Master Finance Co. of Texas v. Pollard

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No. 106,673

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

MASTER FINANCE CO. OF TEXAS,
Appellant,

v.

KIM POLLARD,
Appellee.


SYLLABUS BY THE COURT

1.
When a judgment debtor challenges a garnishment order, the debtor bears the
burden of showing that some or all of the property subject to the garnishment is exempt.
The resulting hearing is limited to whether the judgment debtor is able to establish the
application of an exemption. If an exemption applies, the court is required to enter an
order adjusting the wage garnishment order accordingly. If no exemption applies, the
court is required to allow the garnishment order to stand.

2.
A garnishment order under the Kansas garnishment statutes, K.S.A. 60-719 et
seq., is based solely upon the debtor's income and the statutes do not allow any
consideration by the court of the debtor's actual expenses.

3.
When a properly authenticated judgment of a state other than Kansas is offered as
evidence in a Kansas court, the Full Faith and Credit Clause, Article 4, § 1 of the United
States Constitution, gives the foreign judgment the same force and effect in Kansas as it
has in the state where the judgment was rendered.
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4.
Unless a foreign judgment was entered without jurisdiction, such a judgment
cannot be impeached for irregularities in the proceedings or erroneous rulings and must
be regarded as binding under the Full Faith and Credit Clause of the United States
Constitution and K.S.A. 60-3002. Kansas courts must enforce the judgment as entered,
without regard to whether it contravenes the public policy of Kansas or shocks our
sensibilities.

Appeal from Johnson District Court; KEVIN P. MORIARTY, judge. Opinion filed June 22, 2012.
Reversed and remanded with directions.

Anne Barker Hall, of Pendleton & Sutton Attorneys at Law LLC, of Lawrence, for appellant.

No appearance by appellee.

Before STANDRIDGE, P.J., MARQUARDT and ARNOLD-BURGER, JJ.

ARNOLD-BURGER, J.: Master Finance Co. of Texas (Master Finance) and Kim
Pollard entered into a payday loan contract. Master Finance loaned Pollard $100 with a
199.91% interest rate. Pollard defaulted on the loan payment, and Master Finance filed a
lawsuit in Missouri against Pollard. When Pollard failed to answer or appear, Master
Finance was granted a default judgment against Pollard in Missouri, with the
postjudgment interest rate set at the contract rate—199.91%. Later, the Missouri
judgment was filed in Kansas as a foreign judgment. Master Finance requested an order
for wage garnishment, which was granted. Pollard objected to the wage garnishment.
After a hearing, the district court adjusted the postjudgment interest rate to the Kansas
statutory interest rate, ordered the parties to enter into a voluntary withholding order, and
ordered Master Finance to release the wage garnishment. Master Finance appeals.
Finding the district court exceeded its authority and abused its discretion, we reverse its
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findings and remand with directions to issue the order of garnishment requested by
Master Finance.

FACTUAL AND PROCEDURAL HISTORY

On August 30, 2005, Pollard and Master Finance entered into a payday loan
contract in Missouri. Under the contract, Master Finance loaned Pollard $100 at an
interest rate of 199.91% and a finance charge of $55. Pollard was to repay Master
Finance in five monthly installments of $31 beginning the following month. Pollard
defaulted on her payments.

Four years later, in 2009, a default judgment was entered against Pollard in
Missouri. In the judgment, Master Finance was awarded a principal amount of $1,238.89,
$185.83 in attorney fees, $55 in process server fees, $33 in costs, and postjudgment
interest at the contract rate of 199.91%.

Over a year later, the Missouri judgment was filed in Kansas as a foreign
judgment. Subsequently, an order of garnishment against wages was filed against Pollard.
By the time of the garnishment, the amount owing had escalated to almost $5,000.
Pollard, who appeared pro se, objected to the wage garnishment order, claiming that she
was the head of the household and could not afford the garnishment.

A hearing was held. Pollard indicated that her wages were $13 per hour and she
worked a maximum of 35 hours per week. She indicated she was the sole support for her
family. Her husband was not working, and she had one young child living at home.
Master Finance was receiving, through the garnishment order, 25% of her net income, or
roughly $400 per month. The district judge proceeded to inquire about Pollard's monthly
expenses and determined that Pollard's minimum living expenses were $1,500 to $1,700
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per month, which was equivalent to her net monthly income. The court noted that she did
not have health insurance because she was not a full-time employee.

The district court judge was clearly frustrated by the unconscionability of a $100
payday loan resulting in Pollard's garnishment for $5,000. In both his oral
pronouncement from the bench and the written journal entry that followed, he recognized
that he was required to give full faith and credit to the Missouri judgment and enforce the
contractual interest rate. However, he proceeded to fashion his own remedy. He found
that if the judgment was to be collected in Kansas, the Kansas judgment interest rate was
to apply from the date of his order forward. Next, he reduced the amount Pollard was
required to pay to $75 per paycheck, or roughly 10% of her net income. Finally, he
ordered Pollard to sign a voluntary withholding order which reflected a withholding of
$75 per pay period from her paycheck. Once she signed the withholding order, Master
Finance was ordered to release its garnishment. In addition, the district court judge
encouraged Pollard to contact Master Finance after some period of payment and make an
offer in compromise. Master Finance filed a timely notice of appeal. Pollard did not file a
brief.

ANALYSIS

We begin with a general discussion of garnishments.

Garnishment is a procedure whereby the wages of a person can be seized pursuant
to an order of garnishment issued by the district court. K.S.A. 60-729; K.S.A. 61-3502.
The procedure for obtaining an order of garnishment is entirely statutory. See LSF
Franchise REO I v. Emporia Restaurants, Inc., 283 Kan. 13, 19, 152 P.3d 34 (2007).

Anytime after 10 days following the date a judgment is obtained, garnishment may
be used as an aid to collection of the judgment. See K.S.A. 60-731(a); K.S.A. 61-3504(1).
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Accordingly, a garnishment is not considered a cause of action—it is considered an
ancillary or auxiliary proceeding. Associated Wholesale Grocers, Inc. v. Americold
Corporation, 293 Kan. 633, 646, 270 P.3d 1074 (2011).

Once the judgment debtor receives notice of the garnishment of his or her
earnings, he or she has the right to object to the calculation of exempt and nonexempt
earnings. K.S.A. 60-735. The exemptions from wage garnishments in Kansas are also set
out by statute. As it applies to this case, K.S.A. 60-2310(b) limits wage garnishment to
25% of the individual's aggregate disposable earnings. Disposable earnings are defined as
that part of the earnings that remain after any deductions which are required by law to be
withheld. K.S.A. 60-2310(a)(2). There is an additional exemption for periods of sickness
of the debtor or a family member that exceed 2 weeks. K.S.A. 60-2310(c). And finally,
the limits vary slightly if the garnishment is for a support order such as alimony or child
support, which was not the case here. K.S.A. 60-2310(g). Although Missouri provides an
exemption for the head of the household, Kansas has no such exemption. See Mo. Rev.
Stat. § 513.440 (2000); Dunn v. Bemor Petroleum, 737 S.W.2d 187, 189 (Mo. 1987).

Under K.S.A. 60-735(c), "[i]f a hearing is held, the judgment debtor shall have the
burden of proof to show that some or all of the property subject to the garnishment is
exempt, and the court shall enter an order determining the exemption and such other
order or orders as is appropriate." See also K.S.A. 61-3508(c) (containing identical
provisions under the Code of Civil Procedure for Limited Actions).

With this background in mind, we proceed to the issues raised in this case.

The wage garnishment

Master Finance argues that the district court abused its discretion by altering the
wage garnishment. This requires us to review the extent of a judge's authority under
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K.S.A. 60-735(c). Interpretation of a statute is a question of law over which appellate
courts have unlimited review. Unruh v. Purina Mills, 289 Kan. 1185, 1193, 221 P.3d
1130 (2009). The most fundamental rule of statutory construction is that the intent of the
legislature governs if that intent can be ascertained. Bergstrom v. Spears Manufacturing
Co., 289 Kan. 605, 607, 214 P.3d 676 (2009).

There is no dispute that Master Finance followed the statutory procedure to
garnish Pollard's wages and that it was limited to 25% of her disposable income. Pollard
filled out a request for hearing. In response to why she was disputing the garnishment,
she wrote, "I am currently working part-time and I am the head of my household so 25%
of my income would be too much from my household income to maintain my living
arrangements." K.S.A. 60-735(c) requires the judgment debtor, in this case Pollard, to
bear the burden of showing that some or all of the property subject to the garnishment is
exempt. Based on the evidence presented, the court "shall enter an order determining the
exemption and such other order or orders as is appropriate." K.S.A. 60-735(c). The clear
language of the statute limits the hearing to whether the judgment debtor is able to prove
the application of an exemption. If an exemption is established, the court would then be
required to enter an order or orders adjusting the wage garnishment accordingly. It does
not give the court carte blanche to create an exemption that does not exist in the statute.

Pollard failed to allege any exemption recognized under Kansas law, and she
likewise failed to present any evidence at the hearing entitling her to an exemption under
Kansas law. The district judge was limited to ruling on the existence or nonexistence of
an exemption. An abuse of discretion occurs if the discretion is guided by an erroneous
legal conclusion or goes outside the framework of proper statutory limitations or legal
standards or fails to properly consider factors given by higher courts to guide that
discretion. Farrar v. Mobile Oil Corp., 43 Kan. App. 2d 871, 876-77, 234 P.3d 19, rev.
denied 291 Kan. 910 (2010). Here, the district judge abused his discretion by essentially
creating his own exemption. He compared Pollard's income and expenses and determined
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that she could not afford the garnishment of 25% of her disposable income. But the
Kansas garnishment statutes do not allow for any consideration of the debtor's actual
expenses. Calculation of the garnishment amount is based solely upon the debtor's
income. Therefore, the district court's decision fell outside the statutory framework. The
result was the quashing of a garnishment that complied with all legal requirements.
Likewise, the district judge lacked the statutory authority to order the judgment debtor to
complete a "voluntary" withholding order, and he lacked the authority to order Master
Finance to release its garnishment and accept less money per Pollard's pay period than it
was entitled to under the law.

Regardless of whether a court agrees with the legislatively enacted statutory
garnishment scheme, absent a successful challenge to its constitutionality, the court has
the duty to follow the process required by the statute. In this case, we are not presented
with a challenge to the validity of the statute, and the statute clearly required Pollard to
present evidence sufficient to establish that she was entitled to an exemption under the
Kansas garnishment law. She failed to do so; therefore, the garnishment was proper and
the district court abused its discretion when it found otherwise.

Application of the postjudgment interest rate from a foreign judgment

When a properly authenticated judgment of a state other than Kansas is offered as
evidence in a Kansas court, the Full Faith and Credit Clause of the United States
Constitution, Article 4, § 1, gives the foreign judgment the same force and effect in
Kansas as it has in the state where the judgment was rendered. Fischer v. Kipp, 177 Kan.
196, 197-98, 277 P.2d 598 (1954). So once a copy of an authenticated judgment from
another state is filed with a clerk of the district court, the foreign judgment is thereafter
treated as a Kansas judgment and can be executed upon the same. K.S.A. 60-3002;
Padron v. Lopez, 289 Kan. 1089, 1096, 220 P.3d 345 (2009). Whether a judgment is
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entitled to full faith and credit is a question of law subject to unlimited review. Hankin v.
Graphic Technology, Inc., 43 Kan. App. 2d 92, 107, 222 P.3d 523 (2010).

When the parties in this case entered into a payday loan contract, Pollard agreed to
a 199.91% interest rate on the loan. When the Missouri court entered its default judgment
against Pollard for failing to appear at the hearing, it ordered the postjudgment interest
rate to remain at the contractual rate agreed upon by the parties. There was no dispute
that the Missouri judgment was properly filed in Kansas and that the district court was
required to honor and enforce the Missouri judgment. The district court so held. Even
though the Missouri judgment set the postjudgment interest rate at 199.91%, the district
judge altered it to comply with the Kansas statutory rate, which at the time of the hearing,
on August 2, 2011, was 4.75%. See K.S.A. 16-204(e)(1) (rate applicable to civil
judgments "rendered by courts in this state"). The new rate was to apply from the date of
the district court's order forward. Master Finance contends that this was error and resulted
in the district court's failure to give the Missouri judgment full faith and credit.

There can be little doubt that a 199.91% interest rate on a $100 payday loan would
be considered usurious in Kansas, even if agreed to by the parties. See K.S.A. 16a-2-404
(limits the interest rate on payday loans for $500 or less to 15%). But unless the judgment
was entered without jurisdiction, and there is no such allegation here, a judgment from a
sister state cannot be impeached for irregularities in the proceedings or erroneous rulings,
but must be regarded as binding. Padron, 289 Kan. at 1098. In Missouri, the judgment,
including the postjudgment interest rate, would be enforceable as entered. See Mo. Rev.
Stat. § 408.040 (2000); Ponca Finance Co., Inc. v. Esser, 132 S.W.3d 930, 932 (Mo.
App. 2004).

Full faith and credit is not without limitation, however. It "does not mean that
States must adopt the practices of other States regarding the time, manner, and
mechanisms for enforcing judgments." Baker v. General Motors Corp., 522 U.S. 222,
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235, 118 S. Ct. 657, 139 L. Ed. 2d 580 (1998). "'The local law of the forum determines
the methods by which a judgment of another state is enforced.'" 522 U.S. at 235 (quoting
Restatement [Second] of Conflict Laws § 99 [1969]). So clearly, Kansas, not Missouri,
garnishment procedures apply.

Postjudgment interest is a procedural question and not a substantive question. ARY
Jewelers v. Krigel, 277 Kan. 464, 479-80, 85 P.3d 1151 (2004). Thus, using the conflict
of law analysis in ARY Jewelers, when no postjudgment interest has been set forth in the
contract or the judgment itself, the law of Kansas applies in determining what the
postjudgment interest shall be. But Kansas law states that when a contract provides a
specific interest rate, that interest rate continues "until full payment is made, and any
judgment rendered on any such contract shall bear the same rate of interest or charges
mentioned in the contract, which rate shall be specified in the judgment." K.S.A. 16-
205(a). The "parties can agree upon a different rate of interest from the postjudgment rate
fixed by statute." ARY Jewelers, 277 Kan. at 480. Such an agreement existed here.
Accordingly, because the Missouri judgment includes the applicable interest rate in the
judgment itself, there is no conflict and the judgment as a whole, including the
postjudgment interest rate, must be given full faith and credit.

In his written order the district judge recognized that the court "must enforce the
Missouri judgment including the contractual interest rate." Likewise, from the bench he
indicated that "under the full faith and credit, the Court has to honor the judgment that
was imposed by another state court, and, as a result, I am required to enforce the
judgment." He concluded, "[I]t is outrageous; however, it's, most unfortunately for Ms.
Pollard, legal." We agree. The facts of this case cry out for equitable relief. But any
challenge to the Missouri judgment must be raised before the Missouri courts and not in a
collection action in this state. We are bound to follow the law of Kansas and the
Constitution of the United States and enforce the judgment as it comes to us, without
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regard to whether it contravenes the public policy of Kansas or shocks our sensibilities.
See Estin v. Estin, 334 U.S. 541, 544-46, 68 S. Ct. 1213, 92 L. Ed. 1561 (1948).

Reversed and remanded with directions to issue the order of garnishment as
requested by Master Finance.