Landau v. Vallen

Decision Date06 February 1990
Docket NumberD,No. 727,I-I,727
PartiesSolange LANDAU, Plaintiff-Appellant, v. Toni VALLEN, Haas Securities Corp., Eugene K. Laff, Stanley Aslanian, Jr., Mark Burgess, L.F. Rothschild & Co., Inc., Robert Schoenthal, Mathew R. Deane, Francois Mayer, Robert R. Errico, Andrew Berger, Joel Miller, Kuhns Brothers, Laidlaw, Inc., f/k/a Laidlaw Adams & Peck, Inc., Walter Baur, Henry Lorin, Henlor Capital, Ltd., Joelle Harris a/k/a Mrs. Joelle Lorin, Enn Kunnapas, Linda Kunnapas, Maureen Steffenson, Dr. Irwin Zandman, Capital Shares, Inc., Lawrence C. Caito, H. Clinton Pollack, Frank Shannon, Yarrimup (A Corporation), J.T. Moran & Co., Inc., John T. Moran, Paul R. Miano, Jacques M. de Stadelhofen, Legal Assistant Corporation and John Doesefendants, Frank Shannon, Defendant-Appellee. LF ROTHSCHILD & CO., INC., Third-Party Plaintiff-Counterclaimant, v. Henry LORIN, Frank Shannon & Enn Hants Kunnapas, Third-Party Defendants-Counterclaimants. ocket 89-9014.
CourtU.S. Court of Appeals — Second Circuit

Mark J. Astarita, New York City (Gusrae, Kaplan & Bruno, New York City, of counsel), for plaintiff-appellant Solange Landau.

Gilbert S. Edelson, New York City, (Rosenman & Colin, Diane da Cunha, of counsel), for defendant-appellee Frank Shannon.

Before NEWMAN and WINTER, Circuit Judges, and TENNEY, District Judge. *

TENNEY, District Judge:

The only issue presented in this expedited appeal is whether the alleged victims of a defendant's criminal conduct may seek to attach bail in a related civil proceeding. We hold that they can.

BACKGROUND

On April 18, 1989, defendant-appellee Frank Shannon pleaded guilty to making a false statement on a disclosure form in violation of federal securities laws. See 15 U.S.C. Secs. 78m(d), 78ff (1988); 17 C.F.R. Sec. 240.13d-1 et seq. (1989). While Shannon's criminal case was pending, plaintiff-appellant Solange Landau added Shannon as a defendant in this civil action, alleging that Shannon and others conspired to defraud her of millions of dollars. She asserts that the crime to which Shannon pleaded guilty furthered the conspiracy alleged in her complaint. Defendant's bail had initially been set at $10,000,000, of which $3,500,000 was deposited in cash. Bail was later reduced to $350,000 cash, which is still being held by the Clerk of the Court for the Southern District of New York. Those funds represent defendant's only assets in the United States.

While defendant was awaiting sentencing, plaintiff applied for an order to attach his bail funds. She was granted an ex parte temporary restraining order enjoining the Clerk from releasing the $350,000. Ultimately, however, the district court denied Landau's motion for a preliminary injunction to continue the same relief because it held that attaching bail would undermine its purposes. Landau v. Vallen, 723 F.Supp. 218, 220 (S.D.N.Y.1989). The district court's holding was consistent with several other decisions in which courts have denied attachment. See, e.g., United States v. Badger, 711 F.Supp. 1008, 1009 (C.D.Cal.1989); American Exch. Life Ins. Co. v. Putnicki, 510 F.Supp. 19, 20-21 (W.D.Tex.1980); Corporation Co. of Miami v. Mikelis, 467 F.Supp. 826, 827 (S.D.Fla.1979); Reed Mkt'g Corp. v. Diversified Mkt'g, 419 F.Supp. 125, 126 (N.D.Ill.1976). It declined to follow other decisions in which attachment has been permitted. See, e.g., Bankers' Mortgage Co. v. McComb, 60 F.2d 218, 221 (10th Cir.1932); Bank of Hawaii v. Benchwick, 249 F.Supp. 74, 81-82 (D.Haw.1966). We have continued the district court's temporary restraining order pending resolution of this collateral appeal, see Brastex Corp. v. Allen Int'l, Inc., 702 F.2d 326, 329-30 (2d Cir.1983).

DISCUSSION

We agree with the district court that there may be drawbacks to permitting the attachment of bail. In some cases, it may reduce the incentive to return for trial; in others, it may increase the difficulty of obtaining a bail bond. These are legitimate causes for concern but they do not mandate the broad prohibition on attachment adopted by the district court. More importantly, we believe these problems remain even under its holding. Therefore, at least when the persons seeking attachment are the alleged victims of a defendant's criminal conduct, we hold that they must be given the opportunity to seek attachment of all available assets, including funds posted as bail.

The district court denied plaintiff's application because it believed such action was necessary to address its concerns about the overall purposes of bail. This did not exhaust her options, however, because if plaintiff were prevented from attaching the funds held by the Clerk, her likely next step would be to seek an order directed at defendant himself. See N.Y.Civ.Prac.L. & R. 5201(b) (McKinney 1978); Clarkson Co. v. Shaheen, 716 F.2d 126, 129-30 (2d Cir.1983); ABKCO Indust. v. Apple Films, 39 N.Y.2d 670, 674, 350 N.E.2d 899, 901, 385 N.Y.S.2d 511, 513 (1976). Given the threat of severe sanctions--including default on the civil claims--this approach could be as effective as a direct restraint on the Clerk. For example, defendant could be ordered not to assign any interest in the bail funds while they were being held by the Clerk, and could be ordered to deposit them in an account specified by the court upon their release. Defendant could Indeed, granting such relief would implicate the very issues that concerned the district court in the application to restrain the Clerk. Therefore, under its approach, courts would have to deny any attachment that might diminish a defendant's expectation in the release of bail. That policy might have to be extended to funds defendants still had in their possession but merely intended to post as bail. Taken to its logical extreme, it would give defendants not only a "safe harbor" while bail funds were in the custody of the court, but also "safe passage" in and out of the court's jurisdiction. That would mean a foreign defendant, such as Shannon, could safely bring assets to and from the United States for deposit as bail, assured that they could not be reached by civil creditors. Those facts are not before us, and we do not intend to imply that we would necessarily adopt such a broad rule for other classes of plaintiffs, but we can think of no other approach that would address all the concerns identified by the district court. 1 In any event, however, we do not believe such a broad ruling would be warranted on the facts of this case.

even be directed to redeposit the funds with the Clerk.

Nor do we find a prohibition on attachment consistent with New York's law of attachment, which otherwise controls. See Fed.R.Civ.P. 64; Huron Holding Corp. v. Lincoln Mine Operating Co., 312 U.S. 183, 193, 61 S.Ct. 513, 517-18, 85 L.Ed. 725 (1941); Brastex Corp. v. Allen Int'l, Inc., 702 F.2d 326, 329-30 (2d Cir.1983). Under New York law, plaintiffs have the right to seek prejudgment attachment of a foreign defendant's assets. See N.Y.Civ.Prac.L. & R. Sec. 6201(1) (McKinney 1980). Its nonresident attachment statute allows plaintiffs to obtain jurisdiction and secure, for judgment, funds of persons who might otherwise dispose of assets and leave the jurisdiction. See ITC Entertainment, Ltd. v. Nelson Film Partners, 714 F.2d 217, 220 (2d Cir.1983). 2 We have previously acknowledged these sound purposes, id., and New York's courts have been reluctant to undermine them. See Elton Leather Corp. v. First General Resources Co., 138 A.D.2d 132, 136, 529 N.Y.S.2d 769, 771-72 (1st Dep't 1988), disagreeing with Brastex, 702 F.2d at 326; see also Giorgio Morandi, Inc. v. Texport Corp., 697 F.Supp. 777, 778 (S.D.N.Y.1988) (following intermediate New York appellate opinion in Elton Leather rather than conflicting Second Circuit decision in Brastex ). Therefore, absent the most compelling circumstances, which we do not find in this case, we would be reluctant to derogate a right so unequivocally embraced by New York's courts.

In addition, we are not comfortable with the notion of indicted defendants using funds that may be the fruits of their crimes as bail while their alleged victims are denied provisional relief that might otherwise be available to help redress their damages. All things being equal, we believe courts in the civil context should be particularly sensitive to the rights of the victims of crimes when they seek compensation from those accused of inflicting their injuries.

A. The Effect of Attachment on the Purposes of Bail

We have no doubt that the district court shares our concerns about the victims of While the expectation that bail will be returned is an important consideration, it is only one of the incentives for a defendant to return for trial. Violating the conditions of bail may also create a risk of forcible arrest on a bench warrant, pretrial incarceration, contempt, bail-jumping charges and enhanced punishment at sentencing. For some defendants, these repercussions would outweigh any increased incentive to flee that might be engendered by the potential attachment of bail. For others, the threat of bail forfeiture might be the paramount factor. A blanket rule barring all attachments presumes that every criminal defendant would react similarly to a diminished expectation in the return of bail. In the case before us, the defendant had already been sentenced by the time the district court rendered its decision. Therefore, an attachment could not possibly implicate a risk of flight. See Bankers' Mortgage Co. v. McComb, 60 F.2d 218, 221 (10th Cir.1932). 3

crimes. Nevertheless, it identified broader concerns about the impact of attachment on the purposes of bail that it concluded outweighed even victims' rights. We believe it may have placed too much emphasis on these concerns.

In addition, even in those cases where the threat of loss of bail is the most important factor, attachment would not necessarily decrease the...

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