Integrity Electronics Inc. v. Garden State Distributors, Inc. et al
Filing
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ORDER denying 20 Motion to Dismiss for Lack of Jurisdiction; deferring ruling on 20 Motion to Dismiss for Failure to State a Claim. Ordered by Judge Brian M. Cogan on 11/18/2014. (Cogan, Brian)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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:
INTEGRITY ELECTRONICS, INC.,
:
:
Plaintiff,
: MEMORANDUM
: DECISION & ORDER
- against :
: 14 Civ. 3197 (BMC)
GARDEN STATE DISTRIBUTORS, INC., et :
al.,
:
:
Defendants.
:
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COGAN, District Judge.
This fraudulent conveyance case brought by a judgment creditor against alleged owners
and affiliates of the judgment debtors is currently before me on defendants’ motion to dismiss
pursuant to Fed. R. Civ. P. 69, 12(b)(1), and 12(b)(6). For the reasons that follow, defendants’
motion is denied, in part, as to the first two asserted grounds. Plaintiff need only serve
opposition to the third ground.
Defendants first argue that plaintiff’s action should be dismissed on the ground that it is
“contrary to FRCP 69(a)(1)” because it was not brought as a “special proceeding” in state court
or by motion in the underlying action, as provided for by New York C.P.L.R. § 5225(b). Special
proceedings are available under New York law as an abbreviated means to adjudicate postjudgment issues when the petitioner believes that the facts, or most of them, are not in dispute.
There is no suggestion in the statute that C.P.L.R. § 5225 supersedes the well-established right of
a plaintiff at common law to bring a plenary action to avoid a fraudulent conveyance. Judgment
creditors regularly proceed in state court with plenary fraudulent conveyance actions, and no
state or federal court in New York has ever dismissed one on the ground that it should and could
only have been brought as a special proceeding.
Indeed, I doubt that a plenary action for fraudulent conveyance brought by a judgment
creditor is even a “procedure on execution” as defined by Fed. R. Civ. P. 69(a). The procedures
on execution under New York law are contained in Article 52 of the C.P.L.R. The substantive
right to avoid a fraudulent conveyance is set forth in the Debtor-Creditor Law, which is New
York’s adaptation of the Uniform Fraudulent Conveyance Act. Recovery under that statute is
available equally to pre-judgment and post-judgment creditors, and nothing in the statute
suggests exclusive remedies available to one class of creditor but not the other.
Moreover, even if a fraudulent transfer claim by a judgment creditor had to be brought by
a special proceeding, federal courts have sustained such actions where they have been
commenced by a complaint. Since there is no such thing as a special proceeding in federal
practice, federal courts adapt the state practice to federal practice in a manner consistent with
Fed. R. Civ. P. 1. As one court has noted, “[d]espite the statute’s ‘upon a special proceeding’
language, CPLR § 5225(b) is satisfied for purposes of enforcing a registered, federal district
court judgment when the plaintiff proceeds by complaint in federal court.” CSX Transp., Inc. v.
Filco Carting Corp., No. 10-CV-1055, 2011 WL 2713487, at *2 (E.D.N.Y. July 11, 2011) (citing
Cordius Trust v. Kummerfeld, 153 Fed. App’x 761, 763 (2d Cir. 2005)). Thus, even assuming
that Rule 69(a)(1) applies here, plaintiff has complied with state law. Defendants’ first argument
for dismissal is therefore meritless.
Defendants next argue that this case must be dismissed under Fed. R. Civ. P. 12(b)(1)
because the parties are not diverse – which they are not – and because I lack “ancillary
jurisdiction” under Epperson v. Entm't Express, Inc., 242 F.3d 100 (2d Cir. 2001). The rule of
Epperson can be easily stated: federal courts have ancillary jurisdiction to hear fraudulent
conveyance actions, not veil-piercing or alter ego actions. The amended complaint here presents
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the former, not the latter. If plaintiff prevails, it will be because it has proven the former, and the
finder of fact will not be asked to determine the latter.
Finally, as I have advised defendants previously, they should dispense with the vitriolic
language that permeates each of the submissions they have made in this case. Whether they
engaged in fraudulent conveyances or not, there is no dispute that the individual defendants or
their family members have substantial or controlling interests in corporations which had their
answer stricken and judgment entered against them by Judge Glasser because they had
“repeatedly delayed” and “unnecessarily prolonged” that earlier case. This was based on
findings that those corporations had “failed to fulfill their discovery obligations, disregarded the
Court’s Orders, and unreasonably delayed these proceedings … .” Plaintiff is thus not the
villain here. It is an unpaid judgment creditor trying to collect money from the people who
allegedly control the judgment debtors and their affiliated companies. Defendants’ attempts to
impugn plaintiff’s motives through pejorative accusations is a technique that is utterly
unpersuasive to me, as this case to do with money, not plaintiff’s motives.
SO ORDERED.
Digitally signed by Brian M.
Cogan
U.S.D.J.
Dated: Brooklyn, New York
November 18, 2014
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