Court Opinion

ID: 1060250
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:43:25.361489+00
Date Added: 2024-06-11T13:08:49.185439
License: Public Domain

Present: Carrico, C.J., Compton, Stephenson, Whiting, * Lacy,
Hassell and Keenan, JJ.

VIRGINIA BUILDERS' SUPPLY, INC.

                           OPINION BY JUSTICE A. CHRISTIAN COMPTON
v.   Record No. 941686                September 15, 1995

BROOKS & CO. GENERAL CONTRACTORS, INC.

          FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
                   Melvin R. Hughes, Jr., Judge

      In this creditors' rights controversy, the question

presented is whether a garnishee, after being served with the

summons in garnishment, may commence arbitration with the

judgment debtor while excluding the judgment creditor from the

arbitration, obtain default relief against the judgment debtor,

and then bind the judgment creditor to the result of the

arbitration.   We answer that query in the negative, and will

reverse the judgment of the trial court.
      The facts are undisputed.   On June 29, 1993, appellant

Virginia Builders' Supply, Inc., a wholesale supplier of building

materials, obtained a judgment in the court below against

DeGaetani & Sons Drywall, Inc., a drywall subcontractor, in the

principal sum of $49,614.17.   The judgment order provided for

immediate rights of execution.    Code § 8.01-466.

      On July 8, 1993, a summons in garnishment in the amount of

the judgment, plus interest and costs, was issued in behalf of

the judgment creditor against the judgment debtor naming appellee

      *
      Justice Whiting participated in the hearing and decision of
this case prior to the effective date of his retirement on
August 12, 1995.
Brooks & Co. General Contractors, Inc., garnishee, returnable

October 1, 1993.   The garnishee was served on July 19, 1993.    The

judgment creditor sought to obtain from the garnishee sums

believed to be due from the garnishee to the judgment debtor

under several written contracts on construction projects in which

the judgment debtor was the garnishee's subcontractor.   Those

contracts contained clauses providing for resolution of any

disputes between the contracting parties by mandatory arbitration

under the "Construction Industry Arbitration Rules of the

American Arbitration Association."
     On September 1, 1993, the garnishee invoked the dispute

resolution process by filing a Demand For Arbitration against the

judgment debtor.   The garnishee alleged that the judgment debtor

owed the garnishee more money than it owed the judgment debtor.

On or about September 27, the garnishee filed a motion in the

trial court seeking a stay of the garnishment proceeding pending

completion of the arbitration.

     On October 1, the return day of the garnishment, attorneys

for the judgment creditor and garnishee appeared in the trial

court; the judgment debtor, although served, never responded to

the garnishment summons.   The judgment creditor did not object to

the stay, and the court continued the garnishment proceeding

generally.

     Subsequently, the judgment creditor sought to intervene in

the arbitration.   A representative of the American Arbitration

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Association advised it had no procedure to allow intervention

absent consent of the garnishee or a court order.   The garnishee

refused to allow the judgment creditor to participate in the

arbitration.   Later, the garnishee presented proof to an

arbitrator in the absence of the judgment creditor and judgment

debtor, and obtained an award dated November 19, 1993 deciding

that it owed the judgment debtor nothing.

     In December 1993, the judgment creditor sought a hearing in

the trial court to present evidence on the amount of the

garnishee's liability under the garnishment.   In February 1994,

the garnishee filed a motion to dismiss the garnishment upon the

ground that it owed nothing to the judgment debtor according to

the arbitration award.
     Subsequently, the trial court granted the motion to dismiss,

ruling "that the garnishee owes nothing to the judgment debtor,

in view of the arbitration results; and that accordingly, the

garnishee has no obligation to the" judgment creditor.   We

awarded the judgment creditor this appeal from the trial court's

July 1994 dismissal order to consider the foregoing question.

     On appeal, the judgment creditor points out that it sought

to determine, through the garnishment proceeding, the amount owed

by the garnishee to the judgment debtor, and that the garnishee,

through the arbitration proceeding, also sought a ruling on this

issue.   The judgment creditor states that before the results of

one proceeding can be binding in another, there must be an

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identity of parties between the two actions.    Here, according to

the judgment creditor, there is no identity of parties, and hence

no preclusion of issues or claims, because the garnishee excluded

the judgment creditor from the arbitration.

     The judgment creditor says that the garnishment summons acts

as an involuntary assignment of the judgment debtor's rights to

the judgment creditor.     See Crane v. Standard Lumber & Mfg. Co.,

87 S.E. 1018, 1020 (W. Va. 1916).    Continuing, the judgment

creditor argues that if the garnishee already had obtained the

arbitration award before service of the garnishment summons, then

the rights assigned from the judgment debtor to the judgment

creditor would have been previously liquidated by the binding

arbitration.   According to the judgment creditor, because res

judicata and collateral estoppel apply to the parties and their

privies, the judgment creditor as assignee of a previously

determined claim would, as a successor in interest, be subject to

claim preclusion.
     But here, points out the judgment creditor, the garnishee

did not commence the arbitration until after the garnishment

summons had been served.    Thus, the argument continues, the

judgment debtor's unliquidated claim for money became the

property of the judgment creditor on July 19, 1993, the date the

garnishee was served, and the garnishee "could not hope to bind"

the judgment creditor to an arbitration award without serving it

with the arbitration demand and allowing it the opportunity to

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defend the garnishee's claims.

     Finally, the judgment creditor states it is not asking for a

ruling that parties in the garnishee's position must always

permit the garnishing creditor to participate in the arbitration.

Rather, the judgment creditor says, it "merely asks for a narrow

holding that if the garnishee elects to proceed after service of

a garnishment summons without the judgment creditor's

participation, then the judgment creditor will not be bound to

the arbitration result."   The judgment creditor contends that, as

between the garnishee and the judgment debtor, the arbitration

result is binding; as between the judgment creditor and the

garnishee, it is not.
     The garnishee contends that if the garnishment summons acts

as an involuntary assignment of the judgment debtor's rights to

the judgment creditor, it should have sought the judgment

debtor's consent to participate in the arbitration on the

judgment debtor's behalf; if the judgment debtor refused, then

the judgment creditor should have asked the trial court to order

the judgment debtor to consent to the judgment creditor's

participation.   The garnishee says the judgment creditor "did

nothing and thus has waived its rights."

     Additionally, the garnishee contends that the time when it

proceeded to determine what it owed the judgment debtor is not

important because there was a lawful, binding contract requiring

that any dispute be settled by arbitration.   Thus, the garnishee

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argues, the trial court correctly dismissed the garnishment.      We

do not agree.

     Under Virginia's statutes, Code §§ 8.01-511 through -525,

garnishment is a "proceeding to enforce the lien of a writ of

fieri facias on a liability of any person other than the judgment

debtor"; the "action substantially is a proceeding by the

judgment debtor in the name of the judgment creditor against the

garnishee."     Virginia Nat'l Bank v. Blofeld, 234 Va. 395, 399,

362 S.E.2d 692, 694 (1987).    Upon proof of any debt owed by the

garnishee to the judgment debtor, the court may enter judgment in

favor of the judgment creditor against the garnishee in the

amount of such debt.     Lynch v. Johnson, 196 Va. 516, 520, 84
S.E.2d 419, 422 (1954).     See Code § 8.01-519.

     In the present case, the garnishee contends the debt issue

was finally decided in its favor in the arbitration proceeding,

and says that issue may not be revisited in the garnishment

proceeding.   But the judgment creditor was not a party to the

contracts between the garnishee and the judgment debtor, and the

record fails to show that the judgment creditor was a third party

beneficiary of those contracts.

     When, as here, the garnishee commenced arbitration with the

judgment debtor after being served with the garnishment summons,

and excluded the judgment creditor from the arbitration, the

judgment creditor may employ the garnishment court procedure to

determine the extent of the debt owed by the garnishee to the

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judgment debtor.    The fact that the debt was created by contracts

containing an arbitration clause does not require a stranger to

the contracts to follow the contracts' "procedural mechanisms for

dispute resolution."     United States v. Harkins Builders, Inc., 45
F.3d 830, 834 (4th Cir. 1995) (applying Virginia's garnishment

law).

        And the garnishee will not be heard to argue that the

judgment creditor has waived its rights by failing to intervene

in the arbitration, when it was the garnishee who refused the

judgment creditor's request to be allowed to participate.       Once

the garnishee withheld consent, the judgment creditor was not

obligated to seek intervention through the defaulting judgment

debtor or to seek a court order allowing intervention.    Nothing

in the garnishment statutes, or in Virginia's statutes dealing

with arbitration, Code §§ 8.01-577 through -581.016, requires

such action by a judgment creditor.
        Consequently, we hold that the trial court erred in

dismissing the garnishment.    We will reverse the court's

dismissal order and remand the case to the trial court for

further proceedings.
                                              Reversed and remanded.

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