E-Alert Case Updates

Judgment-Creditor Was Entitled to Serve Writ of Attachment on Third Party Who Received Fraudulently Conveyed Assets from Judgment-Debtor

John C. Flood of MD, Inc. v. Jerry Brighthaupt
No. 14-CV-1194 (District of Columbia Court of Appeals, August 13, 2015)
by Caroline E. Willsey, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.dccourts.gov/internet/documents/14-CV-1194.pdf

In John C. Flood of MD, Inc. v. Jerry Brighthaupt, No. 14-CV-1194, (District of Columbia Court of Appeals, August 13, 2015), the District of Columbia Court of Appeals decided whether a post-judgment writ of attachment obtained pursuant to D.C. Code § 16-547 could reach the assets of a transferee when the creditor had reason to believe that a fraudulent transfer occurred. The Court of Appeals upheld the trial court’s order denying an emergency motion to quash the writ of attachment.

Jerry Brighthaupt (“Appellee”) was a former employee of John C. Flood of DC, Inc. (“Flood of DC”). In 2011, Appellee successfully brought a D.C. Wage Payment and Collection Act action against Flood of DC. In February 2014, an amended judgment totaling just over $43,000 was entered in Appellee’s favor. At a post-judgment discovery hearing, Appellee came to believe that Flood of DC had fraudulently conveyed assets to John C. Flood of MD, Inc. (“Appellant” or “Flood of MD”). Specifically, Appellee became aware that the President of Flood of DC, along with his two daughters, incorporated a new entity – Flood of MD. Within two (2) months of Flood of MD’s incorporation, Flood of DC stopped receiving checks and credit card payments. Flood of DC also made monthly transfers of $100,000 to Flood of MD.

Upon learning this information, Appellee served a writ of attachment, signed by a deputy clerk of the court, on SunTrust Bank, Inc., for two (2) bank accounts—one owned by Flood of DC and the other owned by Flood of MD. Then, in May 2014, Appellee filed a motion for judgment of recovery and to set aside fraudulent conveyances made to Flood of MD. Days later, Appellant filed an emergency motion to quash the writ of attachment. Flood of MD argued that the attachment was ineffective against it because Flood of DC, rather than Flood of MD, was the named defendant against which judgment was rendered. Flood of MD further argued that D.C.’s writ of attachment laws, § 16-501, et seq., violated its right to due process under the Fifth Amendment of the U.S. Constitution.

The trial court denied the emergency motion to quash, holding that under D.C. law, a plaintiff is permitted to attach property in the hands of another party when he believes that the property was fraudulently conveyed. The trial court reconsidered its ruling in response to a motion to alter judgment. This time, the trial court still denied the motion to quash, but this time did so on the grounds that a writ of attachment could attach where assets are held by the garnishee in the name of the defendant.

The Court of Appeals first noted a fundamental distinction in writs of attachment: those obtained before judgment and those obtained after judgment. Generally speaking, pre-judgment writs should only be available in limited circumstances because of the risk of improper attachment. Post-judgment writs, however, do not require the same procedural safeguards, because the risk of unlawful attachment is much lower given that the court has already found in favor of the creditor.

The Court of Appeals concluded that, under D.C. law, a post-judgment creditor must be allowed to attach the assets of a non-party when it has reason to believe that a fraudulent conveyance occurred. The Court also held that a court order establishing the ownership of the property is not needed prior to executing a post-judgment writ of attachment against a debtor’s property in possession of a third-party because that property is treated as being still owned by the debtor.

The Court rejected Appellant’s argument that D.C.’s writ of attachment laws were designed to protect a garnishee when a creditor seeks to enforce a writ of attachment on a joint account. Instead, the Court ruled that while D.C. law does provide protections to a garnishee, these protections do not govern jointly-owned property. Because it was raised for the first time at oral argument, the Court also declined to consider Appellant’s argument that Appellee should have first sought remedies under the D.C. Uniform Fraudulent Transfer Act, to set aside the conveyance, as opposed to executing a writ of attachment on the assets of a transferee.

The Court acknowledged the risk to third parties of such a generous post-judgment writ of attachment procedure. The Court rationalized this, however, by noting that the likelihood of creditors misusing this procedure to satisfy a judgment is minimized because D.C. law exposes overzealous creditors to potential penalties in the form of damages and attorney’s fees for improper attachment. This, coupled with the requirement of obtaining a judgment against the original debtor, should sufficiently deter judgment creditors from attaching the assets of innocent third parties.

Finally, the Court rejected Appellant’s argument that the D.C. writ of attachment laws violated its Fifth Amendment due process rights. The Court did so without considering the substance of Appellant’s argument, because Appellant raised this issue for the first time on appeal. Given the fact-specific nature of an as-applied due process challenge, the Court saw no reason to depart from the well-established appellate principle that an appellate court should not decide issues that were neither raised nor decided in the trial court.