McM Ahan & Company v. P Ofolks, Inc.

*The Honorable Avern Cohn, United States District Judge for the
Eastern District of Michigan, sitting by designation.
1
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0083P (6th Cir.)
File Name: 00a0083p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
M CM AHAN & C OMPANY ,
Plaintiff-Appellant,
v.
P O FOLKS, INC.,
Defendant-Appellee,
TRADITIONAL BANK,
INCORPORATED f/k/a
M ONTGOMERY TRADERS
BANK & TRUST C OMPANY ,
Garnishee-Appellee.
;>

1
No. 99-5012
Appeal from the United States District Court
for the Eastern District of Kentucky at Lexington.
No. 95-00342—Karl S. Forester, District Judge.
Argued: January 28, 2000
Decided and Filed: March 8, 2000
Before: SUHRHEINRICH and GILMAN, Circuit Judges;
COHN, District Judge.*

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2 McMahan & Co. v. Po Folks, Inc., et al. No. 99-5012
_________________
COUNSEL
ARGUED: Leigh R. Isaacs, ISAACS & EVANS, New York,
New York, for Appellant. Alan B. Peck, WHITE, PECK,
CARRINGTON, WILLIAMS & NEAL, Mt. Sterling,
Kentucky, for Appellees. ON BRIEF: Leigh R. Isaacs,
ISAACS & EVANS, New York, New York, Denise H.
McClelland, FROST & JACOBS, Lexington, Kentucky, for
Appellant. Alan B. Peck, WHITE, PECK, CARRINGTON,
WILLIAMS & NEAL, Mt. Sterling, Kentucky, for Appellees.
_________________
OPINION
_________________
COHN, District Judge.
I. Introduction and Facts
This is an action to enforce a judgment. Plaintiff-Appellant
McMahan & Co. (McMahan) appeals the district court’s grant
of summary judgment for Defendant-Appellees Po Folks, Inc.
(Po Folks) and Montgomery Traders Bank & Trust Co., now
known as Traditional Bank, Inc. (Bank).
A.
On February 28, 1995, McMahan obtained a default
judgment in the United States District Court of Delaware
against Po Folks for failure to pay on a promissory note given
to McMahan. The judgment, in the amount of $288,763.14
(including interest), was registered in the United States
District Court for the Eastern District of Kentucky on April 3,
1995. McMahan thereafter attempted to enforce its judgment
through more than twenty garnishment orders issued to the
Bank, at which Po Folks maintained accounts. However,
McMahan's efforts were largely unsuccessful, with less than
$12,000 being remitted to McMahan by the Bank.

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No. 99-5012 McMahan & Co. v. Po Folks, Inc., et al. 3
1As the losing party, the district court held McMahan responsible for
paying the fees of an independent expert appointed by the district court
to conduct an independent review of the accounts in question.
2The propriety of such practice is not explained in the record. The
effect of such procedure appears to be no more than a demand obligation.
McMahan therefore moved for a writ of execution,
attachment and/or sequestration against Po Folks' property
held by the Bank, as is the standard procedure to challenge a
bank's garnishment disclosure in Kentucky. See KY . R EV .
S TAT . ANN . § 425.526; see also FED . R. C IV . P. 69 (a) (federal
garnishments are to proceed according to the laws of the state
in which the federal court sits). The district court denied
McMahan's motion, finding that the Bank did not possess any
Po Folks property on the date and the time the garnishment
orders were received.1 On appeal, we reversed the district
court's decision and ordered that discovery be conducted.
McMahan & Co. v. Po Folks, Inc. 1997 WL 78497 (6th Cir.
Feb. 24, 1997).
On remand, discovery revealed that the reason the Bank did
not satisfy the garnishment orders served by McMahan was
because of the internal procedures of the Bank, and the
structure of Po Folks' accounts. Po Folks had several
accounts with the Bank, specifically, a general account and 5
independent, named accounts. The named accounts were
“zero balance” accounts, which meant that at the close of
business every day, the account funds would be “swept” into
the general account, leaving a zero balance. Po Folks paid the
Bank a monthly fee to allow Po Folks to significantly
overdraw on its general account.2 When a garnishment order
was served, the Bank's policy was to check the balance of the
account by computer, which only reflected the account
balances as of the close of business the previous day and did
not show any deposits or withdrawals made during the day the
garnishment orders were served. Thus, since all of Po Folks'
accounts were either “zero balance” accounts, or overdrawn
as of the close of business the preceding day, whenever a
garnishment order was served the Bank would respond that no

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4 McMahan & Co. v. Po Folks, Inc., et al. No. 99-5012
monies were in Po Folks' account, even if deposits had been
made the day that the garnishment order was served, and
particularly that part of the day preceding the exact time the
garnishment order was served.
B.
Following the completion of discovery, McMahan again
moved for writs of execution, attachment and/or sequestration
against Po Folks' property, an order of contempt against the
Bank, and summary judgment. The district court found that
due to the Bank's procedures and the structure of Po Folks'
accounts, the Bank did not hold property belonging to Po
Folks as of the dates and times the garnishment orders were
served, and further, that the Bank did not intentionally
manipulate the account balances in order to assist Po Folks in
defeating garnishment orders. The district court additionally
held that it would be too burdensome on Kentucky banks to
take steps “outside of the ordinary course of business” to
facilitate the determination of whether they are in possession
of garnished property as of the dates and times the
garnishment orders were served. Accordingly, it denied
McMahan's motion for a writ of execution and, in turn, denied
“as moot” both parties' summary judgment motions.
II. Summary of Arguments
This is a case of first impression under Kentucy law.
McMahan argues on appeal that the Bank had an obligation
to determine whether it was in possession of Po Folks'
property as of the date and time of service of a garnishment
order and since it failed to do so, it violated the garnishment
orders and as such, is liable to McMahan. McMahan says that
the Bank cannot aggregate the balances of all of Po Folks'
accounts for purposes of determining its obligations on the
garnishment orders because the district court found that the
named accounts were not sub-accounts of the general account.
The Bank responds that the district court correctly found
that the Bank did not violate the garnishment orders by stating
it owed no money and correctly refused to require the Bank to
No. 99-5012 McMahan & Co. v. Po Folks, Inc., et al. 13
consistent with this opinion, including a determination and
order regarding the amount of prejudgment interest and
attorney's fees.

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12 McMahan & Co. v. Po Folks, Inc., et al. No. 99-5012
V. Prejudgment Interest and Award of Attorney Fees
A.
McMahan also asserts that it is entitled to prejudgment
interest. Under Kentucky law, prejudgment interest follows
a liquidated claim even if the refusal to pay is based upon
“good faith denial of liability.” Hale v. Life Ins. Co. of North
America, 795 F.2d 22, 24 (6th Cir. 1986). A claim is
liquidated if the amount has been agreed to by the parties or
is fixed by operation of law. See id. at 24. Here, McMahan's
claim is liquidated since the amount of the judgment and each
garnishment order was a fixed sum. Accordingly, McMahan
is entitled to prejudgment interest.
B.
Additionally, under FED . R. C IV . P. 70, a party may be held
in civil contempt for violating a garnishment order. The
primary purpose of a civil contempt order is to “compel
obedience to a court order and compensate for injuries caused
by non-compliance.” TWM Manuf. Co. v. Dura Corp., 722
F.2d 1261 (6th Cir. 1983). We have previously recognized
that an award of attorney's fees is appropriate for civil
contempt in situations where court orders have been violated.
See Redken Lab., Inc. v. Levin, 843 F.2d 226 (6th Cir. 1987).
Here, an award of attorney's fees is warranted because
McMahan was forced to expend a significant amount of
money in attorney's fees to recover monies clearly owed to it;
an undertaking that was made arduous solely through the
conduct of Po Folks' and the Bank.
Furthermore, as the unsuccessful parties, the Bank and Po
Folks are also responsible for the court appointed expert's fees
and McMahan is entitled to reimbursement in the amount of
$6,783.82.
VI. Conclusion
For the reasons stated above, we REVERSE the district
court's decision and REMAND for further proceedings
No. 99-5012 McMahan & Co. v. Po Folks, Inc., et al. 5
determine account balances outside of the normal course of
business, i.e. except as of the close of business the day before
the garnishment orders were served.
For the reasons that follow, the decision of the district court
is REVERSED.
III. Violation of Garnishment Orders
At the heart of this dispute is the issue of whether the Bank
possessed any property belonging to Po Folks on the dates
and times the garnishment orders were served. The district
court answered in the negative, and all of its subsequent
holdings flow from this holding. Thus, we must address this
threshold issue with great care. We review de novo the
district court's denial of summary judgment. See FED . R. C IV .
P. 56, Smith v. Ameritech, 129 F.3d 857 (6th Cir. 1997).
A.
The district court found that the Bank did not “hold
property belonging to, nor was it indebted to, Po Folks” on
the dates and times the garnishment orders were served.
Opinion and Order filed December 9, 1998 (Opinion and
Order) at 6. It noted that the Bank's policy for processing a
garnishment order solely utilized the Bank's computers to
determine if a customer had funds subject to the garnishment
order. Although it recognized that the Bank's computers at all
times reflected only the account balance from the close of
business the previous day, the district court decided that
requiring the Bank to do anything else beyond a computer
check would require the Bank to go “outside the ordinary
course of business” and it was unwilling “to impose such a
burden.” Opinion and Order at 6. We disagree.
1.
The Kentucky garnishment statute, KY . R EV . S TAT . ANN .
§ 425.501(5) provides that “[i]f the court finds the garnishee
was, at the time of the service of the order upon him,
possessed of any property of the judgment debtor, . . . the

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6 McMahan & Co. v. Po Folks, Inc., et al. No. 99-5012
3The district court relied too heavily on dicta found in the
concurrence to our previous decision which states that “if during the
business day on which a garnishment was served the customer's accounts
would have shown a net positive balance in the ordinary course of
business, then the plaintiff should have been entitled to recover that
balance.” McMahan, 1997 WL 78497 at *5. Not only was this language
dicta, but the Bank has proffered no authority for such a proposition.
court shall order the property or the proceeds of the debt
applied upon the judgment.” In our prior opinion, we
characterized the Kentucky statute as effecting a “snapshot”
rule, operating only on property that the garnishee possessed
at the time the garnishment order was served and does not
operate in the future.
The district court's opinion focused on the fact that the
Bank, in following their ordinary garnishment procedures,
could not have discovered property belonging to Po Folks,
absent “manually processing all items on hand at that
particular moment.” The district court therefore concluded
that since the Bank could not locate Po Folks' property in the
“ordinary course of business,” it did not possess any of Po
Folks' property. Nowhere in the statute does it say that
locating garnished property is required only if it can be done
in the “ordinary course of business”3 or without being unduly
burdensome.
2.
Moreover, even assuming that such a requirement exists,
the record reflects that the Bank had the ability to locate
property belonging to Po Folks in the “ordinary course of
business.” Although the Bank was unable to view a current
daily account balance from the computer terminals since the
computer always had a one day lag, several Bank employees
testified that it was common practice, in a number of
situations including garnishments, for the Bank to place a
“hold” on an account for up to 14 days. See JA pp. 354-5,
360-362. A “hold” prevents any withdrawals or deposits from
the account until it is lifted. If the Bank had placed a “hold”
No. 99-5012 McMahan & Co. v. Po Folks, Inc., et al. 11
581-2. Second, the Bank delayed paying the first two
garnishment orders for two years.
Although, as noted by the district court, none of this
evidence conclusively establishes that “the Bank intentionally
manipulated Po Folks' accounts in order to defeat
garnishment,” the Bank had an independent duty to refrain
from conduct that would obstruct enforcement of the
judgment. See Board of Regents v. Harriman, 857 S.W. 2d
445 (Mo. Ct. App. 1993). As the court in Harriman stated:
It is the duty of a garnishee to stand neutral in the
litigation over the fund in his hands, to disclose all the
information it has concerning the fund to the court, and
to hold the fund in readiness to abide by the decision of
the court. When he follows this course, he is entitled to
the fullest protection; but when the garnishee . . .
abandons his position as stakeholder and takes up the
role of a litigant . . . he must be content to accept the
outcome of the battle fought out on the field he has
chosen.
Id. at 451 (citing Potter v. Whitten, 155 S.W. 80, 88 (Mo. Ct.
App. 1913); Restatement (Second) of Judgments §§ 63
comment a (1982)).
Thus, in light of the Bank's conduct in changing the non-
“zero balance” account with the knowledge of Po Folks'
motivation, coupled with the Bank's own garnishment
procedures, and the fact that Po Folks was the Bank's largest
customer, we believe that a genuine issue of material fact
exists as to whether the Bank breached its duty to remain
neutral and actively assisted Po Folks in evading garnishment
of its property. However, having already found that the Bank
is liable for the full amounts of the garnishment orders, supra,
this issue is of no practical significance.

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10 McMahan & Co. v. Po Folks, Inc., et al. No. 99-5012
exact time the deposits or debits occurred does not relieve the
Bank of liability. In fact, the general rule is that “[w]here
relevant information . . . is in the possession of one party and
not provided, then an adverse inference may be drawn that
such information would be harmful to the party who fails to
provide it.” Weeks v. ARA Serv., 869 F. Supp. 194, 195
(S.D.N.Y. 1994). In Wilton Enterprise v. Cook's Pantry, 552
A.2d 1031 (N.J. 1988), the garnishee bank claimed that it did
not know the time a certain check was paid on the date a
garnishment order was served. The court held that “absent
any specific proof of the exact time of payment of the check
by the bank, a permissible inference can and shall be drawn
that final payment of the check occurred after the levy was
served. . . .” Id. at 1034. We agree and find this situation
analogous. Thus, we hold that the Bank is liable to McMahan
for the entire amount of the judgment.
IV. Intentional Manipulation of Accounts
McMahan next argues that the district court erred in
dismissing its claim that the Bank intentionally manipulated
Po Folks' accounts to avoid garnishment. We agree.
A.
In dismissing McMahan's claim for intentional
manipulation, the district court noted that the “zero balance”
structure of Po Folks' accounts had been in place for
approximately one year before any of the garnishment orders
were served, and concluded that this precluded any
manipulation on the part of the Bank to help Po Folks' avoid
garnishment. However, there is additional evidence that bears
on this determination as well. First, although most of Po
Folks' accounts were structured as “zero-balance” prior to any
garnishment orders were served, immediately after the receipt
of the first two garnishment orders, the Bank acquiesced to Po
Folks' request that the Bank change its only non-“zero
balance” account to a “zero balance” account, with the
understanding that such a change was being made to prevent
any further garnishment orders from being honored. See JA
No. 99-5012 McMahan & Co. v. Po Folks, Inc., et al. 7
on any of Po Folks' accounts for even 24 hours, which the
Bank was able to do, the Bank would have been able to
process the deposits and debits received prior to the hold in its
normal procedure, and ascertained if there was any surplusage
the next day.
In Fast Food Sys., Inc. v. Ducotey, 837 P.2d 910 (Okla.
1992), the Oklahoma Supreme Court was also faced with a
“snapshot” statute and a garnishee bank whose computers did
not instantly reflect credits and debits. A bank customer
deposited a check for over $8,000.00, and less than two hours
later, a garnishment order was served on the customer's
account. See id. at 911. Because the computer did not yet
reflect the check, the bank denied that it had any of the
customer's monies. See id. The court ruled against the bank,
holding that “a bank customer has sufficient property right in
any check the customer deposits to his bank account to
require the bank to account for it in its answer to a garnishee
summons. This is so even if the bank's computer records do
not reflect the deposit when the bank receives the garnishment
summons.” Id. at 913. The court in Fast Food noted that the
bank would routinely suspend processing on accounts subject
to garnishments for 24 hours to allow time to identify
transactions that may have occurred previously. See id. This
allowed the bank to learn the exact balance of the account at
the moment the bank was served with a garnishee summons.
3.
We agree with the reasoning of the Oklahoma Supreme
Court and hold that the Bank had an obligation to determine
whether on the date and time a garnishment order was served
it possessed any property belonging to Po Folks. See KY .
R EV . S TAT . ANN . § 425.501(5). Merely checking a computer
record, known to reflect only the balance from the end of
business the previous day, is insufficient under the “snapshot”
requirement of the Kentucky statute which mandates that
property be identified as of the moment that the garnishment
order is presented, not merely as of close of business the
previous day. See id. (“If the court finds that the garnishee

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8 McMahan & Co. v. Po Folks, Inc., et al. No. 99-5012
4We express no comment on the legality of an account structure such
as here.
5For example, although McMahan successfully garnished $5,660.37
on April 4-5, 1995 from Po Folks' MTS-01 account, immediately after the
garnishment Po Folks changed the MTS-01 account to a “zero balance”
account.
was, at the time of service of the order upon him, possessed
of any property. . . .”)
If this means that banks must all implement time-stamping
into their business procedures, or freeze an account subject to
a garnishment order to meet this requirement, then so it does.
A holding any other way would create an exception to K Y .
R EV . S TAT . ANN . § 425.501(5) allowing a garnishee to avoid
the operation of a garnishment order by mirroring the account
structure created for Po Folks and reward sloppy accounting
and garnishment procedures.
Additionally, from a policy standpoint, the rule is sound.
As this case illustrates, much can occur in one day and to
allow banks to rely solely on information from the close of
business the previous day can lead to misleading inaccuracies.
Furthermore, by structuring its accounts in this fashion,
although perhaps completely legal from a banking
standpoint,4 Po Folks took advantage of the Bank's internal
procedures to effectively evade virtually all garnishment of its
property,5 yet still maintain all of the benefits of the deposits.
Fundamental fairness does not permit such a result.
Moreover, what the statute requires is not an unreasonable
burden on the Bank because, as was testified to by an
employee of the Bank, the Bank generally receives only
approximately 6 garnishment orders a month, and putting a
“hold” on an account is routinely done in numerous contexts.
No. 99-5012 McMahan & Co. v. Po Folks, Inc., et al. 9
6The court appointed expert's report did not indicate whether at the
time the garnishment orders were served, any of Po Folks' accounts may
have had a positive balance.
7Prior to being “swept” into the general account, as per the “zero”
account structure.
B.
In light of the above, we conclude that the Bank violated
the garnishment orders if they were returned unsatisfied when
any of Po Folks' accounts showed a positive net balance at the
time of service.6 Under Kentucky law, a violation of a
garnishment order imposes liability in the amount of the
judgment. See Holbrook v. Fyffe, 175 S.W. 977 (Ky. 1915).
1.
With respect to the Credit Card account, the Bank admitted
that deposits were made every morning before the bank
opened. See JA at 534. Credits in the form of credit card
payments, and debits in the form of checks were
electronically transmitted to the Bank and processed between
9:00-10:00 a.m. every morning. See JA at 534. The Bank's
employee, Mr. Baker, testified that on the dates of 17
garnishment orders, the Credit Card account, after subtracting
the debits, yielded a surplusage of $114,830.16.7 This fact
effectively eliminates the Bank's argument that it did not
possess any property of Po Folks' prior to the dates and times
the garnishment orders were served since the garnishments
were obviously not served until the bank opened and by then,
the electronic transfer amounts were already sitting in the
Credit Card account.
2.
As to Po Folks' other accounts, the Bank admits that it has
no way of determining at what time the deposits or debits
occurred because it did not time-stamp any of them. Contrary
to the Bank's argument, the absence of specific proof of the

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