Gallant v. Kanterman

• Decision Date: 16 November 1993
• Citation: 603 N.Y.S.2d 315,198 A.D.2d 76
• Parties: Alvin GALLANT, et al., Plaintiffs-Respondents, v. Donald KANTERMAN, et al., Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 315

603 N.Y.S.2d 315

198 A.D.2d 76

Alvin GALLANT, et al., Plaintiffs-Respondents, v. Donald KANTERMAN, et al., Defendants-Appellants.

Supreme Court, Appellate Division,

First Department.

Nov. 16, 1993.

Before MURPHY, P.J., and ROSENBERGER, WALLACH and RUBIN, JJ.

MEMORANDUM DECISION.

Order, Supreme Court, New York County (William J. Davis, J.), entered May 9, 1991, to the extent it granted plaintiffs' motion dismissing the four affirmative defenses and counterclaim in the answer of defendant North American Transfer Co., unanimously affirmed, without costs. Order (same court and judge) entered May 7, 1992, unanimously modified, on the law, to the extent of granting so much of the motion by defendant Giannola for dismissal of the eighth cause of action against him, without leave to replead; granting so much of the motions of individual defendants holding an interest in Aids International Diversified Services, Inc. ("Aids") to dismiss the seventh cause of action against them with leave to replead upon completion of discovery; and otherwise affirmed, without costs.

In 1987 plaintiff Gallant obtained two judgments against Donald Kanterman for money borrowed but never repaid, in the combined amount of $324,451.49. A derivative suit against Kanterman on behalf of the corporate plaintiff, alleging breach of contract, conversion and unjust enrichment, and seeking an accounting, permanent injunction, rescission and appointment of a temporary receiver, resulted in a judgment in 1990 of $1,943,977.78. In 1989 Gallant obtained a declaratory judgment against Kanterman in the amount of $307,322.71, for violation of Article 10 of the Debtor and Creditor Law by attempting to transfer securities and cash assets beyond the creditor's reach. Since then, and throughout the instant action, Kanterman has engaged in a cat-and-mouse game to avoid satisfaction of these judgments, no part of any of which has yet been paid. Of course, to do this, a judgment debtor needs help; hence, the elaborate litis personae of this case.

Kanterman is alleged to have concealed his assets, namely, 3,000,000 shares of defendant Aids International Diversified Services, a public corporation of which he was chairman, by causing 30,000,000 shares in a successor corporation (after a merger and 10-for-1 split) to be issued to certain family trusts controlled by Kanterman and his son, defendant Jonathan Kanterman. The legal mechanics of these transactions were allegedly worked out by the defendant law firm of Feinberg & Felzen and its partner, defendant Stephen J. Feinberg, who was also a substantial shareholder in Aids, as well as defendant Laurence W. Futterman (collectively, "the attorney defendants"), the last of whom was also a stockholder, officer and director of Aids. The transactions were actually carried out by the transfer agent for Aids, defendant North American Transfer Company, its owner, defendant Mildred Rostolder (also a shareholder in Aids), and a North American employee, defendant Marvin Rostolder (collectively, "the Rostolder defendants"). Other defendants allegedly tied in with Aids and the scheme to avoid satisfaction of plaintiffs' judgments are shareholders/directors/officers Jack G. Giannola, Cynthia G. Kubala and Daniel T. Wyer; shareholders/directors Jeffrey Furman and Anthony Picciuto; and shareholder/employee Kevin Krown. Among the claims asserted against various combinations of these defendants are violation of restraining notices under CPLR 5222(b), fraudulent conveyance under Article 10 of the Debtor and Creditor Law, and conspiracy and joint venture to defraud.

In May 1991 the IAS court, in granting default judgment against Donald Kanterman, also dismissed North American's four affirmative defenses directed to the second amended complaint, and its counterclaim for abuse of process, and North American appealed. A year later, in May 1992, the same court issued another order disposing of motions for dismissal and summary judgment by various of the defendants, directed to the nine causes of action in the second amended complaint. The attorney defendants, the Rostolder defendants and Giannola separately appealed various aspects of that narrative order, to the extent that pertinent portions of the second amended complaint were dismissed with leave to replead. Plaintiffs cross-appealed the dismissal of four causes of action without leave to replead, and the dismissal of one other cause of action albeit with leave to replead. The 1991 and 1992 appeals have been consolidated.

We look with disfavor upon elaborate schemes to frustrate satisfaction of legitimate judgments. Despite years of litigation, this case is not yet ripe for trial, and indeed, the alleged fraudulent transfers of assets make the case very appropriate for thorough investigative discovery. With that in mind, our review of the pleadings is guided by the principle that further discovery, and even a third amended complaint, are justified except where dismissal of a particular claim is clearly warranted as a matter of law.

The first, fifth and sixth causes of action in the second amended complaint allege violations of notices restraining the disposition of Donald Kanterman's assets. Such a notice served upon a person other than the actual judgment debtor is effective

only if, at the time of service, he owes a debt to the judgment debtor or he is in possession or custody of property in which he knows or has reason to believe the judgment debtor has an interest, or if the judgment creditor has stated in the notice that a specified debt is owed by the person served to the judgment debtor or that the judgment debtor has an interest in specified property in the possession or custody of the person served. (CPLR 5222[b].)

A bank or transfer agent not in possession of property in which the judgment debtor has an interest, or owing any debt to said judgment debtor, at the time of service of the notice, cannot be held liable for violation of the restraint (Greenwood Packing Corp. v. Triangle Meat & Provisions Corp., 120 A.D.2d 701, 702-703, 502 N.Y.S.2d 770). There is valid reason for...