RCA Corp. v. Tucker

• Decision Date: 05 October 1988
• Docket Number: 79 CV 1034.,No. 79 CV 983,79 CV 983
• Parties: RCA CORP., Warner Bros. Records, Inc., and RSO Record, Inc., Plaintiffs, v. George TUCKER, Super-Dupers, Inc., Frank Martino and Ramart Printing Corp., Defendants. CASABLANCA RECORDS & FILMWORKS, INC., Plaintiff, v. George TUCKER, Super-Dupers, Inc., Frank Martino and Ramart Printing Corp., Defendants.
• Court: U.S. District Court — Eastern District of New York

696 F. Supp. 845

RCA CORP., Warner Bros. Records, Inc., and RSO Record, Inc., Plaintiffs, v. George TUCKER, Super-Dupers, Inc., Frank Martino and Ramart Printing Corp., Defendants.

CASABLANCA RECORDS & FILMWORKS, INC., Plaintiff, v. George TUCKER, Super-Dupers, Inc., Frank Martino and Ramart Printing Corp., Defendants.

Nos. 79 CV 983, 79 CV 1034.

United States District Court, E.D. New York.

October 5, 1988.

COPYRIGHT MATERIAL OMITTED

David O. Wright, Stein, Zauderer, Ellenhorn, Frischer & Sharp, New York City, for petitioners.

H. Elliot Wales, New York City, for stakeholder RHM Industries.

Marlene M. Remmert, Punta Gorda, Fla., for claimant Hannelore Martino.

MEMORANDUM AND ORDER

DEARIE, District Judge.

Petitioners in this turnover proceeding moved for summary judgment. In a Report and Recommendation, the Hon. Allyne R. Ross, United States Magistrate, recommended that the motion be granted. Two parties with an interest in the res filed timely objections to the Magistrate's report. The Court accepts Magistrate Ross' recommendation, and adopts her report (reproduced below) as the opinion of the Court, adding only these few comments upon consideration of the objections.

Objectors argue that application of New York law in this proceeding would violate the full faith and credit clause of the United States Constitution. This contention is incorrect. A forum state's choice of its own law is constitutional so long as the forum state has significant contacts with the litigation. Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13, 101 S.Ct. 633, 639-40, 66 L.Ed.2d 521 (1981) (plurality opinion); id. at 332, 101 S.Ct. at 650 (Powell, J. dissenting). That test is easily satisfied here. Objectors' interpretation of the full faith and credit clause would require New York courts to apply foreign law anytime foreign contacts to the litigation exist, even at the cost of disregarding New York law and public policy. The Constitution compels no such result. Id. at 322-23, 101 S.Ct. at 645 (Stevens, J., concurring).

Objectors also argue that Magistrate Ross pre-judged the choice of law question by determining, at the outset, that the conveyance was fraudulent. Contrary to objectors' contention, however, the Magistrate did not conclude that the conveyance was fraudulent, and therefore that conflicts principles applicable to tort cases should govern. Rather, the Magistrate correctly concluded that the core issue in this proceeding was whether the conveyance was fraudulent as to petitioner, not whether the conveyance was valid (as a matter of property law) as between the Martinos. Because different characterizations of the suit imply different choice of law rules that in turn imply application of different substantive law, the Magistrate was required to choose between the competing characterizations. In the Court's view, she chose correctly.

The Clerk of the Court is directed to enter judgment in accordance with Magistrate Ross' attached Report and Recommendation.

SO ORDERED.

REPORT AND RECOMMENDATION IN TURNOVER PROCEEDINGS IN AID OF EXECUTION OF JUDGMENT

ALLYNE R. ROSS, United States Magistrate:

Petitioners, RCA Corp., et al., bring these turnover proceedings in aid of execution of a 1986 judgment for approximately 1.3 million dollars entered in their favor against judgment debtors Frank D. Martino, Sr. ("Martino") and Ramart Printing Corp. ("Ramart"), a now dissolved New York corporation. The two post-judgment proceedings are brought under Rule 69, Fed.R.Civ.P., and N.Y.Civ.Prac.Law §§ 5225 and 5227 (McKinney 1978) ("CPLR"), which together provide for a summary-type special proceeding to enforce a judgment by directing a third party garnishee to turn over to the judgment creditor property or debts belonging to the judgment debtor.

The first proceeding, in aid of enforcement of petitioners' judgment against Martino, is brought against RHM Industries, Ltd. ("RHM"), a New York corporation, as garnishee. In that proceeding, petitioners seek an order requiring RHM to turn over to them monies RHM assertedly owes to Martino on a note executed in connection with the redemption of Martino's RHM stock.

In the second proceeding, in aid of enforcement of their judgment against Ramart, petitioners name as garnishees three former shareholders, officers and directors of Ramart, the now dissolved debtor corporation — namely, Frank Martino, Jr. ("Martino, Jr.," Martino's son), Gerard V. Hughes and Miquel A. Rosa. Petitioners seek to recover from these garnishees funds they received upon Ramart's dissolution constituting the proceeds of the sale of Ramart's assets to RHM.

By order of the Hon. Raymond J. Dearie, the two proceedings were referred to me for report and recommendation. While a report on both proceedings has been prepared, counsel recently advised that a settlement has been reached in the second proceeding, to be consummated in early March, 1988. Accordingly, those portions of the legal discussion of the report pertaining solely to the second proceeding have been deleted. With respect to the first proceeding, based on the undisputed facts detailed below and for the noted reasons, I recommend that petitioners be granted the relief they seek.

THE FACTS

The Copyright Proceeding and Judgment

In April of 1979, petitioners brought suit in this district for infringement of their copyrights in various sound recordings and record album graphics, naming as defendants Martino, Ramart and others.¹ Following a trial before the Hon. Thomas C. Platt, the Court, on July 11, 1986, entered a final judgment against Martino and Ramart, awarding petitioners both injunctive relief and damages in the amount of $1,346,726.20, plus interest, from July 11, 1986. To date, no portion of that judgment has been satisfied.

Ramart's Dissolution and The Distribution of Its Assets

While that action was pending, on July 9, 1982, the officers, directors and shareholders of Ramart — Martino, Martino, Jr., Hughes and Rosa — dissolved the corporation, then a defendant in the suit. At that time, Ramart executed an agreement transferring all of its assets to RHM, a corporation having the same directors and shareholders as Ramart, in exchange for a promissory note in the amount of $125,000. Ramart then assigned the note to its four shareholders in proportion to their ownership interest in the corporation, distributing $63,750 to Martino, Sr., $25,000 to Martino, Jr. and $18,125 each to Hughes and Rosa.

The RHM Note and Martino Assignment

One week later, by agreement executed July 16, 1982, Frank Martino, Sr., then a 40% shareholder of RHM, sold all of his RHM stock back to that corporation. The stock was redeemed for a total purchase price of $250,000, payable $55,000 in cash and $195,000 by an eight year installment note. Thereafter, Martino and his wife, Hannelore, moved to Florida where they purchased a home and have since resided.

On May 13, 1983, Martino executed a document purporting to assign to his wife the debt owed to him by RHM. The assignment was drawn up by a Florida attorney, and was presumably executed in Florida. While the assignment recites that it is "for value received," Martino has conceded that no legally cognizable consideration passed.² Rather, as Martino explained at his deposition, the assignment was made solely to ensure his wife's financial security in the event that he became disabled.³ Following the assignment, at least some payments on the note were made to Hannelore Martino.

In December of 1986, petitioners served a restraining notice on RHM, subsequently extended by notice served in December of 1987. Pursuant to that notice under CPLR 5222, prohibiting the transfer of any property in which Frank Martino has an interest, RHM is currently holding a total of $102,900 in payments due on the Martino note.

The First Turnover Proceeding

Thereafter, petitioners commenced the two instant turnover proceedings. As noted above, the first was brought against RHM as garnishee to secure the $102,900 in payments owed on the Martino note, in partial satisfaction of their judgment against Frank Martino.

In opposition, RHM and Martino have raised two objections seeking dismissal of the proceeding. First, Martino protests that petitioners failed to acquire personal jurisdiction over him. Further, both RHM and Martino initially urged dismissal for failure to join an indispensible party—Martino's wife, Hannelore. As detailed below, however, the latter objection has since been resolved by RHM's impleading of Hannelore Martino, who has appeared in the proceeding and answered on the merits.

As to the substance of the claim, it is petitioners' view that, applying New York law to the undisputed facts, the assignment of the RHM note to Hannelore Martino is a fraudulent conveyance. Hence, they urge, as a matter of law they are entitled to the proceeds of the note as an asset of judgment debtor Martino. The Martinos argue, in response, that the legal viability of the assignment is governed by Florida law. According to respondents, that law, when applied to the facts of this case, warrants, at a minimum, an evidentiary hearing regarding the validity of the assignment.

DISCUSSION

A. Respondents' Arguments for Dismissal

At the outset, an examination of respondents' preliminary objections regarding lack of personal jurisdiction and failure to join an indispensible party requires an understanding of the rule and statutes governing the proceeding. Those provisions are as follows:

1. The Nature of the Proceeding

Under Rule 69(a), Fed.R.Civ.P., a judgment creditor seeking to enforce a federal judgment is directed to employ, in federal court, the practice and procedure governing execution of judgments of the state in which the federal court sits. The rule provides, in pertinent part:

The procedure on execution, in proceedings supplementary to and in aid of judgment, and in proceedings on and in aid of execution shall be in accordance with the

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