Opinion ID: 2054217
Heading Depth: 2
Heading Rank: 4

Heading: Application of Herman v. Siney: the Legal Issues

Text: We begin with the first question: whether, under Herman, Smith has priority over the Delaware receiver's claim to CUIC's bank accounts at First American and to CUIC's Connecticut Avenue building.
The threshold issue under Herman is a legal one: what steps must a judgment creditor take in order to obtain a valid lien on a debtor's property that is entitled to priority over a subsequently appointed receiver? We note initially that the procedure for acquiring a lien on personal property in the hands of a garnishee is different from the procedure for acquiring a lien on real property. In order to reach personal property of a debtor held by a third party, a judgment creditor mustfollowing entry of judgmentrequest the court to issue a writ of attachment. See D.C.Code § 16-542 (1989). The judgment creditor must then serv[e] the garnishee with a copy of the writ of attachment and of the interrogatories accompanying the writ. D.C.Code § 16-546 (1989). 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. Obtaining the property held by the garnishee, however, is an entirely separate matter, which typically involves the following additional procedures. Upon receipt of the writ of attachment, the garnishee is required to file answers to the interrogatories that accompany the writ. Within twenty-eight days following receipt of the garnishee's answers, the judgment creditor must request condemnation of the funds held by the garnishee. JOSEPH SPERLING, POSTJUDGMENT EXECUTION IN THE SUPERIOR COURT OF THE DISTRICT OF COLUMBIA 3 (3d ed. 1990) (hereafter SPERLING ON POSTJUDGMENT EXECUTION). If the garnishee fails to answer the interrogatories accompanying the writ, or if the garnishee answers the writ but fails to send money to the judgment creditor, the judgment creditor should file a motion for judgment of recovery against the garnishee, see supra note 8. See D.C.Code § 16-556 (1989); Super.Ct.Civ.R. 69-I(e). Thus, although steps in addition to serving a writ of attachment may be required to obtain the property of the debtor held by the garnishee, the judgment creditor has a valid lien as of the date the writ is served on the garnishee. In contrast, in order to reach a debtor's real property, a judgment creditor mustfollowing entry of a judgment in the debtor's favorfile[] and record[] [the judgment] in the office of the Recorder of Deeds of the District of Columbia. D.C.Code § 15-102(a) (1989). [29] The act of filing the judgment with the Recorder of Deeds shall constitute a lien on all the freehold and leasehold estates, legal and equitable, of the defendants bound by such judgment. Id. To execute against the debtor's realty, the lienholder must show proof to the clerk of the court that the judgment was recorded, and the clerk will then issue a writ of fieri facias and send the writ to the marshal. SPERLING ON POSTJUDGMENT EXECUTION at 13. The writ of fieri facias can be used to lev[y] on all legal leasehold and freehold estates of the debtor in land. D.C.Code § 15-311 (1989). [30] Thus, the judgment creditor's lien on the debtor's real property is valid as of the date the judgment is recorded in the office of the District of Columbia Recorder of Deeds, even though further court procedures may be required to obtain or sell the debtor's realty to satisfy the lien (just as a motion for judgment of recovery may be necessary to recover funds from a garnishee).
The next legal question under Herman is more subtle: whether the fact that the Municipal Court had assumed jurisdiction over the property by issuing writs of garnishment, before the District Court receiver was appointed, was critical to establishing the creditors' priority over the claims of the receiver. This question is important in determining how narrowly or broadly Herman is to be understood. Municipal Court involvement in Herman issuance of writs of garnishment was necessary for creation of the creditor's garnishment lien on the debtor's funds in the bank. In contrast, as explained above, no court is involved (beyond entry of the judgment itself) in creating a judgment lien on real estate, although the court, of course, may have to be involved in the judgment creditor's eventual enforcement of the lien. [31] We believe that the Municipal Court's involvement was indispensable to creation of a judgment lien in Herman because the court's issuance of the garnishment writs, upon application, was essential to creation of the creditors' lien on the debtor's bank accounts; indeed, there was no other way of obtaining a judgment lien on those particular assets. But the fact that the court was essential to creation of the judgment lien on a bank account does not mean that the court is equally essential to creating judgment liens on other kinds of collateral. For example, a creditor's recording of a judgment lien with the Recorder of Deeds serves the same purpose, as a matter of law, as the court's issuance, accompanied by service, of a writ of garnishment on a garnishee; creation of a judgment lien through such recordation is no less complete than creation of a judgment lien through service of a court-issued garnishment writ. In fact, in either case, creation of the lien is initiated by interaction between the creditor (or its attorney) and the court's or Recorder's office staff; the transaction is ministerial, not discretionary. Thus, in the case of a garnishment, the court acts administratively; it does not perform a truly judicial function until it rules on a motion for judgment of recovery. Looked at in this way, the court's issuance of a writ of attachment or garnishment and the Recorder's entry of a judgment on its record are similar acts to accomplish identical purposes. In sum, the court's role under Herman, was indispensable to creation of the particular kind of judgment lien at issue in that case, but a court's involvement is not necessarily required to create all judgment liens. We conclude the fundamental message of Herman is that the act of creating a judgment lien, whatever kind of action is required, is the critical act for determining whether a judgment lien creditor has priority over the claim of the debtor's receiver. If the creditor has obtained a judgment lien before a receiver is appointed for the debtor, Herman stands for the proposition that the lien creditor will prevail. See Maxi Sales Co. v. Critiques, Inc., 796 F.2d 1293, 1297 n. 2 (10th Cir.1986) (general rule of law is that appointment of a receiver does not determine any rights nor destroy any liens. The receiver merely becomes an assignee of the insolvent, having exactly the same rights that he [or she] had.); Martin v. General Amer. Casualty Co., 226 La. 481, 76 So.2d 537, 541 (1954) (a receiver cannot enjoin the execution of a judgment wherein the seizure occurred prior to his [or her] appointment); Kluckhuhn v. Ivy Hill Ass'n, Inc., 55 Md. App. 41, 461 A.2d 16, 20 (1983) (A receiver takes property subject to claims that existed against it prior to the receivership.); National Surety Corp. v. Sharpe, 236 N.C. 35, 72 S.E.2d 109, 123 (1952) (receiver takes the property of the insolvent debtor subject to the mortgages, judgments, and other liens existing at the time of his [or her] appointment); DeAngelis v. Commonwealth Land Title Ins. Co., 467 Pa. 410, 358 A.2d 53, 55 (1976) (Having already shown that the aid of a receiver is extended only in behalf of creditors who have fully exhausted their remedy at law, it follows necessarily that the jurisdiction will not be exercised in favor of mere general creditors, whose rights rest only in contract and are not yet reduced to judgment, and who have acquired no lien upon the property of the debtor. ); First S. Properties, Inc. v. Vallone, 533 S.W.2d 339, 343 (Tex.1976) (a receivership destroys no prior vested right). [32] We therefore turn to Herman 's application to the facts of this case.