Indiana Trial Court Oversteps Its Authority In Proceedings Supplemental

There are times when secured lenders need to utilize Indiana proceedings supplemental, for instance when they desire to recover a deficiency judgment from a borrower or, more likely, a guarantor.  A pair of Indiana Court of Appeals opinions, involving the same parties and decided on the same date, illustrate that trial courts have broad authority in proceedings supplemental but that such authority is not unlimited.  Branham v. Varble, 2010 Ind. App. LEXIS 1964 (.pdf) and 2010 Ind. App. LEXIS 1966 (.pdf) held that the trial court abused its discretion when it ordered the judgment debtors “to seek five jobs per week.” 

The appeal.  The Branham appeal arose out of the trial court’s order requiring the judgment debtors to pay $50 per month toward a judgment and the husband to conduct a job search by submitting five applications per week.  The judgment debtors appealed the ruling and based their appeal primarily upon Article 1, § 22 of the Indiana Constitution that states: 

The privilege of the debtor to enjoy the necessary comforts of life, shall be recognized by wholesome laws, exempting a reasonable amount of property from seizure or sale, for the payment of any debt or liability hereafter contracted: and there shall be no imprisonment for debt, except in case of fraud.

See also, Jail Time Is Not An Available Remedy In Collection Actions In Indiana.

Some controlling statutes.  The opinions suggest that the quoted portion of the Indiana Constitution formulated the basis for some of Indiana’s collection statutes, including Ind. Code § 24-4.5-5-105(2)(b) (exemptions from garnishment) and Ind. Code § 34-55-10-2 (property exempt from execution).

Affirmative action?  The interesting and perhaps novel issue in the two opinions surrounded the trial court’s order for the husband to “seek alternative employment by submitting five applications a week.”  The judgment creditor wanted the judgment debtors to increase their income so as to increase the amount available for garnishment.  The Court noted that proceedings supplemental’s origins are in equity and constitute a remedy “to the creditor for discovering assets, reaching equitable and other interest not subject to levy and sale at law and to set aside fraudulent conveyances.”  Ind. Trial Rule 69 and, in the Branham case, Indiana Small Claims Rule 11(C), governed.  Those rules give the trial court broad discretion in ordering payment terms. 

But Branham drew the line:

Keeping in mind T.R. 69 governing proceedings supplemental and S.C.R. 11, and based on the record before us, we cannot say that the garnishment order was a final judgment and that the trial court erred in requiring the Branhams to appear for a subsequent hearing for proceedings supplemental.

With that said, we nevertheless conclude that the court overstepped its authority and abused its discretion when it required Quincy to seek alternative employment by submitting five applications a week.  As set forth above, the purpose of proceedings supplemental is to afford the judgment-creditor relief to which it is entitled under the terms of the judgment.  . . .  Here, the judgment-creditors are entitled to the payment of the money judgment rendered in their favor.  Although the court is afforded discretion in proceedings supplemental, we have found no authority that supports the trial court’s order requiring Quincy to seek alternate employment by submitting five applications a week. 

One interpretation of these two opinions is that, while trial courts have broad authority to enter orders impacting a judgment debtor’s income and assets, they cannot compel a judgment debtor to increase his or her wealth.  For example, courts can’t order defendants to get a job.  The Branham opinions are an interesting study in the purpose and scope of proceedings supplemental, and they provide secured lenders with a little flavor of their rights and remedies associated with enforcing a deficiency judgment.

Note:  The Indiana Supreme Court granted transfer on March 10th and issued opinions on August 30th.  Please see my September 23, 2011 post for more on this law.