758 S.E.2d 508
Va.2014Background
- PS Business obtained a judgment against Family Furniture Centers, Inc. and guarantor Deutsch & Gilden, Inc. for unpaid rent.
- PS Business served a garnishment summons on SunTrust naming Deutsch as debtor and referencing accounts, including an account ending 61663.
- SunTrust deposited two checks with the court: $15,050.11 from Deutsch account ending 95497 and $133,656.69 drawn from G&D Furniture Holdings, Inc. account ending 61663.
- SunTrust testified that account 61663 was the "master" in a treasury management zero-balance arrangement that swept funds daily between 61663 (master) and several subsidiary accounts, including Deutsch's 95497.
- The circuit court quashed garnishment of the 61663 account (held in G&D's name) and ordered payment to PS Business of $15,050.11 from Deutsch account 95497; PS Business appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether funds in an account titled to a third party (G&D acct 61663) that functions as a master account in a zero-balance sweep are subject to garnishment by creditor of Deutsch | PS Business: Deutsch had an interest/liability in the master account because funds were swept between accounts; thus funds in 61663 are subject to garnishment | G&D and SunTrust: Account 61663 is titled to G&D; no legal debtor-creditor relationship exists between SunTrust and Deutsch as to 61663 funds | Court: Affirmed quash — cannot garnish funds in an account not owned/titled to the judgment debtor absent evidence of a legal obligation in favor of the debtor |
| Whether the trial court erred by accepting SunTrust's payment of $15,050.11 and failing to inquire into deposits to Deutsch acct 95497 during the garnishment period (service to return date) | PS Business: All deposits to Deutsch acct 95497 during the garnishment period (over $1.2M in March) became SunTrust's indebtedness to Deutsch and thus subject to garnishment; trial court should have ordered larger payment | SunTrust: Account statements were unreliable due to sweep activity and computational errors; bank answered with the balance it believed owed and paid that amount | Court: Reversed in part — trial court erred by not conducting the mandatory inquiry under §§ 8.01-519/8.01-565 into SunTrust's indebtedness to Deutsch during the garnishment period and remanded for detailed inquiry |
Key Cases Cited
- Smyth County Comm. Hosp. v. Town of Marion, 259 Va. 328 (mixed question of law and fact standard)
- Network Solutions, Inc. v. Umbro Int'l, Inc., 259 Va. 759 (garnishment requires third-party "liability")
- Bernardini v. Central Nat'l Bank, 223 Va. 519 (deposits become bank property; bank is debtor to depositor)
- Lynch v. Johnson, 196 Va. 516 (garnishee proceedings limit creditor to rights of judgment debtor)
- Virginia Nat'l Bank v. Blofeld, 234 Va. 395 (sums becoming due during garnishment period are subject to garnishment)
- Tuttle v. Webb, 284 Va. 319 (deference to trial court factual findings; de novo review of law)