Lsf Franchise Reo I v. Emporia Restaurants, 93,622.
| Decision Date | 03 March 2006 |
| Docket Number | No. 93,622.,93,622. |
| Citation | 130 P.3d 1212 |
| Parties | LSF FRANCHISE REO I, LLC, Plaintiff/Appellant, v. EMPORIA RESTAURANTS, INC., and North Star Holdings of Missouri, L.L.C., Defendants, and Polaris Restaurants, Inc., Defendant/Appellee. |
| Court | Kansas Court of Appeals |
Syllabus by the Court
1. Garnishment is a provisional remedy created by statute to enable a creditor to satisfy a debt out of property, money, or credits belonging to the debtor which are in the possession or under the control of another.
2. Garnishment is a statutorily created remedy, and there is nothing in the garnishment statutes which would prevent a court from hearing evidence about the ownership of funds in a bank account.
3. A bank may refuse to honor a garnishment if the account is a special account held in trust for a specific purpose.
Thomas A. Krueger, of Krueger Law Offices, of Emporia, for appellant.
Cynthia F. Grimes, of Grimes & Rebein, L.C., of Lenexa, and Jeffry J. Larson, of Miller & Larson, Chtd., of Emporia, for appellee Polaris Restaurants, Inc.
Before PIERRON, P.J., MARQUARDT and MALONE, JJ.
LSF Franchise REO I, LLC (LSF) appeals from a trial court order which quashed a garnishment of Polaris Restaurants, Inc.'s (Polaris) bank accounts. We affirm.
Emporia Restaurants, Inc.; Polaris Restaurants, Inc.; and North Star Holdings of Missouri, L.L.C., signed two promissory notes totaling $2,600,000. The notes were secured by a mortgage, assignment of leases and rents, and a fixture financing statement. By assignment, LSF is the holder of the notes.
On September 22, 2003, LSF filed a petition to foreclose on the mortgage and personal property collateral, and for breach of the promissory notes. On March 18, 2004, the trial court filed a journal entry of judgment and foreclosure against Emporia Restaurants, Inc.; Polaris Restaurants, Inc.; and North Star Holdings of Missouri, L.L.C.
On July 23, 2004, the trial court issued a garnishment order to Commerce Bank (Commerce) for funds, credits, or indebtedness held by Commerce for Polaris not to exceed $2,624,361.61. Commerce answered the order stating that it held $33,686.73 in accounts belonging to Polaris.
Commerce subsequently amended its answer, stating that on the date the garnishment order was served, Polaris had two checking accounts with Commerce. One account had a balance of $24,069.66 and the other account had a balance of $9,617.07. However, deposits made to the accounts prior to receipt of the garnishment order which were part of the $33,686.73 reported to the trial court were returned to Commerce as unpaid by the paying bank. After subtracting the returned amounts, $9,086.73 remained in Polaris' Commerce accounts.
On August 9, 2004, Polaris filed a motion to quash the trial court's garnishment order. At the hearing, Polaris testified that one account was for operating funds and the other was a payroll account, although Commerce did not have them designated as such. Polaris had scheduled an electronic funds transfer for July 27, 2004, in the amount of $8,791.64 for payroll taxes before it received the LSF garnishment. Polaris testified that Commerce's amended garnishment answer indicated it held $6,670.66 in the operating account and $2,418.07 in the payroll account. The payroll account did not have sufficient funds to cover the transfer, so Polaris intended to transfer the money from the operating account into the payroll account to cover the electronic funds transfers for the payroll tax. Polaris argued that the funds in the account were not actually property of Polaris because the employee taxes were the property of the employees, United States Treasury, and the Kansas Department of Revenue.
The trial court found that the two accounts were actually held in trust for taxes and arrangements for payment of the taxes by electronic transfer were made prior to the receipt of the garnishment. The trial court found that the funds should be returned to Polaris for the purpose of paying taxes only. LSF appeals.
LSF argues that the trial court erred in granting Polaris' motion to quash the garnishment, arguing that the funds in Polaris' accounts could not be protected as payroll taxes. LSF argues that the account is not protected because Polaris did not designate it as a special account with the bank to be used exclusively for the purpose of paying taxes.
The function of an appellate court is to determine whether the trial court's findings of fact are supported by substantial competent evidence and whether the findings are sufficient to support the trial court's conclusions of law. Substantial evidence is such legal and relevant evidence as a reasonable person might accept as sufficient to support a conclusion. U.S.D. No. 233 v. Kansas Ass'n of American Educators, 275 Kan. 313, 318, 64 P.3d 372 (2003). An appellate court's review of conclusions of law is unlimited. Nicholas v. Nicholas, 277 Kan. 171, 177, 83 P.3d 214 (2004).
K.S.A. 60-729 provides:
"Garnishment is a procedure whereby the wages, money or intangible property of a person can be seized or attached pursuant to an order of garnishment issued by the court under the conditions set forth in the order."
In this case, the garnished property consisted of funds in two accounts at Commerce in Polaris' name. LSF argues on appeal that the funds were in Polaris' account and were not designated with the bank as funds in which someone else had an interest. LSF argues that because Polaris could access the funds at any time and was not restricted as to how it could use the funds, the funds should have been garnished. However, LSF cites cases from other jurisdictions to support this argument. It cites to one Kansas case which deals with a similar issue in a different context.
In Capital Serv., Inc. v. Dahlinger Pontiac-Cadillac, Inc., 10 Kan.App.2d 328, 699 P.2d 549, rev. denied 237 Kan. 886 (1985), the court was presented with an issue of a judgment creditor...
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Lsf Franchise Reo I v. Emporia Restaurants, 93,622.
...taxes and not subject to garnishment. The Court of Appeals affirmed the trial court's ruling. LSF Franchise REO I v. Emporia Restaurants, 35 Kan.App.2d 189, 130 P.3d 1212 (2006). We granted LSF's petition for review and now FACTS In September 2003, LSF filed a "Petition to Foreclose Mortgag......