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Schwartz v. J.J.F. Management Services, Inc.

United States Court of Appeals, Fourth Circuit

April 29, 2019

DAVID SCHWARTZ, d/b/a Rent A Wreck; RENT A WRECK, INC., d/b/a Bundy Auto Sales, Plaintiffs - Appellees,
J.J.F. MANAGEMENT SERVICES, INC., Third Party Claimant - Appellant, and RENT A WRECK OF AMERICA, INC.; BUNDY AMERICAN, LLC, Defendants.

          Argued: March 21, 2019

          Appeal from the United States District Court for the District of Maryland, at Baltimore. Peter J. Messitte, Senior District Judge. (1:07-cv-01679-PJM)


          Michael Lichtenstein, SHULMAN, ROGERS, GANDAL, PORDY & ECKER, PA, Potomac, Maryland, for Appellant.

          Roger Charles Simmons, GORDON & SIMMONS, LLC, Frederick, Maryland, for Appellees.

         ON BRIEF:

          Jacob I. Weddle, Charles E. Remus II, GORDON & SIMMONS, LLC, Frederick, Maryland, for Appellees.

          Before WILKINSON and KING, Circuit Judges, and DUNCAN, Senior Circuit Judge.


         This appeal represents the latest salvo in the scorched-earth assault by Appellant J.J.F. Management Services, Inc. ("J.J.F.") and its subsidiary Rent-a-Wreck of America, Inc. ("RAWA") on Appellee David Schwartz, owner of a RAWA franchise territory previously awarded him by a jury verdict over RAWA's objections. J.J.F. appeals from the district court's denial of J.J.F.'s third-party claim to funds in certain deposit accounts that Schwartz sought to garnish in his effort to satisfy a contempt award against RAWA for engaging in a pattern of bad faith conduct.

         J.J.F. contends that it has priority over Schwartz's claims to the accounts, which are owned by RAWA and Bundy American, LLC ("Bundy"), because it made loans to RAWA for which the accounts served as secured and perfected collateral. J.J.F. also contends that the district court erred by failing to consider the preclusive effect of a debtor-in-possession financing order (the "DIP Order") entered after RAWA and Bundy filed for bankruptcy.

         For reasons detailed below, we affirm. We find that the district court did not err in concluding that Maryland law permits a trial court to require a third-party movant to establish a bona fide claim to ownership. In so holding, we decline to grant preclusive effect to the DIP Order, and we give effect to the district court's authority to ensure compliance with its contempt orders.


         Schwartz is the founder of two companies: RAWA, a national business that rents used automobiles; and Bundy, a company that brokers RAWA-brand franchises. J.J.F.'s predecessor-in-interest purchased all outstanding RAWA stock in 2006, and since then, Schwartz's relationship with RAWA and J.J.F. has been defined by litigation. We begin by summarizing the key proceedings in the parties' history before turning to the facts underlying this appeal.


         Disputes between Schwartz and RAWA have come before us multiple times. As relevant here, after J.J.F.'s takeover of RAWA, we affirmed a jury verdict holding that Schwartz has an implied franchise agreement to continue operating a Rent-a-Wreck franchise in the greater Los Angeles area. Schwartz v. Rent A Wreck Am. Inc., 468 Fed.Appx. 238, 249 (4th Cir. 2012) (unpublished). Following this determination, the district court ordered that RAWA's call center not dissuade potential customers from transacting with Schwartz's Rent-a-Wreck franchise location or otherwise divert business away from Schwartz's franchise territory. See Schwartz v. Rent-A-Wreck of Am., 261 F.Supp.3d 607, 613 (D. Md. 2017) (describing the district court's prior order). The district court later held RAWA in contempt of that order upon finding that the RAWA call center was informing potential customers that there was no Rent-a-Wreck location inside Schwartz's franchise territory. Id. at 614, 622-23.

         In its contempt order, the district court recounted RAWA's acts of bad faith throughout the parties' relationship. Id. at 614-15. For instance, RAWA had "deliberately changed the address and hours it was listing for Schwartz's franchise on its website to an outdated address and to patently incorrect hours." Id. at 615. RAWA also "unilaterally demanded that Schwartz in a very short time frame either increase his franchise's fleet size from 150 vehicles to 1, 726 vehicles or face termination of his franchise." Id. Further, RAWA's CEO John J. Fitzgerald had made "direct verbal threats" to Schwartz indicating that "he was going to make things difficult for Schwartz and take everything Schwartz had." Id. Consequently, the district court ordered RAWA to pay Schwartz $83, 620.80 on June 29, 2017 (the "contempt award"). Id. at 622.

         Less than a month after the district court ordered RAWA to pay the contempt award, RAWA and Bundy filed a voluntary bankruptcy petition in the Delaware Bankruptcy Court. The bankruptcy proceedings placed an automatic stay on Schwartz's attempts to collect on the contempt award. The bankruptcy court later dismissed the petition, finding that RAWA and Bundy were not insolvent, that they had not filed for bankruptcy in good faith, and that the petitions were "just another chapter in the attempt to terminate ...

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