Albert, Chapter 7 Trustee for the estate of Johnny v. Chesapeake Bank & Trust Company

The trustee brings this action under 11 U.S.C. § 544(b).	1
The trustee’s standing seems more directly provided for under
§ 544(a)(1). Neither party has made any challenge to standing,
and there appears no question here that standing is proper.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
LINTON PROPERTIES, LLC, et
al.,
Debtors.
____________________________
MARC E. ALBERT, CHAPTER 7
TRUSTEE,
Plaintiff,
v.
CHESAPEAKE BANK & TRUST
COMPANY,
Defendant.
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Case No. 08-00095
(Chapter 7)
(Jointly Administered)
Adversary Proceeding No.
08-10032
For publication in West’s
Bankruptcy Reporter
MEMORANDUM DECISION
The Chapter 7 Trustee, Marc E. Albert (“trustee”), commenced
this adversary proceeding to avoid garnishment liens and recover
property subject to the liens. The proceeding is moot except	1
The document below is hereby signed.
Signed: June 12, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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2
for the garnishment lien on Citibank accounts. Defendant
Chesapeake Bank and Trust Company (“Chesapeake”) filed a motion
for dismissal or summary judgment. In accordance with the
following analysis, the court will deny Chesapeake’s motion to
the extent that it asserts the trustee is barred by res judicata,
but the court will grant Chesapeake’s motion to the extent it
asserts that the trustee is contractually barred from challenging
that lien, or asserts that the lien was valid as of the
commencement of the case.
I
Facts
The material facts are not in dispute. In April 2005,
Ronald M. Linton and Nancy G. Linton (the “Lintons”) borrowed
$2,807,000 from Chesapeake. The loan was guaranteed by Linton
Properties, LLC (“Linton Properties.”) In November 2007,
Chesapeake declared the loan due and filed a complaint against
the Lintons and Linton Properties in the Circuit Court of Kent
County, Maryland. That court entered a judgment against the
Lintons for the amount owed, including Chesapeake’s attorneys’
fees.
Based upon that judgment, in mid-November, 2007, Chesapeake
served a writ of garnishment on financial institutions at which
the Lintons and Linton Properties held accounts, including
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The trustee’s complaint sought to avoid liens on accounts	2
held by both Citibank and PNC Bank. However, the PNC accounts no
longer contain funds; any recovery efforts from those accounts
are moot. Therefore, only the Citibank garnishment remains at
issue.
3
Citibank where the Lintons had bank accounts. Chesapeake, with	2
the prior permission of Citibank, served the writ on the Citibank
Service Center in San Antonio, Texas by overnight mail. Citibank
responded to the writ of garnishment by filing an answer
(Garnishee’s Confession of Assets of Property Other Than Wages)
dated November 28, 2007, reporting that it held bank accounts for
the Lintons, and containing no reservation or exception regarding
the service of the writ of garnishment.
On February 8, 2008, the Lintons and Linton Properties filed
voluntary Chapter 11 petitions. On February 27, 2008, as
debtors-in-possession, the Lintons and Linton Properties filed
complaints seeking avoidance of the garnishment because it was
executed within 90 days before the filing of the bankruptcy
petition, and because the garnishment violated the bankruptcy
case’s automatic stay. (See Adv. Proc. Nos. 08-10003; 08-10004.)
On June 11, 2008, this court approved a Stipulation and Order
that dismissed those adversary proceedings with prejudice and
that contained language (discussed later) that Chesapeake asserts
bars the trustee, as successor to the Lintons, from challenging
the liens.
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On August 7, 2008, the bankruptcy estate was converted to a
Chapter 7 proceeding. The trustee then commenced this adversary
proceeding, seeking to avoid the lien on the basis that the
garnishment is invalid because the service of the writ of
garnishment on Citibank allegedly did not conform to the
requirements of Maryland law.
II
Standard of Review
A
Motion to Dismiss
The purpose of a Fed. R. Civ. P. 12(b)(6) motion is “to test
the legal sufficiency of the complaint.” Kingman Park Civic
Ass'n v. Williams, 348 F.3d 1033, 1040 (D.C. Cir. 2003). In
deciding a motion to dismiss, although the court “must construe
the allegations and facts in the complaint in the light most
favorable to the plaintiff . . . ,” Gustave-Schmidt v. Chao, 226
F. Supp. 2d 191, 195 (D.D.C. 2002), the complaint must
nevertheless plead “enough facts to state a claim to relief that
is plausible on its face,” Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 127 S.Ct. 1955, 1974 (2007), and “the court need not
accept inferences drawn by plaintiffs if such inferences are
unsupported by the facts set out in the complaint . . .. [nor
must it] accept legal conclusions cast in the form of factual
allegations.” Kowal v. MCI Communications Corp., 16 F.3d 1271,
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1276 (D.C. Cir. 1994). In deciding a 12(b)(6) motion to dismiss,
“the Court may only consider the facts alleged in the complaint,
documents attached as exhibits or incorporated by reference in
the complaint, and matters about which the Court may take
judicial notice.” Gustave-Schmidt, 226 F. Supp. 2d at 196.
B
Summary Judgment
Summary judgment is appropriate if, assuming all reasonable
inferences favorable to the nonmoving party, there is no genuine
issue of material fact and the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex
Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The court will
not grant summary judgment “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Doe v.
U.S. Postal Service, 317 F.3d 339, 342 (D.C. Cir. 2003).
Although a finder of fact at trial is permitted to draw
inferences from the evidence, those inferences “must be
reasonably probable, and based on more than speculation.” Rogers
Corp. v. EPA, 275 F.3d 1096, 1104 (D.C. Cir. 2002) (internal
quotations and citations omitted). When the evidence allows for
contradictory inferences, summary judgment is inappropriate. Id.
(citing Londrigan v. FBI, 670 F.2d 1164, 1171 n.37 (D.C. Cir.
1981)).
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The moving party bears the burden to show that the material
facts are undisputed. See Celotex, 477 U.S. at 322. The
nonmoving party, however, may not rest on mere allegations or
denials, but must instead demonstrate the existence of specific
facts that create a genuine issue for trial. See Liberty Lobby,
477 U.S. at 256.
III
The trustee argues the garnishment liens on the Citibank
accounts can be avoided because the service of the writ of
garnishment upon which they are based did not meet the service
requirements of Maryland law. Chesapeake argues that the trustee
is precluded from challenging the validity of the writ because
(a) the Lintons and Linton Properties, as debtors in possession,
agreed not to challenge the validity of Chesapeake’s liens in the
Stipulation and Order, and the trustee is bound by that; and (b)
the Lintons and Linton Properties, as debtors in possession,
dismissed their February 27, 2008 challenges of the writs with
prejudice, pursuant to the Stipulation and Order, and the trustee
is barred by res judicata from challenging it again.
Alternatively, Chesapeake argues summary judgment should be
granted because the service of the writ was not deficient so as
to fail to establish jurisdiction.
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A
Contractual Bar
Chesapeake argues that, because the Lintons agreed in the
June 11, 2008 Stipulation and Order not to challenge Chesapeake’s
liens, the trustee is also precluded from doing so. The trustee
first argues that he is not a proper successor in interest to the
Lintons when they were acting as debtors in possession for the
Stipulation and Order. This court has already resolved that
issue, holding that the trustee is a successor in interest. See
In re Linton Properties, LLC, --- B.R. ----, 2009 WL 113460
(Bankr. D.D.C. Jan. 16, 2009) (citing Armstrong v. Norwest Bank,
Minneapolis, N.A., 964 F.2d 797, 801 (8th Cir. 1992)).
The trustee next argues that the Lintons agreed not to
challenge Chesapeake’s liens only in their capacity as
individuals, not as debtors in possession. Chesapeake argues the
Lintons were acting as debtors in possession throughout the
Stipulation and Order. This issue requires interpretation of the
language of the Stipulation and Order.
The relevant provision in the Stipulation and Order reads:
The Bank will retain its lien in the property garnished from
the following entities in the Kent County, Maryland, Case
No. 14-C-07-007298. (“Kent County Action”) Citibank,
Johnston, Lemon & Co., Inc., John Hancock Life Insurance
Company, and PNC Bank (collectively, the “Garnished Funds”)
with the same validity and priority as the lien had at the
time the Debtors’ bankruptcy cases were commenced, and the
Lintons agree not to challenge the lien of the Bank. The
Lintons and Linton Properties dismiss with prejudice the
adversary proceedings shown in the above caption.
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The reference to only “the Lintons” as agreeing “not to	3
challenge the lien of the Bank” might raise an issue as to
whether Linton Properties was still free to challenge the liens
on Linton Properties’ accounts other than grounds asserted in the
adversary proceeding that both “the Lintons and Linton
Properties” agreed to dismiss with prejudice. But it does not
raise any issue as to whether the Lintons, in both their
individual and debtor in possession capacities, were agreeing
“not to challenge the lien of the Bank.”
8
(Emphasis added.)
The Stipulation and Order reads: “[t]he Lintons and Linton
Properties dismiss with prejudice the adversary proceedings . .
.” The Lintons and Linton Properties must have been acting as
debtors in possession when they dismissed their complaints with
prejudice, because - having filed the complaints under the
authority of debtors in possession - only by that authority could
the Lintons and Linton Properties have dismissed them. Thus, the
phrase “the Lintons and Linton Properties” refers to the debtors
as debtors in possession, not just in their individual
capacities, and similarly the term “the Lintons” must include a
reference to the Lintons in that same capacity.3
Another section of the Stipulation and Dismissal reads: “the
Lintons may keep and use that Debtor-in-Possession account. . .”
Only as debtors in possession could the Lintons utilize that
account, and thus the phrase “the Lintons” must be identifying
them in their role as debtors in possession. Also, under 11
U.S.C. § 1101(1), a debtor in a chapter 11 case serves as a
debtor in possession unless displaced from that capacity by the
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In one provision, the parties agreed that “the Lintons	4
shall receive the full exemptions allowed pursuant to the
Bankruptcy Code,” and agreed that Chesapeake would release a
post-petition lien Chesapeake had been granted on the Lintons’
exempt property. (Stipulation and Consent Order, DE No. 109,
¶ 13.) That reference to “the Lintons” is limited to them in
their individual roles, and not as debtors in possession, because
exempt property is not property of the estate over which the
Lintons served as debtors in possession.
9
appointment of a trustee. A trustee had not yet been appointed
when the Stipulation and Dismissal was approved by this court.
Normally, words or phrases in a document are to be given
meaning such that they are consistently defined throughout the
document. E.g. America First Inv. Corp. v. Goland, 925 F.2d
1518, 1521 (D.C. Cir. 1991) (citing 1010 Potomac Assocs. v.
Grocery Mfrs. of America, Inc., 485 A.2d 199, 205 (D.C. 1984) and
others). Although there is one instance in the Stipulation and
Dismissal which refers to “the Lintons” in an individual
capacity, the other references to “the Lintons” not only	4
indicate, but require, that the phrase refer to them in their
capacity as debtors in possession. Most notably, other uses of
“the Lintons” in the same section and even same paragraph dealing
with the bank’s lien refer to them in their capacity as debtors
in possession. (Stipulation and Consent Order, Docket Entry
(“DE”) No. 109, ¶¶ 6-7.) The phrase “the Lintons” should be
consistently interpreted throughout that section; therefore, the
Lintons as debtors in possession agreed not to challenge the
bank’s lien.
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Nevertheless, argues the trustee, when analyzing a document,
a court must give each word and phrase in the document meaning.
Here, the trustee argues, if the phrase “the Lintons agree not to
challenge the lien of the Bank” is interpreted as an agreement by
the debtors in possession, thus precluding the trustee from
challenging the lien, then the phrase “[t]he Bank will retain its
lien . . . with the same validity and priority as the lien had at
the time the Debtors’ bankruptcy cases were commenced” (the
“validity phrase”) is rendered meaningless. In contrast, argues
the trustee, if the Lintons, only as individuals, waived their
future right to challenge the lien, then the validity phrase
clarifies that any future challenges and defenses must be based
on the validity of the lien as it was at the filing of the
bankruptcy, rather than based upon its validity as a product of
the Lintons’ agreement in the Stipulation and Order not to
challenge the lien as individuals. In essence, argues the
trustee, the Lintons were not agreeing in the Stipulation and
Order that the lien was valid, only that they would withdraw
their challenge at that time as debtors in possession and would
not challenge the lien in the future as individuals, in exchange
for other concessions in the Stipulation and Order.
The proposition that a contract must be interpreted to give
each part meaning is supported by District of Columbia law. As
stated in 1010 Potomac Assocs., 485 A.2d at 205:
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The writing must be interpreted as a whole, giving a
reasonable, lawful, and effective meaning to all its
terms. Vicki Bagley Realty, Inc. v. Laufer, 482 A.2d
359, at 366 (D.C. 1984); Davis v. Davis, 471 A.2d 1008,
1009 (D.C. 1984); Restatement (Second) of Contracts §§
202(2), 203(a) (1981).
District of Columbia decisions, however, have not discussed the
application of that principle in depth. It is thus appropriate
to examine closely the Restatement (Second) of Contracts § 203
(1981), which was relied upon in 1010 Potomac Associates and
which provides:
In the interpretation of a promise or agreement or a
term thereof, the following standards of preference are
generally applicable:
(a) an interpretation which gives a reasonable,
lawful, and effective meaning to all the terms is
preferred to an interpretation which leaves a part
unreasonable, unlawful, or of no effect;
(b) express terms are given greater weight than
course of performance, course of dealing, and usage of
trade, course of performance is given greater weight
than course of dealing or usage of trade, and course of
dealing is given greater weight than usage of trade;
(c) specific terms and exact terms are given
greater weight than general language;
(d) separately negotiated or added terms are given
greater weight than standardized terms or other terms
not separately negotiated.
(Emphasis added.) The rule applies only “generally.” As noted
in Comment b to this Restatement section, “[s]ince an agreement
is interpreted as a whole, it is assumed in the first instance
that no part of it is superfluous,” but “[e]ven agreements
tailored to particular transactions sometimes include overlapping
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or redundant or meaningless provisions.” Even if the validity
phrase would be a redundancy when “the Lintons” is read as
meaning the Lintons as debtors in possession (because the
validity phrase would state a result flowing from the Lintons’
agreement as debtors in possession not to challenge the lien),
that would be insufficient to override the natural interpretation
of the agreement as referring consistently throughout to “the
Lintons” as debtors in possession. Stating that the lien would
retain its validity and priority as of the date of commencement
of the case merely spells out a consequence of the agreement of
the debtors in possession not to challenge the lien so that the
consequence was not left in doubt. For example, not only could
the lien not be avoided as a preference, it could not be avoided
as a fraudulent transfer. This is an instance of stating a
specific outcome instead of stating a general outcome, with the
specific controlling if there was any doubt as to whether the bar
against challenging the lien did not encompass letting Chesapeake
enjoy whatever it was entitled to enforce under the lien pursuant
to nonbankruptcy law. As the Restatement (Second) of Contracts §
203(c) (1981) makes clear, the specific statement would control
if there were any doubt under the general provision that
Chesapeake would continue to enjoy the rights it had as of the
petition date. The interpretation of “the Lintons” as
encompassing the Lintons in their role as debtors in possession,
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and thus barring them in that role from challenging the lien on
any ground (which would include barring them from seeking to
avoid the lien as invalid on the petition date), does not deprive
the validity phrase of meaning. Emphasizing a specific outcome
of a prohibition (instead of only making a general statement of
the prohibition) does not deprive a provision of meaning:
emphasizing a specific consequence of a general provision is
often important to a party.
Moreover, another reason exists why the validity phrase is
not superfluous when the term “the Lintons” is interpreted as
including reference to the Lintons as debtors in possession. The
validity phrase can be read as stating that although on behalf of
the bankruptcy estate, no challenge would be made to the lien,
nevertheless in any proceeding to enforce the lien, the validity
could be challenged by any other party to the enforcement
proceeding. If the trustee is correct that the lien on Citibank
is jurisdictionally defective, then Citibank (or a creditor who
served a later writ of garnishment on Citibank) would be entitled
belatedly to raise that jurisdictional defect. In other words,
the validity phrase clarifies that the Lintons’ agreement as
debtors in possession not to challenge the lien would not serve
to validate the lien (if there was any defect in the lien) as
against the garnishee (or as against any other entities holding
liens against the garnished accounts). Thus, the validity phrase
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would have meaning and not be redundant even if the Lintons in
their role as debtors in possession were agreeing not to
challenge the lien. Accordingly, the trustee’s argument is
unpersuasive and does not establish a basis for rejecting the
only otherwise reasonable interpretation of the phrase “the
Lintons” as including, consistently throughout the contract, the
Lintons in their role of debtors in possession.
The trustee submitted the Affidavit of David Lynn, attorney
for the Lintons at the time the Stipulation and Order was drafted
and issued, to prove that the language was selected to permit a
trustee to later challenge the validity of the lien. Chesapeake
correctly argues that this affidavit should not be considered.
Extrinsic evidence is not considered in interpreting contract
language unless that language is ambiguous. See, e.g.,
Republican Nat. Committee v. Taylor, 299 F.3d 887, 891-92 (D.C.
Cir. 2002) (citing Dodek v. CF 16 Corp., 537 A.2d 1086, 1092
(D.C. 1988)). A contract is ambiguous only if it is "reasonably
susceptible of different constructions or interpretations." 1901
Wyoming Ave. Co-Op Ass'n v. Lee, 345 A.2d 456, 461 n. 7 (D.C.
1975). Here, based upon the nature and language of the section
referring to the bank’s lien, the phrase “the Lintons” refers to
their role as debtors in possession; the language is not
reasonably susceptible to different interpretations and thus is
not ambiguous. See id.; Washington Props., Inc. v. Chin, Inc.,
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760 A.2d 546, 548 (D.C. 2000) (“A contract is not ambiguous
merely because the parties dispute its meaning, nor is it
ambiguous merely because its terms are complex or ‘could have
been clearer.’”)
Nevertheless, written terms arguably ought to be construed
according to the meaning ascribed to them in the course of the
parties’ conduct and negotiations:
In considering whether a contract is ambiguous, we
examine the document on its face, giving the language
used therein its plain meaning. [Sacks v. Rothberg, 569
A.2d 150, 154 (D.C. 1990)] (citing Kass v. William
Norwitz Co., 509 F. Supp. 618, 625 (D.D.C. 1980)); 1010
Potomac Assocs. v. Grocery Mfrs. of Am., Inc., 485 A.2d
199, 205 (D.C. 1984) (citing Bolling Fed. Credit Union
v. Cumis Ins. Soc'y, Inc., 475 A.2d 382, 385 (D.C.
1984)). “Extrinsic evidence of the parties' subjective
intent may be resorted to only if the [contract] is
ambiguous.” Id. at 205-06. However, “[t]he endeavor to
ascertain what a reasonable person in the position of
the parties would have thought the words of a contract
meant applies whether the language is ambiguous or
not.” Sagalyn v. Foundation for Pres. of Historic
Georgetown, 691 A.2d 107, 112 n. 8 (D.C. 1997) (citing
1010 Potomac Assocs., 485 A.2d at 205-06). In this
context, a reasonable person is: (1) presumed to know
all the circumstances surrounding the contract's
making; and (2) bound by usages of the terms which
either party knows or has reason to know. Intercounty
Constr. Corp. v. District of Columbia, 443 A.2d 29, 32
(D.C. 1982) (citations omitted). “[T]he reasonable
person standard is applied both to the circumstances
surrounding the contract and the course of conduct of
the parties under the contract.” Id. (citing 1901
Wyoming Ave. Coop. Ass'n v. Lee, 345 A.2d 456, 461-62
(D.C. 1975)).
Akassy v. William Penn Apts. Ltd. Partnership, 891 A.2d 291, 299
(D.C. 2006). But see Capital City Mortg. Corp. v. Habana Village
Art & Forklore, Inc., 747 A.2d 564, 567 (D.C. 2000) (stating that
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only if the face of the contract itself raises an ambiguity does
a court resort to extrinsic evidence, and stating that extrinsic
evidence includes “the circumstances before and contemporaneous
with the making of the contract . . .” id. at 567 n.2 (quoting
1901 Wyoming Ave. Coop. Ass’n, 345 A.2d at 461-62)). I will not
attempt to reconcile the seeming conflict in District of Columbia
case law, and will assume that the more recent decision, Akassy,
is the correct statement of law.
But here, the trustee has offered no evidence of the
circumstances surrounding the making of the contract and the
course of conduct of the parties from which it could be
ascertained that a reasonable person in the position of the
parties would have thought the words “the Lintons” in the
agreement meant the Lintons as individuals, and not as debtors in
possession. Lynn’s affidavit does not state that he communicated
to Chesapeake the Lintons’ intention that the Lintons were
agreeing only as individuals (and not as debtors in possession)
to refrain from challenging Chesapeake’s lien. It is only his
view of what was intended, and that does not suffice to establish
an ambiguity in the written contract. As observed in Clyburn v.
1411 K Street Ltd. Partnership, 628 A.2d 1015, 1017 (D.C. 1993):
Disagreement between the parties as to the meaning of a
contract does not, ipso facto, render it ambiguous.
Sacks v. Rothberg, 569 A.2d 150, 154-55 (D.C. 1990).
“The court may not create ambiguity where none exits.”
Carey Canada, Inc. v. Columbia Cas. Co., 291
U.S.App.D.C. 284, 292, 940 F.2d 1548, 1556 (1991).
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What Lynn subjectively thought is irrelevant; it is not a
surrounding circumstance or a course of conduct, of which both
parties were aware, that would have led the parties reasonably to
conclude that the term “the Lintons” was meant to refer to the
Lintons only individually and not as debtors in possession.
In other words, in construing the contract, the court must
engage in an objective interpretation of the parties’ intention
based on what was manifested to both of them by their course of
conduct and the written agreement. “[I]ntent is properly an
objective, not subjective, issue.” Dodek v. CF 16 Corp., 537
A.2d 1086, 1093 (D.C. 1988) (citation omitted). Here, Lynn’s
affidavit is irrelevant because his affidavit does not state that
he communicated his intention to Chesapeake, and instead recites
only his subjective intention.
The trustee has proffered no admissible extrinsic evidence
of the parties’ intention. Accordingly, the court is limited to
interpreting the agreement based on the text. Because the text
itself is unambiguous, its interpretation is a question of law.
See 1010 Potomac Assocs. v. Grocery Manufacturers of America,
Inc., 485 A.2d 199, 205 n.6 (D.C. 1984). The only reasonable
interpretation of the contract is that it used the term “the
Lintons” to refer to the Lintons in their role as debtors in
possession. Accordingly, Chesapeake is entitled to summary
judgment based upon a contract of the debtors in possession that
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bars the trustee, as successor to the debtors in possession, from
challenging the lien. Recognizing, however, that this was a
close question, I will address the other grounds upon which
Chesapeake relied in seeking dismissal.
B
Res Judicata
The June 11, 2008 Stipulation and Order dismissed with
prejudice the complaints of the debtors in possession; these
complaints sought to avoid the liens. Based upon this dismissal,
Chesapeake argues the trustee is barred on grounds of res
judicata from challenging the liens because the Lintons dismissed
their action challenging the liens with prejudice.
The doctrine of res judicata encompasses issue preclusion
and claim preclusion. See Taylor v. Sturgell, --- U.S. ----, 128
S.Ct. 2161, 2171 (2008); I.A.M. Nat. Pension Fund, Ben. Plan A v.
Indus. Gear Mfg. Co., 723 F.2d 944, 946-47 (D.C. Cir. 1983).
Issue preclusion prevents a party from re-litigating an issue of
law or fact that has already actually been decided by a court of
valid jurisdiction, whereas claim preclusion prevents re-
litigation of the same claim, regardless of whether that re-
litigation would raise the same issues. Id. As such, claim
preclusion prevents litigation of issues of fact or law which
should have been raised in previous litigation, even when they
were not raised. See, e.g., Capitol Hill Group v. Pillsbury
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Winthrop Shaw Pittman, LLP (“CHG”), 574 F. Supp. 2d 143, 148
(D.D.C. 2008). “[P]reclud[ing] parties from contesting matters
that they have had a full and fair opportunity to litigate
protects their adversaries from the expense and vexation
attending multiple lawsuits, conserves judicial resources, and
fosters reliance on judicial action by minimizing the possibility
of inconsistent decisions.” Montana v. United States, 440 U.S.
147, 153-54 (1979).
The four elements considered in a motion for claim
preclusion are: (1) an identity of parties; (2) a judgment from a
court of competent jurisdiction; (3) a final judgment on the
merits; and (4) an identity of the cause of action. CHG, 574 F.
Supp. 2d at 148. In relation to the fourth element, the claims
need not be identical for res judicata to apply. Id. at 149.
“In some instances, the court in determining the identity of two
causes of action will examine whether the facts in the two cases
are the same. In other instances, the court will examine whether
the primary right asserted in the two cases is the same.” Indus.
Gear, 723 F.2d at 948 (citing Nash County Bd. of Ed. v. Biltmore
Co., 640 F.2d 484, 487-488 (4th Cir. 1981)). In this analysis, a
court must make a pragmatic determination whether the claims are
based upon the same nucleus of facts, weighing whether the claims
are related in time, space, origin, or motivation; whether they
form a convenient trial unit; and, whether their treatment as a
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20
unit conforms to parties’ expectations or business understanding
or usage. See CHG, 574 F. Supp. 2d at 149 (citations omitted).
The focus is on “the facts surrounding the transaction or
occurrence which operate to constitute the cause of action, not
the legal theory upon which a litigant relies.” Page v. United
States, 729 F.2d 818, 820 (D.C. Cir. 1984).
Here, on February 27, 2008, the debtors in possession, as
part of their Chapter 11 reorganization, filed complaints seeking
avoidance of the garnishment executed by Chesapeake because it
was executed within 90 days before the filing of the bankruptcy
petition, and because continuation of the garnishment violated
the bankruptcy’s automatic stay. (See Adv. Proc. Nos. 08-10003;
08-10004.) As part of the June 11, 2008 Stipulation and Order,
the debtors in possession dismissed those adversary proceedings
with prejudice. (Case No. 08-10032, DE No. 6, Exhibit 3, p. 4.)
After the bankruptcy estate was converted to a Chapter 7
liquidation, the trustee filed his complaint seeking to avoid the
garnishment lien, arguing inadequate service on Citibank of the
writ of garnishment.
In addressing the four elements of claim preclusion, the
first three elements have been resolved or are undisputed. In
relation to the first, although the trustee challenged whether it
was properly a successor in interest to the debtors in
possession, this court has already determined that the trustee is
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21
a successor in interest of the previous litigation. See In re
Linton Properties, LLC, --- B.R. ----, 2009 WL 113460 (Bankr.
D.D.C. January 16, 2009) (citing Armstrong v. Norwest Bank,
Minneapolis, N.A., 964 F.2d 797, 801 (8th Cir. 1992). In
relation to the second and third elements, neither party has
disputed that this is a court of competent jurisdiction, or that
the dismissal with prejudice was a final judgment on the merits.
In relation to the fourth element, the facts in this case
present a close issue, but ultimately the claims do not share the
same nucleus of facts for the purpose of res judicata.
Chesapeake is correct that both actions require analysis of the
same documents (i.e., the writs of garnishment and the affidavits
of service). However, simply because two claims arise from the
same documents does not, in itself, mean that both claims must be
brought in the same suit. See Indus. Gear, 723 F.2d at 948; see
also, U.S. Indus., Inc. v. Blake Const. Co., Inc., 765 F.2d 195,
205 n.21 (D.C. Cir. 1985) (“The fact that two claims arise under
the same contract is only one of the factors to be considered;
standing alone, of course, it will not always be sufficient to
establish a single cause of action.”) Here, although the causes
of action require analysis of the same documents, each action
requires consideration of different information in those
documents. In the prior preference and stay action, the
documents were needed to provide the date upon which they were
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22
served in relation to the bankruptcy filing. In the present
action, the filing date is immaterial, but the entity upon whom
service was made in an attempt to serve the garnishee, and
whether that service invalidates the writ, goes to the crux of
the trustee’s claim. The factual inquiries of the two claims are
distinct; the claims do not form a convenient trial unit such
that the claims should have been brought together. Cf. CHG, 574
F. Supp. 2d at 149 (the court held res judicata was applicable
where both actions relied on the same documents and involved the
same analysis); In re Silver Mill Frozen Foods, Inc., 32 B.R.
783, 786-87 (Bankr. Mich. 1983) (in discussing a related standard
of res judicata, the court held the second suit was not barred
where the facts necessary to sustain the first action could not
sustain the second.)
Furthermore, the legal bases and underlying purpose for the
claims are distinct. Suits may be identical for the purpose of
res judicata even if they are based on two different statutes
“when the two statutes afford the same right or interdict the
same wrong.” Nash County Bd. of Ed. v. Biltmore Co., 640 F.2d
484, 488-489 (4th Cir. 1981). Here, the prior preference and
stay action was based upon bankruptcy law, which prevents a
creditor from securing assets of the estate at the unfair
detriment of other creditors. The current action is based upon
Maryland law, which works to insure the proper service of
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Chesapeake characterizes the actions as having the same	5
motivation, because both actions seek to avoid the lien.
Although both actions have the same general motivation,
motivation is only one factor in the res judicata identity
analysis; motivational similarities here are outweighed by the
differences in the analysis, nature, and interests underlying the
two actions. See A.I. Credit Corp. v. Drabkin (In re Auto-Train
Corp.), 49 B.R. 605, 608, 613 (D.D.C. 1985), aff’d 800 F.2d 1153
(D.C. Cir. 1986) (where the validity challenge based on state law
did not preclude a later preference action).
23
garnishees and the presence of jurisdiction over those involved.5
These claims are based upon different laws which pursue or
protect different interests or rights. Although success on
either claim would lead to avoidance of the lien, the legal
inquiries are distinct; the claims do not form a convenient trial
unit. See CHG, 574 F. Supp. 2d at 149; Silver Mill, 32 B.R. at
787 (recognizing a lack of identity among causes of action when
they did not share the same right of the plaintiff which was
wronged by the defendant.); see also, Sheng v. Nintendo of
America, Inc., 114 F.3d 1195 (Table) (9th Cir. 1997) (under a
related res judicata standard, the court held that a copyright
and trademark infringement suit, which would have removed a lien,
did not bar a subsequent preference action which would have
avoided the same lien, because the claims were based on different
laws and the second suit required consideration of some facts not
required in the first suit, even though the court found that the
two suits arose from the same nucleus of facts.)
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24
Neither party provided case law addressing the nature of the
specific claims here - i.e. a preference and violation-of-stay
action and a challenge of the validity of the underlying
interest. In A.I. Credit Corp. v. Drabkin (In re Auto-Train
Corp.), the United States District Court for the District of
Columbia upheld the bankruptcy court’s ruling that a suit
challenging the validity of a security interest did not bar the
filing of a preference action related to payments made on that
security. 49 B.R. 605, 613 (D.D.C. 1985), aff’d 800 F.2d 1153
(D.C. Cir. 1986). In applying the res judicata test set forth
above, the District Court differentiated the two causes of action
because they did not form a convenient trial unit where (1) the
subject matter and nature of the relief sought were dissimilar;
(2) the preference action required a thorough analysis of the
nature of the transfers, value of the collateral, and evaluation
of the claims of competing creditors, while the validity action
was a straightforward question; and, (3) the trustee was forced
to challenge the validity quickly in order to protect his right
to do so, while the Bankruptcy Code provides a more complete
proceeding for preference actions. Id. Here, the preference
action preceded the validity challenge. However, many of the
same considerations exist here. First, the claims are based upon
distinct factual and legal subject matter. Second, whereas the
preference action was straightforward and raised early in the
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The situation here is different from one where, in ruling	6
on the initial action, the court makes a determination as to
validity, so that the issue is resolved and res judicata
precludes further litigation. See In re Asheboro Precision
Plastics, Inc., 2005 WL 1287743, *6 n.4 (Bankr. M.D.N.C. March 1,
2005) (“[I]f the issue of the validity of a lien is actually
litigated by consent of the parties and the court within the
context of a motion to lift the automatic stay then an
adjudication on the merits might be res judicata in subsequent
litigation.”); see also In re Midway Airlines, Inc., 167 B.R.
880, 883 (Bankr. N.D. Ill. 1994) (res judicata does not bar a
validity challenge based upon a previous hearing on a motion to
lift the automatic stay). Here, as previously discussed, the
validity of the lien was not addressed by the court, nor did the
parties resolve the issue in the Stipulation and Order.
25
Chapter 11 reorganization in a pressed effort to free up funds
for that reorganization, the validity challenge is a more
complicated matter of state law and is being raised during the
Chapter 7 liquidation, when the trustee has more time to fully
explore available claims. These factors indicate the claims do
not form a convenient trial unit. See id.6
Chesapeake further argues that the validity challenge being
brought at the same time as the preference action “would have
conformed to the parties’ expectations and preserved judicial
resources.” (DE No. 17, p. 5) (emphasis removed). With respect
to parties’ expectations, there is no evidence that the parties
expected that the dismissal with prejudice of the preference
action would itself preclude the pursuit of a challenge to the
validity of the lien. (It is a much closer question, discussed
previously, whether other language in the Stipulation and Order
was intended contractually to bar pursuit of a challenge to the
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The trustee also asserts that the service, made to a	7
Texas address, does not meet the requirements of the “Texas Rules
of Practice,” pursuant to Maryland Rule 2-121(a) (“Service
outside of the State may also be made in the manner prescribed by
the court or prescribed by the foreign jurisdiction if reasonably
calculated to give actual notice.”). (Complaint, p. 6.) The
trustee does not cite to which specific provisions of the Texas
Civil Practice and Remedies Code or other Texas statute it
refers. (See id.) However, because Chesapeake’s service under
the Maryland Rules was sufficient for jurisdictional purposes,
arguments relating to Texas requirements are moot.
26
validity of the lien.) With respect to the preservation of
judicial resources, the two claims rest on different facts and
law; hearing the two claims together would still require a full
review of both sets of facts and law. Although Chesapeake might
have preferred to resolve any disputes concerning the lien in one
suit, res judicata does not bar a validity challenge under these
facts.
C
Service Issue
The trustee seeks to avoid the lien, arguing the writs of
garnishment were not properly served on Citibank, and thus
personal jurisdiction was never established. The trustee argues
service was inadequate because (1) Chesapeake did not first
attempt to serve the resident agent, president, secretary, or
treasurer, pursuant to Maryland Rule 2-124(d); (2) the writ was
not sent by certified mail, pursuant to Maryland Rule 2-
121(a)(3); and (3) the writ was not sent restricted delivery,
pursuant to Maryland Rule 2-121(a)(3). (Id.)7
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27
The relevant facts and law are as follows. Maryland Rule 2-
124(d) reads:
Service is made upon a corporation, incorporated
association, or joint stock company by serving its resident
agent, president, secretary, or treasurer. If the
corporation, incorporated association, or joint stock
company has no resident agent or if a good faith attempt to
serve the resident agent, president, secretary, or treasurer
has failed, service may be made by serving the manager, any
director, vice president, assistant secretary, assistant
treasurer, or other person expressly or impliedly authorized
to receive service of process.
Maryland Rule 2-121(a) reads:
Service of process may be made within this State or, when
authorized by the law of this State, outside of this State .
. . (3) by mailing to the person to be served a copy of the
summons, complaint, and all other papers filed with it by
certified mail requesting: “Restricted Delivery--show to
whom, date, address of delivery.” Service by certified mail
under this Rule is complete upon delivery.
Instead of serving, or attempting to serve, the resident
agent, president, secretary, or treasurer of Citibank via
certified mail with restricted delivery, Chesapeake contacted
Citibank and Citibank agreed to service at the Citibank Service
Center in San Antonio, Texas via overnight mail. Chesapeake
served Citibank in that manner. Citibank filed an answer to the
writ which did not raise any challenges to the service of the
writ.
Here, the parties do not dispute that the service afforded
Citibank deviated from the service method set forth in the
Maryland Rules - because service was not made first on Citibank’s
resident agent, president, secretary, or treasurer, pursuant to
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28
Rule 2-124(d), and service was not sent certified mail and
restricted delivery, pursuant to Rule 2-121(a)(3). “It is an
elementary principle that no valid proceeding can be had against
a person until he has been notified of the proceeding by proper
summons, unless he voluntarily waives such constitutional right.”
Harvey v. Slacum, 29 A.2d 276, 278 (Md. 1942) (emphasis added);
accord, Lohman v. Lohman, 626 A.2d 384, 392 (Md. 1993) (defective
service, unless waived, is a jurisdictional defect, and that
defect is not cured by actual knowledge of the proceedings).
Of relevance here are two of the ways under Maryland law for
a party to waive service of process in conformance with the
Maryland Rules. First, a party is free to waive the right to
insist on such service by agreeing in advance to a different
method of service:
a corporation may assign the task of accepting process and
may establish procedures for insuring that the papers are
directed to those ultimately responsible for defending its
interests. A process server may, of course, always serve
the corporate personnel specifically identified in the
statute. The corporation however cannot escape the
consequences of establishing alternative procedures which it
may prefer. In such a case the process server cannot be
expected to know the corporation's internal practices.
Reliance may be based on the corporate employees to identify
the proper person to accept service. In such circumstances,
if service is made in a manner which, objectively viewed, is
calculated to give the corporation fair notice, the service
should be sustained.
Academy of Irm v. LVI Env. Servs. Inc., 687 A.2d 669, 675-76 (Md.
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The trustee argues Academy of Irm only stands for the	8
proposition that where an authorized agent signs for restricted-
delivery mail on behalf of an executive of a large organization,
rather than the executive personally receiving and signing for
that mail, service is proper under Maryland Rule 2-124(d). (DE
No. 15, pp. 12-13.) The trustee correctly states the narrow
holding of Academy of Irm. However, that holding rests on a
rationale found in case law discussed and favorably cited by the
Court of Appeals that supports a much broader flexibility
concerning service on large organizations, and supports the
manner of service agreed to here. See 687 A.2d at 675-76. Even
assuming (without deciding) that the rationale was not a part of
the holding, the trustee fails to articulate a reason why the
Court of Appeals would deviate from that rationale in the
circumstances of this case.
29
1997) (citing Fashion Page, Ltd. v. Zurich Ins. Co., 406 N.E.2d	8
747, 749 (N.Y. 1980)). Second, even absent an agreement to the
alternative method of service, a party is free to waive the right
to assert the defense of improper service by not raising it in
its answer. See, e.g., Williams v. Williams, 501 A.2d 432, 435
(Md. 1985) (defense as to form of process waived by failure to
plead the defense).
Maryland law does not alter these rules in the case of
garnishments. In First Nat. Bank v. Equitable Life Assur. Soc.
of U.S., 145 A. 779, 780 (Md. 1929), the court recognized that by
pleading without alleging lack of proper service, a garnishee had
“waived any defects of service or summons.” (Citations omitted.)
The court in First National Bank recognized that the garnishee,
by having pled, had not waived its right to file a motion to
quash; however, the defense raised by the garnishee addressed by
the Court of Appeals was based upon the death of one of the
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30
judgment-debtors, not on a defect in service of the writ. 145 A.
at 780.
The principle established by First National Bank that a
garnishee may waive a defect in the service of the writ is
confirmed as well by Cromwell v. Royal Canadian Ins. Co., 49 Md.
366, 1878 WL 4705 (1878), and Thompson v. Central Metal & Supply
Co., 148 A. 231, 232 (Md. 1930), which stand for the broader
principle that a garnishee (like a litigant in other litigation)
may waive a procedural requirement designed for the garnishee’s
protection, and not for the protection of another party or
intended to limit the class of cases a court may hear. In
Cromwell, the garnishee neither resided in nor did business in
Maryland, and as the garnishment statute was written, this
deprived the court of subject matter jurisdiction. The court
distinguished between statutory provisions going to jurisdiction
over the person versus jurisdiction over the subject matter, and
held that the statutory limitations there involved the class of
garnishment suits that the Maryland courts could then hear, and
constituted “not a grant of a privilege or immunity from suit, to
parties otherwise liable to be sued in the courts of the State,
and subject to their jurisdiction, but the grant of a restricted
and limited jurisdiction to the courts themselves over certain
suits against foreign corporations not otherwise compelled to
submit to the jurisdiction of any court of the State.” Id., 1878
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31
WL 4705, at *5 (italics in original). Accordingly, the
garnishee’s answer was ineffective to waive the defect as it went
to subject matter jurisdiction. The Court of Appeals
distinguished that circumstance from provisions that constitute a
“privilege or exemption” of the party served “which a party
cannot avail himself of after the time allowed for dilatory
pleas.” Id. (citing Ockerme v. Gittings, 35 Md. 169 (1872)
(statutory provision that no person shall be sued out of the
county of his residence waived by failure to plead)). That
latter passage in Cromwell was applied in Thompson to bar
invocation of such a “privilege or exemption” of the party served
in a garnishment proceeding when not timely pled. See Thompson,
148 A. at 232.
The Maryland Rules regarding service of a writ of
garnishment on the garnishee are designed for the protection of
the garnishee, not as a restriction on the category of cases the
court may hear, or for protection of the judgment debtor.
Accordingly, Citibank was free to waive the defense of lack of
proper service.
Despite First National Bank, Cromwell, and Thompson, the
trustee argues that Cole v. Randall Park Holding Co., 95 A.2d 273
(Md. 1953), announces a rule under which a garnishee may not
waive a defect in service of the writ. The court in Cole stated
that:
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The other Maryland decisions upon which the trustee	9
relies are distinguishable because the garnishee did not waive
the jurisdictional defense of lack of proper service. See Sheehy
v. Sheehy, 242 A.2d 153, 155-56 (Md. 1968) (a deputy sheriff
rendered service by going to the wrong street address and wrong
apartment number; asking if the person was “Mr. Sheehy” without
verifying the first name; and, when the unidentified voice
answered “yes” without opening the apartment door, the deputy
sheriff read the subpoena and left a copy outside the door);
Gordon, Feinblatt, Rothman, Hoffberger & Hollander v. Gerhold,
600 A.2d 1194, 1203 (Md. Ct. Spec. App. 1992) (secretary was not
authorized to accept service on the garnishee’s behalf); Guen v.
Guen, 381 A.2d 721, 723, 726 (Md. Ct. Spec. App. 1978) (no real
evidence of the service and the return of service was not signed
by the individual); Brown v. American Insts. for Research, 487 F.
Supp. 2d 613, 614 (D. Md. 2007) (each attempt at service was
invalid based upon various shortcomings).
32
Maryland early chose to follow a rule to which it has
steadily adhered that pleading by a garnishee in an
attachment does not necessarily nor always amount to a
manifestation of consent to jurisdiction, and that a
motion to quash on fundamental or jurisdictional
grounds can be filed either by the garnishee or by the
defendant, after pleas by the garnishee. [Citing, among
other decisions, Cromwell and First National Bank.]
Cole, 95 A.2d at 278. But like Cromwell, Cole is illustrative	9
that waiver is unavailable when the service requirement deals
with a limit on the class of garnishment cases the court may
hear. In Cole, as in Cromwell, the garnishee neither resided in
nor did business in Maryland; the court held that the garnishee
was not subject to suit in Maryland. Id. at 279. Therefore, the
debtor was permitted to challenge the service of the garnishee on
the grounds that the court lacked jurisdiction over the
garnishee. Id. at 279-80. Here, there is no dispute that
Citibank has a presence in Maryland, and that the Maryland court
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The trustee does not contend that the Lintons were not	10
themselves served with process in the garnishment proceeding in
accordance with the Maryland Rules, and thus we are not dealing
with Citibank’s answer as being ineffective to eliminate any
defect in service on the Lintons as impacting the validity of
Chesapeake’s liens.
33
could exercise subject matter jurisdiction over the writ against
Citibank.
The court in Cole gave no suggestion that it was attempting
to overrule First National Bank and Cromwell and, moreover,
proceeded to discuss those decisions at length as supporting its
view. See 95 A.2d at 280. Its holding, limited to the issue of
a foreign corporation being sued in Maryland (a question, as it
emphasized, see id. at 279, of subject matter jurisdiction over
the res), did not deal with the issue of a garnishee’s waiving
the requirement of service in the manner specified by the
Maryland Rules (a question of jurisdiction over the person). The
trustee has pointed to no decision suggesting that the manner of
service specified by the Maryland Rules for making service on
Citibank could be viewed as not a “privilege or exemption” (as
discussed in Cromwell) of Citibank that Citibank could therefore
waive. Accordingly, unless the trustee has raised a genuine	10
dispute as to the facts upon which Chesapeake relies, Citibank
waived the defense of lack of service as specified by the
Maryland Rules both (1) by agreeing in advance to the manner of
service of Chesapeake’s writ, and (2) by filing an answer that
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34
did not raise any defense regarding service.
The facts are not in genuine dispute. As to the first basis
for finding a waiver, the trustee argues that “[o]n the record
before this Court, [Chesapeake]’s unsupported assertion that PNC
and Citibank consented to service that did not comply with the
Maryland Rules is insufficient to support its motion to dismiss
or in the alternative to grant summary judgment in its favor.”
(DE No. 15, p. 13) (emphasis added). However, the trustee
conceded in response to Chesapeake’s statement of material facts
not in genuine dispute that Citibank “agreed to the manner of
service” of the writ on it, and as noted in the complaint, the
affidavit of service of the writ stated that the writ was sent to
Citibank via “overnight mail with Garnishee’s permission” at the
San Antonio address. The trustee seems only to be saying that
Chesapeake did not file an affidavit from the Citibank
representative who was contacted to prove consent was given, but
that does not suffice to disprove Chesapeake’s own proof (the
return of service) that consent was given. Moreover, “a proper
return is prima facie evidence of valid service of process and a
simple denial of service by the defendant is not sufficient to
rebut the presumption arising from such a return.” Sheehy v.
Sheey, 242 A.2d 153, 155 (Md. 1968) (citation omitted). The
trustee has provided no factual grounds to challenge the
existence of consent; his assertion raises no genuine issue of
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35
fact. See Liberty Lobby, 477 U.S. at 256 (the nonmoving party
may not rest on mere allegations or denials, but must instead
demonstrate the existence of specific facts that create a genuine
issue for trial.)
As to the second basis for finding waiver, the trustee does
not dispute that Citibank answered the writ without raising a
defense of improper service. Accordingly, both grounds of waiver
are supported by the facts.
Based on both an affirmative consent to the mode of service
and the failure to raise a defect in service in its answer to the
writ, Citibank waived any defense of lack of service as
prescribed by the Maryland Rules. The trustee as a hypothetical
judgment lien creditor under 11 U.S.C. § 544, executing on
Citibank on the petition date, would have been confronted with a
prior writ on Citibank as to which Citibank had already waived
the defect in service. The lack of service as specified by the
Maryland Rules no longer being an issue, as of the petition date,
affecting the validity and effectiveness of Chesapeake’s
garnishment lien against the Citibank accounts, the trustee as a
hypothetical judgment lien creditor could not defeat Chesapeake’s
lien. See Pennsylvania Capital Bank v. Glosser (In re Allen),
228 B.R. 115, 128-29 (Bankr. W.D. Pa. 1998) (holding, in a
trustee’s avoidance action, that garnishment lien became
perfected, despite improper service, on the date that the
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36	O:\TEEL\Race\Memo - dismiss or sum judge - adv proc - Linton - Trustee v Bankv5.wpd
garnishee waived the defense of improper service).
IV
Conclusion
Based upon the preceding analysis, a judgment will follow,
granting Chesapeake’s motion to dismiss as it pertains to a
contractual bar and, in the alternative, its motion for summary
judgment as it pertains to the sufficiency of service of the writ
of garnishment.
[Signed and dated above.]
Copies to:
All parties and counsel of record; Office of United States
Trustee.
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