Saturday, January 18, 2014

When the Execptions Ate the Rule: Making sense of KRS 427.050

427.050 Out-of-state law applicable when wages earned and payable out-of-state - Exceptions, part (1), provides:
"(1) The law of the state wherein wages are earned and payable relating to exemptions shall apply to all garnishments served in the State of Kentucky, except that Kentucky law shall exclusively apply:
"(a) Where the defendant was personally served with process in the State of Kentucky; or
"(b) Where the defendant was a bona fide resident of the State of Kentucky when the subject debt arose; or
"(c) Where the defendant was a bona fide resident of the State of Kentucky when the cause of action arose".
When I read that statute like I'm reading a newspaper, it's, "Sure. It all makes perfect sense." But, when I try to imagine a hypothetical situation where this statute might make a difference, it is a little bit more difficult. Best I can figure it, KRS 427.050 actually says that the Kentucky rules of wage garnishment apply to any wage garnishment proceeding brought within the Commonwealth of Kentucky unless the debt, the cause of action, service on the defendant, the defendant's work and payment of wages for the defendant's work all happen outside of Kentucky.

One realistic example I can devise when this statute could apply is as follows:
  • Defendant is an out-of-state resident who negligently caused an automobile accident and personal injury while driving in Kentucky. (Forget about insurance.)
  • Defendant is sued in a Kentucky court and a damage judgment is entered for the plaintiff.
  • Defendant not only lives outside Kentucky, but the defendant also works and is paid outside Kentucky.
  • However, the defendant's out-of-state employer also does business in Kentucky, sufficient to render it subject to Kentucky jurisdiction.
  • The plaintiff in the Kentucky personal injury action files the necessary paperwork in the Kentucky court to have a wage garnishment issued to collect the judgment.
  • Voilá! Kentucky's statutory wage garnishment limits do not apply.
Although there is nothing extra special about Kentucky's statutory wage garnishment limits, some other states, like Texas, prohibit wage garnishment altogether. If the negligent driver in the above scenario were a resident of Texas merely driving through Kentucky when the accident happened, he or she would still be entitled to the benefits of Texas law's limits on wage a Kentucky court.

In the reverse situation, wherein a Kentucky resident negligently caused damage in Kentucky, is sued and is served in Kentucky, but subsequently moves to Texas, the Texas prohibition on wage garnishment would not be available in a Kentucky-based garnishment.

It is not so clear if a Texas court would apply Texas wage garnishment law or Kentucky wage garnishment law in this last circumstance. It is clear that a Texas court should give full faith and credit to the Kentucky judgment, but should it also give full faith and credit to Kentucky's exemption laws when the Kentucky judgment is exported to Texas?   

Part (2) of KRS 427.050 is a bigger mystery. That part provides:
"Where the law of a state other than Kentucky applies to a particular garnishment, the garnishee may plead such exemption law."
In a wage garnishment, the "garnishee" is the employer. Generally, it is the judgment debtor (the employee)  who must claim an exemption in garnishment, and not the garnishee employer.

KRS 425.501(4) specifically provides:
"The judgment debtor may appear and claim the exemption of any property or debt that is exempt from execution, and on proof of exemption the garnishment shall be discharged as to the exempt property or debt."
If it ever happens, reconciling these two code sections is  a job for the Kentucky Court of Appeals. The easy solution is that in the very limited circumstances in which KRS 427.050 applies, both the garnishee employer and the judgment debtor employee may raise the out-of-state exemption. Why not?

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