This article originally appeared in Arkansas Business on April 29, 2019.
Account garnishments are a common and routine occurrence for many financial institutions, and one Arkansas bank is now taking a financial hit due to a routine garnishment.
On March 13, the Arkansas Court of Appeals upheld a judgment against Eagle Bank & Trust of Little Rock in the amount of $67,000 because the bank failed to hold funds in an account that was closed at the time the writ of garnishment was received and then reopened before the bank’s answer to the writ was filed.
What happened? Well, originally a judgment was entered in Faulkner County Circuit Court in favor of Raynor Manufacturing Co. against BCI Management Co. On Aug. 3, 2017, Raynor sent a writ of garnishment by certified mail to the bank’s registered agent in Little Rock. This writ, like all other writs, directed the bank to respond as to whether BCI had any accounts with funds at that bank.
At the time the writ was served, the bank had no funds belonging to BCI. This is because the account was closed three days before the writ of garnishment was served on the bank. But on Aug. 4, 2017, the day after the writ of garnishment was served, BCI reopened its account, deposited a cashier’s check in the amount of $66,569.58, and then wired the money to a different creditor. The deposit account was then closed again.
Unfortunately, the bank did nothing to stop this wire transfer, and there were no notes on the closed account that would have informed the teller that a garnishment had been served on the bank.
On Aug. 10, 2018, a customer service manager for the bank filed an unsworn written statement in Circuit Court responding to the writ of garnishment. The court eventually found that the bank’s answer was defective and void because it was not filed by an attorney and was not sworn under oath as required by the Arkansas statutes on garnishments. Raynor asked the court to enter a judgment against Eagle Bank because it failed to freeze the funds in the account, and the court agreed and entered a judgment against Eagle Bank for the amount it failed to hold — about $67,000. The court of appeals agreed and affirmed the decision.
What is required of banks? A writ of garnishment imposes a lien on all property in the hands of the bank that belongs to the judgment debtor at the time of service until the return date of the writ. The bank is not permitted a “reasonable time” to process the garnishment, and it must hold funds immediately when it is served with the garnishment.
The writ of garnishment is also a lien on any monies that are deposited into the bank account between the time of service and the date the bank’s answer is filed. The answer is required to be filed within 10 days of service and must be “under oath.” An unsworn answer is insufficient under Arkansas law. Although not specifically addressed in the Court of Appeal’s decision, it is also important to note that the filing of the answer by an employee of Eagle Bank (and not an attorney) was the unauthorized practice of law.
What were the mistakes? For banks, there are many lessons to learn from this case.
First, an answer to a writ of garnishment must be filed “under oath” in accordance with the statute. Second, the filing of an answer by an employee of the bank, although commonplace in Arkansas, constitutes the unauthorized practice of law. Although garnishments are routine, these answers should be filed by an attorney. Third, garnishments must be processed immediately upon service of the writ of garnishment. The Court of Appeals expressly found that banks are not entitled to a “reasonable” period of time to process the writ of garnishment due to the specific statute on garnishments. Last, even if a customer has a closed account, a writ of garnishment needs to be noted on the closed account so this exact mistake is not repeated.
What should you know? Garnishments are a routine matter for banks. If writs of garnishment are not handled properly, there are costly consequences. In this case, it cost Eagle Bank about $67,000.