Garnishing Bank Accounts in the Online Banking Age
When a plaintiff obtains a judgment in a lawsuit, the plaintiff still must collect the amount owed by the defendant. Under Virginia law, there are several options available to a party attempting to collect a debt when the defendant does not pay willingly. One of the most common tools is a garnishment – a legal proceeding filed by the plaintiff to obtain assets of the defendant that are being held by a third party to satisfy the debt – often wages held by an employer or money held by a bank.
But what happens when the defendant deposits money in an online bank with no physical branches in Virginia? As online banking becomes increasingly popular, garnishing bank accounts with out of state banks has become a major issue for those attempting to collect on their judgments. Defendants can easily go online and create new accounts with banks located nationwide. Once the accounts are opened, defendants can move their money between banks at the touch of a button. Locating bank accounts and being able to garnish the accounts before the funds are moved has become harder than ever.
Once a plaintiff has located funds, the plaintiff still faces two significant obstacles to instituting a garnishment proceeding in Virginia: (1) does the Virginia court have personal jurisdiction over the bank, and, if so, (2) can the bank account be garnished under Virginia law? Personal jurisdiction is an issue involved in all cases – it is not unique to garnishments. Personal jurisdiction is a complex issue, but any seasoned attorney should be able to navigate that problem. Accordingly, this article will not focus on that issue.
The focus of this article has to do with the limits of the statutory garnishment process in Virginia. Garnishments are creatures of statute, set forth in Va. Code §§ 8.01-511 et seq. To institute a garnishment proceeding, a party files a document entitled “Suggestion for Summons in Garnishment,” requesting that the Clerk issue a “Garnishment Summons.” When the Clerk issues the Garnishment Summons, the plaintiff is responsible for having it served on the third party that is holding the garnished property, as well as the defendant. Once the plaintiff has served the Garnishment Summons on the third party, it creates a lien over the defendant’s property being held by that third party. The lien is essential to collecting the property, because a plaintiff prevailing on a garnishment effectively enforces the lien and the court compels the third party to surrender the property to the plaintiff to help satisfy the judgment.
The lien is limited, though. Va. Code § 8.01-481 creates a territorial limit of the lien, and the boundary depends upon whether the property being garnished is tangible or intangible. At first glance, one might assume that a deposit with a bank is tangible property, i.e. cash. However, the Virginia Supreme Court has held that a general deposit with a bank is an intangible asset. See PS Bus., L.P. v. Deutsch & Gilden, Inc., 287 Va. 410, 417, 758 S.E.2d 508, 511 (2014). In essence, once someone deposits money with a bank, the money becomes the property of the bank, but the bank owes a correlating debt to the depositor. Id. The depositor no longer owns the money, it owns a debt owed by the bank.
Because money deposited in a bank becomes an intangible asset, Va. Code § 8.01-481 dictates that the lien extends throughout the limits of the Commonwealth. In other words, if the intangible asset can be found anywhere within Virginia, the asset is subject to the lien and may be garnished. However, if the intangible asset is outside Virginia, the property is not subject to the lien, and the garnishment will fail.
So where is the location of a deposit made in an online bank? The Virginia Supreme Court has not yet addressed the issue. However, at least one Virginia Circuit Court has held that a deposit with a bank that only has a physical presence outside of Virginia is nevertheless located in Virginia, the domicile of the depositors who are owed the debt from the bank. Interactive Brokers, LLC v. CFG Community Company, et al. Civil Action No. CL21-2089 (Cir. Ct. July 16, 2021) (Virginia Beach). There is support for this position, since the general rule in Virginia is that the location of an intangible asset is the domicile of the owner. See e.g. Grasty v. Clare, 210 Va. 21, 28, 168 S.E.2d 261, 266 (1969), Dominion Nat’l Bank v. Jones, 202 Va. 502, 118 S.E.2d 672 (1961).
However, courts in other states have reached the opposite conclusion. See e.g. Power Rental Op Co v. V.I. Water & Power Auth., No. 3:20-cv-1015-J-32JRK, 2021 U.S. Dist. LEXIS 15192 (M.D. Fla. Jan. 27, 2021).
Until there is clarity from the legislature or the Virginia Supreme Court, Virginia trial courts will continue to grapple with this issue. Given the prevalence of online banking, that guidance likely will come sooner rather than later. In the interim, the issue is quite complex and parties attempting to garnish online bank accounts would be wise to consult an attorney with experience with the issue.
Daniel Berger is a Pender & Coward attorney focusing his practice on complex civil litigation, representing businesses and individuals in commercial disputes including contract law, unfair competition and trade secrets, professional liability, and business torts.
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