Bragunier Masonry Contractors, Inc. v. Catholic University of America

CATHELL, J. Bragunier Masonry Contractors, Inc., petitioner, as a subcontractor, initiated a breach of contract action and obtained a judgment in a Maryland court against Edward M. Crough, Inc. (Crough, Inc.), a general contractor, to recover approximately $200,000 allegedly due to petitioner for construction work performed by it for an earlier project (the “North Village Residence Project”) on the campus of The Catholic University of America. Petitioner, unable to collect this judgment from Crough, Inc., later commenced a garnishment proceeding in Maryland against The Catholic University of America, respondent, alleging that respondent held funds that remained payable to Crough, Inc. for a subsequent construction project (the “Old Gymnasium Project”). These funds were, under the garnishment proceeding, alleged to be payable to petitioner by respondent as a judgment debtor of Crough, Inc. Petitioner, as far as the record reflects, was not a subcontractor on the “Old Gymnasium Project.” Two years after petitioner commenced the garnishment action against respondent, the Circuit Court for Montgomery County held a trial on the merits. The Circuit Court issued its Memorandum Opinion on June 1, 2000, entering a judgment against respondent for the sum sought by petitioner as a ⁶¹¹ result of its prior judgment (including post-judgment interest) against Crough, Inc. Respondent noted a timely appeal to the Court of Special Appeals.

On July 31, 2001, the Court of Special Appeals reversed the judgment of the Circuit Court for Montgomery County. The Catholic University of America v. Bragunier Masonry Contractors, Inc., 139 Md.App. 277 , 775 A.2d 458 (2001). On August 17, 2001, petitioner filed a Petition for Writ of Certiorari with this Court, and respondent subsequently filed a Cross Petition for Writ of Certiorari. On October 12, 2001, we granted both petitions.

Petitioner presents two questions for our review: “1. When a defrauded Creditor brings a fraudulent conveyance action by way of garnishment pursuant to Commercial Law Article § 15-209(a)(2), Md.Code, is the Creditor merely the subrogee of the Debtor/Transferor so that: (a) The limitations period on the fraudulent conveyance action begins to run even before the fraudulent conveyance occurs; and (b) The limitations period on the fraudulent conveyance action begins to run before the defrauded Creditor knows or has reason to know of the fraudulent conveyance? “2. Did the Court of Special Appeals err in holding, as an alternative, that this case should be reversed and remanded because the trial court did not consider all of the facts and circumstances by erroneously applying the parol evidence rule and principles of equitable estoppel to find that a contract existed where, in fact, the trial court did hear and did consider all the evidence relating to the existence and validity of the contract, did not exclude any relevant evidence, and based its conclusion that a contract existed on the totality of the evidence, and not on application of the parol evidence rule or principles of equitable estoppel?” ⁶¹² In responding to the issues raised by petitioner, The Catholic University of America presents seven questions for our review: “1. Did the Court of Special Appeals properly decline to extend the limitations period by application of the discovery rule to a claim for fraudulent conveyance where the aggrieved party elected to forego a direct action in favor of a garnishment proceeding, a statutorily created remedy in derogation of the common law whose application therefor must be narrowly construed, and where the judgment creditor’s claim depended on the viability of the judgment debt-' or’s claim against the garnishee and which would be barred by limitations? “2.

Did the Court of Special Appeals correctly decide that evidence demonstrating a lack of intent to form a binding contract by the parties to a purported agreement should have been received and considered by the trial court? “3. Should District of Columbia Law have been applied to this transaction which arises out of the formation and performance of contracts in the District of Columbia, particularly where all affected parties elected District of Columbia law to control their dealings? “4. Does the mandatory language of the garnishment rules operate to preclude recovery? “5. Having concluded that the question of whether a binding contract had been crated by the parties had not been properly decided by the trial court, did the Court of Special Appeals err in concluding that subject matter jurisdiction existed over a debt arising from that purported contract rather than the improvements to real property conveyed in the District of Columbia? “6.

Was there a failure of proof of a fraudulent conveyance made by the judgment debtor where the only competent evidence demonstrated that the purported conveyance had no detrimental effect on the financial condition of the judgment debtor? ⁶¹³ “7. Were nine years of post-judgment interest accumulated against the judgment debtor properly imposed on CUA as garnishee?” We answer in the affirmative to respondent’s question one. We hold that petitioner’s cause of action is time-barred as the limitations period in which Crough, Inc. could have filed suit against respondent had already expired when petitioner initiated this garnishment action. As a result of our holding as to the question addressed, we need not resolve the other issues.

We hold that the Court of Special Appeals properly decided the limitations issue. Accordingly, we affirm the judgment of the Court of Special Appeals. I. Facts a. Background Edward M. Crough, the owner of Crough, Inc., 1 was an alumnus of respondent.

Mr. Crough had developed a successful construction business and had been involved in various construction projects on respondent’s campus. In addition to participating in construction projects with respondent in the early 1980s, Mr. Crough became one of its personal benefactors. In the latter part of the 1980s, respondent contracted with Crough, Inc. for it to serve as the general contractor for a dormitory construction project on respondent’s campus called the “North Village Residence Project.” Crough, Inc. subcontracted the masonry work for the “North Village Residence Project” to petitioner. The “North Village Residence Project” was timely and fully completed in 1990.

Petitioner performed the masonry work on that project as required and received 90% of the agreed price under the contract from Crough, Inc., the general contractor. The remaining 10%, the amount in dispute in this action ($211,742.42 plus accrued interest), con ⁶¹⁴ stituting the retainage, 2 was withheld by Crough, Inc. and not paid to petitioner, even after full completion of the project. Around this same period in the late 1980s, respondent was considering another building project on its campus. It wanted to renovate an abandoned gymnasium and turn it into a new home for respondent’s Department of Architecture.

A proposal, initially termed the “Old Gymnasium Project,” was drawn up and presented to respondent’s then president, Reverend William J. Byron, S.J. (Father Byron), who was to be responsible for the necessary fund-raising. Father Byron approached Mr. Crough because of Mr. Crough’s status as an alumnus and benefactor of respondent, with the plans for the “Old Gymnasium Project.” Respondent sought to arrange to have Mr. Crough donate funds for this project, and in return respondent would name the renovated gymnasium the “Crough Center for Architecture.” After several meetings and Mr. Crough’s rejection of several donative vehicles by which he could make such a gift to respondent, retaining both tax benefits of such a donation and some control over the use of the donation, Mr. Crough chose a particular solution. He decided to make the donation as a gift-in-kind, whereby his company, Crough, Inc., would donate the construction materials and services for the “Old Gymnasium Project” and, in that fashion, “gift” the building through the use of a Construction Manager Agreement (CMA) with respondent. 3 ⁶¹⁵ On June 3, 1988, following this decision on the manner in which to make the donation to respondent, Crough, Inc. and respondent executed the CMA for the “Old Gymnasium Project.” 4 The CMA, similar to a previous agreement executed by Crough, Inc. and respondent for the completion of the “North Village Residence Project,” was lengthy, had several attachments, and was divided into parts stating that the total payment by respondent for the project was to be $3,149,000.

It was apparently understood by Mr. Crough and respondent that respondent would not have to actually remit such sums to Crough, Inc. and in that way the gift could be consummated. There are indications that Mr. Johnson, Vice President of Crough, Inc., was unaware of the unwritten understanding between Mr. Crough and respondent. In 1988, after execution of the CMA, construction commenced on the “Old Gymnasium Project.” Throughout the construction, as apparently anticipated by Mr. Crough and respondent, no payment requisitions were submitted to respondent by Crough, Inc., given Mr. Crough’s representations that the work and materials were a donation. No payment was proffered or made by respondent to Crough, Inc. on the project.

Crough, Inc., however, continued to carry in its financial records account receivables that ultimately charged to respondent the amount of $3,149,000, the total amount stated in the CMA for the “Old Gymnasium Project.” Nearing the project’s end in late 1989, Mr. Crough’s company faced serious financial difficulties as a result of a downturn in the economy, particularly in the construction and real estate industries. Because of health problems, Mr. Crough began to leave the daily management of the company to its Vice President, Richard Johnson. As indicated, Mr. Johnson was appar ⁶¹⁶ ently unaware of the alleged “gift” arrangement between Mr. Crough and respondent. With regard to payment requisitions for the “Old Gymnasium Project,” Mr. Johnson had previously been giving payment requisitions to Mr. Crough for submission to respondent.

Mr. Crough did not forward these payment requisitions, nor did he tell Mr. Johnson that he did not do so. In October of 1989, the “Old Gymnasium Project” was completed by Crough, Inc., accepted by respondent, and named, as allegedly promised, the “Crough Center for Architecture.” Sometime after the onset of Mr. Crough’s health problems and the transfer of operational responsibilities to Mr. Johnson, Mr. Johnson became aware of the fact that respondent had not made any payments under the CMA. On February 12, 1990, in light of Crough, Inc.’s worsening financial problems, Mr. Johnson and others representing Crough, Inc. met with Father Byron and others representing respondent. Specifically, Mr. Johnson asked about the lack of payments forwarded to Crough, Inc. on the project, and told respondent that Crough, Inc. was facing cash flow problems' and was unable to pay a total of $1,257,000 to several of the subcontractors that had done work on the “Old Gymnasium Project.” Father Byron then notified Mr. Johnson that the project had been a gift to respondent from Mr. Crough through his company, and that no payment would be given.

Mr. Johnson responded that Crough, Inc. could not afford the project as a gift, because the company was in need of $2,000,000 to satisfy its debts and to meet current cash flow needs. 5 Mr. Johnson requested that respondent pay the sum of $2,000,000 to the company. Father Byron took this request to respondent’s Board of Trustees, which agreed to lend ⁶¹⁷ Crough, Inc. a lesser amount of $1,257,000 so it could pay the money owed to subcontractors on the “Old Gymnasium Project.” 6 On February 28, 1990, in a private meeting between Father Byron and Mr. Crough, Mr. Crough gave a letter to Father Byron, stating that “it is now and always has been my intention to pay for the total cost of the renovation of the old gymnasium as a gift to the University.” Upon receipt of that letter, Father Byron gave Mr. Crough several two-party checks, totaling the $1,257,000 loan amount its Board of Trustees had agreed to “lend” petitioner. The checks were made payable, jointly, to Crough, Inc. and to each of the unpaid subcontractors on the “Old Gymnasium Project.” 7 Mr. Crough agreed to repay that loan sum to respondent over the following twelve years. 8 Father Byron then presented Mr. Crough with a “Final Release of Claims and Lien Waiver” document, which Mr. Crough executed on behalf of his company. This document certified that Crough, Inc. received $1,257,000 as full payment for the construction of the “Old Gymnasium Project,” even though the total $3,149,000 cost on the project was allegedly never due in the first place.

After the $1,257,000 was tendered jointly to Crough, Inc. and the various subcontractors still due payment for work on the “Old Gymnasium Project,” Crough, Inc. remained unable to satisfy the claim of petitioner for $211,742.42 in respect to its work on the “North Village Residence Project.” From this time to the ⁶¹⁸ time Crough, Inc. ceased to do business, the company was unable to pay its debts. It was insolvent. b. Facts Leading Up to Our Case On September 25, 1991, petitioner filed in the Circuit Court for Montgomery County a breach of contract action against Crough, Inc. to recover the $211,742.42 owed as the retainage amount for the masonry contract for the “North Village Residence Project,” which had been finished in 1990. The sum sued for was completely unrelated to the “Old Gymnasium Project.” On December 12, 1991, the Circuit Court granted summary judgment in favor of petitioner and entered judgment against Crough, Inc. for $211,742.42 plus $5,000 in attorney’s fees.

On July 31, 1992, in an effort to enforce this judgment, petitioner’s lawyer spoke with Mr. Johnson of Crough, Inc., and it was during that conversation that petitioner learned of Mr. Crough’s gift-in-kind, through the company, of the “Crough Center for Architecture” (the “Old Gymnasium Project”). Additionally, petitioner then learned of the “Final Release of Claims and Lien Waiver” that was executed in February of 1990. Because of Crough, Inc.’s inability to pay petitioner’s judgment, and having learned of the apparent uncollected account receivable that Crough, Inc. maintained as a part of its financial records from the “Old Gymnasium Project,” petitioner sought to have respondent pay the sums due it on the “North Village Residence Project.” Respondent refused. On November 29,1994, in the Circuit Court for Frederick County, petitioner filed a Request for Writ of Garnishment against respondent based upon the judgment it had obtained against Crough, Inc. in 1991.

Petitioner alleged that respondent owed funds to Crough, Inc. sufficient to satisfy the sums due to petitioner as a result of its 1991 judgment against Crough, Inc. Petitioner’s request made reference to Maryland Rule 2-645 and Maryland Code (1975, 2000 RepLVol.), section 15-209 of the Commercial Law Article, both concerning garnishments. Petitioner’s theory in the garnishment proceeding ⁶¹⁹ against respondent, essentially, was that the CMA between Crough, Inc. and respondent was a contract that obligated respondent to pay Crough, Inc. the full $8,149,000 amount stated in the contract as the payment amount, not the lesser $1,257,000 “loan” amount leading to the release. In other words, petitioner maintained that respondent remained indebted to Crough, Inc. for the full amount, which could, in turn, be used, via the garnishment action, to satisfy petitioner’s judgment against Crough, Inc. Petitioner further added that the Final Release of Claims and Lien Waiver by which Crough, Inc. purported to release the full amount of debt, amounted to a fraudulent conveyance under Maryland Code (1975, 2000 Repl.Vol.), section 15-209 of the Commercial Law Article because Crough, Inc. was insolvent when the release was given. As a result, according to petitioner, under section 15-209 the debt forgiveness could be disregarded for purposes of garnishment and the balance due from the $3,149,000 amount, for garnishment purposes, remained the property of Crough, Inc. in possession of respondent and ultimately subject to attachment.

Prior to filing an answer to petitioner’s request for writ of garnishment, respondent moved to dismiss for lack of personal jurisdiction and improper venue. Jurisdiction and venue issues were eventually resolved, with the case proceeding in the Circuit Court for Montgomery County. Accordingly, it was roughly two years after petitioner had filed a request for writ of garnishment against respondent that respondent filed an answer. On May 15, 1996, respondent answered claiming that it was not in possession of any property of Crough, Inc. Respondent also asserted several defenses.

Ultimately, two years after the date respondent filed its initial answer, respondent filed an amended answer to the request for writ of garnishment. In this amended answer, respondent asserted the defense of limitations. Thereafter, respondent filed a Motion for Summary Judgment on the ground of limitations. On October 13, ⁶²⁰ 1999, argument was heard in the Circuit Court on the Motion for Summary Judgment and that motion was denied.

The case was tried before the Circuit Court for two days, continued, and later resumed on February 24, 2000, and completed on February 25, 2000. On June 1, 2000, the trial court issued a Memorandum Opinion and Order setting forth its factual findings and conclusions of law. The trial court found that the garnishment proceeding was not time barred, as petitioner’s request for writ of garnishment was filed within three years of the date that petitioner, via its attorney, learned from Mr. Johnson of the alleged fraudulent conveyance (the Final Release of Claims and Lien Waiver forgiving a debt obligation while Crough, Inc. was insolvent and unable to pay its creditors), and that respondent had funds petitioner could attach via garnishment to satisfy its judgment against Crough, Inc. The Circuit Court awarded petitioner $381,136.53 in damages, consisting of the $211,742.42 original judgment amount in its breach of contract action against Crough, Inc. and $169,393.93 in post-judgment interest. Respondent noted a timely appeal to the Court of Special Appeals, presenting to that court several questions for review.

The Court of Special Appeals reversed the ruling of the Circuit Court for Montgomery County and held that the garnishment proceeding was time-barred, and that respondent had properly raised the limitations defense to petitioner’s garnishment action. Furthermore, the intermediate appellate court held that the discovery rule did not apply to toll the start of the running of the general three-year limitation period until the time petitioner’s attorney first learned of the alleged fraudulent conveyance. The Catholic University of America v. Bragunier Masonry Contractors, Inc., 139 Md.App. 277 , 775 A.2d 458 (2001). Petitioner filed a Petition for Writ of Certiorari to this Court; respondent then filed a Cross Petition for Writ of Certiorari.

We granted both petitions. Bragunier v. Catholic University, 366 Md. 246 , 783 A.2d 221 (2001). ⁶²¹ II. Discussion Both petitioner and respondent have presented various questions for our review in this convoluted case; however, we ultimately make our holding on the issue of the proper limitations period applicable to this garnishment action. As we have indicated, because of our holding as to the issue of limitations, we need not address the other questions presented for review or delve into the more detailed facts associated with those questions.

At its core, the case sub judice concerns the applicable statute of limitations, under the circumstances, in this particular garnishment action. 9 The garnishment action in this case, although seeking to attach funds held by respondent and allegedly due to Crough, Inc., actually had its genesis in a prior breach of contract action arising out of a general contractor/subcontractor dispute between petitioner and Crough, Inc. In that prior dispute, in which respondent was not a party so far as we are aware, 10 petitioner obtained a judgment against Crough, Inc. The present case is an attempt, via garnishment, to collect on that judgment. a. Nature and Grounds of Garnishment as a Remedy The Court of Special Appeals, in this case, stated that “[gjarnishment is a remedy created and controlled by statute.” Bragunier, 139 Md.App. at 293 , 775 A.2d at 467 . See Mears v. Adreon, 31 Md. 229, 237 (1869) (stating that proceedings under attachment are a special remedy conferred by statute); Chromacolour Labs, Inc. v. Snider Bros. Property Management, Inc., 66 Md.App. 320 , 503 A.2d 1365 (1986) (noting that garnishment is a statutory proceeding).

In Northwestern ⁶²² National Insurance Co. v. William G. Wetherall, Inc., 267 Md. 378, 384 , 298 A.2d 1, 5 (1972), we stated: “An attachment by way of garnishment issued after judgment is a mode of execution and its function is approximately the same as that of a writ of fieri facias. As attachment proceedings are in derogation of the common law, their existence is dependent upon special provisions authorizing them. Authority for courts in this State to entertain attachments after judgment has long been established in our laws. The origin of this authority is found in the Acts of 1715, Ch. 40, § 7.

W. Hodge and R. McLean, the Law of Attachment in Maryland, § 251' (1895).... Under the established law of this State, a garnishment proceeding is, in essence, an action by the defendant (judgment debtor) against the garnishee for the use of the plaintiff (judgment creditor).” [Citations omitted.] Recently, this Court, in Parkville Federal Savings Bank v. Maryland National Bank, 343 Md. 412 , 681 A.2d 521 (1996) discussed the well-established nature and function of a garnishment proceeding. We stated: “A writ of garnishment is a means of enforcing a judgment. It allows a judgment creditor to recover property owned by the debtor but held by a third party.... ‘A garnishment proceeding is, in essence, an action by the judgment debtor for the benefit of the judgment creditor which is brought against a third party, the garnishee, who holds the assets of the judgment debtor.

An attaching judgment creditor is subrogated to the rights of the judgment debtor and can recover only by the same right and to the same extent that the judgment debtor might recover.’ ” Id. at 418 , 681 A.2d at 524 (citing Fico, Inc. v. Ghingher, 287 Md. 150, 159 , 411 A.2d 430, 436 (1980) (citations omitted)). See Hoffman Chevrolet, Inc. v. Washington County Nat’l Sav. Bank, 297 Md. 691, 696 , 467 A.2d 758, 761 (1983); Northwestern Nat’l Ins. Co., 267 Md. at 384 , 298 A.2d at 5 ; Walsh v. ⁶²³ Lewis Swim.

Pool Constr. Co., 256 Md. 608, 610 , 261 A.2d 475, 476 (1970); Peninsula Ins. Co. v. Houser, 248 Md. 714, 717 , 238 A.2d 95, 97 (1968); Messall v. Suburban Trust Co., 244 Md. 502, 506-07 , 224 A.2d 419, 421 (1966); Cole v. Randall Park Holding Co., 201 Md. 616, 623-24 , 95 A.2d 273, 277 (1953). The opinions of this Court have emphasized the principle, growing out of the nature and function of a garnishment proceeding, that the creditor merely steps into the shoes of the debtor and can only recover to the same extent as could the debtor.

In the case sub judice, the Court of Special