Mitchell v. Lyons Prof'l Serv., Inc.

• Decision Date: 29 July 2010
• Docket Number: No. 09 Civ. 1587(BMC),09 Civ. 1587(BMC)
• Citation: 727 F.Supp.2d 120,77 Fed.R.Serv.3d 26
• Parties: Keesha MITCHELL, Theresa Campbell, Seannette Campbell and Tanisha Selby, Plaintiffs, v. LYONS PROFESSIONAL SERVICES, INC., Richard Trim and Terry Tatum, Defendants.
• Court: U.S. District Court — Eastern District of New York

727 F.Supp.2d 120

77 Fed.R.Serv.3d 26

Keesha MITCHELL, Theresa Campbell, Seannette Campbell and Tanisha Selby, Plaintiffs,

v.LYONS PROFESSIONAL SERVICES, INC., Richard Trim and Terry Tatum, Defendants.

No. 09 Civ. 1587(BMC).

United States District Court,

E.D. New York.

July 29, 2010.

Gary Newlin Rawlins, The Law Offices of Gary N. Rawlins, New York, NY, for Plaintiffs.

Raymond Anthony Giusto, East Islip, NY, for Defendants Lyons Professional, Richard Trim and Christopher Lyons.

Terry Tatum Jamaica, NY, pro se.

MEMORANDUM DECISION AND ORDER

COGAN, District Judge.

The question raised is whether, under Fed.R.Civ.P. 69(a), a judgment creditor is required to commence a separate proceeding against an alleged fraudulent transferee or successor to the judgment debtor based upon a state law provision that would require a separate proceeding, or whether the same relief can be obtained by motion in the original federal action. I hold that Federal Rule of Civil Procedure 69(a) does not require strict adherence to state procedural law, and that the judgment creditor may seek the relief provided under state law through a motion made in the original federal action.

BACKGROUND

The four female plaintiffs brought this employment discrimination action under federal, state, and local law against their former employer, Lyons Professional Services, Inc. ("Lyons Services"). In additionto Lyons Services, plaintiffs Tanisha Selby, Keesha Mitchell, and Theresa Campbell sued Terry Tatum ("Tatum"), the supervisor who harassed them, and plaintiff Seannette Campbell sued Richard Trim ("Trim"), the supervisor who harassed her. After Tatum answered and Lyons Services and Trim defaulted, plaintiffs voluntarily dismissed the claims against Tatum without prejudice. The Court held an inquest on damages after due notice to Lyons Services and Trim, neither of whom appeared, and judgment was entered severally awarding damages in favor of plaintiffs Selby, Mitchell, and Theresa Campbell against Lyons Services, and in favor of plaintiff Seannette Campbell against Lyons Services and Trim jointly and severally.

After entry of the judgment, plaintiffs filed a motion under Fed.R.Civ.P. 69(a) and New York Civil Practice Law and Rules 5225(b) ("CPLR 5225(b)") against Christopher Lyons (the sole shareholder of Lyons Services), and Garrison Protective Services, Inc. ("Garrison," collectively with Christopher Lyons, the "Garnishees"), the alleged fraudulent transferee or successor in interest to Lyons Services.¹ In that motion, plaintiffs contend that Lyons Services transferred its business and employees to Garrison for no consideration; and that Christopher Lyons continues to draw his salary or a commission as a "consultant" to Garrison. Plaintiffs thus contend that Garrison and Christopher Lyons are liable for the judgment against Lyons Services either as fraudulent transferees of Lyons Services' assets, or as a successor business to Lyons Services.

DISCUSSION

Proceedings upon execution are governed by Rule 69(a) of the Federal Rules of Civil Procedure. That Rule provides, in part that: "The procedure on execution-and in proceedings supplementary to and in aid of judgment or execution-must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies." Here, the particular state law procedure that plaintiffs seek to invoke is CPLR 5225(b). That statute provides, in part:

Property not in the possession of judgment debtor. Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money or other personal property in which the judgment debtor has an interest, or against a person who is a transferee of money or other personal property from the judgment debtor, where it is shown that the judgment debtor is entitled to the possession of such property or that the judgment creditor's rights to the property are superior to those of the transferee, the court shall require such person to pay the money, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor and, if the amount to be so paid is insufficient to satisfy the judgment, to deliver any other personal property, or so much of it as is of sufficient value to satisfy the judgment, to a designated sheriff.... Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. The court may permit the judgment debtor to intervene in the proceeding.

Id.

A "special proceeding" is a creature of New York practice that although broughtas a distinct legal action, has more in common with motion practice than it does with a plenary action. When available, it reflects a legislative determination that the relief sought will often, although not always, require the resolution of primarily legal issues, rather than factual ones. It can be used only where the State Legislature has authorized it for the presentation of a particular type of legal issue or to obtain a particular form of relief. Because the focus is on an anticipated expedited resolution, discovery is not permitted absent leave of court, and rulings are usually made on the basis of the original petition, any affidavits served with it, and affidavits served in opposition. See generally David D. Siegel. New York Practice § 547 et seq. (4th ed.2005) If a party mistakenly seeks relief by motion in an action when it should be by special proceeding, the Court may simply deem the motion a special proceeding, if it has jurisdiction over the parties. "[I]f a party applies for judicial relief by way of a motion when proper procedure would require the commencement of a special proceeding, or vice versa, the court can simply treat the matter as having been raised by the appropriate mechanism and proceed to the merits of the application." Vincent C. Alexander, N.Y.C.P.L.R. 103, Official Commentary, C103:3.

With regard to the special proceeding provided for in CPLR 5225(b), it is well established that it may be used to attack fraudulent transfers without the need to resort to a plenary action. "The main attainment here, since the same kind of relief has always been available in a plenary action, is that the facile device of a special proceeding is being made available to do the job, avoiding the usual delays of the conventional action." David D. Siegel, N.Y. C.P.L.R. 5225, Practice Commentaries, C5225:7.

It is equally well settled that this statute may be used to pierce the corporate veil or assert alter ego liability. See WBP Cent. Assocs., LLC v. DeCola, 50 A.D.3d 693, 855 N.Y.S.2d 210 (2d Dep't 2008). And although no reported decision has invoked the statute to assert a theory of successor liability, see generally NTL Capital, LLC v. Right Track Recording, LLC, 73 A.D.3d 410, 901 N.Y.S.2d 4 (1st Dep't 2010), the Court sees no reason why that theory would be unavailable to collect a judgment debt under this statute.

In the instant case, the Garnishees assert that if plaintiffs wish to invoke this statute, plaintiffs must use it according to its terms-which include commencing a separate special proceeding. Plaintiffs may not, say the Garnishees, simply make a motion in the underlying action seeking that relief, effectively picking and choosing which parts of the statute suits their purpose. The Garnishees rely on the language of Rule 69(a), which requires that the procedure on execution "must accord with the procedure of the state where the court is located."

The Second Circuit has suggested that Rule 69(a) should not be so narrowly read. In Chambers v. Blickle Ford Sales, Inc., 313 F.2d 252 (2d Cir.1963), the plaintiff, as receiver of a Connecticut corporation, sued two New York corporations for a debt owed to the Connecticut corporation. In addition to suing the New York corporations, the plaintiff-receiver sued the principals of those corporations as garnishees, claiming that they owed a debt to the New York corporations. In affirming judgment dismissing the claims against the garnishees on the merits, the Court noted that Connecticut procedure would have required a separate state court action against the garnishees, but joining them in one action with the defendants sufficiently complied with Rule 69(a):

Under Connecticut practice, a separate action would be required in the nature of a scire facias against the alleged debtor or trustee of the judgment debtor, requiring a hearing and judgment separate from the original action. (The procedure followed here, more in the nature of one supplementary to enforcement of a judgment, accords with the spirit of the Rules and seems to be a sufficiently close adherence to state procedures.)

Id. at 256; see also Trust v. Kummerfeld, 153 Fed.Appx. 761 (2d Cir.2005) (authorizing CPLR 5225 relief by motion rather than separate proceeding). Cf. Beauvais v. Allegiance Secs., Inc., 942 F.2d 838 (2d Cir.1991) (considering the merits of a request for relief under CPLR 5225 even though it was raised by motion in the underlying action, not a special proceeding).

Although the language in Chambers was dictum, the Second Circuit's flexible approach to Rule 69(a) comports with that taken in other circuits. In Thomas, Head & Greisen Employees Trust v....