Van Eperen v. Baycare Health Sys. (In re Van Eperen)

In re Michael L. Van Eperen, Debtor.

Michael L. Van Eperen, Plaintiff. v. Baycare Health System, Defendant.

Case No. 16-26758-beh

Adv. No. 16-2412-beh

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF WISCONSIN

September 27, 2017

THE FOLLOWING ORDER IS APPROVED AND ENTERED AS THE ORDER OF THIS COURT:

Chapter 7

DECISION AND ORDER GRANTING PARTIAL SUMMARY JUDGMENT TO DEFENDANT BAYCARE HEALTH SYSTEM

Plaintiff-debtor Michael L. Van Eperen brought this adversary complaint under section 522(h) of the Bankruptcy Code which allows a debtor to "avoid the transfer of property of the debtor" if, among other things, the trustee could have avoided the transfer. Van Eperen asserts that his garnished wages were a preferential transfer under 11 U.S.C. section 547(b). The parties frame the issue as one of timing: whether a transfer occurred when the funds were taken from Van Eperen's paycheck, or at a later moment, when the funds were received by the defendant-creditor, Baycare Health Systems. See 11 U.S.C. § 547(b). Van Eperen filed his chapter 7 bankruptcy case after his employer withheld some funds from his paycheck pursuant to a garnishment order, but before his employer conveyed all the funds to Baycare.

This court has jurisdiction under 28 U.S.C. section 1334 and this is a core proceeding pursuant to 28 U.S.C. section 157(b)(2)(F). This decision constitutes the court's findings of fact and conclusions of law under Federal Rule of Bankruptcy Procedure 7052.

Although the parties have not styled their briefs as motions for summary judgment, that is what the court understands both parties to seek, as the parties have submitted stipulated facts to the court and agreed that the resolution of this case requires a determination of law, rather than fact. See, e.g., In re Ljubic, 362 B.R. 914, 921 (Bankr. E.D. Wis. 2007) ("Although the creditor has not moved for summary judgment, the stipulated facts and arguments of counsel satisfy the court that the creditor is entitled to judgment as a matter of law."); FED. R. CIV. P. 56(a); FED. R. BANKR. P. 7056 (summary judgment is required if the movant is entitled to judgment as a matter of law).

Statement of Facts

Baycare obtained a civil judgment against Van Eperen in Manitowoc County Circuit Court on April 6, 2016. See CM-ECF, Doc. No. 18, ¶ 1. After obtaining the judgment, Baycare began an earnings garnishment action against Van Eperen and his employer, RaiseRite Concrete. Id., Doc. 18-1; see Wis. Stat. §§ 812.30 et seq. Baycare retained Certified Recovery Inc. (CRI) to assist in bringing the garnishment action and collecting. CM-ECF, Doc. No. 3, ¶¶ 8-10; Doc. No. 3-1. Three deductions from Van Eperen's earnings occurred within the preference period, 90 days before or on the petition date. 11 U.S.C. § 547(b)(4)(A). These three deductions totaled $784.25. CM-ECF, Doc. No. 18, ¶¶ 2-3, 9.

The garnishee-employer took the third payroll deduction of $242.02 on July 1, 2016, at 9:00 a.m. or earlier, when Van Eperen's paycheck became available to him. CM-ECF, Doc. No. 18, Ex. 2-3. Van Eperen filed his bankruptcy case later that same day. Case No. 16-26758, CM-ECF, Doc. No. 1. Several months later, at a pretrial conference, the court approved Baycare's request to cash one of the checks it had received, a request not opposed by counsel for Van Eperen. See CM-ECF, Doc. No. 6. The court and parties understood that pending resolution of the underlying transfer issue, cashing of the check would not constitute an actionable violation of the automatic stay or discharge injunction. See 11 U.S.C. §§ 362(k), 524(a).¹

The sum of the three deductions from Van Eperen's paychecks exceeds $600.00, the threshold amount to constitute a preferential transfer. See 11 U.S.C. § 547(c)(8). Van Eperen (ultimately) scheduled and exempted the transfers and the trustee has not attempted to avoid them.² CM-ECF, Doc. No. 18, ¶¶ 10, 11.

Exhibits supplied by the parties provide the following dates and amounts:

 Pay period Pay date Amt. Garn. Date Rec'd by CRI  5/15-28/16  6/3/16  $283.12  (not in record)  5/29-6/11/16  6/17/16  $259.11  6/20/16  6/12-25/16  7/1/16  $242.02  7/5/16   TOTAL  $784.26   

CM-ECF, Doc. Nos. 3 & 3-1; Doc. No. 18-2.

The record is unclear as to when Baycare received the funds garnished from the debtor's first preference period paycheck, dated June 3, 2016. At the initial pretrial conference, counsel for Baycare stated that the defendant had just received the "last" check for $283.12 (which appears to be the June 3 garnishment), within the two weeks prior to the hearing. See CM-ECF, Doc. No. 5 (audio recording). The parties' statement of facts also asserts, somewhat vaguely: "The third check was finally received and negotiated by the Defendant after the date of commencement of this adversary proceeding [10/17/2016] as well as after the bankruptcy discharge [10/19/2016]." CM-ECF, Doc. No. 18, ¶ 12. Both the June 17 and July 1 garnishments were received by July 5, 2016, months before this adversary was filed, suggesting that the June 3 garnishment was the payment received in the November/December time period. The reasonable inference is that Baycare received two garnishment checks post-petition—from the debtor's June 3 and July 1 paychecks—not one check, as the parties imply in their several briefs.³ In either event, as will be shown, the court's ruling is the same.

The Parties' Arguments

Van Eperen seeks to have an aggregate of $784.26 garnished from three paychecks returned to him as preferential transfers. 11 U.S.C. § 547(b). Baycare argues that because at least one payment was conveyed to the creditor after the petition date, it is not a voidable transfer but rather is property of the estate and should be remitted to the debtor. CM-ECF, Doc. No. 9, at 5. As a consequence of that remittal, Baycare contends that the monetary threshold defense of section 547(c)(8) applies, entitling it to retain the preferential funds received pre-petition, because they do not total $600.00.

Section 101(54) of the Bankruptcy Code provides that "transfer" means:

(A) the creation of a lien;

(B) the retention of title as a security interest;

(C) the foreclosure of a debtor's equity of redemption; or

(D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with -

(i) property; or

(ii) an interest in property.

Section 547(b) of the Code imposes several requirements for a payment to be deemed a preferential transfer:

[T]he trustee may avoid any transfer of an interest of the debtor in property—

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made—

(A) on or within 90 days before the date of the filing of the petition; . . . [and]

(5) that enables such creditor to receive more than such creditor would receive if—

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

Also, section 547(e) provides:

(2) For purposes of this section, . . . a transfer is made -(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after, such time, except as provided in subsection (c)(3)(B); . . .

(3) For purposes of this section, a transfer is not made until the debtor has acquired rights in the property transferred.

Section 547(c)(8) permits a defense to the avoidance of the transfer, if "the aggregate value of all property that constitutes or is affected by such transfer is less than $600.00." The trustee (or debtor) has the burden of proof under section 547(b) and the creditor has the burden of proof under section 547(c). 11 U.S.C. § 547(g).

Here, the parties do not dispute that funds both deducted and received by Baycare pre-petition meet all the requisite elements and thus are "transfers" subject to avoidance under section 547(b). Van Eperen and Baycare agree that as to the payroll deduction(s) received post-petition, the first three elements of section 547(b) are met. They agree that the funds were withheld for the benefit of a creditor, on account of an antecedent debt owed by Van Eperen before the transfer was made, while Van Eperen was insolvent.

Van Eperen and Baycare disagree as to whether the fourth element is met; they ask the court to decide whether the intervening delay in conveyance of the funds to CRI/Baycare affects the date of the transfer under section 547. The answer to that question is affected by the interplay of the Wisconsin earnings garnishment statute, Wis. Stat. §§ 812.30 et seq.:

812.35 Commencement of action. (1) To commence an earnings garnishment proceeding, the judgment creditor shall file with the clerk of courts a garnishment notice under s.812.44(2).

...

812.37 Debtor's answer. (1) except as provided in s.812.34(1), the debtor may claim an exemption under s.812.34(2)(b) or a limit to the garnishment under s.812.34(2)(c), or may assert any defense to the earnings garnishment, by completing the answer form and delivering or mailing it to the garnishee. The debtor or debtor's spouse may file an answer or an amended answer at any time before or during the effective period of the earnings garnishment.

(2) Whenever the garnishee receives a debtor's answer or amended answer, the garnishee shall mail a copy of the answer to the creditor by the end of the 3^rd business day after receiving the debtor's answer, writing on that copy the date of receipt of the answer by the garnishee.

(3) Unless served with an order of the court directing otherwise, in determining whether to pay any part of the debtor's earnings to the creditor, the garnishee shall accept as true and binding any exemption claimed in the debtor's answer or any amended answer received before payment is made to the creditor under s.812.39(1).

...

812.39 Payment to creditor. (1)

...