CSX Transp., Inc. v. Emjay Envtl. Recycling, Ltd.
| Decision Date | 25 February 2016 |
| Docket Number | 12-CV-1865(JS)(AKT) |
| Parties | CSX TRANSPORTATION, INC., Plaintiff, v. EMJAY ENVIRONMENTAL RECYCLING, LTD., Defendant, v. ISLAND RAIL TERMINAL, INC., MAGGIO SANITATION SERVICE, INC., and EASTERN RESOURCE RECYCLING, INC., Garnishees subject to Restraining notices. |
| Court | U.S. District Court — Eastern District of New York |
APPEARANCES
For Plaintiff:
Christopher Merrick, Esq.
Benjamin Mann, Esq.
Eric C. Palombo, Esq.
Kennan Cohen & Howard PC
One Pitcairn Pl., Suite 2400
165 Township Line Rd.
Jenkintown, PA 19046
John Joseph Morris, Esq.
Kelly, Rode & Kelly, LLP
330 Old Country Rd.
Mineola, NY 11501
For Defendant and
Garnishees:
Brian Lee Gardner, Esq.
Cole Schotz Meisel Forman & Leonard P.A.
900 Third Ave., 16th Fl.
New York, NY 10022
Plaintiff CSX Transportation, Inc. ("CSX") holds a judgment against Defendant Emjay Environmental Recycling, Ltd. ("Emjay") for $1,056,444.15 (the "Judgment"). (Docket Entry 79.) Two motions are now pending before the Court. First, CSX seeks a turnover order, under Federal Rule of Civil Procedure 69 and New York Civil Practice Law and Rules ("C.P.L.R.") §§ 5225(b) and 5227, requiring three non-party garnishees--Island Rail Terminal, Inc. ("Island Rail"), Maggio Sanitation Service, Inc. ("Maggio"), and Eastern Resource Recycling, Inc. ("Eastern Resource" and, collectively, the "Garnishees")--to satisfy the Judgment. (Docket Entry 81.) Second, CSX requests that the Court extend the duration of CSX's levy of execution against the Garnishees until the Court rules on the turnover order. (Docket Entry 87.) For the following reasons, the Court orders the Garnishees to turn over $1,056,444.15 to CSX to satisfy the Judgment, and CSX's motion to extend the duration of its levy is DISMISSED AS MOOT.
The Court assumes familiarity with the facts of this case, which are chronicled in the Court's Memorandum and Order dated August 20, 2014. (See Docket Entry 69.) The salient details are discussed below.
On September 25, 2014, the Court entered an amended judgment in favor of CSX for $1,056,444.15.1 (Docket Entry 79.)Two years earlier, Emjay sold substantially all of its assets to Island Rail through an Asset Purchase Agreement and a Promissory Note (the "Contract"). (Behar Decl., Docket Entry 82, ¶ 3; see generally Contract, Docket Entry 81-3.) Both Maggio and Eastern Resource served as Island Rail's guarantors. (Contract at 3.)2
On November 12, 2014, CSX served the Garnishees with restraining notices (the "Restraining Notices"3) because the Garnishees owe Emjay $3.5 million based on certain promissory notes and guaranties. (See Restraining Notices, Docket Entry 81-4, at 7, 15, 25; Promissory Note4 at 34; June 4, 2015 Ltr., Behar Decl. Ex. H, Docket Entry 82-8, at 2.) The Restraining Notices prohibited "any sale, assignment or transfer" of any debt owed by the Garnishees to Emjay except as otherwise provided. (See, e.g., Restraining Notices at 2.) As relevant here, the Restraining Notices permitted the Garnishees to dispense any funds "'pursuant to an order of the court.'" (See, e.g., Restraining Notices at 3 (quoting N.Y. C.P.L.R. § 5222(b) (McKinney 2009) (emphasis added)).)
Despite service of the Restraining Notices, however, the Garnishees negotiated a settlement agreement in two state court actions relating to Emjay. (Behar Decl. ¶¶ 3, 6, 22.) In the first case, Emjay filed suit against the Garnishees to foreclose on the Contract, and the second case was brought against Emjay by its creditors. (Behar Decl. ¶¶ 3, 6.) Both cases were consolidated for settlement purposes (the "Consolidated Action") in Suffolk County Supreme Court (the "State Court"). (Behar Decl. ¶ 7.) Although CSX was not a party to the Consolidated Action, CSX was invited to participate in settlement discussions. (Behar Decl. ¶ 14.) CSX initially agreed to participate but later opted out. (Behar Decl. ¶¶ 16-17, 19-21.) The parties to the Consolidated Action--the Garnishees, Emjay, and its creditors--eventually reached a settlement agreement, which the State Court "So Ordered" on February 26, 2015 (the "Settlement Order"). (Behar Decl. ¶ 22; see generally Feb. 26, 2015 Stipulation and Order, Docket Entry 82-2.) Based on the record, the parties to the Consolidated Action never informed the State Court that CSX had issued Restraining Notices to the Garnishees. (See, e.g., Feb. 24, 2015 Settlement Conf. Tr., Docket Entry 82-3, 6:24-7:25, 12:10-13:7, 19:3-18.)
The Garnishees settled the Consolidated Action for $2.2 million with three parties based on the Garnishees' credit-related defense, their counterclaims against Emjay, and theirability to pay. (Behar Decl. ¶ 7.) Following the Settlement Order, the Garnishees issued a check to CSX for $8,015.03, which represented the remainder of the proceeds of the Garnishees' debt to Emjay. (June 25, 2015 Ltr., Behar Decl. Ex. J, Docket Entry 82-10.)
CSX now seeks a turnover order requiring the Garnishees to satisfy CSX's Judgment against Emjay.5 (Docket Entry 81.) CSX argues that the Garnishees failed to follow their post-Judgment obligations by ignoring the Restraining Notices. (Pl.'s Br., Docket Entry 81-1, at 2-5.) Alternatively, CSX asserts that if the Garnishees already distributed the funds under the Settlement Order, CSX is entitled to a damage award and an order of contempt against the Garnishees. (Pl.'s Br. at 5-10.) In opposition, the Garnishees contend that CSX's motion is procedurally improper and meritless. (Garnishees' Br., Docket Entry 83, at 7-14.)
Under New York law, which is made applicable in this Court by Federal Rule of Civil Procedure 69, a judgment creditor may institute a turnover proceeding requiring a third party to turn over any money or property it holds for a judgment debtor. N.Y. C.P.L.R. § 5225(b) (McKinney 1964); see also FED. R. CIV. P.69(a)(1) (). Specifically, New York C.P.L.R. § 5225(b) provides that:
Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money . . . in which the judgment debtor has an interest, or against a person who is a transferee of money . . . from the judgment debtor, where it is shown that the judgment debtor is entitled to the possession of such property or that the judgment creditor's rights to the property are superior to those of the transferee, the court shall require such person to pay the money, or so much of it as sufficient to satisfy the judgment, to the judgment creditor . . . . Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. . . .
N.Y. C.P.L.R. § 5225(b) (McKinney 1964). Similarly, New York C.P.L.R. § 5227 provides that:
Upon a special proceeding commenced by the judgment creditor, against any person who it is shown is or will become indebted to the judgment debtor, the court may require such person to pay to the judgment creditor the debt upon maturity, or so much of it as is sufficient to satisfy the judgment . . . or it may direct that a judgment be entered against such person in favor of the judgment creditor . . . . Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. . . .
N.Y. C.P.L.R. § 5227 (McKinney 1963). As this Court has observed, both New York C.P.L.R. §§ 5225 and 5227 are "'essentially interchangeable.'" LaBarbera v. Audax Constr. Corp., 971 F. Supp. 2d 273, 278 (E.D.N.Y. 2013) (quoting Phoenician Trading Partners LP v. Iseson, No. 14-CV-2178, 2004 WL 3152394, at *2-3 (E.D.N.Y. Dec. 11, 2004)).
Before reaching the merits, the Court must first dispense with the Garnishees' procedural defenses. Essentially, the Garnishees make two arguments: (1) CSX's motion is procedurally improper because CSX's requested relief--a return of funds--must be brought by a plenary action, not a motion (Garnishees' Br. at 7-8); and (2) alternatively, the doctrine of laches bars any claims because CSX allowed the State Court to reach the Settlement Order and now seeks to overturn it, (Garnishees' Br. at 8-9.)6
The Garnishees' first argument--that CSX's requested relief must be brought by a plenary action--is without merit. (See Garnishees' Br. at 7-8.) "Nearly every court in this Circuit to consider the issue has held that parties can bring a motion under FRCP 69(a), rather than instituting a special proceeding under the New York state law." N. Mariana Islands, 845 F. Supp. 2d at 581-82; see also Mitchell v. Lyons Prof'l Servs., Inc., 727 F. Supp. 2d 120, 125 (E.D.N.Y. 2010) (). On that basis, this argument is easily disregarded.
Nor does the doctrine of laches, which the Garnishees rely on, offer any support. (See Garnishees' Br. at 8-9.) To begin with, "[l]aches is an equitable defense that bars a plaintiff's claim" if that plaintiff acted with an unreasonable delay that resulted in prejudice. Imagineering, Inc. v. Lukingbeal, No. 94-CV-2589, 1997 WL 363591, at *2 (S.D.N.Y. June 30, 1997). The Garnishees, by asserting the defense, bear the burden of proof. See id. The analysis is fact-intensive, and the determination of whether laches applies is the Court's to make. Tri-Star Pictures, Inc. v. Leisure Time Prods., B.V., 17 F.3d 38, 44 (2d Cir. 1994), cert. denied, 513 U.S. 987, 115 S. Ct. 484, 130L. Ed. 2d 396 (1994) ().
But there is no prejudice here. CSX issued the Restraining Notices three months before the State Court "So Ordered" the Settlement Order. (See ...
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