Banks Beware: Independent Liability of Garnishees to Garnishors
Amid Florida’s legal landscape lies F.S. Ch. 77 (the statute), a critical terrain for creditors collecting on outstanding obligations, both pre- and post-judgment.[1] Yet, it’s not just creditors who should pay heed; garnishees, too, must tread carefully. Empowered by the statute, creditors can compel garnishees to surrender a debtor’s assets, a process fraught with risks for those caught unaware of the obligations placed on them by the statute. From banks holding client funds to employers safeguarding wages, garnishees must fully grasp their obligations to avoid independent, personal liability for the debtor’s debt or judgment. This article explores, through several case studies, third-party liability when a garnishee either fails to identify property of the debtor in its possession or fails to properly retain possession of the property after being served with a writ of garnishment.
Garnishee’s Obligations Under the Statute
The statute empowers creditors to legally compel third parties (garnishees) in possession of tangible or intangible personal property (property) of a person or entity liable on a debt or judgment (the debtor)[2] to withhold a portion or all of that property and to redirect the property to the creditor, or garnishor, toward satisfaction of a debt or judgment.[3] Service of a writ of garnishment makes a garnishee liable to the garnishor for all debts due by the garnishee to the debtor and for all property of the debtor in the garnishee’s “possession or control at the time of the service of the writ or at any time between the service and the time of the [g]arnishee’s answer.”[4] The service of the writ of garnishment creates an automatic lien on all such debts and property in favor of the garnishor.[5] The statute provides that the garnishee is obligated to serve an answer to the writ, in the same form and manner as an answer to a complaint, identifying, among other things, the property of the debtor in its possession or control, and to retain such property until further order of the court.[6]
Consequences of Non-Compliance by a Garnishee with a Writ of Garnishment
The statute expressly provides that service of a writ of garnishment on a garnishee shall render the garnishee personally liable “as provided in this chapter in any fiduciary or representative capacity held by him or her if the fiduciary or representative capacity is specified in the writ.”[7] What precisely does this mean? First, it means that a garnishee that fails to answer a writ of garnishment can have a default entered against it and, subsequently, a default final judgment for the amount of the garnishor’s claim with interest and costs.[8] Second, courts across this state have found this to mean that a garnishee who fails to retain property in its possession or control is personally liable to the garnishor for such failure up to the amount of the garnishor’s claim.
Where a garnishee fails to comply with its statutory obligations to retain the property, it can face an independent, separate action by the garnishor for negligence. The independent liability of the garnishee is separate and apart from the underlying debt of the debtor and can persist even if the underlying debt is discharged in bankruptcy. Such was the case in Salcedo v. Wells Fargo Bank, N.A., 223 So. 3d 1099 (Fla. 3d DCA 2017).
Case Study: Garnishee Negligence and the Implications in Salcedo v. Wells Fargo Bank
In Salcedo, the garnishor served a writ of garnishment upon Wells Fargo Bank (bank) on July 13, 2012.[9] Thereafter, on August 4, 2012, the bank permitted the safety deposit box of the debtor to be closed and the contents to be removed.[10] Four days later, the bank filed an amended answer to the writ disclosing two bank accounts and a safety deposit box and reported that it had placed a “hold” on the safety deposit box.[11] After entry of a final judgment in garnishment directing the bank to turnover the funds and to inventory the safety deposit box, the garnishor discovered the contents of the box had been removed and one of the accounts that was allegedly being retained had in fact also been closed.[12] In the interim, the debtor filed for Ch. 7 bankruptcy and obtained a bankruptcy discharge.[13] The garnishor ultimately filed a separate action against the bank for negligence based upon its breach of duty under the statute to properly supervise access to the safety deposit box and to retain possession of the property for the benefit of the garnishor.[14]
The Salcedo court clarified key aspects of garnishment law. First, §77.06(1) and (2) of the statute imposed a statutory duty upon the bank to secure any property in its possession belonging to the debtor upon service of the writ of garnishment.[15] Such service of the writ, thus, 1) rendered the bank liable as garnishee for the property under the bank’s control; and 2) created a statutory lien on that property in favor of garnishor.[16]
The Salcedo court further rejected the bank’s argument that the debtors’ discharge of the debt in bankruptcy voided any liability of the bank to the garnishor.[17] The court clarified that the discharge in bankruptcy voided any personal liability the debtor might have, but did not discharge or vacate the lien encumbering any property in the safety deposit box or bank accounts created when the writ was served.[18] The court found that the garnishor had stated a legally sufficient claim for negligence against Wells Fargo.
Finally, the Salcedo court reinforced the existence of private right of action by the garnishor against the garnishee as established by F.S. §77.06. “The statute does more than merely make provision to secure the safety and welfare of the public; rather, it protects a garnishor/judgment creditor’s lien and rights to funds and property of the debtor upon service of the writ.”[19] The Third District Court of Appeal ultimately reversed the trial court’s order dismissing the negligence claim with prejudice.[20]
Case Study: Garnishee Negligence and the Precedence in Arnold, Matheny & Eagan, P.A. v. First Am. Holdings, Inc.
The Salcedo court is not the first time that Florida courts have imposed liability on garnishees for failure to comply with the statute and to properly retain property. The Florida Supreme Court found that the independent liability imposed by the statute on garnishees extends to attorneys holding debtors’ funds in their trust accounts.[21] In Arnold, Matheny & Eagan, P.A. v. First Am. Holdings, Inc., 982 So. 2d 628 (Fla. 2008), the Florida Supreme Court answered the following certified question in the affirmative: “DOES AN ATTORNEY GARNISHEE HAVE A DUTY TO ISSUE A STOP PAYMENT ORDER FOR A CHECK DRAWN ON HIS OR HER TRUST ACCOUNT AND DELIVERED TO THE PAYEE PRIOR TO THE RECEIPT OF A WRIT OF GARNISHMENT IF THE SERVICE OF THAT WRIT OCCURS PRIOR TO THE PRESENTMENT OF THAT CHECK FOR PAYMENT TO THE ATTORNEY’S BANK?”[22] At the time of service of the writ of garnishment, although the check had been issued by the firm, the funds themselves remained in the trust account and the firm had the obligation to retain possession and to protect such funds for the benefit of the garnishor.[23]
Case Study: Employer Liability in Wage Garnishment in Daniels v. Sorriso Dental Studio, LLC
Similarly, in Daniels v. Sorriso Dental Studio, LLC, 164 So. 3d 778 (Fla. 2d DCA 2015), the Second District Court of Appeal held that an employer was independently liable to the garnishor for the amounts that it should have retained from the debtor’s wages between the date the writ of garnishment was served and the date the individual debtor filed for bankruptcy protection.[24] In Daniels, the creditor served a writ of garnishment on the debtor’s employer.[25] Initially, the employer defaulted; in the meantime, the debtor filed for bankruptcy.[26] Eventually, the court sua sponte dismissed the garnishment action holding that the discharge of the debt in the debtor’s bankruptcy case also eliminated the creditors’ claim against the garnishee.[27] The Second District, after clarifying the independent nature of the garnishee’s liability, remanded to the circuit court “for it to reconsider the merits…under the correct law.”[28]
Critical Takeaways: Limits on Garnishee Liability and Deadlines
Importantly, a garnishee’s potential liability, even if independent from the debtor’s liability, is capped at the actual amount in the garnishee’s “possession or control at the time of the service of the writ or at any time between the service and the time of the [g]arnishee’s answer.”[29] The garnishee must exercise due diligence in its investigation of exactly what assets are within its possession or control so as to not expose itself to liability.
Ultimately, the liability of the garnishee to the garnishor can be enforced in one of two ways: 1)in the action in which the writ of garnishment was issued;[30] or 2) in a new action for negligence against the garnishee, as we saw in Salcedo.
For garnishors seeking to enforce liability against the garnishee in the original proceeding, garnishors should be mindful of the automatic dissolution mechanism contained in F.S. §77.07(5). “If the plaintiff fails to file a dismissal or motion for final judgment within [six] months after filing the writ of garnishment, the writ shall automatically be dissolved and the garnishee shall be discharged from further liability under the writ.”[31] Even if the garnishee fails to locate or to retain property at the time of service of the writ, later locates the property, and voluntarily amends its answer to disclose the property, if such amendment is six months after the filing of the writ of garnishment, the writ has automatically dissolved and no action can be taken against the garnishee in the action in which the writ of garnishment was served. That period can be extended for an additional six months by serving the garnishee and the defendant with a notice of extension and filing in the underlying proceeding a certification of such service. The effect of an automatically dissolved writ of garnishment is similar to a voluntary dismissal, it divests the trial court of subject matter jurisdiction of the matter.[32] Thus, even if the garnishee locates the property and amends its answer to the writ at a later time, it cannot create subject matter jurisdiction by waiver. Any record activity regarding a writ of garnishment does not prevent the automatic dissolution of the same in the absence of a notice of extension.[33] In such an event, the only recourse may be a separate action against the garnishee for negligently failing to retain or identify the property, as in Salcedo.
Conclusion
F.S. Ch. 77 stands as a formidable tool for creditors collecting debts. However, its reach extends beyond debtors to encompass garnishees, who must be acutely aware of their responsibilities under the statute. Failure to adhere to these obligations can lead to significant repercussions, potentially resulting in personal liability for debts or judgments of others. Whether it is banks managing client funds or employers overseeing wages, garnishees must grasp the intricacies of their role to avoid legal entanglements.
[1] See Fla. Stat. §77.01 (2023) (“Every person or entity who has sued to recover a debt or has recovered judgment in any court against any person or entity has a right to a writ of garnishment, in the manner hereinafter provided, to subject any debt due to defendant by a third person or any debt not evidenced by a negotiable instrument that will become due absolutely through the passage of time only to the defendant by a third person, and any tangible or intangible personal property of defendant in the possession or control of a third person.”); Fla. Stat. §77.031 (providing that a plaintiff, before judgment, can seek the entry of an order granting entitlement to issuance of a writ of garnishment, upon the satisfaction of certain conditions and where “plaintiff believes that the defendant will not have in his or her possession, after execution is issued, tangible or intangible property in this state and in the county in which the action is pending on which a levy can be made sufficient to satisfy the plaintiff’s claim”).
[2] See, e.g., Fla. Stat. §56.0101(4) (2023).
[3] See Fla. Stat. §77.01.
[4] Fla. Stat. §77.06(1).
[5] See id.
[6] See id.; Fla. R. Civ. P. 1.010 (“These rules apply to all actions of a civil nature and all special statutory proceedings in the circuit courts and county courts….”); Fla. Stat. §§77.083, 77.14.
[7] Fla. Stat. §77.06(4).
[8] Fla. Stat. §77.081.
[9] Salcedo, 223 So. 3d at 1101.
[10] Id. at 1103.
[11] Id. at 1101-02.
[12] Id. at 1102.
[13] Id.
[14] Id. at 1102-03.
[15] Id. at 1103.
[16] Id.
[17] Id. at 1105.
[18] Id.
[19] Id. at 1104.
[20] Id. at 1106.
[21] Arnold, Matheny & Eagan, P.A. v. First Am. Holdings, Inc., 982 So. 2d 628, 641 (Fla. 2008); see also Thomas O. Wells, Garnishing a Lawyer’s Trust Account: Actions to be Taken by Lawyer Garnishee, 89 Fla. B. J. 47 (May 2015).
[22] Arnold at 630, 641.
[23] Id. at 641.
[24] Daniels v. Sorriso Dental Studio, LLC, 164 So. 3d 778, 781 (Fla. 2d DCA 2015).
[25] Id. at 780.
[26] Id.
[27] Id.
[28] Id. at 782.
[29] Fla. Stat. §77.06(1).
[30] Fla. Stat. §§77.04, 77.081, 77.083, 77.08.
[31] Fla. Stat. §77.07(5).
[32] See, generally, MTW Jordan, Inc. v. Baskerville, 323 So. 3d 331, 333 (Fla. 5th DCA 2021) (holding subject matter jurisdiction cannot be created by waiver, acquiescence, or agreement of the parties, or by error or inadvertence of the parties or their counsel, or by the exercise of power by the court). See, e.g., Hardman v. Koslowski, 135 So. 3d 434, 436 (Fla. 1st DCA 2014).
[33] See Akerman Senterfitt & Eidson, P.A. v. Value Seafood, Inc., 121 So. 3d 83, 85, 86 (Fla. 3d DCA 2013) (holding that failure to file a motion for final judgment or to seek an extension of the writs within six months after their filing resulted in their automatic dissolution even where the garnishor had served a notice for trial, trial was scheduled, and the parties subsequently appeared at a calendar call).
Jocelyne A. Macelloni is a partner and director of education at Barakat + Bossa PLLC, in Coral Gables. Board certified by The Florida Bar in business litigation, Macelloni has spent more than a decade representing businesses and business owners in courts and arbitrations around the U.S. including corporate disputes, employment, construction, commercial real estate transactions and disputes, asset recovery, factoring, and other UCC-related matters.
Danielle Latte is an associate at Barakat + Bossa PLLC where she represents clients in business litigation matters including commercial real estate, partnership, and officer liability disputes and claims.
This column is submitted on behalf of the Business Law Section, Manny Farach, chair, and Daniel Etlinger and Kathleen L. DiSanto, editors.
