Cla-Mil East Holding Corp. v. Medallion Funding Corp., 1 N.Y.3d 375 (2004)

A secured party is not liable for damage to real property caused by a court-appointed marshal during the repossession of collateral, provided the secured party obtained a court order for the repossession and did not engage in any direct wrongdoing.

Summary

This case addresses whether a secured creditor is liable for damages to real property caused by a New York City Marshal while repossessing collateral under a court order. The New York Court of Appeals held that the secured party, Medallion Funding Corp., was not liable for the marshal’s negligence. The Court reasoned that because the marshal is an independent officer of the court, not an agent of the secured party, the secured party is not responsible for the marshal’s actions. The court emphasized that Medallion appropriately relied on the legal system to recover its collateral and avoided self-help.

Facts

Cla-Mil East Holding Corp. was a landlord whose tenant defaulted on rent. The tenant also defaulted on loan payments to Medallion Funding Corp., which had a security interest in the tenant’s laundry equipment. Cla-Mil evicted the tenant. Medallion obtained a court order directing a New York City marshal to repossess the laundry equipment, which served as collateral for the loan. The marshal, in executing the court order, damaged Cla-Mil’s property by severing air vents, unplugging power lines, and disconnecting water pipes during the removal of the equipment.

Procedural History

Cla-Mil sued Medallion and its law firm, alleging trespass, abuse of process, and negligence. The Supreme Court denied Medallion’s motion for summary judgment and granted partial summary judgment to Cla-Mil on liability. The Appellate Division reversed, granting summary judgment in favor of Medallion. Cla-Mil appealed to the New York Court of Appeals.

Issue(s)

Whether a secured party is liable under UCC 9-604(d) for damages to real property caused by a New York City Marshal when the marshal repossesses collateral pursuant to a court order obtained by the secured party.

Holding

No, because the marshal is an independent officer of the court, not an agent of the secured party. Therefore, the secured party is not responsible for the marshal’s actions when the repossession is conducted under a valid court order.

Court’s Reasoning

The Court of Appeals reasoned that UCC 9-604(d), which requires a secured party to reimburse the owner of real property damaged during the removal of collateral, does not apply when the removal is conducted by a court-appointed marshal. The court emphasized the marshal’s independence, noting that marshals are government officers appointed by the Mayor, are neutral, and are subject to discipline by appropriate authorities. Because marshals act under the direction of the court, they do not owe allegiance to or take orders from the secured creditors. The court stated: “The marshal’s actual and legal independence from the secured party suggests to us that the UCC reference to a ‘secured party that removes collateral’ does not include secured parties who arrange for marshals to remove collateral under court order.”

The Court further noted that policy reasons support this distinction, as marshals are bonded for the purpose of covering damages they cause during repossessions. The court also rejected Cla-Mil’s claims of direct wrongdoing by Medallion, pointing out that Medallion obtained a judgment against the debtor, obtained a court order, and then engaged the marshal to execute that order. The Court stated that, “[a]t each stage, Medallion avoided self-help and appropriately relied on the legal system to recover its collateral with no breach of peace. Far from abusing legal process, Medallion submitted to legal authority at every step. Such conduct is consistent with public policy disfavoring parties taking matters into their own hands.” Therefore, Medallion’s actions were deemed appropriate and insulated from liability.