Minh-Vu Hoang v. Lowery

469 Md. 95

228 A.3d 1148

MINH-VU HOANG

v.Jeffrey LOWERY

No. 17, Sept. Term, 2019

Court of Appeals of Maryland.

June 5, 2020

Reconsideration Denied July 13, 2020

Argued by Ronald L. Schwartz (of College Park, MD) on brief for Petitioner.

Argued by Carlos M. Recio (of Washington, DC) on brief for Respondent.

Argued Before: Barbera, C.J. McDonald, Watts, Hotten, Getty, Booth, Greene, Clayton, Jr. (Senior Judge, Specially Assigned), JJ.

Booth, J.

Perhaps the single most defining feature of federal bankruptcy law in the United States is the ultimate discharge of a person's pre-existing debts. This discharge of indebtedness embodies a deeply-held American ideal—the notion that, despite bad luck or bad judgment, people deserve a second chance to build a life for themselves and contribute to our great national experiment.

Not all insolvent debtors who seek a fresh start receive one, though. The federal bankruptcy court may deny discharge to debtors who commit egregious misconduct in the administration of their cases, such as through acts to defraud their creditors or their court-appointed bankruptcy trustee; to conceal, alter, or destroy records; or to mislead the court. Moreover, entry of an order denying discharge also lifts the stay that federal law provides to shield debtors from actions by their creditors while their bankruptcy cases proceed.

Petitioner Minh-Vu Hoang is an insolvent debtor currently participating in an active bankruptcy case pending before the United States Bankruptcy Court for the District of Maryland. Respondent Jeffrey Lowery is an unsecured creditor of Ms. Hoang who holds a claim in Ms. Hoang's bankruptcy case arising from a judgment he obtained against her in the Circuit Court for Montgomery County in 2002.

Ms. Hoang filed her bankruptcy petition in May 2005 and the matter remains pending. Administration of Ms. Hoang's bankruptcy estate has taken an unusually long time and required a great deal of effort. Foremost, Ms. Hoang held extensive assets through a complex array of entities. Early in the administration of her estate, the bankruptcy court also determined that Ms. Hoang had attempted to hide assets and circumvent federal law. For those bad acts, the court issued an order denying Ms. Hoang a discharge of indebtedness, forfeiting her right to a fresh start, and lifting the stay on actions against her.

With great difficulty, approximately $19 million of Ms. Hoang's assets have been discovered and claimed by the court-appointed trustee of her bankruptcy estate. Much to the distress of Ms. Hoang's creditors, though, the administration of her estate has generated more than $16 million in legal, accounting, and other related fees.

Sensing that his unsecured claim would not be satisfied when estate funds are ultimately distributed, Mr. Lowery sought to garnish the proceeds of a settlement Ms. Hoang received in 2016 that the bankruptcy court segregated from her bankruptcy estate. Ms. Hoang challenged the writ of garnishment, arguing that Mr. Lowery's judgment had expired under Maryland Code (1974, 2013 Repl. Vol., 2019 Cum. Supp.), Courts & Judicial Proceedings Article ("CJ") § 5-102(a)(3) 12 years from its date of entry because he had not renewed it pursuant to Maryland Rule 2-625. Mr. Lowery argued that CJ § 5-202 (the "Tolling Statute") tolled the time to renew his judgment until after Ms. Hoang's bankruptcy case was finally closed.

The Circuit Court for Montgomery County quashed Mr. Lowery's writ of garnishment. The Court of Special Appeals reversed, holding that CJ § 5-202 tolls the statute of limitations on a claim against a bankruptcy debtor during the pendency of a bankruptcy which results in an "unsuccessful" outcome to the debtor—either through the dismissal of a petition or , as in this case, the denial of a discharge but a continuation of the bankruptcy proceeding.

Ms. Hoang filed a petition for writ of certiorari with this Court, which we granted to consider the following question, which we have rephrased and consolidated as follows:

Did the Court of Special Appeals err in holding that CJ § 5–202 tolls the statute of limitations running on a claim against a bankruptcy debtor, from the filing of a bankruptcy petition until the closure of the bankruptcy case, where the debtor is denied a discharge in bankruptcy, and which does not result in a "dismissal" of the bankruptcy proceeding?¹

We hold that under the plain language of CJ § 5-202, the statute does not operate to toll the statute of limitations on a claim against a bankruptcy debtor that does not result in a dismissal of the petition. Accordingly, we reverse the judgment of the Court of Special Appeals.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. Debt Owed to Mr. Lowery

Mr. Lowery obtained a default judgment against Ms. Hoang in the amount of $16,987 in the Circuit Court for Montgomery County in April 2002. With interest, Mr. Lowery's judgment totaled over $41,000 by July 2016. In Maryland, a money judgment expires after 12 years, unless it is renewed before it expires. See CJ § 5-102(a)(3) ; Md. Rule 2-625. Under Maryland Rule 2-625, to renew a judgment, Mr. Lowery needed to file a "notice of renewal" with the clerk of the court within the 12-year period, "and the clerk shall enter the judgment renewed." Mr. Lowery did not renew the judgment within the 12-year period, which expired on April 11, 2014. Accordingly, the judgment expired unless the limitations period was tolled.

B. Ms. Hoang's Bankruptcy

Ms. Hoang filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland in May 2005. In October 2005, Ms. Hoang's bankruptcy case was converted to a liquidation under Chapter 7, and a Chapter 7 trustee was appointed. In March 2006, as a result of Ms. Hoang's attempts to conceal her assets from the government, the bankruptcy court issued an order denying Ms. Hoang a discharge of indebtedness pursuant to 11 U.S.C. § 727. Instead of dismissing Ms. Hoang's bankruptcy case because of her fraudulent and deceitful conduct, the Chapter 7 trustee continued to marshal Ms. Hoang's pre-filing assets for eventual distribution to creditors. The Chapter 7 proceeding is ongoing.

Upon the entry of the bankruptcy court's order denying Ms. Hoang's discharge, unsecured judgment creditors such as Mr. Lowery were no longer barred by the "automatic stay" provisions of 11 U.S.C. § 362(a) that enjoined collection actions against Ms. Hoang. In other words, once the automatic stay expired on March 22, 2006, any impediment under federal bankruptcy law which may have prevented Mr. Lowery from renewing his judgment prior to its 12-year expiration was eliminated.

C. 2016 Settlement Recovery

In April 2016, Ms. Hoang received $87,000 in the settlement of an unrelated real estate dispute involving a defunct limited liability company ("LLC") of which she was the sole member and manager. As part of the settlement, the bankruptcy trustee would receive $43,500 and the LLC would receive the remaining $43,500, which would pass directly to Ms. Hoang and remain separate from the bankruptcy estate. Ms. Hoang's settlement funds were vulnerable to creditor claims because she had been denied a discharge and had lost the protection of the automatic stay. Mr. Lowery learned of the settlement, and he served Ms. Hoang's attorney (who was holding the settlement funds in escrow) with a writ of garnishment in the amount of $41,294.31 for the 2002 judgment plus interest.

Ms. Hoang moved to quash the writ of garnishment on the basis that Mr. Lowery's judgment was more than 12 years old and had expired pursuant to the 12-year statute of limitations set forth in CJ § 5-102(a)(3). Ms. Hoang contended that the automatic stay expired on March 22, 2006, when the bankruptcy court denied the discharge, and Mr. Lowery never renewed his judgment, which expired on April 11, 2014, over two years prior to the issuance of the writ of garnishment. Mr. Lowery responded that his time for renewing the judgment had been extended by operation of CJ § 5-202. The circuit court agreed with Ms. Hoang and found that CJ § 5-202 did not toll the limitations period on Mr. Lowery's judgment. Mr. Lowery appealed.

D. Court of Special Appeals

The Court of Special Appeals reversed the circuit court, holding that CJ § 5-202 tolls the statute of limitations for renewing judgments where a debtor's bankruptcy case has been dismissed or where the case is not dismissed, but the bankruptcy court denies the debtor a discharge pursuant to 11 U.S.C. § 727 and the case continues. In reaching its holding, the Court of Special Appeals reviewed Maryland's insolvency laws enacted in the 1800s and categorized historical insolvency proceedings into "successful" and "unsuccessful" proceedings.

Specifically, the court defined a "successful" insolvency under traditional Maryland practice as one in which the debtor's nonexempt assets would be marshalled and distributed to their creditors in exchange for a discharge of their debts. Lowery v. Hoang , 240 Md. App. 240, 247–48, 203 A.3d 16 (2019). Conversely, the Court of Special Appeals determined that an "unsuccessful" insolvency under traditional Maryland practice was one in which the creditors did not receive the debtor's available assets and the debtor did not receive a discharge. Id. at 248, 203 A.3d 16. In such cases, Maryland insolvency law preserved creditors' claims and, through operation of the predecessor statute of CJ § 5-202, all parties returned to their pre-petition status. Id.

The Court of Special Appeals then similarly characterized the potential outcomes of modern bankruptcy actions under federal law. In the Court of Special Appeals' view, a "successful" bankruptcy action today is one that results in a "closure," after the bankruptcy trustee marshals all of the debtor's nonexempt assets, distributes them to their creditors, and the debtor receives a discharge of remaining indebtedness. Id....