In re Corp..

• Decision Date: 10 March 2011
• Citation: 2011 N.Y. Slip Op. 01741,921 N.Y.S.2d 14,82 A.D.3d 89
• Parties: In re SOJITZ CORPORATION, Petitioner–Respondent,v.PRITHVI INFORMATION SOLUTIONS LTD., Respondent–Appellant.
• Court: New York Supreme Court — Appellate Division

82 A.D.3d 89

921 N.Y.S.2d 14

2011 N.Y. Slip Op. 01741

In re SOJITZ CORPORATION, Petitioner–Respondent,

v.PRITHVI INFORMATION SOLUTIONS LTD., Respondent–Appellant.

Supreme Court, Appellate Division, First Department, New York.

March 10, 2011.

Respondent appeals from the order of the Supreme Court, New York County (James A. Yates, J.), entered October 5, 2009, which, insofar as appealed from, granted petitioner a pre-award attachment in aid of arbitration and reduced the amount of bond that petitioner was required to post pursuant to an order entered August 13, 2009.

DLA Piper LLP (US), New York (James P. Duffy IV, Claudia T. Salomon and Sonal Patel of counsel), for appellant.Hogan Lovells LLP, New York (Andrew Mark Behrman, Joseph P. Cyr and Matthew J. Galvin of counsel), for respondent.ANGELA M. MAZZARELLI, J.P., DAVID FRIEDMAN, JAMES M. McGUIRE, DIANNE T. RENWICK, ROSLYN H. RICHTER, JJ.RENWICK, J.

In this proceeding, we are asked to determine an issue apparently of first impression in this State, that is, whether a creditor can attach assets in New York, for security purposes, in anticipation of an award that will be rendered in an arbitration proceeding in a foreign country, where there is no connection to New York by way of subject matter or personal jurisdiction. We answer in the affirmative, holding that, pursuant to CPLR 7502(c), a pre-award attachment in international arbitration is proper; that is, debt owed by an entity domiciled within this state to the party against whom the award is sought may be attached.

Petitioner is a Japanese company with its principal place of business in Tokyo. Respondent is a company organized under the laws of India and has its principal place of business in Hyderabad, India. There is no claim that either party regularly engages in business, or has transacted business in connection with the present case, in New York State.

In November 2007, the parties entered into a contract in Delhi, India, whereby petitioner agreed to provide telecommunications equipment produced in China to respondent in India. In return, respondent would make payments into an escrow account located at the Punjab National Bank in India, from which petitioner was to withdraw the funds and deposit them into its account in Japan. The contract also contains choice of law and arbitration clauses that provide that the contract is governed by the laws of England and that any disputes arising “out of or in connection with or in relation to” the contract will be settled by arbitration in Singapore.

Pursuant to the contract, petitioner shipped and delivered equipment to respondent over a five-month period, from January to June 2008. Upon each shipment of goods, petitioner issued invoices along with bills of exchange to respondent. Respondent accepted delivery of all goods without complaint. The total price of the goods invoiced by petitioner was $47,483,106.93. On March 15, 2009, the final payment from respondent became due under the contract.

Petitioner claims that it only received approximately $5.6 million from respondent and that payments intended for the escrow account were diverted by respondent. Allegedly, respondent admitted to petitioner that it wanted to use the money for “other things” because it had “cash flow problems.” In addition, petitioner alleges that respondent owes “unbundled” and “delay” interest under the contract that amounts to approximately $1.345 million, as of July 2009. Accordingly, respondent allegedly owes petitioner approximately $48.4 million.

In August 2009, petitioner moved ex parte for an order of attachment against respondent for $40 million. Petitioner alleged that it intended to commence an arbitration in Singapore within 30 days of the order of attachment, but that it would take time to constitute the arbitral tribunal, and respondent might dissipate assets in the meantime. Supreme Court granted an order of attachment to secure the amount of $40 million and ordered petitioner to post a $2 million bond.

Respondent moved to vacate the order of attachment. In support of its motion, it submitted an affidavit from Satish Vuppalapati, its managing director, stating that it did not maintain any offices in New York, was not licensed to do business in New York, and had no property, bank accounts, or employees in New York. Respondent acknowledged soliciting business in New York, but only occasionally. Vuppalapati said that, as of September 4, 2009, respondent had only three or four customers in New York, which together contributed only about 1.4% of respondent's total annual revenue. He said that respondent did not undertake any business activities in New York in connection with the contract at issue. One of respondent's New York customers, COMSYS, owed $18,480. Petitioner attached that $18,480, which was located in New York.

In September 2009, Supreme Court issued the order appealed herein, which vacated the $40 million attachment, confirmed the $18,480 attachment, reduced the $2 million bond to $900, or 5% of any amount attached, whichever is greater, and permitted petitioner to move to attach additional specific assets if it found any in New York. Relying on CPLR 7502(c), the court rejected respondent's argument that the court had to have personal jurisdiction over it to issue such an attachment.

In February 2010, in an order denying respondent's motion for a stay of the order pending appeal, the court mandated that the order from which respondent appealed would automatically dissolve 90 days from March 8, 2010, unless certain events occurred, and on June 6, 2010, the order appealed from dissolved in accordance therewith. Petitioner then moved to release its bond because no property of respondent was attached. In August 2010, the court discharged the bond. Respondent now appeals from the order to the extent it granted petitioner the pre-award attachment and reduced the $2 million bond to $900.

As a threshold matter, we reject petitioner's argument that the appeal is moot because the order appealed from has been dissolved and the bond has been discharged. Respondent has the right to recover any damages sustained by reason of an improperly granted attachment ( Albany Sav. Bank v. All Advantages Limousine Serv., 154 A.D.2d 759, 761, 546 N.Y.S.2d 207 [1989] ). Therefore, this appeal is not moot ( Matter of Grand Jury Subpoenas for Locals 17, 135, 257 & 608 of United Bhd. of Carpenters & Joiners of Am., AFL–CIO, 72 N.Y.2d 307, 311, 532 N.Y.S.2d 722, 528 N.E.2d 1195 [1988], cert. denied 488 U.S. 966, 109 S.Ct. 492, 102 L.Ed.2d 529 [1988] ).

Despite New York's status as a global commercial and financial center, the authority of New York courts to issue the provisional remedy of attachment in aid of arbitration is a relatively recent phenomenon. In 1982, the Court of Appeals held that New York courts did not have the authority to issue an order of attachment in a case that was subject to arbitration ( Cooper v. Ateliers de la Motobecane, 57 N.Y.2d 408, 456 N.Y.S.2d 728, 442 N.E.2d 1239 [1982] ). The dispute in Cooper concerned a contract between Cooper and others, and a French corporation that provided for disputes to be resolved by arbitration in Switzerland. The plaintiff obtained ex parte an order of attachment of a debt owed by a New York corporation to the defendant. The Court noted that “[t]he provisional remedy of attachment is, in part, a device to secure payment of a money judgment” and that, pursuant to CPLR 6201, “[i]t is available only in an action for damages” (57 N.Y.2d at 413, 456 N.Y.S.2d 728, 442 N.E.2d 1239). Accordingly, “attachment would not be available in a proceeding to compel arbitration ( see CPLR 7503, subd [a] ), as that is not an action seeking a money judgment” ( id.). The Court also found that the remedy of attachment should not have been granted because it was inconsistent with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the U.N. Convention), which applied because one of the parties was a French corporation, and which “precludes the courts from acting in any capacity except to order arbitration” ( id. at 414, 456 N.Y.S.2d 728, 442 N.E.2d 1239).

In 1985, the New York Legislature amended article 75 of the CPLR to overrule Cooper. Specifically, it added a new subsection—“(c) Provisional Remedies”—to CPLR 7502. Under this new subsection, courts were granted the authority to entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitrable controversy, provided “that the award to which the applicant may be entitled would otherwise be rendered ineffectual without such provisional relief.” However, CPLR 7502(c), as interpreted, did not provide the courts with the authority to entertain applications for the provisional remedies of preliminary injunctions and orders of attachment where the situs of the arbitration is outside of New York or in actions governed by the U.N. Convention ( see e.g. Koob v. IDS Fin. Servs., 213 A.D.2d 26, 34, 629 N.Y.S.2d 426 [1995]; Drexel Burnham Lambert Inc. v. Ruebsamen, 139 A.D.2d 323, 329, 531 N.Y.S.2d 547 [1988], lv. denied 73 N.Y.2d 703, 537 N.Y.S.2d 490, 534 N.E.2d 328 [1988]; Shah v. Eastern Silk Indus., 112 A.D.2d 870, 871, 493 N.Y.S.2d 150 [1985], affd. 67 N.Y.2d 918, 501 N.Y.S.2d 1028, 492 N.E.2d 1236 [1986]; Faberge Int'l v. Di Pino, 109 A.D.2d 235, 238–239, 491 N.Y.S.2d 345 [1985] ). That authority was granted in October 2005, when the Legislature amended CPLR 7502(c) again, and in doing so granted the courts of New York authority to issue preliminary injunctions and attachments in aid of all arbitrations including those involving foreign parties or in which the arbitration is conducted outside of New York.¹

In the instant case, respondent does not argue that petitioner failed to demonstrate, as required by CPLR 7502(c), that the arbitration award would otherwise be rendered ineffectual without the...