G&D Furniture Holdings, Inc. v. SunTrust Bank

Filing 122

MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 3/28/2019. (tds, Deputy Clerk)

UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND

G&D FURNITURE HOLDINGS, INC.,
Plaintiff,
v.

Civil Action No. TDC-16-2020

SUNTRUST BANK,
Defendant.

MEMORANDUM OPINION
Plaintiff G&D Furniture Holdings, Inc. ("G&D") has filed this civil action against
Defendant SunTrust Bank ("SunTrust"),

seeking the return of funds that G&D alleges were

wrongfully withdrawn from its account to satisfy a writ of garnishment to a third party. Now
pending before the Court are the parties' Cross Motions for Summary Judgment.

On March 4,

2019, the Court held a hearing on the Motions and issued a partial ruling on the record, which
narrowed the issues to be resolved to the single question of whether SunTrust breached its
contractual duty of care owed to G&D when it allegedly, failed to return the full amount of
garnished funds. For the reasons set forth below, SunTrust's Motion will be GRANTED, and
G&D's Motion will be DENIED on this issue.
BACKGROUND
The Court set forth the facts of this case in its two prior memorandum opinions, which it
incorporates by reference here. See G&D Furniture Holdings, Inc. v. Sun Trust Bank, No. TDC16-2020,2017

WL 2963350, at *1-2 (D. Md. July 11,2017); G&D Furniture Holdings, Inc. v.

Sun Trust Bank, No. TDC-16-2020, 2016 WL 7441607, at *1 (D. Md. Dec. 22, 2016).

At the

March 4, 2019 hearing on the pending Cross Motions for Summary Judgment and SunTrust's
Motion to Appoint a Special Master, the Court granted summary judgment to SunTrust on G&D's
conversion claim and its breach of contract claim based on SunTrust's April 12, 2013 tender to the
Circuit Court for Fairfax County, Virginia ("the Virginia Court") of $133,656.69 of garnished
funds. It took under advisement G&D's breach of contract claim based on SunTrust's alleged
failure to return the full amount of garnished funds and SunTrust's Motion to Appoint a Special
Master. On March 12,2019, the parties submitted a status report in which SunTrust, with G&D's
consent, withdrew its Motion to Appoint a Special Master. The Court now addresses the single
remaining issue before it.
In essence, the issue before the Court is whether Sun Trust's account statements for the
G&D account with an account number ending in 61663 ("the Master Account" or "Account
61663") accurately reflected the balance in the account at the end of April 2013. If so, SunTrust
returned to G&D the exact amount that it was due after the improper garnishment; if not, Sun Trust
owes G&D additional funds.
The parties generally agree on how the account was intended to function. On March 11,
2011, G&D, through its then-President and Chief Executive Officer Norman R. Gilden, opened
the Master Account as a deposit checking account by executing a Business Account Signature
Card. Later that month, G&D signed up for SunTrust's Zero Balance Account ("ZBA") service,
which allows a banking client to manage its cash flow by aggregating debit and credit entries from
one or more "subsidiary" accounts to a "master" account on a daily basis. Statement of Undisputed
Facts ~ 3, ECF No. 103-1.

Under the ZBA arrangement, funds may flow in and out of the

subsidiary accounts, but at the end of each day, the balance of all subsidiary accounts are returned
to zero by having any excess funds transferred from the subsidiary account into the master account,

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and having any negative balances covered by a transfer from the master account into the subsidiary
account. When functioning properly, the ZBA arrangement would result in a single debit or credit
entry to the subsidiary account at the end of each day, reflecting the flow of funds to or from the
master account to achieve a zero balance in the subsidiary account, and a corresponding, offsetting
entry would simultaneously appear on the master account's ledger.

Thus, the ZBA transfers

moved funds between accounts but did not alter the total amount of money collectively contained
in the accounts.
When G&D requested the ZBA service, it designated Account 61663 as the master account,
and linked it with seven subsidiary accounts titled in the names of related entities, including the
accounts with account numbers ending in 48109, 13869,95497,13770,21306,59067,
(collectively, the "Subsidiary Accounts").

and 01019

By doing so, G&D agreed that funds would be moved

between the Master Account and the Subsidiary Accounts, even though the Subsidiary Accounts
were not in the same name as the Master Account.

Funds did, in fact, flow in this manner,

apparently without objection by G&D, until March 2013.
Then, on March 5, 2013, when a garnishment summons was served, SunTrust placed holds
on several of the accounts, including the Master Account, which, as described in greater detail
below, caused debits to those accounts to be rejected but permitted credits to post to the accounts.
Thus, funds could not be withdrawn from those accounts, but deposits into the accounts could be
made. Although G&D argues that the placing of holds on these accounts and its associated effects
on the accounts violated generally accepted accounting principles, G&D does not contest that the
accounts operated in this fashion after the holds were placed. Nevertheless, G&D and SunTrust
disagree on how the Court should interpret the account statements for the time period when the
holds were in place.

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DISCUSSION
In its Motion for Summary Judgment, G&D argues that SunTrust's statements for the
Master Account contain 232 unauthorized transactions that should be disregarded by the Court,
and that as a result, the records establish that SunTrust continues to owe G&D $71,567.92 as
reimbursement for the improper garnishment.

SunTrust, on the other hand, argues in its Motion

for Summary Judgment that even though certain automatic ZBA-related transactions during the
time period of the garnishment holds were not authorized and thus improper, the account
statements accurately reflect that the garnishment resulted in the withdrawal of more funds than
were actually available.

Based on an affidavit describing a thorough analysis of the relevant

accounts, Sun Trust argues that the records establish that it correctly did not return to G&D $84,505
of the returned garnishment funds.
I.

Legal Standard
Under Federal Rule of Civil Procedure 56(a), the Court grants summary judgment if the

moving party demonstrates that there is no genuine issue as to any material fact, and that the
moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986). In assessing the motion, the Court must believe the evidence
of the non-moving party, view the facts in the light most favorable to the nonmoving party, and
draw all justifiable inferences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986). "A material fact is one that might affect the outcome of the suit under the governing law."
Spriggs v. Diamond Auto Glass, 242 F.3d 179, 183 (4th Cir. 2001) (quoting Anderson, 477 U.S.
at 248). A dispute of material fact is only "genuine" if sufficient evidence favoring the nonmoving
party exists for the trier of fact to return a verdict for that party. Anderson, 477 U.S. at 248-49.

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"When faced with cross-motions for summary judgment, the court must review each
motion separately on its own merits 'to determine whether either of the parties deserves judgment
as a matter of law.'''

Rossignol v. Voorhaar, 316 F.3d 516,523 (4th Cir. 2003) (quoting Philip

Morris, Inc. v. Harshbarger, 122 F.3d 58, 62 n.4 (Ist Cir. 1997».
II.

G&D's Motion
In its Motion, G&D relies on ajoint affidavit by G&D's Vice President, Norman P. Gilden,

and its Controller, Michael Fooksman, who assert that the SunTrust statements for the Master
Account are incorrect because they "violate two critical tenets:

a) in and of themselves, they

violate the protocol ofthe zero balance account in that they do not transfer money from one account
to another, b) they violate generally accepted accounting principles because assets and liabilities
are not balanced."

Gilden & Fooksman Aff. ~ 2, ECF No. 100-2. Thus, G&D urges the Court to

completely disregard all ZBA-related credit and debit transactions from the Master Account
statements for March and April 2013, a total of 232 transactions, in calculating the balance in the
account at the end of that period because "there simply is no explanation for what [these]
transactions mean."
"authorized"

Id. ~ 18(d). G&D instead argues that the Court should total only the 24

deposits and withdrawals

on the Master Account statements that, absent the

garnishment, would yield a balance of$120,725.51

at the end of April 2013. Id. ~ 3. Under this

theory, when SunTrust issued a check to withdraw $133,656.69 from the Master Account to
answer the garnishment summons, it could only have withdrawn $120,725.51 in funds belonging
to G&D.

Then, when the Virginia court granted a motion to quash and the garnishment and

returned the $133,656.69, but SunTrust returned only $49,157.69 of that amount to G&D,

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SunTrust improperly failed to return $71,567.92, the difference between $120,725.51

and

$49,157.59.1
G&D's proposed analysis reflects its frustration with the way SunTrust placed holds on the
ZBA accounts. By placing a hold on any withdrawals but not on deposits while failing to sever
the ZBA accounts from one another, SunTrust set off an exceedingly complicated cycle oftransfers
between the accounts.

SunTrust does not dispute that its approach was improper and made it

extremely difficult to discern the true balance in the account. During an evidentiary hearing in the
garnishment proceedings, SunTrust Vice President Andrew Dolson personally apologized to the
Virginia Court for failing to sever the accounts upon placing the holds, explaining that this error
"did bad, bad things in terms of echoing these illusory dollars back and forth."

Joint Record

("J.R.") 167, 178, ECF No. 116. Taken together with the fact that the Virginia Supreme Court
ultimately ruled that no funds should have been garnished from the Master Account in the first
place, see PS Business, L.P. v. Deutsch & Gilden, Inc., 758 S.E.2d 508, 514 (Va. 2014), G&D's
frustration with SunTrust and its treatment of the accounts in the ZBA relationship is warranted.
However, G&D's proposed response to SunTrust's errors-that

the Court should completely

ignore the ZBA relationship and all automatic ZBA transactions with the Subsidiary Accounts in
its review of the Master Account statements-is

neither warranted nor grounded in the evidence,

as it turns a blind eye to the actual flow of funds into and out of the related accounts.

Although the briefs and affidavits filed with the Motions use slightly different figures at various
times, apparently inadvertently, the garnishment check was actually in the amount of$133,656.69,
and the check from SunTrust to G&D returning a portion of those funds was in the amount of
$49,151.69. The Court will use these figures, which are reflected in the exhibits showing the actual
checks or containing contemporaneous communications between the parties about the actual
checks. See Joint Record ("J.R.") 473,549, ECF No. 116.
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The Master Account statements cannot be viewed in isolation because the balance of the
Master Account depended directly on the balances of the Subsidiary Accounts in the ZBA
relationship.

The Master Account's balance was in a constant state of flux as money flowed in

and out ofthe Subsidiary Accounts, and, in tum, money flowed in and out ofthe Master Account
to create a zero balance in each of the Subsidiary Accounts at the end of each business day. The
fact that the regularity of these transactions was disrupted by the garnishment holds does not mean
that the irregular transactions can be ignored. Although G&D argues that these ZBA transactions
were not authorized, G&D separately admits that it authorized SunTrust to move funds between
the accounts pursuant to the ZBA relationship.
Thus, G&D offers no method for deciphering the account statements of March and April
2013 that is supported by the evidence. Instead, it effectively argues that the Court should, as a
matter of equity, treat the Master Account as an isolated account with no relationship to its
Subsidiary Accounts, which is factually inaccurate.

Notably, Fooksman admitted during his

deposition that any accurate analysis of the Master Account's balance during the relevant time
period must take into account the ZBA transactions, and that his analysis failed to do so. J.R.51314. Accordingly, the Court cannot credit G&D's analysis of the Master Account statements and
its ultimate conclusion that G&D is owed $71,567.92.

G&D's Motion for Summary Judgment

will be denied.
III.

SunTrust's Motion
SunTrust argues that although the placing of garnishment holds disrupted the normal

functioning of the ZBA accounts, it has now accounted for every transaction listed on the account
statements during the relevant time period and that, despite the confusing way in which the ZBA
transfers played out as a result of the holds, by the end of April 2013 when the holds were

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rescinded, the Master Account statement was accurate, and the Master Account had an overdrawn
balance of -$84,505.
SunTrust's

explanation of the functioning of the accounts during the period of the

garnishment holds is provided through a 25-page affidavit by SunTrust First Vice President
Michael P. Kelley, a certified fraud examiner, supported by nearly 250 pages of records. In his
affidavit, Kelley explained how the ZBA service functioned in the absence of any holds, as
described above. He then provided a detailed explanation of what happened when holds were
placed on some of the accounts in the ZBA relationship in a manner which allowed credits, but
not debits, to be posted to the accounts. Effectively, these holds resulted in a cycle where, at the
end of each business day, when a Subsidiary Account had a positive balance, and funds in that
amount were supposed to flow to the Master Account to create a zero balance in the Subsidiary
Account, a credit in the amount of that balance would post to the Master Account reflecting such
a transfer into the Master Account.

However, because the hold barred any outflows from the

Subsidiary Account, the corresponding debit to the Subsidiary Account would be rejected by the
system.

To adjust for this imbalance, SunTrust personnel manually entered the debit to the

Subsidiary Account, but it would post on the following business day.
The reverse occurred when a Subsidiary Account had a negative balance at the end of the
day. Although under the ZBA arrangement, funds were supposed to flow from the Master Account
into the Subsidiary Account to bring the Subsidiary Account's balance up to zero, and a credit did,
in fact, post on the Subsidiary Account's statement, the hold on the Master Account would not
permit a corresponding debit to post on the Master Account's statement. The manual posting of
the corresponding debit to the Master Account occurred the following business day. Thus, during
the period while the holds were in place, the debit side of the ZBA transactions lagged one day

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behind the credit side of the transactions. As a result, the system was continuously trying to correct
the apparent imbalance created by the lag, which was reflected in the form of credits appearing on
the Master Account each day, and corresponding, manually-posted debits to the Master Account
appearing the next day.
Specifically, as a result of this course of activity, the Master Account had an apparent
balance of$133,9l5.51

at the end of the day on April 5, 2013. This figure was inaccurate because

at that time, and when the $133,656.69 garnishment check was posted on Monday, April 8, three
credits reflecting ZBA transfers from the Master Account had already posted to a Subsidiary
Account, but the corresponding debits had not yet been manually posted to the Master Account.
Once those debits were manually posted a day after the credits, they would reveal that the listed
balance of the Master Account at the time of the garnishment withdrawal was artificially high,
such that the garnishment check effectively removed more funds than were actually available in
the account.
SunTrust's

submitted records corroborate this explanation.

SunTrust has submitted

statements for the Master Account and all Subsidiary Accounts from March and April 2013 with
every single transaction labeled with a line number. Every line number corresponds to a line in a
spreadsheet created by Kelley, which tracks the flow of funds between the accounts during the
relevant time period. The bank statements and spreadsheet reflect that three credit entries were
entered on Subsidiary Accounts on April 5, but the corresponding, manually-entered debit entries
appeared in the Master Account on April 8, the following business day, in lines 288-290 of the
spreadsheet. Likewise, another three credit entries appeared in the Subsidiary Accounts on April
8, with the corresponding debit entries entered in the Master Account on April 9, in lines 292-294
of the spreadsheet.

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A detailed review of the bank statements and spreadsheet reveals that ultimately, every
manual ZBA debit transaction corresponded to an equivalent credit transaction, such that although
the daily account balances were inaccurate while the holds were in place, and remained inaccurate
on subsequent days because of the ongoing lag between credits and debits, they ultimately were
corrected on April 23, 2013, when the holds were removed and two sets of debits were entered
that day: (l) a set that was manually posted to offset credits from April 22, when the holds had
been in effect, and (2) a second set automatically entered pursuant to the standard ZBA process to
offset credits posted on April 23, the same day.
Collectively, the submitted records, along with Kelley's explanation, demonstrate that the
ending balance of -$84,505 in the Master Account at the end of April 20 13, reflected on the Master
Account statement sent to G&D, accurately reflected the amount of funds in the account, even
though on April 5, 2013 it had appeared that the account held over $133,000 in funds. At the
hearing on the Motions, G&D clarified that it never reimbursed SunTrust for the negative balance
of -$84,505, and that it terminated its banking relationship with SunTrust shortly after the holds
were removed such that no other funds deposited into the Master Account or any Subsidiary
Account offset any portion of that amount. Thus, as Kelley has asserted, when the $133,656.69 in
improperly garnished funds from the Master Account were returned to SunTrust from the Virginia
Court, "SunTrust should have used $84,505 of those funds to cover the negative balance in
Account

61663

and returned

the remaining

$49,151.[6]9-the

$133,656.[6]9 debited and the overdraft amount of $84,505-in
61663."

Kelley Aff. ~ 94, ECF No. 103-2.

between

the

funds to the owner of Account

SunTrust effectively did credit to G&D the full

$133,656.69 by using $84,505 to eliminate the negative balance-funds
the Virginia Court on behalf of G&D-and

difference

it inadvertently fronted to

writing a check to G&D for $49,151.69.

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Thus, where SunTrust has submitted a comprehensive analysis of the account statements
for March and April 2013, supported by evidence, to establish that the ending balance of the Master
Account was accurate, and G&D has failed to submit any competing explanation that takes into
account the ZBA transfers authorized by G&D and acknowledged by its own expert as relevant to
the Court's analysis, the Court finds that SunTrust has shown that there is no genuine dispute of
material fact that it returned the proper amount of garnished funds to G&D and owes no further
debt to G&D stemming from the garnishment proceeding.

Accordingly, SunTrust is entitled to

judgment as a matter oflaw on G&D's breach of contract claim stemming from SunTrust's alleged
failure to return the full amount of garnished funds.
CONCLUSION
For the foregoing reasons, G&D's Motion for Summary Judgment is DENIED, and
SunTrust's Motion for Summary Judgment is GRANTED. A separate Order shall issue.

Date: March 28, 2019
THEODORE D. CHUA
United States District

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