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Schwartz v. Rent-A-Wreck of America

United States District Court, D. Maryland, Southern Division

September 21, 2018

DAVID SCHWARTZ, et al. Plaintiffs and Counter-Defendants
RENT-A-WRECK OF AMERICA, et al. Defendants and Counter-Claimants.



         This lawsuit had its beginnings in this Court more than eleven (11) years ago when David Schwartz, on behalf of himself and Rent a Wreck, Inc. (collectively "Schwartz'"), sued J.J.F. Management Services, Inc. ("JJFMS"), Bundy American, LLC ("Bundy"), and Rent-A-Wreck of America, Inc. ("RAWA", together, the "Defendants'') for breach of contract and specific performance. The essential allegation of the suit was that JJFMS[1] and Defendants were not honoring a Rent-A-Wreck franchise agreement Schwartz held for the Greater Los Angeles area. After years of discovery, counterclaims, trials, appeals, remands, and hearings, final judgment was entered in favor of Schwartz upholding his franchise, but post-judgment and execution problems remained. Some of the post-judgment issues led to a finding of contempt against Defendants RAWA and Bundy American, LLC for violations of this Court's Orders. On June 29, 2017, the Court entered judgment in the contempt proceeding in favor of Schwartz and against Defendants in the amount of $83, 620.80. Defendants took no appeal from the Court's contempt award.

         However, very shortly thereafter, on July 24, 2017, Defendants filed a bankruptcy proceeding in the Delaware Bankruptcy Court seeking, among other things, to have the franchise agreement with Schwartz discharged. The filing of the bankruptcy proceedings occasioned an automatic stay of Schwartz's collection efforts. But, on February 13, 2018, the Delaware Bankruptcy Court dismissed the proceedings as essentially spurious, and Schwartz immediately renewed his search for RAWA assets to execute upon.

         On April 17, 2018, having located two bank accounts in the name of RAWA at Wells Fargo Bank in Baltimore, Maryland. Schwartz filed a Motion for Writs of Garnishment against the accounts. ECF No. 583. Wells Fargo, as Garnishee, confessed assets of Defendant RAWA in an amount that would fully satisfy the amount of Schwartz's claim. ECF No. 592.

         On May 2. 2018, JJFMS reappeared, filing a Motion to Intervene in the garnishment proceeding as claimant to the bank accounts Schwartz was attempting to garnish. ECF No. 593. The Court issued an Order ruling that the Motion to Intervene would be treated as a Motion by a Third Party pursuant to Maryland Rule 2-643(e). ECF No. 597.[2]

         On July 9. 2018, a hearing was held on the Third Party claim of JJFMS to the garnished bank accounts.

         For the following reasons, JJFMS's claim of as Third Party to the garnished amount of the bank accounts is DENIED.

         Garnishee Wells Fargo Bank shall release funds in the bank accounts to Schwartz in the amount of $83, 620.80 forthwith.


         The Rent-A-Wreck concept consists of a nationwide franchise business that specializes in the rental of used automobiles. The concept was a brainchild of David Schwartz. For more than 11 years, RAWA has been embroiled in litigation with Schwartz who, when he sold the national franchise operation to a predecessor in interest of JJFMS, reserved a Rent-A-Wreck franchise for himself covering the Greater Los Angeles area. For at least the past several years, RAWA, along with a No. of other private companies, has been solely owned by JJFMS. The principal operative of JJFMS is John J. Fitzgerald, Jr., who also serves as Director and Chairman of the Board of Directors at RAWA. While the history of this litigation is fraught with conflict, what has been finally and definitively established is that Schwartz is the owner of the Rent-A-Wreck franchise for the Greater Los Angeles area.

         At a hearing on September 30, 2016, the Court found RAWA in contempt of court for multiple violations of this Court's orders (to be mentioned presently). ECF No. 548. At a second hearing held on February 27, 2017, the Court quantified the damages Schwartz sustained as a result of RAWA's contemptuous actions. ECF No. 570. On June 29, 2017, the Court issued a Memorandum Opinion and Order memorializing its finding of contempt against RAWA. ECF No. 580. A Final Order of Judgment in the contempt hearing was entered in favor of Schwartz and against RAWA in the amount of $83, 620.80.

         Less than a month later, on July 24, 2017, RAWA filed for Chapter 11 Bankruptcy in the United States Bankruptcy Court for the District of Delaware. ECF No. 594-1 at 11. The immediate effect of the filing, of course, was to stay any action on the part of Schwartz to collect on his judgment.

         In the bankruptcy proceeding, on September 1, 2017, RAWA asked the Bankruptcy Judge to reject seven franchise agreements, including Schwartz's. However, in a strongly worded Opinion, dated February 13, 2018, Bankruptcy Judge Laurie Selber Silverstein held that RAWA's bankruptcy filing was entirely bogus-it was in no way justifiable and had not been filed in good faith. Specifically, Judge Silverstein found that RAWA was not in financial distress at the time of its filing and that the bankruptcy was "just another chapter in the attempt to terminate Mr. Schwartz's franchise." ECF No. 594-1 at 36. Defendants' declaration of bankruptcy, rather than being a bona fide financial transaction, was described by Judge Silverstein as "fall[ing] on the dark side of the spectrum ranging from the acceptable to the patently abusive." Id.

         Almost immediately following dismissal of the bankruptcy case, on or around March 6, 2018. JJFMS, the parent company of RAWA, in connection with loans it had purportedly made to RAWA in 2006, entered into Deposit Account Control Agreements (DACA) with respect to RAWA's bank accounts at Wells Fargo Bank. These agreements were based on a Promissory Note dated March 31, 2006, purportedly executed 12 years before the security agreements were executed. The supposed Promissory Note was in the amount of $2, 476, 696.47, and bore a maturity date of March 31, 2011, more than seven years before the DACAs were created. The Notes had never been paid, never declared in default, nor indeed is there any evidence that any monies were actually transferred to RAWA.

         With the dismissal of RAWA's spurious bankruptcy filing, the automatic stay that had been in place was lifted. Promptly thereafter, having located certain RAWA assets, Schwartz filed his application for Writs of Garnishment with respect to the RAWA accounts at Wells Fargo Bank. ECF No. 583. On April 18, 2018, the Court issued the Writs. ECF No. 585. Within 15 days, JJFMS resurfaced, and filed a Motion ...

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