Plymouth Venture Partners, II, L.P. v. GTR Source, LLC
| Decision Date | 16 December 2021 |
| Docket Number | 73 |
| Citation | 37 N.Y.3d 591,183 N.E.3d 1185,163 N.Y.S.3d 467 |
| Parties | PLYMOUTH VENTURE PARTNERS, II, L.P. et al., Appellants, v. GTR SOURCE, LLC et al., Respondents. Plymouth Venture Partners, II, L.P. et al., Appellants, v. Capital Merchant Services, LLC, Respondent. |
| Court | New York Court of Appeals Court of Appeals |
White and Williams LLP, New York City (Shane R. Heskin and Stuart J. Wells of counsel), for appellant.
Hodgson Russ LLP, Buffalo (Ryan K. Cummings and James J. Zawodzinski, Jr. of counsel), for GTR Source, LLC, respondent.
Stein Adler Dabah & Zelkowitz, LLP, New York City (Christopher R. Murray of counsel), for Capital Merchant Services, LLC, respondent.
Cuddy & Feder LLP, White Plains (Andrew P. Schriever and Troy Lipp of counsel), for Stephen W. Biegel, respondent..
Rivkin Radler LLP, Uniondale (Henry M. Mascia, Cheryl F. Korman and Max Gershenoff of counsel), for New York State Creditors Bar Association, amicus curiae.
In two cases brought in federal court, a judgment debtor asserted tort claims against its judgment creditors and a New York City marshal based upon violations of the CPLR article 52 service requirements allegedly committed in the execution of valid judgments issued by New York courts. Uncertainty as to the viability of such tort claims, particularly with respect to any "damages" the judgment debtor could show in such circumstances, understandably ensued.
As a result, the Second Circuit Court of Appeals certified the following questions to this Court:
"(1) whether a judgment debtor suffers cognizable damages in tort when its property is seized pursuant to a levy by service of execution that does not comply with the procedural requirements of CPLR 5232(a), even though the seized property is applied to a valid money judgment; and, if so "(2) whether the judgment debtor can, under these circumstances, bring a tort claim against either the judgment creditor or the marshal without first seeking relief under CPLR 5240." ( Plymouth Venture Partners, II, LP v. GTR Source, 988 F.3d 634, 645 [2d Cir. 2021] ).
We hold that a judgment debtor's exclusive avenue for relief under these circumstances is to bring an appropriate action pursuant to CPLR article 52. We therefore answer the certified questions accordingly.
FutureNet, a Michigan corporation, borrowed money from defendants. In 2017, the company entered into agreements with GTR Source (GTR) and Capital Merchant Services (CMS), two merchant cash advance (MCA) businesses, for the purchase and sale of future receivables.1 Pursuant to these agreements, FutureNet received cash at closing and was to arrange for the proceeds of its future receivables to be direct deposited into accounts with Comerica Bank in Michigan, from which GTR and CMS would debit fixed daily payments over the course of eighteen weeks. By February 2018, FutureNet had defaulted by blocking GTR and CMS from the Comerica accounts, ending the agreed upon method for repayment of the loans. In response, pursuant to affidavits of confession signed by FutureNet's CEO as part of the agreements, two judgments were entered in New York courts, one for $777,957.59 owed to CMS and one for $120,154.42 owed to GTR.
After judgment was entered, GTR began collection efforts by serving a restraining notice on Comerica Bank in Detroit, Michigan. Upon learning of the restraining notice, FutureNet objected in an email to GTR, stating that Comerica had no presence in New York, that the restraining notice was "tortiously interfering with the superior UCC liens of FutureNet's senior lenders," and threatening to file a temporary restraining order. GTR did not withdraw the restraining notice. Instead, days later, GTR issued an Execution with Notice to Garnishee and directed a New York City marshal, Stephen Biegel, to serve Comerica with a Notice and Levy and Demand on Corporate Creations Network, Inc., Comerica's purported agent for service of process, in Nyack, New York, which in turn directed Comerica to turn over any of FutureNet's property in its control.
As collection efforts moved forward, FutureNet took a number of steps to vacate the underlying judgment, first moving to vacate on procedural and jurisdictional grounds for failure to comply with CPLR 3218 ’s single county requirement. This motion was denied in March 2018 ( GTR Source, LLC v. FutureNet Group, Inc., 58 Misc.3d 1229[A], 2018 N.Y. Slip Op. 50311[U], 2018 WL 1310416, *6 [Sup. Ct., Orange County 2018]). The following day the marshal's office faxed an amended levy to a Comerica office in Detroit. Shortly thereafter, Comerica complied with the levy, issuing a bank check to Biegel for $127,082.29, the amount of the judgment plus the marshal's poundage fee, all debited from FutureNet's account. GTR then filed a satisfaction of judgment.
In April 2018, FutureNet filed a complaint against GTR in Supreme Court, Orange County, again seeking vacatur of the judgment and now also seeking restitution under CPLR 5015, breach of contract, wrongful execution, and fraud. Later that month, other creditors of FutureNet began proceedings in Michigan state court for the appointment of a receiver (the "Receiver"), claiming, among other things, that entering into the two loan agreements at issue here, and allowing the related judgments and restraining orders to be entered, violated the provisions of their loan agreement. The appointment was made and on August 24, 2018, the Receiver voluntarily withdrew the complaint in Supreme Court and, on the same day, moved yet again to vacate the judgment, once more alleging noncompliance with CPLR 3218. This time, the Receiver also claimed that the court lacked subject matter jurisdiction pursuant to Business Corporation Law § 1314, governing proceedings against foreign corporations. Both arguments were rejected and the motion was denied ( 62 Misc.3d 794, 810, 89 N.Y.S.3d 528 [Sup. Ct., Orange County 2018] ).
Having now twice been defeated in its efforts to vacate the judgment in Supreme Court—and having voluntarily withdrawn its state court complaint for vacatur of the judgment, wrongful execution, fraud, and breach of contract—the Receiver, acting on behalf of the judgment debtor, filed a tort action in the District Court for the Southern District of New York. The complaint alleged wrongful restraint and execution against GTR, wrongful execution against Marshal Biegel individually, conversion, and trespass to chattels. Judge Koeltl granted summary judgment to Marshal Biegel and GTR and dismissed the complaint, holding that the Receiver had suffered no harm and so could not recover in tort ( Simon v. GTR Source, 2019 WL 7283279, at *4–5, 2019 U.S. Dist. LEXIS 22111 [S.D.N.Y., Dec. 26, 2019, No. 19 Civ. 1471(JGK)]). Specifically, Judge Koeltl held, as to the wrongful execution claim, that "there is no dispute that the funds recovered by the Marshal were used to extinguish the debtor's valid debt owed under a valid court judgment [and] [t]herefore, the Receiver, who stood in the shoes of the debtor, suffered no damages" ( id. at *4 ). For the same reason, the court held that the Receiver's claims for conversion and trespass to chattels could not survive "because the Receiver has failed to establish that the Receiver sustained any damages" ( id. at *4–5 ).
CMS's collection efforts followed a similar course. In February 2018, in Rockland County, CMS served a restraining notice on Comerica's registered agent in New York (Corporate Creations Network, Inc.), directing Comerica not to transfer any property held on behalf of FutureNet. Upon learning of this restraining notice, FutureNet contacted CMS by letter and email and, as it had with GTR, stated that Comerica had no presence in New York and so was not subject to general jurisdiction in New York, that the restraining notice was "tortiously interfering with the superior UCC liens of FutureNet's senior lenders," and threatening to file a temporary restraining order. CMS did not retract the restraining notice. Several months later, CMS delivered to the Sheriff of Rockland County an Execution with Notice to Garnishee directing the sheriff to levy upon the FutureNet bank accounts controlled by Comerica by delivering the Execution to Corporate Creations. The sheriff issued a levy and demand to Comerica, delivered to Corporate Creations, demanding Comerica transfer property held for FutureNet to the Sheriff. Comerica complied in April 2018, withdrawing the entirety of FutureNet's Comerica account located in Redford, Michigan, in the amount of $322,592.59, and providing that amount to the Rockland County Sheriff.2
The Receiver filed a complaint against CMS in the District Court for the Southern District of New York, alleging claims for wrongful restraint and execution, conversion, and trespass to chattels. Judge Failla granted CMS's motion to dismiss, stating that "the Court would agree with the logic of the GTR Source decision and conclude that the Receiver has failed to allege that he or FutureNet suffered legally cognizable damages" ( Simon v Capital Merchant Servs., LLC, 2020 WL 615091, *11–12, 2020 U.S. Dist. LEXIS 22831 [S.D.N.Y., Feb 7, 2020, 19 Civ. 904(KPF)]).3
An entity described as "two of FutureNet's senior creditors ... who were assigned [the Receiver's] claims and permitted to substitute into the actions as appellants"4 appealed to the Second Circuit and the cases were consolidated ( 988 F.3d at 640 ). The Second Circuit determined that the question of whether the Receiver's tort claims failed to establish the necessary element of damages should be certified to this Court ( id. at 643–644 ). Noting that "neither party identifies a New York Court of Appeals opinion addressing that precise issue," and that, with respect to the issue of cognizable damages, "two recent New York Supreme Court decisions have reached differing results on the topic" ( id. at 643, citing Bam Bam Entertainment LLC v. Pagnotta, 59 Misc.3d 906, 75 N.Y.S.3d 804 [Sup Ct, Kings...
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