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Existence of a Trust Must be Factually Established to Exempt a Bank Account in the Trust’s Name from a Garnishment that Relates to an Individual

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Patricia J. Scott
July 2, 2014

In civil litigation, obtaining a judgment against a defendant is a means to an end (recovery of damages), not an end in itself. Indeed, once a judgment is obtained, collection efforts must begin. Collection is sometimes simple and straightforward, but may be difficult and protracted.

Judgment creditors have a number of tools at their disposal, including the right to conduct discovery to ascertain what assets the defendant has, and where those assets are being held. A creditor may also seek to seize a defendant's personal property. A common collection method is garnishment, which involves the seizure of money from a defendant. The money may come directly from the defendant or from a third party, such as a bank or other financial institution holding the defendant's money.

While garnishment is a relatively straightforward collection tool, the particular facts and circumstances of a garnishment request may require court intervention to settle disputes between the garnishor (the judgment creditor) and the garnishee (the third party holding the defendant’s funds). Such was the case in litigation that involved two banks in a garnishment dispute that ultimately led to the Michigan Court of Appeals in a case captioned Comerica Bank v. Circle Broach Leasing II, LLC, Circle Broach Company, Inc., Robert Duquette, Jr. Duquette Family Trust, and Arlene P. Duquette, and TCF Bank.[1]

Comerica Bank (“Comerica”) obtained a judgment against several defendants in Wayne County Circuit Court arising from the breach of a promissory note (against one defendant) and guarantee agreement (against remaining defendants). After obtaining a judgment against defendants, Comerica submitted numerous garnishments to various financial institutions, including to TCF Bank (“TCF”) concerning funds deposited there by defendant Arlene Duquette. TCF denied Comerica's request, stating that it was not indebted as a garnishee because Ms. Duquette's funds were held in a “Legal Trust account.” After seeking and obtaining discovery, Comerica filed a motion in the Circuit Court to compel TCF to pay the funds. TCF did not appear at the hearing and Comerica's motion was granted. After its motion for relief from the order granting Comerica's motion was denied, TCF appealed.

TCF asserted two arguments on appeal. First, that the trial court erred by ordering the disbursement of funds from the trust account because the judgment was obtained against the individual, Ms. Duquette, not the alleged trust itself. Second, that the garnishment disbursement should be set aside because TCF did not receive notice of the hearing regarding Comerica's motion to compel.

The Court of Appeals ruled against TCF on both issues in its unpublished opinion. Regarding the trust account argument, the Court of Appeals held that TCF failed to establish a valid trust account existed. On November 12, 2009, TCF, at the request of Ms. Duquette, changed the name on two bank accounts that were originally opened individually by Ms. Duquette, to "The Arlene P. Duquette Trust U/A dated 06/05/1987." The Court of Appeals noted that TCF failed to present any evidence of the existence of a trust, or any facts or circumstances pertaining to the alleged trust's terms and conditions. It explained that simply placing funds in a bank account as a trustee is not sufficient to establish a trust. Rather, the facts and circumstances and actions of the interested parties must be examined to "establish with certainty" evidence of the trust interest.

The fact that Ms. Duquette was not only the trustee, but also the beneficiary of the alleged trust, was also fatal to TCF's argument on appeal as "[w]hen the settlor of the trust is also the beneficiary, the creditors can reach the assets of the trust."

TCF's final argument was that the garnishment disbursement should be set aside because it did not receive notice of Comerica's motion to compel. The Court of Appeals disagreed, citing the fact that Comerica presented evidence of the notice of hearing and proof of service, and that TCF failed to rebut the rebuttable presumption those documents created.

If you have any questions about garnishment, collecting a judgment, or collection actions, please contact Patricia Scott at 517.371.8132 or pscott@fosterswift.com.

[1] Unpublished opinion per curiam of the Court of Appeals, decided April 24, 2014 (Docket No. 314031).