James v. Powell

• Decision Date: 02 March 1967
• Citation: 19 N.Y.2d 249,279 N.Y.S.2d 10,225 N.E.2d 741
• Parties: , 225 N.E.2d 741 Esther JAMES, Respondent, v. Adam C. POWELL, Jr., et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 10

279 N.Y.S.2d 10

19 N.Y.2d 249, 225 N.E.2d 741

Esther JAMES, Respondent, v. Adam C. POWELL, Jr., et al., Appellants.

Court of Appeals of New York.

March 2, 1967.

Henry R. Williams, Lawrence R. Bailey, Thomas V. Sinclair, Jr., William C. Chance, Jr., and Lucille Chance, New York City, for appellants.

Raymond Rubin, New York City, for respondent.

FULD, Chief Judge.

The parties in this litigation are not strangers to our court. In July, 1964, we affirmed a libel judgment for $46,500 in favor of the plaintiff against the defendant, Congressman Adam Clayton Powell (14 N.Y.2d 881, 252 N.Y.S.2d 87, 200 N.E.2d 772, see, also, 18 N.Y.2d 931, 277 N.Y.S.2d 135, 223 N.E.2d 562). And now we are called upon to review an award of damages to the plaintiff against the defendant and his wife, Yvette Powell, based upon the charge that they had transferred real property owned by them in order to frustrate collection of the original libel judgment.

That judgment was entered in the office of the Clerk of the County of New York on April 5, 1963, and execution was duly issued on the same day, to be returned wholly unsatisfied two months later. ¹ On April 17, 1963, Yvette Powell, 'acting in her own capacity and as the holder of power of attorney from her * * * husband', transferred certain real estate which they owed in Puerto Rico to her uncle and aunt, Gonzalo and Carmen Diago. The documents on file in the Registry of Property at Bayamon, Puerto Rico, recite that, as consideration for the conveyance, the Diagos gave the defendants $1,500 in cash and a purchase-money mortgage of about $38,000 and also cancelled a debt of some $10,000 allegedly owing to the Diagos from the defendants 'on account of expenses * * * incurred in the construction of the residence which has been installed on the property'. The Diagos simultaneously placed two additional mortgages 'in favor of the Bearer' aggregating $25,000, which 'bearer' mortgages are now in the hands of unknown persons. The conveyance and mortgages did not come to the plaintiff's attention until December, 1963, and all efforts to examine the defendants with respect to them have been to no avail. The plaintiff never docketed the libel judgment in Puerto Rico nor, since she could find no property listed in Powell's name in Puerto Rico, did she institute any proceedings for the purpose of levying execution there.

Instead, she sued the defendants and the Diagos in New York for $1,000,000 damages, characterized as both compensatory and punitive, alleging as a cause of action against the Powells that the conveyance of the Puerto Rican property was made without consideration and with intent to defraud the plaintiff by preventing the collection of her judgment. ²

The Powells moved, under CPLR 3211 (sudd. (a)), to dismiss the complaint on two grounds, one that the court lacked jurisdiction of the subject matter of the cause of action (par. 2) and the other that the pleading failed to state a cause of action (par. 7). The court at Special Term denied the motion and on appeal the Appellate Division, two justices dissenting, affirmed the resulting order. The Appellate Division divided on the question whether, under the law of this State, a judgment creditor, having no lien on specific property, has a right of action for damages against his judgment debtor or others for transferring the debtor's property with intent to defraud the creditor and prevent collection of his judgment (25 A.D.2d 1, 266 N.Y.S.2d 245).

While that appeal was pending in the Appellate Division, the defendants failed to appear, in response to a court order, to be examined before trial and have their depositions taken. In consequence of that default, an order was made, pursuant to CPLR 3126 (subd. 3), striking the answers interposed by them and directing an inquest to fix the amount of the plaintiff's damages. Counsel for the defendants appeared at the inquest where they again challenged the sufficiency of the complaint and urged that, in any event, there could be no recovery of any punitive damages. A Supreme Court Justice, sitting without a jury, awarded the plaintiff compensatory damages against both defendants in the sum of $75,000, inclusive of the costs of the litigation and attorney's fees, plus punitive damages in the amount of $500,000 against the defendant Powell and in the sum of $25,000 against Mrs. Powell. The Appellate Division, on appeal, unanimously affirmed the order striking the defendants' answers but modified the final judgment by reducing the award of compensatory damages against both defendants to slightly less than $56,000 and the award of punitive damages against Powell to $100,000 and by entirely eliminating the punitive damages assessed against his wife.

The defendants have taken two appeals to this court: one from the affirmance of the order striking their answers and directing the inquest and the other from the final determination of the Appellate Division affirming, as modified, the trial court's judgment awarding damages against them on that inquest. On the latter appeal, there is brought up for review (under CPLR 5501, subd. (a), par. 1) the intermediate order denying the defendants' motion to dismiss the complaint and the questions relating to the award of damages on the inquest. ³

The parties have assumed that the substantive law of New York is completely dispositive of the appeal, and the courts below have in fact decided the case under such law. In so doing, they have overlooked the applicable choice of law principle which establishes that the legal consequences of the defendants' acts in this case must be determined under the law of Puerto Rico. The rule is that the validity of a conveyance of a property interest is governed by the law of the place where the property is located. (See Wyatt v. Fulrath, 16 N.Y.2d 169, 264 N.Y.S.2d 233, 211 N.E.2d 637; Hutchison v. Ross, 262 N.Y. 381, 187 N.E. 65, 89 A.L.R. 1007; Davis v. Hudson Trust Co., 3 Cir., 28 F.2d 740, 744, cert. den. 278 U.S. 655, 49 S.Ct. 179, 73 L.Ed. 565; Marcus v. Kane, 2 Cir., 18 F.2d 722; see, also, Restatement, Second, Conflict of Laws, Tent. Draft No. 5 (1959), § 218; Restatement of the Law, Conflict of Laws (1934), § 218, comment f; Annot., 111 A.L.R. 787; cf. Uniform Commercial Code, § 9--103, subd. (3).) Recently, in the Wyatt case, 16 N.Y.2d 169, 264 N.Y.S.2d 233, 211 N.E.2d 637, supra, we applied the law of the situs to determine whether the Spanish heirs of a Spanish domiciliary were defrauded by his testamentary transfers of chattels through joint bank accounts maintained in New York and London. The same choice of law rule is equally applicable here.

Whatever right the plaintiff had to levy execution on the land in question necessarily arose solely under the law of Puerto Rico, the jurisdiction empowered to deal with the Res. Manifestly, if Puerto Rico regarded the property, when it was owned by the defendants, as not being subject to execution or attachment, the plaintiff could not be heard to complain about the conveyance, regardless of the defendant's motives. The plaintiff would likewise have no cause for complaint if, under the law of Puerto Rico, the land was subject to execution by her prior to the conveyance to the Diagos and remained subject thereto even after such transfer.

Assuming that the plaintiff did initially have a right to proceed against the land and that, by reason of the conveyance, her right was frustrated, impaired or made more costly to enforce, her remedy, if any, must arise under the law of Puerto Rico. Such remedy is a concomitant of the right itself; it simply represents an alternate means for satisfying a judgment when the judgment creditor has been blocked or checked in his efforts to reach the land. We should, as a general rule, afford the plaintiff no greater or lesser remedy than she is given under the law creating the right which the remedy is designed to safeguard.

To put the matter somewhat differently, the law of New York does not and cannot determine the extent to which property located outside the State is subject to execution by a judgment creditor. Therefore, whether or not the plaintiff was defrauded by the conveyance to the Diagos may not be resolved under our own rules. We do, of course, have an interest in assuring that a New York judgment creditor is not prevented by wrongful acts of his debtor from satisfying the judgment. To the extent that satisfaction must come from execution on the debtor's assets in a foreign jurisdiction, this State may legitimately demand that there be no arbitrary discrimination by that jurisdiction against New York judgment creditors as compared with local judgment creditors. (See Watkins v. Conway, 385 U.S. 188, 87 S.Ct. 357, 17 L.Ed.2d 286.) However, assuming that no such discrimination is practiced by Puerto Rico, then, the availability of a remedy to a judgment creditor who has been prevented from levying execution by a transfer of land located in that jurisdiction constitutes a matter of policy which is properly determinable by the law of Puerto Rico rather than that of New York. (See Wyatt v. Fulrath, 16 N.Y.2d 169, 175, 264 N.Y.S.2d 233, 237, 211 N.E.2d 637, 640, supra; cf. Oltarsh v. Aetna Ins. Co., 15 N.Y.2d 111, 256 N.Y.S.2d 577, 204 N.E.2d 622, Intercontinental Hotels Corp. v. Golden, 15 N.Y.2d 9, 254 N.Y.S.2d 527, 203 N.E.2d 210.)

In this regard, we note that the Restatement Second of Conflict of Laws (Tent. Draft No. 5 (1959), § 218; see, also Restatement, Conflict of Laws (1934), § 218, Comment f) provides for the 'validity of a conveyance' of land to be 'determined by the law of the state where the land is.' More specifically, in their Comment to this provision--under the heading 'Conveyance in fraud of third persons'--the authors of the Restatement declare (Comment b, p. 23): 'The law of the state where the land is determines whether the conveyance was made in fraud of third persons. This law...