Case Title: Schlossberg v. Citizens Bank

Citation: 341 Md. 650

Docket Number: 25m/95

State: maryland

Court: Maryland Supreme Court

Date: 1996-03-07T00:00:00Z

Document:
Roger Schlossberg, Trustee v. Citizens Bank of Maryland - Misc. 25,
1995 Term
CONFESSED JUDGMENT - Certified Question from the United States
Court of Appeals for the Fourth Circuit -- Pursuant to Maryland
Rule 2-611(d), what is the effect on the lien status of a confessed
judgment when the state court `opens' the judgment for a hearing on
the merits without affirmatively stating that the judgment lien is
preserved?  Answer to Certified Question -- We hold that the
judgment lien remains valid and the priority status is not affected
when court "opens" a confessed judgment for a hearing.
IN THE COURT OF APPEALS OF MARYLAND
Misc. No. 25
  September Term, 1995
___________________________________
ROGER SCHLOSSBERG, TRUSTEE
v.
CITIZENS BANK OF MARYLAND
___________________________________
Murphy, C.J.
Eldridge
Rodowsky
Chasanow
Karwacki
Bell 
Raker
JJ.
___________________________________
Opinion by Chasanow, J.
___________________________________
      Filed: March 7, 1996         
This case comes to us from the United States Court of Appeals
for the Fourth Circuit, pursuant to the Maryland Uniform
Certification of Questions of Law Act, Maryland Code (1974, 1995
Repl. Vol.), Courts & Judicial Proceedings Article, §§ 12-601
through 12-609 and Maryland Rule 8-305.  We are called on to decide
whether a circuit court order "opening" a confessed judgment
pursuant to Md. Rule 2-611(d) affects the status of the judgment
lien derived from that confessed judgment.  We hold that opening a
confessed judgment does not affect the judgment lien.
I.
The material facts in this appeal are not disputed.  The
parties have adopted the following statement of facts from the
opinion of the United States Bankruptcy Court for the District of
Maryland:
"On March 22, 1991 Citizens Bank [of
Maryland] obtained confessed judgments against
[G. David Broyles and Emily E. Broyles,]
[d]ebtors in the Circuit Court for Prince
George's County, Maryland in the amount of
$859,928.88, including attorneys fees, based
on their guarantees of certain corporate
debts. Citizens Bank recorded the confessed
judgments in the Circuit Court for Worcester
County, Maryland on or before April 11, 1991.
[The Broyles] owned, as tenants by the
entirety, a condominium unit in Ocean City,
which is located in Worcester County. * * *
After the confessed judgments were recorded in
Worcester County, [the Broyles] were served on
April 29, 1991 with notices of the entry of
judgments by confession, as required by
Maryland Rule 2-611(b).
By timely motion, [the Broyles] moved to
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vacate the confessed judgments pursuant to
Maryland Rule 2-611(c).  The Circuit Court for
Prince George's County denied [the] motion to
vacate, and [the Broyles] appealed.  On April
10, 1992, the Court of Special Appeals of
Maryland entered its opinion reversing and
remanding.  EMI Excavation [] v. Citizens
Bank[], 91 Md. App. 340, 604 A.2d 518[, cert.
denied, 327 Md. 523, 610 A.2d 796] (1992).  
On remand, the Circuit Court for Prince
George's County, entered the following order
on November 12, 1992, dated November 4,
1992[:]
`ORDERED, that the confessed
judgments 
entered 
against 
the
Defendants herein be, and hereby are
opened so that there can be a
hearing 
on 
the 
merits 
of 
the
Plaintiff's 
claims 
and 
the
Defendants' 
defenses. 
(Emphasis
supplied.)'
During the pendency of the appeal, [the
Broyles] had filed petitions for relief under
Chapter 7 of the Bankruptcy Code. [11 U.S.C. §
101 et seq.]  G. David Broyles filed a
petition on January 7, 1992, and Emily E.
Broyles filed a petition on April 20, 1992.
The two cases were substantively consolidated
in August, 1992."
 After the filing of the Broyles' bankruptcy petitions,
Citizens Bank sought to proceed with its confessed judgment action
against the Broyles in the circuit court in order to execute upon
its judgment lien.  The bank moved in the Bankruptcy Court for
relief from the automatic stay imposed by 11 U.S.C. § 362 (1994) of
-3-
     The "automatic stay" imposed by 11 U.S.C. § 362 (1994) bars
1
creditors from enforcing judgments against debtors who have filed
for bankruptcy protection.  See § 362(a)(2).  A creditor may file
a motion seeking relief from the automatic stay to allow the
creditor to enforce the judgment.  See § 362(d).
the Bankruptcy Code.   The Broyles and the bankruptcy trustee,
1
Roger Schlossberg (Trustee), opposed the motion for relief from the
automatic stay.  The Broyles and the Trustee argued that Citizens
Bank's judgment lien on the Ocean City condominium was no longer
enforceable because the circuit court had opened the judgment by
its order of November 12, 1992.  The Bankruptcy Court ruled in
favor of Citizens Bank and ordered that the stay be lifted to allow
litigation on the confessed judgment action to proceed.  In Re
Broyles, 161 B.R. 149 (Bkrtcy. D. Md. 1993).  Following appellate
review and affirmance in the United States District Court for the
District of Maryland, the Trustee appealed to the United States
Court of Appeals for the Fourth Circuit.  After hearing oral
arguments in the case, the Fourth Circuit certified the following
question to this Court:
"Pursuant to Maryland Rule 2-611(d), what is
the effect on the lien status of a confessed
judgment when the state court `opens' the
judgment for a hearing on the merits without
affirmatively stating that the judgment lien
is preserved.  Subsumed within this question
the [C]ourt may consider:
(1) whether pursuant to Maryland Rule 2-611(d)
the order of the Circuit Court for Prince
George's County in which the court `opened'
the confessed judgment in favor of Citizens
Bank destroys or affects the priority status
-4-
of the prepetition lien of the confessed
judgment;
(2) whether the prepetition lien status was
preserved or destroyed or affected in any
other 
manner 
pending 
the 
state 
court's
disposition of the matter; and, 
(3) whether the state court's order must
include explanatory language or precautionary
conditions to preserve the lien status of the
confessed judgment."
  
II.
A.
A confession of judgment clause in a debt instrument is a
device designed to facilitate collection of a debt.  It is a
provision by which debtors agree to the entry of judgment against
them without the benefit of a trial in the event of default on the
debt instrument.  PAUL V. NIEMEYER AND LINDA M. SCHUETT, MARYLAND RULES
COMMENTARY, at 464 (2d ed. 1992).  As a general rule, a judgment by
confession is "entitled to the same faith and credit, as any other
judgment."  Keiner v. Commerce Trust Co., 154 Md. 366, 370, 141 A.
121, 122 (1927).  A confessed judgment operates as a lien against
the real property of the defendant located in the county where the
judgment is entered.  MARYLAND RULES COMMENTARY, at 466. Because the
widespread practice of including a provision authorizing a
confessed judgment in promissory notes lends itself to fraud and
abuse, however, this Court has made clear that judgments by
confession are to be "`freely stricken out on motion to let in
-5-
defense
  Keiner
n
omitted). 
 2-611 governs the procedure for confessed judgments i
Maryland.  Judgment by confession may be entered by the circui
court clerk upon the filing of a complaint accompanied by th
original or a copy of the instrument authorizing the confesse
judgment and an affidavit specifying the amount due and stati
address
a
judgment
e
defendant of the entry of judgment and of the deadline for filing
 motion to "open, modify or vacate" the judgment.  Md. Rule 2-
If 
e
w
 and sufficient basis for an actual
controve
 as to the merits of the action."  Md. Rule 2-611(d).
n other words, the court must determine whether the defendant has
 potentially meritorious defense to the confessed judgmen
complaint.  The court does not, however, decide the merits of the
c
 stage.  MARYLAND ULES C
, at 466.  If the
court
nds that a basis for a defense exists, the rule requires
he court to order that the confessed judgment be opened, modified,
r vacated so that the defendant can file a responsive pleading to
 plaintiff's complaint and the merits can be determined.  Md.
-6-
B.
 the instant case, Citizens Bank obtained confessed
gments against the Broyles in the Circuit Court for Princ
George's County for $859,928.88 on March 22, 1991.  Citizens Bank
then
r
Wor
 County, where the Broyles owned their condominium.  By
ording the judgments in Worcester County, the bank obtained 
lien on the condominium.  
 Md. Rule 2-621(b)("[A] money judgment
hat is recorded and indexed pursuant to Rule 2-623(a) constitutes
 lien ... in the amount of the judgment ... on the defendant's
 in land located in the county of recording."); see als
Md. Co
s
Art., § 11-402(c); Md. Rule 2-623(a).
 November 12, 1992, pursuant to Md. Rule 2-611(d), th
Circuit Court for Prince George's County ordered that the Mar
1991 confessed judgments be "opened" to allow a hearing on th
merits of the confessed judgment complaint.  The question bef
is whether that November 12, 1992 circuit court order 
ed the
nt lien held by Citizens Bank on the Broyles' condominiu
pending a hearing on the merits, or whether the order effectively
destroyed
t
o
gment destroyed the lien because it
did
t include "express affirmative language or precautionary
ditions" preserving the judgment lien.  Citizens Bank, on th
-7-
other hand, asserts that such language is unnecessary to preserve
the lien when a confessed judgment is opened pursuant to Rule 2-
611(d).  We agree with the Bank that opening a confessed judgment
does not destroy the judgment lien.
 
Our analysis begins with the language of Rule 2-611(d), which
provides:
"Disposition of Motion. -- If the court finds
that there is a substantial and sufficient
basis for an actual controversy as to the
merits of the action, the court shall order
the judgment by confession opened, modified,
or vacated and permit the defendant to file a
responsive pleading."  (Emphasis added).
The rule provides the circuit court with three options.  Pending a
determination of the merits of the debtor's defenses, the court may
either (1) open, (2) modify, or (3) vacate the confessed judgment.
The use of the disjunctive term "or" in the rule indicates that
each of these three options has a different effect on the status of
the judgment.  See In Re John R., 41 Md. App. 22, 25, 394 A.2d 818,
820 (1978)(use of "or" in statute indicates a relationship of
contrast or opposition). 
In a well-reasoned and thoroughly-researched opinion, the
bankruptcy court concluded that an order vacating a confessed
judgment destroys the judgment lien, but an order opening a
confessed judgment does not.  The court explained:
"Vacate and open have different meanings....
As applicable here, vacate means to annul, to
make void, or to deprive of validity.  The
sense of open, on the other hand, is to recall
-8-
or set aside, so as to permit reexamination on
the merits and further action. * * * If
opening and vacating the judgment operated the
same, i.e. to destroy the judgment lien, the
[r]ule need only have designated one term or
the other.
BLACK'S LAW DICTIONARY 1388 (5th ed. 1979)
includes the following definition of vacate:
`To annul; to set aside; to cancel
or rescind.  To render an act void;
as, to vacate an entry of record, or
a judgment. [***]'
By contrast, the definition of open in the
context of a judgment is defined as follows:
`Open a judgment. To lift or relax
the 
bar 
of 
finality 
and
conclusiveness which it imposes so
as to permit a re-examination of the
merits of the action in which it was
rendered.  This is done at the
instance of a party showing good
cause why the execution of the
judgment would be inequitable. It so
far annuls the judgment as to
prevent its enforcement until the
final determination upon it. [***]'
[BLACK'S LAW DICTIONARY,] at 983.
* * *
The term vacate implies destruction, but
the term open does not.  Open merely allows
reconsideration. 
 
Therefore, 
in 
giving
independent effect to the terms vacated and
opened as used in Maryland Rule 2-611(d), so
as not to render either term surplusage,
vacated means that the judgment is canceled
and consequently a dependent judgment lien is
destroyed.  On the other hand, opened means
that the judgment continues to exist and is
not destroyed; rather it is set aside to allow
the judgment to be examined. * * * Express
language is not required to continue a
-9-
judgment lien when a confessed judgment is
opened, as contrasted to vacated, although
express language may be included to clarify
the court's intent or to place conditions on
continuation of a judgment lien." (Citations
omitted).
In re Broyles, 161 B.R. at 154-155.  We agree with this analysis.
We hold that opening a confessed judgment is a procedure that
allows the court to consider the merits of the defendant's defense
to the action without destroying the judgment's validity.  The
judgment, and any judgment lien derived from it, remain in effect
while the court considers the merits of the defense.
In Williams v. Johnson, 261 Md. 463, 276 A.2d 95 (1971), this
Court analyzed a defendant's challenge to a confessed judgment
under former Rule 645 b, a predecessor to Rule 2-611(d).  In
Williams, the defendant filed an answer that claimed she was not
liable on a confessed judgment promissory note because the
signature on the note was a forgery.  We concluded that "an actual
controversy exist[ed]" as to whether the defendant was liable on
the note.  Williams, 261 Md. at 468, 276 A.2d at 98.  Hence, we
held that "the confessed judgment should have been opened" and the
controversy decided after a trial on the merits.  Id.  In our
mandate, we ordered that the confessed judgement was to be opened
pending the trial, but that it was to "continue as a valid judgment
unless vacated."  Williams, 261 Md. at 469, 276 A.2d at 98.   
 In 1972, the year after Williams was decided by this Court,
Rule 645 was amended and a new section added to the rule.  The
-10-
minutes of a Rules Committee meeting preceding the change in the
rule reveals that the amendment was intended to codify the Williams
holding.  The minutes indicate:
"There was lengthy discussion on the
distinctions between final judgment, judgment
absolute, and judgment nisi as well as the
nuances of opening judgment as opposed to
vacating judgment.  It was suggested that
proposed subsection d of Rule 645 was in
effect a summary of the ruling in Williams
...." (Emphasis added.)
Minutes, Court of Appeals Standing Committee on Rules of Practice
and Procedure, at 13 (Dec. 3, 1971).  By incorporating Williams
into Rule 645, this Court intended to incorporate the mandate from
that case, that an opened judgment continues as valid unless
vacated.  We have made additional changes to the rule in subsequent
revisions, but present Rule 2-611(d) is similar to the version
intended to adopt the Williams holding.
We reject the Trustee's contention that opening a confessed
judgment destroys the validity of the underlying judgment lien
unless the court order contains express affirmative language
preserving the judgment.  To the contrary, this Court's mandate in
Williams makes clear that an opened judgment remains in effect
unless expressly vacated.  To adopt the Trustee's interpretation
would require us to conclude that there is no functional
distinction between opening the judgment and vacating it.  As the
bankruptcy court pointed out, such an interpretation would
contravene the basic rule of statutory construction that a statute
-11-
should be construed so that no word is rendered superfluous or
meaningless.  See In re Broyles, 161 B.R. at 153 (quoting
Supervisor v. Southgate Harbor, 279 Md. 586, 590, 369 A.2d 1053,
1055 (1977)).
Hence, in answer to the certified question, we hold that a
judgment lien remains valid when a court "opens" a confessed
judgment for a hearing on the merits pursuant to Rule 2-611(d) and
the priority status of the judgment lien is not affected by the
opening.  Further, we hold that no affirmative language is
necessary to preserve the lien when a confessed judgment is opened.
CERTIFIED QUESTIONS ANSWERED AS
SET FORTH ABOVE.  COSTS TO BE
PAID BY APPELLANT.