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Home / Case News / Delaware : Garnished Funds Exempt From Avoidance Under § 547(c)(9)

Delaware : Garnished Funds Exempt From Avoidance Under § 547(c)(9)

July 30, 2019, Eastern District of Michigan – On August 23, 2018, Debtor and the Plaintiff Christopher Andrews initiated an adversary proceeding by filing a complaint against Marvin Miller LLC (the Miller Law Firm). A few months later, the Defendant Independent Purchaser Class (IPC), as an interested third party, filed a motion to dismiss the Debtor’s complaint. IPC was a court-approved settlement class of indirect purchasers harmed by a price-fixing conspiracy among manufacturers of polyurethane foams. Marvin Miller LLC was a law firm representing the class action for indirect purchasers. The law firm belonged to Dickson Wright, who was listed as a creditor that was collecting for Marvin Miller LLC. Marvin Miller LLC had a rule 11 sanctions against the Debtor – plaintiff for an approximate amount of $21,000. Dickson Wright had been garnishing the wages of the Debtor on behalf the Marvin Miller, LLC and IPC. As alleged in the complaint, the Debtor’s attorney sent Dickson Wright a letter couple of times requesting the garnished funds be returned, but the Defendant ignored all the requests. Finally, on May 31, 2018, the Debtor filed for bankruptcy and three months thereafter initiated an adversary proceeding by filing a complaint against Marvin Miller LLC. IPC filed a motion to dismiss the Debtor’s complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The complaint alleged that the IPC’s periodic garnishments within the 90 days pre-petition, exempted by the plaintiff, constituted voidable preferences under 11 USC. § 547.

Further, the complaint stated that IPC also violated the automatic stay provided by 11 USC. § 362 by “holding” the garnished funds. IPC argued that the garnished funds were exempt from avoidance according to 11 USC. § 547(c)(9) as they were not equal to or over $6,451.00 and that the Debtor’s debts were not primarily consumer debts. Additionally, IPC argued that the receipt of garnished funds pre-petition does not violate the automatic stay.

The Court held that IPC was entitled to judgment in its favor because the Debtor’s debts were not primarily consumer debts. The Court added that the garnished funds were exempt from avoidance under § 547(c)(9) as they were not equal to or over $6,451. Additionally, the Court concluded that the Defendant’s refusal to return the garnished funds pre-petition did not constitute post-petition enforcement of a judgment or an attempt to control property of the estate because the garnished funds were not available. The Court also found that since there were no actions taken by the Defendant against estate property, there was no violation of the automatic stay. The Court accordingly held for the Defendant and ruled that the alleged funds were not avoidable as preferences.