Verizon New England, Inc. v. Transcom Enhanced Services, Inc., 21 N.Y.3d 67 (2013)
A restraining notice under CPLR 5222(b) is unenforceable against an at-will, prepayment service agreement that lacks a binding obligation for future services or dealings because such an agreement does not create a property interest or debt subject to restraint.
Summary
Verizon sought to enforce a judgment against Global NAPs, Inc. (GNAPs) by serving a restraining notice on Transcom, a company doing business with GNAPs. The notice aimed to prevent Transcom from transferring any property or debt owed to GNAPs. Transcom had an agreement with GNAPs for telephone switch services, but it prepaid for these services on a weekly basis and had no obligation to continue the arrangement. Verizon argued that the ongoing relationship created a property interest subject to the restraining notice. The Court of Appeals held that because the agreement was at-will and prepaid, with no guarantee of future services or payments, it did not create an attachable property interest or debt, rendering the restraining notice unenforceable.
Facts
Verizon obtained a $57 million judgment against GNAPs. In an effort to collect on the judgment, Verizon served a restraining notice and information subpoena on Transcom, a company that had a service agreement with GNAPs. The original agreement between Transcom and GNAPs, dated 2003, stipulated a monthly payment schedule. However, Transcom and GNAPs subsequently modified the agreement to a week-to-week arrangement where Transcom prepaid for services. Transcom could decide weekly whether to continue using GNAPs’ services, and GNAPs could also terminate the agreement at any time.
Procedural History
Verizon commenced a special proceeding seeking a turnover of property and debts from Transcom, alleging that Transcom violated the restraining notice by making payments to GNAPs. Supreme Court denied the turnover and dismissed the petition, finding no property or debt subject to the restraining order. The Appellate Division affirmed, holding that Transcom owed no debt to GNAPs and possessed no property of GNAPs. Verizon appealed to the Court of Appeals.
Issue(s)
Whether an at-will, prepayment service agreement, lacking any obligation for continued services or future dealings, constitutes a property interest or debt subject to a CPLR 5222 (b) restraining notice.
Holding
No, because the at-will, prepayment service agreement, which lacks any obligation to continue services or a commitment to engage in future dealings, does not create a property interest or debt subject to a CPLR 5222 (b) restraining notice.
Court’s Reasoning
The Court of Appeals distinguished this case from ABKCO Indus. v Apple Films, 39 NY2d 670 (1976), where a licensing agreement created an attachable property interest because it obligated the third party to pay the debtor a percentage of profits. In contrast, the agreement between Transcom and GNAPs was terminable at will by either party, and Transcom prepaid for services weekly with no obligation to continue the arrangement. The Court emphasized that “each week, Transcom had no obligation to pay GNAPs. Accordingly, there was no debt, and no obligation ‘certain to become due’” (citing Glassman v Hyder, 23 NY2d 354, 359 [1968]). The Court rejected Verizon’s argument that Transcom’s continued business relationship with GNAPs created an expectation of future revenue, stating that such an expectation was too contingent and speculative to create a property interest. The court affirmed the Appellate Division’s finding that Transcom neither owed any debt to nor possessed any property of GNAPs subject to a restraining notice. The voluntary payments in this case are distinguishable from ABKCO where the potential for future obligatory payments provided some real basis for a property interest. “Therefore, unlike ABKCO, there is no restrainable interest akin to the ‘collection of individual rights which, in certain combinations, constitute property’ (United States v Craft, 535 US 274, 278 [2002]).”