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

DEBORAH S. EYLER, Judge. In a garnishment proceeding by Bragunier Masonry Contractors, Inc. (“Bragunier”), appellee, against The Catholic University of America (“The University”), appellant, the Circuit Court for Montgomery County entered judgment in favor of Bragunier and against the University for $881,136.35. The University has appealed; the questions it presents are best stated after a recitation of the pertinent facts. FACTS AND PROCEEDINGS 1 In October of 1987, the University contracted with Edward M. Crough, Inc. (“Crough, Inc.”) for it to serve as the general contractor for a dormitory construction project on the University’s campus, in Washington, D.C.

(the “North Residence ²⁸⁵ Village Project”). Crough, Inc., was a Maryland corporation with its principal place of business in Rockville, Maryland. Crough, Inc., and the University signed a written contract for the North Residence Village Project entitled “Construction Manager Agreement.” Crough, Inc. subcontracted the masonry work for the North Residence Village Project to Bragu-nier. Bragunier performed the masonry work as required but received only 90% of the agreed price from Crough, Inc. The remaining 10% ($211,742.42) owed to Bragunier was withheld by Crough, Inc. as “retainage” and was not paid, even after the project was fully completed in 1990.

In the meantime, also in the late 1980’s, some members of the University’s Department of Architecture came up with an idea that led to another building project on campus. Their idea was to renovate an abandoned gymnasium and turn it into a new home for their Department. They drew up plans for what came to be known as the “Old Gymnasium Project” and presented them to Reverend William J. Byron, S.J., then President of the University. Father Byron set about trying to raise funds for the Old Gymnasium Project.

To that end, he met with Edward M. Crough, the sole stockholder and President of Crough, Inc. Mr. Crough, an alumnus of the University, had been a past benefactor. Father Byron showed Mr. Crough the plans for the Old Gymnasium Project and suggested that he make a donation to the University to fund it; in return, the University would name the newly renovated gymnasium the “Crough Center for Architecture.” After a series of meetings, Mr. Crough considered the means by which to make such a gift to the University. He and his advisors explored an outright gift of monies, a gift in trust, and a gift paid into a joint bank account. None of these vehicles was satisfactory to Mr. Crough and to the University.

Eventually, Mr. Crough decided to make the donation as a gift in-kind from Crough, Inc.: the company would donate the construction materials and services for the Old Gymnasium Project and in that way “gift” the building to the University. ²⁸⁶ Mr. Crough communicated his decision to Father Byron. No writing memorializing the gift was made at that time, however. Thereafter, on June 3, 1988, Mr. Crough and Richard M. Johnson, Vice President, on behalf of Crough, Inc., and Father Byron and Sue D. Pervi, Vice President of Administration, on behalf of the University, executed a “Construction Manager Agreement” (“CMA”) for the Old Gymnasium Project. The CMA, which was similar to that used for the North Residence Village Project, was 45 pages long, with seven pages of attachments.

It was divided into two parts: Part “A,” “Consulting Construction Management Services Prior to Complete Construction Contracts Award,” and Part “B,” “Construction Management Services and Construction of General Condition Items During Project Construction.” In Article 6 of Part A, the construction manager’s compensation was listed as “0.” In Article 16.1-16.2 of Part B, the CMA stated that upon written option by the University to authorize services under Part B and performance of the work, the total fee for the construction manager would be $300,000. In addition, on the same basis, the University would pay the construction manager, as reimbursement for “General Condition Items,” a fee not to exceed $179,000. Finally, the construction manager was to be paid monthly, “upon receipt of Request For Payment,” a sum equal to the cost of all separate contractors’ contracts awarded and materials purchased for the construction of the Old Gymnasium Project, not to exceed $2,670,000. The total of those three figures (listed in the CMA as the “total Guaranteed Maximum Price” or “GMP”) came to $3,149,000. 2 Work on the Old Gymnasium Project got underway in 1988.

Throughout the time the project was in progress, no payment requisitions were submitted to the University by Crough, Inc., and no payments were made by the University. The absence ²⁸⁷ of demand and payment was as expected, given Mr. Crough’s representation that he was donating the work and materials for the project to the University. Nevertheless, Crough, Inc. carried on its books, as an account receivable, $3,149,000 for the Old Gymnasium Project. In October of 1989, the Old Gymnasium Project was timely completed by Crough, Inc. and was accepted by the University.

The renovated building was named the “Crough Center for Architecture,” as promised. In late 1989, at about the time the Crough Center was finished, Mr. Crough suffered a decline in his health, and his company began to experience severe financial difficulties. 3 The financial problems most likely were caused by a severe downturn in the economy, particularly in the construction and real estate sectors. Because of Mr. Crough’s health problems, the day-to-day management of Crough, Inc. was put in Mr. Johnson’s hands. When the Old Gymnasium Project had been ongoing, Mr. Johnson had prepared payment requisitions for the project and had given them to Mr. Crough to submit to the University.

However, because Mr. Crough was donating the project to the University, he did not forward the requisitions. He did not tell Mr. Johnson that, though. By February 1990, Crough, Inc. was in a dire financial crisis. On February 12, Mr. Johnson and other representatives of Crough, Inc. met with Father Byron and others from the University.

Mr. Johnson told Father Byron that Crough, Inc. was experiencing serious cash flow problems and had been unable to pay a total of $1,257,000 to several of the subcontractors that had worked on the Old Gymnasium Project. Mr. Johnson then inquired as to why payments had not been forthcoming from the University on the project. Father Byron responded that the Old Gymnasium Project had been a gift from Mr. Crough, through his company, for which the ²⁸⁸ University owed nothing. Mr. Johnson informed Father Byron that Crough, Inc.’s financial circumstance was such that it could not afford to designate the Old Gymnasium Project as a gift; in fact, the company needed approximately $2 million dollars to pay the subcontractors on the project and meet its other cash flow obligations.

Mr. Johnson asked Father Byron to have the University pay that sum. Father Byron took Mr. Johnson’s request to the Executive Committee of the University’s Board of Trustees. The Executive Committee agreed to lend Crough, Inc. $1,257,000 so it could pay the money it owed to the subcontractors on the Old Gymnasium Project. It declined the request for funds beyond that sum.

On February 28, 1990, Father Byron and Mr. Crough met privately. Mr. Crough gave Father Byron a signed letter 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.” Father Byron gave Mr. Crough several two-party checks, totaling $1,257,000, made out to Crough, Inc. and to each of the unpaid subcontractors on the Old Gymnasium Project. Mr. Crough agreed to repay the University that sum, over 12 years, with principal payments of $100,000 a year; to assign an interest he held in a limited partnership to the University, as collateral for the loan; and to revise his will to make a testamentary gift to the University of any balance due and owing on the principal sum at his death. Father Byron then presented Mr. Crough with a document entitled “Construction Manager Affidavit and Final Release of Claims and Lien Waiver,” which Mr. Crough executed on behalf of Crough, Inc. On September 25,1991, Bragunier filed in the Circuit Court for Montgomery County a breach of contract action against Crough, Inc., to recover the $211,742.42 that it had failed to pay on the masonry subcontract for the North Residence Village Project.

On December 12, 1991, the court granted summary judgment in favor of Bragunier and entered judg ²⁸⁹ ment against Crough, Inc., for the sum sought, plus $5,000 in attorney’s fees. On July 31, 1992, in an effort to enforce Bragunier’s judgment against Crough, Inc., Bragunier’s lawyer, Richard McGrory, Esquire, contacted and spoke with Mr. Johnson. Mr. McGrory learned in the course of that conversation about Mr. Crough’s in-kind gift of the Crough Center to the University, through Crough, Inc. He also learned about the Final Release of Claims and Lien Waiver that Mr. Crough had given the University, on behalf of Crough, Inc., in February 1990. At some point in time that is not disclosed in the record, Crough, Inc. became financially non-viable to the point that it ceased operating as a business.

According to the evidence, Crough, Inc. never recovered from the financial problems it began to experience in late 1989. On November 29, 1994, in its breach of contract action against Crough, Inc., Bragunier filed a request for writ of garnishment against the University. Bragunier alleged that the University was in possession of property of Crough, Inc., including funds payable to Crough, Inc., which in turn included a “debt purportedly forgiven,” in derogation of Md.Code (1975,1997 Repl.Vol., 2000 Supp.), section 15-201 et seq. of the Commercial Law Article (“CL”). The request made specific reference to Md. Rule 2-645 and CL § 15-209.

Bragunier’s theory in the garnishment proceeding against the University was that the CMA between the University and Crough, Inc. for the Old Gymnasium Project was a contract that obligated the University to pay Crough, Inc. $3,149,000; and that, to the extent that a part of that sum had not been paid, the University remained indebted to Crough, Inc. for that amount. Bragunier further theorized that Crough, Inc.’s February 1990 Final Release of Claims and Lien Waiver, by which it purported to forgive that debt, had constituted a fraudulent conveyance, under CL §§ 15-201 et seq., because Crough, Inc. had been insolvent when it was given. Therefore, under CL § 15-209, the debt forgiveness would be disregarded, for purposes of garnishment, and the balance due ²⁹⁰ on the $3,149,000 debt remained property of Crough, Inc. in the possession of the University, and subject to attachment. The University filed an answer to the request for writ of garnishment, asserting that it was not in possession of any property of Crough, Inc. The University also raised several defenses. 4 Bragunier filed a reply to the University’s answer, but not within the time required by Md. Rules 2-231 and 2-645(e).

The University moved for judgment under Md. Rule 2-645(g), which provides that, “If the garnishee files a timely answer, the matter set forth in the answer shall be treated as established for the purpose of the garnishment proceeding unless the judgment creditor files a reply contesting the answer within thirty days after its service.” Bragunier opposed the motion on the ground that the University’s answer had not been timely and that it knew, in any event, that Bragunier was disputing its claim not to be in possession of any assets of Crough, Inc. The court held a hearing on the University’s motion and denied it. About two years later, the University filed an amended answer to the request for writ of garnishment. Within thirty days thereafter, Bragunier filed a reply to the amended answer. Discovery ensued between the parties.

Eventually, the University filed a motion for summary judgment on the ground of limitations. Bragunier filed an opposition. The motion was heard and denied on October 13, 1999, which was the first day of trial. The case was tried to the court for two days, after which it was continued and eventually resumed on February 24, 2000.

The trial concluded the following day. Thereafter, the parties ²⁹¹ submitted post-trial memoranda and proposed findings of fact and conclusions of law. On June 1, 2000, the trial court issued a memorandum opinion and order setting forth its factual findings and the following conclusions of law (not in this order): 1. Because Bragunier’s request for writ of garnishment was filed within three years of Mr. McGrory’s learning, from Mr. Johnson, of the “conveyance” by Crough, Inc. to the University, the garnishment proceeding was not time-barred. 2.

The CMA for the Old Gymnasium Project was a valid contract between Crough, Inc. by which the University had obligated itself to pay $3,149,000 for the project. In addition, the University was estopped to deny the existence of such a contract because by requiring Crough, Inc., through Mr. Crough, to execute the Final Release of Claims and Lien Waiver in February 1990, the University had treated the CMA as a valid contract 3. Crough, Inc.’s insolvency in February 1990 made its forgiveness of the balance due on the CMA for the Old Gymnasium Project a fraudulent conveyance, under section 15-204 of the Commercial Law Article. 4. The District of Columbia Mechanic’s Lien Law did not operate to preclude Bragunier from requesting and obtaining a writ of garnishment against the University, in Maryland. 5.

The University was not protected from liability by virtue of its having made all payments required by it under the North Village Residence Project CMA. The circuit court awarded Bragunier $381,136.35 in damages, representing the $211,742.42 judgment and $169,393.93 in post-judgment interest. The University noted a timely appeal. We have reworded and reordered the questions it presents as follows: I. Did the circuit court err in denying its motion for summary judgment on the ground of limitations? ²⁹² II.

Did the circuit court err in concluding that the CMA for the Old Gymnasium Project was a valid and enforceable contract that created a debt on the part of the University that Crough, Inc. subsequently forgave?

III

Did the circuit court err in concluding that Maryland had in rem or quasi in rem jurisdiction over the garnishment proceeding when the property allegedly in the hands of the University and belonging to Crough, Inc. was real property situated out of state?

IV

Did the circuit court err in concluding that: 1) Bragunier’s failure to file a timely reply to the University’s answer to the request for writ of garnishment, in which it asserted that it was not in possession of property belonging to Crough, Inc., did not establish that fact? 2) Bragunier was entitled to proceed directly against the University to set aside the allegedly fraudulent conveyance? 3) Bragunier’s direct action against the University seeking to set aside the allegedly fraudulent conveyance was not barred by District of Columbia law? V. Did the circuit court err in awarding post-judgment interest? For the following reasons, we answer “Yes” to question one and reverse the judgment. We also answer “Yes” to question two.

We will exercise our discretion to briefly address the jurisdictional issue raised by the University in question three. We find it unnecessary to address the remaining questions. STANDARD OF REVIEW Md. Rule 8-131(c) provides: Action tried without a jury. When an action has been tried without a jury, the appellate court will review the case on both the law and the evidence.

It will not set aside the judgment of the trial court on the evidence unless clearly ²⁹³ erroneous, and will give due regard to the opportunity of the trial judge to judge the credibility of the witnesses. See also Hill v. Hill, 118 Md.App. 36, 40 , 701 A.2d 1170 (1997); In re Joshua David C., 116 Md.App. 580, 592 , 698 A.2d 1155 (1997). “When the trial court’s findings are supported by substantial evidence, the findings are not clearly erroneous.” Oliver v. Hays, 121 Md.App. 292, 306 , 708 A.2d 1140 (1998) (citing Ryan v. Thurston, 276 Md. 390, 392 , 347 A.2d 834 (1975); Sea Watch Stores LLC v. Council of Unit Owners, 115 Md.App. 5, 31 , 691 A.2d 750 (1997)). “The clearly erroneous standard of review ... does not apply to a trial court’s determinations of legal questions or conclusions of law based on findings of fact.” Seaboard Sur. Co. v. Boney, 135 Md.App. 99, 110 , 761 A.2d 985 (2000) (quoting Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 591 , 578 A.2d 1202 (1990)). “ ‘In such cases, we must determine whether the trial court was “legally correct.” ’ ” Id. (quoting Heat & Power Corp., 320 Md. at 592 , 578 A.2d 1202 ).

DISCUSSION As we have explained, the judgment being appealed in this case was entered on a garnishment proceeding commenced in the breach of contract action in which Bragunier had obtained a judgment against Crough, Inc. Garnishment is a remedy created and controlled by statute. A garnishment proceeding is a form of attachment in the hands of a third party that enables the judgment creditor to enforce the judgment by obtaining property of the judgment debtor in the possession of another. Parkville Fed. Sav. Bank v. Maryland Nat’l Bank, 343 Md. 412, 418 , 681 A.2d 521 (1996) (citing Paul v. Niemeyer & Linda M. Schuett, Maryland Rules Commentary, 518 (2d ed.1992)).

Once the writ of garnishment is issued and laid in the hands of the garnishee, he is bound to safely keep the assets of the debtor in his possession, together with any additional assets that come into his possession up to the time of trial. Northwestern Nat’l Ins. Co. v. William G. Wetherall, Inc., 267 Md. 378, 384 , 298 A.2d 1 (1972) (citing Messall v. Suburban Trust Co., 244 Md. 502 , 224 A.2d 419 ²⁹⁴ (1966)). In that way, the writ serves to preserve the assets of the judgment debtor by creating an “inchoate lien” that is binding and prevents the garnishee from disposing of those of the assets in his possession until such time as a judgment is entered in the garnishment proceeding.

Parkville Federal Sav. Bank, 343 Md. at 418 , 681 A.2d 521 (quoting Fico, Inc. v. Ghingher, 287 Md. 150, 159 , 411 A.2d 430 (1980) (citations omitted)). Garnishment is a statutory variety of subrogation. “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.” Fico, Inc., 287 Md. at 159 , 411 A.2d 430 (citing Northwestern Nat’l Ins. Co., 267 Md. at 384 , 298 A.2d 1 ; Messall, 244 Md. at 506 , 224 A.2d 419 ); see also Hunt Valley Masonry, Inc. v. Fred Maier Block, Inc., 108 Md.App. 100, 107 , 671 A.2d 47 (1996).

The judgment creditor is subrogated to the rights of the judgment debtor “and can recover [against the garnishee] only by the same right and to the same extent that the judgment debtor might recover.” Fico, Inc., 287 Md. at 159 , 411 A.2d 430 (citing Northwestern Nat’l Ins. Co. v. William G. Wetherall, Inc., 272 Md. 642, 650-51 , 325 A.2d 869 (1974); Myer v. Liverpool London & Globe Ins. Co., 40 Md. 595, 600 (1874)); see also Parkville Federal Sav. Bank, 343 Md. at 418 , 681 A.2d 521 (quoting Fico, Inc., 287 Md. at 159 , 411 A.2d 430 ); Odend’hal v. Devlin, 48 Md. 439, 445-46 (1878).

For this reason, in a garnishment proceeding, the rights of the plaintiff/judgment creditor against the defendant/gamishee, cannot rise above the rights of the judgment debtor: The liability of the garnishee to the attaching creditor in respect of property or credits in his hands is determined ordinarily by what his accountability to the debtor would be if the debtor were in fact suing him. If by the exercise of any preexisting bona fide contract right that accountability has been removed or lessened prior to trial, the garnishee’s liability to the attaching creditor is correspondingly affected. The Maryland cases have spelled out that garnishment ²⁹⁵ cannot have the effect of changing the nature of a contract between the garnishee and the debtor or of preventing the garnishee from performing an existing contract with a third person, all of which is to say the creditor is subrogated to the rights of the debtor and can recover only by the same right, and to the same extent, as could the debtor if he were suing the garnishee. Messall, 244 Md. at 506-07 , 224 A.2d 419 (citations omitted); see also Peninsula Ins.

Co. v. Houser, 248 Md. 714, 717 , 238 A.2d 95 (1968) (citations omitted). Although garnishment ordinarily will not have the effect of changing the nature of the rights between the defendant/judgment debtor and a person to whom he has transferred assets, there is an exception to that rule when there has been a fraudulent conveyance by the judgment debtor. Chromacolour Labs, Inc. v. Snider Bros. Prop.

Mgmt., Inc., 66 Md.App. 320, 328 , 503 A.2d 1365 (1986) (citing Odend’hal, 48 Md. 439 ). Under the Maryland Uniform Fraudulent Conveyance Act, if a conveyance is fraudulent as to a creditor whose claim has matured, “the creditor, as against any person except a purchaser for fair consideration, without knowledge of the fraud at the time of the purchase or one who has derived title immediately or immediately from such a purchaser, may ... [l]evy on or garnish the property conveyed as if the conveyance were not made.” CL § 15-209(a)(2). With those principles in mind, we shall address the issues raised by the University on appeal. I The University contends that the trial court erred in concluding that the garnishment proceeding in this case was not time-barred.

In denying the University’s motion for summary judgment on limitations, the trial court found, as a fact, that Bragunier first learned on July 31, 1992, of the fraudulent conveyance by Crough, Inc. (to wit, its forgiveness of the debt allegedly owed to it by the University); and that its cause of action against ²⁹⁶ the University accrued on that date, under the three year limitations period of Md.Code (1973, 1998 Repl.Vol., 2000 Supp.) section 5-101 of the Courts and Judicial Proceedings Article (CJ), and the “discovery rule,” as recognized by Poffenberger v. Risser, 290 Md. 631 , 431 A.2d 677 (1981). On that basis, the trial court concluded that Bragunier’s November 29, 1994 filing of the request for writ of garnishment, being within three years of July 31, 1992, was timely. We disagree with the court’s legal analysis of this issue. Neither Md. Rule 2-625 nor any portion of the Maryland Code addressing garnishment or limitations of actions provides a time limit for commencing a garnishment proceeding.

Because garnishment is in effect a statutory right of subrogation that permits the judgment creditor to stand in the shoes of the judgment debtor against the garnishee, the limitations period for commencing the garnishment must be derived from the underlying right of action that the judgment debtor could have brought against the garnishee. As we have explained, the judgment creditor can recover against the garnishee only to the extent that the judgment debtor could have done so; therefore, in the garnishment proceeding, the claim is subject to the same defenses, including the defense of limitations, that the garnishee could have raised against the judgment debtor in a direct action. In the case at bar, Bragunier sought a writ of garnishment to attach a debt it claimed was owed by the University to Crough, Inc. under the June 3, 1988 CMA for the Old Gymnasium Project. Assuming that the CMA for that project was a valid contract creating such indebtedness, and further assuming that Bragunier was able to establish, under CL § 15-209, that the February 1990 Final Release of Claims and Lien Waiver ostensibly forgiving that debt was a fraudulent conveyance by Crough, Inc. to the University, so as to allow Bragunier to attach the debt in the University’s hands, Bragunier’s rights against the University could not exceed the right that Crough, Inc. would have had to recover the debt in a direct action against the University, and would be subject to ²⁹⁷ the same defenses.

Thus, the controlling statute of limitations for purposes of the garnishment proceeding was the one that would have applied to a breach of contract action by Crough, Inc. against the