American First Federal, Inc. v. Gordon et al
OPINION & ORDER re: 25 LETTER MOTION for Conference addressed to Judge William H. Pauley, III from Jonathan P. Vuotto dated 10/31/2016. filed by American First Federal, Inc., 22 MOTION to Stay Re-filed Under Correct Ple ading Category. filed by Sheldon M Gordon, Christine E Gordon. For the foregoing reasons, in its informed discretion, this Court denies Defendants' motion to stay. However, if Defendants post a bond of $1,500,000 with the Clerk of Court by January 11, 2017, this Court will stay this action pending the resolution of the Connecticut Action. The Clerk of Court is directed to terminate the motions pending at ECF Nos. 22 and 25. (Signed by Judge William H. Pauley, III on 12/29/2016) (cla)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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AMERICAN FIRST FEDERAL, INC.,
SHELDON M. GORDON, et al.,
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OPINION & ORDER
WILLIAM H. PAULEY III, District Judge:
Defendants Sheldon M. Gordon (“Sheldon”) and Christine E. Gordon
(“Christine”) (together, the “Gordons”), and certain unidentified third parties (together, the
“Defendants”) move to stay the underlying action pending an appeal of a related, but separate,
action in Connecticut state court (the “Connecticut Action”). Defendants’ motion to stay this
action is denied. However, if Defendants post a bond of $1,500,000 with the Clerk of Court by
January 11, 2017, this Court will stay this action pending a resolution of the Connecticut Action.
Plaintiff American First Federal, Inc. (“AFF”) received the rights to a loan on
which Sheldon Gordon and his company, Gordon Group Investments (“GGI”), were the
obligors. (Compl. ¶¶ 13–14.) After Sheldon and GGI defaulted, AFF commenced the
Connecticut Action in May 2011 for breach of the loan agreement. (Compl. ¶ 15.)
Thereafter, Sheldon sought to negotiate a forbearance agreement with AFF.
(Compl. ¶ 16.) AFF specifically demanded additional collateral in the form of Sheldon’s
132,826 partnership units (the “Shares”) in the Taubman Realty Group Limited Partnership
(“Taubman”) in exchange for an extension of the loan’s maturity date. (Compl. ¶ 16.) Sheldon
refused to pledge the Shares, citing their strict transfer restrictions and the adverse tax
consequences that he would suffer if they were secured as collateral. (Compl. ¶ 17.) As a result,
no forbearance agreement was executed. (Compl. ¶ 18.) Thereafter, AFF petitioned the
Connecticut court for a Writ of Attachment (the “Writ”) to secure the Shares, but Taubman
refused to recognize the Writ, claiming that it did not possess the Shares and that, in any event, it
was not required to make any distributions to Sheldon. (Compl. ¶ 19–20.)
After the Gordons learned of AFF’s efforts to attach the Shares, they sought to
transfer the Shares out of AFF’s reach. (Compl. ¶ 21.) According to the Complaint, Sheldon
converted the Shares into unrestricted common stock and transferred them either to Christine or
unidentified third parties. (Compl. ¶¶ 24–25.) The Gordons also deposited the Shares into each
of their brokerage accounts with City National Bank in Manhattan, which were then liquidated
and transferred to unidentified third parties. (See Compl. ¶¶ 28–50.)
On July 10, 2015, the Connecticut court entered a judgment in favor of AFF in the
amount of approximately $4.4 million (the “Judgment”). Sheldon and GGI appealed (the
“Appeal”), effectively staying enforcement of the Judgment. Oral argument on the Appeal is
scheduled for January 5, 2017. (See ECF No. 34.)
Since obtaining the Judgment, AFF has sought to preserve Sheldon’s assets so
that it can enforce the Judgment. In October 2015, AFF initiated an action in California state
court alleging that the Gordons fraudulently transferred their assets. 1 (Corrected Memo. of Law
in Support of Defendants’ Motion to Stay (“Mot.”) at 3–4 (ECF No. 30).) And in May 2016,
That action has since been terminated. The Superior Court of California in the County of Los Angeles
dismissed the action on forum non-conveniens and personal jurisdiction grounds. In August 2016, AFF withdrew its
appeal of the dismissal. (Mot. at 3–4.)
AFF commenced the underlying action, alleging that the Gordons fraudulently transferred the
Shares and any proceeds thereof (together, the “Assets”) to hinder AFF’s efforts in satisfying the
The Underlying Action
The gravamen of AFF’s complaint is that the Gordons used their brokerage
accounts at City National Bank to “fraudulently convey assets in order to frustrate AFF’s ability
to enforce the Judgment it  obtain[ed] in the Connecticut Action,” and to perpetrate a “scheme
to defraud AFF and avoid paying the Judgment.” (Compl. ¶¶ 47, 49.)
Defendants move to stay this action pending final resolution of the Connecticut
Action. Because the focal point of the Appeal is whether the lender’s rights under the loan from
which Sheldon and GGI purportedly defaulted were properly assigned to AFF, Defendants
contend that this Court should “act in comity with Connecticut law and observe” (Mot. at 10) the
stay instituted in the Connecticut Action until the appellate court “determine[s] important
threshold issues” that may “conclusively preclude AFF’s claims asserted here.” (Mot. at 7.)
AFF counters that a stay is “neither necessary nor appropriate” because this action
involves issues and claims that are materially different from those alleged in the Connecticut
Action. (See Memo. of Law in Opposition to Defendants’ Motion to Stay (“Opp.”) at 1 (ECF
No. 26).) AFF contends that it is not trying “to enforce the Judgment in violation of the appellate
stay, or to coerce Mr. Gordon to satisfy a judgment that Connecticut law forbids from
enforcing.” (Opp. at 10.) Rather, in this action, AFF seeks a separate judgment unwinding the
fraudulent transfers of the Assets between the Gordons and unidentified third parties to “ensure
that Sheldon’s assets are not put out of” its reach. (Opp. at 10.)
As an initial matter, the parties disagree on the standard that governs requests to
stay a federal action in favor of a pending state proceeding. AFF maintains that this Court is
bound by a four-factor test:
(1) whether the stay applicant has made a strong showing that he is likely to succeed
on the merits; (2) whether the applicant will be irreparably injured absent a stay;
(3) whether issuance of the stay will substantially injure the other parties interested
in the proceeding; and (4) where the public interest lies.
See Hayes v. City University of New York, 503 F. Supp. 946, 962 (S.D.N.Y. 1980); Chevron
Corp. v. Donziger, 37 F. Supp. 3d 653, 657 (S.D.N.Y. 2014).
By contrast, the Gordons contend that a seven-factor test controls this Court’s
(1) considerations of comity; (2) promotion of judicial efficiency; (3) adequacy and
extent of relief available in the alternative forum; (4) identity of parties and issues
in both actions; (5) likelihood of prompt disposition in the alternative forum; (6)
convenience of the parties, counsel and witnesses; and (7) possibility of prejudice
to a party as a result of the stay.
See Van Wagner Enters., L.L.C. v. Brown, 367 F. Supp. 2d 530, 531 (S.D.N.Y. 2005).
AFF’s four-factor test has been utilized primarily in situations where a party seeks
to stay the enforcement of “an interlocutory order or final judgment [that] grants, dissolves, or
denies an injunction” issued by a federal court pending an appeal of that court’s order or
judgment. Fed. R. Civ. P. 62(c); Hayes, 503 F. Supp. at 962 (invoking FRCP 62(c) after
defendants moved to stay the action pending an appeal of the district court’s injunction);
Mohammed v. Reno, 309 F.3d 95, 100 (2d Cir. 2002) (applying the standard for “stay of an order
of a district court”). Those factors are inapposite to the facts of this action, which involves (i) a
monetary judgment, and (ii) consideration of whether this Court’s jurisdiction over this case will
interfere with an appeal of a similar but separate action pending in state court.
The discretionary seven-factor test proffered by the Gordons is more appropriate
in situations where a district court considers “stay[ing] federal proceedings to allow resolution of
a similar cause of action pending in state court.” Van Wagner Enters., 367 F. Supp. 2d at 531
(applying the seven factors in granting stay) (internal quotation marks and citation omitted);
Giulini v. Blessing, 654 F.2d 189, 193 (2d Cir. 1981); De Carvalhosa v. Lindgren, 546 F. Supp.
228, 230 (S.D.N.Y. 1982). “No one factor is necessarily determinative; a carefully considered
judgment taking into account both the obligation to exercise jurisdiction and the combination of
factors counseling against that exercise is required.” Burton v. Exxon Corp., 536 F. Supp. 617,
623 (S.D.N.Y. 1982).
Federal courts have “the virtually unflagging obligation . . . to exercise the
jurisdiction given them,” absent the “circumstances permitting the dismissal of a federal suit due
to the presence of a concurrent state proceeding for reasons of wise judicial administration.”
Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 818–19 (1976). The
“mere pendency of a state proceeding with identical facts does not entitle a federal court to
dismiss an action over which it has mandatory subject matter jurisdiction except in specific
circumstances.” Koncelik v. Town of East Hampton, 781 F. Supp. 152, 156 (E.D.N.Y. 1991).
A. Nature of the Connecticut Action and the Underlying Action
The underlying action involves claims arising solely from the New York Debtor
and Creditor Law (“DCL”)—namely, DCL §§ 273 and 276 and their subparts, which are
designed to invalidate conveyances of assets made without fair consideration, to avoid satisfying
a judgment, or to avoid paying creditors. Indeed, one of the “underlying purpose[s] of DCL §
273-a” is to “prevent defendants from liquidating their assets in contemplation of an adverse
judgment.” Grace v. Bank Leumi Trust Co. of NY, 443 F.3d 180, 189 (S.D.N.Y. 2006).
Defendants attack the legitimacy of this action on the basis that AFF is not a
creditor under the DCL, and therefore has no “claim” against the Gordons. The Connecticut
court will determine whether AFF is in fact a creditor under the loan documents. The Gordons
therefore contend a stay is appropriate.
But under the DCL’s broad definition of the term “creditor,” AFF is a creditor
notwithstanding the Connecticut court’s review of AFF’s status under the loan documents.
Section 270 of the DCL provides that a creditor is any “person having any claim, whether
matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent.” N.Y.D.C.L. §
270. “Relevant here, a ‘contingent’ claim is one which has not accrued and which is dependent
on some future event that may never happen.” Trafalgar Power, Inc. v. Aetna Life Ins. Co., 131
F. Supp. 2d 341, 347 (N.D.N.Y. 2001). Indeed, even if AFF had “not recovered judgment” at the
time of the alleged fraudulent transfers alleged in this action, AFF could have become a creditor
as early “as of the time [its] claim accru[ed]” in the Connecticut Action. United States v. Watts,
786 F.3d 152, 163 (2d Cir. 2015). Therefore, while the Appeal centers on the question of
whether AFF received a valid assignment of rights from the original lender, the material issue in
this action is whether AFF has a “contingent” claim.
Here, AFF has sufficiently alleged that it is a creditor under the DCL. Former v.
Yogel, 50 F. Supp. 2d 227, 247 (S.D.N.Y. 1999) (under the DCL, a party need only “allege its
status as a creditor of th[e] person or entity and the existence of an antecedent debt owed to the
plaintiff.”). The Connecticut court rendered a judgment in AFF’s favor. And even if AFF’s
creditor status is under review, its pending claims against Sheldon and GGI are “clearly
‘contingent’ claims. The very existence of those claims establishes [AFF] as a creditor under
the Debtor and Creditor Law.” Trafalgar, 131 F. Supp. 2d at 347 (emphasis added). That fact is
amplified by five years of litigation involving AFF’s claims against Sheldon and GGI. (See Mot.
at 5.) The litigation culminated with the Connecticut court finding, in a 29-page opinion, that
AFF was a creditor entitled to judgment under the loan documents. 2 And, because the DCL was
designed to combat the evasive tactics employed by debtors to avoid paying their creditors,
especially where, as here, the debtor has attacked the validity of the judgment, the “creditor need
not wait until his claim has been reduced to final judgment, but may proceed to protect himself
against any action by the defendant seeking to make the judgment a nullity.” Trafalgar, 131 F.
Supp. 2d at 348 (quoting Herring-Curtiss, Co. v. Curtiss, 140 Misc. 857, 858 (N.Y. Sup. Ct.
B. Application of the Discretionary Factors
The seven factors pertinent to a district court’s decision to stay an action weigh in
favor of denying Defendants’ motion. The first two factors—comity and judicial efficiency—
weigh against a stay in view of the fact that the term “creditor”—the key issue underlying both
actions—is defined differently under New York law and Connecticut law. While the
Connecticut court presumably will analyze the purported assignment of rights and the loan
documents under Connecticut law, this Court is better suited to interpret and apply New York
law in the context of the DCL. Here, AFF is a creditor possessing a “contingent” claim and
therefore may exhaust the remedies available under the DCL to “know with certainty that [it can]
rely upon property of [its] debtors, even if situated in another jurisdiction.” Eclaire Advisor Ltd.
This Court notes that the Gordons’ attempt to discredit AFF’s status as a creditor is belied by the allegation
that Sheldon and GGI sought to negotiate a forbearance agreement regarding the loan with AFF shortly after the
Connecticut Action was commenced. (See Compl. ¶¶ 16–17.)
as Trustee to Daewoo Int’l (America) Corp. Creditor Trust v. Daewoo Engin. & Constr. Co.,
Ltd., 375 F. Supp. 2d 257, 268 (S.D.N.Y. 2005).
The Gordons contend that this action is an “improper end-run around” of the
Connecticut court stay. But AFF is considered a creditor under the DCL by virtue of its
contingent claims, and “is entitled to maintain a separate action for alleged violations of [the
DCL].” Trafalgar, 131 F. Supp. 2d at 348.
The third factor—adequacy and extent of relief available in the alternative
forum—also militates against a stay because the Connecticut court cannot claw back or halt
certain fraudulent conveyances designed to avoid repaying Sheldon and GGI’s creditors. While
the main issue underlying the Appeal is whether AFF properly received an assignment of rights
under the loan documents, answering that question will not address the relief requested here: a
“judgment unwinding the fraudulent transfers from Sheldon to Christine.” (Opp. at 10.)
The fourth, fifth, and sixth factors also support this Court’s exercise of
jurisdiction. The parties in this action and the Connecticut Action are not identical. The addition
of Christine Gordon in this action underscores a material distinction between the two cases.
Here, Christine allegedly transferred assets that she received from Sheldon in furtherance of a
fraudulent conveyance scheme. In the Connecticut Action, she has no alleged role.
The likelihood of prompt disposition in the Connecticut Action is also uncertain.
The Gordons contend that the “final determination of the Connecticut Action would likely be
short” because the appeal has been fully briefed and oral argument is scheduled for January 5,
2017. (Mot. at 10; ECF No. 34.) But no one—not even the Gordons—can predict with certainty
when the appeal will actually be decided despite the fact that oral argument is imminent.
Further, the inconvenience on the parties, counsel, and witnesses in this action—
compared to those in the Connecticut Action—is minimal. Many of the parties central to this
action—namely Sheldon Gordon and AFF—have been embroiled in a multi-year action in
Connecticut. And at least for some period until August 2016, they litigated against each other in
California. (See Mot. at 3–4.) A New York action—especially after the dismissal of the
California action—will pose no more an inconvenience on the Gordons than what they have
already endured in Connecticut. Moreover, while this Court appreciates the hardships that could
potentially arise from Mr. Gordon’s advanced age, the Gordons travel regularly to New York for
business. (See Opp. at 11.)
Finally, the seventh factor—possibility of prejudice to a party as a result of the
stay—is perhaps one of the most important factors underlying this Court’s decision to exercise
jurisdiction. The Gordons claim that AFF “is already holding security in excess of $3.3 million
that applies . . . to its claims” in the Connecticut Action. (Mot. at 10.) But that amount ignores
the actual balance of the Judgment which, if affirmed by the appellate court, would exceed $4.4
million. Without securing assets on which it can enforce the entire Judgment, AFF will be left
with an incomplete measure of relief.
Under a stay, potential assets from which AFF could satisfy the Judgment may be
siphoned to unidentified parties and put out of AFF’s reach. If the Connecticut court rules in
AFF’s favor, at that point AFF likely will have little to no recourse. This is precisely the risk—
and prejudice—that the DCL was designed to minimize. Having said that, this Court is cautious
of the overreach that can result from the remedies available under the DCL, and will carefully
exercise its jurisdiction to “go no further . . . than to restrain the defendant from disposing of the
property alleged to be fraudulently conveyed.” Herring-Curtiss, 140 Misc. at 858.
C. Abstention Doctrine
“Further support for staying or abstaining from considering [AFF’s] claims at this
time is found in the doctrine of judicial deference known as the Colorado River doctrine.” Rose
v. Village of Upper Nyack, N.Y., 669 F. Supp. 654, 657–58 (S.D.N.Y. 1987). Under such
doctrine, “a federal court may dismiss or stay a suit pending before it in the interest of wise
judicial administration where there is a concurrent state proceeding.” Rose, 669 F. Supp. at 658
(citing Colorado River, 424 U.S. at 817 (1976)). Colorado River and its progeny provide six
factors for consideration: (1) the assumption of jurisdiction over any res or property; (2) the
inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the
order in which the concurrent forums obtained jurisdiction; (5) the source of the applicable law;
and (6) the adequacy of procedures in the state court to protect the federal plaintiff’s rights.
Wiggin & Co. v. Ampton Invs., Inc., 66 F. Supp. 2d 549, 551–52 (S.D.N.Y. 1999).
The threshold question preceding an analysis of the aforementioned factors is
whether this action is parallel to or concurrent with the Connecticut Action. See Mazuma
Holding Corp. v. Bethke, 1 F. Supp. 3d 6, 20 (E.D.N.Y. 2014). “Federal and state proceedings
are ‘concurrent’ or ‘parallel’ for purposes of abstention when the two proceedings are essentially
the same; that is, there is an identity of parties, and the issues and relief sought are the same . . .
parallelism is achieved where there is a substantial likelihood that the state litigation will dispose
of all claims presented in the federal case.” Mazuma, 1 F. Supp. 3d at 20. Further, “[a]ny doubt
regarding the parallel nature of a federal and state action should be resolved in favor of the
exercise of federal jurisdiction.” Mazuma, 1 F. Supp. 3d at 20.
Here, the identities of the parties are substantially the same, but the issues and
relief sought in each action, while similar, are meaningfully different. As this Court has
previously discussed, the issues and relief sought in the Connecticut Action are limited to the
rights assigned under the loan documents. But this action deals solely with the issue of whether
the Gordons, as presumed debtors of AFF, have fraudulently placed their Assets out of AFF’s
reach for the purpose of avoiding enforcement of any judgment, including one from the
Connecticut Action. Put another way, even if the Connecticut Action is resolved in favor of
AFF, that result will not “dispose of all claims presented in the federal case.” Mazuma, 1 F.
Supp. 3d at 20.
Because this action is parallel to or concurrent with the Connecticut Action, this
Court need not analyze the factors espoused by Colorado River, and instead will uphold its
“virtually unflagging obligation” to exercise jurisdiction. See Sheerbonnet Ltd. v. American
Express Bank, Ltd., 17 F.3d 46, 49–50 (2d Cir. 1994) (declining to analyze Colorado River
factors where state and federal proceedings were not concurrent).
Order of Attachment
Prior to oral argument on the underlying motion to stay, AFF filed a pre-motion
conference letter seeking leave to file a motion for an order of attachment under CPLR §§
6201(1) and 6211 to seize the Gordons’ assets located in New York. Under New York law,
“[a]ttachment is recognized as an extraordinary remedy.” Intelligent Digital Systems, LLC v.
Visual Mgmt. Sys., Inc., 683 F. Supp. 2d 278, 287 (E.D.N.Y. 2010). “[R]elief is discretionary
and since attachment is a harsh remedy, the court must exercise care in its application.” Musket
Corp. v. PDVSA Petroleo S.A., 512 F. Supp. 2d 155, 160 (S.D.N.Y. 2007).
In view of this Court’s decision to exercise jurisdiction, AFF’s request for leave to
file a motion for an order of attachment is granted. The parties are directed to file their
respective briefs pursuant to the following schedule:
AFF shall file its motion by January 13, 2017;
Defendants shall file their response by January 27, 2017; and
AFF shall file its reply by February 3, 2017.
This Court will resolve the motion on submission.
For the foregoing reasons, in its informed discretion, this Court denies
Defendants’ motion to stay. However, if Defendants post a bond of $1,500,000 with the Clerk of
Court by January 11, 2017, this Court will stay this action pending the resolution of the
The Clerk of Court is directed to terminate the motions pending at ECF Nos. 22
Dated: December 29, 2016
New York, New York
WILLIAM H. PAULEY III
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