Opinion
No. MO-00-CA-140.
April 10, 2001.
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
Before this Court is Defendant's Motion to Dismiss Plaintiff's First Amended Complaint. After due consideration of the facts and the law, the Court is of the opinion that Defendant's Motion should be GRANTED.
FACTS AND PROCEDURAL HISTORY
Prior to the commencement of the instant case, Defendant Commercial State Banks, Andrews, brought suit against Plaintiff R.J. Clark in state court seeking the recovery of amounts allegedly owed on a promissory note. The state court action, however, was stayed after Plaintiff filed for Chapter 13 bankruptcy. After a full hearing, in which Plaintiff presented his objections to Defendant's claim, Bankruptcy Court Judge Ronald B. King determined that Defendant's claim was allowed. Prior to the confirmation of any reorganization plan, Plaintiff voluntarily dismissed his Chapter 13 bankruptcy case. The bankruptcy court entered an order dismissing Plaintiff's bankruptcy case on October 6, 2000.
On October 10, 2000, Defendant filed a prejudgment writ of garnishment action in the 109th District Court of Andrews County, Texas, against Gary Norwood, the former Chapter 13 Trustee, who was holding approximately $50,000.00 in funds belonging to Plaintiff. Plaintiff filed his Original Complaint on November 6, 2000, raising several causes of action relating to Defendant's filing of the prejudgment writ of garnishment action. Defendant filed its Motion to Dismiss on November 22, 2000. Plaintiff then filed his First Amended Complaint on December 15, 2000. Though it had already filed a Motion to Dismiss the Original Complaint, Defendant filed a Motion to Dismiss Plaintiff's First Amended Complaint. The grounds asserted in the second motion are essentially the same as in the Defendant's first Motion to Dismiss.
In his First Amended Complaint, Plaintiff asserts five claims against Defendant. The first cause of action seeks declaratory relief. Plaintiff asks this Court to find the Texas prejudgment garnishment process, contained in TEX. CIV. PRAC. REM. CODE ANN. § 62.001 et seq. (Vernon 1997), and supplemented by TEX. R. CIV. P. 658, 658a, 663a 664a, unconstitutional. The second cause of action is closely related to the first. Plaintiff asserts that Defendant violated his constitutional right to due process by acting in accordance with § 63.001 et seq., which Plaintiff argues is an unconstitutional statute. By his third and fourth causes of action, Plaintiff asks the Court to find that the funds held by the former bankruptcy trustee are not subject to garnishment under Texas state law. Fifth, Plaintiff claims wrongful garnishment based first on the unconstitutionality of the Texas garnishment statute and, second, on the grounds that the writ of garnishment was procured by false statements.
DISCUSSION I. Plaintiff's request for default judgment based on Fed.R.Civ.P. 12
As a preliminary matter, Plaintiff asserts that Defendant failed to timely answer or respond to its First Amended Complaint. As a result, Plaintiff believes that a default judgment is warranted. This is an incorrect construction of FED. R. CIV. P. 12 and 15. generally, under Rule 12(a)(1)(A), a defendant must file an answer to a complaint within 20 days after being served with the complaint. However, if a defendant chooses to file a Rule 12(b) motion prior to filing an answer, then Rule 12(a)(4)(A) suspends the deadline for answering the complaints. See 5A CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1346 (1990 Supp. 2000) (noting that the weight of authority holds that filing even a partial 12(b) motion suspends the time to respond to the entire complaint). In order to get the benefits of Rule 12(a)(4)(A), the defendant must file the 12(b) motion within the 20 day period for filing an answer.
Here Plaintiff filed his original complaint on November 6, 2000. Defendant filed a Rule 12(b)(6) Motion to Dismiss on November 22, 2000, within the 20 day period. Plaintiff filed his First Amended Complaint December 15, 2000. Under FED. R. CIV. P. 15(b)(2):
An amendment of a pleading relates back to the date of the original pleading when
(2) the claim or defense asserted in the amended pleading rose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading.
In this case, Plaintiff's First Amended Complaint centers on the same prejudgment writ of garnishment that anchors the Original Complaint. In addition, Defendant's Motion to Dismiss the Plaintiff's First Amended Complaint asserts the same grounds as its prior Motion to Dismiss. Furthermore, Rule 15(a) gives the trial court discretion to enlarge the time in which the defendant must file a response to an amended pleading. Accordingly, the Court finds that Defendant's Motions to Dismiss were timely filed and that Plaintiff's Motion for Default Judgment should be DENIED.
II. The Texas pre-judgment garnishment statute is constitutional. A. Standard of Review
In a FED. R. CIV. P. 12(b)(6) motion to dismiss an action for failure to state a claim, the well-pleaded facts alleged in the complaint are taken as true and viewed in the light most favorable to the plaintiff. Campbell v. City of San Antonio, 43 F.3d 973, 975 (5th Cir. 1995). A Rule 12(b)(6) motion tests the formal sufficiency of the plaintiff's complaint. Therefore, Rule 12(b)(6) must be read in conjunction with the pleading requirements set forth in Rule 8(a), which calls for a "short and plain statement of the claim showing that the pleader is entitled to relief." 5A CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1356 (2d ed. 1990). The inquiry for the court is not whether a plaintiff will ultimately prevail but whether a plaintiff is even entitled to offer evidence to support his claims based on the pleadings contained in the complaint. Dismissal will not be ordered unless it appears beyond doubt that the plaintiff would not be entitled to recover under any set of facts that he could prove in support of his claim. Crowe v. Henry, 43 F.3d 198, 203 (5th Cir. 1995) (citation omitted). Though this stringent standard is not impossible to meet, motions to dismiss for failure to state a claim are disfavored, and should be granted only in limited circumstances. Mahone v. Addicks Util. Dist. of Harris County, 836 F.2d 921, 926-27 (5th Cir. 1988).
B. Plaintiff's First and Second Causes of Action
Though Plaintiff pleads his First and Second Cause of Action as separate claims, these claims are actually one in the same. The First Cause of Action is given the heading of declaratory relief and injunction. Plaintiff, however, does not actually request declaratory relief or an injunction. Rather, the relief sought is the same relief sought in the Second Cause of Action: money damages. Accordingly, the Court will treat both Causes of Action simultaneously. The inquiry for the Court is whether Plaintiff sufficiently states a claim under 42 U.S.C. § 1983 so as to survive Defendant's Rule 12(b)(6) motion to dismiss. The Court finds that Plaintiff does not.
The sparse factual allegations pled in the First Amended Complaint essentially boil down to the fact that Defendant applied for and received a prejudgment writ of garnishment of property owned by Plaintiff but held by the Chapter 13 Trustee. The remainder of pleadings and allegations relating to the first two claims merely aver that the Texas prejudgment garnishment statute itself lacks the procedural safeguards required by the Due Process Clause. Even if the Court accepts the factual allegations as true, Plaintiff fails to state a cause of action upon which relief can be granted. Plaintiff's bare legal conclusion that the Texas statute is unconstitutional so that Defendant's use of it constitutes a § 1983 violation is insufficient to shield it from a Rule 12(b)(6) dismissal if the facts alleged do not support such a conclusion. See District 28, United Mine Workers of America v. Wellmore Coal Corp., 609 F.2d 1083, 1085 (4th Cir. 1979) ("While it is true that this court, in reviewing the Rule 12(b)(6) dismissal, must accept the factual allegations of the complaint, we are not bound with respect to its legal conclusions."); see also Kansa v. Reinsurance v. Congressional Mrtg. Corp., 20 F.3d 1362, 1366 (5th Cir. 1994) ("While the district court must accept as true all factual allegations in the complaint, . . . it need not resolve unclear questions of law in favor of the plaintiff."); Fernandez-Montes v. Allied Pilots Assoc., 987 F.2d 278, 284 (5th Cir. 1993) ("[C]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss."); Associated Builders, Inc. v. Alabama Power Co., 505 F.2d 97, 100 (5th Cir. 1974) ("Conclusory allegations and unwarranted deductions of facts are not admitted as true.").
1. The Texas prejudgment garnishment statute does not violate the Due Process Clause.
The Supreme Court in Fuentes v. Shevin, 407 U.S. 67 (1972) examined the requirements of the Due Process Clause as it relates to states' prejudgment replevin, garnishment, and sequestration statutes. The Court found that fundamental to procedural Due Process is the principle that the "[p]arties w hose rights are to be affected are entitled to be heard; and in order that they may enjoy that right they must first be notified." Id. at 80. In addition, the Due Process Clause mandates that "the right to notice and an opportunity to be heard must be granted at a meaningful time and in a meaningful manner." Id. (citation omitted). In the context of a prejudgment writ of garnishment, replevin, or sequestration, the right to notice and a hearing must be available to the debtor at a time and manner that allows the debtor to prevent wrongful deprivation of his property. Id. at 82, 81-82 ("[W]hatever its form, opportunity for that hearing must be provided before the deprivation at issue takes effect."). Generally, the existence of other procedural safeguards, such as requiring the writ applicant to post bond or precluding the issuance of a prejudgement writ except by order of a court, cannot save a state statute that lacks meaningful notice and a meaningful opportunity to be heard. Id. 84, 83-84 (holding that the existence of other procedural safeguards "are far from enough by themselves to obviate the right to a prior hearing of some kind").
The Supreme Court further clarified the requirements of the Due Process Clause in Mitchell v. W.T. Grant Co., 416 U.S. 600 (1974). Of particular note, the Court held a state statute constitutional even though it that allowed for the ex parte issuance of a prejudgment writ of sequestration. Id. at 606-07. Mitchell involved a Louisiana statute that allowed for the sequestration of a debtor's personal property upon ex parte application by a creditor, without prior notice or opportunity for a hearing. In determining that this statute did not violate the Due Process Clause, the Court emphasized that (1) the statute did not allow the issuance of a writ based on conclusory allegations of ownership or possessory rights; (2) the writ could be issued only upon authorization by a judge; and (3) the creditor was required to post a bond sufficient to protect the debtor against damages in the event that garnishment or sequestration was later show n to have been improvidently granted. Id. at 605-06. In Shevin, the presences of these factors by themselves were held insufficient to abrogate the debtor's right to notice and opportunity for hearing. Shevin, 407 U.S. at 84, 83-84 (holding that the existence of other procedural safeguards "are far from enough by themselves to obviate the right to a prior hearing of some kind"). The Court, however, found that the concerns for the right to notice and the opportunity to be heard raised by the fact that the statute permitted a creditor to apply for the writ ex parte were addressed by the statute's provision which allowed the debtor to obtain the immediate dissolution of the writ unless the creditor proved the grounds upon which the writ was issued. Mitchell, 416 U.S. at 606.
Shevin and Mitchell inform this Court that in order for a state garnishment statute to be meet the requirements of the Due Process Clause, it must have meaningful safeguards against wrongful garnishment. North Ga. Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, (1975). These safeguards include (1) the determination as to whether to issue a prejudgment writ of garnishment is made by a judicial officer; (2) the creditor must post an adequate bond; (3) the debtor must be given meaningful notice and opportunity to be heard, and; (4) the debtor must be given timely opportunity for dissolution or modification of the writ upon the applicant's failure to prove the grounds upon which the writ was issued. See Di-Chem, 419 U.S. at 605-07 (examining Shevin and its progeny to discern the "saving characteristics" that a garnishment statute must have in order to survive Due Process scrutiny). An examination of the Texas garnishment statute reveals that it contains these requisite safeguards, and, therefore, is constitutional. Southwest Metal Fabricators, Inc. v. Internacional de Aceros, S.A., 503 F. Supp. 76, 77-78 (S.D. Tex. 1980) (determining that the Texas garnishment statute provides sufficient notice and opportunity to be heard to be constitutional).
Garnishment is a statutory process in which the property, money, or other assets of a debtor that are in the possession of another — referred to as the garnishee — are applied to the payment of the creditor's debt. Thompson v. Harco Nat'l Ins. Co., 997 S.W.2d 607, (Tex.App.-Dallas 1998, no writ). An applicant may obtain a writ of garnishment if he has a "valid, subsisting judgment and makes an affidavit stating that, within the [applicant's] knowledge, the debtor does not possess property in Texas subject to execution sufficient to satisfy the judgment." TEX. CIV. PRAC. REM. CODE ANN. § 63.001 (Vernon 1997).
Under the Texas garnishment scheme, a prejudgment writ of garnishment is attended by additional procedural safeguards, which are contained in the TEXAS RULES OF CIVIL PROCEDURE. Hering v. Norbanco Astin I, Ltd., 735 S.W.2d 638, 640 (Tex.App.-Austin 1987, writ denied) (emphasis in original) ("[A] debtor in a prejudgment garnishment action would be entitled to particular due process protections of notice and an opportunity to be heard."). First, the party seeking the prejudgment writ must post a sufficient bond with the court. TEX. R. CIV. P. 658a. In addition, a prejudgment writ may be obtained only by order of the court after a hearing, which may be ex parte. TEX. R. CIV. P. 658. Although the writ may be issued ex parte, the statute provides for meaningful notice by requiring that a copy of the writ be served on the debtor, as soon as practicable following the service of the writ, along with the following notice:
You are hereby notified that certain properties alleged to be owned by you have been garnished. If you claim any rights in such property, you are advised:
YOU HAVE A RIGHT TO REGAIN POSSESSION OF THE PROPERTY BY FILING A REPLEVY BOND. YOU HAVE THE RIGHT TO SEEK TO REGAIN POSSESSION OF THE PROPERTY BY FILING WITH THE COURT A MOTION TO DISSOLVE THIS WRIT."
TEX. R. CIV. P. 663a. Under Rule 664a, the debtor may then move to vacate, dissolve, or modify the writ. TEX. R. CIV. P. 664a. This motion "shall be heard promptly . . . and the issue shall be determined not later than ten days after the motion is filed." Id. After a Rule 664a hearing, the debtor has the right to have the writ of garnishment "dissolved unless, at such hearing, the plaintiff shall prove the grounds relied upon for its issuance." Id.; see also Thompson, 997 S.W.2d at 612 (outlining the procedures for a prejudgment writ of garnishment under the Texas statute). Rules 663a and 664a provide the meaningful right to notice and opportunity to be heard required by the Due Process Clause. See Di-Chem, 419 U.S. at 723 (finding a state garnishment statute unconstitutional based in part on the statute's lack of a provision for an early hearing at which debtor could challenge the writ); Mitchell, 416 U.S. at 606 (finding constitutional a state sequestration statute that allowed for ex parte application but entitled the debtor to immediate hearing after seizure and to dissolution of the writ if creditor failed to prove grounds upon which writ was issued).
Plaintiff also argues that the amendments enacted by the Texas Supreme Court, which provide the procedural safeguards outline above, are themselves invalid because the Texas Supreme Court cannot create or enlarge substantive rights via its rule making power. Plaintiff's argument is misplaced. Shevin, Mitchell, and Di-Chem make clear that the constitutional concern raised by state prejudgment garnishment, sequestration, and replevin statutes is one of procedure and not substance. See Shevin, 407 U.S. at 80 (emphasis added) (acknowledging that the constitutionality of the Florida and Pennsylvania statutes turned on the "central meaning of procedural due process"). Specifically, these statutes raised questions not as to whether they were unconstitutional as a matter of substantive law, but whether the statutes contained the requisite procedural protections, such as the right to notice and opportunity for a hearing. Accordingly, the Texas Supreme Court did not create or enlarge substantive rights in violation of its rule making powers by enacting procedural rules to govern the application of prejudgment writs of garnishment.
In light of these validly enacted procedural safeguards, the Court finds that the Texas garnishment statute, TEX. CIV. PRAC. REM. CODE ANN. § 62.001 et seq. (Vernon 1997), supplemented by TEX. R. CIV. P. 658, 658a, 663a 664a, does not run afoul of the Due Process Clause and, therefore, is constitutional. Southwest Metal, 503 F. Supp. at 77-78. Plaintiff does not allege that he was specifically and individually denied the relevant procedural safeguards of the Texas Rules of Civil Procedure, that is, he was denied an opportunity for hearing. Instead, the pleadings only allege that the Texas statute itself is unconstitutional. As noted above, even if the Court takes Plaintiff's factual allegations as true, the erroneous legal assertion that the statute is unconstitutional is insufficient to state a viable claim under 42 U.S.C. § 1983.
Therefore, Defendant's Motion to Dismiss is GRANTED as to Plaintiff's First and Second Causes of Action.
C. Plaintiff's Third and Fourth Cause of Action
Plaintiff seeks declaratory and injunctive relief by his Third and Fourth Causes of Action. Under his Third Cause of Action, Plaintiff asserts that the funds that Defendant seeks to garnish are not subject to garnishment because they are held by a Chapter 13 Trustee of a United States Bankruptcy Court for performance of a government function. Under his Fourth Cause of Action, Plaintiff argues that the funds held by the Trustee are not subject to garnishment under the doctrine of custodia legis. This doctrine prevents one court from attempting to seize the assets held in the control of another court. See In re Doherty, 229 B.R. 461, 465 (Bnkrtcy. E.D. Wash. 1999) (describing the doctrine of custodia legis and the policy underlying it). Both of these arguments are unpersuasive.
1. Garnishment of the former Chapter 13 Trustee is not prohibited.
Again, the central facts are not in dispute. Taking Plaintiff's factual allegations as true, the Court nonetheless finds that Plaintiff's Third and Fourth Causes of Action, which consist largely of the legal conclusion that garnishment is prohibited, fail to state a cause of action.
Plaintiff's argument that the funds being held by a Chapter 13 Trustee are not subject to garnishment is incorrect. Under 11 U.S.C. § 349(b)(3), when a bankruptcy case is dismissed prior to the confirmation of a plan, the bankruptcy estate terminates upon the dismissal. In re Doherty, 229 B.R. at 463. Section 349(b)(3) states:
Unless the court, for cause, orders otherwise, a dismissal of a [Chapter 13 bankruptcy] case . . .
(3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title.
Accordingly, once dismissal is ordered, the property of the "bankruptcy" estate revests in the entity which held the property prior to the commencement of the bankruptcy case. In re Doherty, 229 B.R. at 463. This revestment, however, is not automatic. Before the funds may be returned to the debtor, the Chapter 13 Trustee must complete the administration of the case, including making payments for expenses related to the administration of the estate. Id. at 464. 11 U.S.C. § 1326(a)(2) provides:
If a plan is not confirmed, the trustee shall return any such payment to the debtor, after deducting any unpaid claim allowed under section 503(d) of this title.
Though the doctrine of costudia legis protects the funds required to pay the administration expenses under 11 U.S.C. § 1326(a)(2), it does not protect the remaining funds because the estate terminates upon dismissal. See Doherty, 229 B.R. at 466 (holding that the language of § 1326(a)(2) does not extend the automatic stay provisions, which protect estate assets, after the entry of order of dismissal). The dismissal of the bankruptcy case prior to confirmation removes the protections afforded by the bankruptcy code, and the funds belonging to the debtor but which are held by the trustee are not afforded special protection from garnishment merely because they were once a part of a bankruptcy estate. As one bankruptcy court has noted:
[O]nce the order of dismissal is entered, and the stay has been lifted, and the Trustee has been ordered to turn over funds to the Debtor, she becomes a debtor of the Debtor to that extent. The funds held by the Trustee are subject to levy or garnishment by creditors of the Debtor, pursuant to applicable law. The Trustee is bound to accept the levy if she has any money that belongs to the Debtor.
In re Schlapper, 195 B.R. 805, 806 (Bankr. M.D. Fla. 1996). Therefore, the Court finds that the funds held by Gary Norwood, the Chapter 13 Trustee are subject to Defendant's writ of garnishment, except for the funds needed to pay the expenses of the estate administration under 1326(a)(2). Id. at 465-66 (holding that a writ of garnishment of funds held by Chapter 13 trustee was not prohibited where case was dismissed before plan was confirmed, administration expenses had been fully paid, and the only remaining duty was the return of the remainder of funds to the debtor); Schlapper, 195 B.R. at 806.
The Court grants Defendant's Motion to Dismiss Plaintiff's Third and Fourth Causes of Action.
D. Plaintiff's Fifth Cause of Action
In light of the Court's decision to dismiss Plaintiff's first four causes of action, the Court finds that it does not have subject jurisdiction over Plaintiff's remaining Fifth Cause of Action, which does not present a federal question. Plaintiff's Fifth Cause of Action asserts a state tort law claim for wrongful garnishment; no federal statute provides a cause of action for such a claim. Pursuant to FED. R. CIV. P. 12(b)(1), the Court sua sponte dismisses Plaintiff's Fifth Cause of Action for lack of subject matter jurisdiction without addressing the merits of the claim.
CONCLUSION
It is therefore ORDERED that Defendant's Motion to Dismiss Plaintiff's First Amended Complaint is GRANTED.