SUNTRUST BANK v. PS BUSINESS PARKS, L.P.
Record No. 151935
Supreme Court of Virginia
October 27, 2016
OPINION BY JUSTICE WILLIAM C. MIMS
PRESENT: Lemons, C.J., Mims, McClanahan, Powell, Kelsey, and McCullough, JJ., and Koontz, S.J.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY, Robert J. Smith, Judge
I. BACKGROUND AND MATERIAL PROCEEDINGS
PS Business leased a storefront to Family Furniture Centers, Inc. Deutsch guaranteed the lease. After Family Furniture Centers and Deutsch stopped paying rent, PS Business obtained a judgment against the companies in the amount of $664,923.34 plus interest and attorney‘s fees. PS Business filed a garnishment summons, which named Deutsch as the judgment debtor and SunTrust as the garnishee, against “all acсounts, including [the] account ending [in] 61663.” The garnishment summons was served on SunTrust on March 5, 2013 with a return date of April 12, 2013.
In response, SunTrust processed a $15,050.11 legal order debit against an account titled to Deutsch ending in 95497 and filed a check in that amount with the circuit court. SunTrust also filed a check for $133,656.69 drawn from an account ending in 61663, which was owned by G&D Furniture Holdings, Inc. (“G&D“).
Funds are transferred from the master account back to subsidiary accounts as needed to answer for demands presented against them such as paying checks, honoring automated clearing house debits, and performing wire transfers. Dolson indicated that account 61663 is the master account in the zero balance arrangement and account 95497 is a subsidiary account.
When SunTrust receives a garnishment summons for an acсount that is a part of a zero balance arrangement, it typically severs the ties between the master and subsidiary accounts. This was not done when SunTrust received the garnishment summons for account 95497, which caused “funds to flow into [it] from the master [account].” Dolson testified that as a result the balances reflected on the account statements were “not just faulty ... оr unreliable” but “preposterously oversized amounts.”
The circuit court granted G&D‘s motion to quash the garnishment of account 61663. The court also ordered payment to PS Business of $15,050.11, the amount of the check drawn on account 95497. PS Business appealed to this Court. We affirmed the circuit court‘s ruling with respect to the garnishment of account 61663:
In the absence of evidence regarding the contractual relationship between the Deutsch and G&D accounts, the periodic transfer of funds between those accounts does not establish a debtor relationship between SunTrust and Deutsch to the funds in G&D account 61663 that would subject those funds to a claim by a creditor with a judgment against Deutsch.
We reversed the order of payment from account 95497, however, finding that the statements showed that SunTrust‘s indebtedness to Deutsch exceeded $15,050.11:
[A]ny funds that reached the account between March 5, 2013 and April 12, 2013, the garnishment period, were funds that Deutsch was entitled to and, consequently, were funds subject to garnishment.
. . . .
While the large majority of these funds flowed from and to G&D account 61663, the bank statements in evidence also reveal credits from and debits to accounts other than G&D account 61663 during the garnishment period. When the sums were credited to Deutsch‘s account, they became subject to SunTrust‘s obligation as debtor to the depositor, Deutsch, and thus subject to garnishment by Deutsch‘s judgment creditors, including PS Business.
. . . .
However, the extent to which the deposits exceeded $15,050.11 is not clear from the record before us because the circuit court did not make any factual determination to ascertain funds held by SunTrust in Deutsch account 95497 during the garnishment period as requested by PS Business in its cross-motion. Absent this requisite inquiry, the record is silent as to which deposits were funds circulating between G&D account 61663 and Deutsch account 95497 during the garnishment period, and which deposits contained new funds.
Id. at 419-20, 758 S.E.2d at 512-13.
Accordingly, we remanded the case for
a detailed inquiry into SunTrust‘s indebtedness to Dеutsch for funds in account 95497 over the garnishment period which would create an obligation to PS Business through its garnishment summons. During the course of this inquiry, G&D and SunTrust will have the opportunity to assert defenses raised below that the funds belonged to G&D and not Deutsch, and that any funds deposited were revolving funds, the same funds repeatedly passing between G&D account 61663 and Deutsch account 95497, or аny other relevant defense to liability . . . .
Id. at 422, 758 S.E.2d at 514.
On remand, PS Business entered into evidence account statements covering the garnishment period for accounts 61663 and 95497. The statements for account 95497 showed that more than $1.2 million in deposits and credits reached the account in March 2013. PS Business then rested its case. SunTrust called Dolson as a witness, who again explained the nаture of zero account balance arrangements and the relationship between accounts 61663 and 95497. He also explained that when SunTrust receives a garnishment summons it places a “post no debits” hold on the subject account in an amount sufficient to satisfy the garnishment. A “post no debits” hold allows the account to receive deposits but prevents debits thаt would cause the account to fall below the amount of the hold. Dolson testified that SunTrust placed a “post no debits” hold in account 95497, but it failed to sever it from account 61663. As a result, zero balance credits “start[ed] flowing from the master account” into account 95497. Notably, these credits were not caused by “normal [demands] like checks and other items being presented for payment.” In turn, these credits were swept back to the master account at the end of each day.
Dolson testified that these revolving daily transfers did not “even reflect real money.” He compared the situation to “check kiting,” “where [the balance] just gets larger and larger because it is taking ... nonexistent money and sweeping it over here and then sending that money back and then bringing it back again as though it‘s a fresh new deposit.” Dolson testified that “the
Dolson also identified several depоsits into account 95497 during the garnishment period that reflected “real dollars.” For example, on March 6, 2013, there was a $896.40 entry entitled “ELECTRONIC/ACH CREDIT FAMILYFURNLANDOV MERC DEP,” which represented a “payment from the outside world for $896.40 worth of goods or services.” He explained that these were deposits of “real dollars” that SunTrust should have captured pursuant to the garnishment. He concluded that the sum of thеse deposits totaled $2,142.42 in addition to the $15,050.11 SunTrust previously admitted to owing.
During closing argument, SunTrust argued that PS Business bore the burden of proof to show the extent of the obligation owed by SunTrust to Deutsch. PS Business responded by arguing that it had met its burden of proof by entering the account statements into evidence. In its view, SunTrust bore the burden of proof to show which deposits were “revolving funds” and which were “real” money. In other words, PS Business took the position that SunTrust was presenting an affirmative defense.
After taking the matter under advisement, the circuit court issued a letter opinion:
The Supreme Court of Virginia noted that during the garnishment period (March 5, 2013 to April 12, 2013), more than $1.2 million in deposits reached the account . . . . The Supreme Court pointed out that I had failed to conduct the required evidentiary hearing to determine how much of the $1.2 million exceeded the amount ordered ($15,050.11). This Court conducted that evidentiary hearing on October 30, 2014.
The Supreme Court stated that during the [hearing on remand] “G&D and SunTrust will have the opportunity to assert defenses raised below that the funds belonged to G&D and not Deutsch, and that any funds deposited were revolving funds, the
same funds repeatedly passing between G&D account 61663 and Deutsch account 95497, or any other relevant defense to liability for the amount of the judgment based upon SunTrust‘s indebtedness to Deutsch for the sums in Deutsch account 95497 during the garnishment period.” ... In other words, as [counsel for PS Business] argued, G&D and SunTrust have the burden of proof.
The court concluded:
[N]either G&D nor SunTrust has satisfied that burden of proof. The fact that the accounts and the linking of the accounts were a confused mess does nоt justify dismissing the garnishment.
The Court denies the motion to dismiss the garnishment.
The circuit court subsequently ordered a payment of $706,755.17 to PS Business. This order found that Deutsch was indebted to PS Business for this amount, and that SunTrust was indebted to Deutsch “in the sum of One Million Two Hundred Thousand Dollars.” After thirty days elapsed without payment, the court entered judgment against SunTrust pursuant to
II. ANALYSIS
A. Burden of Proof
On appeal, SunTrust argues that the circuit court erred by placing the burden of proof on it, thе garnishee, instead of on PS Business, the judgment creditor. To address this argument, we must consider whether the extent of SunTrust‘s liability to Deutsch constitutes a prima facie element of PS Business’ claim or is an affirmative defense. This is a question of law reviewed de novo. Smith v. McLaughlin, 289 Va. 241, 260, 769 S.E.2d 7, 17 (2015) (“Whether a factual issue constitutes a prima facie element of a claim, or is an affirmative defense, is a question of law reviewed de novo.“).
“The phrase ‘burden of proof’ refers to two related but distinct concepts: (1) The ‘burden of production,’ which is the obligation to come forward with evidence to make a prima facie case
“Garnishment is a proceeding which exists only by virtue of statutory enactment.” Lynch v. Johnson, 196 Va. 516, 520, 84 S.E.2d 419, 421 (1954); see
As we implied in our prior opinion, the extent of SunTrust‘s liability constitutes an element of PS Business‘s claim, and therefore PS Business bears the burden of persuasion on this element. See PS Business, 287 Va. at 420, 758 S.E.2d at 513 (after noting that the account statements and the testimony of Dolson clearly indicated that the amount of indebtedness exceeded $15,050.11, we found that the circuit court failed to make “any factual determination” based on the evidence presented by PS Business to support its challenge); see also id. at 423, 758 S.E.2d at 514 (McClanahan, J., dissenting) (“[L]ike any plaintiff, а judgment creditor bears the burden of proving damages.“). Although the burden of production frequently “passes” between the parties, the burden of persuasion as to an element of the plaintiff‘s claim never shifts. Hall v. Hall, 181 Va. 67, 80, 23 S.E.2d 810, 815-16 (1943).
PS Business made a prima facie case by entering the account statements into evidence. The burden of production passed to SunTrust, and it presented Dolson‘s testimony to contest the extent of its indebtedness. PS Business, however, always retained the burden of persuasion as to the extent of SunTrust‘s indebtedness. If the account statements failed to reveal the actual indebtedness or were inconclusive, PS Business failed to carry its burden of persuasion, and the circuit court was required to find against it. See Wetlands, 291 Va. at 162, 782 S.E.2d at 136.
While the circuit court was free to discredit the evidence presented by SunTrust and find the evidence presented by PS Business persuasive, this is not what occurred. Rather, the circuit court improperly shifted the burden of persuasion to SunTrust. See Letter Opinion, PS Business L.P. v. Deutsch & Gilden, Inc., Case No. CL-2013-3981, at 2 (Fairfax Cnty. Cir. Ct. July 1, 2015) (“I conclude that neither G&D nor SunTrust has satisfied that burden of proof.“). The
Additionally, we did not hold that SunTrust would bear the burden of persuasion on remand. The opinion stated only that “G&D and SunTrust will have the opportunity to assert defenses raised below that the funds belong to G&D and not Deutsch, and that any funds deposited were revolving funds.” PS Business, 287 Va. at 422, 758 S.E.2d at 514. This merely acknowledged that SunTrust, as garnishee, was entitled to challеnge the elements of PS Business’ claim or otherwise contest its purported liability by presenting a defense. See, e.g., Lynch, 196 Va. at 521, 84 S.E.2d at 422 (“If, however, the evidence establishes that the judgment debtor had no right to demand payment . . . of the insurance company for his own benefit, then the trial court was correct in holding that the [judgment creditor] was not entitled to any of the insurance procеeds.“); Combs v. Hunt, 140 Va. 627, 631-32, 125 S.E. 661, 662-63 (1924) (the garnishee — an insurance company — presented its contract with the judgment debtor as a defense, arguing that there was no present fixed liability upon it to pay the insured judgment debtor).
B. SunTrust‘s Indebtedness to Deutsch
In its final order for payment, the circuit court found that SunTrust was indebted to Deutsch in the sum of $1.2 million during the garnishment period. This finding is plainly wrong and without evidentiary support. Lovitt v. Warden, 266 Va. 216, 229, 585 S.E.2d 801, 808
“[A] judgment creditor can institute garnishment proceedings if ‘there is a liability’ on a third person to the judgment debtor.” Network Solutions, Inc. v. Umbro Int‘l, Inc., 259 Va. 759, 768, 529 S.E.2d 80, 85 (2000) (quoting
On remand, PS Business entered account 95497‘s statements into evidence and rested its case. It took the same position that it took during the first case, that “the total sum of dеposits [that entered] account 95497 during the garnishment period are subject to the garnishment summons.” PS Business, 287 Va. at 418, 758 S.E.2d at 512. The account statements, however, fail to establish that the zero balance credits created a debtor relationship between SunTrust and Deutsch.
Upon receiving the garnishment summons, SunTrust placed a “post no debits” hold on account 95497, but it failed to sever its ties to the mаster account. This administrative error is the sole cause of the zero balance credits. Normally, under the zero balance arrangement, outside demands presented against the subsidiary account cause funds to flow into it from the master account. Indeed, Deutsch was not “entitled to” the funds in the master account until they “reached” its subsidiary account to satisfy suсh demands. Id. at 417-18, 419-20, 758 S.E.2d at 511,
The zero balance credits were not the result of a demand. They appeared in Deutsch‘s account because of SunTrust‘s administrative error. The record contains no evidence to suggest that this error gave Deutsch an ownership interest in these funds that it did not otherwise have. See 5A Addinell H. Michie, Michie on Banks and Banking § 45, at 189 (2014 Rep. Vol.) (“A bank account holder does not have a property right in ... funds erroneously transferred into his account by virtue of [his] ownership of the account.” (citing Thomas v. Bowen, 791 F.2d 730, 734 (9th Cir. 1986))). Without the error the funds would have remained in the master account, beyond the garnishment‘s reach. Thus, the evidence failed to prove that the zero balance credits created liability on SunTrust to Deutsch. See Lynch, 196 Va. at 521, 84 S.E.2d at 422 (“[T]he judgment creditor stands upоn no higher ground than the judgment debtor and can acquire no greater right than such debtor himself possesses.“).
The account statements also revealed outside deposits of funds into account 95497 resulting from operations of the furniture business. It is not contested that these deposits were reachable under the garnishment because they created a creditor and dеbtor relationship between Deutsch and SunTrust. PS Business, 287 Va. at 420, 758 S.E.2d at 513. The overwhelming majority of the funds that reached account 95497, however, were the zero balance credits. When the zero balance credits are removed, the sum of the outside deposits is the amount subject to
The extent to which the outside deposits exceed the $15,050.11 SunTrust originally admitted to owing is yet to be determined by the circuit court. PS Business, 287 Va. at 422, 758 S.E.2d at 514. On remand, the circuit court shall calculate the sum of these deposits and order this amount (in addition to the $15,050.11 already submitted into the circuit court) be paid to PS Business.
III. CONCLUSION
For the foregoing reasons, we reverse the judgment of the circuit court and remand this case for further proceedings as detailed above.
Reversed and remanded.