In re Broyles, Bankruptcy No. 92-1-0120-SD

• Decision Date: 28 October 1993
• Docket Number: Bankruptcy No. 92-1-0120-SD,92-1-2366-SD.
• Parties: In re G. David BROYLES, Emily E. Broyles, Debtors. CITIZENS BANK OF MARYLAND, Movant, v. G. David BROYLES, et al., Respondents.
• Court: U.S. Bankruptcy Court — District of Maryland

161 B.R. 149 (1993)

In re G. David BROYLES, Emily E. Broyles, Debtors CITIZENS BANK OF MARYLAND, Movant, v. G. David BROYLES, et al., Respondents.

Bankruptcy Nos. 92-1-0120-SD, 92-1-2366-SD.

United States Bankruptcy Court, D. Maryland.

October 28, 1993.

James J. Fitzgibbons, Silver Spring, MD, for debtor.

Roger Schlossberg, Schlossberg & Associates, Hagerstown, MD, Chapter 7 Trustee.

John C. Simcox, C. Edward Hartman, III, Hartman and Crain, Annapolis, MD, for Citizens Bank of Maryland.

OPINION ON EFFECT OF CONFESSED JUDGMENTS

E. STEPHEN DERBY, Bankruptcy Judge.

The determinative issue raised by this motion for relief from stay is whether movant, Citizens Bank of Maryland, holds a judgment lien on real estate owned by Debtors on their respective bankruptcy petition dates. Debtors are husband and wife who filed separately and consolidated their cases. Citizens Bank claims a lien in its favor arose from prepetition confessed judgments that Citizens recorded in Worcester County, Maryland. The oppositions of the Chapter 7 Trustee and Debtors raise subtle questions involving the law of confessed judgments in Maryland. The material facts are not in dispute.

I. Facts.

On March 22, 1991 Citizens Bank obtained confessed judgments against Debtors in the Circuit Court for Prince George's County, Maryland in the amount of $859,928.88, including attorneys fees, based on their guarantees of certain corporate debts. Citizens Bank recorded the confessed judgments in the Circuit Court for Worcester County, Maryland on or before April 11, 1991. Debtors owned, as tenants by the entirety, a condominium unit in Ocean City, which is located in Worcester County. The amount of the confessed judgments concededly exceeds the value of Debtors' condominium unit. After the confessed judgments were recorded in Worcester County, Debtors were served on April 29, 1991 with notices of the entry of judgments by confession, as required by Maryland Rule 2-611(b).

By timely motion, Debtors moved to vacate the confessed judgments pursuant to Maryland Rule 2-611(c). The Circuit Court for Prince George's County denied Debtors' motion to vacate, and Debtors appealed. On April 10, 1992 the Court of Special Appeals of Maryland entered its opinion reversing and remanding. EMI Excavation, Inc., et al. v. Citizens Bank of Maryland, 91 Md.App. 340, 604 A.2d 518 (1992).

On remand, the Circuit Court for Prince George's County, entered the following order on November 12, 1992, dated November 4, 1992.

ORDERED, that the confessed judgments entered against the Defendants herein be, and hereby are opened so that there can be a hearing on the merits of the Plaintiff\'s claims and the Defendants\' defenses. (Emphasis supplied.)

During the pendency of the appeal, Debtors had filed petitions for relief under Chapter 7 of the Bankruptcy Code. G. David Broyles filed a petition on January 7, 1992, and Emily E. Broyles filed a petition on April 20, 1992. The two cases were substantively consolidated in August, 1992.

Citizens Bank has moved for relief from stay to allow it to proceed with the hearing on its confessed judgment action against Debtors. The Trustee and the Debtors oppose on the grounds that Citizens Bank no longer has a judgment lien that it could enforce, and reinstitution of a judgment lien post-petition would constitute a post-petition transfer avoidable under 11 U.S.C. § 549.

II. Law and Conclusions.

When a money judgment is indexed and recorded in Maryland, it constitutes a lien in the judgment amount, from the date of entry, on the judgment debtor's interests in land located in the county in which the judgment is rendered. Md.Cts. & Jud.Pro. Code Ann. § 11-402(b) (1989 Repl.Vol.); Md. Rule 2-621(a) (1993). If an agreement between the creditor and debtor has authorized it, a judgment by confession may be entered by the circuit court clerk upon the filing of a complaint. Md. Rule 2-611(a) (1993). The clerk is required to issue notice to the defendant promptly of the deadline for the defendant to move to open, modify or vacate the judgment. Id. at Rule 2-611(b). Maryland's confessed judgment procedures have survived constitutional challenge. Billingsby v. Lincoln National Bank, 271 Md. 683, 320 A.2d 34 (1974); Meyer v. Gyro Transportation Systems, 263 Md. 518, 283 A.2d 608 (1971). "A judgment by confession possesses all the incidents, . . . and is entitled to the same faith and credit, as any other judgment." Keiner v. Commerce Trust Co., 154 Md. 366, 370, 141 A. 121, 122 (1927). A money judgment from one county may be recorded and indexed in another county, and it will constitute a lien on defendant's interests in land located in such other county from the date of recording. Md. Rules 2-621(b), 2-623(a) (1993). Therefore, when Citizens Bank recorded its confessed judgments in Worcester County in April, 1991, it obtained a judgment lien on Debtors' Ocean City condominium as of the date of recording, subject to Debtors' right to move to open, modify or vacate the underlying confessed judgments.

Citizens Bank's entitlement to relief from stay depends upon whether its confessed judgment lien was lost or whether it continued unaffected when the Circuit Court for Prince George's County opened the judgments on remand to permit a hearing on the merits. Upon a defendant's timely motion to open, modify or vacate a confessed judgment,

If the court finds that there is a substantial and sufficient basis for an actual controversy as to the merits of the action, the court shall order the judgment by confession opened, modified, or vacated and permit the defendant to file a responsive pleading.

Md. Rule 2-611(d) (1993). (Emphasis supplied.)

The predicate for the existence of a judgment lien is a judgment. Md.Cts. & Jud.Pro.Code Ann. § 11-402(b). Consequently, when a confessed judgment is vacated, the judgment lien is dissolved; any levy thereon is released; and the case proceeds just as any other civil action. Niemeyer, Maryland Rules Commentary, 466-67 (2nd ed., 1992). Citizens Bank argues that the effect of opening a confessed judgment, as contrasted to vacating it, is not to dissolve the judgment lien, but to preserve it pending the hearing on the merits. The Trustee and the Debtors contend that the effect of opening a confessed judgment is to dissolve the judgment lien, unless express language is included in the court's order to continue the lien.

The Debtors and the Trustee rely on Maryland law to argue that just as vacating a judgment destroys both it and its dependent liens, opening a judgment also terminates a judgment lien, subject to the court's right to continue a lien while hearing defenses. The Circuit Court for Prince George's County did not include language in its order to continue the judgment lien when it opened the confessed judgment. Therefore, respondents contend that the confessed judgment lien terminated, and was not continued.

Maryland case law recognizes that when a motion to strike a confessed judgment is granted to allow the defendant to plead, it is within the trial court's discretion whether to continue a judgment lien. In Silverberg v. Dearholt, 180 Md. 38, 40, 41, 22 A.2d 588, 589 (1941), on defendant's motion,

. . . the court struck out the confessed judgment, with leave to the defendant to plead within fifteen days. The court did not retain the lien.

* * * * * *

The appellant contended that the lower court should have retained the lien. That contention has no force, because that also was a question entirely within the court\'s discretion.

Accord, Commercial Savings Bank v. Quall, 156 Md. 16, 18, 142 A. 488 (1928) (Defendant appealed after the trial court had granted defendant's motion to set aside a confessed judgment on the condition that defendant post a bond, and the Court of Appeals affirmed because "in thus striking out or opening a judgment, a court of law . . . has power to surround the relief with precautionary conditions."); Keiner v. Commerce Trust Co., supra, 154 Md. at 377, 141 A. 121 (". . . it is within the power of the trial court to impose such terms or conditions upon its act in striking out the confessed judgment to hear defenses as may be proper and necessary to protect the rights of the parties.") from addendum omitted in 141 A. 121

Case law recognizes that judgment liens also may be allowed to stand when judgments have been opened. In Williams v. Johnson, 261 Md. 463, 468, 276 A.2d 95, 98 (1971) the court reversed a judgment absolute and held that "the confessed judgment should have been opened and these questions decided at a trial on the merits." To implement this holding, the court ordered the "confessed judgment . . . opened for further proceedings but to continue as a valid judgment unless vacated." Id. at 469, 276 A.2d 95. (Emphasis supplied.)

The Maryland Court of Appeals has approved specific language that continued a confessed judgment while defenses were heard. The following language of the trial court's order on a motion to strike a confessed judgment was affirmed in Automobile Brokerage Corp. v. Myer, 154 Md. 1, 5, 139 A. 539, 540 (1927).

Ordered that the judgment be opened for the purpose of the trial of this case, and that said judgment shall meanwhile continue as a valid and subsisting judgment, unaffected by the motion of the defendant that the same be stricken out, and by the trial of the case, and not vacated unless and until it shall be finally determined by trial that the plaintiff is not entitled to said judgment. (Emphasis supplied.)

Quoted with approval in Foland v. Hoffman, 186 Md. 423, 431, 47 A.2d 62, 66-67 (1946). However, there is no reported Maryland case that discusses whether express, affirmative language is required to continue a judgment lien in effect when a confessed judgment is opened to hear defenses.

Citizens Bank refers the court to Pennsylvania law in the absence of Maryland authority directly on point. E.g., FRG, Inc. v. Manley, 919 F.2d 850 (3rd...