Independence Federal Bank, F.S.B. v. Paine Webber
| Decision Date | 21 May 1990 |
| Docket Number | No. 90-84,90-84 |
| Citation | 302 Ark. 324,789 S.W.2d 725 |
| Parties | INDEPENDENCE FEDERAL BANK, F.S.B., Appellant, v. PAINE WEBBER, Appellee. |
| Court | Arkansas Supreme Court |
John M. Belew, Jerry Post, Batesville, for appellant.
W. Ellis Arnold, III, Little Rock, for appellee.
This is an appeal from the trial court's order granting Paine Webber's motion for judgment against the garnishee, Independence Federal Bank, F.S.B. (Bank), for the full value of the garnishment. On appeal, the Bank argues that under our case law, the trial court erred in finding it liable under the writ of garnishment. We agree and therefore reverse.
To understand this case requires a recitation of the facts that led to this dispute. Paine Webber obtained a judgment by default against Harold Bowman for approximately $14,237 plus costs in the Circuit Court for St. Claire County, Alabama. On May 12, 1987, Paine Webber registered its foreign judgment in the Pulaski County Circuit Court and while the judgment became final, Bowman made no payments on it. However, on September 26, 1988, Bowman acquired a $425,000 judgment against the Bank in U.S. District Court, Eastern District of Arkansas, and upon learning of Bowman's success against the Bank, Paine Webber served a writ of garnishment along with allegations and interrogatories on the Bank.
In its answer to Paine Webber's writ of garnishment, the Bank affirmatively stated that, while Bowman had obtained a judgment against it, the judgment and any execution on it had been stayed pending post-trial motions; it further alleged that if the motions were denied, the Bank intended to perfect an appeal. Paine Webber filed a traverse and denial alleging that the Bank's answer was insufficient and unresponsive; it further requested that the lower court enter an order declaring that the Bank should not disburse any funds to Bowman. The Bank countered requesting Paine Webber's traverse of answers and writ of garnishment be dismissed.
On December 2, 1988, the District Court denied the Bank's post-trial motions and lifted the court's stay of execution. One hour after that court's ruling, U.S. Marshals executed a federal writ of execution on Bowman's behalf by seizing from the Bank $124,000 in cash and negotiable instruments and two branch bank buildings. However, after an emergency hearing on December 3, 1988, the District Court again stayed the proceeding, permitting the Bank to post a $435,000 supersedeas bond for its appeal to the Court of Appeals. Since the Bank was insolvent, it made arrangements which authorized First Commercial Bank of Little Rock to issue a cashier's check on the Bank's behalf, payable to the clerk of the U.S. District Court.
The Bank later entered into a settlement agreement with Bowman and the District Court approved the agreement in a hearing held on January 19, 1989. 1 Under the terms of this agreement, the clerk of the district court was to pay Bowman $250,000 out of the supersedeas bond as full and complete settlement of all claims against the Bank. The remaining money from the bond was to be refunded to the Bank. Apparently, secrecy was part of the agreement, because the parties agreed that the court order approving the settlement would not be filed and made public until after Bowman's attorney had received a check in the $250,000 amount. The District Court approved the parties' agreement only after it was assured the court's clerk had not been served with a writ of garnishment.
Upon learning of the Bank's settlement with Bowman, Paine Webber, on January 25, 1989, filed a Motion for Judgment in its state garnishment action against the Bank, alleging that the writ it previously served on the Bank had effected a lien upon the judgment debt the Bank owed Bowman. Paine Webber contended the Bank was liable for the full value of the garnishment and the lower court agreed.
On appeal, the Bank argues the trial court was wrong for the three following reasons: (1) the Bank was never in possession of the money it owed Bowman, and Paine Webber should have garnished the district court clerk; (2) a judgment debtor, such as the Bank, is not subject to garnishment under Arkansas law; and (3) under Arkansas law, garnishment of a judgment debt is not allowed when the debt was suspended by a stay of execution, as was the case here. Since these arguments are interrelated, we will discuss them collectively.
In finding the Bank liable for the full amount of the garnishment, the trial court relied on the federal district court case of Equifax, Inc. v. Luster, 463 F.Supp. 352 (E.D.Ark.1978). In that case, the district court was faced with the very issue now before the court--whether under Arkansas law, a judgment debtor is subject to garnishment. As did the federal district court in Equifax, we must analyze Arkansas's statutory and case law pertaining to garnishments in order to resolve the issues before us.
We first turn to the general garnishment statute, Ark.Code Ann. § 16-110-401 (1987), which provides the following:
In all cases where any plaintiff ... may have obtained a judgment before any of the courts, and the plaintiff shall have reason to believe that any other person is indebted to the defendant or has in his hands or possession goods and chattels, moneys, credits, and effects belonging to the defendant, the plaintiff may sue out a writ of garnishment, setting forth the claim, demand, or judgment.... 2
Under Ark.Code Ann. § 16-110-112(a) (1987), property may be attached that is a fund in the court, by serving the writ of garnishment on the clerk of the court. While the wording of § 16-110-401 suggests that a judgment debtor can be subject to a writ of garnishment, our case law, set out below, suggests otherwise.
In Trowbridge & Jennings v. Means, 5 Ark. 135 (1843), this court addressed this issue. There, Means had obtained a judgment against Hartley, and sued out a writ of garnishment against Trowbridge and Jennings, whom Hartley had received a judgment against. In their answer to the writ of garnishment, Trowbridge and Jennings set up as a defense that their debt to Hartley was embodied in a judgment on which execution had been issued. The court held that the judgment debtors, Trowbridge and Jennings, could not be reached by garnishment because such a procedure would subject the judgment debtors to double liability. While this court recognized that the judgment debtor could be protected by applying for some kind of extraordinary remedy, it stated that he or she should not be put to the trouble or expense.
The fact situation before the court in Tunstall v. Means, 5 Ark. 700 (1843), was similar to the present case. In that case, Means received a judgment against Hartley and served a writ of garnishment upon the judgment debtor, Tunstall. Tunstall answered the writ of garnishment stating that he and others owed Hartley $1,000 on a note and that Hartley had received a judgment for that amount and had executed on the judgment by levying on Tunstall's property. In holding the judgment debtor could not be liable under Means's garnishment, the court followed its Trowbridge decision and stated the rationale in that holding was even stronger when applied to a situation where property held by the judgment debtor had been levied upon by his judgment creditor. The court stated the following:
The principal question in this case, whether a judgment debt is the subject of the garnishment under our statute, was decided by this court in Trowbridge vs. Means, at a former term. With the decision in that case, we are entirely satisfied and fully concur. The reasoning of the court there applies more strongly in this case where the debt of the garnishee had not only passed into judgment, but an execution upon it was levied upon his property. This to a certain extent was a satisfaction of the judgment. While the levy continued upon the property and until the means of satisfaction under the execution was exhausted, the creditor could not proceed against the debtor, but must rely upon the property seized for satisfaction. Here there was nothing upon which the garnishment could...
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