Flat Iron Mac Associates v. Foley

BISHOP, Judge. The judgments from which this appeal is taken were entered on February 5,1991. A Motion for Reconsideration was filed by appellant on February 11, 1991. An appeal was filed to this Court on March 5,1991 from the judgment of February 5, 1991.

The trial court denied the motion for reconsideration on May 2, 1991 and, on May 17, 1991, a second appeal was filed from the denial of the motion for reconsideration and “any judgments which may not have been considered final until the May 2, 1991 judgments because of the motion for reconsideration.” Based on the foregoing we are satisfied that all of the judgments from which appellant intended to appeal are properly before this . Court. The judgment underlying the garnishment issues raised in this appeal was obtained by appellant Flat Iron Mac Associates (“Flat Iron”) against Maurice P. Foley (“Foley”) in the Circuit Court of the City of Norfolk, Virginia. The judgment was in the amount of $239,621.09, plus 8% annual interest, costs of $76.00 and attorney’s fees in the amount of $10,075.00.

On June 9, 1989, Flat Iron recorded the judgment in the Circuit Court for Montgomery County, ²⁸⁵ Maryland. 1 Since the recording of the judgment, Flat Iron has made valiant but unsuccessful efforts to collect. Issues Presented I. Issues as to M. Carol Jawish: A. Can a garnishee’s receipt of a debtor’s property, to which she obtains legal, but not beneficial title, constitute a fraudulent conveyance under Maryland law? B. In Maryland, does a writ of garnishment of property attach a debtor’s property in a garnishee’s hands on the date of service and his property coming into garnishee’s hands thereafter, but prior to entry of judgment? C. Should a judgment creditor be entitled to judgment for all debtor’s property in garnishee’s hands, both at the time of service and thereafter, if the judgment creditor does not specifically allege or plead that the writ also seeks the "after service” property?

D. If an allegation of “after service” property is required and not made, is it an abuse of discretion for the trial court to deny leave to allow the judgment creditor to amend its pleadings accordingly?

II

Issue as to Chevy Chase Savings Bank, F.S.B.: Should a bank be required to honor a writ of garnishment to attach all property of the debtor, when funds — which the bank is on actual notice belong to debtor — are placed in the account of another, who freely admits the funds belong to the debtor?

III

Issues as to Marriott Corporation: A. May a judgment creditor’s untimeliness in replying to a garnishee’s answer be excused when: (a) such un ²⁸⁶ timeliness is due solely to judgment creditor’s inability to contest garnishee’s answer in good faith because of garnishee’s failure to divulge information about the debtor uniquely in the garnishee’s possession; (b) a reply was filed prior to the filing of a motion for judgment by garnishee; and (c) there has been no argument of prejudice because of the untimely filing? B. Was it an abuse of discretion for the court to dismiss a writ of garnishment of property under Maryland Rule 2-645 due to an untimely reply where, prior to the filing of the reply, the garnishee filed no motion to dismiss the writ, the court did not dismiss it, and there has been no argument of prejudice because of the late filing? Statement of Facts Jawish A writ of attachment was issued, in October 1989, against Jawish, individually and d/b/a International Realty Consultants, Inc. (“IRC”). In a subsequent deposition, Jawish admitted that from approximately March 1988 until late October 1989, either she had deposited or had allowed Foley to deposit Foley’s funds into her personal checking account in the Chevy Chase Savings Bank, F.S.B.

(“Chevy Chase”). In order that the money so deposited would be available to Foley, Jawish supplied Foley with blank checks, signed by her, or blank checks on which Foley would sign Jawish’s name. From March 1988 through October 1989, more than $250,000.00 of Foley's money passed through Jawish’s account. Jawish freely admitted, in her deposition, that she permitted Foley to use the account because “[sjomeone had attached all the moneys in the one account that he had.” On December 6, 1989, Flat Iron had a second writ of garnishment served on Jawish, 2 by which it attempted to ²⁸⁷ reach all of Foley’s funds that had passed through Jawish’s account based on a fraudulent conveyance theory.

Jawish confessed to holding $141.48 of Foley’s money on the date of service, December 6, 1989, and, in addition, denied any fraudulent conveyance. Flat Iron responded by reasserting its fraudulent conveyance claim. Subsequent to the December 6th writ, an additional $40,000 of Foley’s money passed through Jawish’s account. In August 1990, Jawish was served with Flat Iron’s new complaint alleging fraudulent conveyance and in September 1990 Flat Iron filed motions for summary judgment against Jawish in both the garnishment action and fraudulent conveyance action.

Flat Iron alleged a total of $290,000.00 of Foley’s money passed through Jawish’s account from March of 1988 to August of 1990. After a hearing on February 5, 1991, the court entered judgment against Jawish in the amount of $141.48. At this hearing and without any amendment to the pleadings, Flat Iron sought to attach funds which came into Jawish’s account after December 6, 1989 but prior to the date of hearing. The court found that the only issue before it was the December 6, 1989 attachment and it denied Flat Iron’s attempt to go beyond that date.

Flat Iron’s subsequent motion for reconsideration was denied. Chevy Chase A writ of garnishment on the property of Maurice P. Foley was served on Chevy Chase on August 3, 1989. On the same day, Chevy Chase filed an answer in which it denied holding any funds in the name of Maurice P. Foley. When advised informally that the account was in Jawish’s name, Flat Iron supplied evidence to the bank’s counsel that the money in Jawish’s account belonged to Foley.

Chevy Chase, however, maintained its denial. This motivated Flat Iron to file a partial motion for summary judgment to which Chevy Chase responded with an opposition to that motion and its own motion for summary judgment. After a hear ²⁸⁸ ing on February 5,1991, Chevy Chase’s motion was granted and summary judgment entered in its favor. Marriott Flat Iron filed writs of garnishment against Marriott on August 2, 1989, for property and wages belonging to Maurice P. Foley.

In its answer, Marriott stated that Foley was not an employee and that Marriott was not holding any of his property. Flat Iron did not file timely responses to Marriott’s answer in accordance with Md.Rules 2-645(g) and 2-646(g). Flat Iron did not respond until over one year later when, on October 17, 1990, it filed a motion for partial summary judgment. Marriott filed a cross motion for judgment which was granted based on Flat Iron’s failure to comply with the rules.

I.A. Flat Iron contends that Jawish’s receipt of funds from Foley constitutes fraudulent conveyance. The appeal before us today arises from Civil Action No. 43729, a writ of garnishment action by Flat Iron against Jawish based in part on a fraudulent conveyance theory. In addition to this action, Flat Iron filed a separate suit, Civil Action No. 61121, also alleging fraudulent conveyance by Jawish. At a hearing on February 5, 1991, the trial court denied Jawish’s motion to dismiss two of the counts alleging fraudulent conspiracy and conspiracy to defraud in Civil Action No. 61121; denied Flat Iron’s request for summary judgment on those two counts; and denied Flat Iron’s request to consolidate the two civil actions because Judge Miller found that the actions did not require the same evidence.

(The trial court’s denial of summary judgment was not entered as a final judgment.) Trial for Civil Action No. 61121 is set for early 1992. In Dodson v. Temple Hill Baptist Church, 248 Md. 697, 702-03 , 238 A.2d 239 (1967), the Court of Appeals recognized that a judgment creditor, in an attachment proceeding for money, was entitled to present evidence that a debtor ²⁸⁹ had fraudulently conveyed property to a garnishee, and if so proved, the judgment creditor was entitled to collect the amount so conveyed from the garnishee even if the judgment creditor could not collect from the debtor. In the case sub judice, Judge Miller found that there were sufficient facts to let the case go to trial on fraudulent conspiracy and conspiracy to defraud counts in Civil Action No. 61121 but never made factual determinations or decided the issue of fraudulent conveyance presented in Civil Action No. 43729. We remand to the trial court, with instruction to consolidate Civil Action No. 43729 and Civil Action No. 61121, for resolution of the fraud claims.

I.B., and C. Flat Iron contends that a writ of garnishment of property attaches the debtor’s property in the garnishee’s hands on the date the writ is served and any property belonging to the debtor which comes into the garnishee’s hands thereafter, but prior to entry of judgment, even if the judgment creditor does not plead “after service” property specifically. Appellee Jawish claims that it is well-settled in Maryland that a writ of garnishment applies only to property held as of the date of service of the writ. Jawish argues this is so because Maryland Rule 2-645(j) requires that the “judgment shall be limited to the value of the property of the judgment debtor ... in the hands of the garnishee____” This argument is weak in light of the history of attachment of property in Maryland, and the plain language of the statute. We agree with Flat Iron’s contention and hold that under the principles of attachment in Maryland the trial court erred by limiting the judgment to the amount of Foley’s money in the hands of Jawish at the time the writ was served and not including property which came into Jawish’s possession after service but prior to judgment.

The statute does not specify the time frame in which the debtor’s property must come into the hands of the gar ²⁹⁰ nishee in order for the garnishee to be accountable for it under the writ. Under Md.Rule l-201(c) we look to the common law to fill in this omission. The history of attachment of property in Maryland and a thorough explanation of this law was provided by the Court of Appeals in Bedding Co. v. Warehouse Co., 146 Md. 479, 487-493 , 126 A. 902 (1924). In summary, the Court established: This early construction of the statute, that an attachment affects all property and credits of the debtor in the hands of the garnishee or which may come to his hands at any time after laying the attachment and before trial, is the settled law of this State, (citations omitted). * * * * * * [FJrom the time of the garnishment, the goods in the possession of the garnishee, or that may come into his possession prior, to the trial, are considered as in custodia legis, and the garnishee is bound to keep them safely____ It is his duty to hold them until the question of his liability is determined, as well against the defendant as against any subsequent purchaser or pledgee.

Id., at 491-492 , 126 A. 902 . The Court noted that the applicability of garnishment from the time of service until trial was a leading characteristic of the remedy of attachment in Maryland, and in large part responsible for its effectiveness. Northwestern Nat’l. Ins. v. Wetherall, 272 Md. 642, 654 , 325 A.2d 869 (1974).

Recently, this Court, in resolving the priority of claims for the debtor’s money obtained by a writ of garnishment of property under the current Md.Rule 2-645, reaffirmed that “ ‘an attachment on judgment served on a garnishee creates an inchoate lien which is binding not only on all the judgment debtor’s assets which the garnishee then has in his possession, but also on all those which come into his hands before judgment in the garnishment action.’ ” Howard County v. Allnutt, Inc., 74 Md.App. 422, 426 , 538 A.2d 321 (1988) (quoting Fico, Inc. v. Ghingher, 287 Md. ²⁹¹ 150, 161, 411 A.2d 430 (1980)). Thus, a writ of garnishment of property, as a matter of law, includes all of the debtor’s property in the hands of the garnishee and which comes into the hands of the debtor prior to trial or entry of judgment. Jawish contends that even if a writ of garnishment covers “after service” property, Flat Iron failed to raise the issue of future funds in its Reply to Jawish’s Answer to the Writ of Garnishment and also in its Motion for Summary Judgment. Jawish argues, therefore, that the issue was not before the trial court.

Jawish gives no documentary or legal support for this argument and we will not provide either for her benefit. We hold that it was not necessary for Flat Iron to plead “after service” funds, specifically, because the writ of garnishment served on Jawish directed her, individually and d/b/a International Realty Consultants, Inc., “to hold the property of the judgment Debtor named above [Maurice P. Foley] subject to further proceedings in this Court.” (Emphasis added.) In light of the law of attachment in Maryland, this language sufficiently instructed the garnishee to hold any and all of the debtor’s property of which she was possessed from the time she received the garnishment until court proceedings were held. This language in no way implies the only property that was to be held was that which was in her possession at the very moment the writ was served. Interpreting this language in the writ or the law of garnishment to permit seizure of only that property in hand at the time of service would result in waste of judicial resources.

The judgment creditor would be required to appear in court at least daily to prevent a debtor from continuing to use a particular garnishee to shield the debtor’s easily transferable assets, e.g. money, from the creditor and would be required to constantly amend his pleading every time a new asset, or even the same asset once again, came into the garnishee’s possession prior to trial or entry of judgment. The garnishee would be able to continue to aid the debtor by shielding the debtor’s ²⁹² assets with impunity, despite the court issued writ, thereby defeating the whole purpose of the writ. The purpose of attachment is to place the debtor’s property “on hold” until the court determines its proper disposition given the various legal claims to it. “[U]ntil judgment ..., the attachment serves the useful function of preventing the garnishee from prematurely disposing of any of the judgment debtor’s assets.” Fico, 287 Md. at 162 , 411 A.2d 430 . The effect of laying the attachment in the hands of the garnishee is to warn and notify her that all property of the debtor, then in or coming into her hands subsequently, is subject to the inchoate lien of the attachment by garnishment.

Bedding Co., 146 Md. at 493 , 126 A. 902 . Once served with a writ of garnishment “it is the garnishee’s duty to hold the attached assets until the entry of a judgment in the garnishment action.” Fico, 287 Md. at 162 , 411 A.2d 430 (citing Northwestern Nat’l Ins. Co. v. Wetherall, 267 Md. 378, 385 , 298 A.2d 1 (1972); Bedding Co., 146 Md. at 492 , 126 A. 902 ). Consequently, if the property possessed by the garnishee, after