In re Linton Properties, LLC

• Decision Date: 12 June 2009
• Docket Number: Bankruptcy No. 08-00095.,Adversary No. 08-10032.
• Citation: 410 B.R. 1
• Court: United States Bankruptcy Courts – District of Columbia Circuit
• Parties: In re LINTON PROPERTIES, LLC, et al., Debtors. Marc E. Albert, Chapter 7 Trustee, Plaintiff, v. Chesapeake Bank & Trust Company, Defendant.

Page 1

410 B.R. 1

In re LINTON PROPERTIES, LLC, et al., Debtors.

Marc E. Albert, Chapter 7 Trustee, Plaintiff, v. Chesapeake Bank & Trust Company, Defendant.

Bankruptcy No. 08-00095.

Adversary No. 08-10032.

United States Bankruptcy Court, District of Columbia.

June 12, 2009.

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Stinson Morrison Hecker LLP, Washington, DC, for Plaintiff.

Troy C. Swanson, Cohen & Swanson, PC, Bel Air, MD, Craig Palik, McNamee Hosea, et al., Greenbelt, MD, for Defendant.

MEMORANDUM DECISION

S. MARTIN TEEL, JR., Bankruptcy Judge.

The Chapter 7 Trustee, Marc E. Albert ("trustee"), commenced this adversary proceeding to avoid garnishment liens and recover property subject to the liens.¹ The proceeding is moot except 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 Citibank where the Lintons had bank accounts.² Chesapeake, with 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.

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, 167 L.Ed.2d 929 (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, 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, 106 S.Ct. 2548, 91 L.Ed.2d 265 (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, 106 S.Ct. 2505, 91 L.Ed.2d 202 (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)).

The moving party bears the burden to show that the material facts are undisputed. See Celotex, 477 U.S. at 322, 106 S.Ct. 2548. 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, 106 S.Ct. 2505.

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.

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, 400 B.R. 1 (Bankr. D.D.C.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.

(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 appointment of a trustee. A trustee had not yet been appointed when the Stipulation and Dismissal was approved by this court.

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