LVI Environmental Services, Inc. v. Academy of IRM, 2063

Citation666 A.2d 899,106 Md.App. 699
Decision Date01 September 1994
Docket NumberNo. 2063,2063
PartiesLVI ENVIRONMENTAL SERVICES, INC. f/k/a Diversified Environmental Corporation v. ACADEMY OF IRM. ,
CourtCourt of Special Appeals of Maryland
Joseph S. Kaufman (Schulman & Kaufman, L.L.C., Bruce L. Corriveau and Fedder and Garten, P.A., on the brief), Baltimore, for Appellant

George Z. Petros (Nicholas J. Kallis, on the brief), Annapolis, for Appellee.

Argued before BLOOM and HOLLANDER, JJ., and ROSALYN B. BELL, Judge (retired), Specially Assigned.

ROSALYN B. BELL, Judge, Specially Assigned.

LVI Environmental Services, Inc. (LVI), appellant, appeals from a judgment of the Circuit Court for Anne Arundel County awarding Academy of IRM, appellee, $89,092.05 plus interest in a garnishment proceeding. LVI first moves to dismiss the proceedings for lack of personal jurisdiction. LVI also presents three questions for our review:

I. Was there a legal basis for Academy of IRM to garnish funds of LVI?

II. Was LVI a successor corporation liable for the debt of its predecessor?

III. Did the trial court abuse its discretion in allowing a witness to testify in rebuttal after the witness had been disqualified from testifying in Academy of IRM's case-in-chief?

BACKGROUND

In July 1986, Diversified Environmental Group, Inc. ("DEG") filed Articles of Incorporation with the Commonwealth of Pennsylvania. DEG engaged in the business of asbestos removal and opened a branch office in Rockville, Maryland. DEG also occasionally operated under the trade name Desco Insulation Company (Desco). In September 1986, Desco entered into a contract with the Army Corps of Engineers for an asbestos abatement project at Fort Belvoir in Virginia. The contract was awarded on September 29, 1986, and the Army made its final payment on July 31, 1990. Desco contracted with Academy of IRM to provide work and During this time, one of DEG's secured creditors, the Crouse Group, Inc. (Crouse), experienced financial difficulties and filed for bankruptcy protection. DEG was indebted to Crouse in an amount over five million dollars. Among other things, Crouse held security interests in DEG's equipment, machinery, and contracts, including the Fort Belvoir contract and proceeds due DEG from that contract. On June 10, 1987, Crouse and DEG entered into an agreement whereby DEG would buy back its debt from Crouse for $1,995,084.00 and all obligations and security interests would be deemed satisfied and cancelled. The agreement was never consummated.

materials to Desco's Fort Belvoir project. From 1986 to early 1987 (the exact dates are not clear from the record before us), Academy of IRM provided said services and material, but Desco failed to pay all monies owed to Academy of IRM.

Shortly thereafter, on June 25, 1987, LVI, a Delaware corporation, whose business was operating subsidiaries engaged in asbestos abatement contracting services, formed another subsidiary, which was incorporated in Pennsylvania and named Diversified Environmental Corporation ("DEC"). LVI was the sole stockholder of DEC. Mr. Larry Liss was listed as DEC's president and Mr. Paul Goldberg was listed as its secretary. These gentlemen were also two of the five owners of DEG and were DEG's president and secretary. On August 6, 1987, DEG and Crouse entered into an amended agreement wherein NICO, Inc., LVI's parent corporation, became the assignee of certain rights held by DEG arising out of the June 10 agreement. 1 NICO paid Crouse $1,995,084.00 for an assignment of guarantees and security interests from and in DEG. This assignment included the security interest Crouse held in the Fort Belvoir contract.

In September 1987, according to Mr. Burton Fried, who was then director and general counsel of LVI, DEG had no employees. DEC obtained an assignment of the leases to On December 1, 1987, Desco, DEG, and LVI executed a "Bill of Sale, Assignment and Transfer of Rights." 2 Under this agreement, LVI assigned its rights to DEC. On January 6, 1988, DEC filed a notice of name change with the Commonwealth of Pennsylvania Department of State Corporation Bureau. DEC had changed its name to LVI Environmental Services, Inc. Mr. Paul Goldberg signed the forms required by Pennsylvania as DEC's secretary and Mr. Larry Liss signed as DEC's president.

                DEG's offices in Rockville and moved into those offices.  On November 16, 1987, NICO and DEG, trade name Desco, entered into an "Agreement in Lieu of Public Sale," under which the parties agreed that, as DEG was in default, NICO would foreclose on the collateral, which included the Fort Belvoir contract.  The next day, Academy of IRM filed an action in the Circuit Court for Anne Arundel County against Desco and DEG seeking payment for goods and services provided in the asbestos abatement project at Fort Belvoir.  On November 18, 1987, DEG and NICO entered into another agreement:  "Agreement for Private Foreclosure in lieu of Public Sale and Notice of Assignment."   NICO foreclosed on the collateral, which included all equipment and inventory of DEG as well as contract rights, specifically, the Fort Belvoir contract
                

LVI continued to perform under the Fort Belvoir contract. According to Mr. Daniel DeLuca, a contract specialist with the Army Corps of Engineers at Fort Belvoir, if there is an assignment of a contract, the Army requires a novation. The Army sent a letter to Desco explaining that, if the company changed names, a novation would be required. A reply, dated May 12, 1989, was received from Mr. Fried, general counsel and director of LVI, stating that the necessary information was being compiled, but no further action was taken on the novation. The Army made its last payment on the Fort Belvoir contract on July 31, 1990. Prior to March 1989, all In addition, when DEC/LVI moved into DEG's offices in Rockville, it took over all of DEG's office space, office equipment, letterhead, telephone lines, and trucks. The employees, except for the branch manager, remained the same. There was a gradual transition, over a period of approximately three months, wherein the company changed from DEG to LVI. LVI obtained an employer identification number from the federal government, set up bank accounts, and received an assignment of two leases for locations previously occupied by DEG.

checks issued by the Army Corps of Engineers were made payable to DEC/LVI. After March 1989, the checks were made payable to Desco. 3

Every company engaged in the business of asbestos removal must obtain a license from the Maryland Department of the Environment. These licenses are not transferrable; two companies may not operate under the same license. When a company goes bankrupt, the license is retired. Desco had been issued license number M3900011 on June 10, 1986. DEC/LVI continued to operate under Desco's license. The license does reflect a name change from Desco to LVI. The Maryland Department of the Environment, Division of Asbestos Licensing and Enforcement, did not issue a new license to LVI, as it did not believe that the proof offered by LVI was sufficient to establish that it was, in fact, a new company. There is no record that LVI was ever informed of this decision.

On May 19, 1988, the Circuit Court for Anne Arundel County filed an Order of Default against Desco in favor of Academy of IRM. The circuit court limited the order to Desco, finding that the service of process as to DEG did not comply with the requirements of Maryland Rule 2-124(c). On May 23, the court mailed a Notice of Default to Desco. Three On March 8, 1989, a Writ of Garnishment of Property was issued against DEC and LVI, the garnishees, in favor of Academy of IRM, the judgment creditor. Academy of IRM sought the funds paid out by the Army Corps of Engineers under the Fort Belvoir contract. In an answer filed with the circuit court on April 5, 1989, DEC and LVI denied having possession of any property of Desco or DEG, the judgment debtors.

months later, on August 16, 1988, the circuit court held a hearing on damages. Desco did not appear. The court entered a default judgment against Desco and DEG and in favor of Academy of IRM in the amount of $78,204.00 and $10,763.05 in pre-judgment interest.

The case finally came for a hearing before the Circuit Court for Anne Arundel County on September 19, 1994. The court found that LVI was a successor corporation of DEG liable for DEG's debts. The court entered a judgment in favor of Academy of IRM for $89,092.05 plus interest from August 16, 1988. It is from this judgment that LVI appeals.

THE MOTION TO DISMISS

The Circuit Court for Anne Arundel County entered an Order of Default against Desco only, noting that service of process on DEG did not comply with Rule 2-124(c). Notice of default was sent to Desco. Subsequently, the court entered a default judgment against Desco and DEG. LVI claims that, because service of process was inadequate, the court did not gain jurisdiction over DEG. LVI, therefore, alleges that the court was without jurisdiction to enter a judgment against DEG. LVI also alleges that service upon Desco, alone, was not sufficient as Desco was merely a trade name. LVI asks this Court to remand the case back to the Circuit Court for Anne Arundel County with instructions to dismiss for lack of jurisdiction.

LVI, as garnishee, may assert any defenses that the judgment debtor, DEG, may have had. Maryland Rule 2-645(e) provides in pertinent part:

(e) Answer of Garnishee.--The garnishee shall file an answer within the time provided by Rule 2-321. The answer shall admit or deny that the garnishee is indebted to the judgment debtor or has possession of property of the judgment debtor and shall specify the amount and nature of any debt and describe any property. The garnishee may assert any defense that the garnishee may have to the garnishment, as well as any defense that the judgment debtor could assert.

If the service of process on DEG was defective, the Circuit...

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