The Johns Hopkins Hospital v. Post

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 08-1161
THE JOHNS HOPKINS HOSPITAL,
Plaintiff - Appellee,
v.
ALLYSON POST,
Defendant – Appellant,
and
CHARLES SCHWAB AND COMPANY,
Garnishee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Marvin J. Garbis, Senior District
Judge. (1:99-cv-02461-MJG)
Argued: January 29, 2009 Decided: April 7, 2009
Before WILKINSON, TRAXLER, and SHEDD, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Heriberto Medrano, LAW OFFICE OF HERIBERTO MEDRANO,
Harlingen, Texas, for Appellant. Gary Steven Posner, WHITEFORD,
TAYLOR & PRESTON, L.L.P., Baltimore, Maryland, for Appellee. ON
BRIEF: Osiris A. Gonzalez, LAW OFFICE OF HERIBERTO MEDRANO,
Harlingen, Texas, for Appellant. Susan Jaffe Roberts,
WHITEFORD, TAYLOR & PRESTON, L.L.P., Baltimore, Maryland, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
From June 1997 to February 1998, Appellant Allyson Post, a
Texas resident, was a patient at Johns Hopkins Hospital in
Baltimore and incurred charges of $322,593.40. Post’s insurance
did not fully cover these charges, and Post failed to pay the
remaining balance of $151,763.88. Hopkins brought a collection
action against Post in the United States District Court for the
District of Maryland. The district court entered a judgment in
favor of Hopkins for $166,180.49, which reflected the unpaid
balance and prejudgment interest.
After her release from the hospital, Post created and
transferred assets to a number of entities, including the
Allyson A. Post Family Limited Partnership, the Allyson A. Post
Living Trust and the Allyson A. Post Management Trust.
Attempting to locate and preserve assets belonging to Post that
might satisfy its judgment, Hopkins brought a fraudulent
conveyance action against Post in Texas state court and obtained
an order enjoining Post from “removing non-exempt property”
beyond the court’s jurisdiction and “from establishing any
trusts and/or entities for use in the transfer . . . of any non-
exempt property and assets of Allyson Post.” J.A. 149.
Hopkins deposed Post as part of the Texas proceeding and
learned that Post’s income derived from a personal injury
lawsuit settlement and social security disability benefits.
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These funds, as well as assets derived from these funds, were
transferred to Post’s trusts, which she controlled, and were
ultimately placed in an account managed by Charles Schwab &
Company in the name of the Allyson A. Post Trust (the “Schwab
Account”).
In August 2006, Hopkins decided to seek partial
satisfaction of its federal judgment against the Schwab Account,
which had a net value of $150,857.02 at the time. Under Rule
69(a) of the Federal Rules of Civil Procedure,
[a] money judgment is enforced by a writ of execution,
unless the court directs otherwise. The procedure on
execution-–and in proceedings supplementary to and in
aid of judgment or execution-–must accord with the
procedure of the state where the court is located, but
a federal statute governs to the extent it applies.
Fed. R. Civ. P. 69(a)(1) (emphasis added). The parties agree
that no federal statute applies in this instance and that the
Maryland Garnishment procedure set forth in Maryland Rule 2-645
governs.
A garnishment proceeding pursuant to Maryland Rule 2-645
provides a means for a judgment creditor to enforce its judgment
by attaching property owned by the judgment debtor but held by a
third party, i.e., the garnishee. See Medical Mut. Liab. Ins.
Soc’y of Md. v. Davis, 883 A.2d 158, 162 (Md. 2005). Under
Maryland law, “[t]he judgment itself is conclusive proof of the
judgment debtor’s obligation to the judgment creditor. The sole
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purpose of the garnishment proceeding . . . is to determine
whether the garnishee has any funds . . . which belong to the
judgment debtor.” Fico, Inc. v. Ghingher, 411 A.2d 430, 436
(Md. 1980).
The garnishment process is commenced when the judgment
creditor files a request for a writ of garnishment, which must
include the caption of the action, the amount of the judgment,
the name of the judgment debtor and the name of the garnishee,
as part of the same action in which the judgment was obtained.
See Md. Rule 2-645(b). The clerk of court then issues the writ
to the garnishee, directing that the garnishee hold any property
belonging to the judgment debtor “subject to further
proceedings.” Md. Rule 2-645(c)(2). The garnishee must file an
answer admitting or denying that it holds the debtor’s property
or asserting a defense to the garnishment. See Md. Rule 2-
645(e).
Maryland’s procedure requires that the judgment debtor be
notified of the writ, of his right to contest the garnishment,
and of the fact that exemptions are available for certain types
of property. See Md. Rule 2-645(c)(4),(5). Pursuant to
Maryland Rule 2-643(d), the judgment debtor may seek release of
exempt property by filing a motion. See Md. Rule 2-643(c)(2)
(“Upon motion of the judgment debtor, the court may release some
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or all of the property from a levy if it finds that . . . the
property is exempt from levy.”)
The district court issued a writ of garnishment to Charles
Schwab attaching Post’s trust account and any assets it held for
Post. Post moved for release of the Schwab Account from levy,
claiming that the assets contained in the account came from a
personal injury settlement Post received in 1986 and were
therefore exempt from judgment under Maryland law.
Maryland law provides a list of items that are exempt from
execution on a judgment, including
[m]oney payable in the event of sickness, accident,
injury, or death of any person, including compensation
for loss of future earnings. This exemption includes
but is not limited to money payable on account of
judgments, arbitrations, compromises, insurance,
benefits, compensation, and relief. Disability income
benefits are not exempt if the judgment is for
necessities contracted for after the disability is
incurred.
Md. Code. Cts. & Jud. Proc. § 11-504(b)(2). Damages for pain
and suffering and loss of future wages are exempt under § 11-
504(b)(2), but damages for lost past wages, injuries to
property, and punitive damages are not exempt. See Calafiore v.
Werner Enters., Inc., 418 F. Supp. 2d 795, 799 (D. Md. 2006).
According to Post’s deposition testimony, the Schwab
Account contains funds from a 1986 personal injury settlement
that was structured as follows: an initial payment of $150,000;
lifetime monthly payments of $2,500; and $250,000 paid in five
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lump-sum installments scheduled for 1986, 1991, 1996, 2001 and
2006. Under the terms of the settlement agreement, Post agreed
to release all past, present and future claims related to the
personal injury claim. The agreement did not specifically
describe the losses included in the “past, present and future
claims” released by Post. The district court, however, found
that “some portion of the payments in the Agreement could be
considered exempt as compensation for pain and suffering and
loss of future earnings,” while “some portion of the payments
under the Agreement could fairly be allocated to non-exempt
purposes.” J.A. 188. Additionally, the district court
determined that the proceeds from Social Security disability
payments contained in the Schwab Account were not exempt under
§ 11-504(b)(2) because the judgment resulted from “necessities
contracted for after the disability [was] incurred.” J.A. 189.
Thus, the court concluded that the account contained
commingled exempt and non-exempt assets and that there was no
non-speculative basis upon which to apportion the funds into
exempt and non-exempt amounts. The district court reasoned that
the burden of proof was dispositive since neither party would be
able to prove what portion of the account was exempt and what
portion was not. Noting a lack of interpretive guidance from
Maryland appellate courts, the district court considered other
states’ exemption laws and concluded the general rule was that
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the party seeking the exemption bears the burden of proof. And,
because Post had no means of establishing the portion of the
Schwab Account that was actually exempt, the district court held
that Hopkins could levy on the entire account.
On appeal, Post does not dispute that the Schwab Account
contained both exempt and non-exempt assets, nor does she
contest the district court’s conclusion that there is no basis
upon which to apportion the funds in the account. Instead, Post
contends that the district court committed reversible error in
concluding that the burden rests on the judgment debtor to prove
that the funds are exempt from collection in satisfaction of a
judgment under Maryland’s garnishment procedure. Post believes
that in allocating the burden of proof as it did, the district
court failed to discern and observe the essential purpose of
Maryland’s exemption statute: to afford its debtors greater
protection from creditors than is provided under federal
bankruptcy law. Indeed, like many other states, Maryland
decided “to opt out of [the] federal exemption scheme” and enact
a generally broader exemption scheme of its own. See Wolff v.
Gibson (In re Gibson), 300 B.R. 866, 869 (D. Md. 2003). Post
reasons that by assigning her the burden of proving her
exemption under § 11-504(b)(2), the district court actually
construed Maryland law to give her less protection than is
available in federal bankruptcy proceedings, which place the
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burden of proof on a creditor objecting to a debtor’s claimed
exemption. See Fed. R. Bankr. P. 4003(c). Therefore, Post
concludes, the district court’s interpretation of § 11-504(b)(2)
was impermissibly narrow and failed to achieve the purpose of
the Maryland exemption scheme. See In re Hurst, 239 B.R. 89, 91
(Bankr. D. Md. 1999) (noting that courts should construe
Maryland’s exemptions liberally to achieve the intended
purpose).
We cannot subscribe to Post’s argument. First, Post’s
focus on bankruptcy procedure is misguided. Although the
bankruptcy code looks to state law for exemptions for states
that have “opted out” of the federal scheme, see 11 U.S.C.
§ 522(b)(2), the procedural rules that apply in federal
bankruptcy cases are of course federal. Section § 11-504(b),
which is silent as to the burden of proof, tells us what may and
may not be protected from judgment creditors; Bankruptcy Rule
4003(c) tells us who must prove that a given asset is exempt
under state law. See Peoples’ State Bank of Wells v. Stenzel
(In re Stenzel), 301 F.3d 945, 947 (8th Cir. 2002). Since this
is a garnishment proceeding under state law, Post’s bankruptcy
analogy is of limited use.
We focus instead on the relevant procedural context --
Maryland’s procedures for enforcement of a judgment by
garnishment. See Md. Rule 2-645. As noted above, the procedure
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is commenced by the judgment creditor’s request for a writ of
garnishment. If the garnishee fails to answer, then the
judgment creditor is entitled to a default judgment for the
asset to be applied in satisfaction of the judgment. See Md.
Rule 2-645(f). If the garnishee answers and asserts a defense
and the judgment creditor disputes the defense by filing a
reply, then the case proceeds as would a typical civil action
with the judgment creditor as plaintiff and the garnishee as
defendant. See Md. Rule 2-645(g). To recover in a garnishment
action, the judgment creditor must present evidence legally
sufficient to prove a liability of the garnishee which existed
when the writ was issued or when the case was tried. “The test
of liability of the garnishee to the judgment creditor is
whether the garnishee has any funds, property or credits which
belong to the judgment debtor.” Consolidated Constr. Servs.,
Inc. v. Simpson, 813 A.2d 260, 268 (Md. 2002) (emphasis and
internal quotation marks omitted). No provision in the Maryland
Rules requires the judgment creditor to prove that the property
held by the garnishee is non-exempt property.
Significantly, the judgment debtor must take affirmative
steps to assert an exemption. The protection given to judgment
debtors under Maryland’s exemption scheme does not operate
automatically in a garnishment proceeding. As directed by
Maryland Rule 2-645(i), the judgment debtor must make a motion
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under Maryland Rule 2-643 before the court can release exempt
property. Therefore, in this context, the judgment debtor’s
election to assert an exemption is in the nature of an
affirmative defense. Section § 11-504(b) operates here as it
does in bankruptcy proceedings – it defines what property is
exempt from levy. It does not purport to displace Maryland’s
procedure for collecting judgments.
Finally, we reject the suggestion that the district court’s
decision produced illogical results. It makes greater sense to
allocate the burden of proof to the judgment debtor in these
circumstances, as the debtor is in a far better position than
the judgment creditor to know about the existence and nature of
his assets. This view is also consistent with the policy of
numerous other jurisdictions that require judgment debtors to
prove an exemption in judgment enforcement or collection
proceedings. See, e.g., LSF Franchise REO I, LLC v. Emporia
Rests., Inc. 152 P.3d 34, 41 (Kan. 2007) (explaining that under
Kansas garnishment procedure “the judgment debtor bears the
burden of proof to show that any of the funds in question are
exempt from garnishment”); Freeman v. Freeman, 464 N.Y.S.2d 676,
677 (N.Y. Sup. Ct. 1983) (explaining that “burden of proof is
upon the judgment debtor to establish that the [debtor's]
account is exempt from levy”); Hancock v. Stockmens Bank & Trust
Co., 739 P.2d 760, 761-62 (Wyo. 1987) (explaining that burden of
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proof rests on the party claiming the exemption to establish the
nature of the funds, requiring the judgment debtor to establish
the exempt portion of funds in a joint account); Hoffman v.
Weiland, 29 N.E.2d 33, 34 (Ohio Ct. App. 1940) (burden of proof
regarding the existence or applicability of an exemption or
defense rests with the judgment debtor).
Accordingly, we affirm the decision of the district court.
AFFIRMED
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