TransPacific Tire & Wheel Inc. v. Orteck International, Inc.. et al
Filing
276
MEMORANDUM OPINION (c/m to Orteck International, Inc. 7/6/12 sat). Signed by Chief Judge Deborah K. Chasanow on 7/6/12. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
TRANSPACIFIC TIRE & WHEEL, INC.
Plaintiff/Judgment Creditor:
v.
:
Civil Action No. DKC 06-0187
:
ORTECK INTERNATIONAL, INC.
Defendant/Judgment Debtor
:
:
ORTECK GLOBAL SUPPLY &
DISTRIBUTION COMPANY LLC
SANJEET S. VEEN
HARBHAJAN VEEN
METRO TIRE WHOLESALE, LLC
VENETIAN INVESTMENTS, LLC
Garnishees
:
:
:
:
MEMORANDUM OPINION
Presently pending and ready for review in this garnishment
proceeding
are
the
motions
for
summary
judgment
filed
by
Harbhajan Veen and Sanjeet S. Veen (ECF No. 272) and by Orteck
Global Supply & Distribution Company, LLC, Metro Tire Wholesale,
LLC, and Venetian Investments, LLC (ECF No. 273).
The issues
have been briefed, and the court now rules, no hearing deemed
necessary.
Local Rule 105.6.
For the following reasons, the
motions will be granted in part and denied in part.
I.
Background
On March 30, 2010, the court granted a motion for summary
judgment
filed
by
Plaintiff
TransPacific
Tire
&
Wheel,
Inc.
(“TransPacific”),
TransPacific’s
amount
of
on
amended
Counts
One,
complaint
$2,200,360.71,
plus
Two,
and
and
entered
prejudgment
Eleven
judgment
interest,
of
in
the
against
Defendant Orteck International, Inc. (“Orteck International”).
(ECF Nos. 70, 71).
Orteck International was found liable for
breach of contract and conversion.
On April 26, 2010, Orteck
International filed a notice of appeal.
(ECF No. 76).
The next
day, Orteck International filed a motion to stay execution of
the judgment and to waive the supersedeas bond during pendency
of the appeal.
(ECF No. 78).
On May 4, 2010, the parties filed
a joint motion for final judgment.
denied
the
motion
to
stay
judgment on July 13, 2010.
and
(ECF No. 81).1
granted
the
motion
(ECF Nos. 83, 84).
The court
for
final
On November 17,
2011, the United States Court of Appeals for the Fourth Circuit
affirmed the grant of summary judgment and final judgment.
(ECF
No. 253).
Separately, on July 28, 2010, and pursuant to Federal Rule
of
Civil
Procedure
TransPacific,
as
the
69(a)(1)
Judgment
and
Maryland
Creditor,
moved
Rule
for
2-645,
writs
of
garnishment as to a number of entities, including Garnishees
Harbhajan Veen and Sanjeet S. Veen (“the Veens”), Orteck Global
Supply & Distribution Company, LLC (“Orteck Global”), Metro Tire
1
Orteck International sought entry of final judgment to
perfect its appeal.
2
Wholesale,
LLC
(“Metro
Tire”),
and
Venetian
Investments,
(“Venetian”) (collectively, “the Garnishees”).2
86).
LLC
(ECF Nos. 85,
The clerk issued writs of garnishment as to the Garnishees
on July 30, 2010.
Maryland
denying
Rule
that
(ECF Nos. 87, 89, 90, 92, 103).
2-645(e),
they
the
held
Pursuant to
Garnishees
answered
the
writs,
property
belonging
to
Orteck
any
International, the Judgment Debtor.
(ECF Nos. 153, 157, 165,
173, 174).
On
October
13,
2010,
TransPacific
timely
filed
replies,
contesting the Garnishees’ answers to the writs of garnishment.
(ECF Nos. 199, 200, 201, 202, 203).
Thus, per Maryland Rule 2-
645(g), “an original action between the judgment creditor as
plaintiff and the garnishee as defendant” commenced, Paul V.
Niemeyer & Linda M. Schuett, Maryland Rules Commentary 571 (3d
ed.
2003),
with
complaints, see id.
TransPacific’s
replies
constituting
the
Twenty-one days later, TransPacific amended
these replies as of right (“the Amended Replies”), clarifying
the grounds for relief upon which it sought garnishment.
(ECF
Nos. 215, 216, 217, 218, 219).
As to Venetian and Metro Tire, TransPacific asserts one
count of fraudulent conveyance against each.
2
According to the
Certain issues discussed in this memorandum opinion
concern only the Veens and Orteck Global.
That subset of the
Garnishees will be referred to as “the Veen/Global Garnishees.”
3
Amended Replies, Venetian was formed in November 2003, and Metro
Tire was formed in January 2004, before most of the events that
gave rise to the underlying suit between TransPacific and Orteck
International.
TransPacific
(See ECF No. 219 ¶¶ 9-11; ECF No. 218 ¶¶ 9-11).
alleges
that,
like
Orteck
International,
both
Venetian and Metro Tire are “owned and controlled” by one or
both of the Veens.
(ECF No. 219 ¶ 13; ECF No. 218 ¶ 13).
Between March 2005 and September 2007 — after TransPacific had
filed suit against Orteck International — Orteck International
transferred
“at
least
$422,924”
$550,997” to Metro Tire.
to
Venetian
and
“at
least
(ECF No. 219 ¶ 14; ECF No. 218 ¶ 14).
Neither Venetian nor Metro Tire paid “fair consideration” for
these transfers.
As
(1)
to
(ECF No. 219 ¶ 15; ECF No. 218 ¶ 15).
Orteck
fraudulent
Global,
Transpacific
conveyance;
(2)
fraud;
asserts
and
three
(3)
counts:
alter
ego.
According to the Amended Replies, Orteck Global was established
on April 26, 2004.
that
“Orteck
Global
(ECF No. 215 ¶ 10).
had
no
significant
TransPacific alleges
independent
business
until after TransPacific filed [the underlying] lawsuit against
Orteck
International.”
(Id.
¶
13).
Again,
like
Orteck
International, Orteck Global is “owned and controlled” by one or
both of the Veens.
(Id. ¶ 14).
Between May 2005 and April
2007, Orteck International transferred “more than $1.3 million”
to
Orteck
Global.
(Id.
¶
15).
4
In
addition,
Orteck
International transferred “all of the tangible and intangible
assets
associated
not
with
including
but
goodwill
associated
its
limited
tire
to
with
the
the
business
to
‘Orteck’
‘Orteck’
Orteck
name;
all
name
and
Global,
of
the
Orteck
International’s business; Orteck International’s customer lists;
Orteck
International’s
office
International’s phone number.”
equipment;
(Id. ¶ 16).
and
Orteck
Orteck Global did
not pay “fair consideration” for these transfers.
(Id. ¶ 17).
TransPacific
occasionally
further
alleges
that
Orteck
Global
still uses the name “Orteck International” to conduct its tire
business.
(Id. ¶ 22).
Finally, as to the Veens, TransPacific asserts three counts
as well:
ego.
(1) fraudulent conveyance; (2) fraud; and (3) alter
TransPacific alleges that Harbhajan Veen is the majority
owner and president of Orteck International and that Sanjeet
Veen is the minority owner and vice president.
9; ECF No. 217 ¶ 9).
(ECF No. 216 ¶
TransPacific generally alleges that the
Veens owned and controlled Orteck International, Orteck Global,
Venetian, and Metro Tire, and caused Orteck International to
transfer its property to themselves and to the other entities to
avoid
having
to
pay
International
in
the
the
judgment
underlying
entered
action.
against
For
Orteck
example,
in
addition to the allegations set forth above in the other Amended
Replies,
TransPacific
contends
5
that
Orteck
International
transferred “at least $230,000” to Sanjeet Veen.
13).
In
2006,
Sanjeet
Veen
caused
Orteck
purchase several vehicles on his behalf.
(ECF No. 216 ¶
International
(See id. ¶ 15).
to
It
also made regular payments on a loan for another vehicle owned
by the Veens.
(See ECF No. 217 ¶ 13).
Orteck International
later transferred “an interest” in all of these vehicles to the
Veens.
(ECF No. 216 ¶ 16; ECF No. 217 ¶ 14).
made a payment on the Veens’s swimming pool.
ECF No. 217 ¶ 15).
At one point, it
(ECF No. 216 ¶ 17;
The Veens did not pay “fair consideration”
for any of these transfers.
(ECF No. 216 ¶ 47; ECF No. 217 ¶
45).
On November 22, 2010, the Veen/Global Garnishees filed a
partial motion to dismiss or, in the alternative, for summary
judgment as to the second and third counts against them.
No. 223).
(ECF
That same day, each Garnishee filed an “answer” to
the Amended Replies.
(ECF Nos. 224, 225, 226, 227, 228).3
After
full briefing, Magistrate Judge Connelly denied the motion as
premature.
On
motions
(ECF No. 233).
February
for
17,
summary
Discovery then commenced.
2012,
the
judgment.
Garnishees
(ECF
filed
the
Nos.
272,
pending
273).
TransPacific filed a consolidated opposition on March 5, 2012.
(ECF No. 275).
None of the Garnishees replied.
3
The Veen/Global Garnishees amended their respective
“answers” on February 25, 2011. (ECF Nos. 237, 238, 239).
6
II.
Standard of Review
The Garnishees style their respective motions as ones for
summary judgment, but they are, in effect, motions for judgment
on the pleadings under Federal Rule 12(c).
not
challenge
TransPacific’s
evidence
The Garnishees do
exactly.
Instead,
the
parties base all of their arguments solely on the pleadings,
essentially treating the alleged facts as undisputed “evidence.”4
Some
courts
have
formally
converted
a
motion
for
summary
judgment to a motion for judgment on the pleadings in similar
situations.
E.g., Dyal v. Union Bag-Camp Paper Corp., 263 F.2d
387, 391 (5th Cir. 1959); Miller v. Gain Fin., Inc., No. IP 90–
1760–C, 1992 WL 494966, at *1 (S.D.Ind. Sept. 22, 1992), aff’d,
995 F.2d 706 (7th Cir. 1993); see also 10A Charles Alan Wright,
Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure
§ 2722, at 368 (3d ed. 1998) (“[I]f the motion [for summary
judgment] is made solely on the basis of one or more pleading,
it is equivalent to a motion under Rule 12(b)(6) for a dismissal
for failing to state a claim for relief or under Rule 12(c) for
a judgment on the pleadings and should be treated as such.”).
Regardless
of
the
precise
consequence is the same:
treatment
here,
the
practical
assuming the facts presented in the
pleadings are true, it must be determined whether judgment in
4
Indeed, the Garnishees attach the Amended Replies as
exhibits in support of their motions. (ECF Nos. 272-1, 273-1).
7
favor
of
the
Garnishees
is
warranted
as
a
matter
of
law.
Compare Davenport v. Davenport, 146 F.Supp.2d 770, 783 (M.D.N.C.
2001) (“Pursuant to Rule 12(c) of the Federal Rules of Civil
Procedure, a party is entitled to a judgment on the pleadings
when no genuine issues of material fact exist, and the case can
be decided as a matter of law.”), with Fed.R.Civ.P. 56(a) (“The
court shall grant summary judgment if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”).
Although the Amended Reply as to Orteck Global mirrors the
Amended Replies as to the Veens, Orteck Global joins Venetian
and
Metro’s
motion
for
summary
judgment.
(ECF
No.
273).
Despite this odd alignment, the bases for the two motions are
largely
identical.
TransPacific’s
“claims
Both
motions
for
fraudulent
seek
judgment
transfers”
as
and
to
“veil
piercing claim” (ECF No. 272, at 2-3; ECF No. 273, at 2-3),
which certainly cover TransPacific’s fraudulent conveyance and
alter ego claims.
The motions will also be construed as seeking judgment as
to TransPacific’s fraud claims, i.e., Count Two of the Amended
Replies
as
to
the
Veen/Global
5
Garnishees.5
Rather
than
In its opposition papers, TransPacific defends its fraud
claims (see ECF No. 16, at 16), which suggests it reads the
Garnishees’ motion the same way.
8
articulate an independent cause of action, however, the fraud
claims appear only to duplicate the fraudulent conveyance claims
or to provide a reason for piercing the corporate veil.
(E.g.,
ECF No. 215 ¶¶ 32-33 (alleging that “Orteck Global . . . was
established . . . to carry out fraudulent conveyances” and that
“[i]n light of this fraud, it is appropriate to disregard the
fiction of separate corporate entities.”)).
fraud
claims
will
be
considered
subject
to
Accordingly, the
the
Garnishees’
motions but will only be discussed in conjunction with the other
claims.
III. Analysis
A.
In
Fraudulent Conveyance
a
garnishment
proceeding,
when
the
judgment
creditor
challenges the answer filed by a garnishee, some special rules
apply to the analysis.
The judgment creditor is said to stand
in the shoes of the judgment debtor, but this is true only as to
certain threshold issues.
For example, the judgment creditor
can assert its own rights against the garnishee if a fraudulent
conveyance is alleged.
As stated by the Court of Appeals of Maryland:
A writ of garnishment is a means of
enforcing a judgment.
It allows a judgment
creditor to recover property owned by the
debtor but held by a third party. . . .
“A
garnishment
proceeding
is,
in
essence, an action by the judgment debtor
for the benefit of the judgment creditor
9
which is brought against a third party, the
garnishee, who holds the assets of the
judgment debtor.
An attaching judgment
creditor is subrogated to the rights of the
judgment debtor and can recover only by the
same right and to the same extent that the
judgment debtor might recover.”
Parkville Fed. Sav. Bank v. Md. Nat’l Bank, 343 Md. 412, 418
(1996) (citations omitted) (quoting Fico, Inc. v. Ghingher, 287
Md. 150, 159 (1980)).
More recently, the Court of Appeals noted
that
[t]he opinions of this Court have emphasized
the principle, growing out of the nature and
function of a garnishment proceeding, that
the creditor merely steps into the shoes of
the debtor and can only recover to the same
extent as could the debtor.
Bragunier Masonry Contractors, Inc. v. Catholic Univ. of Am.,
368 Md. 608, 623 (2002).
There
general
is,
rule[:]
however,
where
“a
the
well-recognized
debtor
has
exception
fraudulently
to
the
conveyed
property to another[,] the grantee may be charged as garnishee,
even though the grantor cannot maintain a suit for its recovery
against the grantee.”
Dodson v. Temple Hill Baptist Church,
Inc., 248 Md. 697, 703 (1968).
Similarly, the Court of Special
Appeals of Maryland, citing Damazo v. Wahby, 269 Md. 252 (1973),
explained that an in personam judgment can be entered against
the
person
to
whom
a
transfer
10
was
wrongfully
made.
See
Molovinsky v. Fair Emp’t Council of Greater Wash., Inc., 154
Md.App. 262, 283-84 (2003).
The Court in Molovinsky also noted that section 15-209 of
the Commercial Law Article of the Maryland Code provides that a
creditor has the option of either having a fraudulent conveyance
set aside or disregarded so that the property conveyed can be
attached.
See id. at 284.
Specifically, that statute reads:
“If a conveyance . . . is fraudulent as to a creditor whose
claim
has
matured,
the
creditor
.
.
.
may:
(1)
Have
the
conveyance set aside . . . to the extent necessary to satisfy
the claim; or (2) Levy on or garnish the property conveyed as if
the conveyance were not made.”
Md. Code Ann., Com. Law § 15-
209(a).
1.
Bragunier Does Not Foreclose a Fraudulent Conveyance
Claim in a Garnishment Proceeding
Despite the foregoing law, the Garnishees contend that the
Court of Appeals in Bragunier actually held that “no claim for
fraudulent
(ECF
No.
correctly
conveyance
272,
at
argues
will
3;
(ECF
ECF
lie
No.
No.
in
a
273,
275,
garnishment
at
at
4).
As
5-6),
the
proceeding.”
TransPacific
Garnishees
misconstrue the Bragunier decision.
In Bragunier, Bragunier Masonry Contractors, Inc. (“BMC”),
a
subcontractor,
sued
Edward
M.
Crough,
Inc.
(“Crough”),
a
general contractor, for breach of contract and obtained a money
11
judgment against Crough.
368 Md. at 618.
When BMC was unable
to collect the judgment, it commenced a garnishment proceeding
against
The
Catholic
University
of
part, pursuant to section 15-209.
relevant
had
Catholic, the payment for which it ultimately waived.
Id.
BMC
release
performed
During the
for
Crough’s
Crough
Id. at 618-19.
in
work
that
period,
(“Catholic”),
some
alleged
time
America
of
Catholic
from
Catholic’s
obligation to pay constituted a fraudulent conveyance, and BMC
sought to garnish the monies that Catholic should have paid for
the work.
Id. at 619.
The Court of Appeals did not balk at the fact that BMC
chose to assert its rights under section 15-209 in a garnishment
proceeding.
that
its
Instead, the Bragunier court repeatedly made clear
ultimate
decision
in
the
case
—
that
BMC’s
claim
against Catholic was barred by the statute of limitations —
turned
on
the
distinctive
nature
of
garnishment
proceedings.
Compare id. at 624 n.11 (declining to address the rights of a
creditor relative to a debtor “in a direct action to set aside a
fraudulent conveyance”), with id. at 628 (discussing Catholic’s
limitations defense as to the fraudulent conveyance claim “[i]n
a garnishment action, the type of action [BMC] chose to file”),
and
id.
at
Catholic’s
632
(explaining
defenses
garnishment action).
“upon
the
nature
[BMC’s]
of
BMC’s
choosing”
to
rights
bring
and
a
Thus, Bragunier actually reinforces the
12
propriety
of
bringing
a
fraudulent
conveyance
claim
under
section 15-209 in a garnishment action.
The flaw in the Garnishees’ reading of Bragunier is their
failure
to
recognize
conveyance
actions.
proceeding
here
the
While
is
excepted
it
roughly
is
nature
of
fraudulent
that
the
garnishment
true
dictated
by
the
rights
of
the
Judgment Debtor, Orteck International, and that as “a knowing
participant”
in
the
alleged
fraudulent
conveyances,
Orteck
International “could not have been defrauded by them” (ECF No.
272, at 6; ECF No. 273, at 6),6
that
a
outside
fraudulent
the
conveyance
general
rule
it is well-settled in Maryland
by
the
judgment
that
the
judgment
debtor
falls
creditor
is
subrogated to the rights of the judgment debtor, see Dodson, 248
Md. at 703; see also Catholic Univ. of Am. v. Bragunier Masonry
Contractors,
Inc.,
139
Md.App.
277,
295
(2001)
(“Although
garnishment ordinarily will not have the effect of changing the
nature of the rights between the defendant/judgment debtor and a
person to whom he has transferred assets, there is an exception
to that rule when there has been a fraudulent conveyance by the
6
The Garnishees’ observation that the release in Bragunier
effected by Crough “did not constitute a fraud as between the
parties to it” (ECF No. 272, at 5; ECF No. 273, at 5) has no
bearing on the above analysis. That conclusion by the Court of
Appeals had to do with the applicability of the discovery rule
to Crough’s potential cause of action against Catholic, not
whether that cause of action could be maintained.
See
Bragunier, 368 Md. at 628-29.
13
judgment debtor.”), aff’d, 368 Md. 608 (2002).
Consequently,
neither Orteck International’s knowledge of the conveyances nor
the
broader
fact
that
TransPacific
chose
to
contest
the
conveyances in a garnishment action bars TransPacific’s section
15-209 claims.
2.
Some of TransPacific’s Fraudulent Conveyance Claims
Are Barred by the Statute of Limitations
The Garnishees advance a related argument that, according
to
Bragunier,
the
three-year
limitations
period
for
TransPacific’s fraudulent conveyance claims expired before the
Amended Replies were filed.
273, at 6-7).
(See ECF No. 272, at 6; ECF No.
TransPacific disputes both the date of accrual of
the claims and the action it must take within the statute of
limitations to preserve its claims.
(See ECF No. 275, at 6-10).7
Neither side’s position is wholly accurate.
Although
the
Garnishees
are
correct
that
the
Amended
Replies are treated as complaints (ECF No. 272, at 6 n.1; ECF
No. 273, at 7 n.1), they point to no authority suggesting that
the filing of those papers (or, more accurately, the original
replies to the Garnishees’ answers to the writs) must occur
within
the
applicable
statute
of
7
limitations.
In
contrast,
TransPacific does not dispute the length of the statute of
limitations period itself, which for all civil actions in
Maryland is generally three years.
Md. Code Ann., Cts. & Jud.
Proc. § 5-101.
14
TransPacific
notes
that
the
Court
of
Appeals
in
Bragunier
indicated that the filing of the request for writ of garnishment
is the key act.
Md.
at
630)).8
(ECF No. 275, at 7 n.2 (citing Bragunier, 368
Here,
TransPacific
garnishment on July 28, 2010.
requested
the
(ECF Nos. 85, 86).
writs
of
Thus, if any
of TransPacific’s fraudulent conveyance claims accrued prior to
July 28, 2007, those claims are barred.
As
to
when
TransPacific’s
fraudulent
conveyance
actually accrued, Bragunier is once again instructive.
claims
“[I]n a
garnishment proceeding[, because] the creditor steps into the
shoes of the debtor . . . , the creditor also steps into the
shoes of the debtor for limitations purposes.”
Md. at 629.
Bragunier, 368
“[T]he limitations issue relates to the point in
time that [the garnishee’s] obligation (if any existed) to pay
[the debtor] became an obligation to pay.”
Id. at 628-29.
In
Bragunier, “[t]hat obligation . . . , if it existed, became an
obligation when [Crough’s work] was completed.”
Id. at 629.
To
reach that conclusion, the Court of Appeals hypothesized that
the
“only
underlying
action
available
for
[Crough]
against
[Catholic] in a Maryland court would be a breach of contract
8
Similarly, the Court of Special Appeals pointed to the
filing of the request for writ of garnishment as the necessary
action. See Catholic Univ. of Am., 139 Md.App. at 297-98.
15
action
for
any
nonpayment
under
[Crough] might have demanded.”
Following
the
Bragunier
the
[work
contract]
that
Id.
court’s
lead,
to
determine
the
accrual date of TransPacific’s fraudulent conveyance claims, it
is necessary to imagine a scenario in which Orteck International
chooses
to
property.
sue
the
Garnishees
In
this
case,
to
Orteck
recover
any
transferred
International
allegedly
transferred various sums of money and business items to the
Garnishees without receiving any benefit in return.
Thus, if
Orteck International were to sue the Garnishees to get those
items back, its likely action would be in the nature of unjust
enrichment.
See Balt. City Bd. of Sch. Comm’rs v. Koba Inst.,
Inc., 194 Md.App. 400, 422-23 (2010) (describing the elements of
unjust enrichment as “1. A benefit conferred upon the defendant
by
the
plaintiff;
2.
An
appreciation
or
knowledge
by
the
defendant of the benefit; and 3. The acceptance or retention by
the defendant of the benefit under such circumstances as to make
it inequitable for the defendant to retain the benefit without
the
payment
of
its
value”).
And
the
date
of
accrual
for
limitations purposes would likely be the date the transfers were
made.
See id. at 420-21 (predicting, without deciding, that the
statute of limitations of an unjust enrichment claim begins to
run from the date “the services are performed” and not the date
a demand for payment is made or refused).
16
TransPacific’s
argument
that
its
fraudulent
conveyance
claims accrued “when it discovered in the course of attempting
to collect on the . . . judgment that Orteck [International] was
insolvent and had fraudulently transferred its assets away to
[the Garnishees] without fair consideration” (ECF No. 275, at
10) can be dismissed because it relies on a faulty premise:
that “this is a ‘direct action’ . . . ‘to set aside a fraudulent
conveyance’” (id.).
TransPacific is mistaken, as its fraudulent
conveyance claims are contained in the Amended Replies, which,
as previously noted, set forth the causes of action in this
garnishment proceeding.
The statute of limitations is an affirmative defense that
ordinarily must be pleaded and proven by the party asserting it.
See Newell v. Richards, 323 Md. 717, 725 (1991) (“As a general
rule, the party raising a statute of limitations defense has the
burden of proving that the cause of action accrued prior to the
statutory time limit for filing the suit.”); see also Md. Rule
2-323(g) (requiring a defendant to plead specially a statute of
limitations
defense).
When
the
parties
rely
solely
on
the
pleadings, the defense will only prevail if it categorically
appears
on
the
face
limitations has run.
of
the
pleadings
that
the
statute
of
See Alexander v. City of Greensboro, 801
F.Supp.2d 429, 445 (M.D.N.C. 2011) (“[A]n affirmative defense .
. . may only be reached at the [motion for judgment on the
17
pleadings] stage if the facts necessary to deciding the issue
clearly appear on the face of the pleadings.”).
Therefore, as
the answering parties, the Garnishees must clearly establish via
the pleadings that TransPacific’s fraudulent conveyance claims
are time-barred.
Under the circumstances here, the statute of limitations
will bar any transfers that were made prior to July 28, 2007.
TransPacific’s claims against Metro Tire and Venetian are not
foreclosed because, although Orteck International’s transfers to
them occurred “between March 2005 and September 2007” (ECF No.
218 ¶ 14; ECF No. 219 ¶ 14), the Amended Replies do not provide
sufficient
facts
to
discern
how
transferred before July 28, 2007.
much
money
was
actually
The same cannot be said about
Orteck Global or the Veens, however, at least as to certain
items.
With respect to the Veens, the only conveyances that
TransPacific may potentially garnish are the “interest” in any
vehicles that Orteck International transferred and the payments
on the swimming pool (ECF No. 216 ¶¶ 16-17; ECF No. 217 ¶¶ 1415), all of which occurred on unspecified dates.
All other
conveyances allegedly occurred in 2006 or earlier (ECF No. 216
¶¶ 13, 15; ECF No. 217 ¶ 13); thus, they are beyond the scope of
this
action.
With
respect
to
Orteck
Global,
conveyances within reach are the business items.
16).
the
only
(ECF No. 215 ¶
The $1.3 million transfer cannot be recovered in this
18
garnishment proceeding because that amount was conveyed in full
by April 2007.
(Id. ¶ 15).
In sum, the Garnishees’ motions
will be granted in part to the extent TransPacific seeks to
garnish property that was definitely conveyed prior to July 28,
2007.
Their motions will be otherwise denied on these grounds.
B.
Alter Ego
The Veen/Global Garnishees argue that they are not alter
egos of Orteck International; therefore, TransPacific may not
pierce the corporate veil and garnish any property of Orteck
International’s that is allegedly in their possession.
272, at 6-7; ECF No. 273, at 7).
No. 275, at 13-21).
in
favor
of
flawed.
the
(ECF No.
TransPacific disagrees.
(ECF
Although judgment is ultimately warranted
Veen/Global
Garnishees,
their
reasoning
is
Before discussing why this is so, it is necessary to
address a preliminary argument presented by TransPacific.
1.
The Law-of-the-Case Doctrine Does Not Apply
TransPacific argues that the question of whether it has
alleged a “‘claim’ for piercing the corporate veil” has already
been determined by the court, and, thus, the law of the case
doctrine proscribes re-litigation of the issue.
at 13).
(ECF No. 275,
The law-of-the-case doctrine provides that “‘when a
court decides upon a rule of law, that decision should continue
to
govern
case.’”
the
same
issues
in
subsequent
stages
in
the
same
Columbus–Am. Discovery Grp. v. Atl. Mut. Ins. Co., 203
19
F.3d 291, 304 (4th Cir. 2000) (quoting Arizona v. California, 460
U.S. 605, 618 (1983)).
The doctrine is discretionary and not
jurisdictionally required.
“Law-of-the-case principles . . .
are a matter of practice that rests on good sense and the desire
to protect both the court and parties against the burdens of
repeated
reargument
by
indefatigable
diehards.”
18B
Charles
Alan Wright et al., Federal Practice and Procedure § 4478, at
667 (2d ed. 2002).
In this case, while Judge Connelly’s order resolving the
November
22,
2010,
partial
motion
to
dismiss,
or,
in
the
alternative, for summary judgment included some suggestion that
TransPacific had stated a valid claim for veil piercing, the
order ultimately denied the motion as premature.
(ECF No. 233).
Thus, no actual decision was rendered, which is required before
the law-of-the-case doctrine is even implicated.
See Quern v.
Jordan, 440 U.S. 332, 347 n.18 (1979) (“The doctrine of law of
the case comes into play only with respect to issues previously
determined.”).
The intermediate conclusions contained in that
order are dicta and demand no law-of-the-case deference in this
memorandum opinion.
See Bull HN Info. Sys., Inc. v. Hutson, 229
F.3d 321, 326 n.3 (1st Cir. 2000) (“The law of the case doctrine
does not apply to dicta.”).
20
2.
It Is Improper to Pierce the Corporate Veil of a
Judgment Debtor in a Garnishment Proceeding
In Maryland, the corporate veil may be pierced only “where
it is necessary to prevent fraud or enforce a paramount equity.”
Bart Arconti & Sons, Inc. v. Ames-Ennis, Inc., 275 Md. 295, 310
(1975).
The Court of Appeals has identified three discrete
circumstances in which the corporate form may be disregarded:
First.
Where the corporation is used as a
mere shield for the perpetration of a fraud,
the courts will disregard the fiction of
separate corporate entity.
Second.
The
courts
may
consider
a
corporation as unencumbered by the fiction
of corporate entity and deal with substance
rather that form as though the corporation
did not exist, in order to prevent evasion
of legal obligations.
Third.
Where the stockholders themselves,
or a parent corporation owning the stock of
a subsidiary corporation, fail to observe
the corporate entity, operating the business
or dealing with the corporation’s property
as if it were their own, the courts will
also disregard the corporate entity for the
protection of third persons.
Hildreth
v.
Tidewater
Equip.
Co.,
378
Md.
724,
734
(2003)
(quoting Herbert M. Brune, Jr., Maryland Corporation Law and
Practice
§ 371, at 384 (rev. ed. 1953)) (internal quotation
marks omitted).
The third of these circumstances “embodies what
is sometimes called the ‘alter ego’ doctrine.”
The
fact
that
TransPacific
set
out
Id. at 735.
“alter
ego”
as
an
independent ground for relief in the Amended Replies against the
21
Veen/Global
Garnishees
is
somewhat
confusing.
The
Amended
Replies are supposed to set forth specific causes of action for
recovery.
Indeed, as Judge Motz noted in Cadle Co. v. Chipman,
No. JFM-07-00108, 2008 WL 509094 (D.Md. Feb. 21, 2008), because
the reply to a garnishee’s answer to a writ of garnishment “is
to be treated as a complaint,” it is subject to the notice
pleading requirements of Federal Rule 8(a) and may be dismissed
pursuant to Federal Rule 12(b)(6).
pierce
the
corporate
veil,”
Id. at *2.
however,
“is
“[A] suit to
not
itself
an
independent cause of action, ‘but rather is a means of imposing
liability on an underlying cause of action.’”
Nat’l City Bank
v.
B.R.
Lapides
(In
(Bankr.D.Md.
re
2003)
Transcolor
(quoting
1
Corp.),
C.
296
Keating
&
G.
343,
355
O’Gradney,
Fletcher Cyclopedia of the Law of Private Corporations § 41, at
603 (1990)).
papers.
TransPacific admits as much in its opposition
(See ECF No. 275, at 12 (citing Young v. Antar, No.
WDQ-08-1912, 2010 WL 2039091, at *6 (D.Md. May 20, 2010)).
As
noted
earlier,
TransPacific’s
fraud
claim
could
be
interpreted as grounding the alter ego count in a legitimate
cause of action.
Global
is
a
shield
(See, e.g., ECF No. 215 ¶¶ 32-33 (“Orteck
for
the
perpetration
of
a
fraud
against
TransPacific. . . . In light of this fraud, it is appropriate to
disregard the fiction of separate corporate entities . . . .”)).
To that end, it appears that TransPacific’s alter ego and fraud
22
counts, read together, seek to hold the Veen/Global Garnishees
liable for the underlying judgment against Orteck International
because they are alter egos of Orteck International.
its
Amended
Reply
as
to
Orteck
Global,
Indeed, in
TransPacific
alleges
“Orteck Global is the alter ego of Orteck International” and
“TransPacific prays for judgment against Orteck Global for the
full
amount
of
the
International.”
judgment
(ECF
No.
already
215
¶¶
entered
35,
37)
against
(emphasis
Orteck
added).
Similarly, in the Amended Replies as to the Veens, “TransPacific
prays for judgment against [Sanjeet S.] Veen for the full amount
of the judgment already entered against Orteck International”
(ECF No. 216 ¶ 57) (emphasis added), and “TransPacific prays for
judgment against [Harbhajan] Veen for the full amount of the
judgment already entered against Orteck International” (ECF No.
217 ¶ 55) (emphasis added).
opposition,
TransPacific
determination
entities.’”
of
whether
Furthermore, in its consolidated
broadly
states
multiple
entities
(ECF No. 275, at 12).
that
it
exist
“seeks
as
‘a
separate
In other words, TransPacific
is not invoking an alter ego theory to hold that the Veen/Global
Garnishees are responsible for monies the Veen/Global Garnishees
themselves
precisely
owe
the
to
Orteck
focus
of
International.
this
garnishment
But
that
issue
proceeding.
is
See
Bragunier, 368 Md. at 622 (“A garnishment proceeding is, in
essence, an action by the judgment debtor for the benefit of the
23
judgment creditor which is brought against a third party, the
garnishee,
who
holds
(emphasis added)).
the
corporate
the
assets
of
the
judgment
debtor.”
Therefore, TransPacific’s attempt to pierce
veil
of
Orteck
International
via
a
writ
of
garnishment is misplaced.
The Court of Special Appeals in LVI Environmental Services,
Inc. v. Academy of IRM, 106 Md.App. 699 (1995), aff’d, 344 Md.
434 (1997), confronted a similar attempt by a judgment creditor
to garnish property based on a theory that the garnishees were
effectively the same entity as the judgment debtor.
arose
in
liability.
on
an
the
analogous
context
of
The case
successor-corporation
There, Academy of IRM (“Academy”), the subcontractor
asbestos
removal
project
concerning
Fort
Belvoir
in
Virginia, sued Diversified Environmental Group, Inc. (“DEG”),
and Desco Insulation Company (“Desco”), the general contractors,9
for monies owed on the contract.
Id. at 703.
After default
judgment was entered against DEG and Desco, Academy sought to
garnish the overdue payments from LVI Environmental Services,
Inc. (“LVI”), the assignee of certain rights arising out of the
Fort
Belvoir
contract.
Id.
at
705.
In
the
subsequent
garnishment action, Academy argued that “DEG/Desco and LVI were,
in
reality,
the
same
entity,
9
i.e.,
that
LVI
was
a
mere
DEG “occasionally operated under the trade name” Desco.
Id. at 701.
24
continuation of DEG/Desco”; thus, LVI should be held responsible
for the underlying judgment against DEG/Desco.
Id.
at 709.
Moreover, LVI was on notice that Academy was seeking to hold it
liable as garnishee based on a theory of successor-corporation
liability.
Id.
The Court of Special Appeals rejected Academy’s arguments.
Noting that “[i]n a garnishment proceeding, the rights of the
creditor cannot rise above the rights of the debtor,” id. at
708, the court explained that the garnishment action was not the
proper avenue of relief in this situation:
Academy of IRM . . . had a direct cause of
action
against
LVI
as
the
successor
corporation of DEG/Desco.
LVI, however, is
not subject to garnishment by Academy of
IRM. Academy of IRM could not transform the
garnishment proceeding into a direct cause
of action against LVI and proceed on a
theory of successor corporation liability.
Id. at 709.
liability,
In sum, it was not proper to apply a theory of
such
as
successor-corporation
liability,
for
an
underlying cause of action in a garnishment proceeding.10
Here, just as Academy argued that the judgment debtor and
the garnishees “were, in reality, the same entity,” TransPacific
contends
that
Orteck
International
10
and
the
Veen/Global
The Court of Appeals ultimately held that even if Academy
of IRM had properly raised the issue of successor-corporation
liability in the underlying proceeding, LVI would not have been
found liable. 344 Md. at 454.
25
Garnishees are essentially the same entity based upon a theory
of alter ego liability.
As the same entity, the argument goes,
the Veen/Global Garnishees should be held responsible for Orteck
International’s
debt
to
TransPacific.
Because
this
case
is
currently proceeding upon a writ of garnishment, however, Orteck
International’s debt does not matter; rather, the Veen/Global
Garnishees’ debts to Orteck International do.
stepped
into
the
shoes
of
Orteck
TransPacific has
International.
It
cannot
“transform the garnishment proceeding into a direct cause of
action” between TransPacific and the Veen/Global Garnishees and
proceed on a theory of alter ego liability.
Accordingly, to the
extent Count Three (or Count Two) of the Veen/Global Garnishees
Amended Replies seeks to impose liability on the Veen/Global
Garnishees
for
the
underlying
judgment
against
Orteck
International, judgment is warranted in their favor.
IV.
Conclusion
For the foregoing reasons, the motions for summary judgment
filed
by
Garnishees
Harbhajan
Veen,
Sanjeet
S.
Veen,
Global
Supply & Distribution Company, LLC, Metro Tire Wholesale, LLC,
and Venetian Investments, LLC will be granted in part and denied
in part.
A separate order will follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
26
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