DocketNumber: 412, September Term, 1992
Judges: Bishop
Filed Date: 12/7/1992
Status: Precedential
Modified Date: 10/19/2024
This case is a procedural nightmare.
In 1989, the Circuit Court for Baltimore City entered judgments in favor of appellees Killian and Balbos in the amounts of $1,800,000 and $2,000,000, respectively, as compensatory damages in asbestos-related claims.
“NOW THEREFORE, the conditions of this obligation are such that if The Celotex Corporation shall prosecute its appeal to effect or if The Celotex Corporation shall satisfy the judgment against it in full, together with costs, interests and damages for delay, if for any reason the appeal is dismissed or if the judgment against The Celotex Corporation is affirmed, or if The Celotex Corporation shall satisfy in full any modification of the judgment against it and such costs, interest and damages as the Court of Special Appeals of Maryland may adjudge and award against it, then this obligation is void; otherwise, this obligation shall remain in full force and effect. This obligation shall remain in effect pending review of the case by the Maryland Court of Appeals.”
On or about October 22,1990, Celotex filed with the Clerk of this Court a Notice of Filing of Petition in Bankruptcy and Automatic Stay, informing the Court that on October 12, 1990, Celotex had filed a petition for protection under Title 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Middle District of Florida and that “proceedings against Celotex are automatically stayed.” Attached to the Notice was an order of the Bankruptcy Court dated October 17, 1990, that, among other things, enjoined all parties, including a State, from “continuing any judicial ... proceeding involving any of the Debtors regardless of (a) who initiated the proceeding, (b) whether the matter is on appeal and a supersedeas bond has been posted by the Debtors or (c) the appellant in an appeal is one of the Debtors.” That order has since been referred to as the § 105 order — a specific stay or injunction entered under § 105 of the Bankruptcy Code.
On October 30, 1990, the plaintiffs’ motion for reconsideration was denied. That motion concerned the vacation of the punitive damage award and did not affect Celotex. On November 5, 1990, notwithstanding the Notice of the bankruptcy petition and the § 105 order of the Bankruptcy Court, the Clerk of this Court issued the mandate of the Court in accordance with the Opinion. The judgments against Celotex were affirmed and Celotex was assessed a
On December 17, 1990, Harry Goldman, Jr., counsel for Killian and Balbos, relying on the mandate of this Court and noting that the time for seeking certiorari in the Court of Appeals had lapsed, made demand upon appellant for payment of the judgments against Celotex. As to Killian, the demand was for $1,169,574 plus additional daily interest of $259 until paid; as to Balbos, the demand was for $1,786,849 plus $411 future per diem interest. When no response was forthcoming, Killian and Balbos, on December 31, 1990, moved for judgment against appellant on the bonds.
On January 4,1991, appellant informed Mr. Goldman that the automatic stay resulting under 11 U.S.C. § 362 upon the filing of the petition for Bankruptcy and the specific order of the Bankruptcy Court entered under 11 U.S.C. § 105 effectively stayed all action against or involving Celotex and that any attempt to collect on the bonds should be addressed to the Bankruptcy Court. Goldman responded that, in his view, the stay order was a nullity, and he therefore pressed his motions for judgment. Rather than filing any response in the Circuit Court, however, appellant and Celotex sought relief in the Bankruptcy Court. On January 16, 1991, that court directed Mr. Goldman to appear before it on January 21, 1991, to show cause why he should not be held in contempt of court for violating the automatic § 362 stay and the specific § 105 order. Goldman did not appear. On January 31, 1991, the Circuit Court, having received no response to the motions, entered judgments against appellant — $1,173,458 in favor of Killian and $1,792,720 in favor of Balbos. The next day, the Bankruptcy Court entered a contempt order against Goldman which, among other things, specifically enjoined Goldman from “taking any action whatsoever associated with collection of the proceeds of any bond posted by the Debtors or the enforcement of any claims involving bonds posted
Stubbornly, the parties continued to proceed only in the court that seemed to favor them, ignoring the orders and rulings of the other court. Appellant filed neither a timely appeal from the judgments entered against it nor a motion under Md.Rules 2-534 or 2-535(a) to alter, amend, or strike those judgments, and so, subject to any possible collateral attack based on their inconsistency with the orders of the Bankruptcy Court, they became final under State law on March 4, 1991. Undeterred by the orders of the Bankruptcy Court, Mr. Goldman, on March 6, requested a writ of execution against appellant’s property. The writ was issued, and, on March 11, 1991, the sheriff of Baltimore County levied upon and inventoried the personal property located at appellant’s office in the county. Rather than seeking formal relief in the Circuit Court, appellant frightened the sheriff by calling his attention to the Bankruptcy Court orders and moved in that court for a second order of contempt. On March 27,1991, the Bankruptcy Court issued an order directing Goldman to appear before it on April 19 and show cause why he should not be held in contempt. The sheriff, in light of appellant’s letter, postponed the scheduled execution sale, at first until May 2, 1991, and thereafter until a definitive ruling from the Bankruptcy Court.
Faced with the unwillingness of the sheriff to proceed with the sale, Balbos, through Goldman, filed a motion in the Circuit Court on March 21, 1991, to hold appellant in contempt for refusing to pay the judgments of January 31, 1991. In the motion, Mr. Goldman called attention to an order of the Bankruptcy Court fining him $200/day and enjoining him from proceeding against appellant, but he averred that he had taken an appeal from those orders, that he was entitled to a de novo review in the United States
While all of this was playing out in the Circuit and Bankruptcy Courts, the Court of Appeals, on May 13, 1991, granted the petitions for certiorari that had been filed by Killian and the five defendants. On June 13, 1991, the Bankruptcy Court entered an omnibus order declaring that the supersedeas bonds posted by appellant were part of Celotex’s bankruptcy estate. See Matter of Celotex Corp., 128 B.R. 478 (Bankr.M.D.Fla.1991). Digging its own heels in, the Circuit Court, on June 25, 1991, specifically commanded the sheriff of Baltimore County to proceed with the sale of appellant’s personal property that had been previously levied. By order of July 2, it extended the time for the sale to October 14, 1991. Appellant and the sheriff appealed the July 2 order.
On July 19, 1991, appellant, as surety for Celotex, filed a motion in this Court to correct the mandate issued on November 5,1990 by excluding therefrom the affirmance of the judgments for compensatory damages against Celotex. The thrust of the motion was that, because of the automatic stay and the specific order of the Bankruptcy Court that had been issued on October 17, 1990, the issuance of the mandate with respect to Celotex was invalid. Upon consideration of that motion and the plaintiffs’ response to it, we agreed that the mandate as to Celotex was issued in error. By order entered August 27,1991, we concluded that (1) the
Regarding that order as a “glaring error” that “abjectly, improperly, retroactively and unconstitutionally ceded [jurisdiction] to the Bankruptcy Court,” the plaintiffs petitioned for certiorari in the Court of Appeals. While that petition was pending, the sheriff filed a motion in this Court to remand the case to the Circuit Court to reconsider its June 25 and July 2 orders in light of our August 27 order correcting the mandate. On October 7, 1991, this Court entered a consent order granting the motion and remanding the case to the Circuit Court for further consideration. Four days later, the Court of Appeals denied the petition for certiorari seeking review of our August 27 order. On remand, the sheriff asked the Circuit Court to reconsider the June 25 order requiring him to proceed with the sale. Appellant moved the court to vacate the January 31 judgments and reconsider the May 22 order directing the clerk not to accept any more bonds from appellant.
While these motions were pending, the Bankruptcy Court, on November 1, 1991, responded to several motions to lift its stay. In an order entered that day, it granted the
“That to the extent the Motion seeks to modify the stay to vacate the express stay order entered by this Court on October 17, 1990, to permit any collection efforts by the [plaintiffs] or execution against the bonds filed by Celotex in the pending appeals, such modification is expressly denied.”
(Emphasis added.)
Pursuant to that ruling, Celotex filed a petition for certiorari in the Court of Appeals. Unfortunately, it neglected to inform this Court of the latest Bankruptcy Court order or to request that we reissue the mandate that had been recalled on August 27, 1991. To this day, this Court has never reissued that mandate. Although the Court of Appeals initially granted the petition for certiorari, on June 8, 1992, it dismissed the petition as having been improvidently granted. See Celotex Corp. v. Balbos, 326 Md. 652, 607 A.2d 1 (1992).
Meanwhile, the Circuit Court, after a hearing, denied appellant’s motion to vacate the January 31 judgments against it, finding that those judgments were enrolled, that there was no fraud, mistake, or irregularity in their entry, and that, in any event, appellant had not used due diligence
Appellant makes three arguments in this appeal: that the circuit court improperly entered the January 31 judgments because the underlying judgments against Celotex were not final; that it had no jurisdiction or authority to enter the judgments because of the automatic stay and subsequent order of the Bankruptcy Court; and that it was without authority to order the clerk not to accept further bonds from appellant. The plaintiffs have responded to those arguments and, in addition, moved to dismiss the appeal as moot. We shall deal with that motion first.
The mootness argument is based on the assertion that, when the Court of Appeals dismissed Celotex’s petition for certiorari, the judgments against Celotex became final. In the first place, the underlying premise is not correct. The effect of our August 27, 1991 order was to keep the appeal as to Celotex alive in this Court. The denial by the Court of Appeals of the plaintiffs’ petition for certiorari to review that order confirmed that fact, and, if there ever was a question as to whether any superseding event changed that situation, it was dispelled when the Court of Appeals ultimately dismissed Celotex’s petition for certiorari. We have never reissued our mandate with respect to Celotex, and, although we would be well-disposed to reissue it, our present authority to do so is far from clear.
The continued pendency of the Celotex appeal has a substantive effect as well. The bonds are not payable until the appeal process has ended. Had we not erroneously included Celotex in the original mandate, there would have been no question that judgments could not have been rendered against appellant. But that original mandate was facially valid and, subject to the supervening authority of the Bankruptcy Court, was entitled to be relied upon by the plaintiffs and the Circuit Court. The January 31 judgments were obviously premised on the validity of that mandate.
By failing either to seek timely reconsideration in the Circuit Court or to file a timely appeal, appellant allowed those judgments to become enrolled and therefore, in terms of State law and procedure, is entitled to relief, if at all, only under Md.Rule 2-535(b). It must show that the judgments were entered by fraud, mistake, or irregularity and that it acted with due diligence in attacking them.
This brings us to the question of mistake. As used in the Rule, a “mistake” does not mean merely an error, or even an error of law. It is confined to what have been termed “jurisdictional” mistakes, i.e., where the court has no power to enter the judgment. Bernstein v. Kapneck, 46 Md.App. 231, 239, 417 A.2d 456 (1980), aff'd, 290 Md. 452, 430 A.2d 602 (1981); Hamilos v. Hamilos, 52 Md.App. 488, 497, 450 A.2d 1316 (1982), aff'd, Johnston v. Johnston, 297 Md. 48, 465 A.2d 436, aff'd, Hamilos v. Hamilos, 297 Md. 99, 465 A.2d 445 (1983); Evans v. Evans, 75 Md.App. 364, 366, 541 A.2d 648 (1988). Examples of these kinds of mistakes were given in Hughes v. Beltway Homes, Inc., 276 Md. 382, 387, 347 A.2d 837 (1975)— principally judgments entered in the absence of valid service of process. A judgment that is simply wrong — that has no legal foundation and that is the product of judicial error — may be reversed on appeal, but its entry is not regarded as a jurisdictional mistake. As noted above, the
We turn, then, to the effect of the Celotex bankruptcy proceeding. Although there is some disagreement on the point, the predominant view seems to be as appellant contends, that an order of a State court entered in violation of, or that is inconsistent with, either an automatic stay under § 362 of the Bankruptcy Code or an injunction entered under § 105 of that Code is void ab initio and without legal effect. See Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940); In re Smith Corset Shops, Inc., 696 F.2d 971 (1st Cir.1982); In re 48th Street Steakhouse, Inc., 835 F.2d 427 (2d Cir.1987), cert. denied, 485 U.S. 1035, 108 S.Ct. 1596, 99 L.Ed.2d 910 (1988); In re Ward, 837 F.2d 124 (3d Cir.1988); I.C.C. v. Holmes Transp., Inc., 931 F.2d 984 (1st Cir.1991); In re Smith, 876 F.2d 524 (6th Cir.1989); In re Shamblin, 890 F.2d 123 (9th Cir.1989); Ellis v. Consolidated Diesel Elec. Corp., 894 F.2d 371 (10th Cir.1990); Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306 (11th Cir.1982); In re Lampkin, 116 B.R. 450 (Bankr.D.Md.1990); In re Rose, 113 B.R. 534 (W.D.Mo.1990); Miller v. National Franchise Services, 167 Ariz. 403, 807 P.2d 1139 (App.1991); In re Marriage of Berkland, 762 P.2d 779 (Colo.App.1988); Personalized Air Con. v. C.M. Systems, 522 So.2d 465 (Fla.App.1988); Townsend v. Magic Graphics, Inc., 169 Ill.App.3d 73, 119 Ill.Dec. 740, 523 N.E.2d 208 (1988); First Bank v. Sisters of Mercy Health, 545 N.E.2d 1134 (Ind.App.1989); Gulfco Finance v. McCormick, 577 So.2d 778 (La.App.1991); Price v. Cole, 31 Mass.App.Ct. 1, 574 N.E.2d 403 (1991); Overbey v. Murray, 569 So.2d 303 (Miss.1990); Star-Tel v. Nacogdoches Telecommunications, 755 S.W.2d 146 (Tex.App.1988). Apparently alone among the Federal appellate courts, the Fifth Circuit Court of Appeals has concluded that, because the Bankruptcy
The question, then, is whether those judgments were, in fact (or in law), in violation of any Bankruptcy stay or order then in effect. We find no such violation or inconsistency and for that reason conclude that there was no jurisdictional mistake or Federal impediment to their entry.
Section 362(a)(1) stays the continuation of judicial proceedings against “the debtor.” Although the Bankruptcy Court has the authority in certain circumstances to enter further orders staying proceedings against other people, if those proceedings would affect the debtor or the debtor’s bankruptcy estate, the automatic stay effected by § 362 does not bar proceedings against persons other than the debtor. Collier v. Eagle-Picher, Inc., 86 Md.App. 38, 585 A.2d 256, cert. denied, 323 Md. 33, 591 A.2d 249 (1991). The debtor in this case was Celotex, not appellant. It therefore follows that the judgments were not precluded by the § 362 stay. Nor do we see any violation of the § 105
The fact is that, whatever may have been in the mind of the Bankruptcy Court judge,
In summary, we conclude that there was no jurisdictional mistake in the court’s reliance upon the mandate initially issued by this Court and there was no impediment to the entry of the judgments by reason of the existing status of Celotex’s bankruptcy. It may well be that the State courts are now precluded from taking any action to enforce the judgments entered against appellant, at least so long as the February 1 and June 13 orders remain in effect, but we see no error in the court’s refusal to strike those judgments.
This leaves us with the final issue raised by appellant — whether the court erred in instructing the clerk not to accept any further bonds from appellant.
The problem here is that there is substantial evidence that appellant was not entirely innocent in the matter and that the Bankruptcy Court’s determination that the supersedeas bonds were part of Celotex’s estate derived from an August, 1989 confidential agreement between Celotex and appellant that had not been disclosed to the plaintiffs or to the Circuit Court when the bonds were posted. Paragraph 3.a. of that agreement obligated appellant, upon request, to post supersedeas bonds for Celotex, but ¶ 3.e. provided that “any bond obtained by or from [appellant] pursuant to this paragraph is the property of [Celotex] for purposes of any petition in bankruptcy that may be filed by or against [Celotex].” We have no doubt that, had that agreement been made known when Celotex noted its appeal, appellant would not have been accepted as a surety, for it raised at least the likelihood, if not the certainty, that, in the event of a Celotex bankruptcy, collection on the bonds might be in serious jeopardy.
That appellant would enter into such an agreement and then fail to disclose it when posting substantial bonds for a principal that was being sued in thousands of asbestos cases throughout the country strikes us as bordering on fraud. Absent some explanation that does not appear in this record, we too would regard appellant as a wholly unreliable surety. The problem is that we see no authority
“Except as provided in this section, a bond is subject to approval by the clerk as to form, amount, and surety. If the clerk refuses to approve the bond, if an adverse party objects in writing to the bond, or if a rule requires that the court approve the bond, the bond is subject to approval by the court, after notice and an opportunity for any hearing the court may direct.”
(Emphasis added.)
This Rule places in the clerk the responsibility for approving the surety on a supersedeas bond. The court’s role seems limited to approving or rejecting bonds in particular cases under the circumstances noted. Although the Circuit Court, as a whole, once had a “visitorial” power over the clerk, that power is vested now in the Court of Appeals, and, in any event, it would not seem to have allowed one judge in a multi-judge court to have directed the clerk in such a specific way. We therefore must vacate the May 23, 1991 order. During the period between the filing of this Opinion and the issuance of our mandate, however, or even after the issuance of the mandate, there would seem to be no impediment to the judge or the court as a whole recommending that the clerk consider taking similar action in light of the circumstances.
ORDER DENYING APPELLANT’S MOTION TO VACATE JUDGMENTS OF JANUARY 81, 1991 AFFIRMED; ORDER OF MAY 23, 1991 DIRECTING CLERK TO REFUSE TO ACCEPT BONDS OF APPELLANT VACATED; APPELLANT TO PAY COSTS OF THIS APPEAL.
. The plaintiffs, and appellees here, are Lucille Killian, Personal Representative for the Estate of Sutton Knuckles, Paul Balbos, Personal Representative for the Estate of Leslie Balbos, and Robert Fox, Personal Representative for the Estate of Ann Balbos. Sutton Knuckles and Leslie Balbos were the persons who suffered injury and death from exposure to asbestos. For purposes of convenience, we shall refer to the plaintiffs/appellees as simply Killian and Balbos.
. In his omnibus order of June 13, 1991, the Bankruptcy Court judge stated that the § 105 order of October 17, 1990 "was for the purpose of precluding, among other things, judgment creditors from proceeding in various state and federal courts against supersedeas bonds without first coming before this Court.” Matter of Celotex Corp., supra, 128 B.R. at 482. Unfortunately, that purpose does not appear to us to have been clearly reflected in the § 105 order. Compare Willis v. Celotex Corp., 978 F.2d 146 (4th Cir.1992).