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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 [email protected]. 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.