New York Law Review

Tag: intangible property

  • 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.

  • Thyroff v. Nationwide Mutual Insurance Company, 8 N.Y.3d 283 (2007): Conversion Applies to Electronic Data

    Thyroff v. Nationwide Mutual Insurance Company, 8 N.Y.3d 283 (2007)

    The tort of conversion extends to electronic data stored on a computer when the data is indistinguishable from printed documents, aligning the law with contemporary technological realities.

    Summary

    Louis Thyroff, an insurance agent, sued Nationwide for conversion after Nationwide repossessed its computer system, denying Thyroff access to his customer and personal data stored within. The Second Circuit certified the question of whether conversion applies to electronic data under New York law. The New York Court of Appeals held that it does, reasoning that the law must evolve with technology. Electronic records have the same value as paper documents, and thus should receive the same legal protections. This ruling modernizes the tort of conversion, making it applicable to the digital age.

    Facts

    Thyroff was an insurance agent for Nationwide under an Agent’s Agreement. Nationwide leased computer hardware and software (AOA system) to Thyroff. This system was used for business and personal data, which Nationwide automatically uploaded daily to its computers. Nationwide terminated the agreement in September 2000 and repossessed the AOA system, denying Thyroff access to the stored data.

    Procedural History

    Thyroff sued Nationwide in the Western District of New York, asserting a conversion claim, among others. The District Court dismissed the conversion claim. Thyroff appealed to the Second Circuit, which then certified the question of whether conversion of electronic data is cognizable under New York law to the New York Court of Appeals.

    Issue(s)

    Whether a claim for the conversion of electronic data is cognizable under New York law?

    Holding

    Yes, because the tort of conversion must evolve to keep pace with widespread computer use and protect electronic data indistinguishable from printed documents.

    Court’s Reasoning

    The Court of Appeals reviewed the history of conversion, tracing its origins from actions involving tangible property to the modern era where intangible property rights are often merged with tangible objects (e.g., stock certificates). The court noted, “[I]t is the strength of the common law to respond, albeit cautiously and intelligently, to the demands of commonsense justice in an evolving society”. Given society’s substantial reliance on computers and electronic data, the Court found “no reason in law or logic why this process of virtual creation should be treated any differently from production by pen on paper or quill on parchment.”

    The court distinguished the case from prior holdings that traditionally limited conversion to tangible property, emphasizing the importance of adapting legal principles to modern realities. The court observed that a document stored on a computer has the same value as a paper document in a file cabinet. Furthermore, electronic records of customer contacts and related data have value to the plaintiff regardless of whether the information is stored tangibly or intangibly.

    The court explicitly limited its holding to electronic records that were “indistinguishable from printed documents,” leaving open the question of whether other forms of virtual information should be protected by the tort of conversion. The decision reflects a pragmatic approach, recognizing the need to protect valuable electronic information while proceeding cautiously in extending the scope of the conversion tort. As the court stated, “We cannot conceive of any reason in law or logic why this process of virtual creation should be treated any differently from production by pen on paper or quill on parchment.”

  • Matter of Comptroller of the City of New York v. Bloomberg, 6 N.Y.3d 254 (2006): Interpreting ‘Property’ in City Charter Concession Contracts

    Matter of Comptroller of the City of New York v. Bloomberg, 6 N.Y.3d 254 (2006)

    The term “property” in New York City Charter § 362(a), defining “concession,” is not limited to real property but includes intangible property, and the City Comptroller’s power to review contracts under § 328(b)(ii) is limited to ensuring proper certification, not to conducting a substantive investigation of the contract’s underlying process.

    Summary

    This case concerns a dispute over a concession contract between New York City and Snapple, where Snapple would sell beverages in vending machines on City property and market the City’s brand. The City Comptroller challenged the contract’s validity, arguing that the City failed to obtain proper approval for the marketing portion of the agreement and that the term “property” in the City Charter should include intangible assets like intellectual property. The Court of Appeals held that “property” includes intangible assets but limited the Comptroller’s review power to ensuring proper certification, preventing him from delving into the contract’s substantive aspects. This decision clarifies the scope of the Comptroller’s authority and the definition of “property” in the context of City concession contracts.

    Facts

    In 2003, New York City created the Marketing Development Corporation (MDC) to develop public-private partnerships. The City, MDC, and the Department of Citywide Administrative Services entered into a concession contract with Snapple Beverage Corporation. The contract involved Snapple selling beverages in vending machines on City property and marketing the City’s brand. The City presented only the vending portion of the contract to the New York City Franchise and Concession Review Committee (FCRC) for approval. The Comptroller objected, arguing that the entire contract should have been submitted to the FCRC.

    Procedural History

    The Comptroller brought a combined special proceeding (Article 78) and declaratory judgment action, seeking to annul the contract. Supreme Court rejected the Comptroller’s challenge. The Appellate Division affirmed, concluding that the Comptroller could only object to the certifications’ existence, not the underlying process, and that “property” included intangible assets. The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether the statute of limitations bars the Comptroller’s claim that the contract is invalid because it could not be registered properly under Charter § 328.

    2. Whether the term “property” in Charter § 362(a) is limited to real property.

    3. Whether the Comptroller, under Charter § 328(b)(ii), can transform a procedure for registering a contract into a substantive investigation of a contract.

    Holding

    1. No, because the agency determination became “final and binding” no earlier than February 20, 2004, the date the City filed the contract with the Comptroller for registration.

    2. No, because under settled statutory interpretation principles, the term “property” in Charter § 362 (a) is not limited to “real property.”

    3. No, because the Comptroller may not, under Charter § 328 (b) (ii), transform a procedure for registering a contract into a substantive investigation of a contract.

    Court’s Reasoning

    The Court of Appeals held that the statute of limitations began to run when the City filed the contract with the Comptroller for registration. As to the definition of “property,” the Court relied on the plain language of Charter § 362(a), which defines “concession” as a grant for the private use of city-owned “property.” The Court noted that the term “property” is not qualified by “real,” “personal,” “tangible,” or “intangible.” The Court emphasized that when the drafters of the Charter intended to refer to “real property,” they explicitly used those words. For example, § 362(d) uses the term “real property” in contrast to “inalienable property.” The Court reasoned that the drafters’ decision not to use “real property” in § 362(a) indicated that they did not intend such a narrow construction.

    Regarding the Comptroller’s authority, the Court held that under § 328(b)(ii), the Comptroller may deny registration only if “a certification required by [section 327] has not been made.” The Court stated that § 328(b)(ii) does not empower the Comptroller to second-guess facially sufficient certifications provided by the Mayor and the Corporation Counsel. The Court reasoned that the Charter’s delegation of duties plainly establishes that the Mayor and Corporation Counsel bear the responsibility for determining that procedural requirements have been met and that legal authority exists to award a concession contract. The Court directly quoted Hudson Riv. Tel. Co. v Watervliet Turnpike & Ry. Co., 135 NY 393, 403-404 (1892), stating “[t]he words of the statute are to be interpreted according to their natural and obvious meaning, and, as the terms employed are not ambiguous, extrinsic facts are not available to restrict the authority which it plainly confers.” The Court concluded that allowing the Comptroller to conduct a substantive investigation would undermine the Charter’s intended allocation of responsibilities.

  • Comptroller of New York v. Mayor of New York, 7 N.Y.3d 256 (2006): Scope of ‘Property’ in City Concession Contracts

    7 N.Y.3d 256 (2006)

    The term “property” in New York City Charter § 362(a), defining “concession,” encompasses both tangible and intangible property, and the Comptroller’s authority to review contracts is limited to verifying the existence of required certifications, not the underlying process.

    Summary

    This case concerns a dispute over a concession contract between New York City and Snapple, where Snapple would sell beverages in vending machines on city property and market the city’s brand. The Comptroller challenged the contract, arguing that the marketing aspect wasn’t properly submitted for approval. The court addressed whether the term “property” in the City Charter includes intangible property and the scope of the Comptroller’s review authority. The Court of Appeals held that “property” includes both tangible and intangible forms, but the Comptroller’s review is limited to ensuring the existence of required certifications, not investigating the process behind them.

    Facts

    In 2003, New York City created the Marketing Development Corporation (MDC) to develop public-private partnerships. The City entered a concession contract with Snapple, involving vending machines on city property and Snapple marketing the city’s brand. Only the vending portion was initially presented to the Franchise and Concession Review Committee (FCRC) for approval. The Comptroller objected to the contract’s registration, arguing that the full contract wasn’t submitted for approval.

    Procedural History

    The Comptroller sought to annul the contract, arguing it was invalid due to procedural defects and that the definition of “concession” includes intangible property. The Supreme Court ruled against the Comptroller, finding the entire contract had been filed and that the Comptroller couldn’t attack only part of it. The Appellate Division affirmed, stating the Comptroller could only object to the existence of certifications, not the underlying process. The case then went to the Court of Appeals.

    Issue(s)

    1. Whether the term “property” in New York City Charter § 362(a) is limited to real property or encompasses intangible property.

    2. Whether, under New York City Charter § 328(b)(ii), the Comptroller has the authority to investigate the process by which the City reached the agreement with Snapple, or is limited to verifying the existence of required certifications.

    Holding

    1. Yes, because the plain language of the statute defines “concession” as a grant for the private use of city-owned “property” without limiting it to real property; when the drafters intended to refer to real property, they explicitly used that term elsewhere in the Charter.

    2. No, because Charter § 328(b)(ii) only allows the Comptroller to verify that the certifications required by § 327 have been made, not to second-guess the validity of those certifications or investigate the underlying process.

    Court’s Reasoning

    The Court first addressed the statute of limitations, determining the claim related to the Comptroller’s role as an FCRC member was time-barred but the claim related to the contract’s registration was not. Regarding the definition of “property,” the Court emphasized the importance of adhering to the plain meaning of the statutory text. The Court noted that the Charter drafters used the term “real property” in other sections when that was their intent, suggesting the omission of that qualifier in § 362(a) was deliberate. The court quoted from Hudson Riv. Tel. Co. v Watervliet Turnpike & Ry. Co. (135 NY 393, 403-404 [1892]) that statutes should be interpreted according to their natural meaning and should encourage progress, not restrict it. The Court rejected the Comptroller’s argument that he could investigate the underlying process of the contract award. It determined that Section 328(b)(ii) of the Charter only allows the Comptroller to deny registration if the certifications required by Section 327 were not made. The court reasoned that the Charter delegates the responsibility of ensuring procedural requirements are met to the Mayor and Corporation Counsel, not the Comptroller. Therefore, the Comptroller’s role is limited to verifying the existence of the certifications, not evaluating their accuracy. The Court emphasized that the plain language of the statute is determinative. The Court observed, “The delegation of duties set forth in the relevant provisions of the Charter establishes in plain language that the Mayor and the Corporation Counsel— not the Comptroller—bear the burden of determining that procedural requirements have been met and legal authority exists to award a concession contract.”

  • People v. Spatarella, 34 N.Y.2d 157 (1974): Extortion and the Delivery of Intangible Property

    People v. Spatarella, 34 N.Y.2d 157 (1974)

    The crime of larceny by extortion can be established when a person compels another, through fear of physical injury, to relinquish a business advantage or customer relationship, even if that relationship is not a tangible asset.

    Summary

    The New York Court of Appeals affirmed the defendant’s conviction for grand larceny by extortion, holding that the forced relinquishment of a business customer under threat of physical harm constitutes the delivery of “property” within the meaning of the extortion statute. The defendant, Spatarella, threatened a competitor, Ugenti, demanding that he cease servicing a particular restaurant. The Court reasoned that the business relationship with the restaurant was a valuable intangible right, the deprivation of which, through threats, satisfied the elements of extortion. The court also addressed the admissibility of certain tapes, finding no basis for suppression.

    Facts

    Spatarella managed All American Refuse Removal Corporation, and Ugenti was the president of North Shore Sanitation. Ugenti’s company began servicing a restaurant, Mei-Ting, previously serviced by Spatarella’s company. In January 1970, Spatarella confronted Ugenti and threatened him with physical harm if he did not stop servicing Mei-Ting by the following month. Ugenti, believing the threat, ceased servicing the restaurant. All American then resumed servicing Mei-Ting.

    Procedural History

    Spatarella was convicted of criminal mischief, criminal possession of stolen property, unauthorized use of a motor vehicle, grand larceny by extortion, and petit larceny. The Appellate Division affirmed the conviction. Spatarella appealed to the New York Court of Appeals, challenging primarily his conviction for grand larceny by extortion and the admissibility of certain tape recordings.

    Issue(s)

    1. Whether the successful demand, made by Spatarella on Ugenti, to relinquish a business customer (Mei-Ting restaurant) through fear of physical injury constitutes the delivery of “property” under New York’s larceny by extortion statute.

    2. Whether the trial court properly admitted certain tape recordings into evidence, despite the District Attorney’s alleged failure to provide adequate pretrial notice and claims of inaudibility or lack of exculpatory material.

    Holding

    1. Yes, because the term “property” under the extortion statute is construed broadly to include intangible rights such as advantageous business relationships. The deprivation of such a relationship through threats constitutes extortion.

    2. Yes, because the defendant did not allege involuntariness regarding the tapes, and therefore, there was no legal basis for a suppression hearing. Furthermore, the claims of surprise and inaudibility should have been raised in a discovery motion.

    Court’s Reasoning

    The Court of Appeals relied on prior cases like People v. Barondess and People ex rel. Short v. Warden of City Prison, which interpreted “property” broadly in the context of extortion statutes to include intangible rights. The Court stated, “[B]usiness is property, as much so as the articles themselves which are included in its transactions.” The court reasoned that depriving someone of a business relationship through threats is as destructive as damaging physical property. The court found that Spatarella’s demand for the business itself was more egregious than simply demanding money. The Court emphasized the logic of the statute’s application to the facts, stating that “Ugenti possessed an advantageous business relationship…which because of Spatarella’s forceful and illegal behavior, deprived Ugenti of that business arrangement, the advantage of which was obtained by and accrued to the defendant directly in consequence of his extortive activity.” Regarding the tapes, the court noted that the defendant’s motion to suppress did not allege involuntariness, a necessary predicate for triggering a suppression hearing under the Criminal Procedure Law. The court rejected arguments of surprise and inaudibility, noting those issues should have been raised in pre-trial discovery.