McMahan & Co. v. Po Folks, Inc.

206 F.3d 627 (2000)

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McMahan & Co. v. Po Folks, Inc.

United States Court of Appeals for the Sixth Circuit
206 F.3d 627 (2000)

Facts

On February 28, 1995, McMahan & Company (McMahan) (plaintiff) obtained a judgment against Po Folks, Inc. (defendant) in the amount of $288,763.14 for failure to pay on a promissory note. The judgment was registered in federal district court on April 3. Thereafter, McMahan took actions to enforce the judgment through garnishment of funds held by Po Folks at Po Folks’ bank, Traditional Bank, Inc. (bank) (defendant). McMahan served the bank with over 20 garnishment orders, but the bank remitted less than $12,000. McMahan challenged the bank’s garnishment disclosures through a motion for a writ of execution, attachment, and sequestration against any of Po Folks’ assets held at the bank. The district court denied the motion, finding that the bank did not possess any of Po Folks’ property at the time that the bank was served with the garnishment orders. The United States Court of Appeals for the Sixth Circuit reversed and ordered that McMahan be allowed discovery. On remand, McMahan discovered that the bank’s internal accounting procedures were the reason behind the bank’s failure to fully satisfy the garnishment orders. Specifically, McMahan learned that Po Folks held a general account with the bank, as well as several zero-balance accounts. At the end of each business day, any funds in the zero-balance accounts were swept into the general account. Additionally, an agreement between the bank and Po Folks allowed Po Folks to overdraw on its general account when necessary. At the time that the bank was served with the garnishment order, the bank’s policy was to check account balances using a computer system. The system allowed the bank to view account balances only as they existed as of the close of business on the previous day. The system did not allow the bank to see any deposits or withdrawals made on the day the garnishment orders were served. Because of the bank’s use of this system, the account balances appeared to be zero, resulting in the bank responding that no monies were in the accounts, even if deposits were made on the days that the garnishment orders were served. The district court found that the bank was not in possession of any of Po Folks’ property for garnishment purposes because the bank was not able to locate the funds through the ordinary course of business. McMahan appealed.

Rule of Law

Issue

Holding and Reasoning (Cohn, J.)

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