Brastex Corp. v. Allen Intern., Inc.

• Decision Date: 02 March 1983
• Docket Number: No. 578,D,578
• Parties: BRASTEX CORPORATION, Plaintiff-Appellant, v. ALLEN INTERNATIONAL, INC., Defendant-Appellee. ocket 82-7697.
• Court: U.S. Court of Appeals — Second Circuit

Page 326

702 F.2d 326

BRASTEX CORPORATION, Plaintiff-Appellant, v. ALLEN INTERNATIONAL, INC., Defendant-Appellee.

No. 578, Docket 82-7697.

United States Court of Appeals Second Circuit.

Argued Nov. 5, 1982.

Decided March 2, 1983.

James M. Brachman, New York City (Freeman, Wasserman & Schneider, New York City, Barbara E. Olk, New York City, of counsel), for plaintiff-appellant.

Alfred R. Fabricant, New York City (Shea & Gould, New York City), for defendant-appellee.

Before TIMBERS, KEARSE and PIERCE, Circuit Judges.

PIERCE, Circuit Judge:

This is an appeal from an order of the United States District Court for the Southern District of New York, John E. Sprizzo, Judge, entered on September 20, 1982, denying appellant's motion to confirm an ex parte order of attachment issued by that court on April 2, 1982, and to extend the validity of the levies made pursuant thereto. ¹

The plaintiff-appellant, Brastex Corporation (Brastex), a Delaware corporation with its principal place of business in New York, is engaged in the wholesale towel business. The defendant-appellee, Allen International, Inc. (Allen), an Arizona corporation currently licensed to do business in New York, ² is a customer of Brastex. The present litigation began when Brastex filed a complaint on March 26, 1982, against Allen, for, inter alia, damages incurred by Allen's failure to render payment for towels sold and delivered to Allen by Brastex. ³ To secure payment of an anticipated judgment, Brastex applied for an ex parte pre-judgment order of attachment in the amount of $86,093.07. The order was issued by Judge John E. Sprizzo of the United States District Court for the Southern District of New York on April 2, pursuant to Rule 64 of the Federal Rules of Civil Procedure ⁴ and section 6201 of the Civil Practice Law and Rules of the State of New York (CPLR), which reads, in pertinent part:

Sec. 6201. Grounds for attachment

An order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when:

1. the defendant is a nondomiciliary residing without the state, or is a foreign corporation not qualified to do business in the state; or

* * *

* * *

3. the defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff's favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts ....

N.Y. CPLR Sec. 6201(1), (3) (McKinney 1980) (emphasis added). The district court found the plaintiff entitled to the order of attachment under section 6201(1) because the defendant, Allen International, Inc., was a foreign corporation not qualified to do business in the State of New York.

Pursuant to the order of attachment, Brastex filed an undertaking and, on April 20, timely moved to confirm the order filed on April 2. While the motion to confirm was pending, the United States Marshal for the Southern District of New York levied on two Allen customers--R.H. Macy's & Co. and Bloomingdale Brothers Corp.--on April 26 and 29, respectively. On September 15, oral argument was held in the district court on Brastex's motion to confirm. At that time, attorneys for Allen submitted confirmation from the Secretary of State of New York that Allen had qualified, on September 1, 1982, to do business in New York State under the name of Allen Textiles, Inc. In view of these changed circumstances, the court denied Brastex's motion to confirm the attachment and extend the levies, noting:

We all know the Supreme Court has indicated in recent years this is a drastic remedy and one not lightly to be given. The legislature of the State of New York has narrowed the grounds since 1977 with respect to when an attachment against a foreign corporation may be granted and has specifically by its action said you can't get it in every case against a foreign corporation. The only time you can is if they are not licensed to do business then, but now they are. In the absence of some controlling authority from the State Court I must make my own decision, and I think it would be inconsistent with the legislative intent under Subdivision 1 for this Court to continue an attachment and to extend the levies when the statutory basis of Subdivision 1 no longer exists.

Tr. 23-24. ⁵ The district judge also rejected Brastex's argument that subsection 3 was applicable, stating that section 6201(3) "requires a separate and independent finding of fraud." ⁶ Tr. 15.

On appeal, the parties assert two principal claims. First, as a threshold issue, appellee Allen contends that this Court lacks jurisdiction to review an order granting or denying a provisional remedy which is not a final order. Second, appellant Brastex asserts that section 6201(1) should not apply to dissolve the pre-judgment attachment in this case. It contends that it could not have been the intent of the New York State legislature to allow a corporation to avoid a previously valid attachment order simply by taking the administrative steps to qualify to do business within New York State. We reject both claims.

Jurisdiction

Appellee asserts that the district court's order denying a motion to confirm an attachment is neither an appealable order within the meaning of 28 U.S.C. Sec. 1291 (final orders) or Sec. 1292(a)(1) (interlocutory orders), nor within the "collateral order" exception set forth in Cohen v. Beneficial Loan Corp., 337 U.S. 541, 546, 69 S.Ct. 1221, 1225, 93 L.Ed. 1528 (1949). Because we find that the order falls within the Cohen exception, we decline to dismiss the appeal on this basis.

In Cohen, the United States Supreme Court recognized that in some circumstances, an otherwise nonappealable order might, in the court's discretion, be appealed if the order comes within

that small class which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated.

Id. at 546, 69 S.Ct. at 1225-26. In Swift & Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684, 688-89, 70 S.Ct. 861, 864-65, 94 L.Ed. 1206 (1950), the Court held an order vacating an attachment appealable as a collateral order. See generally 9 J. Moore, B. Ward & J. Lucas, Moore's Federal Practice p 110.13, at 170-73 (2d ed. 1982); 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3911, at 491-94 (1976). In Swift, the attachment was issued "in order to secure respondents' appearance and to insure the fruits of a decree in libellants' favor." 339 U.S. at 691, 70 S.Ct. at 866.

Appellee appears to contend that because Brastex, unlike Swift, does not rely on the attachment as the basis for jurisdiction, the district court's order in the instant case does not rise to the level of urgency or importance envisioned by the Supreme Court in Cohen. We disagree. First, we note that in Swift, the attachment served two purposes: jurisdiction and security for a potential judgment. ⁷ Second, jurisdictional purpose is not the only circumstance in which this Court has reviewed an order vacating an attachment. In Republic of Italy v. DeAngelis, 206 F.2d 121 (2d Cir.1953), for example, the plaintiff had obtained a pre-judgment attachment on the grounds that the defendant had assigned, disposed of, or secreted its property with intent to defraud its creditors and that it had fraudulently incurred obligations and made fraudulent transfers. Id. at 123. The district court vacated the attachment and the plaintiff appealed. Id. This Court found the order appealable under Swift & Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684, 70 S.Ct. 861, 94 L.Ed. 1206 (1950). Id. Thus, there appears to be no prohibition on review of an order vacating an attachment in cases where jurisdiction over defendant is not in issue. ⁸ In the instant case, appellant presents a serious question of first impression concerning CPLR Sec. 6201(1). Since we find this issue "too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated," Cohen v. Beneficial Loan Corp., 337 U.S. at 546, 69 S.Ct. at 1226, we reach the merits of appellant's claim.

Post-Attachment Qualification under CPLR section 6201(1)

We are presented with the question of whether a post-attachment, pre-confirmation, qualification to do business in New York under CPLR Sec. 6201(1) can serve to void a previously valid attachment issued under that provision. Because this question is one of substantive law, as a federal court sitting in diversity we must apply the law of New York State. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). Where the law of the state is unclear or non-existent as to the matter in controversy, however, the court must determine what result the state court would reach if the case had been brought in state court. See Bernhardt v. Polygraphic Co., 350 U.S. 198, 209, 76 S.Ct. 273, 279, 100 L.Ed. 199 (1956) (Frankfurter, J., concurring); Gordon v. Motel City "B" Associates, 403 F.2d 90, 92 (2d Cir.1968); Cooper v. American Airlines, 149 F.2d 355, 359 (2d Cir.1945). Because we have found no New York case which has resolved the question of whether a post-attachment, pre-confirmation, qualification to do business removes the statutory ground for an existing attachment under CPLR Sec. 6201(1), our task is to rule as we might expect a New York State court to rule on the issue.

New York CPLR Sec. 6201(1) allows attachment against a defendant who "is a foreign corporation not qualified to do business in the state." Appellant urges that this provision should be read...