March 26, 1998
CHARLES F. GOLDSMITH, APPELLANT,
WILLIAM S. BERGMAN ASSOCIATES, INC., ET AL., APPELLEES.
APPEAL FROM THE SUPERIOR COURT, ANN O'REGAN KEARY, J.
Before Steadman and Ruiz, Associate Judges, and Mack,
[708 A2d Page 641]
The opinion of the court was delivered by: Ruiz, Associate Judge:
This case is the second incarnation of a dispute between two creditors, appellant, Charles F. Goldsmith, a general partner of Midcity Investment Company ("Midcity"), and appellees, William S. Bergman Associates ("WSBA") and Sherman, Meehan & Curtin, P.C. ("SMC"), WSBA's counsel. On appeal, Goldsmith, on behalf of Midcity, alleges that the trial court erred in quashing Midcity's writ of attachment on moneys owed to WSBA and in denying Goldsmith's motion for judgment of condemnation of such moneys. Although we agree that the writ of attachment was properly quashed to the extent Midcity's claim was subject to the senior lien of SMC, we hold that the writ should have been allowed to stand with respect to amounts in excess of SMC's claim.
Much of the history of the current appeal centers around a similar nucleus of facts previously before this court in Wolf v. Sherman, 682 A.2d 194, 196 (D.C. 1996). *fn1 Briefly, after WSBA defaulted on a lease obligation with Midcity, in 1990 Midcity obtained a judgment in Superior Court for $67,383.90 plus interest and costs against WSBA in a landlord-tenant proceeding. See id. at 196. Midcity, however, was largely unsuccessful in collecting the judgment. In 1991, WSBA, in turn, had obtained a judgment in excess of $100,000 against a former employee, William R. Dyer. A 1992 fee agreement between SMC and WSBA provided that SMC would have a lien on funds recovered by WSBA from Dyer. Pending appeal, WSBA and Dyer entered into an agreement in October 1994 whereby Dyer placed $80,000 in escrow, with SMC acting as the escrow agent on behalf of WSBA and Dyer. See id. After discovering WSBA's judgment against Dyer, in December 1994 Midcity filed a creditor's bill suit against SMC seeking to attach the funds SMC was holding in escrow. SMC asserted that it had a lien on the escrowed funds; Midcity contested the validity of SMC's lien. The trial court, Judge Keary, granted summary judgment for SMC concluding that SMC had a valid lien on the escrowed funds. Upholding the trial court's grant of summary judgment for SMC, this court determined that the language in the retainer agreement between WSBA and SMC created an express lien on "the funds placed in escrow" that was superior to Midcity's claim as a judgment creditor. See id. at 198.
Before we ruled in Wolf that SMC had an express lien, Midcity in 1995 obtained a second writ of attachment, this time directly on Dyer, *fn2 to attach any moneys, beyond the amount in escrow, which were still owed to WSBA. Dyer's answer to the writ indicated that he had an outstanding debt to WSBA of approximately $45,000. SMC moved to intervene and transfer the case to Judge Keary because she was familiar with the issues and had previously determined that SMC had a valid lien. Both motions were granted. Before Judge Keary, WSBA and SMC moved to quash Midcity's writ of attachment on the debt owed by Dyer claiming: 1) that SMC was still owed approximately $18,500 in attorney's fees, 2) that Judge Keary's previous summary judgment order finding that SMC had a lien on the funds in escrow also applied to the excess funds, and 3) that the Internal Revenue Service ("IRS") had filed superior liens which rendered Midcity's writ unenforceable. At the same time it opposed the motion to quash, Midcity filed a motion for judgment of condemnation on its writ. The trial court quashed the writ of attachment in its entirety and denied Midcity's motion for judgment of condemnation, which Midcity now appeals. About a month after this appeal was filed, WSBA settled with Dyer on December 20, 1995.
Preliminarily, we must address WSBA and SMC's contention that this appeal is moot because WSBA's settlement with Dyer extinguished any obligation due from Dyer to WSBA. Thus, they argue, any order reversing the trial court would be of no consequence [708 A2d Page 642]
because there is no property to which a writ on Dyer's obligation to WSBA could attach. The record is unclear as to the terms and amount of the settlement. *fn3 However, prior to settlement, Dyer acknowledged owing WSBA approximately $45,000 beyond the amount held in escrow. SMC claims that WSBA owes it part of this amount, secured by its fee agreement with WSBA. Midcity, which disputes SMC's lien, claims it is entitled to attach and condemn the non-escrowed funds paid by Dyer to WSBA, regardless of any settlement or SMC's lien.
"Service of the writ on the garnishee creates a valid lien in favor of the judgment creditor on the debtor's property held by the garnishee." Consumers United Ins. Co. v. Smith, 644 A.2d 1328, 1352 (D.C. 1994). The purpose of the writ is to prevent the garnishee "'from prematurely disposing of any assets belonging to the judgment debtor that come into the garnishee's hands at any time prior to the resolution of the garnishment proceeding.'" First Va. Bank v. Randolph, 920 F. Supp. 213, 215 (D.D.C. 1996), rev'd on other grounds, 324 U.S.App. D.C. 29, 110 F.3d 75 (1997) (quoting Cocco v. Merchants Mortgage Co., 69 Md. App. 68, 516 A.2d 596, 598 (Md. 1986)). When the writ is quashed by the trial court the lien is dissolved and the garnishee may transfer the property that had been subject to the garnishment. See Palmer v. McClelland, 123 A.2d 357 (D.C. 1956). However, where an appeal has been filed from the trial court's ruling quashing the attachment, "'pending the appeal the garnishee [is] bound to retain the money in his hands.'" Mandel v. Lofton, 89 A.2d 880, 881 (D.C. 1952) (quoting Bryan v. Duncan, 19 D.C. (8 Mackey) 379, 383 (1890) and distinguishing Bryan because no appeal had been taken from order quashing garnishment in that case); see First Va. Bank v. Randolph, supra, 920 F. Supp. at 216 (citing Bryan and Mandel).
Here, Midcity's lien created by the writ of attachment was still in effect, because of the filing of this appeal, at the time that Dyer settled with WSBA and paid the funds over to WSBA. The writ expressly referred to an amount of $67,383.90 plus costs and interest from the date of judgment, February 14, 1990, less a credit of $5,256.36. Therefore, although the settlement may have extinguished any further obligation from Dyer to WSBA, the garnishee had a continuing obligation to hold the funds subject to Midcity's lien at the time of settlement. Dyer, the original garnishee, who is not a party to this appeal, ordinarily would be a necessary party to our consideration of an appeal from an order quashing the writ. Cf. Palmer, supra, 123 A.2d at 357 (dismissing the appeal due to absence of garnishee as party to appeal). However, WSBA, as Midcity's judgment debtor was on notice of Midcity's attachment on Dyer and appeal from the order to quash it. Moreover, as Dyer's transferee, WSBA remains subject to the attachment, to the extent, at least, of the moneys it received in settlement from Dyer. *fn4 See Jack Dev., Inc. v. Howard Eales, Inc., 388 A.2d 466, 468 n. 3 (D.C. 1978) ("[I]f the attachment has been perfected . . . the transferee takes the property subject to the attachment."). The appeal, therefore, is not moot. *fn4 [708 A2d Page 643]
Midcity argues that SMC does not have a lien on the debt owed by Dyer to WSBA beyond the funds held in escrow, and that Wolf did not recognize such a lien because Wolf specifically addressed only the funds in escrow, leaving open the fate of the excess funds. The reasoning in Wolf, however, based on the language of the retainer agreement between WSBA and SMC to establish an express lien, is equally applicable to the excess funds as to the funds in the escrow. The retainer agreement provided in part:
We have agreed to continue to represent you [WSBA] in the Dyer appeal under the following terms and conditions: (1) It is understood and agreed that Sherman, Meehan & Curtin, P.C. shall have a lien against and shall be entitled to be paid from any sums that are recovered or awarded by way of agreement, settlement, judgment, or any other manner in the Dyer matter for all fees due and owing from your business.
Wolf, supra, 682 A.2d at 198 (emphasis added). The language "from any sums that are awarded by way of . . . judgment" necessarily includes the amount owed by Dyer to WSBA, whether or not it was held in escrow, and created an express lien on the non-escrowed funds from the judgment against Dyer that were subsequently paid in settlement by Dyer to WSBA. SMC is thus entitled to priority over Midcity in such funds for the additional amount SMC claims to be owed by WSBA. The trial court's order quashing Midcity's writ was appropriate as to the secured amount SMC claimed it was still due by WSBA.
This leaves the remainder, if any, of the non-escrowed amount which was paid in settlement by Dyer to WSBA. *fn5 Before the trial court and on appeal, WSBA and SMC argue that the trial court properly quashed the writ of attachment in its entirety and denied the request for condemnation with respect to these moneys because five Notices of Federal Tax Liens filed by the IRS against WSBA between 1990 and 1993, before Midcity's writ of attachment issued in 1995, are superior to Midcity's lien and effectively preclude the writ of attachment from being executed. *fn5 The premise of this argument is that the IRS's liens on WSBA's assets are superior to Midcity's lien and that, because the amount secured by the IRS liens is substantially larger *fn5 than the amount due from Dyer to WSBA, the IRS's liens encumber the entire remaining amount. Even assuming that the IRS liens are superior to and greater in amount than the settlement amount, *fn5 we disagree that the IRS's liens on WSBA's interest in the Dyer settlement required the quashing of Midcity's writ of attachment on the same funds.
The stated reason for and effect of quashing Midcity's attachment are anomalous in a number of respects. First, we note that neither WSBA, nor SMC, which vigorously [708 A2d Page 644]
defend the quashing of Midcity's attachment of the settlement funds, have any claim to the funds at issue: SMC's express lien appears to have been satisfied by the settlement moneys paid by Dyer to WSBA *fn6 and WSBA owes more than that amount to Midcity. See D.C.Code § 16-554 (1996); cf. Monarch Life Ins. Co. v. Elam, 286 U.S.App. D.C. 396, 398, 918 F.2d 201, 203 (1990) (personal injury plaintiff who assigned interest to a medical provider could not assert the provider's interest in her property against garnishment of settlement proceeds by a judgment creditor). Second, the result of quashing the attachment is that WSBA, which owes both Midcity and the IRS, has kept the funds at issue, without paying either of these creditors. Third, Dyer as the garnishee who could have been concerned about liability to the IRS if he mistakenly paid the funds to the wrong party, did not interplead the IRS and is not involved in this appeal. See note 4; cf. O'Daniel v. Porter, 99 U.S.App. D.C. 398, 399, 240 F.2d 636, 637 (1957) (per curiam). *fn6 Lastly, the IRS, in whose purported interest the trial court quashed the attachment, does not appear to have served the garnishee, see D.C.Code § 16-545 (1996), or indicated any interest in otherwise asserting whatever rights it may have in connection with the subject attachment. *fn6
Under these circumstances, the trial court erred in summarily quashing Midcity's writ of attachment on Dyer with respect to the amount in excess of the amount WSBA owed to SMC which was secured by SMC's express lien. Accordingly, we vacate the order quashing the writ insofar as it applies to such excess and the order denying Midcity's motion for judgment of condemnation. We remand the case for further proceedings consistent with this opinion. *fn7
Affirmed in part and reversed in part. [708 A2d Page 645]