Page 5 - John Hundley 2009

Sharp Thinking

No. 18 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. March 2009
Court Says Broker May Simply Rely

on the Face of Attachment Order

By John T. Hundley, Jhundley@lotsharp.com, 618-242-0246

Whether third parties served with court papers directing them to freeze customer
property (or to deliver it to others) have a duty to investigate the validity of those papers is a matter which
long has troubled many lawyers, but a recent decision from the Seventh Circuit Court of Appeals in
Chicago may help lead to clarification of that issue.
1
In Hicks v. Midwest Transit, Inc., 531 F.3d 467 (7th Cir. 2008), the court held that a financial institution
served with an attachment order was required only to determine that the order was “regular on its face” –
and not to explore validity questions which could only be answered from extraneous sources.
In Hicks, a downstate court had ordered attachment of the defendant’s assets in a shareholders’
derivative suit where his business’ co-owner alleged numerous breaches of fiduciary duty and other
wrongdoing. Harris Investor Services in Chicago was served with the order, resulting in the freezing of
Hicks’ account. However, an Appellate Court vacated the attachment order in a dispute as to whether a
court-appointed receiver had to post a surety bond. After the attachment order was vacated, Hicks
charged Harris with negligence in complying with the allegedly improper order.

The 7th Circuit said the face of the attachment order did not give Harris notice of the alleged
invalidity because of the lack of a bond, and it said that allowing a negligence action against one “who
complies with a facially legitimate order would place the garnishee between the Scylla of complying with
the order and being liable for negligence if the order is reversed on appeal,
and the Charybdis of violating the order and being held in contempt or
otherwise sanctioned.” The duty to challenge defects not obvious on the
face of the order was on Hicks, the court said – and “we do not believe that
Illinois law would impose a duty upon Harris to do so as well”. Accordingly,
the court said Harris had a duty to examine the face of the attachment order
only – not to investigate other circumstances which might invalidate the order.

Hicks is likely to become a major citation for the proposition that third parties served with
garnishments, wage deduction orders, citations to discover assets and the like have no duty to
investigate beyond the face of the documents served in determining whether to comply. To the
extent that interpretation is accurate, Hicks will be a welcome development to banks, other financial
institutions and other third parties served with such documents.

But whether Hicks actually resolves that issue is doubtful. First, the court’s analysis was
premised on the fact that Hicks “never challenged the district court’s formulation of Harris’s duty under

1 The Sharp Law Firm, P.C. was counsel to the receiver for Midwest Transit, Inc. in the Hicks case discussed in this issue and
continues to represent that receiver, adverse to Hicks, in other litigation.

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
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