In re Adidas AG for an of Attachment in Aid of Arbitration
| Docket Number | 22-MC-320 (VEC) |
| Decision Date | 26 May 2023 |
| Parties | IN THE MATTER OF THE APPLICATION OF ADIDAS AG FOR AN ORDER OF ATTACHMENT IN AID OF ARBITRATION |
| Court | U.S. District Court — Southern District of New York |
For several years, the musician and fashion designer Ye (formerly known as Kanye West) and several companies controlled by him (collectively Ye and his companies are referred to here as “Yeezy”)[1] partnered with sportswear company adidas AG (“adidas”) to produce and promote the Yeezy brand of footwear and apparel. See Pet. Mem., Dkt 29 at 3. After Ye publicly made several anti-Semitic and racist statements, adidas terminated the operative contract and initiated arbitration of its breach of contract claims. See id. at 5-7; Second Taft Decl., Dkt. 40 ¶ 5.
In anticipation of arbitration, adidas petitioned to attach or freeze several JPMorgan Chase (“Chase”) accounts that were held by Ye or his companies; the accounts contained up to $75 million in funds allegedly belonging to adidas. See Pet., Dkt. 28. The Court, proceeding in Part I granted the petition on November 11, 2022.[2] See Attachment Order, Dkt. 32. On April 12, 2023, Yeezy moved to vacate the Attachment Order, and adidas opposed the motion. See Mot., Dkt. 33; Pet. Opp., Dkt. 35. For the reasons discussed below, the motion to vacate is GRANTED, and the Attachment Order is VACATED, without prejudice to adidas again moving either for an attachment or an injunction preventing Yeezy from gaining access to the funds in the Chase accounts.
Pursuant to the terms of the parties' operative agreement, adidas provided Yeezy with $75 million for restricted purposes. See Pet. Mem. at 3-4. When the parties' partnership was terminated, adidas claimed that some or all of the $75 million was still held in Yeezy's Chase accounts. See id. at 3-4, 15. In the wake of public relations crises growing out of Ye's antisemitic and racists statements, Chase stated that it intended to close any Chase accounts affiliated with Yeezy. Id. at 7. Concerned that Yeezy may dissipate adidas's funds, adidas moved to attach up to $75 million in Yeezy's Chase accounts pending resolution of the parties' disputes in arbitration and, alternatively, for a temporary restraining order freezing those accounts. Id. at 9.
Following an ex parte telephonic hearing,[3] the Court granted the petition and issued the Attachment Order. See Attachment Order. The Court found that adidas had met the standard for an ex parte attachment order in aid of arbitration pursuant to N.Y. C.P.L.R. § 7502,[4] and that it “demonstrated sufficient grounds for this Court to exercise its equitable authority, independent of its authority under CPLR § 7502.” Id. at 2.
To prevent the dissipation or exhaustion of assets that may be the subject of a judgment in pending or planned arbitration, New York law permits courts to “attach” those assets to preserve them to satisfy a potential judgment. See N.Y. C.P.L.R. § 7502. Federal Rule of Civil Procedure 64 incorporates the rules of the state in which a federal court sits with respect to certain remedies, including attachment; accordingly, federal courts in New York are authorized to issue attachment orders in accordance with the requirements of New York state law. See, e.g., Pollafko, Inc. v. Okulos Comercio Varejista De Produtos Opticos LTDA, 22-CV-5497, 2022 WL 4451248, at *2 (E.D.N.Y. Sept. 23, 2022).
The first ground upon which Petitioner sought to freeze Yeezy's Chase accounts is N.Y. C.P.L.R. § 7502(c), which permits courts to attach assets on an ex parte basis pursuant to N.Y. C.P.L.R. § 6211. N.Y. C.P.L.R. § 6211(b) provides that the petitioner must move to confirm an attachment order granted on an ex parte basis within five or ten days following the issuance of the order.[5] The parties do not dispute that adidas failed to satisfy this requirement; adidas has not moved to confirm the Attachment Order in the more than six months that have elapsed since it was issued. See Pet. Opp. at 18 ().
Pursuant to section 6211(b), adidas's failure to file a motion to confirm nullifies the attachment order; section 6211(b) expressly provides that if the “plaintiff fails to make such motion within the required period, the order of attachment and any levy thereunder shall have no further effect and shall be vacated upon motion.” Accordingly, New York courts routinely vacate attachment orders if the petitioner fails timely to move to confirm the order. See, e.g., Great White Whale Advert. Inc. v. First Festival Prods., 81 A.D.2d 704, 706-07 (3d Dep't 1981); Brown v. Ryvkin, 78 A.D.3d 981, 983 (2d Dep't 2010) (collecting cases).
Petitioner launches a volley of unpersuasive arguments in an attempt to excuse its noncompliance with the plain language of the statute. First, adidas contends that the deadline to move to confirm an attachment order imposed by New York state law is merely a procedural rule that is not binding in federal court. See Pet. Opp. at 17. Numerous courts in the Second Circuit, however, have recognized that “the plain language of Rule 64 directs this Court to apply state law,” including section 6211(b)'s requirement that a confirmation motion be made no more than ten days after the attachment order is issued. Armada (Singapore) PTE Ltd. v. N. China Shipping Co., Ltd., (BVI), 633 F.Supp.2d 168, 170 (S.D.N.Y. 2009); see also Dayco Corp. v. Foreign Transactions Corp., 705 F.2d 38, 39 (2d Cir. 1983); Helicon Partners, LLC v. Kim's Provision Co., Inc., No. 12-1602, 2013 WL 1881744, at *5 .
Second, adidas argues that, even if it was legally required to move to confirm the Attachment Order within the statutory period, the Court retains discretion to extend the deadline and to permit adidas to seek confirmation now. See Pet. Opp. at 17-18. adidas, however, has not demonstrated the existence of any ground upon which the Court may appropriately grant an extension.
adidas relies primarily on Iraq Telecom Ltd. v. IBL Bank S.A.L., 43 F.4th 263 (2d Cir. 2022), for the proposition that courts may extend the deadline for a petitioner to move to confirm an attachment order. Iraq Telecom Ltd. involved very different facts from the present case, however. The district court there granted an ex parte attachment order on January 19, 2022, and the petitioner moved to confirm the order on January 31, 2022. Id. at 268. The applicable ten-day window for filing a motion to confirm expired on Saturday, January 29, 2022. See id. at 269. Pursuant to Federal Rule of Civil Procedure 6(a)(1)(C), any time period that expires on a weekend runs until the end of the next business day, which, in that case, was Monday, January 31, 2022, the day on which the petitioner filed its motion. See id. at 268.
In contrast to Iraq Telecom Ltd., there are no federal rules applicable to the present matter that would require or permit the Court to grant adidas a six-month extension of its time to move to confirm the Attachment Order. Nor has adidas demonstrated that an extension is warranted for “excusable neglect” or attempted to justify the delay. Fed.R.Civ.P. 6(b) (); see also Helicon Partners, LLC, 2013 WL 1881744, at *5 ().
Instead, adidas contends that it has satisfied the spirit of the confirmation requirement, if not the text, because it served the Attachment Order on Yeezy four days after the order was entered, and, accordingly, Yeezy had notice of the attachment. Pet. Opp. at 17. The New York legislature, however, imposed the additional confirmation requirement to ensure that attachments only persist where there is a continuing need in light of the fact that attachment is a “harsh and extraordinary” remedy. Bank of China, N.Y. Branch v. NBM L.L.C., 192 F.Supp.2d 183, 186 (S.D.N.Y. 2002); see also Iraq Telecom Ltd., 43 F.4th at 270. Without a confirmation hearing, Yeezy was deprived of an early opportunity to have the Court consider its substantive challenges to Petitioner's arguments regarding the need for an attachment order.[6]
In sum, adidas failed to move to confirm the Attachment Order within the statutory period, and no grounds exist upon which to grant adidas's request for leave to file an out-of-time motion. While the Attachment Order states that it extends for an additional thirty days after the conclusion of any motion to vacate, that does not enable adidas now to move to confirm the order; the Attachment Order was rendered null some six months ago when adidas failed timely to move to confirm the order. See N.Y. C.P.L.R. § 6211(b); see also Thadford Realty Co. v. L.V. Income Props. Corp., 101 A.D.2d 814, 814-15 (2d Dep't 1984).[7] Accordingly, the Attachment Order issued pursuant to N.Y. C.P.L.R. § 7502 is vacated.
The second ground upon which Petitioner sought the Attachment Order is the Court's equitable power. Pursuant to Federal Rule of Civil Procedure 65(b), courts may grant injunctive relief on an ex parte basis through a temporary restraining order (“TRO”), but any such order expires no more than fourteen days from the date of entry absent a court order extending the injunction.[8] Because the Court issued no such order, the TRO...
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