the contemplation of the Federal Bankruptcy Code and thus, is exempt.

II

The field of bankruptcy is generally governed by Title 11 of the United States Code, the Federal Bankruptcy Code. Under that code, when a debtor files for bankruptcy under Chapter 7, 11 U.S.C. § 701 et seq., all of that debtor’s assets are liquidated and transferred to the bankruptcy estate. A trustee is assigned to oversee the administration of the bankruptcy estate and to ensure that the bankrupt individual’s debts are satisfied to the extent possible from the assets of the bankruptcy estate. The trustee is empowered to avoid preferential transfers that occurred within the 90 days preceding the bankruptcy filing under 11 U.S.C. § 547 . 2 Further, pursuant to 11 U.S.C. § 522 (h), the code empowers the bankruptcy debtor to avoid certain preferential transfers when the trustee has chosen not to do so.

That section provides: ⁸⁴ “(h) The debtor may avoid a transfer of property of the debtor or recover a setoff to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if— “(1) such transfer is avoidable by the trustee under section 544, 545, 547, 548, 549, or 724(a) of this title or recoverable by the trustee under section 553 of this title; and “(2) the trustee does not attempt to avoid such transfer.” This case had its genesis when, after he filed for bankruptcy, the appellee sought to avoid, under 11 U.S.C. § 522 (h), the amount of his wages the appellant had garnished within the 90 days prior to his filing bankruptcy. To avoid a transfer pursuant to § 522(h), a bankruptcy debtor must meet five requirements. Stine, 252 B.R. at 903 , citing Humphrey v. Herridge (In re Humphrey), 165 B.R. 578, 580 (Bankr.D.Md.1993). Those requirements are: the debtor must show that “(1) the debtor could have exempted the property at issue; (2) the transfer would have been avoidable by the trustee; (3) the trustee has not attempted to avoid the transfer; (4) the transfer was not voluntary; and (5) the debtor did not conceal the property.” Both parties agree that prongs 2 through 5 have been satisfied.

The only question that remains, therefore, and the one that has been certified to this Court for resolution, is whether the appellant could have exempted the property at issue. The exemptions available to a debtor in bankruptcy under the federal bankruptcy exemption scheme are enumerated at 11 U.S.C. § 522 (d). In the Bankruptcy Reform Act of 1978, however, Congress permitted states to “opt out” of the Federal exemption scheme and enact their own exemption provisions. 3 Maryland is one of the states that has chosen to opt ⁸⁵ out of the Federal scheme, 4 and thus, the exemptions a bankruptcy debtor may take are limited to those enumerated in Md.Code (1973, 1998 Repl.Vol.) § 11-504 of the Courts and Judicial Proceedings Article. Whether, therefore, the appellee may exempt the appellant’s wage attachments under the current Maryland scheme will turn on the interpretation given the Maryland exemption statute, in particular, subsection 11-504(e) addressing whether a bankruptcy debtor may exempt pre-petition transfers in the form of wage garnishments.

Determining the meaning of § ll-504(e) is a matter of statutory construction, the primary goal of which is to “ascertain and effectuate the intention of the legislature.” Oaks v. Connors, 339 Md. 24, 35 , 660 A.2d 423, 429 (1995). In order to discern legislative intent, we first examine the words of the statute and if, giving them their plain and ordinary meaning, the statute is clear and unambiguous, we will end our inquiry. Comptroller of the Treasury v. Kolzig, 375 Md. 562, 567 , 826 A.2d 467, 469 (2003). As we have recognized, however, “[a]n ambiguity may ... exist even when the words of the statute are crystal clear.

That occurs when its application in a given situation is not clear.” Blind Indus. & Servs. of Md. v. Md. Dep’t of Gen. Servs., 371 Md. 221, 231 , 808 A.2d 782, 788 (2002). Therefore, a statutory provision may be ambiguous: “1) when it is intrinsically unclear; or 2) when its intrinsic meaning may be fairly clear, but its application to a particular object or circumstance may be uncertain.” Gardner v. State, 344 Md. 642, 648-49 , 689 A.2d 610, 613 (1997). Further, “when the statute to be interpreted is part of a ⁸⁶ statutory scheme, ... [we read it in context, together with the other statutes] on the same subject, harmonizing them to the extent possible....” Mid-Atlantic Power Supply Ass’n v. Pub.

Serv. Comm’n, 361 Md. 196, 204 , 760 A.2d 1087, 1091 (2000). We also “seek to avoid constructions that are unreasonable, or inconsistent with common sense,” Frost v. State, 336 Md. 125, 137 , 647 A.2d 106, 112 (1994), and we will presume that “the Legislature ‘intends its enactments to operate together as a consistent and harmonious body of law,’ ” Toler v. Motor Vehicle Admin., 373 Md. 214, 220 , 817 A.2d 229, 234 (2003), quoting State v. Ghajari, 346 Md. 101, 115 , 695 A.2d 143, 149 (1997) (quoting State v. Harris, 327 Md. 32, 39 , 607 A.2d 552, 555 (1992)), so that “no part of the statute is rendered meaningless or nugatory.” Id., (citing Gillespie v. State, 370 Md. 219, 222 , 804 A.2d 426, 428 (2002)); see also Montgomery County v. Buckman, 333 Md. 516, 523-24 , 636 A.2d 448, 452 (1994). In our endeavor to harmonize the provisions of all of the relevant statutes, this Court will prefer an interpretation that allows us to avoid reaching a constitutional question.

East Prince Frederick Corp. v. County Board of Comm’rs, 320 Md. 178, 182 , 577 A.2d 27, 29 (1990). Automobile Trade Ass’n v. Ins. Comm’r, 292 Md. 15, 21 , 437 A.2d 199, 202 (1981). As relevant, CJP § 11-504 provides: “(b) In general — The following items are exempt from execution on a judgment: >): sjs sj: >}; “(5) Cash or property of any kind equivalent in value to $3,000 is exempt, if within 30 days from the date of the attachment or the levy by the sheriff, the debtor elects to exempt cash or selected items of property in an amount not to exceed a cumulative value of $3,000. “(e) Wage attachments — The exemptions in this section do not apply to wage attachments. “(f) Interest in real or personal property. — In addition to the exémptions provided in subsection (b) of this section and ⁸⁷ in other statutes of this State, in any proceeding under Title 11 of the United States Code, entitled ‘Bankruptcy’, any individual debtor domiciled in this State may exempt the debtor’s aggregate interest, not to exceed $2,500 in value in real property or personal property.” Although both the appellant and the appellee agree that the plain language of the statute purports to prohibit the exemption of wage attachments, each offers a different, yet reasonable, interpretation of how § 11 — 504(e) should be applied in light of all of the relevant statutory provisions and circumstances.

Our task is to ascertain the proper application of § 11 — 504(e). The appellee argues that he may exempt, pursuant to the so-called “cafeteria” 5 exemption provisions enumerated in § ll-504(b)(5) or § 11 — 504(f), the amount of the wages that the appellant garnished because, as the bankruptcy debtor, he has the derivative right to avoid the pre-petition preferential payment made to the appellant. More particularly, the appellee asserts that the language of § 11 — 504(e) purporting to prohibit the exemption of wage attachments was meant to “provide protection for a creditor who has properly garnished wages under § 15-601 against a debtor’s misuse of CJP § 11— 504 exemptions.” [the appellee’s brief at 12]. The provision, argues the appellee, was not meant to apply so as to prohibit the exemption of property which is avoidable as a pre-petition preferential transfer under 11 U.S.C. § 522 (h).

The appellant asserts that, in light of the authority given to the states to enact their own more or less stringent exemption schemes, we should read § ll-504(e), the language of which it characterizes as “plain,” as a comprehensive measure to disallow both bankruptcy and non-bankruptcy debtors from exempting wage attachments. In the alternative, the appellant argues that, although there is little legislative history on the ⁸⁸ enactment of § ll-504(e), the Legislature has impliedly indicated that it intended to disallow the exemption of wage attachments in bankruptcy situations. This is so, it contends, because, despite its many opportunities to do so, the General Assembly has chosen not to amend the language prohibiting the exemption of wage attachments. Our analysis is not limited to the language and intent, of the exemption provisions enumerated in § ll-504(e).

The Supremacy Clause of the United States Constitution, instructs: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Constitution, Art. VI, Clause 2. Further, pursuant to Article 1, Section 8 of the United States Constitution, Congress has plenary power to enact uniform bankruptcy laws. 6 Witbeck v. Electro Nuclear Systems Corp., 243 Md. 563, 569 , 221 A.2d 888, 891 (1966). Therefore, the states are bound whenever Congress legislates in the area of bankruptcy. Old Town Bank v. McCormick, 96 Md. 341, 341-42 , 53 A. 934, 935-36 (1903).

See Perez v. Campbell, 402 U.S. 637, 649 , 91 S.Ct. 1704, 1711 , 29 L.Ed.2d 233, 242 (1971). Consequently, a state law that is inconsistent with, or contrary to, the express language, or a primary purpose, of a federal law on the subject is preempted and, thus, deemed invalid. Witbeck, supra, 243 Md. at 569 , 221 A.2d at 891 (holding that Maryland insolvency laws are preempted where Congress has legislated in the field ⁸⁹ of bankruptcy and thus, the court lacked the jurisdiction to provide a remedy under the Maryland insolvency laws). Conaway v. Social Services Administration, 298 Md. 639, 649-50 , 471 A.2d 1058, 1063-64 (1984) (holding that a state regulation “which allow[ed] the State to use conserved federal benefits for reimbursement of past foster care costs, [was] preempted by [Federal statutes] which prohibit the State from seizing such benefits for reimbursements”, and thus violated the Supremacy Clause of the United States Constitution).

See Old Town Bank, supra, 96 Md. at 341-42 , 53 A. at 935-36 . In Perez , judgment was entered against Perez in an action resulting from an automobile accident with the appellee, Campbell. Thereafter, Perez filed for bankruptcy and the amount of the Campbell judgment, along with his other debts, were discharged. Despite the discharge of the judgment, however, the state of Arizona suspended Perez’s license pursuant to the Arizona bankruptcy statute, which provided that a discharge in bankruptcy did not prevent an individual’s driver’s license from being suspended if that individual failed to satisfy a judgment entered against him as a result of a motor vehicle accident.

The issue for the court was whether that Arizona state bankruptcy law was invalid under the Supremacy Clause. The argument proceeded on the premise that such law conflicted with the Federal Bankruptcy Code. The Supreme Court held that the state law was unconstitutional because it conflicted with a primary purpose of the Federal Bankruptcy Code, to “give debtors a new opportunity in life and a clear field for future effort unhampered by the pressure and discouragement of pre-existing debt,” id. at 648 , 91 S.Ct. at 1710-11 , 29 L.Ed.2d at 241-42 , quoting Local Loan v. Hunt, 292 U.S. 234, 244 , 54 S.Ct. 695, 699 , 78 L.Ed. 1230, 1235 (1934), the Court explained. It further held that Congress “intended this new opportunity to include freedom from most kinds of preexisting tort judgments.” Id.

To arrive at its conclusion, the Supreme Court relied upon the sage advice of Justice Black, speaking for the Court in Hines v. Davidowitz, 312 U.S. 52, 67 , 61 S.Ct. 399, 404 , 85 L.Ed. 581, 587 (1941): ⁹⁰ “while ‘[t]his Court, in considering the validity of state laws in the light of treaties or federal laws touching the same subject, ha[d] made use of the following expressions: conflicting; contrary to; occupying the field; repugnance; difference; irreconcilability; inconsistency; violation; curtailment;