R & D 2001, LLC v. Rice

WILNER, J. This appeal has its roots in a $2.9 million money judgment entered against four joint tortfeasor defendants by the Circuit Court for Loudoun County, Virginia. There is no present contest as to the validity of that judgment. Three of the defendants entered into settlement agreements with the judgment creditor, appellant R & D 2001, LLC (R & D). In an attempt to enforce the judgment against the only non-settling judgment debtor, appellee Douglas Rice, R & D filed proceedings in the Circuit Court for Howard County, Maryland, the Circuit Court for Montgomery County, Maryland, and the Circuit Court for Fairfax County, Virginia. 1 The case now resides simultaneously in this Court and the Supreme Court of Virginia.

This appeal is from a summary judgment entered in one of the two actions filed in the Montgomery County court. 2 Appellants importuned us to grant certiorari prior to proceedings in the Court of Special Appeals “for the sole purpose ⁶⁵² of facilitating the resolution of an appeal before the Supreme Court of Virginia” by certifying to that Court a question of Virginia law that was decided by the Circuit Court for Montgomery County. Indeed, accompanying their petition for certiorari was a motion to certify an attached question of Virginia law. In their brief, however, appellants have ignored that request for certification as though never made and instead insist that we decide ourselves not only the questions of Virginia law they previously wanted certified but issues of Maryland law as well. With some reluctance, we shall do so.

BACKGROUND This case concerns a group of men who, as active or passive investors in one or more limited liability companies, were in the business of developing golf courses in Virginia. Over a period of time commencing in July, 2002, R & D, a Virginia limited liability company supposedly controlled by David Gregory, invested $520,000 in another limited liability company, New Broad Run Golf LLC, which was intending to develop the Bear National Golf Course in Loudoun County, Virginia. The four principals in New Broad Run were Stanton Abrams, Timothy Kampa, Thomas Smyth, and Douglas Rice. Rice contends that Abrams and Kampa were the active participants in the project and that Smyth and Rice were merely passive investors.

After learning that additional debt existed on the project of which it had been unaware, R & D demanded the return of its investment, and, when that demand was rejected, it filed suit against Abrams, Kampa, Smyth, and Rice in the Circuit Court for Loudoun County, alleging fraud, common law conspiracy, and statutory conspiracy under Virginia Code, §§ 18.2-499 and 18.2-500. ⁶⁵³ When the defendants failed to produce court-ordered discovery, the court entered a default judgment, as to liability only, against them. In January, 2004, a trial on damages was held before a jury, which, without distinguishing among the various counts, returned a general verdict in favor of R & D and against all four defendants for $988,000. Va.Code, § 18.2-499 permits a civil recovery when two or more persons combine or concert together for the purpose of wilfully and maliciously injuring another in his trade or business. That was the statutory conspiracy pled by R & D. Section 18.2-500 permits the court to treble damages awarded under § 18.2499, and that is what occurred.

Following the jury verdict and the denial of appellees’ motions for judgment N.O.V., the court trebled the damages awarded by the jury and entered judgment against all four defendants in the amount of $2,968,398. A “Final Order” entering that judgment was signed on February 20, 2004. Rule 1.1 of the Virginia Supreme Court provides, in relevant part, that all final judgments shall remain under the control of the trial court, subject to modification, vacation, or suspension, for 21 days after the date of entry. On March 11, 2004—the twentieth day after entry of the final judgment—R & D entered into an “Accord and Satisfaction” agreement with Abrams and Kampa.

The elements of that agreement, which we shall describe in further detail later, were (1) an assignment by Abrams and a Delaware limited liability company that he controlled of interests that they had in other limited liability companies to Kampa, (2) a mutual release of contract obligations by R & D and another Delaware limited liability company (Cottages at Beacon Hill, LLC) that arose from R & D’s purchase of 10.6 acres of land adjoining the proposed golf course, (3) a joint and several promissory note by Abrams and Kampa in the amount of $175,000, payable to R & D, and (4) a Consent Order, agreed to by R & D, Abrams, and Kampa and signed by their respective counsel, that vacated the judgment entered against Abrams and Kampa and dismissed with prejudice the actions and claims against them. ⁶⁵⁴ The next day, March 12, the court signed an order suspending the judgment, apparently to allow the parties time to review the proposed Consent Order. On March 22, after a brief hearing, the court signed the Consent Order, which (1) noted that an accord and satisfaction had been reached between R & D, Abrams, and Kampa, (2) vacated the judgment against them, (3) dismissed the claims against them with prejudice, and (4) recited that the order would have no effect on either the claims or the judgment against Rice and Smyth. For whatever reason, additional suspension orders were entered on March 22 and March 29. 3 On April 12, 2004, upon expiration of the third suspension order, the judgment, as modified by the Consent Order, became final. Rice and Smyth filed an appeal to the Supreme Court of Virginia, complaining about the default judgment, certain jury instructions, and the trebling of the damages, but, in December, 2004, they dismissed their appeal.

Just prior to the dismissal, Smyth entered a settlement agreement with R & D, under which he paid $1,000,000 in exchange for a release and a promise to vacate the judgment against him. That left Rice as the only defendant not having the benefit of an individual release or satisfaction. Appellants acknowledge that, in light of Smyth’s payment, the amount of the judgment was reduced by that amount, to just under $2 million (plus accrued post-judgment interest). In August, 2005, acting pursuant to Maryland Code, § 11-802 of the Cts. & Jud.

Proc. Article, appellants filed the judgment against Rice in the Circuit Court for Howard Coun ⁶⁵⁵ ty. Alleging that Rice, a resident of that county, owned a one-third membership interest in Mid-Atlantic Golf/Norbeck, LLC (Mid-Atlantic), a Maryland limited liability company, appellants had a writ of execution issued against that membership interest and filed a motion under Maryland Rule 2-648(a) to sequester it. 4 A month later, appellants filed the action now before us in the Circuit Court for Montgomery County, in which they complained that Rice had fraudulently conveyed his interest in Mid-Atlantic to his wife and sought to set aside that transfer. The Howard County action was heard and decided first, in November, 2005.

Through counsel, Rice made clear that he was not challenging the validity of the Virginia judgment, which he acknowledged had to be given full faith and credit. Rice’s position was that (1) his interest in Mid-Atlantic had been conveyed to himself and his wife, Charlene, as tenants by the entireties, that Charlene was not a party to the Howard County case, and that the ability of the court to enter a sequestration order against either of them was questionable, (2) if appellants were contending that Rice had improperly conveyed his membership interest to his wife, that issue was fact-intensive, it could not be resolved without a trial, and it was currently pending in the Montgomery County case, (3) Mid-Atlantic was located in Montgomery County and had no ⁶⁵⁶ presence in Howard County, and (4) the Accord and Satisfaction given by petitioner in Virginia served to discharge the judgment against all defendants, including Rice, so, although the judgment was valid, nothing was owed on it. If nothing was owed, there was nothing to enforce. At the conclusion of the hearing, the court dictated an order from the bench, which was later confirmed by a written Confirmatory Order for Injunction, Sequestration, Ancillary Relief, and Order for Appointment of a Trustee.

That order, entered November 30, 2005, reflected a concern expressed by the court during the hearing over the nature of the membership interest—what it encompassed. The court understood that the real value of the membership interest lay in the property owned by Mid-Atlantic, but there was no evidence of either the identity or the value of that property. It was not clear to the court, therefore, what effect a sequestration of the membership interest would have on the property underlying it. In an attempt to enforce the judgment, to which the court was undisputedly required to give full faith and credit, and yet deal with those issues, the order had four principal provisions.

First, it appointed a trustee to receive and hold in trust for appellants Rice’s one-third membership interest in Mid-Atlantic. The trustee was to investigate and identify all property interests encompassing that membership interest and, to that end, was authorized to apply for further relief, including discovery, valuation, attachment, and garnishment. Second, the order both enjoined and required certain conduct by Rice “or any person.” Rice and the unnamed “any person[s]” were enjoined from assigning or disposing of the membership interest, and from negotiating, transferring, or disposing of any document representing or “settling out” the membership interest or property encompassing it, and they were affirmatively directed to disclose to the trustee the whereabouts of property encompassing the interest and to cooperate with the trustee in identifying such property. Third, the order afforded appellants the right to pursue “appropriate action including valuation of said property” and ⁶⁵⁷ gave Rice the right to apply for a hearing “to present any defense as to why said property or specific items thereof should not be attached or subject to further jurisdiction or control of this Court.” At any such hearing, the order continued, the court could “determine the most appropriate disposition of the said Membership Interest, if any, toward the Defendant’s obligation to pay the Foreign Judgment----” Finally, the order directed the clerk to docket the order among the judgment records, the intent being that the order would constitute a lien on the membership interest, subject to further order of the court.

It is not clear what more, if anything, has transpired in the Howard County case since that order was entered two years ago. 5 In September, 2005, while the Howard County case was pending, appellants filed in the Circuit Court for Montgomery County the action that is now before us—a petition to set aside, as an alleged fraudulent conveyance, the transfer of Rice’s one-third membership interest in Mid-Atlantic to himself and Charlene as tenants by the entireties. In contrast to the action in Howard County, they joined as defendants not only Rice, but also Charlene and Mid-Atlantic, appellees. The petition contained four unnumbered counts. The first, apparently but tacitly invoking Maryland Code, § 15-204 of the Commercial Law Article (CL), alleged that Rice conveyed his interest in Mid-Atlantic to Charlene on or prior to January 21, 2005, without fair consideration, and that the transfer left Rice insolvent and unable to satisfy the judgment against him. 6 The second, based on CL § 15-205, alleged that Rice ⁶⁵⁸ was engaged and would continue to engage in business transactions with regard to Mid-Atlantic and that the conveyance of his membership interest rendered the property remaining in his possession with regard to Mid-Atlantic insufficient as to the debt owed to appellants. 7 The third count, based on CL § 15—208(b)(2), charged that Charlene was not a member of Mid-Atlantic, that the conveyance occurred without the unanimous approval of the other members, that it was without fair consideration to Mid-Atlantic and payment of his debt to appellants, and that it rendered Rice insolvent as to appellants. 8 Finally, based on CL § 15-207, appellants charged that Rice and Charlene acted with the intent to hinder, delay, and defraud appellants as they attempted to collect the debt owed to them. 9 As relief, appellants asked that the conveyance be set aside and that the property conveyed be attached.

Although appellees raised a number of defenses in their answer, the only one pressed in an ensuing motion for partial summary judgment was accord and satisfaction. Their argument was that, by virtue of Virginia Code, § 8.01-443, the Accord and Satisfaction agreement between R & D, Abrams, ⁶⁵⁹ and Kampa served to satisfy the judgment, so that nothing more was owed on it. Appellants responded, in part, by claiming that appellees were barred by res judicata from raising that defense. The res judicata argument proceeded from the Consent Order entered by the Loudoun County court, which, as noted, specified that the order would have no effect on the claims or judgment against Rice.

When Rice dismissed his appeal to the Virginia Supreme Court, appellants said, that order became final and settled the issue of whether the judgment was discharged as to him. That argument also served as the underpinning for a cross-motion for partial summary judgment that the Virginia judgment was valid and subsisting. Although there was some argument by appellants that Rice was collaterally estopped from raising the accord and satisfaction defense based on what occurred in Howard County, the argument was somewhat fleeting, and no claim was made that res judicata applied to the Howard County decision. After hearing argument on the cross-motions, the court concluded, as a matter of law, that the accord and satisfaction entered into by R & D, Abrams, and Kampa served to satisfy in full the judgment against all four defendants and that, as a result, Rice’s liability under that judgment had been discharged.

Accordingly, it entered an order in July, 2006, granting appellees’ motion for partial summary judgment and declaring that the outstanding amount of the Loudoun Count judgment had been fully satisfied. Although the motion was labeled as one for partial summary judgment, the effect of the court’s ruling was to deny all relief to appellants, and the order entered judgment for appellees on all claims. The court confirmed that ruling in September, 2006, when it denied appellants’ motion to reconsider the ruling. In a memorandum opinion, the court held that the controlling Virginia law with respect to the effect of the accord and satisfaction was Virginia Code, § 8.01-448 and not § 8.01-35.1, as contended by appellants.

Section 8.01-35.1, the court held, applied only to pre-judgment settlements. Although recognizing that the accord and satisfaction agreement did not “pur ⁶⁶⁰ port to accept the settlement in ‘full and final satisfaction’ of the judgment” and was not intended to release Rice or Smyth, the court nonetheless held as a matter of law that it had that effect. The court also rejected appellants’ argument that appellees were collaterally estopped from raising the accord and satisfaction defense because they had not raised it in connection with the enrollment of the Virginia judgment in Howard County. As we indicated, appellants noted an appeal to the Court of Special Appeals and then asked, in a petition for certiorari, that we take the case in order to certify to the Virginia Supreme Court the question of which Virginia statute applied.

Regrettably, in light of the fact that appellants have effectively withdrawn that request, we granted the petition. DISCUSSION Appellants present two issues in their brief—whether the Montgomery County court erred (1) in applying § 8.01-443, rather than § 8.01-35.1, of the Virginia Code in concluding that the accord and satisfaction between R & D, Abrams, and Kampa served to satisfy in full the Loudoun County judgment, so as to preclude any enforcement action against Rice, and (2) in not giving preclusive effect under the doctrines of collateral estoppel, res judicata, and finality of judgment to the enrollment of the Loudoun County judgment in Howard County and the writ of execution and Confirmatory Order entered by that court. We shall deal with the second question first. Effect of Proceedings in Howard County The proceedings in the Circuit Court for Howard County fall into two categories.

First, acting pursuant to the Maryland Uniform Enforcement of Judgments Act, Maryland Code, §§ 11-801 through 11-807 of the Cts. & Jud. Proc. Article (CJP), appellants filed the judgment of the Circuit Court for Loudoun County with the Clerk of the Howard County Court, thereby giving it “the same effect and [ ] subject to the same procedures, defenses, and proceedings for reopening, vacating, staying, enforcing, or satisfying as a judgment of the court in ⁶⁶¹ which it is filed.” § 11—802(b). As we indicated in Legum v. Brown, 395 Md. 135, 142-43 , 909 A.2d 672, 676-77 (2006), those statutes, along with a 1790 Federal statute, 28 U.S.C. § 1738 , serve to implement the Constitutional requirement that each State give full faith and credit to the final judgments of its sister States.

Having so filed the Virginia judgment, appellants then sought, by various methods, to enforce it—as noted, they filed a writ of garnishment and sought to attach and sequester Rice’s interest in Mid-Atlantic. Appellants claim that both the filing of the judgment with the clerk and the Confirmatory Order entered by the Howard County Court settled the question of the validity of the Virginia judgment and thereby barred appellants from contesting it by raising an accord and satisfaction defense in Montgomery County. Appellees disagree with that position on the merits and also contend that appellants are themselves barred from even raising that issue on appeal because they failed to raise it timely in the Circuit Court. Appellees note that, when they argued the effect of the accord and satisfaction below, appellants’ only res judicata/collateral estoppel response was that appellees had failed to present that defense in the Loudoun County court when that court considered the Consent Order.

Not until they filed a motion for reconsideration of the partial summary judgment did they argue the preclusive effect of the orders entered in Howard County. Appellees contend, in other words, that appellants are barred from complaining that appellees are barred. The articulation of these defenses and responses is more complex than the answer to them. We start with the fact that the filing with the clerk of a final judgment entered by a court of record of a sister State pursuant to CJP § 11-802 is largely ministerial.

A copy of the judgment is filed with the clerk, who thereafter must treat it “in the same manner” as a judgment of his or her own court. CJP § ll-802(a)(2). The filing simply enrolls or “domesticates” the foreign judgment in the Maryland county, and allows it, subject to such defenses as may properly be raised, to be enforced in the county. As appellees made clear throughout, they never contested the ⁶⁶² validity of the Virginia judgment or asserted that Maryland should not give full faith and credit to it.

Their argument, from the beginning, has been that, because of the accord and satisfaction, the valid judgment had been satisfied and was therefore no longer enforceable. The statute recognizes a distinction between the filing of the judgment and its enforcement. Section 11-804 expressly permits the court to stay enforcement of the judgment for various reasons, including “any ground on which enforcement of a judgment of the court of this State would be stayed, ____” § ll-804(b). That distinction has also been recognized in our case law.

See Mike Smith Pontiac, GMC, Inc. v. Mercedes-Benz, 356 Md. 542, 562 , 741 A.2d 462, 472-73 (1999), where, after noting that some defenses challenge the validity of the foreign judgment while others accept the validity of the judgment and challenge only its enforcement, we concluded: “The distinction between recognition and enforcement applies in the instant case. Smith did indeed domesticate its Florida District judgment by filing under Maryland’s [Uniform Enforcement of Foreign Judgments Act]. While this Court must recognize this judgment as a valid Maryland judgment, this Court also may inquire into post-judgment defenses in order to determine the extent to which it is enforceable.” See also Guinness PLC v. Ward, 955 F.2d 875 (4th Cir.1992), as discussed in Smith Pontiac. In recognition of this distinction, which proceeds from the statute itself, it is clear that the mere filing of the Loudoun County judgment with the Clerk of the Circuit Court for Howard County does not establish the enforceability of that judgment and therefore would not bar appellees, under any notion of res judicata, collateral estoppel, or finality of judgment from challenging its enforceability by reason of a post-judgment act that would have the effect of discharging or satisfying the judgment.

We thus turn to that prong of appellants’ claim or issue preclusion argument. ⁶⁶³ The doctrine of claim preclusion, or res judicata, “bars the relitigation of a claim if there is a final judgment in a previous litigation where the parties, the subject matter and causes of action are identical or substantially identical as to issues actually litigated and as to those which could have or should have been raised in the previous litigation.” Board of Ed. v. Norville, 390 Md. 93, 106 , 887 A.2d 1029, 1037 (2005). See also Alvey v. Alvey, 225 Md. 386, 390 , 171 A.2d 92, 94 (1961) and Lizzi v. WMATA, 384 Md. 199, 206-07 , 862 A.2d 1017, 1022 (2004). The doctrine embodies three elements: (1) the parties in the present litigation are the same or in privity with the parties to the earlier litigation; (2) the claim presented in the current action is identical to that determined or that which could have been raised and determined in the prior litigation; and (3) there was a final judgment on the merits in the prior litigation. Issue preclusion, or collateral estoppel is a somewhat allied doctrine, but it looks to issues of fact or law that were actually decided in an earlier action, whether or not on the same claim.

We have articulated the doctrine thusly: “When an issue of fact or law is actually litigated and determined by a valid and final judgment, ... the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” Janes v. State, 350 Md. 284, 295 , 711 A.2d 1319, 1324 (1998); Murray International v. Graham, 315 Md. 543, 547 , 555 A.2d 502, 504 (1989). Both doctrines hinge, in part, on there having been a final judgment in the earlier litigation, and therein lies the problem with appellants’ argument. Their action in Howard County was to attach or sequester Rice’s alleged one-third interest in Mid-Atlantic and to garnish any moneys due him by reason of that interest. An attachment is implemented by a writ of execution that is levied by the sheriff against specific property of a judgment debtor.

See Maryland Rules 2-641 and 2-642. Unless the property is released from the levy, it may be sold at a public sale, and the net proceeds, to the extent of the judgment lien, will be paid to the judgment ⁶⁶⁴ creditor. A garnishment is used to attach property of the judgment debtor that is in the possession of a third party. The procedure for garnishing property, other than wages or a partnership interest subject to a charging order under Rule 2-649, is set forth in Maryland Rule 2-645.

The end result, if the judgment creditor is successful, is that any property found to belong to the debtor is turned over to the creditor. Sequestration is an ancient equitable remedy initially designed to enforce equity decrees mandating or prohibiting specific conduct. Although in some jurisdictions it apparently has been expanded to include the enforcement of money judgments as well,