The Johns Hopkins Hospital v. Post

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 08-1161

THE JOHNS HOPKINS HOSPITAL,

Plaintiff - Appellee,

v.

ALLYSON POST,

Defendant – Appellant,

and

CHARLES SCHWAB AND COMPANY,

Garnishee.

Appeal from the United States District Court for the District of
Maryland, at Baltimore. Marvin J. Garbis, Senior District
Judge. (1:99-cv-02461-MJG)

Argued: January 29, 2009 Decided: April 7, 2009

Before WILKINSON, TRAXLER, and SHEDD, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Heriberto Medrano, LAW OFFICE OF HERIBERTO MEDRANO,
Harlingen, Texas, for Appellant. Gary Steven Posner, WHITEFORD,
TAYLOR & PRESTON, L.L.P., Baltimore, Maryland, for Appellee. ON
BRIEF: Osiris A. Gonzalez, LAW OFFICE OF HERIBERTO MEDRANO,
Harlingen, Texas, for Appellant. Susan Jaffe Roberts,
WHITEFORD, TAYLOR & PRESTON, L.L.P., Baltimore, Maryland, for
Appellee.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

From June 1997 to February 1998, Appellant Allyson Post, a

Texas resident, was a patient at Johns Hopkins Hospital in

Baltimore and incurred charges of $322,593.40. Post’s insurance

did not fully cover these charges, and Post failed to pay the

remaining balance of $151,763.88. Hopkins brought a collection

action against Post in the United States District Court for the

District of Maryland. The district court entered a judgment in

favor of Hopkins for $166,180.49, which reflected the unpaid

balance and prejudgment interest.

After her release from the hospital, Post created and

transferred assets to a number of entities, including the

Allyson A. Post Family Limited Partnership, the Allyson A. Post

Living Trust and the Allyson A. Post Management Trust.

Attempting to locate and preserve assets belonging to Post that

might satisfy its judgment, Hopkins brought a fraudulent

conveyance action against Post in Texas state court and obtained

an order enjoining Post from “removing non-exempt property”

beyond the court’s jurisdiction and “from establishing any

trusts and/or entities for use in the transfer . . . of any non-

exempt property and assets of Allyson Post.” J.A. 149.

Hopkins deposed Post as part of the Texas proceeding and

learned that Post’s income derived from a personal injury

lawsuit settlement and social security disability benefits.

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These funds, as well as assets derived from these funds, were

transferred to Post’s trusts, which she controlled, and were

ultimately placed in an account managed by Charles Schwab &

Company in the name of the Allyson A. Post Trust (the “Schwab

Account”).

In August 2006, Hopkins decided to seek partial

satisfaction of its federal judgment against the Schwab Account,

which had a net value of $150,857.02 at the time. Under Rule

69(a) of the Federal Rules of Civil Procedure,

[a] money judgment is enforced by a writ of execution,
unless the court directs otherwise. The procedure on
execution-–and in proceedings supplementary to and in
aid of judgment or execution-–must accord with the
procedure of the state where the court is located, but
a federal statute governs to the extent it applies.

Fed. R. Civ. P. 69(a)(1) (emphasis added). The parties agree

that no federal statute applies in this instance and that the

Maryland Garnishment procedure set forth in Maryland Rule 2-645

governs.

A garnishment proceeding pursuant to Maryland Rule 2-645

provides a means for a judgment creditor to enforce its judgment

by attaching property owned by the judgment debtor but held by a

third party, i.e., the garnishee. See Medical Mut. Liab. Ins.

Soc’y of Md. v. Davis, 883 A.2d 158, 162 (Md. 2005). Under

Maryland law, “[t]he judgment itself is conclusive proof of the

judgment debtor’s obligation to the judgment creditor. The sole

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purpose of the garnishment proceeding . . . is to determine

whether the garnishee has any funds . . . which belong to the

judgment debtor.” Fico, Inc. v. Ghingher, 411 A.2d 430, 436

(Md. 1980).

The garnishment process is commenced when the judgment

creditor files a request for a writ of garnishment, which must

include the caption of the action, the amount of the judgment,

the name of the judgment debtor and the name of the garnishee,

as part of the same action in which the judgment was obtained.

See Md. Rule 2-645(b). The clerk of court then issues the writ

to the garnishee, directing that the garnishee hold any property

belonging to the judgment debtor “subject to further

proceedings.” Md. Rule 2-645(c)(2). The garnishee must file an

answer admitting or denying that it holds the debtor’s property

or asserting a defense to the garnishment. See Md. Rule 2-

645(e).

Maryland’s procedure requires that the judgment debtor be

notified of the writ, of his right to contest the garnishment,

and of the fact that exemptions are available for certain types

of property. See Md. Rule 2-645(c)(4),(5). Pursuant to

Maryland Rule 2-643(d), the judgment debtor may seek release of

exempt property by filing a motion. See Md. Rule 2-643(c)(2)

(“Upon motion of the judgment debtor, the court may release some

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or all of the property from a levy if it finds that . . . the

property is exempt from levy.”)

The district court issued a writ of garnishment to Charles

Schwab attaching Post’s trust account and any assets it held for

Post. Post moved for release of the Schwab Account from levy,

claiming that the assets contained in the account came from a

personal injury settlement Post received in 1986 and were

therefore exempt from judgment under Maryland law.

Maryland law provides a list of items that are exempt from

execution on a judgment, including

[m]oney payable in the event of sickness, accident,
injury, or death of any person, including compensation
for loss of future earnings. This exemption includes
but is not limited to money payable on account of
judgments, arbitrations, compromises, insurance,
benefits, compensation, and relief. Disability income
benefits are not exempt if the judgment is for
necessities contracted for after the disability is
incurred.

Md. Code. Cts. & Jud. Proc. § 11-504(b)(2). Damages for pain

and suffering and loss of future wages are exempt under § 11-

504(b)(2), but damages for lost past wages, injuries to

property, and punitive damages are not exempt. See Calafiore v.

Werner Enters., Inc., 418 F. Supp. 2d 795, 799 (D. Md. 2006).

According to Post’s deposition testimony, the Schwab

Account contains funds from a 1986 personal injury settlement

that was structured as follows: an initial payment of $150,000;

lifetime monthly payments of $2,500; and $250,000 paid in five

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lump-sum installments scheduled for 1986, 1991, 1996, 2001 and

2006. Under the terms of the settlement agreement, Post agreed

to release all past, present and future claims related to the

personal injury claim. The agreement did not specifically

describe the losses included in the “past, present and future

claims” released by Post. The district court, however, found

that “some portion of the payments in the Agreement could be

considered exempt as compensation for pain and suffering and

loss of future earnings,” while “some portion of the payments

under the Agreement could fairly be allocated to non-exempt

purposes.” J.A. 188. Additionally, the district court

determined that the proceeds from Social Security disability

payments contained in the Schwab Account were not exempt under

§ 11-504(b)(2) because the judgment resulted from “necessities

contracted for after the disability [was] incurred.” J.A. 189.

Thus, the court concluded that the account contained

commingled exempt and non-exempt assets and that there was no

non-speculative basis upon which to apportion the funds into

exempt and non-exempt amounts. The district court reasoned that

the burden of proof was dispositive since neither party would be

able to prove what portion of the account was exempt and what

portion was not. Noting a lack of interpretive guidance from

Maryland appellate courts, the district court considered other

states’ exemption laws and concluded the general rule was that

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the party seeking the exemption bears the burden of proof. And,

because Post had no means of establishing the portion of the

Schwab Account that was actually exempt, the district court held

that Hopkins could levy on the entire account.

On appeal, Post does not dispute that the Schwab Account

contained both exempt and non-exempt assets, nor does she

contest the district court’s conclusion that there is no basis

upon which to apportion the funds in the account. Instead, Post

contends that the district court committed reversible error in

concluding that the burden rests on the judgment debtor to prove

that the funds are exempt from collection in satisfaction of a

judgment under Maryland’s garnishment procedure. Post believes

that in allocating the burden of proof as it did, the district

court failed to discern and observe the essential purpose of

Maryland’s exemption statute: to afford its debtors greater

protection from creditors than is provided under federal

bankruptcy law. Indeed, like many other states, Maryland

decided “to opt out of [the] federal exemption scheme” and enact

a generally broader exemption scheme of its own. See Wolff v.

Gibson (In re Gibson), 300 B.R. 866, 869 (D. Md. 2003). Post

reasons that by assigning her the burden of proving her

exemption under § 11-504(b)(2), the district court actually

construed Maryland law to give her less protection than is

available in federal bankruptcy proceedings, which place the

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burden of proof on a creditor objecting to a debtor’s claimed

exemption. See Fed. R. Bankr. P. 4003(c). Therefore, Post

concludes, the district court’s interpretation of § 11-504(b)(2)

was impermissibly narrow and failed to achieve the purpose of

the Maryland exemption scheme. See In re Hurst, 239 B.R. 89, 91

(Bankr. D. Md. 1999) (noting that courts should construe

Maryland’s exemptions liberally to achieve the intended

purpose).

We cannot subscribe to Post’s argument. First, Post’s

focus on bankruptcy procedure is misguided. Although the

bankruptcy code looks to state law for exemptions for states

that have “opted out” of the federal scheme, see 11 U.S.C.

§ 522(b)(2), the procedural rules that apply in federal

bankruptcy cases are of course federal. Section § 11-504(b),

which is silent as to the burden of proof, tells us what may and

may not be protected from judgment creditors; Bankruptcy Rule

4003(c) tells us who must prove that a given asset is exempt

under state law. See Peoples’ State Bank of Wells v. Stenzel

(In re Stenzel), 301 F.3d 945, 947 (8th Cir. 2002). Since this

is a garnishment proceeding under state law, Post’s bankruptcy

analogy is of limited use.

We focus instead on the relevant procedural context --

Maryland’s procedures for enforcement of a judgment by

garnishment. See Md. Rule 2-645. As noted above, the procedure

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is commenced by the judgment creditor’s request for a writ of

garnishment. If the garnishee fails to answer, then the

judgment creditor is entitled to a default judgment for the

asset to be applied in satisfaction of the judgment. See Md.

Rule 2-645(f). If the garnishee answers and asserts a defense

and the judgment creditor disputes the defense by filing a

reply, then the case proceeds as would a typical civil action

with the judgment creditor as plaintiff and the garnishee as

defendant. See Md. Rule 2-645(g). To recover in a garnishment

action, the judgment creditor must present evidence legally

sufficient to prove a liability of the garnishee which existed

when the writ was issued or when the case was tried. “The test

of liability of the garnishee to the judgment creditor is

whether the garnishee has any funds, property or credits which

belong to the judgment debtor.” Consolidated Constr. Servs.,

Inc. v. Simpson, 813 A.2d 260, 268 (Md. 2002) (emphasis and

internal quotation marks omitted). No provision in the Maryland

Rules requires the judgment creditor to prove that the property

held by the garnishee is non-exempt property.

Significantly, the judgment debtor must take affirmative

steps to assert an exemption. The protection given to judgment

debtors under Maryland’s exemption scheme does not operate

automatically in a garnishment proceeding. As directed by

Maryland Rule 2-645(i), the judgment debtor must make a motion

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under Maryland Rule 2-643 before the court can release exempt

property. Therefore, in this context, the judgment debtor’s

election to assert an exemption is in the nature of an

affirmative defense. Section § 11-504(b) operates here as it

does in bankruptcy proceedings – it defines what property is

exempt from levy. It does not purport to displace Maryland’s

procedure for collecting judgments.

Finally, we reject the suggestion that the district court’s

decision produced illogical results. It makes greater sense to

allocate the burden of proof to the judgment debtor in these

circumstances, as the debtor is in a far better position than

the judgment creditor to know about the existence and nature of

his assets. This view is also consistent with the policy of

numerous other jurisdictions that require judgment debtors to

prove an exemption in judgment enforcement or collection

proceedings. See, e.g., LSF Franchise REO I, LLC v. Emporia

Rests., Inc. 152 P.3d 34, 41 (Kan. 2007) (explaining that under

Kansas garnishment procedure “the judgment debtor bears the

burden of proof to show that any of the funds in question are

exempt from garnishment”); Freeman v. Freeman, 464 N.Y.S.2d 676,

677 (N.Y. Sup. Ct. 1983) (explaining that “burden of proof is

upon the judgment debtor to establish that the [debtor's]

account is exempt from levy”); Hancock v. Stockmens Bank & Trust

Co., 739 P.2d 760, 761-62 (Wyo. 1987) (explaining that burden of

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proof rests on the party claiming the exemption to establish the

nature of the funds, requiring the judgment debtor to establish

the exempt portion of funds in a joint account); Hoffman v.

Weiland, 29 N.E.2d 33, 34 (Ohio Ct. App. 1940) (burden of proof

regarding the existence or applicability of an exemption or

defense rests with the judgment debtor).

Accordingly, we affirm the decision of the district court.

AFFIRMED

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