Opinion ID: 2054217
Heading Depth: 2
Heading Rank: 3

Heading: Priority as Between Smith and the Delaware Receiver: Smith's Argument Under Herman v. Siney

Text: The question then becomes, who has priority: the judgment lien creditor or the receiver? Smith contends that this court's decision in Herman, 190 A.2d at 650, recognizes Smith's priority over the Delaware receiver. In Herman, Siney and Oney, the creditors, obtained default judgments in the Municipal Court against the Union Storage and Transfer Company. The court issued writs of garnishment to reach funds in Union Storage's bank, and the creditors filed motions for condemnation of the funds held by the bank to satisfy the judgments. Before the court held a hearing on the condemnation motions, the United States District Court for the District of Columbia appointed Herman as Union Storage's receiver. Herman filed an opposition to the condemnation of the garnisheed funds, but the trial court granted the creditors' motions. On appeal, this court affirmed: A receiver derives his authority from the act of the court appointing him . . . and the utmost effect of his appointment is to put the property from that time into his custody.... The Municipal Court first acquired jurisdiction over the property by garnishment which vested that court with power to hear and determine all controversies relating thereto and disabled the District Court from exercising like power. The receiver was appointed in a suit to which the appellees were not parties and after the garnishment had been completed in the Municipal Court. The appointment of a receiver, therefore, did not divest the lien acquired by the garnishment. Id. at 651-52 (footnote omitted) (quoting Union Nat'l Bank of Chicago v. Bank of Kansas City, 136 U.S. 223, 236, 10 S.Ct. 1013, 1017, 34 L.Ed. 341 (1890)). Relying on Herman, Smith contends that District of Columbia law gives priority to a judgment lien creditor over a receiver, where the receiver was appointed after the judgment creditor's lien on the property had attached. Smith argues, therefore, that the trial court correctly granted judgment of recovery in favor of Smith against CUIC's assets held by First American and, further, properly ruled that Smith could execute on CUIC's Connecticut Avenue building, either by voiding the transfer of that building to CUG as a fraudulent conveyance or by piercing the corporate veil and recovering the property from CUG itself. We agree with Smith that, as to priority of claims, Herman is controlling here. Interpreting substantive law, Herman confirms that a judgment creditor's claim to property to satisfy a debt will have priority over a subsequently appointed receiver's claim to that property if a court already has assumed jurisdiction over the property for the creditor's benefit by authorizing, for example, an attachment or garnishment. But this rule of law suggests two unanswered questions on this record. First, if a judgment creditor (Smith) (1) obtains a writ of garnishment from the court and levies on the garnishee, or (2) records the judgment with the Recorder of Deeds and thereby creates a lien against the realty, will that judgment creditor (Smith) have sufficiently invoked court protection in the District of Columbia, within the meaning of Herman, to give its lien priority over claims by the debtor's (CUIC's) subsequently appointed receiver in a foreign jurisdiction (Delaware)? Second, if the answer to the first question is Yes, i.e., if Herman gives the judgment lien creditor's (Smith's) claims priority over those of the Delaware receiveris that priority affected by the Huffines requirement that even a secured creditor must obtain permission from a receivership court before seizing or selling the collateral? These questions suggest a possibility that neither party entertains: that both Herman and Huffines may be applicable here instead of one or the other.