Security Interest in Investment Account Trumps Judgment Lien

Wells Fargo obtained a judgment against Charles Paschall and then sought to collect by garnishing an investment account Paschall held at U.S. Trust. U.S. Trust opposed the garnishment, asserting that the funds it held were subject to a properly perfected security interest held by Inwood National Bank. Inwood then intervened to protect its lien interest in the account. The trial court ultimately ruled that Wells Fargo’s judgment lien trumped Inwood’s security interest and awarded the funds to Wells.

Inwood appealed. The issue before the Dallas Court of Appeals was whether Inwood lost its priority over Wells Fargo by executing a new promissory note with Paschall several months after Wells Fargo recorded its judgment lien. Under Texas law, if this new obligation were considered an “advance” as opposed to a renewal or extension of an existing indebtedness, then Inwood would lose its priority. Relying on several cases interpreting the UCC, the Court determined that the new promissory note was not an advance, reversed the trial court’s ruling, and held that Wells Fargo was not entitled to garnish the funds.

Inwood Nat’l Bank v. Wells Fargo Bank, N.A.

Unsecured Interest in Funds Insufficient to Warrant Intervention in Garnishment Action

BB&T sought to collect a judgment against Brittania Construction by seeking to garnish funds held by an individual named Richard Heath.  BB&T claimed that Mr. Heath owed Brittania $178,000 that it was entitled to collect.

As it turns out, Mr. Heath also had a $185,000 unsecured obligation to a Trust that he had agreed to pay using the same funds BB&T sought to garnish.  The Trust sought to intervene to protect its interest in those funds, but the trial court granted the other parties’ motion to strike its intervention.  The Trust appealed.

On appeal, the Dallas Court of Appeals affirmed, holding that although Mr. Heath may owe the Trust money, the Trust could not “show ownership of or an equitable interest in the money held by Heath such that Trust was entitled to intervene in the garnishment action.”

Gregory B. Baten Trust v. Branch Banking & Trust Co.

Sub-lessee Cannot Claim Invalidity of Sublease for Lack of Landlord Approval

In this garnishment action, the Court of Appeals permitted the appellant, as lessor, to recover past due rent under a commercial lease against a sub-lessee.  Among many other issues, the Court rejected the appellee’s argument that the sub-lease was invalid because it was obtained without the landlord’s consent, as required by the lease.  On this point, the court held that “this limitation is for the benefit of the landlord” and that sub-lessee “cannot take advantage of their own wrongs.”

Tenet Health Sys. Hosps. Dallas Inc. v. N. Tex. Hosp. Physicians Gp. P.A.

 

Zero Balance Agreement Is Not Enough

Having won a default judgment over Art and Frame Direct/Timeless Industries Georgia (“A&F Direct”), Dallas Market sought to execute that judgment by filing a post-judgment writ of garnishment against Wachovia, A&F Direct’s bank.  Wachovia sought to comply, identifying an account they believed to be held by A&F Direct as well as three other accounts held by Art & Frame (a separate entity).  Dallas Market claimed entitlement to the funds in the Art &  Frame account based on a “Zero Balance Agreement,” which allowed Wachovia to transfer funds from one of the Art & Frame accounts to the A&F Direct account.   The trial court eventually granted Dallas Market’s summary judgment motion, permitting them to obtain the funds held in the Art & Frame account, even though Art & Frame was not the judgment debtor.

On appeal, the Court delved into the factual record to determine the nature of the relationship between the two accounts.    Among other things, the Court examined the scope of the Zero Balance Agreement, as well as testimony about how transfers under the agreement actually worked in practice.  Ultimately, however, the Court concluded that Dallas Market could not establish that A&F Direct was the true owner of the funds based on the Zero Balance Agreement or any other facts.  In sum, the Court concluded that Dallas Market did not meet its burden on summary judgment, and proceeded to reverse and remand the trial court’s decision.

Art and Frame Direct v. Dallas Market, No. 05-01471-CV