Opinion ID: 767986
Heading Depth: 2
Heading Rank: 3

Heading: Violation of Garnishment Orders

Text: 15 At the heart of this dispute is the issue of whether the Bank possessed any property belonging to Po Folks on the dates and times the garnishment orders were served. The district court answered in the negative, and all of its subsequent holdings flow from this holding. Thus, we must address this threshold issue with great care. We review de novo the district court's denial of summary judgment. See Fed. R. Civ. P. 56, Smith v. Ameritech, 129 F.3d 857 (6th Cir. 1997).
16 The district court found that the Bank did not hold property belonging to, nor was it indebted to, Po Folks on the dates and times the garnishment orders were served. Opinion and Order filed December 9, 1998 (Opinion and Order) at 6. It noted that the Bank's policy for processing a garnishment order solely utilized the Bank's computers to determine if a customer had funds subject to the garnishment order. Although it recognized that the Bank's computers at all times reflected only the account balance from the close of business the previous day, the district court decided that requiring the Bank to do anything else beyond a computer check would require the Bank to go outside the ordinary course of business and it was unwilling to impose such a burden. Opinion and Order at 6. We disagree.
17 The Kentucky garnishment statute, Ky. Rev. Stat. Ann. § 425.501(5) provides that [i]f the court finds the garnishee was, at the time of the service of the order upon him, possessed of any property of the judgment debtor,... the court shall order the property or the proceeds of the debt applied upon the judgment. In our prior opinion, we characterized the Kentucky statute as effecting a snapshot rule, operating only on property that the garnishee possessed at the time the garnishment order was served and does not operate in the future. 18 The district court's opinion focused on the fact that the Bank, in following their ordinary garnishment procedures, could not have discovered property belonging to Po Folks, absent manually processing allitems on hand at that particular moment. The district court therefore concluded that since the Bank could not locate Po Folks' property in the ordinary course of business, it did not possess any of Po Folks' property. Nowhere in the statute does it say that locating garnished property is required only if it can be done in the ordinary course of business 3 or without being unduly burdensome.
19 Moreover, even assuming that such a requirement exists, the record reflects that the Bank had the ability to locate property belonging to Po Folks in the ordinary course of business. Although the Bank was unable to view a current daily account balance from the computer terminals since the computer always had a one day lag, several Bank employees testified that it was common practice, in a number of situations including garnishments, for the Bank to place a hold on an account for up to 14 days. See JA pp. 354-5, 360-362. A hold prevents any withdrawals or deposits from the account until it is lifted. If the Bank had placed a hold on any of Po Folks' accounts for even 24 hours, which the Bank was able to do, the Bank would have been able to process the deposits and debits received prior to the hold in its normal procedure, and ascertained if there was any surplusage the next day. 20 In Fast Food Sys., Inc. v. Ducotey, 837 P.2d 910 (Okla. 1992), the Oklahoma Supreme Court was also faced with a snapshot statute and a garnishee bank whose computers did not instantly reflect credits and debits. A bank customer deposited a check for over $8,000.00, and less than two hours later, a garnishment order was served on the customer's account. See id. at 911. Because the computer did not yet reflect the check, the bank denied that it had any of the customer's monies. See id. The court ruled against the bank, holding that a bank customer has sufficient property right in any check the customer deposits to his bank account to require the bank to account for it in its answer to a garnishee summons. This is so even if the bank's computer records do not reflect the deposit when the bank receives the garnishment summons. Id. at 913. The court in Fast Food noted that the bank would routinely suspend processing on accounts subject to garnishments for 24 hours to allow time to identify transactions that may have occurred previously. See id. This allowed the bank to learn the exact balance of the account at the moment the bank was served with a garnishee summons.
21 We agree with the reasoning of the Oklahoma Supreme Court and hold that the Bank had an obligation to determine whether on the date and time a garnishment order was served it possessed any property belonging to Po Folks. See Ky. Rev. Stat. Ann. § 425.501(5). Merely checking a computer record, known to reflect only the balance from the end of business the previous day, is insufficient under the snapshot requirement of the Kentucky statute which mandates that property be identified as of the moment that the garnishment order is presented, not merely as of close of business the previous day. See id. (If the court finds that the garnishee was, at the time of service of the order upon him, possessed of any property....) 22 If this means that banks must all implement time-stamping into their business procedures, or freeze an account subject toa garnishment order to meet this requirement, then so it does. A holding any other way would create an exception to Ky. Rev. Stat. Ann. § 425.501(5) allowing a garnishee to avoid the operation of a garnishment order by mirroring the account structure created for Po Folks and reward sloppy accounting and garnishment procedures. 23 Additionally, from a policy standpoint, the rule is sound. As this case illustrates, much can occur in one day and to allow banks to rely solely on information from the close of business the previous day can lead to misleading inaccuracies. Furthermore, by structuring its accounts in this fashion, although perhaps completely legal from a banking standpoint, 4 Po Folks took advantage of the Bank's internal procedures to effectively evade virtually all garnishment of its property, 5 yet still maintain all of the benefits of the deposits. Fundamental fairness does not permit such a result. 24 Moreover, what the statute requires is not an unreasonable burden on the Bank because, as was testified to by an employee of the Bank, the Bank generally receives only approximately 6 garnishment orders a month, and putting a hold on an account is routinely done in numerous contexts.
25 In light of the above, we conclude that the Bank violated the garnishment orders if they were returned unsatisfied when any of Po Folks' accounts showed a positive net balance at the time of service. 6 Under Kentucky law, a violation of a garnishment order imposes liability in the amount of the judgment. See Holbrook v. Fyffe, 175 S.W. 977 (Ky. 1915).
26 With respect to the Credit Card account, the Bank admitted that deposits were made every morning before the bank opened. See JA at 534. Credits in the form of credit card payments, and debits in the form of checks were electronically transmitted to the Bank and processed between 9:00-10:00 a.m. every morning. See JA at 534. The Bank's employee, Mr. Baker, testified that on the dates of 17 garnishment orders, the Credit Card account, after subtracting the debits, yielded a surplusage of $114,830.16 7 . This fact effectively eliminates the Bank's argument that it did not possess any property of Po Folks' prior to the dates and times the garnishment orders were served since the garnishments were obviously not served until the bank opened and by then, the electronic transfer amounts were already sitting in the Credit Card account.
27 As to Po Folks' other accounts, the Bank admits that it has no way of determining at what time the deposits or debits occurred because it did not time-stamp any of them. Contrary to the Bank's argument, the absence of specific proof of the exact time the deposits or debits occurred does not relieve the Bank of liability. In fact, the general rule is that [w]here relevant information... is in the possession of one party and not provided, then an adverse inference may be drawn that such information would be harmful to the party who fails to provide it. Weeks v. ARA Serv., 869 F. Supp. 194, 195 (S.D.N.Y. 1994).In Wilton Enterprise v. Cook's Pantry, 552 A.2d 1031 (N.J. 1988), the garnishee bank claimed that it did not know the time a certain check was paid on the date a garnishment order was served. The court held that absent any specific proof of the exact time of payment of the check by the bank, a permissible inference can and shall be drawn that final payment of the check occurred after the levy was served.... Id. at 1034. We agree and find this situation analogous. Thus, we hold that the Bank is liable to McMahan for the entire amount of the judgment.