Court of Special Appeals rejects attempt to make bank account ownership a black-and-white issue

By Brad McCullough

Businesses often desire the certainty and predictability of rules expressed in stark, absolute terms. But as the Court of Special Appeals recently reminded us, some legal questions are not best answered with black‑and‑white tests, but instead must often sort out facts that appear in various shades of gray. In Morgan Stanley & Co., Inc. v. Andrews, Sept. Term 2014, No. 935 (Oct. 1, 2015), the Court rejected a judgment creditor’s effort to garnish a bank account jointly owned by the judgment debtor and refused to adopt the per se rule urged by the creditor.

In the case, Morgan Stanley had obtained a judgment against John Andrews and then garnished a bank account titled jointly in the names of John and his father. John’s father moved to release the funds from the writ of garnishment, claiming that he, and not his son, owned the money. After much procedural haggling, including a trip to the Court of Special Appeals, the Circuit Court for Montgomery County held an evidentiary hearing. At the conclusion of the hearing, the circuit court found that John’s father was the sole source of all funds deposited to the account, and that the expenditures from the account were for the father’s benefit. Slip Op. at 5-6. It thus granted the motion, “concluding that Father had established by clear and convincing evidence that all of the funds in the joint account belonged solely to him.” Id. at 5.

On appeal, Morgan Stanley espoused the adoption of a clear bright-line rule, arguing “that funds held in the joint account were per se subject to garnishment because they were held in a joint account upon which [John, the judgment debtor] was a named owner and authorized signatory.” Id. at 7. According to Morgan Stanley, “funds held within a joint account, upon which a judgment debtor is a named owner and signatory, are subject to garnishment regardless of whether any co-owners of the account are judgment debtors.” Id. at 7-8 (footnote omitted). In Morgan Stanley’s view, a judgment creditor should have “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.” Id. at 8. As such, Morgan Stanley asserted “that the circuit court’s forensic accounting was inappropriate,” and that, even if it “were appropriate, the facts [did] not support the circuit court’s conclusion that all of the funds in the joint account belonged to Father.” Id. at 7. Writing for the Court, Judge Stuart Berger described “Morgan Stanley’s position [as] straightforward.” Id.

The Court, however, was “unpersuaded” and rebuffed Morgan Stanley’s claims, explaining that the corporation’s “position inaccurately oversimplifies the law of garnishment.” Id. at 7, 8. Although Maryland courts had “not previously addressed the exact situation,” both the Court of Special Appeals and Court of Appeals had previously decided cases involving similar issues. Id. at 8-10. For example, “[t]he Court of Appeals has commented that the form of a joint account ‘on its face creates a joint tenancy,’” but “that the form of the joint account ‘raises only a rebuttable presumption,’” with the burden placed on the party who seeks to rebut that presumption. Id. at 10 (quoting Haller v. White, 228 Md. 505, 510 (1962)). The Court also recognized that “[t]he 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. at 11 (emphasis added) (citation omitted).

To that end, “[c]ourts 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 account.” Id. (footnote omitted) (citation omitted). The court noted that “only one jurisdiction takes the view that a judgment creditor has unrestricted access to a debtor’s joint account, regardless of equitable ownership,” but that decision “has been referred to as ‘a drastic departure from the majority view.’” Id. at 11-12 (footnote omitted) (citation omitted).

Under that majority view, “courts generally apply a presumption of ownership, which can be rebutted only by clear and convincing evidence” Id. at 13-14 (footnote omitted) (citation omitted). Various factors may be considered in ascertaining ownership, “but the two primary factors are: (1) the exercise of control over the funds in the account, and (2) contribution, or the source of funds within the account.” Id. (citation omitted). Consequently, under the majority view, a court will presume that the funds in an account are owned jointly by the parties named on that account, but that presumption is rebuttable.

The court concluded that “the approach adopted by the overwhelming majority of jurisdictions which have addressed this issue is consistent with Maryland law,” and thus held “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.” Id. at 14 (footnote omitted). The court shrugged aside Morgan Stanley’s prediction of the dire results that would arise from the uncertainty created by the court’s ruling:

We are unpersuaded by Morgan Stanley’s assertions that our holding will result in disastrous consequences. Morgan Stanley avers that adopting the majority view would require courts to intervene by undoing complicated banking procedures that the account holders themselves have contractually opted to avoid. Morgan Stanley further maintained that the actual accounting itself may prove incredibly complex and impossible to determine the exact source of the funds and at what level the garnishment may proceed. Morgan Stanley’s concerns, while not entirely unfounded, are overstated. By requiring a co-owner to prove ownership by clear and convincing evidence, we limit the instances that a litigant will be able to successfully persuade the court of separate ownership. Indeed, the presumption of joint ownership is most difficult to overcome.

Id. at 20.

As “the circuit court’s factual findings were supported by the evidence presented,” and as “the circuit court reasonably concluded that Father had proved, by clear and convincing evidence, that he was the sole owner of all funds held in the joint account,” the Court of Special Appeals held “that the circuit court did not err in concluding that Father has overcome this significant hurdle and has effectively rebutted the presumption of joint ownership.” Id. at 22. In short, the Court of Special Appeals refused to adopt the absolute per se rule championed by Morgan Stanley, but instead adopted a flexible approach that allows a party to prove who actually owns the money in an account targeted for seizure by a creditor. The judgment was affirmed.