Employers, Banks, and Creditors: Here’s What Happens Immediately After Service of a Garnishment (Per Rule 69.05)

When an employer or company receives a garnishment, they are generally confused as to what to do next. Granted, there is very small print on the backside of the form that purports to provide instructions. Good luck reading, much less understanding, that text.

As a legal matter, Tenn. Rule Civ. P. 69.05 is designed to provide the actual, “legal” instructions to the garnishee. Specifically, Rule 69.05(3) imposes the following timeline for compliance:

Step One: Next Business Day After Service: “…ascertain whether the garnishee holds property of the debtor. If so, the garnishee shall mail one copy of the writ of garnishment with the notice to the last known address of the judgment debtor. Where the garnishee is a financial institution, the balance in the judgment debtor’s accounts on the night of the service date is the amount subject to that garnishment writ.”

Step Two: Within Ten Days of Service: “…file a written answer with the court accounting for any property of the judgment debtor held by the garnishee.”

Step Three: Within Thirty Days of Service: “…file with the court any money or wages (minus statutory exemptions) otherwise payable to the judgment debtor. If the garnishee holds property other than money or wages, a judgment may be entered for that property and a writ of execution may issue against the garnishee.”

Rule 69.05(3) has some fairly dense text (i.e. it says a lot of things in a short amount of space). Here’s a few quick take-aways.

  • First, where you’re dealing with a bank, timing is everything. A creditor will want to time their garnishment to maximize the recovery. Knowing that the amount is determined “on the night of the service date” is useful information.
  • Next, if the creditor is seeking “property other than money or wages,” the rule allows for the entry of a judgment for that property, with a writ of execution to issue. This would be where a garnishee is holding personal property, choses in action, or a judgment. This subsection suggests a very efficient “turn-over” procedure for that type of property.

One issue the creditor will have is that there are other statutes, court precedent, and local rules that deal with these same issues. Per the Advisory Commission Comment, the intent here was to “consolidate procedures…into a single orderly rule.”

So, when in doubt, follow Rule 69.05.

May the Lawsuit Filed Against You be an Interpleader Complaint

Today’s post is just a quick follow-up to one from a few years ago.

That post, titled Interpleaders: The Only Time People Like to Hear from Me, discussed what an interpleader action is, why a bank/creditor would file an interpleader, and, most importantly, why it’s good news to receive one.

With it being the start of the year, a lot of banks and law firms are dealing with escrow and trust account balances, and trying to resolve those balances (i.e. pay the funds out). If those funds relate to a foreclosure and the foreclosing bank or trustee isn’t sure who is the proper party to send them to, they’ll probably file a Complaint in Interpleader.

So, to those of you who have had property foreclosed on in 2018 and now the bank has filed a lawsuit, there’s a chance that the lawsuit is good news.

A small chance, but there’s always hope.

Tennessee Supreme Court Changes Rule 4 on Service of Process

The Tennessee Supreme Court has issued four orders adopting amendments to various rules of procedure that will go into effect on July 1, subject to approval from the Tennessee General Assembly.

These include changes to the rules of criminal procedure and evidence, but, today, I’m going to talk about how Tennessee Rule of Civil Procedure 4 has changed. Here is a link to the proposed changes. This includes changes to service of process, which is a critical step in any litigation.

On this issue, it’s Tenn. R. Civ. P. 4.04 that is amended, where a plaintiff tries to serve a defendant via certified mail. Specifically, the amendments add a provision that allows for valid service where a defendant “refuse[s] to accept delivery” of the certified mail, as long as the record contains:

a return receipt stating that the addressee or the addressee’s agent refused to accept delivery, which is deemed to be personal acceptance by the defendant pursuant to Rule 4.04(11)

The Advisory Commission Comments provide a helpful warning for these situations. They state that “the Postal Service’s notation that a registered or certified letter is ‘unclaimed’ is no longer sufficient, by itself, to prove that service was ‘refused.’ ”

This comment clearly reminds plaintiffs to make sure that the return receipt states “refused” and not “unclaimed.” This distinction is important, since so many defendants simply never go to the post office to pick up their certified mail, because they assume it’s just a lawsuit, demand letter, or some other collection correspondence. This Comment makes clear that a lazy defendant does not submit itself to personal jurisdiction.

Remember, Rule 60 Motions Must be Filed Within One Year

This new opinion from the Tennessee Court of Appeals sets up a nightmare scenario for a prevailing party.

In that case (Reliant Bank v. Kelly D. Bush, No. M2018-00510-COA-R3-CV,  Tenn. Ct. App. Dec. 28, 2018), the Bank won a post-foreclosure deficiency judgment in 2014, after  competing experts testified about the fair market value of the property under Tenn. Code Ann. § 35-5-118. The former homeowners appealed the ruling, which was affirmed in 2016, and remanded. But, on remand, a new Chancery Court Judge was on the bench, and the new Chancellor had a different analysis and partially aside the judgment under Rule 60.02.

On the second appeal, the Judgment was upheld, but talk about snatching victory from the jaws of defeat (or vice versa).

Aside from being a great lesson about the uncertainty and risks of litigation, the 2018 opinion provides some good reminders about Rule 60.02. The Court noted, in part, the following:

Relief under Rule 60.02 is “an exceptional remedy.” Nails v. Aetna Ins. Co., 834
S.W.2d 289, 294 (Tenn. 1992). The rule is intended “to alleviate the effect of an
oppressive or onerous final judgment.” Spence v. Helton, No. M2005-02527-COA-R3-CV, 2007 WL 1202407, at *3 (Tenn. Ct. App. Apr. 23, 2007). It “acts as an escape valve from possible inequity that might otherwise arise from the unrelenting imposition of the principal of finality embedded in our procedural rules.” Thompson v. Firemen’s Fund Ins. Co., 798 S.W.2d 235, 238 (Tenn. 1990). The movant has the burden of proving the grounds for relief. Spence, 2007 WL 1202407 at *3.

Under Rule 60.02(1), the court may set aside a final judgment for reasons of “mistake, inadvertence, surprise or excusable neglect.” Tenn. R. Civ. P. 60.02. Under Rule 60.02(2), additional reasons for a court to set aside a final judgment are “fraud … misrepresentation, or other misconduct of an adverse party.” Id. But motions based on Rule 60.02(1) or (2) must be filed within a reasonable time, not more than one year after the order was entered. Id.

Ultimately, the Court of Appeals found the new Motion to be untimely.

Because the motion was untimely, the chancery court should not have entertained it. See Furlough v. Spherion Atl. Workforce, LLC, 397 S.W.3d 114, 131 (Tenn. 2013) (concluding that “relief [wa]s not available under Rule 60.02(1)” because the petition seeking relief “was not timely filed”); cf. Rogers v. Estate of Russell, 50 S.W.3d 441, 445 (Tenn. Ct. App. 2001) (“[M]otions under Rule 60.02(1) and (2) must be filed both within a reasonable time and within one year after the judgment or order was entered.”).

Service of Process via Registered Agents can be Hard, where There is no Registered Agent

As strange as it seems, but some businesses go to great lengths to set up a proper corporate entity (i.e. a corporation, LLC, etc.) for their business, but they don’t appoint a registered agent for process.

As you all know, a corporate entity must designate a person or entity to serve as a registered agent (i.e. to provide a public “face”) for service of process.

Before filing any lawsuits, I’ll research a corporation on the Tennessee Secretary of State business information search to get the name of its registered agent (i.e. the person/entity that I have to serve with service of process), and they simply don’t have one listed (or they just have the corporate name listed).

This may be dumb, or it may be dumb like a fox. I mean, if they don’t list an agent to accept service of legal documents, then is there a chance that plaintiffs simply can’t serve legal documents on them?

The short answer is “Of course not.” The longer answer is at
Tenn. Code Ann. § 48-15-104 (b), which provides:

(b) Whenever a domestic or foreign corporation authorized to do business in this state fails to appoint or maintain a registered agent in this state, whenever its registered agent cannot be found with reasonable diligence, whenever a foreign corporation shall transact business or conduct affairs in this state without first procuring a certificate of authority to do so from the secretary of state, or whenever the certificate of authority of a foreign corporation shall have been withdrawn or revoked, then the secretary of state shall be an agent of such corporation upon whom any such process, notice or demand may be served.

So, in that situation, you serve the Secretary of State. In the past, what I’ve frequently done is serve the managing corporate actor, such as the president, owner, or other suitable person in a management capacity. Per
Tenn. Code Ann. § 48-15-104 (d), that appears to also be allowed (that statute provides that “[t]his section does not prescribe the only means, or necessarily the required means, of serving a corporation.”

Take Care in Drafting Proposed Orders: Otherwise, You’ll Have to Go Back to Court

Nothing beats a legal victory that summarily wipes out and dismisses all of the other side’s claims and causes of action as a matter of law, under Rule 56, right? But, don’t be too quick to draft your proposed order and leave out the critical details.

My advice to the victor is to make sure that you get your judge to clearly articulate his or her ruling on the record or in open court (which you’ll transcribe with your notes or even record with your i-phone). Then, if you’re preparing the Order, be sure to include those specific findings of fact and detailed conclusions of law in your Order.

Otherwise, you’ll be faced with a situation similar to what the Tennessee Court of Appeals was faced with in this opinion issued yesterday, in Bertuccelli v. Haehner, E2017-02068-COA-R3-CV, (Tenn. App. Nov. 28, 2018).

In that case, the trial court’s summary judgment and final order simply stated that defendant’s “supplemental motion for summary judgment and motion for summary judgment are hereby granted and thus all claims and causes of action set forth in the complaint are hereby dismissed with prejudice.” There were no findings of fact or conclusions of law. Just that.

As a result, the Court of Appeals wrote:

there is nothing in the trial court’s “final order” that explains its decision to
grant Appellees’ motion for summary judgment as to all claims and causes, and the order does not state the legal grounds for the grant of such summary judgment. … The trial court does not recite any evidence or argument it considered in making the decision to grant the final order on summary judgment, and, therefore, fails to comply with Rule 56.04. Accordingly, “[w]e cannot proceed with a review, speculating on the legal theories upon which the trial court may have ruled and the legal conclusions the trial court may have made.” Potter’s Shopping Ctr., Inc. v. Szekely, 461 S.W.3d 68, 72 (Tenn. Ct. App. 2014) (quoting Winn 2010 WL 2265451, at *6).

So, again, if you want your big victory to stand up to appellate review, put some effort into your proposed Orders. When drafting your proposed Orders, be sure to clearly state the grounds for the judgment.

 

 

 

New Court of Appeals Case Shows that Courts Will Use Common Sense in Construing a Contract

In this new Nashville we live in, landlords are motivated more than ever to get out of old leases, so that they can get into new leases for the astronomical “new Nashville” rental rates.

Or, at least, that’s what some tenants argue when their landlords assert a breach claim related to nominal  or technical breaches under a lease.

Based on a ruling filed this week by the Tennessee Court of Appeals, a Tennessee Chancery Court will consider whether a breach is a “material breach” before allowing the landlord to proceed.

That case is Bailey Cooper, et. al. v. Pete Patel, W201702319COAR3CV, 2018 WL 6068856 (Tenn. App. Nov. 19, 2018), and the opinion is a useful reminder that a court will apply the letter of the law, as well as common sense, in construing a lease.