Burr & Forman

02.16.2016   |   Articles / Publications

Burr Alert: Garnishee Bank’s “Defenses” Trumped?

 

Cases decided recently in Florida and Illinois call into question one legal rule that some might have thought well-settled: a first-perfected security interest in collateral beats a later-perfected lien creditor’s interest in that same collateral. Seems simple enough. Except this rule might not be followed in every State.

In Am. Home Assur. Co. v. Weaver Aggregate Transp., Inc., 84 F. Supp. 3d 1314 (M.D. Fla. 2015)1, a Florida court held (interpreting Illinois law) that a garnishing lien creditor’s interest in funds held in a depository account defeats the depository bank’s UCC security interest and setoff rights, at least when the bank had not declared the loans in default and set off the funds BEFORE the bank’s receipt of the writ of garnishment. American Home relied in part upon S.E.I.U. Local No. 4 Pension Fund v. Pinnacle Health Care of Berwyn LLC, 560 F. Supp. 2d 647 (N.D. Ill. 2008)2, which essentially decided the same thing – also under Illinois law – in favor of another garnishing judgment creditor. A third Illinois case, One CW, LLC v. Cartridge World N. Am., LLC, 661 F. Supp. 2d 931 (N.D. Ill. 2009)3, similarly ruled in favor of a garnishment creditor and against the depository bank (senior UCC creditor), importantly, because the bank’s security agreement was read to grant the bank the rights of a secured part ONLY UPON DEFAULT and not before.

Download the full article, “Garnishee Bank’s “Defenses” Trumped?“.

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