Northwestern National Insurance v. William G. Wetherall, Inc.

Smith, J., delivered the opinion of the Court. This appeal is a sequel to Northwestern N. Ins. Co. v. Wetherall, 267 Md. 378 , 298 A. 2d 1 (1972). In that case.

Northwestern National Insurance Company (Northwestern), appellant here and there, confessed an indebtedness of $20,167.00 to its judgment creditor, but said that “other attachments ha[d] been laid in its hands and others [were] claiming the amount due.” We reversed the order of the trial court in which it had refused to strike the judgment of condemnation absolute, vacated the judgment of condemnation absolute, and remanded the case to the ⁶⁴⁴ Superior Court of Baltimore City for further proceedings, saying: “Northwestern, as garnishee, should be given the opportunity of which it has until now been deprived, to show that it cannot pay over to the appellee the credits it has of the judgment debtor because there are others that have a prior or superior claim to all or a portion of these funds. If Northwestern fails at this task, then will be the appropriate time to enter a judgment of condemnation absolute.” Id. at 387 . The facts were all set forth by Judge Digges for the Court in the earlier opinion, but we shall recount some of them for a better understanding of this opinion. Appellee and cross-appellant, William G. Wetherall, Inc. (Wetherall), obtained a judgment in the Circuit Court for Montgomery County on February 11, 1970, in the amount of $15,834.38 against Bethesda Welding Service, Inc. (Bethesda).

Two days later, pursuant to the provisions of Maryland Rules 622, 623 and FI, an attachment was issued on this judgment returnable to the Superior Court of Baltimore City. It was laid in the hands of Northwestern on February 17, 1970, by service on the State Insurance Commissioner. Bethesda sued Northwestern on November 6, 1970, in the Circuit Court for Montgomery County, obtaining a judgment on February 4, 1972, in the amount of $20,167.00. Northwestern initiálly-pleaded nulla bona to the attachment.

It changed this on February 22,1972, by what it styled “Amended Plea of Garnishee and Confession of Assets” in which it “confess[ed] that it [was then] indebted to the Bethesda Welding Service in the amount of $20,167.00,” said “that other attachments ha[d] been laid in its hands and others [were] claiming the amount due to the said Bethesda Welding Service, Inc., on account of said Judgment,” and that “the time for the filing of an appeal from the judgment ... ha[d] not expired.” On February 25, 1972, Northwestern asked leave to deposit this sum of $20,167.00 into the registry of the Circuit Court for ⁶⁴⁵ Montgomery County. It did this rather than make use of the provisions of Rule G 52 b which would have permitted its “pay[ing] into [the Superior Court of Baltimore City] the money in [its] hands to be awarded to the party having a legal right thereto.” Wetherall concedes that John J. Greer and Company, Inc., laid an attachment on judgment against Bethesda in the hands of Northwestern on March 6, 1970; that federal tax liens against Bethesda were recorded in the Circuit Court for Montgomery County on June 29, 1970, and November 3, 1970; that a notice of levy on those tax liens was served upon Northwestern on February 3, 1971; and that David Kayson and Glenn O. Hall, Jr., issued an attachment on their judgment against Bethesda which was laid in the hands of Northwestern on December 14,1971. Pursuant to orders of the Circuit Court for Montgomery County, there was paid on April 3, 1972, from the fund there deposited, to Messrs. Hall and Kayson $7,343.16; to Robert L. Hillyard, attorney for Earle M. Dupee, $4,423.80; and to George A. Chadwich, the sum of $350.16. 1 On April 5, 1972, the motion of Northwestern to strike the judgment of condemnation absolute was denied.

On the same day the Superior Court of Baltimore City passed an order granting leave to Northwestern to file an interpleader proceeding in that court within 30 days with an order that Wetherall should not execute on its judgment until after the determination of the rights of all interested parties in that interpleader proceeding. So far as the record shows, Northwestern has never filed such a proceeding in that court. After denial of Northwestern’s motions for removal of the case to Montgomery County and for rehearing, an appeal was entered to this Court. The first move by Northwestern on the remand was yet another attempt to remove the case to Montgomery County, which motion was denied.

On April 11, 1973, the Circuit ⁶⁴⁶ Court for Montgomery County entered a decree of interpleader “with respect to the funds [previously] deposited by [Northwestern] in the Registry of the Court in the proceeding denominated Bethesda Welding Service, Inc., Plaintiff, v. Northwestern National Insurance Company, Defendant, law No. 31961.” On June 15, 1973, that court refused to amend its decree as prayed by Northwestern to enjoin Wetherall from proceeding in its attachment proceeding in the Superior Court of Baltimore City. The matter ultimately came on for hearing before Judge Joseph L. Carter. He determined that there were no claims on the attached funds superior to that of Wetherall. He then entered judgment of condemnation absolute in favor of Wetherall in the amount of $15,834.38.

Both parties have appealed. Northwestern claims (1) that the trial judge erred in determining that the claim of Wetherall is superior to that of, (a) the federal tax lien, (b) the attorneys for Bethesda Welding, and (c) those who have by order of the Circuit Court for Montgomery County obtained money from the funds deposited by Northwestern to satisfy their claims against Bethesda Welding; (2) that Northwestern satisfied its obligation to Bethesda and Wetherall by payment of the funds into the registry of the Circuit Court for Montgomery County and filing with that court an interpleader action; and (3) that the trial court abused its discretion in refusing to order the case removed to Montgomery County and in refusing to stay the proceedings pending a decision in the Montgomery County action. Wetherall complains that the trial judge erred in not allowing interest on its judgment up to the date of the judgment of condemnation. The latter point is the only one in which we perceive error.

I Priority of the Federal Tax Lien The federal tax lien arises under the Internal Revenue Code of 1954, § 6321. By § 6323 (a) of that code “[t]he lien imposed by section 6321 shall not be valid as against any .. . ⁶⁴⁷ judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary or his delegate.” It was that notice which was filed on June 29, 1970, and November 3, 1970, after the attachment. In the battle between the U. S. Government and its citizens relative to the priority of lien claims it has been held that the competing lien, if choate, is superior to the federal tax claim or lien. If it is inchoate, however, it is inferior to that claim or lien.

Whether the competing lien is choate is a federal question, although if by state law the lien is inchoate that determination will prevail. United States v. Pioneer American Ins. Co., 374 U. S. 84 , 83 S. Ct. 1651 , 10 L.Ed.2d 770 (1963); United States v. City of New Britain, Conn., 347 U. S. 81 , 74 S. Ct. 367 , 98 L. Ed. 520 (1954); and United States v. Security Trust & Savings Bank, 340 U. S. 47 , 71 S. Ct. 111 , 95 L. Ed. 53 (1950). See Annot., 94 A.L.R.2d 748 (1964).

The latter states by way of summary: “A lien is choate if it is specific and perfected. A lien is inchoate if it is not specific or is not perfected. A competing, nonfederal lien, to be perfected and choate, must be definite in three respects: (1) the identity of the lienor, (2) the property subject to the lien, and (3) the amount of the lien. To be choate, a lien must be definite at the critical date, and not merely ascertainable in the future by taking further steps.

On the other hand, a lien is choate, or is specific and perfected, when nothing further need be done to make the lien enforceable. “The various fictions by which a lien, when ultimately perfected, ‘relates back’ under state law to a time when some preliminary step was taken to create or enforce the lien, are not applicable in determining whether a lien was perfected and choate at the time a federal tax lien arose.” Id. at 752 . Cf. United States v. Eisinger Mill & Lumber Co., 202 Md. 613 , 98 A. 2d 81 (1953). In that case federal tax liens were ⁶⁴⁸ entered prior to mechanics’ liens, but after building commenced.

Notwithstanding the provisions of what was then Code (1951) Art. 63, § 15 granting a priority to mechanics’ liens over all liens attaching subsequent to the commencement of the building and § 23 providing for a lien though not recorded, the mechanics’ liens were held junior to the federal tax liens. (Now Code (1974) §§ 9-107 (b) and 9-105 (e), Real Property Article.) In Dugan v. Missouri Neon & Plastic Advertising Company, 472 F.2d 944 (8th Cir. 1973), the court was required to determine “the priority of a garnishment summons issued in aid of execution of a judgment as against a federal tax lien.” The court referred to the criteria specified in Pioneer and New Britian for a choate lien and said that the lien of the judgment creditor it identified as “Tubelite satisfie[d] all requirements.” It added: “First, Tubelite is clearly identified as the lienor, for it is both the judgment creditor and the garnisher. Second, as a judgment creditor, Tubelite does not have a definite interest in any specific personalty, but, as a garnisher, the property subject to the lien is all the personal property in Dugan’s possession that Dugan owes to Told Brothers. Third, the amount of the lien is Tubelite’s judgment debt imposed upon and limited to the amount that Dugan owes Told Brothers. “It could be argued that, at the time of garnishing Dugan, the existence of a debt or the exact amount of the debt (the auction proceeds) was not definite, and, therefore, the lien was not choate.

Something more, the appearance of the garnishee in court and his admitting to a debt and the amount thereof, had to be done, and consequently the lien could be said to be inchoate. We would readily agree with this argument, if this case involved a garnisher who had not obtained a judgment. However, Tubelite does have a valid judgment. The exact amount of the judgment is known and ⁶⁴⁹ definite, and any amount of a garnishment serves to satisfy that judgment pro tanto. “The purpose of the choateness doctrine is to preclude a state from announcing that certain liens can attach at some arbitrary time prior to a federal tax lien.

United States v. New Britain, supra, 347 U.S. at 86 , 74 S.Ct. 367 . Arbitrariness is not present in this case. Tubelite had been a judgment creditor before the delivering of the garnishment summons and had diligently garnisheed Dugan before the Government acted. Further, as we have said above, Tubelite, by serving the garnishment summons, did all it could have done under state law to secure a lien on intangible property.

Finally, [United States v.] Security [Trust and Savings Bank, 340 U.S. 47 , 71 S. Ct. 111 , 95 L. Ed. 53 (1950)], [United States v.] Liverpool [& London & Globe Ins. Co., 348 U.S. 215 , 75 S. Ct. 247 , 99 L. Ed. 268 (1955)], and United States v. Acri, 348 U. S. 211 , 75 S.Ct. 239 , 99 L.Ed. 264 (1955), relied on by the Government, all involved non-judgment interests. “Therefore, a garnishment summons in aid of execution of a judgment and on intangible property creates a choate lien so as to entitle that garnisher to the status of a judgment lien creditor who takes priority against a subsequently filed federal tax lien.”M at 951-52. A similar view has been taken in New York and Illinois, the New York procedure being that of serving subpoenas in supplementary proceedings to enforce a judgment, a procedure not to be confused with examination of persons other than a judgment debtor under oath permitted by our Rule 628 b. United States v. Ruby Luggage Corp., 142 F. Supp. 701 (S.D. N.Y. 1954); Davis & Warshow, Inc. v. S. Iser, Inc., 30 Misc. 2d 528 , 220 N.Y.S.2d 818 (Sup.

Ct., N.Y. Co. 1961); Ryan Ready Mixed Con. Corp. v. Tallini Const. Corp., 23 Misc. 2d 547 , 194 N.Y.S.2d 330 (Sup. Ct., Nassau Co. ⁶⁵⁰ 1959); and Marchant v. Artists Embassy, Inc., 25 Ill.App.2d 440, 446-47 , 166 N.E.2d 311 (1st Dist., 3d Div. 1960).

With that, we turn to an examination of the Maryland authorities. Rule 622 pertains to execution. Rule 622 a provides that at any time within 12 years from the date of a judgment the court in which the judgment is entered “may issue an execution or attachment.” Rule 622 h 4 states that “[a]n attachment on judgment shall be regarded as an execution within the meaning of [that rule].” In Rule 623 it is said that a plaintiff “having a judgment may, instead of any other execution, issue an attachment . .. .” (Emphasis added.) In Sharpless Separator Co. v. Brilhart, 129 Md. 82, 86 , 98 A. 484 (1916), our predecessors permitted an appeal when an attachment on a judgment was quashed, pointing out that “[i]f a fieri facias is quashed, so that property seized under it is released, there is an appeal.” They quoted from Baldwin v. Wright, 3 Gill 241 (1845), in which case the Court said: “These proceedings were taken out by Wright, on a judgment obtained by him against Baldwin, and professed to be grounded on the 7th sec. of the Act of 1715, ch. 40, which authorizes an attachment, instead of any other execution, to issue on a judgment. This process, under this Act, is considered by the terms of the Act, as an execution, and in our judgment should be governed by the same principles.” Id. at 246 .

They likewise cited Griffith v. Insurance Co., 7 Md. 102 (1854). In that case there was an appeal from the judgment of a magistrate to the Court of Common Pleas of Baltimore City. In the latter tribunal a judgment was recovered in the amount of $11.38 l/*. An attachment on the judgment was issued.

The garnishee moved for an arrest of judgment after a trial in the attachment case for the reason “that the court had not original jurisdiction therein.” Our predecessors explained that “the objection doubtless was, that the court had not power to order an attachment by way of execution upon its own judgment, because it was supposed that the ⁶⁵¹ attachment was a new or original proceeding, and the sum upon which it issued being below the jurisdiction of the court, no such action could be taken over the subject.” In holding this view not correct, the Court cited Baldwin v. Wright,