Elton Leather Corp. v. First General Resources Co.

• Decision Date: 28 June 1988
• Citation: 138 A.D.2d 132,529 N.Y.S.2d 769
• Parties: ELTON LEATHER CORPORATION, Plaintiff-Appellant, v. FIRST GENERAL RESOURCES COMPANY, a foreign corporation, individually and doing business as Osceola Shoe Company, Inc., Defendant, and Osceola Shoe Company Inc., Defendant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 769

529 N.Y.S.2d 769

138 A.D.2d 132

ELTON LEATHER CORPORATION, Plaintiff-Appellant, v. FIRST GENERAL RESOURCES COMPANY, a foreign corporation individually and doing business as Osceola Shoe Company, Inc., Defendant and Osceola Shoe Company Inc., Defendant-Respondent.

Supreme Court, Appellate Division First Department.

June 28, 1988.

Peter R. Silverman, of counsel (Silverman & Skolnick, P.C., New York City, attorneys), for plaintiff-appellant.

Ellen G. Zindler, New York City, for defendant-respondent.

Before KUPFERMAN, J.P., and ROSS, CARRO, ROSENBERGER and ELLERIN, JJ.

ROSS, Justice.

This appeal presents us with the issue of whether a foreign corporation is entitled to have an attachment, issued pursuant to CPLR § 6201, subdivision 1, vacated against its property, upon the basis that it has filed a post-attachment, pre-confirmation, application to do business in New York State. We are informed by counsel that this is an appellate issue of first impression in this State.

During the period, March 1987 through May 1987, in eighteen separate transactions, Elton Leather Corporation (Elton) sold to Osceola Shoe Company, Inc. (Osceola) leather goods for a total sales price of $82,190.16 (see, Record on Appeal (RA), at pages 10-12).

While Elton is a New York Corporation, manufacturing and selling animal hides (see, RA, at page 10), Osceola is a foreign corporation, located in Arkansas, and manufactures shoes (see, RA, at page 39). In 1987, Osceola was a subsidiary of First General Resources Company (First General), a foreign corporation, with its principal offices in Dallas, Texas (see, RA, at pages 38-39).

After the subject goods were shipped and invoiced to Osceola by Elton, Osceola allegedly accepted those goods "without comment ... and ... refused to pay for ... [them] ..." (see, copy of the Affidavit of the President of Elton, dated January 27, 1988, which appears in the RA, at pages 29-30) [material in brackets added]. Therefore, in July 1987, by summons and verified complaint (see, RA, at pages 9-14), Elton (plaintiff) commenced an action, in the New York County Supreme Court, against First General and Osceola to recover the sales price of $82,190.16, plus interest, for the leather goods, mentioned supra.

Following service, on or about September 16, 1987, Osceola moved (see, RA, at 71-72) to dismiss the action against it, pursuant to CPLR rule 3211, subdivision (a), paragraph 8, upon the ground that the Court did not have jurisdiction over it. In support of its motion, counsel for defendant Osceola, in an affirmation, dated September 15, 1987, stated the Court lacked jurisdiction, since "Osceola is incorporated in the State of Arkansas, ... [maintains] its offices in Arkansas and ... [does] no business within the State of New York as required by CPLR Section 302 for jurisdiction ..." (see, RA, at page 74) [material in brackets added].

Prior to the determination of defendant Osceola's motion to dismiss, on or about January 8, 1988, plaintiff applied, pursuant to CPLR § 6211, without notice to defendant Osceola, for an order of attachment of certain deerskin leather, which was owned by defendant Osceola, which was "in the possession of Johnstown Leather Company in Gloversville, New York ..." (see, RA, at page 48). According to its moving papers (see, RA, at pages 47-70), plaintiff contended it was entitled to an order of attachment, upon the basis that defenda Osceola "is a foreign corporation not qualified to do business in the State" (CPLR § 6201, subdivision 1).

Furthermore, the plaintiff contended that since, based upon the evidence of defendant First General's report to the Securities and Exchange Commission (SEC) for the quarter ending September 30, 1987 (see, RA, at pages 55-69), both defendants First General and Osceola are in serious financial distress, it is imperative that an attachment issue, as, in the event defendant Osceola goes out of business, there is little likelihood that plaintiff will be paid for the leather goods. Our examination of the report to the SEC, discussed supra, indicates that defendant First General's current liabilities exceed its current assets by more than one million dollars (see, RA, at pages 57-58), and, defendant Osceola (see, RA, at pages 64-65):

"has not made timely payment to two of its secured creditors, is not in compliance with certain covenants of its principal credit agreement, and payments to its unsecured creditors have been very slow ...".

Thereafter, by order (see, RA, at pages 21-24), dated January 13, 1988, an IAS Court (Edward J. Greenfield, J.) signed an order of attachment, which permitted plaintiff to attach property of defendant Osceola in the amount of $93,970.46, which represented the amount of the claim ($82,190.16), plus interest, costs, sheriff's fees, and expenses. Pursuant to the attachment order, the Sheriff of Sullivan County levied (see, CPLR § 6214) upon 27,876 deerskins belonging to defendant Osceola.

As soon as defendant Osceola learned of plaintiff's attachment order, on January 19, 1988, it filed an application with the Secretary of State of New York for a certificate of authority to do business in New York. Within a week after filing this application, defendant Osceola moved, solely on the ground that it was now qualified to do business in New York, to vacate the attachment order. Plaintiff opposed. By order, entered on or about January 26, 1988, the IAS Court (Edward J. Greenfield, J.), vacated its order of attachment.

By order, entered February 4, 1988, this Court granted plaintiff's motion to stay the IAS Court order, entered January 26, 1988, pending determination of this appeal.

The creditor's remedy "of attachment serves a dual purpose. First, it ... [provides] security for ... any money judgment which may be recovered by the plaintiff in the main action.... Secondly, the remedy provides a predicate for the exercise of quasi-in-rem jurisdiction over a defendant ..." (29 N.Y.Jur.2d, Creditors' Rights § 16, at pages 387-388). In the instant case, we are concerned with the attachment's function to provide security for a judgment.

We stated in Siegel v. Northern Blvd. & 80th St. Corp., 31 A.D.2d 182, 183, 295 N.Y.S.2d 804 (1st Dept.1968):

"Attachment is a provisional remedy having as its object securing a debt by preliminary levy upon property of the debtor to conserve it for eventual execution. It is strictly a creature of statute and, therefore, because of its harsh nature and, it being in derogation of the common law, the courts have strictly construed the statute creating it in favor of those against whom it may be employed. ( Penoyar v. Kelsey, 150 N.Y. 77 .) ...".

Before 1977, attachment was available, if the defendant was a foreign corporation, even though such foreign corporation was doing business in New York, pursuant to a license ( Prentiss v. Greene, 193 App.Div. 672, 678-679, 184 N.Y.S. 558 (1st Dept.1920)).

The Legislature "[i]n 1977 ... completely overhauled ..." (Joseph M. McLaughlin's, Practice Commentaries, McKinney's Cons. Laws of N.Y., Book 7B, CPLR c. 6201:1, at page 11) [material in brackets added] the CPLR's attachment article (Laws of 1977, c. 860), as a result of an Office of Court Administration (OCA) memorandum (see, the Judiciary, Memoranda, McKinney's 1977 Session Laws of New York, at pages 2636-2637).

In its memorandum (id.), OCA stated, in pertinent part, at pages 2636-2637:

"This measure is designed to modernize ... the provisional remedy of attachment, to accomplish two purposes:

1. to assure the constitutionality of the attachment procedure, and

2. to render the attachment procedure more workable.

* * *

They [the revisions] strike a fair balance between defendant's right to due process and plaintiff's interest in preserving the utility of the attachment...