Burnett v. Spencer

Arthur, J. This case concerns Md. Rule 2-651, the so-called “wild card” 1 provision for collecting judgments. A judgment-creditor asked the Circuit Court for Baltimore County to employ Rule 2-651 to enter a charging order against the corporate interest of a recalcitrant judgment-debtor. The court entered the charging order, and the debtor appealed. We affirm.

I, Background Cereta Spencer and Steven Burnett were divorced in the Circuit Court for Baltimore County in 2010. In connection with the divorce, the court granted Spencer a monetary award of $3.7 million. This Court affirmed the judgment in an unreported opinion. Burnett v. Burnett, No. 2855, Sept. Term 2010 (Ct. Spec.

App. Apr. 19, 2012). On July 3, 2012, the clerk docketed two money judgments in favor of Spencer and against Burnett. The judgments, in the amounts of $912,500.00 and $1,612,500.00, appear to represent unpaid portions of the monetary award. Spencer alleges that Burnett resisted payment, apparently preferring to have interest accrue at the post-judgment rate of 10 percent per annum than to satisfy his obligations to his ex-wife.

Spencer claims that, in his efforts to resist payment, Burnett filed a bankruptcy petition, which was dismissed as a bad-faith filing. On November 3, 2014, Spencer obtained writs of garnishment of wages on Burnett’s employer, CAEI Inc., and on ²⁸ Burnett’s bank. Three days later, on November 6, 2014, Spencer filed a motion for ancillary relief under Rule 2-651. The motion for ancillary relief was directed to CAEI, a Subchapter S corporation in which Burnett is the majority owner.

In the motion Spencer asked the court to “charg[e]” Burnett’s “equity interest” “with the payment of all amounts due and owing” on the judgments. In response, CAEI and Burnett filed a number of dilatory papers—a motion for a more definite statement from CAEI; from Burnett, a motion to quash, alleging defects in service. On December 9, 2014, apparently unaware of the motion for a more definite statement and the motion to quash, the circuit court granted the motion for ancillary relief. Its orders “charged” Burnett’s “equity interests” in CAEI “with the payment of all amounts due” on the two judgments against him.

In addition, the orders “enjoined” Burnett and CAEI from “transferring any assets by way of dividend, loan or otherwise” to Burnett. Instead, the orders required that “any distributions payable or any other money that is or becomes due to” Burnett “by reason of his corporate stock shares in CAEI” “be directed” to Spencer. Burnett and CAEI moved for reconsideration. After some motions practice and communications among the court and counsel, Burnett and Spencer reached an agreement on February 9, 2015, which was embodied in a consent order that was signed by the court on March 16, 2015, and docketed on March 25, 2015.

Under the consent order, Burnett could join in CAEI’s motion for reconsideration, which was to be heard on February 10, 2015, but he withdrew his objections to service and his motion for reconsideration of the court’s original charging orders of December 9, 2014. The consent order gave Burnett until February 26, 2015, to elect his exemptions, if any, from Spencer’s action to collect on her judgment, but the order made no other provision for registering substantive challenges to the relief that the court had ordered. On February 10, 2015, the day after Burnett and Spencer reached the agreement that became the consent order, the ²⁹ circuit court conducted a hearing on CAEI’s motion for reconsideration. At the hearing, Mr. Burnett’s counsel joined the company in arguing for the amendment of some aspects of the December 9, 2014, orders.

In an order signed by the court on February 19, 2015, and docketed on March 9, 2015, the court amended its earlier order in two respects: (1) it permitted CAEI to reimburse Burnett for legitimate business expenses incurred on CAEI’s behalf; and (2) it permitted CAEI both to make and to forgive loans to Burnett, provided that the company gave advance notice to Spencer’s attorneys. In accordance with the agreement that became the consent order between Burnett and CAEI, Burnett claimed several exemptions on February 26, 2015. At the same time, Burnett filed what he called “a motion to release property from levy” under Md. Rule 2-643(c). In that motion Burnett asked the court to release the “levy” on his corporate interest.

He contended that a charging order could reach only partnership, and not corporate, interests. 2 In an order dated April 21, 2015, the circuit court denied Burnett’s motion to release property from levy. The clerk made a record of that ruling on the docket on April 27, 2015. On May 21, 2015, Burnett appealed. Spencer has moved to dismiss the appeal. ³⁰ II.

Questions Presented Burnett presents two questions, which we quote: 1. Whether orders entered under the authority of Md. Rule 2-651 validly attach a judgment-debtor’s interest in a corporation, charge the interest with payments of all amounts due on the judgment, and direct all of the judgment-debtor’s shareholder distributions to be paid on to the judgment-creditor when the General Assembly has not adopted a statute making the charging order remedy available to creditors of a shareholder-debtor of a corporation^] 2. Whether the court can exempt a judgment-creditor from her burden to prove which portion of a judgment-debtor’s shareholder distributions is subject to enforcement of the judgment.

III

Spencer’s Motion to Dismiss the Appeal Before proceeding to the merits of the appeal, we must consider Spencer’s motion to dismiss the appeal. In support of that motion, Spencer makes two arguments. First, she argues that Burnett has no right to appeal because he “consented to the validity” of the charging order when he entered into the consent order on February 9, 2015. Second, Spencer argues that Burnett’s appeal is untimely because, she says, he was required to note his appeal within 30 days of March 25, 2015, the date when the clerk docketed the consent order.

Spencer’s conclusions are incorrect because her premise is incorrect. Burnett has not appealed from the consent order, in which he consented to service of process and withdrew his motion for reconsideration of the court’s original charging orders of December 9, 2014. Burnett has appealed from the denial of his “motion to release property from levy.” Under Maryland Code (1974, 2013 Repl. Vol.), § 12-303(1) of the Courts and Judicial Proceedings Article (“CJP”), Burnett had the right to appeal from the order denying that motion, because it is an order “with reference to the receipt or charging of the income, interest, or dividends” of the “property with which the action is concerned,” or “the refusal to ³¹ modify, dissolve, or discharge such an order.” The court did not deny that motion until April 21, 2015, and the clerk did not enter it on the docket until April 27, 2015.

Burnett noted his appeal on May 21, 2015, less than 30 days after the clerk docketed the appealable interlocutory order. Because Burnett’s appeal, therefore, is properly before us, we deny Spencer’s motion to dismiss. IY. Scope of Review Both parties agree that because this case requires an interpretation of the scope of a procedural rule, it involves a question of law, which is subject to de novo review.

We proceed on that supposition. Y. Authority to Issue Charging Orders Under Rule 2-651 Maryland Rule 2-651 provides, in full, as follows: Upon motion and proof of service, a court in which a judgment has been entered or recorded may order such relief regarding property subject to enforcement of the judgment as may be deemed necessary and appropriate to aid enforcement of the judgment pursuant to these rules, including an order (a) to any person enjoining the destruction, alteration, transfer, removal, conveyance, assignment, or other disposition of such property, (b) to any person enjoining the negotiation, transfer, assignment, or other disposition of a document representing an interest in such property, (c) to any person directing the disclosure to the sheriff of the whereabouts of such property, (d) to any person directing that any such property which has been removed from the jurisdiction, concealed, or made inaccessible for the purpose of avoiding levy be delivered to the sheriff or made available for levy, (e) to any person directing the surrender to the sheriff of such property located in the state, and (f) to the sheriff of any county where such property is located directing the sheriff to take physical possession of and sequester such property, The motion shall be served on the person against whom the order is sought in the manner provided by Chapter 100 of this Title for service ³² of process to obtain personal jurisdiction and if that person is not the judgment debtor, a copy of the motion shall be mailed to the judgment debtor’s last known address. Rule 2-651 supplements the five, specific mechanisms set forth in the Maryland Rules for enforcing a judgment: a writ of execution (Rules 2-641 and 2-642), a general writ of garnishment (Rule 2-645), a writ of garnishment of an account in a financial institution (Rule 2-645.1), a writ of garnishment of wages (Rule 2-646), and a charging order on a partnership interest (Rule 2-649). Although those mechanisms cover most of the circumstances that a judgment-creditor may confront in enforcing a judgment, Rule 2-651 “provides a ‘wild card’ that may be used in extraordinary circumstances.” Paul V. Niemeyer, Linda M. Schuett & Joyce E. Smithey, Maryland Rules Commentary 752 (4th ed. 2014). “The Rule was derived, in part, from former Md. Rule 628d, which allowed a court to ‘pass such order as will subject the property or credits of the judgment debtor either in his own hands or in the hands of any person to the operation of the judgment.’ ” McKinney v. State of Md. Deposit Ins.

Fund Corp., 99 Md.App. 124, 137 , 636 A.2d 10 (1994). In his principal argument, Burnett objects to the use of Rule 2-651 to fashion a charging order against an interest in a corporation. He points out that Maryland Code (1975, 2014 Repl. Vol.), § 9A-504 of the Corporations and Associations Article, expressly authorizes a court to impose a charging order against partnership interests and that Rule 2-649 facilitates that authorization.

He also points out the absence of any statute that expressly authorizes a court to impose a charging order against a shareholder’s interest in a corporation. He objects to the use of Rule 2-651 to devise a species of charging order that has no explicit statutory authorization. According to Burnett, the “true function” of Rule 2-651 is “to provide relief that is supplementary or complementary to a statute authorizing it.” He seems to say that a court cannot order a form of relief under Rule 2-651 unless the relief has