

Reversed and Rendered and Memorandum Opinion filed March 24,
2011
 
In
The
Fourteenth
Court of Appeals

NO. 14-10-00186-CV

CharlIta
Ayllene Marrs, Appellant 
v.
Michael Dennis
Marrs and Jacqueline Taylor, Appellees 

On Appeal from
the 268th District Court
Fort Bend County, Texas
Trial Court
Cause No. 09-DCV-175658

 
OPINION 
            In
this appeal from a turnover order, appellant Charlita Ayllene Marrs raises two
issues: (1) the trial court erred in ordering the turnover of her exempt wages
paid directly to a bankruptcy trustee under a wage order; and (2) the trial
court erred in adjudicating the substantive rights of the parties relating to
the invalidity of a promissory note and owelty deed of trust in the turnover
action.  We reverse and render. 
I
            On
December 14, 2007, Charlita and Michael Dennis Marrs were divorced.  Although
the original divorce decree is not in the record, the record reflects that,
among other things, the trial court ordered Charlita to pay $90,367.12 with
interest to Michael’s attorney, Jacqueline Taylor, for attorney’s fees Michael
incurred.  In connection with the trial court’s award of a judgment for
attorney’s fees to Taylor, Charlita was ordered to execute a real estate lien
note secured by an owelty deed on the marital home.  Apparently out of concern
that a lien against a homestead may be invalid, Michael moved the trial court
to reform the divorce decree.  On February 26, 2008, the trial court vacated
the earlier decree and signed a “Reformed Final Decree of Divorce” in which the
trial court ordered that Michael’s attorney, Jacqueline Taylor, was granted an
unsecured judgment against Charlita for $90,367.12 with interest, representing
seventy-five percent of Michael’s attorney’s fees and expenses.  The court also
awarded $3,178.00 in costs to Michael.
            In
July 2008, Charlita filed a petition for Chapter 13 bankruptcy in the U.S.
Bankruptcy Court for the Southern District of Texas in Houston.  In the
bankruptcy proceeding, Charlita filed a proposed plan in which her employer,
Rice University, would pay a portion of her wages directly to the bankruptcy
trustee to pay creditors.  Consistent with the plan, the bankruptcy judge
signed a wage order requiring Rice University to pay $1,560.00 each month out
of Charlita’s income to the trustee.  The wage order was later amended to order
Rice University to pay a total of $2,940.00 each month out of Charlita’s income
to the trustee.  
            In
September 2009, Charlita filed a notice of voluntary dismissal of the Chapter
13 bankruptcy proceeding.  Michael opposed the dismissal and moved to convert
the case from a Chapter 13 to a Chapter 7 bankruptcy.  On October 8, 2009, the
bankruptcy court ordered Charlita’s Chapter 13 bankruptcy proceeding dismissed,
and ordered the trustee to immediately disburse the balance of any funds on
hand, less approved administrative expenses, to Charlita.  
            Shortly
thereafter, on October 13, 2009, Michael filed an application for turnover
relief to require Charlita or the bankruptcy trustee to turn over at least $23,536.82
that remained with the trustee.  Taylor also filed a petition for intervention
as Michael’s attorney in the divorce action against Charlita, to aid in
satisfaction of the judgment in Taylor’s favor for attorney’s fees.  In an
amended petition, Taylor requested a temporary restraining order to prevent the
bankruptcy trustee from disbursing any funds to Charlita or Charlita from spending,
depositing, transferring, alienating, or gifting funds disbursed to her by the
bankruptcy trustee.  The trial court granted the temporary restraining order
and set the matter for hearing.
            On
November 13, 2009, the trial court held a hearing on the applications for
turnover relief.  The trial court also requested supplemental briefing
concerning Charlita’s argument in response that the original real estate lien
note, which was executed and delivered to Taylor, was a promissory note that
satisfied the judgment in favor of Taylor.[1] 
On January 20, 2010, the trial court signed an order granting turnover relief
and ordering the bankruptcy trustee to place Charlita’s remaining funds in the
court registry for payment to Taylor.[2] 
The trial court also filed findings of fact and conclusions of law which
included findings and conclusions that the original owelty deed was an illegal
document and the real estate lien note was void and failed for lack of
consideration.
II
A
            We
review the granting or denial of a turnover order for an abuse of discretion.  Beaumont
Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991).  Whether a turnover
order is supported by evidence is a relevant consideration in determining if a
trial court abused its discretion.  Id.  A trial court abuses its
discretion if it acts in an unreasonable or arbitrary manner or without
reference to any guiding rules or principles.  Id.  A trial court has no discretion, however, when determining
what the law is, which law governs, or how to apply the law.  Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992); Sanjar v. Turner, 252 S.W.3d 460, 463 (Tex. App.—Houston
[14th Dist.] 2008, no pet.).  Consequently, a trial court’s erroneous legal
conclusion, even in an unsettled area of law, is an abuse of discretion.  See
Lozano v. Lozano, 975 S.W.2d 63, 66 (Tex. App.—Houston
[14th Dist.] 1998, pet. denied).
            The
Texas turnover statute is a procedural device by which judgment creditors may
receive aid from a court under its provisions if the judgment debtor owns nonexempt
property that could not be readily be attached or levied on by ordinary legal
process.  See Tex. Civ. Prac. & Rem. Code § 31.002(a); Beaumont
Bank, N.A., 806 S.W.2d at 224.  A court may order the debtor to turn over
nonexempt property in the debtor’s possession or subject to his or her control to
a sheriff or constable for execution, otherwise apply the property to satisfy
the judgment, or appoint a receiver to take possession of the property to sell
it and pay the proceeds to the judgment creditor.  Tex. Civ. Prac. & Rem.
Code § 31.002(b).  A court may not order the turnover of property that is
“exempt from attachment, execution, or seizure for the satisfaction of
liabilities.”  See id. § 31.002(a)(2).  As a general rule, the
party asserting an exemption bears the burden of establishing entitlement to
the exemption.  Roosth v. Roosth, 889 S.W.2d 445, 459 (Tex. App.—Houston
[14th Dist.] 1994, writ denied).  
B
            In
her first issue, Charlita contends the trial court erred in ordering the
turnover of her wages because they were exempt.  Specifically, she argues that
her employer paid her wages directly to the bankruptcy trustee as ordered by
the bankruptcy court and she did not receive, voluntarily relinquish, or
exercise control over the wages.  Charlita also challenges certain of the trial
court’s findings of fact and conclusions of law relating to the turnover
order.   
            Current
wages have been exempt from garnishment in Texas at least since the current
constitution was ratified in 1876.  See Tex. Const. art. XVI, § 28.  Current
wages are also exempt from attachment, execution, or other seizure under the
Property Code.  See Tex. Prop. Code § 42.001(b)(1).[3]  
            Michael
and Taylor generally acknowledge that current wages for personal services are
exempt from attachment, execution, and seizure for the satisfaction of debts. 
But they argue that, once wages are received by the judgment debtor, they cease
to be current and are no longer exempt upon being paid to and received by the
wage earner.  For this proposition, Michael and Taylor rely on Cain v. Cain,
746 S.W.2d 861 (Tex. App.—El Paso 1988, writ denied), and Sloan v. Douglass,
713 S.W.2d 436 (Tex. App.—Fort Worth 1986, writ ref’d n.r.e.).  They further
cite Sloan for the proposition that the exemption continues only until
(1) the wages are due and in the possession of the debtor, or (2) upon the
debtor’s demand, could be in his possession.  Sloan, 713 S.W.2d at 440. 

            However,
Texas courts, including this court, have recognized that in 1989 the
legislature added subsection (f) to the turnover statute, implicitly overruling
the line of cases holding that wages were no longer “current” once they had
been paid to and received by the debtor.  See Goebel v. Brandley, 174
S.W.3d 359, 364–65 (Tex. App.—Houston [14th Dist.] 2005, pet. denied); Burns
v. Miller, Hiersche, Martens & Hayward, P.C., 948 S.W.2d 317, 323 (Tex.
App.—Dallas 1997, writ denied).  Subsection (f) specifically provides that “[a]
court may not enter or enforce an order under this section that requires the
turnover of the proceeds of, or the disbursement of, property exempt under any
statute . . . .”  Id. § 31.002(f).  As the Texas Supreme Court
explained, “[b]y prohibiting the turnover of the proceeds of property exempt
under any statute, [section 31.002(f)] necessarily prohibits the turnover of
the proceeds of current wages.”  Caulley v. Caulley, 806 S.W.2d 795, 798
(Tex. 1991). 
            Nevertheless,
both parties also point to Sloan for the proposition that when
determining whether wages have lost their exemption there must be a showing
that the debtor voluntarily placed the wages with another and also retained
control over them.  See Sloan, 713 S.W.2d at 440.  Even if we assumed
that the reasoning in Sloan applies, we would conclude that the evidence
Michael and Taylor point to does not satisfy the stated elements.  In Sloan,
the court held that even though a professional baseball player voluntarily
agreed to a contract in which a portion of his wages were deferred for a period
of years, he did not have the option of demanding the wages before they were
due as provided in the contract.  Thus, the court held, the deferred income
remained current wages not subject to garnishment.  Id.  Similarly, in Goebel
v. Brandley, this court held that a judgment debtor’s purchase of savings
bonds in her children’s names through a payroll deduction, although voluntary,
constituted a transfer of current wages and was therefore exempt under the
Texas Uniform Fraudulent Transfer Act.  174 S.W.3d at 364.  Moreover, the Goebel
court noted it was undisputed that the debtor, like Charlita, did not receive
the subject wages and did not deposit them into her bank account.  Id.
at 365–66.
            In
this case, Michael and Taylor argue that Charlita had control of her wages and
then voluntarily directed how they were to be used by directing that her
“disposable income” fund her voluntary Chapter 13 bankruptcy; thus, her wages
were no longer exempt.  They point to testimony provided at the hearing by Michael’s
bankruptcy attorney, Harold Parker, who testified as an expert on their
behalf.  Parker testified that a debtor voluntarily initiates a Chapter 13
bankruptcy proceeding, proposes the plan to allocate the debtor’s money to the
creditors, and could voluntarily dismiss the proceeding.  He also testified
that a judgment debtor has the right to choose between utilizing a wage
withholding order to fund the bankruptcy or to pay the trustee directly, and that
Charlita chose the wage withholding method.  Thus, Parker opined, the
bankruptcy funded by a wage order was no different than if Charlita had merely
deposited the money in her bank account.  Parker also opined that once the
bankruptcy proceeding is dismissed, the court could exercise any type of
garnishment or turnover because the funds are not current wages and “it’s just
like a bank account.”  But Parker also acknowledged that while Charlita’s wages
were deposited with the trustee, she could not write a check to access the
wages, and, except for circumstances not present in Charlita’s case, the
trustee would have to get permission from the bankruptcy court to return the
money to her.  He also agreed that Charlita could not force the trustee to
return the money to her without a dismissal of the proceeding.  Additionally,
Parker admitted that the portion of Charlita’s salary that was directed to the
bankruptcy trustee did not go directly to her.  
            Thus,
Michael and Taylor put on evidence that Charlita voluntarily initiated a
Chapter 13 bankruptcy proceeding, proposed the plan in which a portion of her
wages were paid directly from her employer to the bankruptcy trustee to pay her
creditors, and voluntarily dismissed the proceeding.  But there was no evidence
that Charlita could access that portion of her wages paid by the employer
directly to the trustee without the approval of the bankruptcy court before the
bankruptcy proceeding was dismissed.  Further, the bankruptcy court’s wage
order expressly provided that the deductions “shall continue until further
order of this [c]ourt,” indicating that the court, not Charlita, controlled the
proceeding.  Likewise, the trial court’s findings of fact included a finding
that it was the bankruptcy court, not Charlita, that ultimately ordered the trustee
to disburse to Charlita the funds remaining after the dismissal.  Thus, the
evidence does not support Parker’s conclusion that the bankruptcy proceeding
was no different than if Charlita had merely placed her wages in her bank
account.  Additionally, there is no probative evidence that Charlita controlled
that portion of her wages sent directly to the trustee while the bankruptcy
continued.
            Once
the bankruptcy proceeding was dismissed, however, and the remaining funds were
ordered paid to Charlita, those funds arguably are no longer exempt.  See
Burns, 948 S.W.2d at 322 (stating that once a trustee pays or delivers
trust assets out of a spendthrift trust, they are no longer exempt property
under the turnover statute).  At that point, however, they become the proceeds
or disbursements of exempt property, and thus are not subject to a turnover
order.  See Tex. Civ. Prac. & Rem. Code § 31.002(f); Caulley,
806 S.W.2d at 798.  Michael and Taylor cite Clark v. Commercial State Bank,
No. MO-00-CA-140, 2001 WL 685529 (W.D. Tex. Apr. 16, 2001), as support for the
argument that, after the bankruptcy case is dismissed prior to confirmation (as
apparently occurred here), funds held by a Chapter 13 trustee are subject to
garnishment.  But Clark is distinguishable because it involved a
garnishment rather than a turnover, and this court has declined to apply
section 31.002(f) of the turnover statute to garnishment actions.  See, e.g., Am.
Express Travel Related Servs. v. Harris, 831 S.W.2d 531, 533 (Tex.
App.—Houston [14th Dist.] 1992, no pet.).  Moreover, Clark did not
discuss or address the Texas statutory exemption for current wages.  
            On
this record, therefore, we hold that the trial court abused its discretion by
signing the turnover order and we sustain Charlita’s first issue.  Having
determined that the turnover order was improper, we decline to address
Charlita’s second issue.
*
* *
            Having
sustained Charlita’s dispositive issue, we reverse the turnover order that the
trial court signed on January 20, 2010, and render a take-nothing judgment in
this turnover proceeding.  See Ross v. Nat’l Ctr. For the Employment of the
Disabled, 201 S.W.3d 694, 695 (Tex. 2006).
 




                                                                                    
                                                                        /s/        Jeffrey
V. Brown
                                                                                    Justice
 
 
Panel consists of Justices Brown, Boyce,
and Jamison.
 




[1]
The day before the November 13 hearing, Taylor filed a release of the real
estate lien note and the owelty deed in the Fort Bend County records.


[2]
The bankruptcy trustee was named as a respondent, but he did not appear for the
hearing and is not a party to this appeal.


[3]
Each of these protections for current wages contains an exception for
child-support obligations or judgments, but this exception is not relevant
here.


