Sentry Ins. v. Sky Management, Inc.

• Decision Date: 26 January 1999
• Docket Number: Civil Action No. 98-2777.
• Citation: 34 F.Supp.2d 900
• Parties: SENTRY INSURANCE, a Mutual company, Plaintiff, v. SKY MANAGEMENT, INC., Defendant.
• Court: U.S. District Court — District of New Jersey

34 F.Supp.2d 900

SENTRY INSURANCE, a Mutual company, Plaintiff, v. SKY MANAGEMENT, INC., Defendant.

Civil Action No. 98-2777.

United States District Court, D. New Jersey.

January 26, 1999.

Vincent J. Proto, Budd Larner Gross Rosenbaum Greenberg & Sade, Short Hills, NJ, for plaintiff.

Richard M. Greene, Garden City, NY, for defendant.

OPINION

WOLIN, District Judge.

This matter initially came before the Court on November 16, 1998, when plaintiff filed an application for an order to show cause why a writ of attachment should not issue for defendant's out-of-state lawsuit. The Court first denied plaintiff's application, but after plaintiff filed a supplementary brief on November 30, 1998, the Court entered an order to show cause on December 23, 1998.

The Court has decided this matter pursuant to Rule 78 of the Federal Rules of Civil Procedure. For the reasons stated herein, the Court will grant plaintiff's motion for a writ of attachment.

BACKGROUND

On June 12, 1998, Sentry Insurance ("plaintiff" or "Sentry"), a Wisconsin mutual company, filed a complaint against Sky Management, Inc. ("defendant" or "Sky"), a New Jersey corporation, in federal district court in New Jersey for breach of a workers' compensation insurance contract. In its complaint, Sentry alleges that Sky made certain material misrepresentations in its application for workers' compensation insurance and then refused to pay the revised premium after Sentry conducted an audit and increased the premium in accordance with facts obtained during the audit. See Complaint, ¶¶ 7, 9, 15-17, 22-27.

Previously, on April 1, 1998, Sky had filed a complaint against Jennifer Convertibles, Inc. ("Jennifer") in the Supreme Court of the State of New York, seeking damages for breach of contract. See Proto Affid., Exh. C. Jennifer is alleged to be a New York corporation that regularly conducts business in New Jersey through various retail stores located in the state. See 11/30/98 Brief, p. 3.

To secure payment of its contract claim, Sentry seeks to attach the cause of action that Sky is currently pursuing in New York state court against Jennifer. On November 16, 1998, plaintiff filed an application for an order to show cause why a writ of attachment should not issue. This application was accompanied by a supporting brief (the "11/16/98 Brief") and several affidavits (the "Proto Affid." and the "Jaskolski Affid.", among others).

The Court initially denied plaintiff's application, believing that it lacked jurisdiction to attach a cause of action that had been asserted in an out-of-state court. However, on November 30, 1998, plaintiff submitted an additional brief on this issue (the "11/30/98 Brief"), and on December 23, 1998, the Court entered an order to show cause why a writ of attachment should not issue.

On January 14, 1999, defendant submitted an Affidavit of Rani Ullman in opposition to plaintiff's application (the "Oppos. Affid."). Plaintiff responded with an additional letter brief in support of its application, dated January 20, 1999.

In addition to the allegations of misrepresentation that Sentry made in its complaint, Sentry has also noted that certain statements included in Sky's insurance application are called into question when compared to Sky's averments in the complaint it filed in New York state court against Jennifer.¹ See 11/16/98 Brief, pp. 9-10.

In its opposition affidavit, Sky disputes Sentry's allegations of misrepresentation, asserting that "any alleged inconsistencies between SKY'S insurance application and statements made by SKY in its Complaint against JENNIFER are ... as a result of additions made by plaintiff to SKY'S application (after SKY'S execution of the application)...." Oppos. Affid., ¶ 6. Sky further alleges that it should not be held liable for misrepresentation when it itself was a "victim of fraud" perpetrated by various subcontractors who held themselves out as independent contractors with valid insurance certificates. Id., ¶¶ 8-11. Finally, Sky requests that if a writ of attachment is issued, that Sky's attorney fees be given priority over the attachment. Id. at ¶¶ 12-13.

DISCUSSION

The Court is presented with the unusual question of whether a non-resident plaintiff pursuing a cause of action in contract against a resident defendant may attach a cause of action that the defendant is pursuing in the courts of a third state.² The parties have not identified, and the Court has been unable to locate, any New Jersey cases that are directly on point. However, given the terms of the New Jersey attachment statute and court rules, and in light of the relevant case law discussed below, the Court has determined that this question is answerable in the affirmative.

A. Attachment Generally

For cases brought in federal court, the remedy of attachment is "available under the circumstances and in the manner provided by the law of the state in which the district court is held." Fed.R.Civ.P. 64. A writ of attachment is generally obtained for one of two purposes: to acquire jurisdiction over an out-of-state defendant to the extent of the defendant's property located in the state, or to gain security for a claim pending as of the time of attachment. See, e.g., Bruce A. Tritsch, Attachment in New Jersey, 11 Rutgers L.Rev. 714, 714 (1957); S.D. Sales Corp. v. Doltex Fabrics Corp., 92 N.J.Super. 586, 588, 590, 224 A.2d 345 (Law Div.1966), aff'd, 96 N.J.Super. 345, 233 A.2d 70 (App.Div. 1967); see also N.J.S.A. § 2A:26-8.

Attachment was nonexistent at common law and, as with all legal proceedings created by statute, it should not be "enlarged beyond the plain meaning and understanding" of the statutory terms. See Russell v. Fred G. Pohl Co., 7 N.J. 32, 41, 80 A.2d 191 (1951); Augustus Co. v. Manzella, 19 N.J.Misc. 29, 30, 17 A.2d 68 (Cir.Ct.1940). The Court is mindful, however, that the attachment statute itself directs that it "be liberally construed, as a remedial law for the protection of resident and nonresident creditors and claimants." N.J.S.A. § 2A:26-1. Because attachment is an extraordinary writ, the party seeking attachment has the burden of demonstrating the court's jurisdiction. See Corbit v. Corbit, 50 N.J.L. 363, 364, 13 A. 178 (1888).

B. Attachment of Choses in Action

A chose in action is an item of intangible personal property. See National Fire Ins. Co. v. Chambers, 53 N.J.Eq. 468, 483, 32 A. 663 (Ch.1895). Because a chose of action is intangible, and thus "incapable of actual seizure," it need not and cannot be physically within the jurisdiction of the court. Id. Nevertheless, a court can attach a chose in action; all that is required is notice to the party against whom the attachment may operate. See id. The notice of the writ of attachment serves as "a `warning' to the party not to pay the debt to the [defendant] until the plaintiff's debt is satisfied." Id. at 484, 32 A. 663. The Chambers court concluded that "the real and only ground of jurisdiction in case of attachment over choses in action is the service, within the [court's] jurisdiction, of warning upon the [attached party]; and, when that is done, jurisdiction is obtained." Id.

Subsequent decisions of the United States Supreme Court have concurred with the conclusions of the Chambers court. For instance, in Harris v. Balk, which involved the analogous procedure of garnishment, the Court held that "if the garnishee be found in that state, and process be personally served upon him therein, we think the court thereby acquires jurisdiction over him, and can garnish the debt due from him to the debtor of the plaintiff, and condemn it, provided the garnishee could himself be sued by his creditor in that state." Harris v. Balk, 198 U.S 215, 222, 25 S.Ct. 625, 49 L.Ed. 1023 (1905), overruled on other grounds, Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977).

In Standard Oil Co. v. New Jersey, the Court concluded more generally that because

choses in action have no spatial or tangible existence, control over them can "only arise from control or power over the persons whose relationships are the source of the rights and obligations." ... Situs of an intangible is fictional but control over parties whose judicially coerced action can make effective rights created by the chose in action enables the court with such control to dispose of the rights of the parties to the intangible.

Standard Oil Co. v. New Jersey, 341 U.S. 428, 439-40, 71 S.Ct. 822, 95 L.Ed. 1078 (1951) (quoting Estin v. Estin, 334 U.S. 541, 548, 68 S.Ct. 1213, 92 L.Ed. 1561 (1948)).

It follows from this case law, therefore, that in order to attach Sky's cause of action against Jennifer, the Court must have the ability to serve a writ of attachment upon Jennifer within the territorial jurisdiction of the Court. See Orient Ins. Co. v. Rudolph, 69 N.J.Eq. 570, 574, 61 A. 26 (Ch.1905). It appears from plaintiff's moving papers that Jennifer, while a New York corporation, does business in New Jersey and has sufficient "presence" in New Jersey to subject it to service of process within the Court's jurisdiction. See International Shoe Co. v. Washington, 326 U.S. 310, 316-18, 66 S.Ct. 154, 90 L.Ed. 95 (1945); N.J.Ct.R. 4:4-4(a)(6). Furthermore, the Court notes that Sky, a New Jersey resident, could have brought suit against Jennifer in New Jersey. See Harris, 198 U.S. at 222, 25 S.Ct. 625; N.J.Ct.R. 4:32(a)(3).

C. New Jersey Attachment Law

The New Jersey Court Rules (the "Rules") direct that a motion for a writ of attachment shall be granted

only upon the court's finding ... that (1) there is a probability that final judgment will be rendered in favor of the plaintiff; (2) there are statutory grounds for issuance of the writ; and (3) there is real or personal property of the defendant at a specific location within this State which is subject to attachment.

N.J.Ct.R. 4:60-5(a) (hereafter "R. 4:60-5").

The Rules describe how the sheriff should levy on various types of...