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What happens when you obtain a money judgment against someone and they refuse to pay? Unfortunately, it is not that uncommon an occurrence. The good news for a long time has been that, if the losing party happens to have a bank account or earns wages in Georgia, the prevailing party could try and collect on the judgment by initiating garnishment proceedings for monies in the bank account or for wages paid to the debtor by his or her employer. Last week, however, a federal court in Atlanta held Georgia’s garnishment statute, which has been around for decades, to be unconstitutional on its face because, in the court’s view, it permits a state actor to take someone’s money without due process of law. See Strickland v. Alexander, No. 1:12-CV-02735 (N.D. Ga. Sept. 8, 2015).
What exactly is wrong with Georgia’s post-judgment garnishment procedures? According to the court in Strickland: (1) there is no requirement that the debtor be informed that certain money or property may be exempt from garnishment; (2) there is no requirement that the debtor be given notice of the procedures available for claiming such an exemption; and (3) there is no requirement that the debtor be afforded a hearing on an exemption claim within a certain time frame. Tony Strickland, the plaintiff in the case, had his worker’s compensation settlement seized in a garnishment action after his credit card company obtained a default judgment on his unpaid credit card debt. The problem is that compensation funds are exempt from garnishment. Although Mr. Strickland’s money was eventually returned to him, the process took almost four months during which his account was frozen and he had to rely on the financial assistance of family members.
Interestingly, as the creditor pointed out to the court, there already exists precedent from the Supreme Court that due process does not require any notice or opportunity to be heard to be afforded the debtor before issuing a writ of garnishment because the debtor already had his “day in court” in the underlying action on the merits. See Endicott-Johnson Corp. v. Encyclopedia Press, Inc., 266 U.S. 285, 287, 45 S. Ct. 61, 62-63 (1924). But the Strickland court held that Endicott-Johnson had been effectively abrogated by more recent due process decisions that employ a “balancing analysis” before determining whether the deprivation of property violates due process. Essentially, the Strickland court found the balancing analysis to come out in Mr. Strickland’s favor. The court also noted that its decision was in line with rulings from the First, Second, Third, Fourth, and Tenth Circuit Courts of Appeals that addressed the same issues.
Now, as a result of the ruling in Strickland, the Gwinnett County Clerk of Courts (the defendant in the suit) is permanently enjoined from issuing any more garnishment summonses under the current state procedures. While this ruling technically applies only to Gwinnett County, there is an obvious risk that a similar legal challenge brought in another county will succeed on the basis of the federal court’s reasoning. Moreover, Gwinnett County is a favored garnishment venue for creditors in Georgia. While it may be just one of Georgia’s 159 counties, Gwinnett County has accounted for at least 20% of all garnishments in the state since 2010, reaching as high as 37% in 2013. In 2014, the total number of garnishments in Gwinnett County rose by 12%.
Right now, both creditors and the lawyers that historically have relied on garnishments to collect on judgments are scrambling to determine the next step. Some commentators have opined that a temporary workaround is for the creditor, when pursuing a garnishment, to independently notify the debtor of the money or property that may be exempt, the procedures for claiming an exemption and offer to participate in a hearing if there is a dispute about the exemption. It is, however, uncertain whether such an action would cure the constitutional defects that the Strickland court identified so choosing this route is not without potential legal peril. Others have concluded that these defects only can be cured by action of the Georgia legislature and, thus, the Strickland decision has brought the garnishment process to a screeching halt.
The bottom line is that, unless the Strickland decision is overturned by the Eleventh Circuit Court of Appeals or until the Georgia legislature fixes the statute, we are in a legal quagmire.