Morgenthau v. Citisource, Inc.

Order, Supreme Court, New York County (Martin Stecher, J.), entered May 20, 1986, which, inter alia, denied the cross motion of the defendants-appellants to vacate ex parte attachments and granted plaintiffs motion to confirm the ex parte attachments in the sums of $795,759.34 against Citisource, Inc., $276,963.64 against Stanley Friedman, and $5,100 against Marvin B. Kaplan, and further issued an injunction restraining Marvin B. Kaplan from disposing of a $400,000 fund in a retirement trust account and appointed a temporary receiver for Citisource, Inc., modified, on the law, without costs, to vacate the attachments against Friedman and Kaplan and the injunction with respect to the retirement trust account, and the matter remanded for further proceedings in accordance herewith.

The cross appeal from so much of the order as limited the attachment of the Friedman assets to $276,963.64 instead of $413,551.31 is dismissed, without costs, as moot.

This is a civil action to enforce provisional remedies, pursuant to CPLR article 13-A, with respect to forfeiture of the proceeds of an alleged crime. It is akin to a similar RICO provision. (See, Note, Due Process in Preliminary Proceedings Under RICO and CCE, 93 Colum L Rev 2068, 2074 [Dec. 1983].) It provides (CPLR 1312 [3]) for sequestration if: "(a) there is a substantial probability that the claiming authority will prevail on the issue of forfeiture and that failure to enter the order may result in the property being destroyed, removed from the jurisdiction of the court, or otherwise be unavailable for forfeiture; and (b) the need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order may operate.”

The People argue that criminality is all but established. In some circumstances (not necessarily here), this could be a self-fulfilling prophecy if you deprive a defendant of assets for payment of counsel and subsistence.

"A statute should be construed, if possible, to uphold its constitutionality.” (McKinney’s Cons Laws of NY, Book 1, Statutes § 150 [c]; see, Califano v Yamasaki, 442 US 682, 693.)

At this stage, the defendants have only been indicted (CPLR 1311 [1] [a]), not convicted. While "the proceeds of a crime, the substituted proceeds of a crime or an instrumentality of a *354crime” (CPLR 1311 [1]) may be attached, there is no warrant for escrowing assets of a defendant not yet found criminal. Defendant Citisource, Inc., may be considered an instrumentality of a crime. It appears, as was said by Judge Stecher in his opinion at the I.A.S. Part: "There is no dispute that except for about $21,000 paid to Friedman, allegedly for legal services rendered, and approximately $8,000 paid to Kaplan, that the claiming authority has demonstrated no connection between the personal estates of either of these defendants and the alleged crimes.”

We modify to vacate their attachments and to remand for a hearing to determine, with respect to Friedman and Kaplan, the proceeds or substituted proceeds of the crime with which they are charged.

We vacate the injunction with respect to the retirement trust account. While there is a serious question as to whether, in any event, such account could be sequestered (see, with respect to ERISA, Ellis Natl. Bank v Irving Trust Co., 786 F2d 466 [2d Cir 1986]), there is no contention that this trust account had any connection with the alleged crime.

The cross appeal is to increase the attachment because of an error in the initial determination of the amount frozen at a bank. It was over $135,000 more than initially reported. In view of our conclusion, this aspect is moot. Concur — Kupferman, J. P., Fein, Rosenberger and Wallach, JJ.