AJAY SHAH V CITY OF FARMINGTON HILLSAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
February 21, 2008
Oakland Circuit Court
LC No. 2001-033790-CZ
CITY OF FARMINGTON HILLS,
Advance Sheets Version
OXFORD ESTATES CONDOMINIUM
FORD MOTOR COMPANY,
Before: Schuette, P.J., and Hoekstra and Meter, JJ.
In this garnishment action, Ford Motor Company (Ford) appeals as of right the trial
court's May 31, 2006, order and judgment entered in favor of Oxford Estates Condominium
Association (the association), which incorporated by reference the trial court's May 9, 2006,
opinion and order. We reverse the trial court's May 9, 2006, opinion and order, vacate the May
31, 2006, order and judgment, and remand for proceedings consistent with this opinion.
Plaintiffs Ajay Shah and Bharati Shah, husband and wife, constructed a site
condominium in Oxford Estates, a residential development in Farmington Hills, Michigan. This
case originated when the city of Farmington Hills initiated proceedings against plaintiffs to
enforce certain city ordinances in connection with the construction and occupancy of plaintiffs'
home. The plaintiffs then sued the city, alleging that its code enforcement actions were grossly
negligent and a nuisance.
On January 23, 2002, the trial court granted the association's motion to intervene in the
case. The association filed a complaint against plaintiffs, alleging that they violated the terms of
the condominium bylaws by: (1) failing to submit a complete set of plans and specifications
covering all aspects of the construction of their residence; (2) failing to complete the façade,
landscaping, trees, and plantings; (3) failing to install an underground irrigation system; (4)
failing to keep their site free of debris, litter, and trash; and (5) failing to maintain their site in a
safe, clean, and sanitary condition. The association asserted that plaintiffs' actions constituted a
nuisance because their neighbors "have been subjected to the existence of what is essentially a
construction site for nearly three (3) years." The association sought monetary damages and an
injunction "[e]njoining the Shahs from any continued acts of nuisance." The association also
sought an award of costs and reasonable attorney fees pursuant to the terms of the condominium
The trial court "enjoined [plaintiffs] from installing or constructing any new feature to the
exterior of the house . . . or to any of the landscaping or other exterior elements located on the . .
. homesite" until further order of the court. On May 16, 2003, the association moved the trial
court to hold plaintiffs in contempt of court. The trial court adjudged plaintiffs in contempt of
court and ordered them to serve 30 days in jail or, in the alternative, to pay the association
$2,500 by June 11, 2003.
On July 8, 2003, the trial court granted partial summary disposition in favor of the
association. The trial court ordered plaintiffs to "dismantle and reconstruct the violating portions
of their property and compensate the Association its reasonable attorney fees in bringing its
claim to enforce the [bylaws]." The trial court further ordered plaintiffs "to comply with the
[bylaws] regarding the continued construction of their residence, the landscaping and the
automobile stored in the back yard."
On October 29, 2003, the trial court ordered plaintiffs to reconstruct their driveway and
landscaping in accordance with plans approved by the association. The trial court ordered
plaintiffs to pay the association $59,096.83 for costs and attorney fees. The trial court denied
plaintiffs' motion for reconsideration and relief from the judgment. Thereafter, plaintiffs
appealed the October 29, 2003, order as of right. This Court denied plaintiffs' motion to stay the
proceedings in this case pending the outcome of the appeal. Shah v Farmington Hills,
unpublished order of the Court of Appeals, entered January 30, 2004 (Docket No. 252971). This
Court later affirmed the trial court's October 29, 2003, order granting partial summary
disposition in favor of the association and ordering plaintiffs to pay defendant $59,096.83 in
costs and attorney fees. Shah v Farmington Hills, unpublished opinion per curiam of the Court
of Appeals, issued April 26, 2005 (Docket No. 252971).
On August 19, 2005, the trial court awarded the association an additional $59,676.29 in
costs and attorney fees, which it incurred "after those covered by the October 29, 2003 Order and
Judgment." Thereafter, the association sent requests and writs for garnishment to Ford, Shah's
employer. Shah's employment with Ford was terminated on January 31, 2006. Ford sent
garnishee disclosures to the association stating that "principal defendant is not employed by the
The association moved for entry of a default judgment against Ford, in which it alleged,
Upon information and belief, as of February 17, 2006, Ford was
indebted to Ajay Shah for severance pay and/or benefits under the Ford
Involuntary Salaried Separation Policy or Salaried Income Security Plan in an
amount in excess of Sixty Thousand ($60,000.00) Dollars.
Ford's Garnishee Disclosures do not satisfy the requirements of
MCR 3.101(H) for the reason that Ford has not stated whether it was indebted to
Ajay Shah as of the date Ford was served with the Garnishment . . . .
As a result of Ford's failure to disclose whether it was indebted to
Ajay Shah on the date of service of the Garnishment, a default and default
judgment should be entered against Ford pursuant to MCR 3.101(S)(1).
The association sought a default judgment against Ford in the amount of $89,433.51, which
represented the sum of the judgments against plaintiffs that had not been satisfied.
Ford conceded that, on March 15, 2006, it paid Shah a "net amount of $52,803.85 less
applicable taxes and other deductions, and $406.18 for accrued vacation pay less the applicable
taxes and other deductions." Ford asserted that it
should have garnished each payment in accordance with the garnishment
restrictions under the Federal Consumer Credit Protection Act [CCPA]. Had
Ford properly garnished in accordance with the writ, it would have garnished 25%
of the net payments to Shah. . . . Under 15 U.S.C. § 1673(a)(1), "the maximum
part of the aggregate disposable earnings of an individual for any workweek
which is subject to garnishment may not exceed 25 per centum of his disposable
earnings for that week . . . ."
Thus, according to Ford, it was only liable for $13,302.51, the amount that it should have
withheld under the CCPA. In response, the association argued that the payments to Shah did not
15 USC 1671 et seq.
constitute "earnings" under the CCPA and, therefore, the garnishment limitations set forth in the
CCPA did not apply. The association requested an award of costs and attorney fees under MCR
3.101(S) on the basis that it had "unnecessarily incurred costs and attorney fees related to Ford's
default and improper Garnishee Disclosures."
Following a hearing on the issue, the trial court issued an opinion and order on May 9,
2006, concluding that the payment of severance benefits did not constitute "earnings" under the
CCPA. Thus, the entire severance payment that Ford made to Shah was subject to garnishment.
On May 31, 2006, the trial court entered an order and judgment in favor of the association, and
against Ford, "in the amount of Ford's severance payment to Ajay Shah in the amount of
$52,803.85, plus Oxford Estates' reasonable costs and attorney fees related to this matter in the
amount of $5,820.00 for a total judgment amount of $58,623.85." Ford now appeals as of right.
II. STANDARD OF REVIEW
Whether a lump-sum payment of severance benefits by an employer to an employee
constitutes "earnings" under the CCPA and, thus, is subject to the limitations on garnishment set
forth in the CCPA, presents a question of law. Questions of law are reviewed de novo on appeal.
Cowles v Bank West, 476 Mich 1, 13; 719 NW2d 94 (2006). "Statutory interpretation is an issue
of law that is reviewed de novo." Shinholster v Annapolis Hosp, 471 Mich 540, 548; 685 NW2d
275 (2004). This Court's "'fundamental obligation when interpreting statutes is "to ascertain the
legislative intent that may reasonably be inferred from the words expressed in the statute."'"
Paige v Sterling Hts, 476 Mich 495, 504; 720 NW2d 219 (2006), quoting Reed v Yackell, 473
Mich 520, 528; 703 NW2d 1 (2005), quoting Koontz v Ameritech Services, Inc, 466 Mich 304,
312; 645 NW2d 34 (2002).
The issue in this case is whether a lump-sum severance payment constitutes "earnings"
under the CCPA and, more specifically, whether such a payment can be construed as
"compensation paid or payable for personal services." We conclude that it can.
The CCPA defines "earnings" as "compensation paid or payable for personal services,
whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic
payments pursuant to a pension or retirement program." 15 USC 1672(a). Two early decisions,
Kokoszka v Belford, 417 US 642; 94 S Ct 2431; 41 L Ed 2d 374 (1974), and Pallante v Int'l
Venture Investments, Ltd, 622 F Supp 667 (ND Ohio, 1985), held that the status of "earnings"
hinged on whether they were disbursed in a periodic manner. In other words, "[t]he
determinative factor in deciding whether severance pay [was] subject to the statutory limitations
[was] whether the monies [were] received in periodic payments." Pallante, supra at 669. Lump
sum payments were held to be outside the scope of the statute. Id. However, in Genesee Co
Friend of the Court v Gen Motors Corp, 464 Mich 44; 626 NW2d 395 (2001), our Supreme
Court refocused the interpretation of "earnings" under the CCPA by emphasizing the nature of
the payment, rather than its frequency, and held that signing bonuses, profit-sharing payments,
and recognition-award payments all constituted "earnings" under the CCPA. In doing so, our
Supreme Court rejected Kokoszka and Pallante, and concluded that the proper test for
determining whether a payment is "earnings" under the CCPA was whether the payments were
"'compensation paid or payable for personal services.'" Genesee Co, supra at 56, quoting 15
USC 1672 (a).
Here, the trial court relied on Pallante to hold that Shah's severance payment did not
qualify as "earnings" under the CCPA. But since the Pallante court held that "earnings" had to
be periodic payments, and our Supreme Court clearly determined in Genesee Co that the periodic
nature of a payment ultimately had no bearing on whether it is deemed "earnings," the trial court
erred in its decision.
Again, in Genesee Co, our Supreme Court quoted and explained 15 USC 1672(a) as
"The term 'earnings' means compensation paid or payable for personal
services, whether denominated as wages, salary, commission, bonus, or
otherwise, and includes periodic payments pursuant to a pension or retirement
program." The reference to periodic payments does not apply to the definition as
a whole. The inclusion of "bonus" in the definition of earnings clearly negates the
suggestion that periodic payment is required. Bonuses are typically sporadic,
irregular, unpredictable, and discretionary payments by the employer. [Genesee
Co, supra at 55-56 (emphasis added.)]
Although the severance payment made to Shah is not wages, commission, or even a
regular salary, it is compensation paid for personal services in the form of a "bonus" or "other"
type of payment. The decision to terminate certain employees and not others "when it is
necessary to have an involuntary reduction in the U.S. salaried workforce," as stated in the
applicable Ford policy manual, is completely at the discretion of the employer. Offering a
severance payment constitutes a bonus or other type of payment as compensation for the
employee's past (and future unneeded) personal services, and severance payments are intended to
be in line with employees' current salary level (calculated in months based on full years of
service) in order to assist them with the transition to unemployment.
The association argues that the severance payment was not made in exchange for
personal services because Black's Law Dictionary (6th ed) defines "severance payment" as
"payment by an employer to an employee beyond his wages on termination of his employment."
(Emphasis added.) Thus, the association argues, since the payment is defined as being beyond
regular wages, it cannot be considered as being payment for personal services. We disagree.
This definition has changed. In the 8th edition of Black's, "severance payment" is now defined
as "money (apart from back wages or salary) paid by an employer to a dismissed employee."
This new definition mentions nothing about a severance payment being beyond regular wages; it
only clarifies that it is not back wages or salary owed to an employee upon termination of
employment. Therefore, this contemporary definition brings severance payments back under the
umbrella of "compensation for personal services."
The association also argues that a severance payment is not considered compensation for
personal services because, in Michigan, the consideration given by the employee for the payment
is not work or personal services provided to the employer, but rather the "giving up of or
forbearance to exercise some legal right." Kolka v Atlas Chemical Industries, 13 Mich App 580,
581; 164 NW2d 755 (1969). In Kolka, the plaintiff was trying to claim severance pay from his
employer in December 1960, despite not having actively worked for the company since May
1959. The Court ruled that since he was not actively employed by the company at the time he
asked for severance pay (he claimed he was on the "inactive" list because of a disability), he was
unable to establish the consideration necessary to bind the employer to its offer of termination
The "legal rights" at issue in this case are distinguishable from those in Kolka. In Kolka,
the right being given up is never specifically noted, but appears to be either the right to continue
working for the same employer, or the right to be compensated with termination pay by the
employer after establishing eligibility for such payments. Neither of those rights is at issue here.
Here, the legal right allegedly given up was the right to bring a future action against Ford in
exchange for severance pay.
Ford's separation policy does not preclude terminated employees from enforcing a legal
right. An employee who is selected for termination under the policy is given two choices of
benefit level, depending on whether he or she signs the voluntary waiver and release agreement.
The basic benefit level is awarded to employees who do not sign the agreement, and consists of
up to three months' base salary in severance pay (provided the employee has at least three full
years of service at Ford), and continuation of insurance benefits for up to three months. The
enhanced benefits level is for people who do sign the waiver, and includes up to an additional
nine months' salary in severance pay, continuation of insurance for up to three months, and re
employment assistance from Ford.
Although the levels of benefit received are different, and the enhanced benefits package
provides an incentive to sign the waiver agreement, signing of the agreement is not mandatory.
Employees are given a choice of whether or not to sign. Those who sign get a "better" benefits
package, but those who do not will at least get some benefits while retaining their right to take
future action against Ford. Since Ford gives its employees a choice, accepting the severance
payment does not automatically mean that the employee gives up some sort of legal right. Shah
chose to take the enhanced benefits package, but it was his choice to make – Ford did not force
him to sign the waiver agreement.
Under our Supreme Court's holding in Genesee Co and its emphasis on the nature of
"earnings," rather than the periodic frequency relied on in cases such as Pallante and Kokoszka,
Ford's lump-sum severance payment to Shah constituted "earnings" under the CCPA. Further,
Ford's severance payment to Shah was not a benefit arising solely out of the termination of his
employment with the company, because Ford's offering of two levels of severance benefits based
on whether an employee signs a voluntary waiver and release agreement does not force
terminated employees to forgo a legal right in accepting such payments.
We reverse the trial court's May 9, 2006, opinion and order, vacate the May 31, 2006,
order and judgment, and remand for proceedings consistent with this opinion. We do not retain
Hoekstra, J., concurred.
/s/ Bill Schuette
/s/ Joel P. Hoekstra