City of New York v. Panzirer

• Decision Date: 11 May 1965
• Parties: The CITY OF NEW YORK, Petitioner-Respondent, v. Leo PANZIRER, Respondent, and Manufacturers Hanover Trust Company, Intervenor-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 284

259 N.Y.S.2d 284

23 A.D.2d 158

The CITY OF NEW YORK, Petitioner-Respondent, v. Leo PANZIRER, Respondent, and Manufacturers Hanover Trust Company, Intervenor-Appellant.

Supreme Court, Appellate Division, First Department.

May 11, 1965.

Joseph J. Ackell, New York City, of counsel (Simpson, Thacher & Bartlett, New York City, attorneys), for intervenor-appellant.

Jacob Friedes, New York City, of counsel (Stanley Buchsbaum, Louis Pollack, New York City, and Morris Sutton, with him on the brief, Leo A. Larkin, Corp. Counsel), for petitioner-respondent.

Before BOTEIN, P. J., and BREITEL, RABIN, EAGER and STEUER, JJ.

BREITEL, Justice.

The issue is whether a judgment creditor who has served a thirdparty information subpoena and restraining notice in judgment enforcement proceedings (but has not yet obtained a turnover order) is entitled to priority over a judgment creditor who subsequently procures a levy under an execution. The determination of the issue depends upon the applicability and effect of CPLR 5234(c). The dispute is between the City of New York, which served the information subpoena and restraining notice under CPLR 5222 and 5224, and thereafter instituted a turnover proceeding pursuant to CPLR 5227, and the Manufacturers Hanover Trust Company, which obtained the subsequent execution levy. The third party or garnishee holds an escrow fund otherwise belonging to the judgment debtor Mamet in the amount of $923 pursuant to a written agreement for the sale of the judgment debtor's business.

The City's judgment ($1,129.51) was obtained for sales and business owed by the judgment debtor Mamet; the bank judgment ($1,308.49) was obtained for the balance due from Mamet arising from an indebtedness to the bank. The third party escrowee was the judgment debtor's lawyer in the sale of the judgment debtor's business. The bank entered its judgment August 10, 1963. The City entered its warrant or judgment October 21, 1963. The escrowee, Mr. Panzirer, was served by the City with the information subpoena and restraining notice on November 19, 1963. The City instituted the present special proceeding for a turnover order on Junuary 22, 1964. Thereafter and not until February 5, 1964 did the bank issue its execution and obtain a levy by service upon the escrowee-garnishee.

In short, the bank recovered the earlier judgment but was slow in pursuing its remedies against the escrowee-garnishee, although it had previously received $77 from him and therefore knew of the existence of the escrow fund. The City, on the other hand, had obtained its judgment later but moved expeditiously to recover the sum held in escrow. It chose the slower information subpoena procedure rather than that of execution levy, presumably because without the information thus obtained it could not be certain that an execution would be effective. The result, however, was that it had not obtained a delivery or turnover order before the bank had levied under its execution.

Special Term held that because of the City's diligence, and in reliance on precedents which antedate CPLR, the City was entitled to priority. It overruled the bank's contention that CPLR had established a definite priority among judgment creditors (including levying execution creditors and those resorting to enforcement proceedings in the nature of the former supplementary proceedings under the Civil Practice Act) in which only delivery and turnover orders and receiverships would rank with executions levied in determining the order of priority.

The legislative history of CPLR 5234(c), an entirely new provision in the practice statutes, establishes that the order of priority among judgments is to be determined strictly in accordance with the chronological service of execution levies and the filing of orders for turnover or receiverships, as the case may be. The mere service of restraining notices under CPLR 5222 in connection with subpoenas issued pursuant to CPLR 5224 does not invoke standing in the ranking of priorities. In consequence, the judgment directing turnover to the City of the moneys held by the escrowee-garnishee should be reversed and judgment entered jurecting turnover of such sum to the intervenor bank, pursuant to the levy made upon the escrowee-garnishee.

Under the Civil Practice Act there was no express provision for priority as between executions levied and orders for the delivery of personal property (CPA §§ 680-683; N.Y.Legis.Doc.1959, No. 17, 3rd Prelim. Report of the Advisory Comm. on Parc. and Proc., pp. 731-795). This occasioned great confusion, and the courts created varying rules (see 3rd Prelim. Report, supra, at pp. 731-733). It had been determined, however, that a restraining provision in a third-party subpoena in supplementary proceedings issued pursuant to section 781 of the Civil Practice Act was equivalent to an equitable lien available in the old equity practice. The subpoena service was therefore held entitled to priority over a subsequent execution levy (Matter of Wickwire Spencer St. Co. v. Kemkit Sci. Corp., 292 N.Y. 139, 142, 54 N.E.2d 336, 153 A.L.R. 208).

There is no doubt that, in the development of the several drafts of what was to become the CPLR, effort was made to rationalize the priority order among the several classes of judgment creditors. While the precise proposals first suggested in the Third Report, supra, were not adopted, the final drafts were still designed to achieve the goal of a relatively simple, almost mechanical, statutory basis for determining priorities (3rd Prelim. Report, supra, § 61.14 at p. 308; N.Y.Legis.Doc.1961, No. 15, 5th Prelim. Report, Rule 5263[c], at pp. 636-7; N.Y.Legis.Doc.1962, No. 8, 6th Report, § 5234[c], at p. 504; Practice Commentary by Professor David D. Siegel, 7B McKinney's CPLR 5234, at pp. 182-184). In both the Fifth and Sixth Reports, supra, it was stated with respect to the draft provision:

'This provision is new. It is intended to clarify present law. It indicates that priority is not gained merely be serving a subpoena on a garnishee, but is only gained when property is ordered delivered or paid or transferred to a receiver and only as to that particular property. The last sentence is needed to prevent a...