High Speed Capital, LLC v. Corporate Debt Advisors, LLC

• Decision Date: 23 October 2018
• Docket Number: 1:18-CV-00880 EAW
• Citation: 339 F.Supp.3d 137
• Parties: HIGH SPEED CAPITAL, LLC, Plaintiff, v. CORPORATE DEBT ADVISORS, LLC, Tablada Investments Group LLC, Tablada, Inc., and Edmundo Tablada, Defendants.
• Court: U.S. District Court — Western District of New York

339 F.Supp.3d 137

HIGH SPEED CAPITAL, LLC, Plaintiff,

v.CORPORATE DEBT ADVISORS, LLC, Tablada Investments Group LLC, Tablada, Inc., and Edmundo Tablada, Defendants.

1:18-CV-00880 EAW

United States District Court, W.D. New York.

Signed October 23, 2018

Christopher R. Murray, Stein Adler Dabah & Zelkowitz LLP, Tarrytown, NY, Steven W. Wells, Hodgson Russ LLP, Buffalo, NY, for Petitioner.

Jenifer Ann Scarcella, Shane R. Heskin, Stuart J. Wells, White & Williams, LLP, New York, NY, for Respondent.

Tablada Investments Group LLC, pro se.

Tablada Inc., pro se.

Edmundo Tablada, pro se.

DECISION AND ORDER

ELIZABETH A. WOLFORD, United States District Judge

INTRODUCTION

This litigation arises out of an attempt by plaintiff High Speed Capital ("Plaintiff") to execute a state court judgment obtained against defendants Tablada Investments Group LLC, Tablada, Inc., and Edmundo Tablada (collectively "Judgment Debtors") by commencing a post-judgment special proceeding in state court against defendant Corporate Debt Advisors, LLC ("Respondent"). On August 8, 2018, Respondent removed this action to federal court by filing a notice of removal. (Dkt. 1). Presently before the Court is Plaintiff's motion to remand. (Dkt. 3). For the reasons set forth below, Plaintiff's motion is granted.

BACKGROUND

The following facts are drawn from Plaintiff's verified petition and the documents submitted for the instant motion to remand.¹ (Dkt. 3; Dkt. 10; Dkt. 11; Dkt. 12).

Plaintiff is a company that gives merchant cash advances to small businesses. (Dkt. 10 at 3). One of those businesses was a grocery store owned by the Judgment Debtors.² (Dkt. 12 at ¶¶ 4-5). On October 11, 2017, the New York State Supreme Court entered two judgments in favor of Plaintiff against the Judgment Debtors—one in the amount of $37,167.16, and the other in the amount of $46,280.61. (Dkt. 3-2 at ¶ 5). The Judgment Debtors retained Respondent in November 2017, to settle Plaintiff's judgment against them and to manage their debt payments. (Dkt. 12 at ¶ 4). Respondent provides debt resolution restructuring and negotiation services to small businesses. (Id. ; Dkt. 11-1 at 41). While the record is not clear as to how Respondent's business operates, the record reveals the following: clients transfer funds monthly to an escrow account Respondent maintains for each client (Dkt. 11-1 at 41; Dkt. 11-2 at 4; Dkt. 11-3 at 5-6), and the clients maintain control over the funds (Dkt. 12 at ¶ 11); however, Respondent withdraws any fees owed to it directly from the accounts (Dkt. 11-3 at 5-6). It is unclear how much control Respondent otherwise maintains over the client funds.

Respondent first reached out to Plaintiff in January of 2018, and over the course of the next several months repeatedly attempted to negotiate the terms of the Judgment Debtors' debts to Plaintiff. (Dkt. 11-1 at 5). On April 6, 2018, Plaintiff served Respondent with a subpoena in an attempt to locate funds that could be used to satisfy the judgments it had obtained in state court. (Id. at 6). Respondent failed to reply. (Id. ). Plaintiff alleges the Judgment Debtors fraudulently transferred funds to Respondent "as part of a scheme to hinder, delay, and defraud [Plaintiff] from recovering on its judgment." (Id. at 2).

On July 16, 2018, Plaintiff commenced a post-judgment special proceeding under New York Civil Practice Law & Rules ("CPLR") 5225 and 5227 against the Judgment Debtors and Respondent in New York state court to pursue its enforcement remedies. (Dkt. 3-2 at ¶¶ 9, 13). The state court set a hearing on the matter for August 9, 2018. (Id. at ¶ 16). On August 8, 2018, the evening before the hearing on the post-judgment special proceeding, Respondent filed a notice of removal. (Id. at ¶ 18).

Plaintiff filed the instant motion to remand to state court on August 15, 2018. (Dkt. 3). Respondent replied to the motion on September 5, 2018 (Dkt. 10), and Plaintiff submitted its response on September 12, 2018 (Dkt. 17). Plaintiff contends that the matter currently before the Court is an ancillary proceeding not subject to removal.³ (Dkt. 3 at 5-8).

DISCUSSION

I. Legal Standard

28 U.S.C. § 1447(c) authorizes federal courts to remand a case "on the basis of any defect in removal procedure" or because "the district court lacks subject matter jurisdiction." LaFarge Coppee v. Venezolana De Cementos, S.A.C.A., 31 F.3d 70, 72 (2d Cir. 1994). A court will "generally evaluate a defendant's right to remove a case to federal court at the time the removal notice is filed." Vera v. Saks & Co., 335 F.3d 109, 119 n.2 (2d Cir. 2003). In other words, the allegations in the complaint or other initiating pleading are critical to the proper evaluation of any attempt to remove an action.

"Removal jurisdiction must be strictly construed, both because federal courts are courts of limited jurisdiction and because removal of a case implicates significant federalism concerns." In re NASDAQ Market Makers Antitrust Litigation, 929 F.Supp. 174, 178 (S.D.N.Y. 1996) ; see, e.g., New York v. Lutheran Ctr. for the Aging, Inc., 957 F.Supp. 393, 397 (E.D.N.Y. 1997) ("Removal statutes are to be strictly construed however, and the burden of establishing that a case falls within the Court's removal jurisdiction falls upon the removing party...."); see also Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 109, 61 S.Ct. 868, 85 L.Ed. 1214 (1941) ("Due regard for the rightful independence of state governments, which should actuate federal courts, requires that they scrupulously confine their own jurisdiction to the precise limits which the statute has defined."). "All doubts should be resolved in favor of remand." Frontier Ins. Co. v. MTN Owner Trust, 111 F.Supp.2d 376, 379 (S.D.N.Y. 2000) (quoting Leslie v. BancTec Serv. Corp., 928 F.Supp. 341, 347 (S.D.N.Y. 1996) ); see also Borden v. Blue Cross and Blue Shield of W.N.Y., 418 F.Supp.2d 266, 271 (W.D.N.Y. 2006) ("[R]emoval statutes are to be strictly construed against removal and all doubts should be resolved in favor of remand." (quoting Leslie, 928 F.Supp. at 347 ) ).

II. Ancillary Proceeding or Independent Action Subject to Removal

Plaintiff argues that the proceeding presently before the Court is ancillary to a judgment obtained in state court, not an independent action, and as a result it was improperly removed from state court.⁴ (Dkt. 3 at 11-13). Respondent argues that Plaintiff seeks to establish liability against Respondent as a third party, and thus "[t]his is not an action merely to turn over funds held by a disinterested third party." (Dkt. 10 at 2). The Court agrees with Plaintiff and finds that the special proceeding initiated by Plaintiff against Respondent and the Judgment Debtors is ancillary to the underlying state claim.

The federal removal statute states, "any civil action, brought in State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant...." 28 U.S.C. § 1441(a) (emphasis added); see also id. § 1446(a) ("A defendant or defendants desiring to remove any civil action from a State court shall file in the district court ... and division within which such action is pending...." (emphasis added) ).⁵ "Under § 1441(a), the term ‘civil action’ has long been interpreted to require a separate suit that is not ancillary, incidental, or auxiliary to a suit in state court." Wimbledon Financing Master Fund, Ltd. v. Sage Group Consulting Inc., No. 17 Civ. 6563 (AT), 2017 WL 6034649, at *2 (S.D.N.Y. Nov. 21, 2017) ; see Martin v. Franklin Capital Corp., 546 U.S. 132, 134, 126 S.Ct. 704, 163 L.Ed.2d 547 (2005) ("A civil case commenced in state court may, as a general matter, be removed by the defendant to federal district court, if the case could have been brought there originally."). "[W]here the action sought to be removed first arose as a motion before the state court in a related proceeding, rather than as a separate complaint, the party seeking removal must [also] prove the existence of an action separate and independent from the related proceeding." Fox & Horan v. Beiny, No. 92-CV-2067 (LJF), 1992 WL 168261, at *1 (S.D.N.Y. June 29, 1992) (citing First Nat'l Bank v. Turnbull & Co., 83 U.S. (16 Wall.) 190, 21 L.Ed. 296 (1872) ); see Estate of Kelly v. Gagliano, No. 13-CV-6077 (NGG)(LB), 2014 WL 950050, at *2 (E.D.N.Y. Mar. 11, 2014) (granting the plaintiff's motion to remand because the proceeding was " ‘merely auxiliary’ to the original proceeding" in state court).

"[I]n this Circuit if the action is to collect a judgment and not to establish the liability of a third party, it falls within the ancillary jurisdiction of the district court." UFCW Local 174 Comm. Health Care Fund v. Homestead Meadows Foods Corp., 425 F.Supp.2d 392, 394 (S.D.N.Y. 2005) (emphasis added); see Epperson v. Entm't Express, Inc., 242 F.3d 100, 106 (2d Cir. 2001) (recognizing a "distinction for jurisdictional purposes ... between an action to collect a judgment... and an action to establish liability on the part of a third party"). CPLR 5225(b) allows the judgment creditor to commence a special proceeding "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," and CPLR 5227 allows for the initiation of a special proceeding "against any person who it is shown is or will become indebted to the judgment debtor." "[I]t is well established that [5225(b) ] may be used to attack fraudulent transfers without the need to resort to a plenary action." Mitchell v. Lyons Prof'l Servs., Inc., 727 F.Supp.2d 120, 123 (E.D.N.Y. 2010) ; see WBP Cent. Assocs., LLC v. DeCola, 50 A.D.3d 693, 693, 855 N.Y.S.2d 210 (2d Dep't 2008) ("[A] claim to set aside an allegedly fraudulent conveyance of money, assets, or property may be asserted in a special proceeding pursuant to CPLR 5225(b)"). CPLR 5225(b)"creates a procedural mechanism by which judgment creditors can enforce...