ITC Entertainment, Ltd. v. Nelson Film Partners

• Decision Date: 04 August 1983
• Docket Number: 83-7026,Nos. 83-7018,s. 83-7018
• Citation: 714 F.2d 217
• Parties: ITC ENTERTAINMENT, LIMITED, Plaintiff-Appellant, v. NELSON FILM PARTNERS and Frank Menke, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

Page 217

714 F.2d 217

ITC ENTERTAINMENT, LIMITED, Plaintiff-Appellant, v. NELSON FILM PARTNERS and Frank Menke, Defendants-Appellees.

Nos. 83-7018, 83-7026.

United States Court of Appeals, Second Circuit.

Argued Jan. 31, 1983.

Decided Aug. 4, 1983.

Edward L. Sadowsky, New York City (Tenzer, Greenblatt, Fallon & Kaplan, Stacy L. Wallach, Mona D. Shapiro, New York City, of counsel), for defendants-appellees.

David Jacoby, New York City (Phillips, Nizer, Benjamin, Krim & Ballon, Judith S. Roth, Leonard S. Baum, New York City, of counsel), for plaintiff-appellant.

Before FEINBERG, Chief Judge, LUMBARD, Circuit Judge, and RE, Chief Judge. ^*

LUMBARD, Circuit Judge:

On December 27, 1982, Judge Stewart of the Southern District of New York granted a request by the plaintiff, ITC Entertainment, Ltd., for a prejudgment attachment order against nondomiciliary defendants Nelson Film Partners and Nelson Film's general partner, Frank Menke. Defendants moved for reconsideration on the ground that they were not "nondomiciliar[ies] residing without the state" within the meaning of New York's nonresident attachment statute, Civ.Prac.Law § 6201(1). The district court agreed and on January 5, 1983, vacated the attachment order on the ground that Menke had a "dwelling or abode" within the state at which service of process could be made; he was therefore not "residing without the state."

We granted a stay of the January 5 order pending determination of plaintiff's expedited appeal. Because we do not agree that under New York law a defendant's amenability to service of process within the state precludes an attachment against a "nondomiciliary residing without the state," we reverse the order vacating the attachment.

I. FACTS

The underlying dispute in this diversity case concerns defendants' liability on a $2.7 million note payable to ITC by February 5, 1982. The note was signed by Nelson Film Partners, a limited partnership apparently established for the sole purpose of purchasing the film "Barbarosa" from ITC. Nelson Film's sole general partner is Frank Menke, whose primary business is the promotion of motion-picture syndicated tax shelters. ITC's complaint, filed on November 16, 1982, claims that Nelson defaulted on payment of the note, and that because Nelson is insolvent, Menke is liable for the debt as Nelson's general partner.

Immediately upon filing the complaint, ITC sought an order of attachment under Fed.R.Civ.P. 64 and New York Civ.Prac.L. § 6201(1) (McKinney 1980). The New York statute provides that in non-matrimonial cases where the plaintiff claims and would be entitled to money damages, the court may order an attachment against a defendant who is a "nondomiciliary residing without the state."

Defendants filed papers on December 3, opposing the motion on three grounds: that the nonresident attachment statute was inapplicable once the defendants had submitted themselves to the jurisdiction of the court, that if the statute were construed to permit attachment against nonresidents solely for security purposes it would be unconstitutional, and that plaintiff was unlikely to succeed on the merits.

On the basis of the undisputed facts and its view on the merits of plaintiff's claims and defendants' counterclaims, the district court made the following findings, none of which are challenged here. The plaintiff is likely to succeed on its claim to recovery on the $2.7 million note, and this claim is unlikely to be defeated by defendants' counterclaims. The defendants do not have sufficient assets to satisfy a $2.7 million judgment. Indeed, Nelson Film Partners has never had more than $30,000 in assets, and $25,000 of this was spent as a "downpayment" on "Barbarosa." Menke will soon be receiving highly liquid assets in connection with a related purchase of the film "On Golden Pond." Menke has the financial sophistication to invest these assets in a manner that would make enforcement of ITC's judgment difficult. Finally, Menke has at times conducted business "in a less than exemplary manner." ¹ On the basis of the above findings and the defendants' apparent concession that they were "nondomiciliaries," the court found, in the exercise of its discretion, that an order of attachment should issue. The order was filed on December 29, 1981.

On December 31, defendants sought reconsideration and reargument, raising for the first time on the question of whether Menke, "concededly a nondomiciliary, could be said to reside without the state," given his ownership of and infrequent stays at a cooperative apartment at the Hotel Lombardy in New York City. Both sides filed memoranda on this issue, and a hearing was held on January 5, 1983.

The relevant facts concerning Menke's residence in the State of New York are undisputed. Menke has been a resident of Atlanta, Georgia, for the last sixteen years, and he currently maintains a home there with his wife and four children. He is active in Atlanta civic affairs, having served for the last five years by appointment of the Mayor and approval of the City Council as a Commissioner with the City of Atlanta Community Relations Commission. He votes and pays taxes in Georgia, not in New York. He is the sole stockholder in Menke and Company, which does business in Georgia.

Menke's business activities bring him to New York from time to time. He has maintained a business office in New York City for the last several years and has several business bank accounts here. There is no indication that he has any personal bank accounts in New York City. Menke's only apparent "personal" tie to New York is Room 510 at the Hotel Lombardy, a cooperative apartment that he purchased for $140,000 in 1982. Menke testified in a related action that he stayed at the apartment "infrequently," and in the record on this appeal he describes his visits as "sporadic."

The district court interpreted § 6201(1)'s requirement that the defendant "reside without the state" as unsatisfied whenever the defendant has an "actual place of ... living at which service of process may lawfully be made" for the purposes of New York's law of service, Civ.Prac.Law § 308(2). Noting that the Hotel Lombardy apartment was a place at which effective service of process against Menke could be made, the court held that Menke was not residing without the state and that attachment was therefore unavailable.

II. THE SECURITY FUNCTION OF ATTACHMENT AGAINST NONRESIDENTS

Defendants argue that even if Menke is a nondomiciliary residing without the state within the meaning of § 6201(1), this section permits an attachment only for the purposes of obtaining jurisdiction over nonresidents; since defendants have already submitted to the jurisdiction of the court, an attachment under this section is unavailable. We disagree.

New York's nonresident attachment statute is designed to serve two independent purposes: obtaining jurisdiction over and securing judgments against nondomiciliaries residing without the state. New York courts have long recognized that provisions for attachment against nonresidents are based on the assumption that "[t]here is much more propriety in requiring a debtor, whose domicile is without the state, to give security for the debt, than one whose domicile is within. Such a debtor, pending litigation, might sell his property, and remain at home, in which event he could not be reached by any of the provisional remedies or supplementary proceedings provided by [New York] laws." Houghton v. Ault, 16 How.Pr. 77, 84 (Sup.Ct.) (emphasis added), aff'd, 16 How.Pr. 87 (Sup.Ct.Gen.Term 1858). New York courts have expressly interpreted the pre-1977 version of § 6201(1) as continuing this tradition, permitting attachment even when the court already has personal jurisdiction over the nonresident defendant. See, e.g., Dean v. James McHugh Construction Co., 43 A.D.2d 1009-10, 352 N.Y.S.2d 310 (1974) (granting attachment against nonresident "for security purposes only and not to confer jurisdiction"); Zeiberg v. Robosonics, Inc., 43 Misc.2d 134, 250 N.Y.S.2d 368 (Sup.Ct.App.Term 1964) (denying motion to vacate attachment "unnecessary for the purpose of acquiring jurisdiction" because attachment "also performs the role of providing security for a plaintiff," and defendant foreign corporation "failed to show that the attachment was 'unnecessary to the security of the plaintiff.' "). See also Maitrejean v. Levon Properties Corp., 45 A.D.2d 1020, 358 N.Y.S.2d 203 (1974) (attachment against foreign corporation not available where unnecessary either for jurisdictional or security purposes).

Defendants argue that the pre-1977 cases are irrelevant because the 1977 amendments to § 6201(1) eliminated the right to issue attachments under this section solely for security purposes. However, defendants' position finds no support in either the language of the amendments ² or the legislative history and is contrary to the unanimous opinion of courts and commentators. See McLaughlin, Practice Commentaries, Civ.Prac.L. § 6201(1) (McKinney 1980) ("if a nondomiciliary-nonresident is subject to in personam jurisdiction, ... this subdivision still sanctions the signing of an order of attachment ... to assure the plaintiff that ... there will be property in New York upon which he may execute"); accord, Katz Agency, Inc. v. Evening News Ass'n, 514 F.Supp. 423, 429 (S.D.N.Y.1981); Philipp Brothers Division of Engelhard Minerals & Chemicals Corp. v. El Salto, S.A., 487 F.Supp. 91, 93-95 (S.D.N.Y.1980); 7A J. Weinstein, H. Korn & A. Miller, New York Civil Practice p 6201:09 (1982).

We agree with the district court that the statute continues to countenance attachments against nonresidents when appropriate to secure the judgment, even when unnecessary to secure jurisdiction.

III. "RESIDING WITHOUT THE STATE"

The Court held that Menke's apartment at the Hotel Lombardy constituted a "dwelling place or usual place of abode" for the purposes of service of process, ...