15‐2137‐cv
Mitchell v. Garrison Protective Servs., Inc.
In the
United States Court of Appeals
for the Second Circuit
AUGUST TERM 2015
No. 15‐2137‐cv
KEESHA MITCHELL, THERESA CAMPBELL,
SEANNETTE CAMPBELL, TANISHA SELBY,
Plaintiffs‐ Appellees,
v.
GARRISON PROTECTIVE SERVICES, INC.,
Interested Party‐Appellant,
LYONS PROFESSIONAL SERVICES, INC., RICHARD TRIM,
TERRY TATUM, CHRISTOPHER M. LYONS,
Defendants.
On Appeal from the United States District Court
for the Eastern District of New York
SUBMITTED: APRIL 4, 2016
DECIDED: APRIL 11, 2016
Before: KEARSE, CABRANES, and CHIN, Circuit Judges.
This case primarily involves a challenge by interested party‐
appellant Garrison Protective Services, Inc. (“Garrison”) to various
factual determinations made by the District Court (Brian M. Cogan,
Judge) in the course of granting a motion to enforce a judgment. We
conclude that the District Court did not err, much less clearly err, in
those determinations, and therefore AFFIRM the June 16, 2015
judgment of the District Court. We also conclude that the District
Court properly construed plaintiffs’ motion pursuant to New York
Civil Practice Law and Rules (“CPLR”) § 5225 as a plenary action
pursuant to New York’s substantive law of fraudulent transfers.
Chidi A. Eze, Brooklyn, NY, for Plaintiffs‐
Appellees.
Raymond A. Giusto, Law Offices of
Raymond A. Giusto, P.C., West Bay Shore,
NY, for Interested Party‐Appellant.
PER CURIAM:
Interested party‐appellant Garrison Protective Services, Inc.
(“Garrison”) appeals from a June 16, 2015 judgment of the District
2
Court, which followed a decision of June 8, 2015, granting a motion
by plaintiffs‐appellants Keesha Mitchell, Theresa Campbell,
Seannette Campbell, and Tanisha Selby (“plaintiffs”) to enforce a
judgment.
This case originated in a sex‐discrimination lawsuit by
plaintiffs against their former employer, Lyons Professional Services,
Inc. (“LPS”), a security guard company. We described the underlying
action in Mitchell v. Lyons Professional Services, Inc., 708 F.3d 463, 465–
66 (2d Cir. 2013) (“Mitchell I”). Plaintiffs obtained a default judgment
of $266,590, and then sought to enforce it pursuant to Rule 69(a) of
the Federal Rules of Civil Procedure. Rule 69(a)(1) provides, in
relevant part, that the “procedure on execution” in federal court
upon a money judgment “must accord with the procedure of the
state where the court is located.” Accordingly, because plaintiffs
sought to enforce a judgment in the Eastern District of New York,
they made their motion pursuant to New York state law—
specifically, New York Civil Practice Law and Rules (“CPLR”)
§ 5225.1
CPLR § 5225(b) provides in full:
1
(b) Property not in the possession of judgment debtor. Upon a
special proceeding commenced by the judgment creditor, against a
person in possession or custody of money or other personal
property in which the judgment debtor has an interest, or against a
person who is a transferee of money or other personal property
from the judgment debtor, where it is shown that the judgment
debtor is entitled to the possession of such property or that the
judgment creditorʹs rights to the property are superior to those of
3
As relevant here, plaintiffs alleged that LPS, acting through its
sole shareholder, Christopher Lyons (“Lyons”), fraudulently
transferred its assets to Garrison, another security guard company, in
violation of New York Debtor and Creditor Law (“DCL”) § 273‐a.2
Following a bench trial, the District Court found that Lyons had
entered into a “Consulting Agreement” with Garrison seven weeks
after entry of the default judgment. Mitchell v. Lyons Prof’l Servs., Inc.,
No. 09‐Civ.‐1587 (BMC), 2013 WL 4710431, at *1 (E.D.N.Y. Sept. 1,
2013) (“Mitchell II”). The District Court further found that “[a]s part
of that contract, Lyons agreed to attempt to steer accounts and clients
then serviced by LPS to Garrison, in exchange for a consulting fee
the transferee, the court shall require such person to pay the
money, or so much of it as is sufficient to satisfy the judgment, to
the judgment creditor and, if the amount to be so paid is
insufficient to satisfy the judgment, to deliver any other personal
property, or so much of it as is of sufficient value to satisfy the
judgment, to a designated sheriff. Costs of the proceeding shall not
be awarded against a person who did not dispute the judgment
debtorʹs interest or right to possession. Notice of the proceeding
shall also be served upon the judgment debtor in the same manner
as a summons or by registered or certified mail, return receipt
requested. The court may permit the judgment debtor to intervene
in the proceeding. The court may permit any adverse claimant to
intervene in the proceeding and may determine his rights in
accordance with section 5239.
DCL § 273‐a provides that “[e]very conveyance made without fair
2
consideration when the person making it is a defendant in an action for money
damages or a judgment in such an action has been docketed against him, is
fraudulent as to the plaintiff in that action without regard to the actual intent of
the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy
the judgment.”
4
based on the annual revenues that they generated.” Mitchell v.
Garrison Protective Servs., Inc., 579 F. App’x 18, 20 (2d Cir. 2014)
(“Mitchell III”). “LPS received nothing under the agreement,” and
after “Garrison took over the LPS accounts, LPS was essentially shut
down.” Id. (internal quotation marks omitted).
Based on these and other findings, the District Court
determined that the customer accounts in question—also known as
LPS’s “book of business”—were assets that LPS had fraudulently
transferred to Garrison, and that the value of those assets exceeded
the value of plaintiffs’ default judgment. Accordingly, the District
Court granted plaintiffs’ motion and entered a judgment against
Lyons and Garrison, jointly and severally, for $266,590. Id.
Garrison appealed. As relevant here, Garrison argued that
LPS’s book of business was not subject to enforcement pursuant to
CPLR § 5225(b). That section authorizes execution only against the
assets specified in CPLR § 5201(b), which provides in relevant part
that “[a] money judgment may be enforced against any property
which could be assigned or transferred.” LPS’s book of business was
not assignable or transferrable, Garrison argued, because it consisted
only of contracts that were terminable on thirty days’ notice.
We determined that the record was insufficient to rule
conclusively on Garrison’s argument, and we remanded the cause to
the District Court for further clarification. Mitchell III, 579 F. App’x at
23. In particular, we asked the District Court to consider whether the
book of business was assignable or transferrable: “If the book of
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business was, in fact, transferred from LPS to Garrison, then it is
property for the purposes of § 5201(b). If, however, the LPS clients
simply took their business elsewhere, it is not.” Id. We also asked the
District Court to consider whether the book of business “contained
other property, such as customer lists or other proprietary
information,” that might have been transferrable. Id.3
On remand, the District Court reframed our question. Because
plaintiffs brought their motion pursuant to CPLR § 5225(b), we had
treated this case as turning on whether LPS’s book of business was
transferrable property under CPLR § 5201(b). See Mitchell III, 579 F.
App’x at 21. But as the District Court rightly points out, and as we
recognized in Mitchell III, § 5225(b) creates a procedural mechanism by
which judgment creditors can enforce a money judgment, rather than
a new substantive right. See N. Mariana Islands v. Canadian Imperial
Bank of Commerce, 717 F.3d 266, 267 (2d Cir. 2013).
That mechanism, known as a “special proceeding,” has no
equivalent under the Federal Rules of Civil Procedure, which
“recognize only ‘one form of action—the civil action.’” See Vera v.
Republic of Cuba, 802 F.3d 242, 244 n.3 (2d Cir. 2015) (quoting Fed. R.
Civ. P. 2). It is unclear, therefore, “how a party in federal court in
New York satisfies the ‘special proceeding’ requirements of”
3 As our use of the word “contained” suggests, the term “book of
business” tends to conflate the physical list of accounts or clients with the value of
the accounts or clients themselves. Cf. Book of Business, Black’s Law Dictionary (10th
ed. 2014).
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§ 5225(b). See Vera, 802 F.3d at 244 n.3 (noting that we have never
addressed this question in a published opinion).
What is clear, however, is that a special proceeding under
§ 5225(b) is not the only mechanism for avoiding a fraudulent
transfer in New York. Rather, creditors may instead bring a plenary
action to avoid the transfer under New York substantive law. See, e.g.,
Friedman v. Friedman, 509 N.Y.S.2d 617, 618 (2d Dep’t 1986) (“[T]he
remedies provided in the Debtor and Creditor Law governing
fraudulent conveyances . . . are properly sought by way of a plenary
action . . . .”).
Because there is no such thing as a “special proceeding” in
federal court, we have afforded district courts in New York some
leeway in determining whether to construe a particular fraudulent‐
transfer suit as a plenary action or a special proceeding. For instance,
we have suggested that federal courts may construe an action
pursuant to DCL § 273‐a as “a plenary action based on New York
substantive law,” even if “the parties . . . assumed that [§] 5225(b)
provide[d] the procedural basis” for the suit. See HBE Leasing Corp. v.
Frank, 48 F.3d 623, 633 n.7 (2d Cir. 1995). Similarly, we have indicated
in dicta “that the filing requirements of a ‘special proceeding’ under
New York law need not be strictly adhered to as long as there is no
prejudice to the opposing party in giving notice of the claims and
framing the issues.” See Vera, 802 F.3d at 244 n.3.
These considerations lead us to conclude that although
plaintiffs initially described their motion as having been filed
7
pursuant to § 5225(b), the District Court properly construed it as a
plenary action. Several observations specific to this case reinforce our
conclusion. As the District Court noted, many aspects of the
proceeding below conformed more closely to the form of a plenary
action than that of a special proceeding.4 Moreover, Garrison has not
shown that it suffered any prejudice from the Court’s decision to
recast plaintiffs’ motion, nor has Garrison argued that a plenary
action is improper under New York law or Rule 69(a).5 We note,
finally, that plaintiffs assert a substantive right derived from the
DCL, not from CPLR Article 52 itself. Cf. Cruz v. TD Bank, N.A., 742
F.3d 520 (2d Cir. 2013) (noting that an Article 52 special proceeding is
the exclusive mechanism for relief for violations of the Exempt
Income Protection Act, which is codified in scattered sections of
CPLR Article 52).
4 For instance, the proceeding before the District Court involved more
extensive discovery than would normally be available in a special proceeding. See
Mitchell v. Lyons Prof’l Servs., Inc., 109 F. Supp. 3d 555, 566 (E.D.N.Y. 2015)
(“Mitchell IV”).
For instance, Garrison notes that plaintiffs’ motion “relied upon New
5
York Debtor‐Creditor Law[ ] §§ 273, 274, 276 and 278,” and that “[t]hose statutes
were the only applicable law before the Court and the basis upon which Garrison
defended the motion.” Garrison Br. 5. Similarly, while Garrison’s brief on appeal
discusses DCL § 273‐a and related DCL provisions in great detail, it does not cite
CPLR § 5201, much less argue that its definition of transferable property should
control here. We also note that § 273‐a was invoked early in this litigation, which
gave sufficient notice to allow Garrison to defend against arguments relevant to a
plenary action.
8
Accordingly, we agree with the District Court that plaintiffs’
claim depends solely on the definition of a fraudulent transfer under
DCL § 273‐a. To prevail under that section, “a plaintiff must establish
(1) that the conveyance was made without fair consideration; (2) 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 (3) that
the defendant has failed to satisfy the judgment.” Mitchell III, 579 F.
App’x at 21 (quoting Grace v. Bank Leumi Trust Co. of N.Y., 443 F.3d
180, 188 (2d Cir. 2006)). We agree with the District Court that
plaintiffs have met these requirements, and we reject as meritless
Garrison’s argument that the District Court erred (1) in finding that
LPS’s customer accounts were assets and in assigning them a value,
(2) in finding that LPS, rather than Lyons, had owned and transferred
the accounts to Garrison, and (3) in finding that the accounts had
been transferred without the payment of fair consideration.
Because this appeal follows a bench trial, “we review the
district court’s findings of fact for clear error and conclusions of law
and mixed questions de novo.” Connors v. Conn. Gen. Life Ins. Co., 272
F.3d 127, 135 (2d Cir. 2001). As we noted the last time this case was
before us, a company’s “book of business” may be an asset under
New York law. See 579 F. App’x at 22 (citing cases). The value of a
particular asset is a question of fact, as is whether a transfer occurred
and whether fair consideration was paid. See, e.g., Citizens Bank of
Clearwater v. Hunt, 927 F.2d 707, 711, 712 (2d Cir. 1991); Matter of
Estate of Corning, 488 N.Y.S.2d 477, 481 (3d Dep’t 1985). Here, the
District Court found that the book of business in question was in fact
9
transferred to Garrison, that the book of business was worth at least
$300,000, that it originally belonged to LPS (not Lyons), and that LPS
itself received no consideration for the transfer. We see nothing in the
District Court’s thorough opinion to suggest that it erred in making
these factual findings, much less clearly erred.6
CONCLUSION
We have reviewed all of the arguments raised by Garrison on
appeal and find them to be without merit. For the foregoing reasons,
we AFFIRM the June 16, 2015 judgment of the District Court.
6 Indeed, Garrison itself has described LPS’s customer account list as a
valuable “asset.” The Consulting Agreement between Garrison and Lyons
provided that “the names and addresses of Garrison’s customers . . . are valuable,
special and unique assets of the Garrison’s business, including the customers to be
procured by [Lyons].” App. 148 (emphasis supplied). The Consulting Agreement
further specified that Garrison expected to derive “annual revenues of at least
$1,379,622.00” from those accounts. App. 147.
10