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Bank Loses 100k After Failing To Appear At Garnishment Hearing To Prove Right Of Set-Off

Lesson. A bank, as a garnishee-defendant, may claim a right to set-off funds on deposit against amounts its customer owes the bank. However, the bank should appear in court and prove its right. Merely asserting set-off in answers to interrogatories could waive the bank’s claim and result in a loss of the funds.

Case cite. Old Plank Trail Community Bank v. Mattcon General Contractors, 137 N.E.3d 308 (Ind. Ct. App. 2019)

Legal issue. Whether Bank preserved its right to a set-off of the amounts owed under a garnishment order.

Vital facts. In December 2018, a judgment in the amount of $162,178.95 was entered against defendant, Burrink, in favor of plaintiff, Mattcon. In January 2019, Mattcon initiated proceedings supplemental and sought the garnishment of Burrink’s deposit accounts at Bank. Bank, as garnishee-defendant, answered Mattcon’s interrogatories and identified two accounts with $97,944.07 on deposit. The answers went on to state “Bank has claimed set-off rights as past loans due to Bank.” However, Bank provided no documents to support the set-off, and Bank did not attend a hearing on the court’s order to appear. The trial court determined that Bank “waived any defenses as to garnished funds” and entered a final order in garnishment that required Bank to turn over the $97,944.07 to Mattcon.

Procedural history. The trial court ruled that Bank waived its right to set-off the garnished funds. Bank appealed.

Key rules. A garnishment proceeding “is a means by which a judgment creditor seeks to reach property of a judgment debtor in the hands of a third person, so that the property may be applied in satisfaction of the judgment.” A judgment creditor “has the initial burden of proving that funds are available for garnishment.” The burden then shifts to the garnishee-defendant to “demonstrate a countervailing interest in the property or assert a defense to the garnishment.”

A depositary bank generally “has the right of set-off after receipt of notice of garnishment.” However, that right of set-off can be waived. Waiver means “the voluntary relinquishment of a known right.” The “silence or failure to act will not constitute waiver unless the holder of the right fails to speak or act when there is a duty to speak or act.”

Holding. The Indiana Court of Appeals, guided by the lofty “abuse of discretion” standard, affirmed the trial court’s final order in garnishment.

Policy/rationale. Bank contended that, even though it did not attend the proceedings supplemental hearing, the interrogatory answers provided adequate notice of the set-off rights and, in turn, permitted Bank to set-off any amounts owed after Bank received notice of the garnishment proceedings. The Court refused to reverse the trial court’s decision related to Bank’s “potential” right to set-off:

[Bank] failed to include or reference any relevant loan documents, payment histories, statements of outstanding balances, or notices of default that would support its claimed set-off rights. Moreover, [Bank] had the duty, knowledge, and opportunity to present and prove the claimed defense to garnishment at the February 8 hearing. It failed to do so, despite the trial court's order that the claims or defenses were to be presented at the time and place of the hearing.

While the result seems a little harsh, the system is set up to be deferential to the trial court, which conducted the proceedings first-hand. Bank didn’t quite do enough to protect its interests here.

Related postSet-Off Versus Garnishment: Rights To And Priorities In Deposit Accounts
My practice includes representing parties, including judgment creditors and lenders, in post-judgment collection proceedings. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

U.S. Supreme Court: FDCPA Statute Of Limitations

The Supreme Court of the United States, in Rotkiske v. Klemm, 140 S.Ct. 355 (2019), held that the Fair Debt Collection Practices Act's one-year statute of limitations "begins to run on the date on which the alleged FDCPA violation occurs, not the date on which the violation is discovered."  15 U.S.C. 1692k(d)   Justice Thomas authored the opinion, which strictly construes the statutory text.  The Court "simply enforce(d) the value judgments made by Congress" and declined to build the so-called discovery rule into the statutory provision.    

Wife Was A “Creditor” In Alleged Fraudulent Transfer Case And Proved The Necessary Fraudulent Intent To Prevail Over Husband In Divorce Case

Lesson. Dumping real estate assets for no value shortly before a judgment, even in a divorce case, could lead to a court order unwinding the transfers under Indiana’s UFTA.

Case cite. Hernandez-Velazquez v. Hernandez, 136 N.E.3d 1130 (Ind. Ct. App. 2019)

Legal issues. Whether a wife was a “creditor” under Indiana’s Uniform Fraudulent Transfer Act? Whether the subject transfers violated the UFTA?

Vital facts. This dispute arises out of a divorce and involves the husband (Husband), the wife (Wife), the husband’s brother (Brother), and the Brother’s longtime girlfriend (Girlfriend). In connection with a decree of dissolution, there was a property division in which Wife was to receive certain parcels of real estate. Although the facts are pretty dense, in a nutshell, shortly before the divorce was to become final, Husband conveyed a bunch of real estate to Girlfriend.

Procedural history. The trial court set aside the conveyances based upon the UFTA. Husband appealed.

Key rules. Ind. Code § 32-18-2-14 sets out how a transfer becomes voidable under Indiana’s UFTA. One key inquiry is whether the transfer was made with the “intent to hinder, delay, or defraud” the creditor.

I’ve written about the test for “fraudulent intent” and the so-called “eight badges of fraud” previously.   

The UFTA defines a “creditor” as “a person that has a claim.” I.C. § 32-18-2-2.

Holding. The Indiana Court of Appeals affirmed the trial court ruling in favor of Wife.

Policy/rationale. Husband first contended that Wife was not a creditor because Brother financed the purchase of the subject real estate from Husband and had the right to direct to the conveyances to Girlfriend. However, the evidence showed that Wife contributed to the original purchases of the real estate, which, in part, had been titled in Wife’s name. The Court concluded the properties were part of the marital estate for purposes of the divorce, thereby rendering Wife a “creditor.”

Husband next argued that the transfer of real estate from Husband to Girlfriend was not made with the “intent to hinder, delay, or defraud” Wife. The Court addressed Indiana’s law of fraudulent intent and found that at least five of the eight badges of fraud were present:

First, the record shows that Husband transferred the properties to [Girlfriend] approximately one month before Wife filed for divorce and when the parties' relationship had already begun to deteriorate. Second, the transfer of these properties greatly reduced the marital estate because the rental properties were substantially all of the family's assets. Third, there is evidence that Husband would retain some benefits over the rental properties. That is, Husband, [Brother], and [Girlfriend] would continue to renovate and manage the properties and collect rent from tenants. Fourth, Husband transferred the properties to [Girlfriend] for little or no consideration. That is, he transferred all the properties to [Girlfriend] for ten dollars. Finally, the transfer of these properties from Husband to [Girlfriend] was effectively a transfer between family members. Although [Brother] and [Girlfriend] have never been married, they have been in a relationship for over thirty years and have three children together. All of this together constitutes a pattern of fraudulent intent.

Related posts.


Part of my practice is to advise parties in connection with post-judgment collection matters. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

The Indiana Lawyer: Bankruptcy Flood Coming?

This article in The Indiana Lawyer predicts a "flood" of COVID-related bankruptcy filings and quotes a number of local BK lawyers.  That flood, which many predicted in March and April would have occurred by now, has not happened - yet.  But, conventional wisdom suggests it's not a matter of if, but when.  I tend to agree.

The same goes for COVID-related foreclosure filings, both residential and commercial.  Of course the consumer foreclosure moratorium prevented and, in many cases, continues to prevent a tidal wave of residential cases.  The interesting thing is that, at least from what I've seen, commercial foreclosures in Indiana have not spiked at all. 

My understanding is that, if a commercial flood, is coming, it will start with hotels - unless Congress provides some kind of bail out.  Having said that, with the stimulus money, combined with the general attitude of forbearing instead of foreclosing, it's difficult to predict when, or even if, a commercial foreclosure tsunami is near.