Schwartz v. JJF Mgm’t Servs. Inc. (P)

This appeal represents the latest salvo in the scorched-earth assault by the appellant and one of its franchisees. The district court properly denied the appellant’s third-party claim to funds in certain deposit accounts that the franchisee sought to garnish in his effort to satisfy a contempt award against the appellant’s subsidiary for engaging in a pattern of bad-faith conduct.

This court shares the district court’s concerns that at the end of the day, the appellant’s motion under Maryland Rule 2-643(e) is one more shameless attempt to avoid paying the contempt award owed to the appellee. The court will not allow the appellant – an insider of the subsidiary, whose attempts to frustrate the franchisee’s rights and collection of the contempt award have been well-documented – to jump the line of priorities that Maryland secured transactions law establishes without a clear showing that the appellant is actually entitled to the funds in the deposit accounts at issue.

Moreover, neither claim preclusion nor issue preclusion bars the appellee’s claims as franchisee. Accordingly, the debtor-in-possession financing order does not have preclusive effect under principles of res judicata. Otherwise, two related parties could strip a third party of his legitimate claims to assets by negotiating an insider financing agreement pursuant to a sham bankruptcy.

The district court is instructed to take whatever measures it deems appropriate to protect the judicial process with respect to its contempt orders.

Affirmed.

Schwartz v. JJF Mgm’t Servs. Inc. (P), No. 18-2160, Apr. 29, 2019. 4th Cir. (Duncan) from DMD at Baltimore (Messitte).



Categories: 4th U.S. Circuit Court of Appeals, Opinions, Published

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