Bank v. Peoples Nat'l Bank

• Decision Date: 09 June 2010
• Docket Number: No. 49A02-0908-CV-753.,49A02-0908-CV-753.
• Parties: FIFTH THIRD BANK, Appellant,v.PEOPLES NATIONAL BANK, Appellee.
• Court: Indiana Appellate Court

929 N.E.2d 210

FIFTH THIRD BANK, Appellant,v.PEOPLES NATIONAL BANK, Appellee.

No. 49A02-0908-CV-753.

Court of Appeals of Indiana.

June 9, 2010.

Mark R. Wenzel, Libby Y. Mote, Alicia Mitchell Chandler, Krieg DeVault, LLP, Indianapolis, IN, Attorneys for Appellant.

Steven L. Yount, Steven J. Kasyjanski, Indianapolis, IN, Attorneys for Appellee.

OPINION

DARDEN, Judge.

STATEMENT OF THE CASE

Fifth Third Bank (“Fifth Third”) appeals the trial court's judgment in proceedings supplemental in favor of People's National Bank (“PNB”).

We reverse and remand with instructions.

ISSUE

Whether Fifth Third waived its right to enforce its security interest with respect to its indebted depositor's checking account and proceeds held therein.

FACTS ¹

In 2005 or early 2006, Odle, McGuire & Shook (“OMS”) ² opened deposit account(s) with Fifth Third. OMS maintained the deposit account(s) at all times relevant for our purposes. It is undisputed that the deposit account(s) contained proceeds from OMS' accounts receivable and other funds. On July 8, 2005, OMS entered into written security agreement ³ with Fifth Third to secure over $1.5 million in loans. In the security agreement, OMS granted to Fifth Third a security interest in all of its assets including

[a]ll Accounts, all Inventory, all Equipment, all General Intangibles ... [a]ll instruments, chattel paper, ... cash, ... and the proceeds thereof, ... and any deposit accounts of [OMS] with [Fifth Third], including all demand, time, savings, passbook or other accounts and all deposits therein.

(App.2, 78-79) (emphasis added). On August 5, 2005, Fifth Third perfected its security interest by filing a financing statement covering “all assets, ... accounts, ... deposit accounts, ... and proceeds thereof” with the Office of the Secretary of State. (App.2, 85).

OMS subsequently defaulted on its loans with Fifth Third for its “failure to make payments when due.” (App.47). Fifth Third initiated an action seeking to collect on certain promissory notes and to enforce its security interest in OMS' collateral, including its deposit account(s) and proceeds held therein. ⁴ Through April of 2009, OMS continued to conduct business operations, and Fifth Third honored OMS' checks drawn on the deposit account in the amount of at least $65,000.00.

By November 11, 2007, OMS had defaulted on a lease agreement with PNB, and a lawsuit was filed by PNB for breach of the lease. On November 25, 2008, PNB received a default judgment against OMS in the amount of $63,689.50, plus post-judgment interest, court costs, and attorney's fees. Thereafter, PNB sought to collect on its judgment by attaching funds, if any, in OMS' Fifth Third deposit account(s). On December 16, 2008, PNB initiated proceedings supplemental against OMS. On December 30, 2008, PNB issued its first notice of garnishment proceedings, wherein Fifth Third was named as a garnishee defendant and was ordered by the court to place a 90-day hold on OMS' deposit account(s), if any such accounts existed. PNB also served garnishment interrogatories on Fifth Third, inquiring as to whether OMS maintained any deposit account(s) at Fifth Third.

On January 16, 2009, Fifth Third submitted interrogatory answers (“original interrogatory answers”) stating that OMS maintained “no [deposit] accounts” with Fifth Third. (App.30). On April 7, 2009, the trial court conducted a proceedings supplemental hearing. During the hearing, OMS president Matthew Mayol acknowledged in open court that OMS had, in fact, maintained deposit account(s) at Fifth Third since “[a]pproximately 2005 or early 2006.” (Tr. 11). He also testified that Fifth Third had instituted a freeze on $150,000.00 in OMS' deposit account(s).

On April 8, 2009, PNB issued a second notice of garnishment proceedings, again naming Fifth Third as a garnishee defendant. PNB served Fifth Third with a second set of interrogatories. On April 16, 2009, Fifth Third tendered interrogatory answers to the second set of interrogatories, wherein it identified a checking account in OMS' name with an account balance of approximately $64,000.00.

On May 11, 2009, another division of the Marion County Superior Court entered a final agreed judgment in favor of Fifth Third for $1.5 million against OMS for its default on the loan agreements. On May 18, 2009, Fifth Third filed an amended set of answers to the second set of interrogatories which stated that (1) OMS had a checking account at Fifth Third with a balance of approximately $470,000.00; (2) that Fifth Third had perfected a security interest in all of OMS' assets, including all deposit account(s) and proceeds therein; and (3) that OMS' account(s) were also subject to two federal tax liens totaling approximately $1.2 million. The hearing was continued to May 26, 2009.

On May 26, 2009, the trial court reconvened the hearing on proceedings supplemental and ordered the parties to submit briefs regarding priority of liens. The parties tendered their briefs on June 15, 2009. On July 15, 2009, the trial court entered a final order in attachment (“garnishment order”) wherein it ordered Fifth Third to turn over to PNB sufficient funds from OMS' deposit account(s) to satisfy PNB's judgment. The trial court's order provides, in pertinent part, the following:

The Court's file reflects return of Interrogatories from Fifth Third Bank showing “no account.” [OMS president] Matthew R. Mayol testified in open Court that [OMS] had in fact an open account with Fifth Third Bank.

It appearing to the Court that [PNB] has heretofore recovered a judgment against [OMS] in the sum of Sixty-Three Thousand Six Hundred Eight-Nine Dollars and Fifty Cents ($63,689.50) plus Court Costs and post-judgment interest, such Judgment dated November 25, 2008; that an execution against [OMS] has been returned wholly or partially unsatisfied.

The Court takes Judicial notice that Fifth Third Bank has filed their Amended Answers to Interrogatories showing [OMS] having a Checking Account Number: [xxxxxx]0109. There being held an amount of Sixty-Three Thousand Six Hundred Eighty-Nine Dollars and Fifty Cents ($63,689.50). Such amount being subject to execution.

And the Court having heard the evidence and being otherwise duly advised now finds that the facts set out in [PNB's] petition are true, and that [PNB] is entitled to recover of and from said Fifth Third Bank, the bank account of [OMS] the amount required to satisfy said judgment and costs with interest, until same is fully paid and satisfied.

(App.3-4). Fifth Third now appeals.

Additional facts will be provided as necessary.

DECISION ⁵

1. Priority

Fifth Third asserts that the trial court erred in issuing its final order in attachment in favor of PNB. Specifically, it argues that OMS' deposit account(s) should not have been subject to attachment in proceedings supplemental because (1) prior to PNB obtaining its judgment, Fifth Third had properly perfected its security interest in OMS' deposit account(s) and all proceeds therein; and (2) that Fifth Third's perfected security interest took priority over PNB's judgment lien. PNB concedes that Fifth Third “may have had a perfected security interest in the deposit account,” ⁶ but asserts that Fifth Third waived its security interest in the deposit account(s) by its conduct with respect to Fifth Third's failure to truthfully answer PNB's interrogatories. PNB's Br. at 1.

a Standard of Review

Proceedings supplemental are designed as a remedy where a party fails to pay a money judgment. The proceedings are merely a continuation of the underlying claim, initiated under the same cause number for the sole purpose of enforcing a judgment. These proceedings “serve the limited purpose of determining whether an asset is in the judgment debtor's possession or subject to the judgment debtor's control and can be attached to satisfy the judgment.”

Our system vests trial courts with broad discretion in conducting proceedings supplemental. “[I]n proceedings supplemental, we are constrained to treat a trial court's judgment as being general only.” We will not disturb a trial court's judgment regarding a proceedings supplemental unless the record does not provide sufficient support for any theory on which the judgment may be sustained. Illinois Founders Ins. Co. [ v. Horace Mann Ins. Co.], 738 N.E.2d [705,] 708 [ (Ind.Ct.App.2000) ]; cf. [ Commercial Credit Counseling Services, Inc.] v. W.W. Grainger, 840 N.E.2d [843,] 847 [ (Ind.Ct.App.2006) ] (recognizing that the “issuance of findings in a judgment rendered in proceedings supplemental is disfavored in Indiana,” and treating trial court's findings as “general findings ... and consider[ing] the findings as far as they supply the trial courts' legal reasoning for rendering their judgments”). “We will affirm the trial court's judgment on any legal theory supported by the evidence most favorable to the judgment, together with all reasonable inferences to be drawn therefrom.”

Prime Mortg. USA, Inc. v. Nichols, 885 N.E.2d 628, 668-69 (Ind.Ct.App.2008) (some internal citations omitted).

b. Legal Background

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. Freidline v. Thomalla, 852 N.E.2d 17, 20 (Ind.Ct.App.2006). It is well settled under Indiana law that a judgment creditor acquires an equitable lien on funds owed by a third party to the judgment debtor from the time the third party receives service of process in proceedings supplemental. Radiotelephone Co. of Indiana, Inc. v. Ford, 531 N.E.2d 238, 240 (Ind.Ct.App.1988) (citing Butler v. Jaffray, 12 Ind. 504 (1859)). Accordingly, “the third party in proceedings supplemental is liable for paying out funds in a manner inconsistent with the judgment creditor's lien.” Radiotelephone at 241.

However, like the majority of jurisdictions, Indiana recognizes a right of depositary banks to “se...