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
- 2 -
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
- 3 -
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
- 4 -
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
- 5 -
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
- 6 -
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.
- 7 -