Multibank, Inc. v. Access Global Capital, LLC

Filing 26

OPINION AND ORDER: re: 14 MOTION to Remand to State Court . filed by Multibank, Inc. For the reasons stated above, Petitioners motion to remand this case back to New York State Supreme Court is GRANTED. Petitioner's request for attorney's fees is DENIED. The Clerk of Court is directed to terminate any pending motions, adjourn all remaining dates, and close this case. (Signed by Judge Katherine Polk Failla on 12/4/2017) (js)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
MULTIBANK, INC.,
:
:
:
Petitioner,
:
v.
:
:
ACCESS GLOBAL CAPITAL LLC,
:
:
Respondent. :
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: December 4, 2017
______________

17 Civ. 3467 (KPF)
OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:
Petitioner Multibank, Inc. (“Multibank”) moves, pursuant to 28 U.S.C.
§ 1447(c), to remand this turnover proceeding to the New York State Supreme
Court, New York County. Multibank alleges that (i) judgment debtor Novel
Commodities S.A. (“Novel”) fraudulently conveyed assets to Respondent Access
Global Capital LLC (“Access”); (ii) the turnover proceeding that Multibank
brought in state court under New York Civil Practice Law and Rules (“CPLR”)
§ 5225(b), which proceeding Access removed to federal court, is ancillary to the
underlying litigation and therefore not removable; and (iii) Access lacked an
objectively reasonable basis for removal and, accordingly, should be required to
pay Multibank’s attorney’s fees.
Access concedes that ancillary proceedings generally are not removable
to federal court but contests Multibank’s characterizations of the asset transfer
from Novel to Access as fraudulent and of the turnover proceeding as ancillary
to the underlying litigation. Access instead asserts that Novel transferred

assets to Access pursuant to a settlement agreement that disposed of a breach
of contract claim that Access had brought against Novel in federal court.
Access argues that Multibank’s turnover proceeding is independent of the
underlying litigation and is subject to removal under 28 U.S.C. § 1332.
As detailed in the remainder of this Opinion, the Court finds that
Multibank has met its burden of pleading that Novel fraudulently conveyed
assets to Access; that the turnover proceeding against Access is ancillary to the
underlying litigation; and that the turnover proceeding is not removable to
federal court. Accordingly, the Court grants Multibank’s motion to remand.
Because Access’s removal action was not objectively unreasonable, however,
the Court denies Multibank’s request for attorney’s fees.
BACKGROUND 1
A.

Factual Background 2
1.

The Underlying Litigation: Multibank’s Suit Against Novel,
Access, James Besch, and Global Commodities LLC

On February 28, 2016, Multibank brought suit in New York State
Supreme Court, New York County, against Access, a New Jersey limited

1

For ease of reference, the Court refers to the Notice of Removal as “Rem. Notice”
(Dkt. #1); to Multibank’s verified petition as “VP” (Dkt. #1-1); to Multibank’s verified
amended complaint as “VAC” (Dkt. #1-2); to the transfer agreement between Novel and
Access as “Transf. Agmt.” (Dkt. #1-4); to Multibank’s motion to remand as “Pet. Br.”
(Dkt. #14); and to Access’s memorandum of law in opposition to the motion to remand
as “Resp. Opp.” (Dkt. #20).

2

The Court draws these facts primarily from the VP and VAC. The Court treats those
facts as true. See Fed. Ins. Co. v. Tyco Int’l Ltd., 422 F. Supp. 2d 357, 391 (S.D.N.Y.
2006) (“[On] a motion to remand, the district court accepts as true all relevant
allegations contained in the complaint and construes factual ambiguities in favor of the
plaintiff.” (citations omitted)). The Court also considered the declarations attached to
the Notice of Removal. See Arseneault v. Congoleum, No. 01 Civ. 10657 (LMM), 2002

2

liability company; Global Commodities LLC (“Global”), a Delaware limited
liability company; James Besch, Access’s sole manager and Global’s owner
(together with Access and Global, the “Besch Defendants”); and Novel, a Swiss
company trading in agricultural commodities. (VAC ¶¶ 10-13). The action
concerned a forfaiting transaction in which Multibank purchased a $4.9 million
account receivable from Novel in connection with a sale of beans to Cia
Arrocera Covadonga S.A. de C.V. (“Covadonga”), a Mexican agricultural
company. (VP ¶¶ 17-21). The relevant contract included a choice of law
provision stating that it was to be “governed by and construed in accordance
with the laws of the State of New York” and that the “[p]lace of jurisdiction is
New York, USA.” (VP ¶ 20). The contract gave Multibank the right to future
payments by Covadonga or, in the event of default by Covadonga, the proceeds
from a credit insurance policy that Novel had obtained with Access’s
assistance. (Pet. Br. 2-3).
The credit insurance policy covering Covadonga’s obligations, issued by
National Union Fire Insurance Company of Pittsburgh, Pennsylvania (a
subsidiary of American International Group, or “AIG”), explicitly prohibited
“round-trip” transactions — those where insureds purchase commodities from
one entity and then resell the commodities to that same entity. (VAC ¶ 61). On
February 11, 2011, Covadonga defaulted on its payment obligations to
Multibank. (Id. at ¶ 5). Shortly thereafter, AIG denied coverage under the

WL 472256, at *6 (S.D.N.Y. Mar. 26, 2002) (finding that courts may consider “material
outside of the pleadings” on a motion to remand).

3

relevant insurance policy. (Id.). At Multibank’s request, Novel and Access
commenced an arbitration proceeding in June 2012. (Id. at ¶ 94). On
November 18, 2015, the arbitration panel denied coverage to Access, Novel,
and Multibank, finding in relevant part that the sale of beans to Covadonga
constituted a round-trip transaction: Covadonga sold the beans to Global, who
sold them to Novel, who then resold them to Covadonga. (Id. at ¶¶ 116-17).
Multibank brought suit in state court against Novel and the Besch
Defendants. It asserted the following claims: (i) breach of contract against
Novel, Besch, and Access for failure to procure insurance coverage for
Covadonga’s default; (ii) breach of the implied covenant of good faith and fair
dealing against Novel, Besch, and Access for implicitly promising that
Covadonga was financially sound and able to honor its obligations; (iii) tortious
interference against Global for structuring a round-trip transaction; (iv) fraud
against Besch, Access, and Novel because they failed to inform Multibank that
Covadonga was in severe financial distress; (v) negligent misrepresentation
against Besch, Access, and Novel based on their failure to impart information
about Covadonga’s financial situation and their non-compliance with the AIG
insurance policy; and (vi) breach of fiduciary duty against Besch and Access
stemming from Besch’s failure to ensure compliance with the AIG policy.
(VAC ¶¶ 118-80)).
On July 28, 2016, after Novel failed to respond to the Complaint or
request an extension, Multibank filed for a default judgment against Novel.
(VP ¶¶ 32-33). On January 9, 2017, New York State Supreme Court Justice
4

Shirley Werner Kornreich granted Multibank’s motion for default judgment in
the amount of $6,015,234.68; judgment was entered on February 7, 2017. (Id.
at ¶¶ 34-37).
2.

The SDNY Litigation: Access’s Suit Against Novel

In what appears to the Court to be a related action, Access filed a breach
of contract claim in federal court on November 26, 2013, against Novel. See
Access Global Capital, LLC v. Novel Commodities, S.A., No. 13 Civ. 8492 (PGG).
(VP ¶ 42). Access asserted that it had served as Novel’s agent and arranged for
American financial institutions to issue credit insurance policies to cover
Novel’s commodities trades. (Id. at ¶ 44). In its capacity as agent, Access
purchased credit insurance policies on Novel’s behalf with the understanding,
based on an indemnification agreement that it had entered into with Novel,
that Novel would fully reimburse Access for those expenses. (Id. at ¶¶ 48-49).
Access alleged that Novel failed to reimburse Access for two insurance policy
premiums and related expenses. (Id. at ¶ 49). It sought damages totaling
$862,000. (Id.). Access and Novel settled the case and, on April 22, 2016, filed
a Stipulation of Discontinuance, which the court endorsed on April 25, 2016.
(Id. at ¶¶ 52-53). The parties did not disclose the terms of the settlement
agreement to the court.
3.

Novel’s Transfer of Assets to Access

Also on April 22, 2016 — which, as it happens, was two and a half
months after Multibank brought the underlying litigation and one month after
Novel’s default — Access and Novel entered into an Assignment of Claims and
5

Choses in Action through which Novel assigned to Access all claims it had
submitted in connection with “the commercial insolvency proceeding underway
against [Covadonga], which was filed with the Second District Court sitting in
Naucalpan de Juarez[.]” (Transf. Agmt. 1-2). The transferred claims pertained
to “over thirty unpaid promissory notes … corresponding to $12,108,710.39.”
(VP ¶ 69). As part of Covadonga’s restructuring process, Covadonga’s
creditors — of which Novel was one — agreed to collect just 10 percent of their
claims over a 7-year payment period. (Id. at ¶ 70). For this reason, Novel
owned claims for future payments of approximately $1.2 million to $1.3
million. (Id.). Through the Assignment, Novel transferred its right to those
claims to Access. (Transf. Agmt.).
The Assignment included two clauses stating that the transfer of assets
from Novel to Access was made without valuable consideration. Clause One
read, in relevant part:
Pursuant to this Assignment, the Assignor hereby
assigns to the Assignee without valuable consideration
each and every chose in action and obligation or
procedural burden arising out of or relating to the
claims or judicial proceedings brought by the
assignor … and the assignee hereby accepts such
assignment and assumes the corresponding rights and
obligations pursuant to the terms and conditions of this
agreement[.]
(Transf. Agmt. 2 (emphasis added)). Clause Four of the Assignment is entitled,
“Assignment Without Valuable Consideration,” and states: “[T]he Assignor may
not demand any consideration from the Assignee in connection with the
assignment of claims hereunder.” (Id. at 2-3).
6

4.

Multibank’s Turnover Proceeding Against Access

On April 27, 2017, Multibank filed a turnover proceeding pursuant to
CPLR § 5225(b) against Access in the Supreme Court of the State of New York,
County of New York, captioned Multibank, Inc. v. Access Global Capital, LLC,
Index No. 652290/2017. Through the proceeding, Multibank sought “an order
directing respondent, Access … to turn over and deliver to Multibank and/or
the Sheriff all funds, property and assets belonging judgment debtor,
Novel … that were fraudulently conveyed to and are now in Access’s possession
and custody.” (VP ¶ 1).
Access argued that “[t]he Assignment needs to be set aside as a
constructive and intentional fraudulent conveyance in violation of New York’s
Debtor & Creditor Law.” (VAC ¶ 88). In support of its claim, Access noted that
(i) the Besch Defendants had not been forthcoming in their responses to
post-judgment disclosure requests, and in particular “did not disclose that
Novel and Access had executed a stand-alone Assignment to transfer [the
Covadonga claims] on April 22, 2016 and that the Assignment expressly
provided that the transfer was made for no consideration” (id. at ¶ 76); (ii) the
Besch Defendants “would not disclose the precise terms of [their] settlement”
(id. at ¶ 77); (iii) the Assignment was dated two and a half months after
Multibank brought suit against the Defendants and one month after Novel
defaulted in the underlying litigation (id. at ¶ 78); (iv) the Assignment was made
when Novel was in financial distress (id. at ¶ 80); (v) the Assignment explicitly
and repeatedly stated that the transfer of assets was for no consideration (id. at
7

¶¶ 82, 86); and (vi) the Assignment “was made between two entities … that
enjoyed a longstanding relationship” (id. at ¶ 87). Multibank concluded:
“Novel’s [Covadonga] Claims, including any payments made and the rights to
any future payments, as well as any documents necessary to execute payment
or delivery, should be turned over and delivered to Multibank and/or the
Sheriff.” (Id. at ¶ 89).
B.

Procedural Background
On May 9, 2017, Access filed a Notice of Removal pursuant to 28 U.S.C.

§§ 1332, 1441, and 1446 and Local Civil Rule 81.1. (Rem. Notice). Access
asserted that removal was timely because it had filed the notice of removal
within 30 days of its receipt of the Notice of Petition (id. at ¶ 4), and that venue
was proper because the Supreme Court of the State of New York, County of
New York, is located within the Southern District of New York (id. at ¶ 7).
Access claimed that, under 28 U.S.C. §§ 1332(a) and 1441(a), the Court could
exercise diversity jurisdiction because (i) Multibank is a Panamanian
corporation with its principal place of business in Panama while Access is a
limited liability corporation organized under the laws of the State of New Jersey
with its principal place of business in New Jersey (id. at ¶¶ 9-10); (ii) the
amount in controversy — estimated between $1.2 million and $1.3 million —
exceeds the sum of $75,000 (VP ¶ 5); and (iii) Respondent Access is not a
citizen of the State in which the action was brought (Rem. Notice ¶ 12).
On May 26, 2017, Multibank filed a motion to remand the case to state
court and a memorandum of law in support thereof. (Dkt. #14, 15). On
8

June 16, 2017, Access filed an affirmation and memorandum of law in
opposition to Multibank’s motion to remand. (Dkt. #19, 20). On June 22,
2017, Multibank filed a reply memorandum of law in further support of its
motion to remand. (Dkt. #21).
DISCUSSION
A.

Applicable Law
1.

Removal of Ancillary Proceedings

Under 28 U.S.C. § 1441(a), a defendant may remove “any civil action
brought in a State court of which the district courts of the United States have
original jurisdiction.” For removal to be proper, the district court must exercise
diversity jurisdiction or federal question jurisdiction. Caterpillar Inc. v.
Williams, 482 U.S. 386 (1987). As relevant here, federal courts have diversity
jurisdiction over cases between citizens of a State and citizens of a foreign state
where the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a). But
because federal courts are courts of limited jurisdiction, they “construe the
removal statute narrowly, resolving any doubts against removability.” Somlyo
v. J. Lu-Rob Enters., Inc., 932 F.2d 1043, 1046 (2d Cir. 1991).
Courts in this Circuit have long held that parties may not remove cases
that are ancillary to civil actions brought in state court. To be removable, an
action must be independent from the underlying litigation. See, e.g., Fox
& Horan v. Beiny, No. 92 Civ. 2067 (LJF), 1992 WL 168261, at *1 (S.D.N.Y.
June 29, 1992) (“[W]here the action sought to be removed first arose as a
motion … in a related proceeding, rather than as a separate complaint, the
9

party seeking removal must prove the existence of an action separate and
independent from the related proceeding.”). As one court has explained:
To be removable[, a claim] must be … a separate and
independent cause of action … . [P]roceedings which
are ancillary to an action pending in a state court
cannot be removed, since it would be both judicially
unseemly and uneconomical to have a supplemental
proceeding … in a federal court when the principal
claim is being litigated in the state court.
Nowell v. Nowell, 272 F. Supp. 298, 300-01 (D. Conn. 1967). Similarly, in
People of the State of New York v. National Cancer Hospital of America, the court
rejected jurisdiction where “[t]he present application is merely ancillary [to the
underlying litigation].” 153 F. Supp. 484, 485 (S.D.N.Y. 1956).
Those decisions align with the United States Supreme Court’s decision in
First National Bank v. Turnbull & Co., 83 U.S. 190 (1872), a case involving a
post-judgment claim by a creditor against a third party. There, the Court
noted:
[W]e think [the proceeding] was merely auxiliary to the
original action, a graft upon it, and not an independent
and separate litigation. A judgment had been recovered
in the original suit, final process was levied upon the
property in question to satisfy it … and this proceeding,
authorized by the laws of Virginia, was resorted to [so as]
to settle the question whether the property ought to be
so applied. The contest could not have arisen but for the
judgment and execution, and the satisfaction of the
former would at once have extinguished the controversy
between the parties. The proceeding was necessarily
instituted in the court where the judgment was
rendered …. It was intended to enable the court, the
plaintiff in the original action, and the claimant, to reach
the final and proper result by a process at once speedy,
informal, and inexpensive.
Id. at 195.
10

2.

What Constitutes an Ancillary Cause of Action

Multibank’s motion to remand implicates the question of how courts are
to determine whether a cause of action is ancillary to underlying litigation. The
Second Circuit has developed a test to determine whether garnishments or
turnover proceedings are ancillary, on the one hand, or constitute independent
actions, on the other. In Epperson v. Entertainment Express Inc., the Court
noted that the question of ancillary jurisdiction hinges on whether the action is
one to “to collect a judgment” or “to establish liability on the part of a third
party.” 242 F.3d 100, 104 (2d Cir. 2001). The former is ancillary; the latter,
independent. Courts in this District have long employed the same test.
Indeed, in Finn v. Rotating Valve Corp., the court held that where an action “is
merely one to enforce [a judgment] in the principal suit,” the action is “auxiliary
and incidental to the main suit.” 25 F. Supp. 206, 207 (S.D.N.Y. 1938).
Other Circuits have adopted substantially similar tests to distinguish
between ancillary and independent actions. The Seventh Circuit has noted
that “where the supplemental proceeding is not merely a mode of execution or
relief, but where it, in fact, involves an independent controversy with some new
and different party, it may be removed into the federal court.” Travelers Prop.
Cas. v. Good, 689 F.3d 714, 724 (7th Cir. 2012) (internal quotation marks
omitted). The Eleventh Circuit has held that “actions are not ancillary and are
instead independent civil actions when they are in effect suits involving a new
party litigating the existence of a new liability.” Jackson-Platts v. Gen. Elec.
Capital Corp., 727 F.3d 1127, 1134 (11th Cir. 2013) (internal quotations marks
11

omitted). Under each test, the operative question is whether the action seeks
to enforce an existing judgment, on the one hand, or to establish liability on a
new party, on the other.
3.

Fraudulent Conveyances Subject to CPLR § 5225(b)

Under CPLR § 5225(b), 3 a judgment creditor may “commence a
proceeding to order a third party to turn over the judgment debtors’ assets.”
Tire Eng’g & Distribution LLC v. Bank of China Ltd., 740 F.3d 108, 110 (2d Cir.
2014). “The first section of Article 52 [of the CPLR] describes the assets that
New York law has made subject to enforcement, and thus available to
judgment creditors” seeking to enforce a judgment under CPLR § 5225(b).
Alliance Bond Fund, Inc. v. Grupo Mexicano De Desarrollo, S.A., 190 F.3d 16, 20
(2d Cir. 1999). That section — CPLR § 5201(b) — provides that a judgment
“may be enforced against any property which could be assigned or transferred,
whether it consists of a present or future right or interest and whether or not it
is vested, unless it is exempt from application to the satisfaction of the
judgment.” CPLR § 5201(b).
In contrast to a plenary action, CPLR § 5225(b) provides “a procedural
mechanism for attacking a fraudulent conveyance by a judgment debtor,
colloquially known as ‘turnover proceedings.’” Mitchell v. Lyons Prof. Servs.,

3

The Court applies New York law in assessing Multibank’s motion to remand. Neither
party has addressed the choice of law issue in its submissions. This may be because
the relevant contract clearly establishes that New York law applies. Indeed, the Finance
Facility Contract no. 3093, which Multibank and Novel executed on October 22, 2010,
and upon which Multibank bases its claims against Novel in the underlying litigation,
states that the contract “is governed by and construed in accordance with the laws of
the State of New York.” (Dkt. #1-1 at ¶ 5.5).

12

Inc., 109 F. Supp. 3d 555, 563 (E.D.N.Y. 2015). As the Second Circuit has
stated, CPLR § 5225(b) “creates a procedural mechanism by which judgment
creditors can enforce a money judgment, rather than a new substantive right.”
Mitchell v. Garrison Protective Servs., Inc., 819 F.3d 636, 640 (2d Cir. 2016)
(internal citation omitted). The procedure allows a judgment creditor to set
aside fraudulent transfers by the judgment debtor. “[T]he mere pendency of a
money action against a person makes any gratuitous transfer of property by
that person fraudulent against the plaintiff should the plaintiff win the case.”
David D. Siegel, Practice Commentaries, CPLR 5225:7 (McKinney 1997).
To prevail on a claim of fraudulent conveyance, a plaintiff “must
establish [i] that the conveyance was made without fair consideration; [ii] that
the conveyor is a defendant in an action for money damages or that a judgment
in such action has been docketed against him; and [iii] that the defendant has
failed to satisfy the judgment.” Grace v. Bank Leumi Tr. Co. of N.Y., 443 F.3d
180, 188 (2d Cir. 2006). Before a party may attack a conveyance as
fraudulent, the party must have the status of creditor. See, e.g., Martes
v. USLIFE Corp., 927 F. Supp. 146, 148 (S.D.N.Y. 1996) (applying New York
law) (concluding that plaintiff lacked standing to complain that a corporate
parent’s sale of stock involved a fraudulent conveyance, since the only entity
that transferred anything was the parent and the plaintiff was not a creditor of
the parent). A party need not have the status of creditor at the time the
conveyance was made. Rather, “[a] conveyance made or obligation incurred
without fair consideration, when the person making the conveyance or entering
13

into the obligation intends or believes that he or she will incur debts beyond
his or her ability to pay as they mature, is fraudulent as to both present and
future creditors[.]” 30 N.Y. Jur. 2d Creditors’ Rights § 420. Likewise, “[a]
conveyance made with actual intent to hinder, delay, or defraud creditors is
fraudulent as to both present and future creditors.” Id.
4.

Criteria for Awarding Attorney’s Fees on a Motion to Remand

Under 28 U.S.C. § 1447(c), “[a]n order remanding the case may require
payment of just costs and any actual expenses, including attorney fees,
incurred as a result of the removal.” 28 U.S.C. § 1447(c). “Absent unusual
circumstances, courts may award attorney’s fees under § 1447(c) only where
the removing party lacked an objectively reasonable basis for seeking removal.
Conversely, when an objectively reasonable basis exists, fees should be
denied.” Martin v. Franklin Cap. Corp., 546 U.S. 132, 141 (2005); see also
Calabro v. Aniqa Halal Live Poultry Corp., 650 F.3d 163, 166 (2d Cir. 2011).
The Second Circuit has held that a court should deny a request for attorney’s
fees unless a defendant’s grounds for removal are clearly barred by established
federal law. As the Court has stated: “[I]f clearly established law did not
foreclose a defendant’s basis for removal, then a district court should not
award attorneys’ fees, and district court decisions … do not render the law
clearly established.” Williams v. Int’l Gun-A-Rama, 416 F. App’x 97, 99 (2d Cir.
2011) (summary order) (internal quotation marks and internal alteration
omitted).

14

B.

Analysis
In its submissions to the Court, Access concedes that actions under

CPLR § 5225(b) are ancillary to the underlying litigation and that removal of
such actions are generally improper. Access instead grounds its opposition to
Multibank’s motion to remand in the view that the transfer of assets from Novel
to Access was not a fraudulent conveyance, but instead part of a bona fide
settlement agreement. Despite Access’s decision not to contest Multibank’s
claim that turnover proceedings are ancillary and therefore not removable, for
sake of completeness this Court analyzes each issue in turn.
1.

Multibank Has Met Its Burden in Pleading That Novel’s
Transfer of Assets to Access Constituted a Fraudulent
Conveyance

On a motion to remand, the Court “accepts as true all relevant
allegations contained in the complaint and construes factual ambiguities in
favor of the plaintiff.” Fed. Ins. Co. v. Tyco Int’l Ltd., 422 F. Supp. 2d 357, 391
(S.D.N.Y. 2006) (internal quotation marks omitted). Where the plaintiff’s
motion to remand rests on a claim of fraudulent conveyance, the plaintiff meets
its burden by showing that the conveyance was made without fair
consideration, that a judgment has been docketed against the conveyor, and
that the defendant has failed to satisfy the judgment. Grace, 443 F.3d at 188.
Multibank’s allegations suffice on all three fronts.
The Assignment Agreement expressly states that the transfer of assets
from Novel to Access was made without fair consideration. The first clause of
the agreement reads, in relevant part: “[T]he Assignor hereby assigns to the
15

Assignee without valuable consideration each and every chose in action and
obligation or procedural burden arising out of or relating to the claims or
judicial proceedings brought by the assignor[.]” (Transf. Agmt. 2 (emphasis
added)). The fourth clause is entitled “Assignment Without Valuable
Consideration.” (Id.). It states: “The Assignor hereby assigns and the Assignee
hereby accepts, the claims and related choses in action without valuable
consideration in favor of the Assignee.” (Id. (emphasis added)). The clause goes
on to explain that “the Assignor may not demand any consideration from the
Assignee in connection with the assignment of claims hereunder.” (Id. at 2-3).
As Multibank notes, other “badges of fraud” support the contention that
Novel’s transfer of assets to Access was fraudulent. In Wall Street Associates
v. Brodsky, 684 N.Y.S.2d 244, 247-48 (1st Dep’t 1999), the Appellate Division
explained that “badges of fraud” include: “a close relationship between the
parties to the alleged fraudulent transaction; a questionable transfer not in the
usual course of business; inadequacy of the consideration; the transferor’s
knowledge of the creditor’s claim and the inability to pay it; and retention of
control of the property by the transferor after the conveyance.” Here, as
Multibank alleges, the asset transfer was not conducted in the usual course of
business and instead came at a time when Novel was under financial distress.
In addition, Novel was aware both of Multibank’s claim against it and that
Novel would be unable to satisfy a potential judgment against it. The Besch
Defendants were also less than forthcoming in answering questions about the
litigation between Access and Novel and any settlement claims relating thereto.
16

Finally, Novel and Access shared a close business relationship, with Access
serving as a financial advisor and agent to Novel. Under New York law, these
“badges of fraud” militate strongly in favor of a finding of fraudulent
conveyance. That is particularly true when — as in the instant action — the
express terms of the assignment agreement indicate that assets were
transferred for no consideration.
The second and third requirements for a prima facie showing of
fraudulent conveyance — that a judgment has been docketed against the
conveyor, and that the defendant has failed to satisfy the judgment — are
easily met here. It is undisputed that when Novel conveyed the relevant assets
to Access, both Novel and Access were defendants in an action in which Novel
had defaulted. It is similarly undisputed that a default judgment was entered
against Novel in the New York action on January 30, 2017, and that the
judgment remains unsatisfied.
Access seeks to persuade the Court that the asset transfer was not a
fraudulent conveyance, but instead was part of a settlement agreement that
disposed of Access’s breach of contract action against Novel in federal court.
Access claims that the language in the Assignment Agreement indicating that
Novel transferred assets for no consideration does not reflect the parties’ intent
and was only included to ensure that the agreement “would be accepted by the
Mexican bankruptcy court.” (Resp. Opp. ¶ 19). In other words, Access asks
this Court to look beyond the plain language of the transfer agreement and to
conclude — in contravention of that language and with no supporting
17

documentation — that the transfer of assets constituted part of a settlement
agreement.
This the Court cannot do. Under New York law, “[t]he cardinal principle
for the construction and interpretation of [] contracts … is that the intentions
of the parties should control.” SR Intern. Bus. Ins. Co. v. World Trade Ctr.
Props., LLC, 467 F.3d 107, 125 (2d Cir. 2006) (internal quotation marks
omitted). The parties’ intent, in turn, is ascertained according to the plain
language of the parties’ agreement. See, e.g., Greenfield v. Philles Records, Inc.,
98 N.Y.2d 562, 569 (2002) (“The best evidence of what parties to a written
agreement intend is what they say in their writing.” (internal quotation marks
omitted)). A court will only look beyond the four corners of the agreement if it
must do so to resolve ambiguities. See, e.g., Muze, Inc. v. Digital On-Demand,
Inc., 123 F. Supp. 2d 118, 128 n.9 (S.D.N.Y. 2000). Here, the plain language of
the contract is unambiguous: It repeatedly states, in no uncertain terms, that
Novel transferred assets to Access for no consideration. For this reason, the
Court declines Access’s suggestion that it should look beyond the four corners
of the agreement. Even if the Court did, it would not credit Access’s suggestion
that the assets were transferred as part of a settlement agreement, where
Access has provided no documentary evidence to support that claim.
2.

The Turnover Proceeding Is Ancillary to the Plenary Action
and Therefore Not Removable

The Court next assesses whether Multibank’s turnover proceeding
against Access constitutes an ancillary claim. Courts in this District that have
addressed the issue have consistently held that actions to collect judgments
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constitute ancillary proceedings. For example, in Finn, 25 F. Supp. at 206, the
court held that the garnishment proceeding at issue, which was similar to the
one here, was ancillary to the underlying action. It noted that “[t]he action
which was removed to this court is merely one to enforce the attachment taken
out in the principal suit” and that “[t]he suit in aid of attachment is merely
auxiliary and incidental to the main suit.” Id. at 207. More recently, sister
courts in this District have specifically found that turnover proceedings are
ancillary to underlying litigation. See, e.g., Fox v. Koplik (In re Perry H. Koplik &
Sons, Inc.), No. 15 Civ. 4002 (KBF), 2015 WL 4601134, at *3 (S.D.N.Y. July 31,
2015) (finding fraudulent conveyance claim ancillary to the underlying
litigation); UFCW Local 174 Commercial Health Care Fund v. Homestead
Meadows Foods Corp., 425 F. Supp. 2d 392 (S.D.N.Y. 2005) (same).
Like its sister courts, this Court finds that a turnover proceeding — here,
by Multibank against Access — is ancillary to the underlying litigation.
Multibank seeks merely to enforce an existing judgment against Novel.
Nothing in Multibank’s submissions suggests that it seeks to establish liability
on a new party. That Multibank chose to bring this action under CPLR
§ 5225(b) is itself significant and further supports the conclusion that the
proceeding is ancillary. As the Second Circuit has noted, CPLR § 5225(b)
“creates a procedural mechanism by which judgment creditors can enforce a
money judgment, rather than a new substantive right.” Garrison Protective
Servs., Inc., 819 F.3d at 640 (internal citation omitted). Such a proceeding
does not afford Multibank the ability to impose new liability on third parties,
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even if it wished to do so. On this record, the Court is unable to find — as
Access urges it to do — that Multibank’s turnover proceeding is independent
from the underlying litigation.
Because Multibank’s turnover proceeding against Access is ancillary to
the underlying state court action, removal is improper. This proceeding is part
of the same controversy that was at the heart of the underlying state
proceeding. In the underlying action, Multibank won a default judgment
against Novel; here, it seeks merely to collect on that judgment. This is not an
“independent controversy” and, for that reason, must be remanded to state
court. See, e.g., Nat. Cancer Hosp. of Am., 153 F. Supp. at 485 (finding no
jurisdiction where “[t]he present application is merely ancillary [to the
underlying litigation]”); Nowell, 272 F. Supp. at 300 (“[t]o be removable[, a
claim] must be … a separate and independent cause of action”). 4
3.

Respondent Had a Reasonable Basis for Removal, and
Attorney’s Fees Are Therefore Unwarranted

Courts may only award attorney’s fees on a motion to remand where the
removing party “lacked an objectively reasonable basis for seeking removal.”
Martin, 546 U.S. at 141. The Second Circuit has framed the operative question
as whether the defendant’s grounds for removal were clearly barred by federal

4

Access argues — without citing any cases or other authority on point — that settlement
funds may not be targeted in turnover proceedings under CPLR § 5225(b). New York
courts have, in fact, held to the contrary. See, e.g., Centerpointe Corp. Park P’ship 350
v. MONY, 946 N.Y.S.2d 354, 355-56 (4th Dep’t 2012) (judgment creditor entitled to
turnover of proceeds of judgment debtor’s settlement with respondent); Bartels &
Feureisen, LLP v. Geico Ins. Agency, Inc., 15 N.Y.S.3d 410, 411 (2d Dep’t 2015) (same).
This Court sees no reason to depart from the New York courts’ rulings, particularly
where Access has produced no support for its assertion that settlement funds are not
subject to turnover proceedings.

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law. Williams, 416 F. App’x at 99. Here, the Court finds that Access had a
reasonable basis for removal, such that an award of attorney’s fees would be
improper.
There is no question that the present action meets the requirements for
removal and diversity jurisdiction under 28 U.S.C. §§ 1332 and 1441. There is
complete diversity among the parties, the amount in controversy exceeds
$75,000, and Access does not reside in New York. Multibank’s basis for
remand lies in its claim that turnover proceedings under CPLR § 5225(b) are
ancillary to the underlying litigation. Access has articulated a plausible — if
ultimately unpersuasive — argument that Novel’s transfer of assets to Access
was not a fraudulent conveyance and, as such, not subject to CPLR § 5225(b).
The fact that Access has failed to substantiate that claim does not mean that
Access lacked a reasonable basis for it.
More to the point, this Court cannot find — as it would need to do under
controlling Second Circuit precedent, Williams, 416 F. App’x at 99 — that
Respondent’s grounds for removal were clearly barred by federal law. The
distinction between ancillary suits and independent actions does not lend itself
to easily-applied formulas. And although the Second Circuit has set forth a
general test to distinguish ancillary claims from independent actions, it has yet
to address the specific question presented here — whether turnover
proceedings under CPLR § 5225(b) are ancillary to the underlying state court
litigation.

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For these reasons, on the record before it, the Court cannot hold that
Access’s removal of the turnover proceeding was objectively unreasonable or
clearly barred by federal law. The Court therefore denies Petitioner’s request
for attorney’s fees.
CONCLUSION
For the reasons stated above, Petitioner’s motion to remand this case
back to New York State Supreme Court is GRANTED. Petitioner’s request for
attorney’s fees is DENIED. The Clerk of Court is directed to terminate any
pending motions, adjourn all remaining dates, and close this case.
SO ORDERED.
Dated:

December 4, 2017
New York, New York

__________________________________
KATHERINE POLK FAILLA
United States District Judge

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