## Facts

- McMahan & Company obtained a federal default money judgment against Po Folks, Inc. for $288,763.14 based on a promissory note and registered the judgment for enforcement in the Eastern District of Kentucky.
- To collect, McMahan served more than twenty garnishment orders on Traditional Bank, Inc., where Po Folks maintained deposit accounts; the Bank remitted less than $12,000.
- Po Folks used a cash-management structure consisting of a general account and multiple “zero-balance” accounts.
- At the close of each business day, the Bank’s sweep system transferred remaining funds from the zero-balance accounts into the general account, resetting the zero-balance accounts to zero.
- The Bank and Po Folks had an arrangement allowing Po Folks to overdraw the general account.
- When served with garnishment orders, the Bank commonly checked balances through a system that reflected only balances “as of the close of business on the previous day,” not same-day activity.
- Because garnishments were often served early in the day, the Bank frequently reported zero balances even when deposits were made later that same day, leaving substantial funds uncaptured.

## Issues

1. Under Kentucky garnishment law (applied through Fed. R. Civ. P. 69(a)), may a garnishee bank avoid liability by relying on internal procedures that report only prior-day balances, where the debtor’s funds in fact moved through accounts controlled by the bank.
2. Whether summary judgment for the bank and judgment debtor was improper given evidence of the zero-balance sweep system, overdraft arrangement, and substantial funds passing through the accounts.

## Decision

- The Sixth Circuit reversed the district court’s grant of summary judgment for Po Folks and the Bank.
- The court held that the Bank’s internal accounting practices and zero-balance mechanisms could not categorically insulate it from garnishment if Po Folks’ funds were within the Bank’s possession or control at the relevant time.
- The court remanded for further proceedings because factual disputes remained concerning whether garnishable property or debts existed when the writs were served.

## Legal Principles

- Under Fed. R. Civ. P. 69(a), enforcement of a federal money judgment by garnishment generally follows the practice and procedure of the forum state.
- For garnishment purposes, “possession,” “custody,” or control of a debtor’s property cannot be defined solely by a garnishee’s self-selected internal accounting system or inquiry method.
- A bank’s operational choices that make same-day deposits or intraday account activity invisible to routine balance checks do not, as a matter of law, eliminate garnishable property if the debtor’s funds are actually within the bank’s control.
- Summary judgment is improper where evidence of account structure and bank procedures creates genuine disputes about whether the garnishee held the debtor’s property or owed a debt reachable by garnishment at the time of service.

## Conclusion

The Sixth Circuit required garnishment liability to turn on the real existence and control of debtor funds, not on a bank’s internal reporting conventions, and remanded because the record permitted a finding that Po Folks’ funds were garnishable despite the bank’s zero-balance sweep structure and prior-day balance system.


McMahan & Co. v. Po Folks, Inc., 206 F.3d 627 (6th Cir. 2000)