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DC Mex Holdings LLC v. Affordable Land LLC

Court of Appeals of Michigan

July 25, 2017

DC MEX HOLDINGS LLC, Plaintiff-Appellee,
AFFORDABLE LAND LLC, Defendant, and DALE B. FULLER, Defendant-Appellant, and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, Garnishee-Defendant.

         Oakland Circuit Court LC No. 2011-122199-CB

          Before: Gleicher, P.J., and M. J. Kelly and Shapiro, JJ.

          PER CURIAM.

         On October 7, 2013, plaintiff, DC Mex Holdings, LLC, was awarded a $2, 500, 000 judgment against defendant, Affordable Land, LLC, and defendant-appellant, Dale B. Fuller, jointly and severally. After this Court affirmed the judgment on appeal, [1] DC Mex filed a request for a writ of nonperiodic garnishment naming the Prudential Insurance Company of America as the garnishee. After the writ of garnishment was entered, Fuller filed a motion to quash it, but the trial court denied the motion. Thereafter, Fuller filed an application for leave to appeal the order denying the motion, which this Court granted.[2] Because the trial court erred in denying the motion to quash the garnishment, we reverse and remand for further proceedings.

         I. BASIC FACTS

         Relevant to this appeal, DC Mex sought a writ of garnishment regarding any property or money that Prudential held belonging to Fuller, and the deputy clerk entered the writ. Subsequently, Prudential filed a disclosure indicating that Fuller owned an individual life insurance policy with an approximate cash value of $73, 078.91. The disclosure also indicated that "[l]ife insurance may be exempt from garnishment under" MCL 500.2207.

         On January 27, 2016, Fuller filed an objection to the garnishment indicating that the funds were exempt and that the cash value was not owing and did not represent a debt. In Fuller's brief in support of the objection, he argued that the cash value of his life insurance policy was exempt under MCL 500.2207(1) because the policy was payable solely to his daughter. Fuller further argued that the garnishment statute only applied to obligations owing at the time of the writ, that he did not request a surrender of his policy or withdrawal of the cash value, and that the cash value was not owed to him. Thus, Fuller requested that the trial court grant his objection and quash the writ of garnishment, and he further requested fees and costs under MCR 2.114(F) and MCL 600.2591.

         On February 5, 2016, DC Mex filed a response to the objection. DC Mex argued that the cash value of a life insurance policy was not protected under MCL 500.2207 during the insured's lifetime. According to DC Mex, under Fuller's interpretation, "a judgment debtor could simply 'park' all available cash in the 'cash value' portion of a life insurance policy and prevent a judgment creditor from collecting it, even though the judgment debtor could at any time retrieve some or all of the 'parked' cash." DC Mex did not dispute that MCL 500.2207 exempted life insurance proceeds, including the cash value, but, under DC Mex's interpretation of MCL 500.2207, the exemption only applied when the money became payable (i.e., after the insured's death). DC Mex argued that the cash value was not exempt during Fuller's lifetime and that it was irrelevant that Fuller had not requested the cash value of the policy.

         On February 10, 2016, the trial court held a hearing on the objection. Fuller argued that the cash value of a life insurance policy was only relevant during the insured's lifetime and that the statute specifically exempted the cash value. The trial court asked what would happen if the cash value was withdrawn during the lifetime, and Fuller responded that the cash would be able to be garnished if he cashed out his policy. However, Fuller noted that he did not cash out his policy. Fuller argued that, in order for Prudential to owe money, he would have to submit a request for the cash value. Fuller further argued that there was no basis for the garnishment and requested fees and costs. The trial court noted that it did not think the cash value was able to be garnished unless it was cashed out and that it did not "think [Fuller] should be forced to cash out his policy" because it would "take away his child's right to life insurance benefits . . . ." The trial court then asked DC Mex to correct it if it was wrong. Ultimately, the trial court took the objection under advisement and allowed additional briefing.

         After DC Mex and Fuller filed briefs supplementing their previous arguments, the trial court issued an opinion and order denying Fuller's objection to the writ of garnishment. The trial court relied on Chrysler First Business Credit Corp v Rotenberg, 789 F.Supp 870, 873 (ED Mich, 1992) ("In the Court's view, the Michigan Supreme Court, if asked, would say that MCL 600.4011 and MCR 3.101(G)(1) permit a judgment creditor to garnish the cash value of an insurance policy, whether or not the insured has made a demand for payment."), and Schenk Boncher & Prasher v Vanderlaan, unpublished opinion per curiam of the Court of Appeals, issued August 28, 2003 (Docket No. 237690), pp 2-3 ("The plain and broad language of MCL 600.6104(3) allows for the satisfaction of a judgment out of any property, liquidated or unliquidated, that is not exempt."). Using these cases, the trial court held that the cash value of the life insurance policy was subject to garnishment. Further, although, the trial court noted the argument under MCL 500.2207, it never specifically analyzed it.



         Fuller argues that the trial court erred in denying his motion to quash the garnishment because MCL 500.2207 exempts the proceeds of his life insurance policy, including the cash value, from garnishment because it was payable to his daughter. "The proper interpretation and application of a statute is a question of law, which this Court reviews de novo." Rogers v Wcisel, 312 Mich.App. 79, 86; 877 N.W.2d 169 (2015).

A court's primary goal when interpreting a statute is to discern legislative intent first by examining the plain language of the statute. Courts construe the words in a statute in light of their ordinary meaning and their context within the statute as a whole. A court must give effect to every word, phrase, and clause, and avoid an interpretation that renders any part of a statute nugatory or surplusage. Statutory provisions must also be read in the context of the entire act. It is presumed that the Legislature was aware of judicial interpretations of the existing law when passing legislation. When statutory language is clear and unambiguous, courts enforce the language as written. A statutory provision is ambiguous only when it irreconcilably conflicts with another provision or is equally susceptible to more than one meaning. [Lee v Smith, 310 Mich.App. 507, 509; 871 N.W.2d 873 (2015) (citations omitted).]

         B. ANALYSIS

         Fuller had a universal life insurance policy with Prudential. As outlined in the policy, Fuller could surrender the policy for its net cash value, which was defined as "the cash value less any contract debt" or zero if the contract was in default. Fuller could also make withdrawals, which would reduce the contract fund and involved charges and fees. The contract fund is explained in the policy as follows:

When you make your first premium payment, the invested premium amount, less any charges due on or before that day, becomes your contract fund. Amounts are added to and subtracted from the contract fund as shown under Adjustments to the Contract Fund in the contract data pages. The contract fund is used to pay charges under this contract and will determine, in part, whether this contract will remain in force or go into default. The contract fund is also used to determine your loan and surrender values, the amount you may withdraw, and the death benefit.

         Further, the policy provides that "[t]he cash value at any time is the contract fund less any surrender charge." Fuller had a "Type A" death benefit, which meant that, if "the withdrawal would cause the net amount at risk (see Contract Fund) to increase, we will reduce the basic insurance amount and consequently, your death benefit to offset this increase." "The net amount at risk is used to determine the cost of insurance as described under Adjustments to the Contract Fund. It is equal to the death benefit (see Death Benefit) minus the contract fund." Therefore, a withdrawal would cause the contract fund to decrease and, in turn, would cause the net amount at risk to increase. With respect to the death benefit, the policy provided the following in relevant part: "If this contract has a Type A death benefit, the death benefit on any date is equal to the greater of: (1) the basic insurance amount, and (2) the contract fund before deduction of any monthly charges due on that date, multiplied by the attained age factor that applies."

         The policy also made the following relevant specifications: (1) "The net cash value after withdrawal may not be less than or equal to zero after deducting (a) any charges associated with the withdrawal and (b) an amount that we estimate will be sufficient to cover the contract fund deductions for two monthly dates following the date of withdrawal"; (2) "If the cash value is zero or less, the contract is in default"; and (3) "We will pay a benefit to the beneficiary at the insured's death if this contract is in force ...

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