The Michigan Court of Appeals recently ruled that a garnishee can be held individually liable for improperly distributing funds after being properly served a writ of periodic garnishment.
In Premier Prop Services, Inc v Crater, Docket No. 350784, the Plaintiff received a substantial judgment against the Defendant. In order to enforce the judgment, the Plaintiff was granted writs of garnishment directed at the assets of the Defendant held by others. The garnishee was properly informed and began to withhold certain funds owed to the Defendant.
Plaintiff became aware that the garnishee had made three substantial payments to the Defendant after it had been served with the garnishment and was only withholding 25% of the amount owed to Defendant while paying the remaining 75% to Defendant. The garnishee initially defended itself by arguing that it was withholding due to the employer-employee relationship but this was quickly refuted as the Defendant was an independent contractor.
The Plaintiff attempted to hold the garnishee individually liable for the amount it improperly paid to the Defendant but the Trial Court rejected that argument because it would effectively hold the garnishee liable for “175 percent” of the garnished funds as the garnishee had already distributed the other funds to the Defendant.
The Court of Appeals reversed based on Michigan Court Rule 3.101(G)(1)(d) which states that the garnishee is liable for all debts owed by the garnishee when the writ is served except for a few exceptions that the garnishee must prove. To not enforce this clause because the garnishee had already paid the Defendant would allow future garnishees and Defendants to escape liability and dodge the garnishment by distributing the funds as usual.
As a result, the Court of Appeals found for the Plaintiff and held the garnishee individually liable for the funds improperly distributed to the Defendant.
The key takeaway from this case is that a garnishee must be careful and understand its legal obligations before distributing funds. If the garnishee improperly distributes those funds, the garnishee can be held personally liable and end up paying double.
The full text of the opinion can be found at:
https://law.justia.com/cases/michigan/court-of-appeals-published/2020/350784.html
