In the recent decision by the Maryland Court of Special Appeals in R.K. Grounds v. Wilson, 235 Md. App. 20 (2017), the Court held that the Workers’ Compensation Commission does not have jurisdiction to decide whether money from a settlement of a claim is subject to garnishment. Rather, it was held that it is the circuit court that has subject matter jurisdiction to decide garnishment issues.
In R.K. Grounds, the parties settled a workers’ compensation claim, full and final, for a total lump sum of $3,500.00. On March 20, 2014, the Commission issued an Order approving the Agreement of Final Compromise and Settlement. After the case had been settled, but before the checks were disbursed, the Insurer was notified of numerous child support liens, which exceeded the amount of the settlement. The Circuit Court for Carroll County issued writs of garnishment for three child support cases. The writs were served upon the Insurer as the garnishee, and a copy was mailed to the Claimant, as the judgment debtor. The Insurer filed Answers in all three cases. The Claimant did not file an Answer in any of the cases. Instead, over three months later, the Claimant filed issues with the Commission for payment of his share of the settlement proceeds.
Under the Act, money payable in connection with a workers’ compensation claim “may not be assigned, charged, or taken in attachment,” except as provided under Title 10 of the Family Law Article. Lab. & Empl. § 9-732. Accordingly, workers’ compensation payments are subject to garnishment for payment of child support arrears.
The Commission heard the issue and decided that the Claimant’s portion of the settlement was partially exempt under § 11-504(b) of the Courts and Judicial Proceedings Article.
In Maryland, there is certain property that is exempt from the execution of a judgment, as provided under CJP § 11-504. One such exemption includes:
Money payable in the event of sickness, accident, injury, or death of any person, including compensation for loss of future earnings. This exemption includes but is not limited to money payable on account of judgments, arbitrations, compromises, insurance, benefits, compensation, and relief. Disability income benefits are not exempt if the judgment is for necessities contracted for after the disability is incurred.
Cts. & Jud. Proc. § 11-504(b)(2).
However, this money is not completely exempt where there is a judgment for child support arrearage. Specifically, CJP § 11-504(i)(2) states that “[t]wenty–five percent of the net recovery by the debtor on a claim for personal injury is subject to execution on a judgment for a child support arrearage. In other words, the maximum amount that can be garnished from money payable for sickness, accident, injury, death, or compensation for loss of future earnings for unpaid child support is 25% of what the claimant nets.
The Commission heard the case and determined that 75% of the amount the Claimant netted from the settlement was subject to garnishment. On appeal, the Circuit Court agreed with the Commission that the Claimant’s share of the settlement was partially exempt, but determined that only 25% was subject to garnishment.
At the Court of Special Appeals, the central issue presented by the parties was whether the Claimant’s portion of the settlement was fully exempt, partially exempt, or not exempt from garnishment for the child support arrears. The Claimant argued that he was entitled to the exemption of 25%, and the Insurer argued that money from a workers’ compensation settlement does not fall within the meaning of the exemption provided under CJP § 11-504(b)(2). Instead, the R.K. Grounds court answered a different question, which was whether the Commission had jurisdiction in the first place to decide whether settlement money from a claim is exempt from garnishment for a judgment for unpaid child support. The court held that the Commission lacked subject matter jurisdiction to decide a garnishment issue, and only the circuit court has jurisdiction over garnishments.
Under FL § 10-140(a)(1), unpaid child support due under an order constitutes a lien on all real and personal property of the obligor. In order to enforce a child support lien, the child support agency files a notice of lien with the clerk of the Circuit Court. Fam. Law § 10-141(a). Upon filing, the child support lien has the “full force and effect of a judgment lien.” Fam. Law § 10-141(c)(1).
The agency must file the garnishment procedures set forth by Md. Rule 2-645. First, the agency must file a request for writ of garnishment in the same court where the child support judgment lien was flied. Upon filing the request, the clerk will issue the writ of garnishment directed to the garnishee. Md. Rule 2-645(b). The writ of garnishment must be served upon the Employer/Insurer garnishee, and a copy of the writ of garnishment must be sent to the Claimant judgment debtor’s last known address. Md. Rule 2-645(d).
In order to claim an exemption, the Claimant judgment debtor must file a motion to release property under Md. Rule 2-643, within 30 days after service of the writ of garnishment. Md. Rule 2-645(i). The R.K. Grounds court has made clear that the exemption does not apply automatically. 235 Md. App. at 31.
It is important for the Employer/Insurer garnishee to note that Md. Rule 2-645(e) requires that an answer is filed within 30 days of being served with the writ of garnishment. The answer “shall admit or deny that the garnishee is indebted to the judgment debtor or has possession of property of the judgment debtor and shall specify the amount and nature of any debt and describe any property.” Id. Further, “[t]he garnishee may assert any defense that the garnishee may have to the garnishment, as well as any defense that the judgment debtor could assert.” Md. Rule 2-645(e). If no answer is filed, the judgment creditor may ask for a default judgment. Md. Rule 2-645(f).
The bottom line is that if the Claimant wants to claim an exemption, he or she has to do so through the Circuit Court within 30 days after the the writ of garnishment has been issued. Once a Circuit Court enters judgment, the Employer/Insurer garnishee must comply with that order.
While R.K. Grounds addressed the garnishment of settlements, presumably, the decision would apply to Awards for permanent partial disability benefits as well. Insurers should be aware that garnishment of temporary total disability benefits would fall under Md. Rule 3-646, which applies to the garnishment of wages, as opposed to property. The requirements for the garnishee are much stricter under Md. Rule 3-646. Similar to the garnishment of property, the garnishee must file an answer within 30 days of service of the writ of garnishment. Md. Rule 3-646(e). However, in addition, the answer must state “whether the debtor is an employee of the garnishee, and if so, the rate of pay and the existence of prior liens.” Id. It is also important to note that if a garnishee fails to file a timely answer, the court may, on motion of the creditor, order the garnishee to show cause as to why they should not be held in contempt, and further, may be required to pay attorney’s fees and costs. Md. Rule 3-464(f).
While there is still an open question of whether workers’ compensation benefits and settlement proceeds are exempt or partially exempt within the meaning of CJP 11-504, there are two things that are now evidently clear: the Commission does not have jurisdiction to decide garnishment issues, and claimants must go to the circuit court to seek the 25% exemption, or risk their entire recovery from being garnished.