New York Law Review

Tag: Attachment

  • Hotel 71 Mezz Lender LLC v. Falor, 14 N.Y.3d 303 (2010): Attachment of Intangible Property When Personal Jurisdiction Exists

    Hotel 71 Mezz Lender LLC v. Falor, 14 N.Y.3d 303 (2010)

    When a court has personal jurisdiction over a non-domiciliary present in New York, it also has jurisdiction over that individual’s tangible or intangible property, even if the situs of the property is outside New York.

    Summary

    Hotel 71 Mezz Lender LLC sued guarantors of a defaulted mezzanine loan in New York. The plaintiff obtained a pre-judgment order of attachment against the defendants’ ownership interests in out-of-state LLCs, serving the order on defendant Mitchell while he was in New York. The New York Court of Appeals held that because the defendants had submitted to personal jurisdiction in New York, the attachment of their intangible property (LLC membership interests), served on a proper garnishee (Mitchell) present in New York, was valid, even though the LLCs were located outside of New York. The Court also upheld the appointment of a receiver to manage those interests.

    Facts

    Plaintiff made a mezzanine loan to Chicago H & S Senior Investors, LLC for hotel renovations. The loan agreement was executed in New York, and funds were disbursed from New York. The defendants, including Mitchell, guaranteed the loan, agreeing to be jointly and severally liable and submitting to New York jurisdiction. The borrower defaulted and filed for bankruptcy. Plaintiff sued the guarantors in New York to enforce the guaranty. Plaintiff sought a pre-judgment order of attachment to secure any potential judgment against the defendants’ property interests in various out-of-state entities. The property at issue consisted of the defendants’ interests in 22 limited liability companies formed in Delaware, Georgia and Florida and a Florida corporation solely owned by defendant Mitchell. Unlike stock certificates, which are tangible property, defendants’ ownership/membership interests are intangible and uncertificated.

    Procedural History

    The Supreme Court (trial court) granted the order of attachment and later confirmed it, holding that the defendants’ intangible interests were attachable. The court also appointed a receiver for the out-of-state entities. The Appellate Division reversed, finding that the Supreme Court lacked jurisdiction over the out-of-state interests. The Appellate Division granted leave to appeal to the New York Court of Appeals.

    Issue(s)

    1. Whether a New York court can attach a non-domiciliary defendant’s intangible personal property (ownership/membership interests in out-of-state business entities) when the defendant has voluntarily submitted to personal jurisdiction in New York.

    2. Whether the Supreme Court abused its discretion in appointing a receiver pursuant to CPLR 5228.

    Holding

    1. Yes, because when a court acquires jurisdiction over the person of one who owns or controls property, it can compel observance of its decrees by proceedings in personam against the owner within the jurisdiction.

    2. No, because the appointment of a receiver pursuant to section 5228 (a) is a matter within the court’s discretion, and a special reason appeared to justify one.

    Court’s Reasoning

    The Court of Appeals reasoned that attachment serves to provide security for a potential judgment against a debtor. Where a court has personal jurisdiction over a defendant, it also has jurisdiction over their property, even if the property is located outside the state. This case was not about using attachment to gain quasi in rem jurisdiction; the defendants had already submitted to personal jurisdiction. The Court found that the defendants’ LLC membership interests were assignable and transferable, making them “property” subject to attachment under CPLR 6202. Because the interests were uncertificated, the Court applied the principles of Harris v. Balk, holding that the situs of the debt (or, in this case, intangible property) is wherever the debtor (or the garnishee) is present. The Court stated, “The obligation of the debtor to pay his debt clings to and accompanies him wherever he goes. He is as much bound to pay his debt in a foreign state when therein sued upon his obligation by his creditor, as he was in the state where the debt was contracted” (quoting Harris v. Balk). Therefore, serving the order of attachment on Mitchell while he was in New York was sufficient to establish the situs of the property in New York. The Court distinguished National Broadway Bank v Sampson, which held that the situs of intangible property is the domicile of the debtor, noting that Harris v Balk overruled that earlier holding. As for the receivership, the court considered (1) alternative remedies available to the creditor; (2) the degree to which receivership will increase the likelihood of satisfaction; and (3) the risk of fraud or insolvency if a receiver is not appointed.

  • Supreme Merchandise Co. v. Chemical Bank, 70 N.Y.2d 344 (1987): Attachment of Beneficiary’s Interest in Letter of Credit

    Supreme Merchandise Co. v. Chemical Bank, 70 N.Y.2d 344 (1987)

    A beneficiary’s interest in an executory negotiable letter of credit supporting an international sale of goods is not property of the beneficiary for purposes of attachment by a party in unrelated litigation.

    Summary

    Supreme Merchandise Co. sought to attach the assets of Iwahori Kinzoku Co. (Kinzoku), a Japanese company, held by Chemical Bank, to satisfy a judgment unrelated to a letter of credit issued by Chemical Bank. The letter of credit named Kinzoku as the beneficiary in a sale of goods. Supreme Merchandise served attachment orders on Chemical Bank. Before the attachment orders, two Japanese banks, Fuji Bank and Dai-ichi Kangyo Bank, negotiated drafts under the letter of credit and were later paid by Chemical Bank. The court held that Kinzoku’s interest in the executory letter of credit was not attachable “property” under CPLR 5201(b), emphasizing the importance of certainty and predictability in international letter of credit transactions.

    Facts

    Iwahori Kinzoku Co. (Kinzoku) was the beneficiary of an irrevocable letter of credit issued by Chemical Bank to support a sale of disposable lighters to Supreme Importers. Supreme Merchandise Co. had an unrelated money judgment against Kinzoku and sought to attach Kinzoku’s assets at Chemical Bank. Fuji Bank negotiated a draft for Kinzoku, unaware of the attachment order, and presented it to Chemical Bank, which accepted and paid the draft. Dai-ichi Kangyo Bank also presented a draft which Chemical bank accepted before the second attachment order. Supreme Merchandise served two orders of attachment on Chemical Bank, attempting to seize the funds from the letter of credit.

    Procedural History

    Supreme Merchandise commenced a proceeding against Chemical Bank to compel delivery of the letter of credit funds, arguing both attachment orders applied. Special Term ruled the beneficiary’s interest was attachable property. The Appellate Division reversed, holding the second order was too late as Chemical had already accepted the drafts. Regarding the first order, the Appellate Division held that CPLR 5201(b) and 6202 could not be read to authorize reaching a debtor’s contingent interest where it would impair the rights of third parties and raise doubts about the function of letters of credit. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether Kinzoku’s interest in the executory letter of credit constituted a “debt” or “property” within the meaning of CPLR 6214(d) such that it could be subject to attachment.

    Holding

    1. No, because the nature of Kinzoku’s interest, coupled with policy considerations concerning negotiable letters of credit in international sales, dictates that the interest is not “property” within the meaning of CPLR 5201(b).

    Court’s Reasoning

    The court reasoned that while CPLR 5201(b) allows enforcement of a money judgment against assignable property, the mere assignability of an interest does not automatically make it attachable property. The court distinguished this case from ABKCO Indus. v Apple Films, where a contract right to net profits was deemed attachable. Unlike the interest in ABKCO, Kinzoku’s interest was contingent on its own performance, specifically timely shipment of goods and presentation of conforming documents. The court emphasized the importance of letters of credit in international trade, noting that they provide certainty and predictability, inducing confidence in parties who rely on them. The court explained that strict adherence to the terms of the credit and the independence principle (separation from the underlying contract) are essential to the utility of letters of credit. Allowing attachment in this context would diminish confidence in the certainty and integrity of letters of credit in New York, potentially disrupting international transactions and harming third parties who rely on the credit. Quoting Equitable Trust Co. v Dawson Partners, the court noted the need for strict compliance with letter of credit terms: “There is no room for documents which are almost the same, or which will do just as well.”

  • Goff v. Goff, 41 N.Y.2d 476 (1977): Standard for Vacating an Attachment Order

    Goff v. Goff, 41 N.Y.2d 476 (1977)

    A court should not vacate an attachment order unless the plaintiff’s claim is clearly baseless; the standard is not whether the plaintiff has definitively proven their case at the attachment stage.

    Summary

    This case concerns a dispute over a supplemental attachment in a case involving running accounts between plaintiff and defendant, and defendant and overseas licensees. The lower courts vacated the attachment, essentially granting summary judgment before discovery. The Court of Appeals affirmed, finding no abuse of discretion. Chief Judge Breitel, in dissent, argued that the reference was only to determine if the attachment was excessive, not to try the case on its merits, and that the plaintiff should not have to fully establish the case at the attachment stage. The dissent emphasized that the referee improperly granted summary judgment when disputed facts existed and pretrial discovery was lacking.

    Facts

    The underlying action involved disputes over running accounts between the plaintiff and the defendant, and between the defendant and its overseas licensees. The specifics of what was owed and what was received were sharply disputed. The plaintiff obtained a supplemental attachment, which the defendant challenged as excessive.

    Procedural History

    Special Term initially determined that trust funds were involved, pursuant to the agreements between the parties. A Special Referee was appointed to determine if the supplemental attachment was excessive. The referee recommended vacating the attachment, which Special Term confirmed. The Appellate Division affirmed. The Court of Appeals affirmed the order vacating the attachment. Chief Judge Breitel dissented, arguing the lower courts erred in treating the attachment hearing as a full trial on the merits.

    Issue(s)

    Whether the lower courts erred in vacating the supplemental attachment by applying an incorrect standard of review, effectively requiring the plaintiff to prove their case on the merits at the attachment stage, rather than determining if the claim was baseless and the attachment excessive.

    Holding

    No, because the Court of Appeals affirmed the order of the lower court, effectively finding that the lower courts did not abuse their discretion in vacating the attachment. The majority did not issue a full opinion, but the dissent highlighted that the referee and lower courts improperly treated the attachment hearing as a summary judgment proceeding.

    Court’s Reasoning

    The majority opinion is a brief memorandum affirming the lower court’s decision. The dissent, however, provides insight into the legal reasoning. Chief Judge Breitel argued that the reference to the Special Referee was solely to determine whether the supplemental attachment was excessive, not to determine the merits of the underlying claims. He emphasized the preliminary nature of the determination under CPLR 6223, noting the lack of discovery and the complexity of the running accounts. The dissent criticized the referee for granting the equivalent of summary judgment in a case with disputed issues of fact and no pretrial discovery. Breitel stated, “An attachment will be of limited use as a provisional remedy if an attaching creditor must, on motion to vacate the attachment, summarily establish his case as if it had been fully tried and determined. That trial and determination was not the referee’s function. He was only to determine whether the supplementary attachment was excessive because the support for it was baseless and plaintiff’s claim must inevitably have failed.” The dissent contended that the correct standard is not whether the plaintiff has definitively proven their case, but whether the claim is “baseless.”

  • Glassman v. Hyder, 23 N.Y.2d 354 (1968): Attachment of Future Rents and Long-Arm Jurisdiction

    Glassman v. Hyder, 23 N.Y.2d 354 (1968)

    Future rents are considered too speculative to be attached as a debt certain to become due, and out-of-state property owners who merely correspond with a New York broker and prospective buyer do not necessarily transact business within New York for the purposes of long-arm jurisdiction.

    Summary

    Classman, a New York real estate broker, sued Hyder, New Mexico property owners, for commissions. Classman sought quasi in rem jurisdiction by attaching future rents from the property’s tenant, a corporation doing business in New York. He also claimed personal jurisdiction, arguing the Hyders transacted business in New York. The New York Court of Appeals held that future rents are not attachable as a debt and the Hyders’ limited contacts did not constitute transacting business in New York. Therefore, the court affirmed the dismissal of the complaint for lack of jurisdiction.

    Facts

    Donald, Richard, and Josephine Hyder owned property in Albuquerque, New Mexico, leased to Fireman’s Fund Insurance Company. Classman, a New York broker, contacted Donald Hyder in New Mexico to procure a buyer for the property. Classman initiated contact by telephone, offering his services. Correspondence and negotiations ensued via telephone, letters, and telegrams, with the Hyders remaining in New Mexico. A prospective buyer was found, and a proposed contract was exchanged, but the deal ultimately fell through, and the Hyders sold to a local buyer.

    Procedural History

    The Civil Court dismissed Classman’s complaint for lack of jurisdiction. The Appellate Term reinstated the attachment and the complaint. The Appellate Division reversed, agreeing with the Civil Court and vacating the attachment and dismissing the complaint. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether future rents are a debt that can be attached to establish quasi in rem jurisdiction.
    2. Whether the New Mexico property owners transacted business in New York such that New York courts could exercise personal jurisdiction over them.

    Holding

    1. No, because an obligation to pay rent is not a debt and is not certain to become due.
    2. No, because the Hyders’ activities did not constitute transacting business within New York.

    Court’s Reasoning

    The court reasoned that a debt, to be attachable, must be “past due or * * * yet to become due, certainly or upon demand of the judgment debtor” (CPLR 5201, subd. [a]). Relying on Matter of Ryan, the court stated, “The ‘covenant to pay rent creates no debt until the time stipulated for the payment arrives… On the contrary, the obligation upon the rent covenant is altogether contingent.’” The court distinguished Seider v. Roth, noting that the indemnitor’s duty to defend is a present duty, unlike the duty to pay future rents.

    The court also found that the Hyders did not transact business in New York. The brokerage contract originated with Classman’s phone call to New Mexico. “This court has previously held that there is no transaction of business in New York where an offer placed outside the State by telephone is received and accepted in New York.” The court emphasized that the Hyders’ correspondence did not elaborate on the oral brokerage commitment. The acts of the independent broker within New York could not be attributed to the owners to establish long-arm jurisdiction.

    The court acknowledged the exceptional situation presented by the defendants’ non-domiciliary status, the property’s location outside the state, and the tenant’s presence within the jurisdiction. However, the court concluded that the existing legislation on attachment and execution was not intended to reach future rents, except perhaps as income subject to specific execution procedures, which were not followed in this case.

  • Simpson v. Loehmann, 21 N.Y.2d 990 (1968): Limits on Expanding In Personam Jurisdiction Based on Attachment

    Simpson v. Loehmann, 21 N.Y.2d 990 (1968)

    A motion for reargument is not an appropriate vehicle for raising new questions not previously advanced in the lower courts or on the initial appeal, and the Seider doctrine does not expand in personam jurisdiction beyond the value of the attached insurance policy.

    Summary

    This case addresses a motion for reargument following a decision related to the Seider doctrine, concerning attachment of insurance policies for jurisdictional purposes. The New York Court of Appeals denied the motion, emphasizing that a reargument is not the place to raise new arguments or reinterpretations of the insurance policy that were not previously presented. The court reaffirmed that the Seider decision does not expand in personam jurisdiction beyond the value of the attached insurance policy, clarifying that recovery is limited to the policy’s face value even if the defendant defends on the merits.

    Facts

    The underlying case likely involved an attempt to establish jurisdiction over a non-resident defendant by attaching their insurance policy within the state, based on the Seider doctrine. After the initial appeal, the appellant filed a motion for reargument, introducing new arguments regarding the interpretation of the insurance policy and the impact of CPLR 320(c).

    Procedural History

    The case reached the New York Court of Appeals. After a decision on the initial appeal, the appellant filed a motion for reargument. The Court of Appeals denied this motion in a brief memorandum opinion.

    Issue(s)

    1. Whether a motion for reargument is the proper venue for raising new legal arguments and interpretations of evidence not previously presented to the court?

    2. Whether the Seider doctrine expands in personam jurisdiction beyond the face value of the attached insurance policy, allowing for recovery exceeding that amount if the defendant defends on the merits?

    Holding

    1. No, because a motion for reargument is not an appropriate vehicle for raising new questions that were not previously advanced in the lower courts or on the initial appeal.

    2. No, because the recovery is necessarily limited to the value of the asset attached, which in this case is the liability insurance policy; therefore, the face amount of the policy represents the maximum possible recovery.

    Court’s Reasoning

    The court reasoned that motions for reargument should not be used to introduce new issues or arguments. The court cited prior cases such as Mississippi Shipbuilding Corp. v. Lever Bros. Co. and Matter of United States of Mexico v. Schmuck to support this principle. Regarding the scope of the Seider doctrine, the court referenced its earlier opinion in the same case, stating explicitly that “neither the Seider decision [17 Y 2d 111] nor the present one purports to expand the basis for in personam jurisdiction in view of the fact that the recovery is necessarily limited to the value of the asset attached, that is, the liability insurance policy.” The court emphasized that the face value of the insurance policy is the limit of recovery, even if the defendant chooses to defend the case on its merits. This clarification prevents the Seider doctrine from becoming an unbounded expansion of personal jurisdiction. The court declined to address the broader implications of CPLR 320(c) in other attachment contexts, reserving that issue for future cases. The court explicitly stated: “For the purpose of pending litigation, which looks to an ultimate judgment and recovery, such value is its face amount and not some abstract or hypothetical value.”

  • Plimpton v. Bigelow, 93 N.Y. 592 (1883): Attachment of Stock in a Foreign Corporation

    Plimpton v. Bigelow, 93 N.Y. 592 (1883)

    Shares of stock in a foreign corporation are not subject to attachment in a state where the corporation is not domiciled, even if the certificates representing those shares are physically present within that state.

    Summary

    This case addresses whether shares of stock in a foreign corporation can be attached in New York when the certificates are held within the state. The Court of Appeals held that such an attachment is invalid because the stock itself is located in the state of incorporation, not where the certificates happen to be. The court reasoned that the shares represent an interest in the corporate assets held in the foreign state, and New York courts lack jurisdiction over those assets. This decision highlights the principle that jurisdiction over property generally requires the property itself to be located within the jurisdiction.

    Facts

    The plaintiff, Plimpton, sought to attach shares of stock owned by Bigelow, a non-resident, in a foreign (Pennsylvania) corporation. The certificates representing these shares were physically located in New York. Plimpton attempted to levy on the stock by serving a warrant of attachment on the individual in possession of the certificates in New York.

    Procedural History

    The lower court upheld the validity of the attachment. The General Term reversed this decision, holding the attachment invalid. The New York Court of Appeals affirmed the General Term’s decision, finding that the shares of stock were not properly subject to attachment in New York.

    Issue(s)

    Whether shares of stock in a foreign corporation are subject to attachment in New York simply because the certificates representing those shares are physically present in New York.

    Holding

    No, because the situs of the stock is in the state where the corporation is domiciled, and therefore, not subject to attachment in New York based solely on the presence of the stock certificates.

    Court’s Reasoning

    The Court of Appeals reasoned that shares of stock represent an ownership interest in the corporation, and that interest is tied to the corporation’s assets and domicile. The court stated: “The general rule that the situs of personal property is the domicile of the owner is subject to many exceptions, and it is clear that for the purposes of taxation, and for other purposes where the sovereignty of the state is to be exercised, personal property may have an actual or constructive situs within the state, although the domicile of the owner is elsewhere.” However, this principle does not automatically apply to attachments. The court distinguished between the certificates, which are merely evidence of ownership, and the shares themselves, which represent an interest in the corporation’s assets. The court emphasized that the corporation exists under the laws of Pennsylvania, and New York courts cannot exercise direct control over the corporation’s internal affairs or assets. The court noted, “The foreign corporation is not here; it has no property in this state which can be taken by virtue of the attachment. The certificates of stock are not the property itself, they are but evidence of property… The shares are held by the company in Pennsylvania.” The court further observed that to allow attachment based solely on the presence of the certificates would create significant practical problems, as multiple states could potentially claim jurisdiction over the same shares. The dissenting opinion argued that the certificates, when endorsed, effectively transfer the property they represent, and thus should be subject to attachment where found. The majority, however, rejected this argument, emphasizing the importance of the corporation’s domicile in determining the situs of the stock. The court relied on the principle that a state’s jurisdiction generally extends only to property located within its borders, and that shares of stock are deemed to be located in the state of incorporation.

  • Barton v. Hermann, 11 Daly 296 (1882): Attachment Validity After Subsequent Vacation

    Barton v. Hermann, 11 Daly 296 (1882)

    A valid attachment protects the attaching party and the executing officer from liability for actions taken under it while it is in force, even if the attachment is later vacated due to error, but a void attachment offers no such protection, whether vacated or not.

    Summary

    Barton, an assignee for the benefit of creditors of Hirschhorn & Co., sued Hermann, an indemnitor of a sheriff, for conversion of goods seized by the sheriff under an attachment against Hirschhorn & Co. Hermann argued the assignment was fraudulent. The trial court barred Hermann from challenging the assignment’s validity because the attachment had been vacated. The appellate court reversed, holding that a valid attachment protects actions taken before its vacation, but a void attachment offers no protection. The court reasoned that the defendants were entitled to litigate the validity of the assignment and that the prior ruling prevented them from presenting evidence regarding the validity of the underlying attachment.

    Facts

    J.M. Hirschhorn & Co. made a general assignment for the benefit of creditors to Barton. Goldschmidt and others, creditors of Hirschhorn & Co., obtained an attachment against Hirschhorn’s assets, alleging the assignment was fraudulent. The sheriff seized goods from Barton’s possession under the attachment. Barton sued the sheriff for conversion. Hermann, the indemnitor of the sheriff, was substituted as the defendant.

    Procedural History

    Barton sued Hermann (as indemnitor for the sheriff) for conversion. The trial court ruled Hermann could not challenge the validity of the assignment, based on the admission in the answer that the attachment was vacated. The jury was instructed to consider only damages. Hermann appealed. The appellate court reversed the trial court’s judgment.

    Issue(s)

    1. Whether a defendant, indemnifying a sheriff who seized goods under an attachment later vacated, can challenge the validity of the underlying assignment for the benefit of creditors alleged to be fraudulent.
    2. Whether the subsequent vacation of a valid attachment retroactively invalidates actions taken under the attachment before its vacation.

    Holding

    1. Yes, because the defendants, standing in the shoes of the sheriff, are entitled to demonstrate that the assignment was fraudulent to justify the original seizure under a valid attachment.
    2. No, because a valid attachment protects the officer and party for actions taken under it while it was in force; vacation for error does not retroactively make those actions a trespass.

    Court’s Reasoning

    The court reasoned that goods fraudulently assigned are attachable at the suit of a defrauded creditor, distinguishing this from situations involving equitable assets. As indemnitors, the defendants had the right to defend the sheriff’s actions by proving the attachment was valid and the assignment was fraudulent. The court cited Day v. Bach, emphasizing that a valid attachment protects actions taken under it until it is set aside. The court distinguished between a valid attachment vacated for error and a void attachment. A valid attachment protects the officer and party for actions taken before vacation, while a void attachment provides no protection at all. The court noted that the lower court’s ruling, made in limine, prevented the defendants from presenting evidence about the attachment proceedings, assuming there was a valid attachment but incorrectly holding that its subsequent vacation deprived the defendants of their justification. The court emphasized the importance of determining whether the attachment was initially valid, as that would determine whether the defendants could justify the seizure, regardless of the later vacation.