M.M. v. T.M.

• Decision Date: 10 August 2015
• Docket Number: 03-11013
• Citation: 17 N.Y.S.3d 588,50 Misc.3d 565,2015 N.Y. Slip Op. 25294
• Parties: M.M., Plaintiff, v. T.M., Defendant.
• Court: New York Supreme Court

50 Misc.3d 565

17 N.Y.S.3d 588

2015 N.Y. Slip Op. 25294

M.M., Plaintiff

v.T.M., Defendant.

03-11013

Supreme Court, Monroe County, New York.

Aug. 10, 2015.

Francis C. Affronti, Esq., Rochester, New York, Attorney for Plaintiff.

Charles Inclima, Esq., Rochester, New York, Attorney for Defendant.

Opinion

RICHARD A. DOLLINGER, J.

In a seemingly interminable battle, a former spouse seeks to collect monies owed by her former husband for maintenance and attorneys fees from two sources: the retainer deposited by her ex-husband with his counsel and certain retirement accounts. The field of combat in this decade-old matter shifts from the well-traveled road of the Domestic Relations Laws and requires a voyage down a road not taken¹ into a hitherto infrequently explored landscape—the rights of former spouses seeking to enforce support judgments under federal and state laws designed to balance the rights of spouses, the sanctity of pensions and the importance of adequate legal counsel.

The former wife moves for a garnishment of her former spouse's Thrift Savings Plan (“TSP”) and federal employees retirement and to restrain the former spouse from shifting the TSP to payout status. She also seeks a qualified domestic relations order (“QDRO”) against the husband's bank pension and federally-sponsored 401K plan to recover unpaid maintenance, an order to enforce both the prior and now-requested judgment, a finding of contempt, entry of additional money judgments, compliance with other provisions of the separation agreement, prior court orders and the judgment of divorce and a wage deduction order against any income received by the former spouse. When these matters were brought to the court under an order to show cause, this court temporarily restrained the payments to the husband from the certain federal retirement accounts and savings plans in the husband's name.² In response, the husband initiated a cross-motion to deny the requested relief and sought to modify his continuing maintenance obligation on the basis of an “extreme hardship” and further sought to modify the couple's separation agreement because of alleged ambiguities in several provisions of the agreement.

It is undisputed that the wife has two money judgments for unpaid maintenance against the husband in this matter. The judgments total in excess of $80,000. In addition this court awarded the wife $47,351.33 in attorneys fees and costs in December 2012. M.M. v. T.M., 35 Misc.3d 1231(A), 2012 WL 1939970 (Sup.Ct. Monroe Cty.2012). The total amount owed by the husband to the wife is $118,075.35. According to the wife and in an assertion apparently accepted by the husband without objection, the husband has made no voluntary payments on these arrears. At one point, he filed bankruptcy, a move that the wife contends was designed to avoid a turnover proceeding that the wife commenced against him. All of the money previously collected by the wife for unpaid maintenance derived from an income execution and a qualified domestic relations order issued against the judgment debtor's share of a pension.

1. The restraining notice against the retainer funds

Initially, the wife, seeking to enforce a judgment for unpaid maintenance, sought out an unusual cache of funds: the retainer deposited by her husband with his attorney to cover his legal fees in this proceeding. The facts are undisputed: the husband retained a local law firm to represent him in response to the order to show cause brought by his wife to collect the unpaid maintenance. As part of the representation, the husband signed a retainer agreement with the law firm and deposited funds with his counsel. The wife's counsel, upon receipt of a notice of appearance from the husband's counsel, served a restraining notice of husband's attorney, restraining any removal of funds from the attorney's retainer account and seeking its turnover to the wife's counsel.

The arguments from each side are comparatively simple although dissected in detail through more 40 pages on contentious submissions. The wife, seeking to enforce the restraining notice, argues that CPLR 5222 and 5241 permit the use of this enforcement device. The husband's counsel argues his client, facing the potential penalties of contempt in response to the wife's application (among other relief), is entitled to counsel and he seeks the shelter of CPLR 5240 which permits this court to exercise discretion to deny the restraint on the retainer funds because to permit the turnover would cause the husband “extreme hardship.”

In considering the wife's request, the important terms in CPLR 5222 are “person” and “interest.” The statute expressly allows a restraining notice to be issued against any person who holds property in which the debtor has “an interest:”

All property in which the judgment debtor or obligor is known or believed to have an interest then in and thereafter coming into the possession or custody of such a person, including any specified in the notice, and all debts of such a person, including any specified in the notice, then due and thereafter coming due to the judgment debtor or obligor, shall be subject to the notice.

CPLR 5222. An attorney is a “person” under the statute and the husband's counsel cannot point to any exception to this broad language which sweeps attorneys out of the general class of “persons” impacted by CPLR 5222. The next obstacle facing the wife is whether the husband has an “interest” in the retainer funds held by his counsel. In support of her claim that the husband still holds an interest in the deposited funds, the wife relies on Potter v. MacLean, 75 A.D.3d 686, 904 N.Y.S.2d 551 (3rd Dept.2010). In that case, the husband owed more than $20,000 in arrears under a child support and maintenance order. He paid $15, 000 as a retainer to a law firm. To enforce the support obligation, a county support collection unit served a restraining notice on the husband's attorney regarding the deposited funds. When the law firm moved to quash the restraint, it argued that the funds were necessary to defend the collection action. The Appellate Division, Third Department held that the husband, who had advanced the funds, retained an interest in the funds under CPLR 5222. The court declined to quash the restraining order:

funds held by an attorney as a retainer for legal services to be rendered have been found to be subject to a pre-attachment restraining order ... Such funds, even if deposited in an escrow account, may be attached as long as they are subject to the judgment debtor's “present or future control,” or are required to be returned to the judgment debtor if not used to pay for services rendered.

75 A.D.3d at 687, 904 N.Y.S.2d 551 (citations omitted). In this instance, the language of the Third Department in Potter v. MacLean —“funds ... required to be returned to the judgment debtor if not used to pay for services rendered”—directs that if any of the funds, advanced by the husband, are “required to be returned” to the husband from his attorney at the time of the service of the restraining notice, then those “must-be-returned” funds are subject to the restraining notice. Another New York decision echoes the same refrain. In Anderson Kill P.C. v. Anerson Kill P.C., as garnishee, 46 Misc.3d 1219(A), 2015 WL 688076 (Sup.Ct. New York Cty.2015), the court acknowledged that escrow funds in an attorney's trust account can be used to satisfy a judgment and cited Potter v. MacLean for that proposition. Funds in an attorney's escrow account or an IOLA³ account are subject to attachments. Gala Enters., Inc. v. Hewlett Packard Co., 970 F.Supp. 212, 217 (S.D.N.Y.1997) ; SEC v. Dawson, 2007 U.S. Dist. LEXIS 63248, p. 4 (E.D.N.Y.2007) (where a client transfers assets to an attorney in trust, it is beyond doubt that the assets continue to be the property of the client, and that the attorney merely serves as a “custodian” thereof). Funds deposited as a retainer or used to pay for services after a retainer has been expended are similarly subject to attachment. Pahlavi v. Laidlaw Holdings, 180 A.D.2d 595, 595–596, 580 N.Y.S.2d 303 (1st Dept.1992) (judgment debtor deposited $50,000 with his attorney after receipt of a restraining order and the court ordered his law firm to return them).⁴ An even more persuasive precedent is found in Ray v. Jama Productions Inc., 74 A.D.2d 845, 425 N.Y.S.2d 630 (2nd Dept.1980). The court in that case concluded that the debtor had an interest in property even though the money was not paid to him, but simply paid on his behalf. If the debtor “directly benefited” from the payment of the restrained money and if the money was utilized to “ satisfy his debts and expenses,” he derived a benefit therefrom and his “ interest” was sufficient to justify the restraining notice. It is only in the case of a party who “retains no interest in the escrowed funds,” that an escrow account is not subject to a creditor's claims. Burrell Color, LLC v. Burrell, 9 Misc.3d 1129(A), 2005 WL 3076323 (Sup.Ct. Monroe Cty.2005), citing Lang v. State, 258 A.D.2d 165, 171, 696 N.Y.S.2d 3 (1st Dept.1999).

The husband here argues at length that Potter v. MacLean does not directly resolve this question: he argues, with some force, that Potter v. MacLean simply allows the restraining notice to impact funds intended to pay child support and that the same policy imperatives are not implicated when a judgment for maintenance arrears alone is the object of the restraining notice. The husband cites no authority for this distinction and this court, after diligent search, comes up empty-handed. The Third Department in Potter v. MacLean dealt with a meld of child support and maintenance and made no attempt so suggest that either form of support was treated differently when a restraining notice was issued against an attorney's funds held on behalf of the husband. In this court's view, the Third Department in Potter v. MacLean was addressing the broad issue of court-ordered family...