Executive House Realty v. Hagen

• Decision Date: 03 March 1981
• Citation: 108 Misc.2d 986,438 N.Y.S.2d 174
• Court: New York Supreme Court
• Parties: EXECUTIVE HOUSE REALTY and Executive House Realty Co., Plaintiffs, v. Ronald A. HAGEN, Hagen Enterprises, Inc. and Hagen & Associates Research & Development Corporation, Defendants.

Page 174

438 N.Y.S.2d 174

108 Misc.2d 986

EXECUTIVE HOUSE REALTY and Executive House Realty Co., Plaintiffs, v. Ronald A. HAGEN, Hagen Enterprises, Inc. and Hagen &amp Associates Research & Development Corporation, Defendants.

Supreme Court, Queens County.

March 3, 1981.

Kronish, Lieb, Shainswit, Weiner & Hellman, New York City (Alan Levine, Lisa Goldberg Ozer, New York City, of counsel, for plaintiffs.

Dewey, Ballantine, Bushby, Palmer & Wood, New York City (Howard B. Hander, New York City, of counsel), for limited partner Edmund T. Pratt, Jr., and three limited partnerships.

Stuart F. Shaw, New York City, for limited partner Eban W. Pyne, and other limited partners.

Wiener & Zuckerbrot, New York City (Leonard J. Hirschorn, New York City, of counsel), for petitioner Gary Lichtenstein.

Edward G. McCabe, County Atty. of Nassau County (Angelo P. Scarinzi, Mineola, of counsel), for Sheriff of Nassau County.

ROSE L. RUBIN, Justice.

I.

The proliferation of limited partnerships brings with it a variety of new legal issues. This case raises several such issues. This action was brought to recover damages for the alleged conversion from Executive House Realty, a limited partnership, of $992,000 in cash contributions from limited partners and cash advanced to this limited partnership upon promissory notes executed by the limited partners. The transactions are related to many of the same parties and the same underlying real estate project which was the subject of a decision on different issues by Justice Eli Wager in Shupack v. Citibank, N.Y.L.J., March 3, 1981, p. 13, col. 3.

In this action for money damages, plaintiffs move for confirmation of an ex parte order of attachment. The order was granted against Ronald A. Hagen and two of his wholly-owned New York corporations, Hagen Enterprises, Inc. (hereinafter "HE, Inc.") and Hagen & Associates Research & Development Corporation (hereinafter "H & A Corp."). Nominally, plaintiffs are Executive House Realty (hereinafter "EHR"), a New Jersey limited partnership, and EHR's sole general partner, Executive House Realty Co. (hereinafter "EHR Co."). EHR Co. is a New York partnership composed of three partners, Mark Greenberg, HE, Inc., and either Gary Lichtenstein or his assignee, Hagen Management Corp.

II.

The complaint and supporting papers allege the following:

EHR was formed to buy and operate an apartment building in New Jersey. Ronald Hagen, the person authorized to handle EHR's banking transactions, failed to appear at the closing scheduled for September 30, 1980. Inquiries to EHR's bank disclosed that approximately $300,000 in EHR funds had been transferred to Ronald Hagen in late August and that an additional $590,000 had been transferred to an H & A Corp. bank account on September 26, 1980 and from there to Ronald Hagen. Plaintiffs have been unable to locate Ronald Hagen and they have resorted to service by publication upon him. The corporate defendants were served by service upon the Secretary of State. Sheriffs, pursuant to the order of attachment, have levied upon bank accounts, an escrow account and upon interests of the defendant in uninvolved limited partnerships. Service upon the uninvolved partnerships was made by service upon a limited partner.

Defendants have not appeared upon this motion nor have they appeared in the action. Eben Pyne, a limited partner in the uninvolved partnerships Calloway Associates, Terrarius Realty Associates and Fanroy Associates, and Edmund Pratt, a limited partner in the partnerships Cedarhurst Plaza Associates, 55th Avenue Associates and Saratoga Springs Associates, appear on behalf of the limited partners in the respective partnerships to oppose confirmation of the attachment and to challenge the effectiveness of the levy. Gary Lichtenstein brings, by way of cross motion, a special proceeding to determine his adverse claim to $25,000 held in escrow pursuant to an agreement among Lichtenstein, HE, Inc., and Hagen Management Corp. for a buy-out by the latter corporation of Lichtenstein's interest in EHR Co. A proposed settlement of this claim, acceptable to the court, has been submitted. Additionally, the Sheriff of Nassau County cross-moves for fees and poundage.

III.

Upon a motion to confirm an order of attachment, plaintiffs have the burden of establishing, 1) a ground for the attachment, 2) the existence of a cause of action, 3) the probability that plaintiffs will succeed on the merits, 4) the need for continuing the levy, and 5) that the amount demanded from the defendants exceeds all counterclaims known to the plaintiffs. (CPLR 621162126223 Plaintiffs must establish each element respectively as to each defendant. (AMF, Inc. v. Algo Distr. Inc., 48 A.D.2d 352, 369 N.Y.S.2d 460.) They may do so by any combination of documents, affidavits reciting personal knowledge, and affidavits reciting information and belief provided the basis of the information and belief is stated. (AMF, Inc. v. Algo Distr. Inc., supra; Richman v. Richman, 41 A.D.2d 993, 344 N.Y.S.2d 52; Swiss Bank Corp. v. Eatessami, 26 A.D.2d 287, 289-90, 275 N.Y.S.2d 258.)

In the case of a resident or domiciliary defendant, plaintiffs must show as a ground for the attachment, either that the defendant cannot be personally served despite diligent efforts to do so (CPLR 6201or that 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. (CPLR 6201 Demonstrating a cause of action for conversion is not a sufficient ground for attachment. (See Judiciary Memorandum, N.Y.Sess.L.1977, ch. 860, § 1, p. 2636.)

IV.

The affidavits and other exhibits demonstrate that Ronald Hagen could not be personally served despite diligent efforts. Further, they demonstrate that Hagen, with intent to defraud his creditors, has disposed of virtually all the money in his various bank accounts. Therefore, plaintiffs have established both grounds for an order of attachment against Ronald Hagen.

V.

Applying the two tests to determine the right to attachment against the corporate defendants, the court finds first that the corporate defendants have been served by service upon the Secretary of State. Service upon the Secretary of State is personal service inasmuch as it is service upon an agent authorized by law to receive process for the corporate defendants. (Business Corporation Law, § 304; CPLR 311.) The first ground, therefore, fails. The alternative ground for attachment requires a showing that the corporate defendants secreted or disposed of their assets (see Eaton Factors Corp. v. Double Eagle Corp., 17 A.D.2d 135, 136, 232 N.Y.S.2d 901) or that the attachment seeks to reach the specific property converted. (See Adam Hat Stores v. Lang, 155 Misc. 587, 280 N.Y.S. 100.) Plaintiffs have not shown that these defendants secreted or disposed of corporate property. Indeed, they allege that the converted funds are in the possession of Ronald Hagen.

Since neither of the available grounds for attachment has been demonstrated with respect to the corporate defendants, the order of attachment is vacated insofar as it applies to HE, Inc., and H & A Corp.

VI.

Grounds for attachment against Ronald Hagen have been demonstrated. The next issue is whether there exists a cause of action against him. Ronald Hagen's authority to handle banking transactions did not include authority to transfer those assets for purposes other than partnership business. (Chemical Bank of Rochester v. Haskell, 68 A.D.2d 347, 352-3, 417 N.Y.S.2d 541.) Plaintiffs have shown their legal ownership of the property and the exercise of unauthorized dominion by Hagen. (AMF, Inc. v. Algo Distr. Inc., supra, 48 A.D.2d p. 356, 369 N.Y.S.2d 460.) Moreover, the rule that one partner cannot sue another partner for damages in an action in conversion (Bassett v. American Meter Co., 20 A.D.2d 956, 957, 249 N.Y.S.2d 815) is not a bar to the action against Ronald Hagen. He is not a partner in or with any plaintiff and he was at most acting as agent for a partner. The cause of action against Ronald Hagen in conversion is unaffected by and, in fact, should be joined with claims against the partner HE, Inc., which arise out of the same transaction. (Bassett v. American Meter Co., supra; see Alpert v. Haimes, 64 Misc.2d 608, 612, 315 N.Y.S.2d 332.)

The allegations in the supporting papers are sufficient to establish the need for continuing the levy upon Ronald Hagen's remaining assets and the probability of success against Ronald Hagen. Thus, the order of attachment against the property of and debts owed to Ronald Hagen is confirmed.

VII.

Notwithstanding the validity of an order of attachment, a levy thereunder is effective only if the order is served upon the garnishee in the same manner as a summons and the garnishee owes a debt to the defendant or is in custody or possession of property in which defendant has an interest. (CPLR 6214.) Eben Pyne and Edmund Pratt, appearing on behalf of the uninvolved limited partnerships, challenge the levy of defendant's interests therein on both grounds. It appears that only H & A Corp. holds an interest in the uninvolved limited partnerships Saratoga Springs Associates, Cedarhurst Plaza Associates and 55th Avenue Associates. The attachment is vacated as to these partnerships.

The record is different as to the other uninvolved limited partnerships. It establishes that Ronald Hagen personally holds an interest in Calloway Associates, Terrarius Realty and Fanroy Associates. The effectiveness of the levy on these interests is challenged on two grounds. First, it is claimed that the interest of the defendant in the uninvolved partnerships is nonexistent by virtue of partnership claims against the defendant. Second, the limited partners contend that they are not proper persons to accept...