Home Indem. Co. v. Killian

• Decision Date: 01 September 1992
• Docket Number: No. 412,412
• Citation: 94 Md.App. 205,616 A.2d 906
• Parties: The HOME INDEMNITY COMPANY v. Lucille KILLIAN, Personal Representative of the Estate of Sutton Knuckles, et al. ,
• Court: Court of Special Appeals of Maryland

Page 205

94 Md.App. 205

616 A.2d 906

The HOME INDEMNITY COMPANY v. Lucille KILLIAN, Personal Representative of the Estate of

Sutton Knuckles, et al.

No. 412, Sept. Term, 1992.

Court of Special Appeals of Maryland.

Dec. 7, 1992.

Drake C. Zaharris and John F. Eckhart (Parks, Hansen & Ditch, Towson, Donald J. Gilmore and Parks, Hansen & Ditch, Westminster, on the brief), for appellant.

Harry Goldman, Jr. (William Beveridge, Jr. and Goldman & Skeen, P.A., on the brief), Baltimore, for appellees.

Argued before WILNER, C.J., and BISHOP and DAVIS, JJ.

WILNER, Chief Judge.

This case is a procedural nightmare.

In 1989, the Circuit Court for Baltimore City entered judgments in favor of appellees Killian and Balbos in the amounts of $1,800,000 and $2,000,000, respectively, as compensatory damages in asbestos-related claims. ¹ Those judgments were entered jointly and severally against a number of defendants, including Celotex Corporation. In the Killian case, an additional judgment for punitive damages was entered against three defendants, but not against Celotex. Appeals were taken from those judgments, and, in connection therewith, appellant Home Indemnity Company, on October 3, 1989, posted two supersedeas bonds on behalf of Celotex--one for $2,000,000 in the Killian case and the other for $2,300,000 in the Balbos case. In relevant part, each bond stated:

"NOW THEREFORE, the conditions of this obligation are such that if The Celotex Corporation shall prosecute its appeal to effect or if The Celotex Corporation shall satisfy the judgment against it in full, together with costs, interests and damages for delay, if for any reason the appeal is dismissed or if the judgment against The Celotex Corporation is affirmed, or if The Celotex Corporation shall satisfy in full any modification of the judgment against it and such costs, interest and damages as the Court of Special Appeals of Maryland may adjudge and award against it, then this obligation is void; otherwise, this obligation shall remain in full force and effect. This obligation shall remain in effect pending review of the case by the Maryland Court of Appeals."

The appeals were duly argued in this Court, and, on August 29, 1990, this Court filed an Opinion vacating the judgments for punitive damages but affirming the judgments for compensatory damages. One-fifth of the costs of the appeal were assessed against Killian and four-fifths were to be divided among the defendants, including Celotex. See Eagle-Picher v. Balbos, 84 Md.App. 10, 103, 578 A.2d 228 (1990). During September, 1990, motions for reconsideration were filed by one defendant (Eagle-Picher) and by the plaintiffs, thereby delaying issuance of the Court's mandate. Md.Rule 8-605(c). On September 25, 1990, the Eagle-Picher motion was granted and a footnote was added to the Opinion. That did not affect the end result.

On or about October 22, 1990, Celotex filed with the Clerk of this Court a Notice of Filing of Petition in Bankruptcy and Automatic Stay, informing the Court that on October 12, 1990, Celotex had filed a petition for protection under Title 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Middle District of Florida and that "proceedings against Celotex are automatically stayed." Attached to the Notice was an order of the Bankruptcy Court dated October 17, 1990, that, among other things, enjoined all parties, including a State, from "continuing any judicial ... proceeding involving any of the Debtors regardless of (a) who initiated the proceeding, (b) whether the matter is on appeal and a supersedeas bond has been posted by the Debtors or (c) the appellant in an appeal is one of the Debtors." That order has since been referred to as the § 105 order--a specific stay or injunction entered under § 105 of the Bankruptcy Code.

On October 30, 1990, the plaintiffs' motion for reconsideration was denied. That motion concerned the vacation of the punitive damage award and did not affect Celotex. On November 5, 1990, notwithstanding the Notice of the bankruptcy petition and the § 105 order of the Bankruptcy Court, the Clerk of this Court issued the mandate of the Court in accordance with the Opinion. The judgments against Celotex were affirmed and Celotex was assessed a share of the costs. Petitions for certiorari were filed with the Court of Appeals by Killian and five of the defendants, but not by Celotex.

On December 17, 1990, Harry Goldman, Jr., counsel for Killian and Balbos, relying on the mandate of this Court and noting that the time for seeking certiorari in the Court of Appeals had lapsed, made demand upon appellant for payment of the judgments against Celotex. As to Killian, the demand was for $1,169,574 plus additional daily interest of $259 until paid; as to Balbos, the demand was for $1,786,849 plus $411 future per diem interest. When no response was forthcoming, Killian and Balbos, on December 31, 1990, moved for judgment against appellant on the bonds.

On January 4, 1991, appellant informed Mr. Goldman that the automatic stay resulting under 11 U.S.C. § 362 upon the filing of the petition for Bankruptcy and the specific order of the Bankruptcy Court entered under 11 U.S.C. § 105 effectively stayed all action against or involving Celotex and that any attempt to collect on the bonds should be addressed to the Bankruptcy Court. Goldman responded that, in his view, the stay order was a nullity, and he therefore pressed his motions for judgment. Rather than filing any response in the Circuit Court, however, appellant and Celotex sought relief in the Bankruptcy Court. On January 16, 1991, that court directed Mr. Goldman to appear before it on January 21, 1991, to show cause why he should not be held in contempt of court for violating the automatic § 362 stay and the specific § 105 order. Goldman did not appear. On January 31, 1991, the Circuit Court, having received no response to the motions, entered judgments against appellant--$1,173,458 in favor of Killian and $1,792,720 in favor of Balbos. The next day, the Bankruptcy Court entered a contempt order against Goldman which, among other things, specifically enjoined Goldman from "taking any action whatsoever associated with collection of the proceeds of any bond posted by the Debtors or the enforcement of any claims involving bonds posted by the Debtors, including claims against Home Insurance Company for posting the bonds." (Emphasis added). This was the first order of the Bankruptcy Court that specifically forbade any attempt to collect against Home Indemnity.

Stubbornly, the parties continued to proceed only in the court that seemed to favor them, ignoring the orders and rulings of the other court. Appellant filed neither a timely appeal from the judgments entered against it nor a motion under Md.Rules 2-534 or 2-535(a) to alter, amend, or strike those judgments, and so, subject to any possible collateral attack based on their inconsistency with the orders of the Bankruptcy Court, they became final under State law on March 4, 1991. Undeterred by the orders of the Bankruptcy Court, Mr. Goldman, on March 6, requested a writ of execution against appellant's property. The writ was issued, and, on March 11, 1991, the sheriff of Baltimore County levied upon and inventoried the personal property located at appellant's office in the county. Rather than seeking formal relief in the Circuit Court, appellant frightened the sheriff by calling his attention to the Bankruptcy Court orders and moved in that court for a second order of contempt. On March 27, 1991, the Bankruptcy Court issued an order directing Goldman to appear before it on April 19 and show cause why he should not be held in contempt. The sheriff, in light of appellant's letter, postponed the scheduled execution sale, at first until May 2, 1991, and thereafter until a definitive ruling from the Bankruptcy Court.

Faced with the unwillingness of the sheriff to proceed with the sale, Balbos, through Goldman, filed a motion in the Circuit Court on March 21, 1991, to hold appellant in contempt for refusing to pay the judgments of January 31, 1991. In the motion, Mr. Goldman called attention to an order of the Bankruptcy Court fining him $200/day and enjoining him from proceeding against appellant, but he averred that he had taken an appeal from those orders, that he was entitled to a de novo review in the United States District Court, and that that court's backlog was approximately two years. Appellant ignored the motion. On May 23, 1991, the Circuit Court, through Judge Ross, entered an order confirming its earlier view that "it is beyond the jurisdiction of the bankruptcy court to stay the payment of judgments in this case by The Home Indemnity Company in a bankruptcy proceeding of a corporation other than that involving The Home Indemnity Company." The court, in the exercise of its discretion, decided not to hold appellant in contempt because it believed that the plaintiffs could proceed with execution on the judgments, but it did instruct the clerk of the Circuit Court to "refuse to accept any bonds of any kind issued by The Home Indemnity Company."

While all of this was playing out in the Circuit and Bankruptcy Courts, the Court of Appeals, on May 13, 1991, granted the petitions for certiorari that had been filed by Killian and the five defendants. On June 13, 1991, the Bankruptcy Court entered an omnibus order declaring that the supersedeas bonds posted by appellant were part of Celotex's bankruptcy estate. See Matter of Celotex Corp., 128 B.R. 478 (Bankr.M.D.Fla.1991). Digging its own heels in, the Circuit Court, on June 25, 1991, specifically commanded the sheriff of Baltimore County to proceed with the sale of appellant's personal property that had been previously levied. By order of July 2, it extended the time for the sale to October 14, 1991. Appellant and the sheriff appealed the July 2 order.

On July 19, 1991, appellant, as surety for...