Posts in Attachment/Garnishment

March 11, 2013
Garnishment Of Joint Bank Accounts In Indiana

If, following an Indiana mortgage foreclosure and sheriff’s sale, a deficiency judgment exists, plaintiffs/secured lenders have the option, in proceedings supplemental, to garnish certain property of the defendants/judgment debtors (such as a guarantor).  Trustees of the Teamsters v. Brown, 2012 U.S. Dist. LEXIS 15426 (N.D. Ind. 2012) (.pdf) involved the attempted garnishment of a bank account held jointly by a judgment-debtor and an innocent spouse. 

The targeted funds.  The plaintiff in Brown owned a judgment against Mr. Brown.  In proceedings supplemental, the plaintiff served interrogatories on two garnishee-defendant banks.  Bank A responded that Mr. Brown and his wife had a joint account and that all contributions to the account were for income from the wife’s employer.  Bank B responded that Mr. Brown and his wife had a joint account there as well.  A portion of the balance in Bank B related to Mr. Brown’s Social Security benefits, income from his wife’s employer and a tax refund owed to Mr. Brown.  The plaintiff filed a motion with the court requesting a turnover order of all funds in each bank.  Mr. Brown asserted that Indiana law protected the funds received from Social Security, as well as the funds contributed to the joint account by his wife.

Basics.  The Court in Brown noted that, under Indiana law, the plaintiff/judgment-creditor bore the burden of demonstrating that Mr. Brown, as the judgment-debtor, had property or income subject to execution.  An interest in property subject to execution may include property that the judgment-debtor owns that is in the hands of a third-party, such as a bank account.  But there are Indiana and federal statutes that exempt certain property a judgment-debtor owns from garnishment.  Ind. Code § 28-9-3-4(d)(3)(B) provides that certain sources of income deposited into an account are exempt and that those sources of income include “Social Security, Supplemental Security Income, veterans benefits, and certain disability pension benefits, and that there may be other exemptions from garnishment under federal or state law.”  See also 42 U.S.C. § 407(a).  Mr. Brown’s Social Security benefits were exempt.   

Joint account.  The evidence established that the bank accounts were joint accounts with survivorship, not tenants in common.  Ind. Code § 32-17-11-4 defines a joint account as “an account payable on request of one (1) or more of two (2) or more parties whether or not mention is made of any right of survivorship.”  In Indiana, the ownership of funds in a joint account is a question of fact during the lifetime of the parties. 

Tenants in common.  The plaintiff in Brown asserted that the agreement with each bank indicated an intent to hold the funds jointly, not by their respective contributions, because the documents stated “Joint Account – With Survivorship (And Not As Tenants In Common).”  In Indiana, tenants in common are presumed to own property in equal shares, although evidence may be submitted to prove the parties’ intent to the contrary for the purpose of determining how much property is owned by each tenant in common.  On the other hand, individuals who deposit money into a joint account are entitled to the opposite presumption.  The Court in Brown interpreted Ind. Code § 32-17-11-23 to mean “that the individual who made the contribution to the joint account retains ownership of the respective funds unless there is clear and convincing evidence of a contrary intent.” 

Presumption.  Since the agreements with the banks specifically stated that Mr. Brown and his wife did not hold the account as tenants in common, the Court could not assume that they held the money in equal shares.  Rather, they held the money as joint tenants, and the plaintiff had the burden to show that Mr. Brown and his wife intended for mutual use of all funds contributed to the account.  “The law is clear that the parties own the amount equal to their contributions absent clear and convincing evidence to the contrary.”  The Court concluded that there was nothing in the agreements with the banks that manifested an intent contrary to the presumption described in Ind. Code § 32-17-11-23. 

Withdrawal rights not dispositive.  To overcome the presumption, the plaintiff pointed to the couple’s use of the funds, which use indicated their intent to share.  Mr. Brown made withdrawals and signed checks from the accounts for his personal and business use.  In Indiana, “the right to withdraw and the right of ownership, however, are separate and distinct rights.”  While deposit agreements may give a joint tenant the right to withdraw funds, such agreement does not alter ownership.  A joint account holder does not own the funds deposited by another account holder unless there is proof that it was given by gift, contract or irrevocable trust.  As such, Mr. Brown’s use of the funds alone was not clear and convincing evidence that his spouse intended to relinquish ownership of the funds in their entirety. 

In the end, the Court limited the plaintiff’s garnishment to a tax refund check that Mr. Brown deposited.  No other funds in either bank were subject to garnishment.  A key point is that, under Indiana law, the contributions of an innocent spouse into a deposit account held jointly with a judgment debtor should be shielded from collection.

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Posted at 05:43 PM in Attachment/Garnishment , Proceedings Supplemental  |  Permalink

September 28, 2012
Fraudulent Transfer Claims Within Post-Judgment Collection Proceedings

Lender (judgment-creditor) obtained a $1+MM judgment against guarantor (judgment-debtor).  Guarantor allegedly transferred millions of dollars to guarantor’s spouse.  Lender, in proceedings supplemental, filed a motion seeking to avoid the transfer and targeted the spouse (garnishee-defendant).  Was a separate cause of action (lawsuit) required?  Did the spouse have a right to a jury trial?  Did the spouse have to file a response to the lender’s motion?  In PNC Bank, 2011 U.S. Dist. LEXIS 99917 (S.D. Ind. 2011) (rt click/save target as for pdf), Magistrate Judge Baker addressed those questions in his report and recommendations, which District Court Judge Pratt subsequently adopted.

General parameters.  In response to the lender’s motion to set aside the alleged fraudulent transfers, the guarantor objected on three grounds.  PNC relied on the Indiana Supreme Court’s decision in Rose v. Mercantile National Bank, about which I wrote on June 29, 2007.  The PNC case noted several basic rules that applied:

 1. A motion to avoid a fraudulent conveyance can be invoked in proceedings supplemental because the claim’s “sole purpose [is] the removal of obstacles which prevent enforcement of a judgment.” 

 2. A garnishee-defendant (third party) can be named for the first time during proceedings supplemental. 

 3. To proceed, the garnishee-defendant must have “property of the judgment-debtor, regardless of whether the judgment-debtor himself could have pursued the garnishee-defendant or whether the garnishee-defendant was a party to the underlying lawsuit.” 

 4. A court need not make a preliminary determination that a garnishee-defendant violated the Fraudulent Transfer Act before requiring the garnishee-defendant to appear.

Objection 1 – new claim?  The first issue in PNC was whether the lender’s fraudulent transfer theory was a “new claim” that warranted the filing of a separate lawsuit. 

 1. Generally, when a judgment-creditor proceeds against a garnishee-defendant, the proceedings merely are a “continuation of the original cause of action, not a new and independent civil action.” 

 2. On the other hand, if a judgment-creditor introduces new claims “unrelated to the enforcement of a judgment,” or if the judgment-creditor “seeks damages greater than the original judgment,” then the judgment-creditor has moved the case outside of proceedings supplemental, and a new cause of action is required. 

3. Although proceedings supplemental can include a fraudulent conveyance claim, the recovery is not for the alleged wrong or for damages.  Rather, “proceedings supplemental seek to continue the original cause of action by enforcing a previously granted judgment.”  If the judgment-creditor is successful, the conveyance remains valid, and the only effect of the judgment is to subject the property to execution “as though it were still in the name of the grantor [judgment-debtor].”  I interpret this to mean that the result is an order subjecting the transferred funds to further judgment execution proceedings (collection).

In PNC, unlike Rose, the lender’s original judgment amount and the amount targeted in its motion were precisely the same.  Accordingly, Indiana law did not require a new cause of action (separate lawsuit). 

Objection 2 – jury trial?  The guarantor also asserted that the law required a new cause of action because the spouse had a right to a jury trial.  Since proceedings supplement derive from equity, they usually should be conducted by the judge.  Nevertheless, jury trials are not completely precluded.  If questions of fact arise as to the claim involving the garnishee-defendant, then the parties may demand a jury trial.  The Court in PNC recognized and preserved the spouse’s right to a jury trial.

Objection 3 – garnishee response required?  In PNC, the lender wanted the Court to compel the spouse to file a written response (an answer) to the lender’s motion.  Once a verified motion triggers proceedings supplemental, pursuant to Trial Rule 69(E) courts shall order garnishees to appear for a hearing or to answer interrogatories, but “no further pleadings shall be required.”  Responsive pleadings are not required unless a new claim arises.  Since there were no new issues of liability as to the spouse in PNC (see Objection 1), the Court did not require the spouse to file a response.   

The upshot of the ruling in PNC was that the Court temporarily denied the lender’s motion pending discovery into whether a factual basis existed for setting aside the disputed transfers.  The proceedings supplemental therefore continued, albeit without a new action against the spouse and without the spouse needing to respond to the motion.  The Court contemplated that the lender would file a renewed motion following limited discovery.  (The case has since been settled.)  

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Posted at 04:47 PM in Attachment/Garnishment , Fraudulent Transfer Act , Judgment Enforcement , Proceedings Supplemental  |  Permalink

September 23, 2011
Indiana Supreme Court Rules On Scope Of Trial Court's Authority In Proceedings Supplemental

This is a continued report on the pair of Branham cases, which have moved their way from the Perry Circuit Court to the Indiana Court of Appeals and most recently to the Indiana Supreme Court.  The cases deal with proceedings supplemental and garnishment, and they were the subject of my July 14, 2011 post "Indiana Trial Court Oversteps Its Authority In Proceedings Supplemental." 

The Indiana Supreme Court handed down its decisions in the two matters on August 30, 2011:  .pdf1 and .pdf2.  This means that the two opinions cited in my July 14th post have been vacated.  The Supreme Court agreed with the Court of Appeals with regard to (1) the reversal of the trial's court's order requiring the judgment debtor to seek employment or to seek better employment and (2) the upholding of the trial court's order for the judgment debtor to return to court for status checks "some limited number of times." 

But the Supreme Court disagreed with the Court of Appeals and reversed the trial court's decision requiring the judgment debtor to pay $50 per month toward the judgment.  "For unrepresented parties in small claims court, resort to the generic exemption statute and the Social Security exemptions are not forfeited even if the litigants do no know enough to plead them." 

Again, the Branham opinions provide a good explanation of the purpose and scope of proceedings supplemental and garnishment, and they provide insight into the rights and remedies associated with a secured lender's effort to collect a deficiency judgment.  

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Posted at 05:21 PM in Attachment/Garnishment , Proceedings Supplemental  |  Permalink

July 14, 2011
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.  

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Posted at 02:53 PM in Attachment/Garnishment , Proceedings Supplemental  |  Permalink