                  United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                  ___________

                                  No. 02-2565
                                  ___________

In re: Southwestern Glass              *
Company, Inc.,                         *
                                       *
            Debtor.                    *
_____________________                  *
                                       *
Waelder Oil & Gas, Inc.;               *
Fred J. Waelder,                       *
                                       *
            Plaintiffs/Appellees,      *
                                       * Appeal from the United States
      v.                               * District Court for the
                                       * Western District of Arkansas.
Southwestern Glass Company, Inc.,      *
                                       *
            Defendant,                 *
                                       *
      v.                               *
                                       *
The Bank of Arkansas, NA,              *
                                       *
            Garnishee/Appellant.       *
                                  ___________

                        Submitted: December 12, 2002

                              Filed: June 11, 2003
                                   ___________

Before BOWMAN, RILEY, and SMITH, Circuit Judges.
                           ___________
RILEY, Circuit Judge.

       Waelder Oil & Gas, Inc. and Fred Waelder (collectively Waelder) served a writ
of garnishment upon the Bank of Arkansas, NA (Bank) to obtain any Southwestern
Glass Company (Southwestern) property held by the Bank. Answering the writ, the
Bank turned over approximately $5,000 held in a Southwestern checking account, but
did not disclose a credit arrangement using a loan manager account, a type of zero
balance account. Waelder challenged the Bank’s answers to the writ of garnishment.
After removal to the Western District of Arkansas, and transfer to the bankruptcy
court, the district court1 concluded the funds flowing through the loan manager
account were subject to garnishment and thus found the Bank failed to answer
truthfully the interrogatories accompanying the writ of garnishment. The district
court entered judgment against the Bank for $583,628.52 plus interest. The Bank
appeals. We affirm.

I.     BACKGROUND
       On July 30, 1999, Southwestern and the Bank entered into a Loan Agreement
(Agreement), executing a Variable Rate Commercial Revolving or Draw Note
(Note). The Note extended a one million dollar line of credit to Southwestern and
stated the line of credit was only to be used for working capital. Pursuant to the
Agreement, Southwestern established a commercial checking account (the loan
manager account) on which Southwestern was the sole signatory. To use the line of
credit, Southwestern would draw a check on the loan manager account in favor of a
party providing goods or services. If sufficient credit existed under Southwestern’s
line of credit, the Bank would honor the check. The loan manager account statements
identified the disbursements to the payees as withdrawals and identified advances

      1
       The Honorable Robert T. Dawson, United States District Judge for the
Western District of Arkansas, adopting the recommended findings of fact and
conclusions of law of the Honorable Robert F. Fussell, United States Bankruptcy
Judge for the Eastern and Western Districts of Arkansas.
                                        -2-
from Southwestern’s line of credit as deposits into the loan manager account.
Southwestern paid down the line of credit by transferring funds from other banks
directly to the Bank.

       About a year after the Bank and Southwestern entered the Agreement, Waelder
obtained a judgment against Southwestern for $517,000 in Arkansas state court. To
collect the judgment, Waelder issued a writ of garnishment upon the Bank.
Answering the interrogatories accompanying the writ, the Bank disclosed it held
approximately $5,000 in a Southwestern checking account and Southwestern’s loan
manager account had a zero balance. Waelder issued two more writs of garnishment
upon the Bank. In answering the interrogatories accompanying these writs, the Bank
stated it did not hold any of Southwestern’s property in its checking account and
again stated the balance in the loan manager account was zero.

       After Southwestern filed for Chapter 11 protection, Waelder contested the
Bank’s answers to interrogatories in Arkansas state court. The Bank removed the
case to the United States District Court for the Western District of Arkansas. After
removal, the district court transferred the matter to the bankruptcy court. In
recommended findings of fact and conclusions of law, the bankruptcy court
concluded the proceeds from Southwestern’s line of credit flowed through the loan
manager account to pay the checks, the proceeds were Southwestern’s property, the
proceeds were subject to garnishment, and the loan manager account was not a
special deposit account. Finding the Bank filed false answers, the bankruptcy court
adjudged the Bank liable for the full amount of Waelder’s judgment together with ten
percent interest and attorney fees.

      The Bank objected to the bankruptcy court’s recommendation. After a hearing,
and reviewing the case de novo, the district court adopted the bankruptcy court’s
recommended findings of fact and conclusions of law. On appeal to this court, the
Bank contends (1) the funds dispersed from the line of credit were not subject to

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garnishment under the Arkansas Code; and (2) the loan manager account was a
special deposit account immune from garnishment. We review the district court’s
findings of fact for clear error and the court’s conclusions of law de novo. Tadlock
v. Powell, 291 F.3d 541, 546 (8th Cir. 2002).

II.    DISCUSSION
       A.    Proceeds From Southwestern’s Line of Credit
       The Arkansas Code allows a judgment creditor to issue a writ of garnishment
to any person the judgment creditor believes “is indebted to the [judgment debtor] or
has in his hands or possession goods and chattels, moneys, credits, and effects
belonging to the [judgment debtor].” ARK. CODE ANN. § 16-110-401(a)(1) (Michie
1987). The service of a writ of garnishment casts a net which captures all the
judgment debtor’s goods and chattels, money, credits, and effects in the garnishee’s
possession until the garnishee submits correct answers to the interrogatories
accompanying the writ. See Harris v. Harris, 146 S.W.2d 539, 540 (Ark. 1941). “[I]f
the garnishee makes any payment to the [judgment debtor] after the service of the writ
of garnishment he does so at his own peril.”2 Bray v. Ed Willey & Son, 395 S.W.2d
342, 343 (Ark. 1965). If the court determines the garnishee filed false answers to the
writ of garnishment, the garnishee is liable for the value of the judgment debtor’s
property held by the garnishee to the extent the judgment creditor’s judgment remains
unsatisfied. ARK. CODE ANN. §§ 16-110-405 & -410; T & T Materials, Inc. v.
Mooney, 4 S.W.3d 512, 516 (Ark. Ct. App. 1999).




      2
        The garnishee must stand neutral with the money or other property in its
possession, disclose all information relating to that property, and hold the property
pending a decision by the court. McMahan & Co. v. Po Folks, Inc., 206 F.3d 627,
633 (6th Cir. 2000) (citing Board of Regents v. Harriman, 857 S.W.2d 445, 451 (Mo.
Ct. App. 1993)). When the garnishee does so, the garnishee is entitled to protection,
but when the garnishee abandons its position as a stakeholder, the garnishee assumes
a risk and must accept the outcome of the battle it has chosen. Id.
                                         -4-
      In determining whether the Bank possessed moneys or credits of Southwestern,
we must examine the interaction between Southwestern’s loan manager account and
Southwestern’s line of credit. First, Southwestern draws a check on the loan manager
account in favor of a party providing goods or services (payee). The payee deposits
the check in its bank. The payee’s bank presents the check for payment to the Bank.
The Bank compares the amount of the check against the available credit on
Southwestern’s line of credit. If a sufficient amount of credit exists to cover the
check, the Bank honors the check. The amounts advanced to honor the checks then
flow into the loan manager account. The Bank disburses the funds in the loan
manager account to the payee bank.3 Southwestern may transfer money directly to
the Bank to pay down Southwestern’s line of credit. At the end of the day, the Bank
processes all of the checks. On the Bank’s records, the credits advanced are listed as



      3
       The Bank’s attorney elicited the following testimony from Debbie Chastain,
Bank of Oklahoma Assistant Vice President and Product Manager for loan products
offered by the Bank:

      Q.     Regardless of how we color this picture, Ms. Chastain, the money
             that goes into this demand deposit account that we’re talking
             about today, that is in the name of Southwestern Glass, Inc. in the
             [loan manager account], the only monies coming into that account
             during these periods of times [sic] was [sic] advances on the line
             of credit, is that correct?
      A:     That is correct.
      Q:     And that money was transferred for the specific purpose of paying
             those checks that had been presented for payment in that pre-
             posting batch process, is that correct?
      A:     That is correct.




                                         -5-
deposits to Southwestern’s loan manager account and the debits are noted as
withdrawals from the loan manager account.

       The Bank contends the bankruptcy court erred in finding the proceeds from
Southwestern’s line of credit flowed through Southwestern’s loan manager account.
The evidence presented the bankruptcy court with two possible interpretations. The
testimony of the Bank’s personnel indicated the Bank directly paid the checks drawn
on the loan manager account from its own funds, merely using the loan manager
account as an accounting mechanism. Conversely, the Bank’s official records
indicate the funds used to honor the checks were deposits or fund transfers from
Southwestern’s line of credit. The bankruptcy court credited the version of the
transaction indicated by the Bank’s records rather than the version portrayed by the
Bank’s personnel. When two different interpretations of the record exist, “the
factfinder’s choice between them cannot be clearly erroneous.” Anderson v. City of
Bessemer City, 470 U.S. 564, 574 (1985).

      A judgment creditor may garnish loan proceeds in a judgment debtor’s account.
See First Nat’l Bank in Dallas v. Banco Longoria, S.A., 356 S.W.2d 192, 196 (Tex.
Civ. App. 1962). In First National, a judgment creditor issued a writ of garnishment
upon First National Bank. Between service of the writ of garnishment and answering
the writ, First National Bank loaned money to the judgment debtor, transferred the
proceeds of the loan into the judgment debtor’s account, and paid the amount out to
other parties upon the judgment debtor’s draft. The Texas Court of Civil Appeals
concluded the proceeds of the loan deposited into the judgment debtor’s account were
subject to garnishment even though the judgment debtor borrowed the money to meet
payroll and paid interest on the amount loaned. Id.

       The Southwestern case is analogous to First National. When the Bank was
presented with a check drawn on the loan manager account, the Bank advanced and
transferred funds from Southwestern’s line of credit into the loan manager account.

                                        -6-
The Bank then disbursed the funds transferred to the payee on Southwestern’s check.
Thus, Waelder’s writ of garnishment attached to the proceeds of Southwestern’s line
of credit as the proceeds flowed through the loan manager account. The proceeds
from Southwestern’s line of credit in the loan manager account are clearly money or
credits of Southwestern.

       The Bank’s most compelling argument is Waelder cannot garnish the amounts
used to honor the checks drawn on the loan manager account because one cannot
garnish or attach a line of credit. See Oceanfocus Shipping Ltd. v. Naviera
Humboldt, S.A., 962 F. Supp. 1481, 1483-86 (S.D. Fla. 1996) (holding a secured line
of credit cannot be attached in an admiralty proceeding); Sears, Roebuck & Co. v.
Romano, 482 A.2d 50, 54 (N.J. Super. Ct. Law Div. 1984) (holding a line of credit
for overdraft protection is not subject to levy). We are not persuaded by the Bank’s
argument. In both Oceanfocus and Sears, a party attempted to attach or garnish a line
of credit and to compel the lender to pay over the amount available on the line of
credit. Oceanfocus, 962 F. Supp. at 1483; Sears, 482 A.2d at 50-51. In both cases,
the courts concluded the party could not attach or garnish the line of credit.
Oceanfocus, 962 F. Supp. at 1483-86; Sears, 482 A.2d at 54. Waelder seeks only to
attach the proceeds from Southwestern’s line of credit transferred to Southwestern’s
loan manager account, not Southwestern’s line of credit itself. Because the advances
flowed through Southwestern’s loan manager account which Southwestern
controlled, we hold the proceeds from Southwestern’s line of credit transferred into
the loan manager account became money or credits belonging to Southwestern for the
brief period of time between the transfer of the proceeds to the account and
disbursement of the proceeds to the payee. Thus, Waelder’s writ of garnishment
captured the proceeds transferred into the loan manager account.

     B.    Special Deposit Accounts
     The Bank contends, even if the funds transferred to Southwestern’s loan
manger account are money or credits, the Southwestern loan manager account is a

                                         -7-
special deposit account not subject to a writ of garnishment. See Geyer & Adams Co.
v. Bank of Cent. Ark., 282 S.W. 358, 359 (Ark. 1926) (concluding a restricted or
special deposit account is not subject to garnishment). A special deposit account is
created,

      if the money is placed in a bank for the purpose of safekeeping or on an
      understanding that the bank shall act as bailee or deliver the money
      under certain circumstances or to apply it to special purposes, or where
      the deposit is made under circumstances such as to give rise to a
      necessary implication that it was for such purposes, the deposit is a
      special deposit and the bank is merely an agent or bailee with no right
      to use, dispose or permit a disposition of the deposit except pursuant to
      the terms of the agreement.

Lasley v. Bank of Northeast Ark., 627 S.W.2d 261, 263 (Ark. Ct. App. 1982)
(discussing special deposit accounts in determining if a bank had converted deposited
funds).

       The Bank contends the loan manager account is analogous to the account in
Geyer. We disagree. In Geyer, the bank held advances in a general deposit account.
The judgment debtor and the bank agreed the funds in the account would be used to
pay the expenses of raising crops and “for no other purpose.” Geyer, 282 S.W. at
358. Under the agreement, the bank also had the right to “cancel or refuse to cash any
check or checks drawn on the account for other purposes.” Id. On appeal, the
Arkansas Supreme Court concluded the advances were restricted and held in the
judgment debtor’s special deposit account, and as such, were not subject to
garnishment. Id. at 359. The Arkansas Supreme Court explained the funds were
“deposited to the credit of [the judgment debtor] . . . for a special purpose, so neither
[the judgment debtor] nor his general creditors had any right to divert it.” Id.

       The Southwestern Note states the line of credit is for working capital, which
is a general purpose rather than a special purpose. No other words of restriction are

                                           -8-
used. Furthermore, the Bank’s employees testified the Bank had no authority to
dishonor a check, if sufficient credit were available. Bank personnel also testified the
Bank did not have a procedure to verify the checks were being used for working
capital and, in fact, did not verify whether the checks were for working capital.

       Although dissimilar from Geyer, Southwestern’s loan manager account is
similar to the account in Pate v. Bryan, 7 S.W.2d 776 (Ark. 1928). In Pate, a
judgment creditor issued a writ of garnishment upon a bank in which the judgment
debtor had an account. The bank answered the writ, stating it held property belonging
to the judgment debtor. A third party intervened in the garnishment proceeding,
asserting the property in the bank’s possession belonged to him and the property was
to be used “in payment of claims for labor and material furnished in the construction
of [a] house.” Id. at 777. The Arkansas Supreme Court disagreed with the
intervenor’s contention, concluding the trial court erred in finding the account was
a special deposit account. Id. at 778. The Arkansas Supreme Court noted the
judgment debtor deposited money in the bank without restriction. Id. at 777.
Additionally, the Arkansas Supreme Court noted neither the third party nor the bank
“retained any control over the fund advanced.” Id. at 778.

       In our case, the Bank did not exercise control over the funds advanced to the
loan manager account. The Bank honored any check as long as sufficient credit was
available under Southwestern’s line of credit. For the foregoing reasons, we conclude
the loan manager account is not a special deposit account.

III.   CONCLUSION
       The district court’s judgment is affirmed.




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A true copy.

      Attest:

           CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




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