Condo Association Collections: Garnishees May Be Liable for Incorrect Payment

A published 2020 case from Michigan Court of Appeals makes it clear that a garnishee may be liable for a defendant’s debt, if the garnishee does not withhold the proper amount of payments. A garnishee is defined as “one who has property or money in his possession belonging to the defendant, so that the assets may later be accessible to satisfy a judgment against the principal defendant.” In light of the court’s ruling, community associations should be aware that if they receive a judgment and issue a garnishment, they will likely be able to recover 100% of the amount provided for in a court ordered writ of garnishment, regardless of whether a garnishee fails to withhold the correct amount from a defendant.

Facts

In Premiere Property Services, Inc. v. Crater, __ Mich App __, __ NW2d __ (2020), Plaintiff hired Crater to solicit and manage painting projects. However, the relationship between Plaintiff and Crater terminated in April 2018 and Plaintiff filed suit against him in May 2018.  The trial court entered a default judgment against Crater and the two companies he owns and controls, Better Brush Painting, LLC, and Fresh Outlook Paining, LLC, in the amount of $331,320.67. Plaintiff then sought to collect its judgment by seeking writs of garnishment directed at defendants’ assets held by others. The court ruled in Plaintiff’s favor and issued a writ of garnishment against True North (the “Garnishee”), which was in possession of Crater’s assets, and ordered it to withhold all payments to defendants and instead “make all payments withheld under this writ payable to the Plaintiff.”

After being served with the garnishment, True North made three substantial payments to Crater, totaling $22,746.64, while only withholding $7,610.62 for Plaintiff. Garnishee made the decision to withhold only 25% of the payments (as opposed to “all” as ordered by the court) on grounds that the payments to Crater were owed to him as an employee. In turn, Plaintiff argued Garnishee was misinformed as the court order stated the amounts owed were to be withheld from Crater entirely and that Crater was a subcontractor, not an employee.

As a result of Garnishee failing to withhold all payments from Crater, Plaintiff sought a judgment against Garnishee in the amount of the three payments made to Crater (the other 75% of the garnished payments). The trial court found it would not hold Garnishee responsible for the amount incorrectly paid to Crater, as it would essentially be obligating Garnishee to pay 175% of the garnished payments because Garnishee had already paid 75% the garnished payments to Crater.

Analysis

The Michigan Court of Appeals reversed and remanded the trial court’s decision. The court found Garnishee liable for the payments it incorrectly paid to Crater, as it violated a court ordered writ of garnishment by making payment directly to Crater. In addition, the court also stated that Garnishee’s responsibility to Plaintiff for the garnished payments was not excused even though it was no longer in possession of the payments it paid to Crater. The Court of Appeals reasoned that allowing a garnishee to transfer garnished payments to a defendant such as Crater, without risk of liability or consequences, could frustrate the purpose of garnishment. For these reasons, the Court of Appeals found that the trial court’s decision was made in error because it would not hold Garnishee liable for the payments it made to Crater in violation of the writ of garnishment.

Conclusion

Unfortunately for garnishee in this case, the Court of Appeals found that while garnishee argued it had made a mistake in good faith, it failed to identify a court rule, statute, or caselaw that could grant the trial courts discretion to deny Plaintiff’s recovery because of “inadvertent compliance”. All told, then, Garnishee was required to pay 175% of the payments to Plaintiff – a loss of 75% (Crater was paid 25% and Plaintiff received 25% + 75% per the Court of Appeals ruling).

The Michigan Court of Appeals ruling in this case is advantageous for community associations that obtain judgments and are interested in issuing garnishments. Community associations must keep in mind that garnishment is an effective tool to collect money that is owed to them after obtaining a judgment.

Alexa G. Lacaria Sabiry is an associate attorney with Hirzel Law, PLC., where she focuses her practice on collections. Prior to attending law school, Alexa received her Bachelor of Science degree in Supply Chain Management from Wayne State University, where she graduated cum laude. Alexa is a graduate from University of Detroit Mercy School of Law. During her time as a law student, Ms. Lacaria Sabiry completed two judicial externships. Alexa served as a judicial extern to the Honorable Mark A. Randon in United States Bankruptcy Court for the Eastern District of Michigan and also to the Honorable Brian R. Sullivan in the Third Judicial Circuit of Michigan, Business Court. She may be reached at (248) 397-6596 or asabiry@hirzellaw.com.

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