Opinion
Nos. 151-153.
Argued October 29, 1969. —
Decided November 25, 1969.
APPEAL from judgments of the circuit court for Dane county: W. L. JACKMAN, Circuit Judge. Reversed.
For the appellants there were briefs and oral argument by Richard R. Rynders of Madison.
For the respondents Norman L. Larson and Howard R. Meyer there was a brief by Lawton Cates, and oral argument by John H. Bowers, all of Madison.
For the respondents Northwest Airlines, Inc., et al. there was a brief by Jasper, Winner, Perina Rouse and Robert I. Perina, attorneys, and Harry Sauthoff, Jr., of counsel, all of Madison, and oral argument by Mr. Sauthoff.
Actions in garnishment. The judgments appealed from dismissed the claims of all of the intervening defendants.
On June 11, 1965, a Mr. Frank T. Fetherston purchased the Mueller Travel Agency from Messrs. Larson and Meyer. Shortly thereafter the agency assets were transferred to the Mueller Travel Agency, Inc., which had been incorporated on or about June 8, 1965. The officers and directors of this corporation were Messrs. Fetherston, Johnson and Parker, the former also being its president.
All rights formerly held by Messrs. Larson and Meyer were thus ultimately transferred to the newly organized corporation. Included among these rights was the right to sell tickets for several airlines, including Northwest Airlines, Inc., Eastern Airlines, Inc., Trans World Airlines, Inc., Delta Airlines, Inc., American Airlines, Inc., and North Central Airlines, Inc.
These airlines represented by the Air Traffic Conference of America (hereinafter "ATC") had originally appointed Messrs. Larson and Meyer as selling agents. The agency agreement between it and the agents had provided that:
"All moneys, less applicable commissions . . . shall be the property of the Carrier, and shall be held in trust by the Agent until satisfactorily accounted for to the Carrier. . . ."
Originally this agreement had also required that all agents maintain special deposit accounts for the proceeds of ticket sales. However, this requirement was eliminated effective January 1, 1963, and replaced with the requirement that agents obtain fidelity bonds. Pursuant to this requirement a bond covering both Larson and Meyer was procured from the Insurance Company of North America (hereinafter "ICNA"). Despite the elimination of special deposit requirements, the trust provision quoted above remained in effect.
Upon sale of the agency to Mr. Fetherston, Messrs. Larson and Meyer contacted ICNA to transfer coverage to the Mueller Travel Agency, Inc. Under the subsequently issued fidelity bond ICNA agreed that it would indemnify the ATC group for all defalcations of the Mueller Travel Agency, Inc., up to $50,000, but required that Messrs. Johnson, Parker and Fetherston agree to personally indemnify it, should such payment to the ATC group be required.
From the time of its inception in June of 1965 until January of 1967, the Mueller Travel Agency, Inc. (hereinafter "Mueller") deposited the proceeds of its ticket sales, as well as all other funds into a single account in the First National Bank of Madison. Until January of 1967, it had also remitted from this account the proceeds of airline ticket sales. Such remittances were required on a regular basis under the terms of its agreement with ATC.
In January or early February of 1967, the First National Bank terminated its relationship with Mueller, and Mueller's remittances to ATC were likewise discontinued. Unknown to the ATC group Mueller had pledged the accounts receivable of its ticket sales to the bank as security for an outstanding loan. Thus, when the bank closed out Mueller's account, it offset the outstanding loan against Mueller's then-existing deposit balance. Although Mueller's balance at that time was substantially composed of proceeds from ticket sales, the funds retained by the bank are not the subject of this action.
Shortly after termination of its relationship with the First National Bank of Madison, Mueller opened an account with the Commercial State Bank of Madison. On February 21, 1967, Messrs. Larson and Meyer, to whom Mueller was also indebted, commenced an action for the garnishment of the $18,794.72 then on deposit.
Upon learning of this action Mueller opened an account at the First National Bank of Columbus, but on July 10, 1967, Messrs. Larson and Meyer garnisheed this account as well. At the time of this action $12,775.69 had been in the Mueller account.
In each of these actions the ATC group, as well as Messrs. Johnson and Parker, subsequently intervened as parties defendant, claiming that the funds in both accounts were trust funds not belonging to Mueller. After intervening as parties defendant, Messrs. Johnson and Parker cross-complained against ATC, claiming that they were entitled to a pro rata share in the funds. Their basis for this claim was that subsequent to the default of Mueller, and the payment by ICNA to ATC, they had been required to indemnify ICNA.
On July 14, 1967, ATC also attempted to garnishee the funds on deposit with both the Commercial State Bank of Madison and the First National Bank of Columbus. Messrs. Johnson and Parker again intervened as parties defendants and, in addition, cross-complained against Mueller as well as Messrs. Larson and Meyer who had been named along with Mueller as parties defendant by ATC.
These three cases were then tried to the circuit court for Dane county wherein it was determined that Mueller was indebted to listed parties as follows:
Messrs. Larson and Meyer $24,352.44 Northwest Airlines, Inc. 7,720.21 Eastern Airlines, Inc. 2,454.79 Trans World Airlines, Inc. 8,734.23 Delta Airlines, Inc. 1,535.20 American Airlines, Inc. 6,493.34 North Central Airlines, Inc. 861.15After further determining that Commercial State Bank of Madison and the First National Bank of Columbus were indebted to Mueller in the amounts of $18,749.72 and $12,775.69, respectively, the judge ordered these amounts on deposit be applied to the debt owed to Messrs. Larson and Meyer with the remainder to be applied pro rata to the airlines. The complaints of Messrs. Johnson and Parker were then dismissed. From these respective judgments ATC and Messrs. Johnson and Parker appeal.
Although not previously mentioned, it is to be noted that the instant garnishments were commenced prior to judgment in accordance with sec. 267.02 (1) (a) 1, Stats. Subsequent, however, to both the commencement of these actions and the judgments rendered therein, the United States Supreme Court in Sniadach v. Family Finance Corp. (1969), 395 U.S. 337, 89 Sup. Ct. 1820, 23 L.Ed.2d 349, declared this statute unconstitutional.
Two issues are raised on this appeal:
(1) Does the Sniadach decision, dated June 9, 1969, render the instant judgments inoperative; and
(2) Did the funds deposited in the garnishee banks constitute trust funds not subject to garnishment?
Applicability of Sniadach Decision.
The respondents seek to avoid dismissal of their garnishment actions by arguing that:
(1) The Sniadach decision was limited in scope and should be applied only to garnishment of wages, while wages are in the hands of the employer, claiming the purpose of the decision was only to protect wages; and
(2) That the decision is only a rule of future procedure and should not be applied to any case instituted before the decision is handed down.
An examination of the decision reveals a wider scope of application than that contended for by respondents.
The United States Supreme Court in Sniadach, supra, stated at pages 339 and 342, respectively:
". . . In this case the sole question is whether there has been a taking of property without that procedural due process that is required by the Fourteenth Amendment. . . ." and
". . . Where the taking of one's property is so obvious, it needs no extended argument to conclude that absent notice and a prior hearing (cf. Coe v. Armour Fertilizer Works, 237 U.S. 413, 423) this prejudgment garnishment procedure violates the fundamental principles of due process."
Although the majority opinion in Sniadach makes considerable reference to the hardship of the unconstitutional procedure upon the wage earner, we think that no valid distinction can be made between garnishment of wages and that of other property. Clearly, a due process violation should not depend upon the type of property being subjected to the procedure. Under the respondents' contention wages in the hands of the employer would be exempt from prejudgment garnishment, but wages deposited in a bank or other financial institution would be subject to prejudgment garnishment.
Having concluded that the rule of Sniadach applies to all garnishment actions, we must determine its applicability to the present garnishment actions. In concluding that the rule in Sniadach is applicable, we need not apply the decision retrospectively for these cases are now before us on appeal; and the question of whether or not a rule of constitutional procedure is to be applied retrospectively arises only for causes which have been finalized.
In State ex rel. La Follette v. Raskin (1966), 30 Wis.2d 39, 48, 139 N.W.2d 667, we stated cases were finalized only when "there has been a judgment of conviction, sentence and exhaustion of rights of appeal." These garnishment actions have not reached the stage of finalization. This is a pending action.
1 Am. Jur. 2d, Actions, p. 620, sec. 91, states:
". . . An action may be deemed pending after judgment has been rendered provided . . . an appeal is being taken, . . ."
Since the Sniadach decision is applicable to the instant garnishment actions, the judgments must be reversed. Therefore, we do not reach the issue of whether the funds deposited in the garnishee banks constituted trust funds not subject to garnishment.
By the Court. — Judgments reversed with directions to dismiss the garnishment complaints.