Morgan Stanley & Co. v. Andrews

BERGER, J. In this appeal, we address the extent to which a creditor of one joint account holder may garnish funds in a joint account when another joint account holder is a non-debtor. We shall hold that there is a rebuttable presumption that joint account holders own the funds in an account, but that the presumption of joint ownership can be rebutted by clear and convincing evidence to the contrary. In the present case, Morgan Stanley & Co., Inc. (“Morgan Stanley”), appellant, obtained a judgment against John Andrews, appellee (“Son”). Morgan Stanley moved to garnish the funds held in a joint bank account owned by both Son and his father, Don D. Andrews (“Father”).

Father subsequently moved to assert his claim to the garnished funds, arguing that all of the funds in the joint account were Father’s sole property. The circuit court ruled in favor of Father, finding that Father successfully rebutted the presumption and established, by clear and convincing evidence, that he was the equitable owner of the funds within the account. We shall affirm. ¹⁸³ FACTS AND PROCEEDINGS On September 1, 2011, Morgan Stanley obtained a judgment in the Circuit Court for Montgomery County for $196,477.16 against Son. 1 On December 5, 2011, Morgan Stanley requested that the circuit court issue a writ of garnishment for Son’s bank accounts with PNC Bank, National Association (“PNC”). The court issued a writ of garnishment on December 12, 2011.

On December 27, 2011, PNC filed an answer to the writ of garnishment for an account jointly titled in both Father and Son’s names (“the joint account”). On December 29, 2011, Morgan Stanley filed a request for judgment against PNC. On January 17, 2012, Father filed a motion pursuant to Maryland Rules 2-645(i) 2 and 2-643(e), 3 asserting his claim to the garnished property and requesting a hearing. Father filed an amended motion on January 30, 2012.

On February 14, 2012, the circuit court denied Father’s motion and amended motion without a hearing. On February 22, 2012, Father filed a motion to vacate the court’s February 14, 2012 order, arguing that he had been improperly denied a hearing. Father filed an amended motion to vacate on February 24, 2012, ¹⁸⁴ arguing that the trial court erred by failing to conduct a required hearing. Father further argued that the trial court erred in denying Father’s motion asserting claim to garnished property.

Both motions were denied on March 21, 2012. Father noted a timely appeal to this court, and, in an unreported opinion, we reversed the judgment of the circuit court. Don D. Andrews, Jr. v. Morgan Stanley & Co., Inc., No. 85, September Term 2012 (filed May 16, 2013). We held that the trial court erred by denying Father’s claim without a hearing and remanded the case for further proceedings.

We expressly took “no position on the merits of [Father’s] claim of sole ownership.” Id., slip op. at 7. Following the remand, the circuit court held an evidentiary hearing on June 13, 2014. Father presented three witnesses: PNC branch manager Lori McConnaughey (“McConnau-ghey”), Son, and Father. The parties stipulated to the admission of the PNC records for the joint account.

Notably, the parties further stipulated that Father was the original source of all of the funds in the joint account. McConnaughey testified that she assisted Father with establishing the joint account. She explained that Father “wanted to make sure that [Son] could write checks if something happened.” 4 Son testified that he wrote checks from the joint account to “help my father out.” Son testified that he did not pay any of his personal expenses from the joint account and that all of the checks he signed were to pay for Father’s expenses. Son further testified that he did not deposit any of his own funds into the joint account, and that none of the funds in the joint account belonged to him.

Son identified each transaction on the PNC records for the joint account and explained how each transaction was for the benefit of Father. ¹⁸⁵ Father’s testimony was consistent with that of Son. Father explained that he established the joint account because he wanted Son to be able to “handle the remodeling” of Father’s vacation home. Father further explained that his health was an additional motivation behind the establishment of the account, commenting that he “was coming off having pneumonia in both lungs” which “can be a killer” for “people [Father’s] age.” When asked about the source of the funds within the joint account, Father testified that he “worked for the county government for 25 years” and had saved “about a half million dollars.” Father explained that all of the funds held in the joint account “[absolutely” came from accounts titled in Father’s name. Father testified that various individuals performing renovation work at the vacation home were paid from the joint account, explaining the arrangement between Father and Son as follows: [E]very time [Son] wanted the check or something, [Son] would call me, or I would send some down with his mother, maybe two or three checks.

And I was very careful not to give him a lot of checks on hand. Not that I didn’t trust him, but I just wanted to make sure that everything was, you know, perfect, I mean. Father did not give Son the checkbook “[b]ecause [Father] wanted to have control over it.” Father explained that he had no concerns about what might happen if Son had control over the account, commenting that Son was “[v]ery trustworthy.” Father testified that Son only wrote checks for Father’s benefit. Counsel for Father argued that the evidence established that the money in the joint account belonged to Father.

Morgan Stanley argued that all of the funds in the joint account were subject to garnishment because both Father’s and Son’s names appeared on the account. Morgan Stanley explained that its “position under Maryland [l]aw is that once the account is created in a certain way, and the funds hit that account, the—where the source of the funds came from ¹⁸⁶ doesn’t matter, because they have chosen to put funds into a jointly owned account that either of them can use.” Morgan Stanley further argued that Son obtained a benefit from the funds because he was permitted to use Father’s vacation home. The circuit court ruled in favor of Father, concluding that Father had established by clear and convincing evidence that all of the funds in the joint account belonged solely to him. The court found “that the sole source of funds for the PNC Bank account at issue in this case [was] the sole property of [Father]” and that “at no time did [Father] deposit any funds belonging to Son in the account.” The circuit court further explained its ruling as follows: I find that, except for some incidental withdrawals, which I find to be immaterial in the scope of the account, each and every expenditure from the account was for the benefit, legally, I find, of [Father], and not [Son].

The counsel for [Father] is correct that the Court of Special Appeals is quite clear that under Maryland law, if a bank account has been garnished, or attached, there is an opportunity for a party who claims to be the owner to come in and make an evidentiary showing satisfactory to the trial court that the money is, in fact, theirs, and it’s not that of the judgment debtor. I find that—it’s not clear to me necessarily who has the burden of proof, but even if I assigned it to [Father], I find—and they don’t say whether it’s preponderance [or] clear and convincing. Folks, even if the standard were clear and convincing evidence, I find that [Father] has jumped that hurdle. There’s no doubt in my head that all this money is [Father’s].

All the expenditures were for the benefit of the father. So whatever further articulation the appellate courts want to do about the procedures, the steps, the burdens, the shifting, that’s fine. But -frankly, unless they make it beyond a reasonable doubt, in my mind, I have no doubt that all this money, at all times, belonged to [Father], and therefore, my earlier orders deny ¹⁸⁷ ing his request are' erroneous and are vacated, and if counsel will draft an order consistent with this ruling, directing the judgment creditor to pay over the amount in question, I will sign it. (Emphasis added.) The circuit court’s oral ruling was memorialized in a written order dated June 17, 2014.

This timely appeal followed. STANDARD OF REVIEW We recently reiterated the standard applied by this Court when reviewing a case tried before a court, explaining as follows: Our review of a judgment in a case that was tried to the court is governed by Rule 8—131(c). We “review the case on both the law and the evidence” and “will not set aside the judgment of the trial court on the evidence unless clearly erroneous” with “due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Md. Rule 8—131(c). “The deference shown to the trial court’s factual findings under the clearly erroneous standard does not, of course, apply to legal conclusions.” Griffin v. Bierman, 403 Md. 186, 195 , 941 A.2d 475 (2008) (quoting Nesbit v. Gov’t Employees Ins. Co., 382 Md. 65, 72 , 854 A.2d 879 (2004)). “We review de novo the circuit court’s application of the law to the undisputed facts before it.” PNC Bank, Nat’l Ass’n v. Braddock Props., 215 Md.App. 315, 322 , 81 A.3d 501 (2013).

Montgomery Cnty. v. Fraternal Order of Police, 222 Md.App. 278, 294 , 112 A.3d 1052 (2015). DISCUSSION Morgan Stanley avers that funds held in the joint account were per se subject to garnishment because they were held in a joint account upon which Son was a named owner and authorized signatory. As such, Morgan Stanley asserts that the circuit court’s forensic accounting was inappropriate. In the alternative, Morgan Stanley argues that, even if a forensic ¹⁸⁸ accounting were appropriate, the facts do not support the circuit court’s conclusion that all of the funds in the joint account belonged to Father.

We are unpersuaded. Morgan Stanley’s position is straightforward. Morgan Stanley asserts that funds held within a joint account, upon which a judgment debtor is a named owner and signatory, are subject to garnishment by a judgment creditor regardless of whether any co-owners of the account are judgment debtors. 5 Morgan Stanley posits that the judgment creditor has the authority to garnish the funds because any joint account holder has the authority, pursuant to the banking agreement, to deposit and deplete funds in the account. As we shall explain, Morgan Stanley’s position inaccurately oversimplifies the law of garnishment.

I. Legal Framework Maryland courts have not previously addressed the exact situation presented in this case, wherein two individuals are owners of a joint bank account, one of whom is a judgment debtor and the other is not. We did, however, address a somewhat similar issue in Wanex v. Provident State Bank of Preston, 53 Md.App. 409, 413 , 454 A.2d 381 (1983). In Wanex , a daughter was an employee of her father’s business and had signature authority on the father’s business account. 53 Md. App. at 411 , 454 A.2d 381 . A creditor sought a writ of garnishment against the father, and the father moved to quash the garnishment on the business account arguing that it interfered with the daughter’s rights in the account.

Id. at 412 , 454 A.2d 381 . The trial court found that the daughter did not have an ownership interest in the account and denied father’s motion. Id. We affirmed, holding that “[t]here was sufficient evidence before the [trial] court to conclude that it ¹⁸⁹ was an individual business account owned by [the father] and maintained incident to the operation of his sole proprietorship[.]” Id. at 413 , 454 A.2d 381 .

We emphasized that the daughter had not deposited any personal funds in the account. Id. at 414 , 454 A.2d 381 . To be sure, this case differs from Wanex in that the joint account at issue here is not a business account and Son was listed as an owner of the joint account rather than a signatory. Before returning to the specific facts of this case, however, we consider the legal framework that applies when evaluating a claim raised by a non-debtor joint account holder in response to an attempt of garnishment by a creditor of a debtor joint account holder.

We have explained: Funds of defendant on deposit in a bank are subject to garnishment in the absence of special circumstances creating an exemption. However, the garnishing creditor can reach funds of the depositor only in cases where the depositor is the true owner thereof. For the purposes of garnishment a bank deposit prima facie belongs to the person in whose name it stands, the general test being whether, but for the garnishment, the deposit would be subject to defendant’s check, or whether defendant could sue the bank therefor in debt or assumpsit. Wanex, 53 Md.App. at 413 , 454 A.2d 381 (quoting 38 C.J.S. Garnishment § 80 (1943)).

Indeed, we have commented that a bank deposit prima facie belongs to the person whose name is on the account and who can withdraw funds from the account. We have not, however, held that a bank deposit per se belongs to a person whose name is on the account. Rather, we have emphasized that factors relating to the name on the account and who can write checks on the account “are not conclusive, and the fact that the depositor can withdraw or maintain an action for the deposit does not in all cases render the deposit subject to garnishment at the instance of a creditor of the depositor.” Id. at 413-14, 454 A.2d 381 . The Court of Appeals has commented that the form of a joint account “on ¹⁹⁰ its face creates a joint tenancy.” Haller v. White, 228 Md. 505, 510 , 180 A.2d 689 (1962).

The Court explained, however, that the form of the joint account “raises only a rebuttable presumption, but the burden is upon the party seeking to rebut it.” 6 Id. The question then becomes, if funds within a joint account prima facie belong to a named owner of the account, under what circumstances, if any, can the presumption of ownership be rebutted when a creditor of one joint account holder seeks to garnish the account? As aptly noted in the American Law Reports annotation addressing this precise issue, “[wjhere joint bank accounts are concerned, and the creditor of one account holder has filed a garnishment against the joint account, it is helpful to think of the joint bank account as a separate entity from the money it contains.” Martha A. Churchill, Annotation, Joint Bank Account as Subject to Attachment, Garnishment, or Execution by Creditor of One Joint Depositor, 86 A.L.R.5th 527 (2001) at § 2[a]. Churchill explains: The account holders all own the account, but they do not necessarily own the money in it.

The joint account holders all hold legal title to the account. Usually, they have all signed the bank signature card and agreed to the usual contract terms with the bank. It may be, however, that only one account holder owns the money on deposit. Almost universally, courts are interested in determining which depositors hold equitable title to the money that is in the account, so that the creditor of one depositor does not wrongfully take property belonging to another depositor. ¹⁹¹ This is sometimes referred to by the courts as the “reality” of ownership, as contrasted with bare legal title.

Id. (Footnote and cross-reference omitted). The overwhelming majority of jurisdictions to address this issue have differentiated between legal title to the account and equitable title to the funds within the account. Id. “The purpose of making such a distinction is to prevent a creditor from garnishing based merely on legal title.” Id.

Courts in at least twenty-three states have held or recognized as a general principle that a judgment creditor of one joint account holder may execute against a joint account only to the extent of the debtor’s equitable interest in the joint account. Id. at § 3 (collecting cases). 7 Indeed, only one jurisdiction takes the view that a judgment creditor has unrestricted access to a debtor’s joint account, regardless of ¹⁹² equitable ownership. 8 When determining equitable ownership of funds within an account, courts generally apply a presumption of ownership, 9 which can be rebutted only by clear and ¹⁹³ convincing evidence. Id. Various factors are considered by courts when determining ownership of the funds within a joint account, but the two primary factors considered are: (1) the exercise of control over the funds in the account, and (2) contribution, or the source of funds within the account.

Id. Courts also consider various circumstances relevant to each case, such as whether a party’s social security number appeared on an account, which party’s name appeared on checks, which party paid taxes on interest from the account, which party kept possession of the passbook or other documents pertaining to the account, and which party signed checks from the account. Id. In our view, the approach adopted by the overwhelming majority of jurisdictions which have addressed this issue is consistent with Maryland law.

As discussed, supra, we commented in Wanex, supra, that a bank deposit prima facie belongs to a person named on the account. 53 Md.App. at 413 , 454 A.2d 381 . We quoted from Corpus Juris Secundum for the proposition that an individual’s name on the account and ability to write checks on the account is “not conclusive.” Id. (quoting 38 C.J.S. Garnishment § 80 (1943)). Accordingly, a joint owner of an account can rebut the presumption of ownership in at least some circumstances.

Left open by Wanex , however, is the question of precisely how one can overcome the presumption of ownership. In this opinion, we resolve the question left open by Wanex , adopt the majority approach, and hold that a co-owner of a joint account can rebut the presumption of ownership by proving, by clear and convincing evidence, which portion of the account belongs to each co-owner. 10 ¹⁹⁴ This approach is consistent with Maryland case law. In Wagner v. State, a criminal case affirming the appellant’s theft conviction for stealing funds from an account on which the appellant was named as a co-owner, we recently held that “titling an account [with two parties listed] as ‘joint owners’ presumptively creates an ownership interest in both parties, but that presumption can be rebutted by evidence of a contrary intent of the original owner of the account.” 220 Md. App. 174, 190 , 102 A.3d 900 (2014). 11 We explained that the following standard applies: In approaching ownership of a bank account prior to the death of one of the parties, the current state of the law requires us to look at the intent of the [co-owner] and determine if he intended to make an irrevocable gift of ownership of the account.... [T]itling an account as “joint owners” presumptively creates an ownership interest in both parties, but that presumption can be rebutted by evidence of a contrary intent of the original owner of the account. ¹⁹⁵ Id. In Wagner, we looked to various cases which involved issues relating to ownership rights in the context of joint bank accounts.

Id. at 187-90 , 102 A.3d 900 . We revisit several of the same cases here, all of which provide support for our holding that the presumption of ownership of a joint account can be rebutted by clear and convincing evidence. In Barker v. Aiello, 84 Md.App. 629 , 581 A.2d 462 (1990), we addressed the question of whether a decedent’s joint bank accounts were assets of a co-owner of the account or were assets of the decedent’s estate. Although this case has been superseded by statute, 12 the discussion of ownership of joint accounts under common law is relevant to the present case.

In Barker , we assessed whether various joint bank accounts were “valid trust accounts which belong[ed] to [the co-owner of the account], or whether the accounts are joint bank accounts and unperfected gifts, and, thus, are assets of the estate.” Id. at 634 , 581 A.2d 462 . We emphasized that “[j]oint bank accounts do not contain trust language, and the depositor retains legal and equitable title to the monies.” Id. at 634 , 581 A.2d 462 (citing Whalen v. Milholland, 89 Md. 199 , 43 A. 45 (1899) (Milholland I)) (emphasis added). We further explained that, when determining whether the assets belonged to the estate or to the co-owner of the account, we must consider whether the donor intended the funds to be a gift to the co-owner. Id. at