16-3995-cv
CSX Transp., Inc. v. Island Rail Terminal, Inc. et al
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2016
(Argued: September 25, 2017 Decided: January 10, 2018)
Docket No. 16‐3995‐cv
CSX TRANSPORTATION, INC.,
Plaintiff‐Counter‐Defendant‐Appellee,
v.
ISLAND RAIL TERMINAL, INC., MAGGIO SANITATION SERVICE, INC., EASTERN
RESOURCE RECYCLING, INC.,
Appellants,
EMJAY ENVIRONMENTAL RECYCLING, LTD.,
Defendant‐Counter‐Claimant.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
Before:
LIVINGSTON, LYNCH, and CHIN, Circuit Judges.
Appeal from a judgment and post‐judgment order of the United
States District Court for the Eastern District of New York (Seybert, J.), directing
third‐party garnishees to satisfy a creditorʹs judgment against a judgment debtor
as damages for the garnisheesʹ violation of certain restraining notices.
AFFIRMED IN PART AND VACATED AND REMANDED IN PART.
JEFFREY D. COHEN, Keenan Cohen & Merrick P.C.,
Philadelphia, Pennyslvania, for Plaintiff‐Counter‐
Defendant‐Appellee.
JARRETT M. BEHAR, Sinnreich Kosakoff & Messina LLP,
Central Islip, New York, for Appellants.
CHIN, Circuit Judge:
Third‐party garnishees appeal from a judgment of the district court
(Seybert, J.) directing them to turn over $1,056,444.15 to a judgment creditor to
satisfy a judgment against a judgment debtor. The district court awarded the
sum as damages for the garnisheesʹ violation of certain restraining notices. The
garnishees also appeal from the district courtʹs post‐judgment order denying
their motion to alter the judgment.
On appeal, the garnishees principally argue that (1) plaintiff was
required to commence a special proceeding against garnishees under New York
‐ 2 ‐
Civil Practice Law and Rules (ʺC.P.L.R.ʺ) article 52, instead of proceeding by
motion; (2) garnishees did not violate the restraining notices under C.P.L.R.
§ 5222(b); and (3) the district court erred in awarding damages and doing so
without holding a hearing.
We affirm in part and vacate and remand in part.
BACKGROUND
Plaintiff‐counter‐defendant‐appellee CSX Transportation, Inc.
(ʺCSXʺ) is an interstate rail carrier. Defendant‐counter‐claimant Emjay
Environmental Recycling, Ltd. (ʺEmjayʺ) operates a waste transfer station. In
2012, appellant Island Rail Terminal, Inc. (ʺIsland Railʺ) purchased ʺsubstantially
allʺ of Emjayʹs assets for $3,572,011.52 pursuant to an Asset Purchase Agreement
and Amended Promissory Note. Appellants Maggio Sanitation Services, Inc.
(ʺMaggioʺ) and Eastern Resource Recycling, Inc. (ʺEastern Resourceʺ) guaranteed
Island Railʹs payment and performance obligations.
On September 25, 2014, the district court entered an amended
judgment for CSX and against Emjay in this breach of contract suit for
$1,056,444.15. We affirmed the judgment. CSX Transp., Inc. v. Emjay Envtl.
Recycling, Ltd., 629 F. Appʹx 147 (2d Cir. 2015) (summary order). By this point, at
‐ 3 ‐
least three other creditors already held judgments against Emjay (based on
unrelated claims): Environmental Logistics Services (ʺELSʺ) for $1,238,807.03,
Sullivan Gardner for $294,318.82, and Matthew Crescimanni (ʺCrescimanniʺ) for
$402,013.83.
On November 12, 2014, CSX served third‐party garnishees Island
Rail, Maggio, and Eastern Resource (collectively, ʺGarnisheesʺ) with restraining
notices (the ʺRestraining Noticesʺ) to aid its judgment entered in this case below.1
The Restraining Notices prohibited Garnishees from ʺmak[ing] or suffer[ing] any
sale, assignment or transfer of, or any interference withʺ and from ʺotherwise
dispos[ing] of any [] debtʺ owed to Emjay, except as otherwise provided. N.Y.
C.P.L.R. § 5222(b); see also App. 99, 107, 115 (restraining notices). By this point, at
1 ʺA ʹgarnisheeʹ is a person who owes a debt to a judgment debtor, or a person
other than the judgment debtor who has property in his possession or custody in which
a judgment debtor has an interest.ʺ N.Y. C.P.L.R. § 105(i). A restraining notice is an
enforcement device used in aid of an existing judgment that bears the caption of the
underlying action. N.Y. C.P.L.R. § 5222, cmt. 5222:1 (practice commentary). It may be
issued by the judgment creditorʹs attorney against the judgment debtor or a third party.
Id. A restraining notice served upon a garnishee ʺserves as a type of injunction
prohibiting the transfer of the judgment debtorʹs property.ʺ Aspen Indus., Inc. v. Marine
Midland Bank, 52 N.Y.2d 575, 579 (1981); see also N.Y. C.P.L.R. § 5222, cmt. 5222:1
(practice commentary) (ʺWith ordinary money judgments, it is usually the attorney who
issues the restraining notice, acting as an officer of the court in so doing. In that
instance, the restraint results without a court order or any other preliminary judicial
authorization. It is a rare example of an injunction, complete with contempt
punishment as its sanction, not embodied in a court order or judgment.ʺ).
‐ 4 ‐
least two creditors, Crescimanni and ELS, had already served writs of execution
for their judgments against Emjay.2
Approximately three months later, on February 26, 2015, the New
York State Supreme Court, Suffolk County, approved a consolidated $2.2 million
settlement (the ʺState Settlement Orderʺ) in two unrelated actions involving
Emjay, Garnishees, and several of Emjayʹs other creditors, including ELS,
Sullivan Gardner, and Crescimanni.3 CSX, after joining early settlement talks at
the invitation of the parties in the state court proceedings, ultimately declined to
participate. Under the terms of the settlement, Garnishees settled the claims
asserted by Emjay for $2.2 million, which was then distributed to creditors ELS,
Sullivan Gardner, and Crescimanni to satisfy their judgments against Emjay.
The state court ʺso orderedʺ the settlement. App. 154.
On June 12, 2015, CSX filed a motion for a turnover order to compel
Garnishees to satisfy CSXʹs September 25, 2014 amended judgment against
2 Garnishees belatedly corrected the date of ELSʹs writ of execution from March 10,
2015 to November 5, 2014 in a letter motion to alter the judgment. Letter Mot. to Alter J.
1, CSX Transp. v. Island Rail Terminal, Inc., No. 12‐cv‐1865 (E.D.N.Y. Nov. 4, 2016), ECF
No. 100. As discussed further below, the district court declined in its discretion to
consider the new fact. Elec. Order Den. Letter Mot. to Alter J., CSX Transp. v. Island Rail
Terminal, Inc., No. 12‐cv‐1865 (E.D.N.Y. Dec. 1, 2016).
3 In the first of those actions, Emjay sued Garnishees to recover the $3.5 million
purchase price from the asset sale, and Garnishees raised various counter‐claims. In the
second, ELS, Sullivan Gardner, and Crescimanni sued Emjay for unpaid judgments.
‐ 5 ‐
Emjay, as entered by the district court in this case. In its motion, CSX also
argued, alternatively, that Garnishees were liable to CSX for damages because
entering into the state settlement violated the Restraining Notices. While the
motion was pending, on June 24, 2015, Garnishees issued a check to CSX for
$8,015.03 ‐‐ the ʺremainder of the proceeds of the settlement of the [Garnisheesʹ]
debt to Emjay pursuant to theʺ State Settlement Order. App. 230‐31. The
remaining settlement payments to ELS, Sullivan Gardner and Crescimanni were
paid out before this check was issued, but the dates of these payments do not
appear to be included in the record. On or about July 9, 2015, CSX served writs
of execution for its judgment.
On February 25, 2016, the district court granted CSXʹs motion for a
turnover order and directed Garnishees to turn over $1,056,444.15 to CSX. The
district court also held that ʺto the extent that the Garnishees already made
disbursements under the [State] Settlement Order, CSX is entitled to damages in
the amount of the Judgment: $1,056,444.15.ʺ Sp. App. 12. As to damages, the
court explained that the Garnishees ʺacted negligently by ignoring the
Restraining Notices because only an order from this Court could alter the
Garnisheesʹ obligations.ʺ Sp. App. 13. If Garnishees had not violated the
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Restraining Notices by paying out the $2.2 million state settlement, the district
court concluded, the Garnishees would still have had $1,056,444.15 available, the
amount of CSXʹs unsatisfied judgment.
On March 2, 2016, CSX moved the court to enter judgment against
Garnishees on the ground that Garnishees already disbursed funds pursuant to
the state settlement. On March 10, 2016, Garnishees moved for reconsideration
of the district courtʹs February 25, 2016 turnover order. In their motion,
Garnishees objected to the district courtʹs failure to hold a hearing and also
requested oral argument on their motion.
On November 2, 2016, without holding oral argument or providing
a hearing, the district court denied Garnisheesʹ motion for reconsideration and
granted CSXʹs motion to enter judgment against Garnishees, reaffirming that
Garnishees would have been able to satisfy CSXʹs judgment of $1,056,444.15 if
Garnishees had not violated the Restraining Notices by distributing funds
pursuant to the $2.2 million state settlement. Although the courtʹs initial order
rested on the mistaken premise that the settlement funds were still available at
the time of judgment, the court clarified that its ʺultimate conclusion rested on a
damages analysis,ʺ Sp. App. 25, not a turnover analysis, and that Garnishees
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remained liable. As to damages, the court recognized that the Restraining
Notices did not grant priority and agreed that priority creditors should be paid
first. Based on the information before it, the court concluded that only
Crescimanniʹs property execution granted him a superior right over CSX, and
that offsetting Crescimanniʹs judgment of $402,013.83 still would have left
sufficient funds for Garnishees to satisfy CSXʹs judgment. Finally, the court
concluded that Garnishees ʺhave not raised any issues of factʺ and thus it ʺneed
not hold a hearing to determine the proper judgment amount.ʺ Sp. App. 33. The
Second Amended Judgment was issued on November 8, 2016, and awarded CSX
damages in the amount of $1,056,444.15 against Garnishees.
On November 4, 2016, Garnishees moved by letter to alter the
judgment on two grounds, which they contended would reduce the judgment to
$201,945.11. On December 1, 2016, the district court issued an order
electronically denying Garnisheesʹ motion. First, the district court declined to
consider new evidence demonstrating that ELS served its property execution
several months earlier ‐‐ thereby granting it priority before the State Settlement
Order ‐‐ because Garnishees failed to show that they were ʺjustifiably ignorantʺ
of the evidence ʺdespite due diligence.ʺ Elec. Order Den. Mot. to Alter J., CSX
‐ 8 ‐
Transp. v. Island Rail Terminal, Inc., No. 12‐cv‐1865 (E.D.N.Y. Dec. 1, 2016)
(quoting Becnel v. Deutsche Bank AG, 838 F. Supp. 2d 168, 171 (S.D.N.Y. 2011)).
Second, the district court concluded that accounting for statutory interest, which
it omitted in its initial damages calculations, would not have affected its ultimate
conclusion that Garnishees had sufficient funds to satisfy CSXʹs judgment.
This appeal followed.
DISCUSSION
We review a district courtʹs ruling on a request for an order of
attachment for abuse of discretion. Exp.‐Imp. Bank of the Republic of China v.
Grenada, 768 F.3d 75, 84‐85 (2d Cir. 2014). We also review a district courtʹs denial
of an evidentiary hearing for abuse of discretion. Zappia Middle E. Constr. Co. v.
Emirate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir. 2000). ʺThe district court abuses
its discretion if it applies legal standards incorrectly, relies on clearly erroneous
findings of fact, or proceeds on the basis of an erroneous view of the applicable
law.ʺ Aurelius Capital Partners, LP v. Republic of Argentina, 584 F.3d 120, 129 (2d
Cir. 2009) (citation omitted). We review de novo a district courtʹs interpretation of
questions of New York law. See Tire Engʹg & Distrib. L.L.C. v. Bank of China Ltd.,
740 F.3d 108, 113‐14 (2d Cir. 2014).
‐ 9 ‐
Because the district court indicated that its ʺultimate conclusion
rested on a damages analysis,ʺ Sp. App. 25, not a turnover analysis, we confine
the scope of our review to the damages theory. Three principal issues are
presented. First, Garnishees argue that CSX improperly proceeded by motion
under Rule 69(a) of the Federal Rules of Civil Procedure and that, instead, CSX
should have instituted a special proceeding against Garnishees pursuant to
C.P.L.R. article 52 for the district court to obtain personal jurisdiction. Second,
Garnishees argue that they did not violate the Restraining Notices because they
transferred funds pursuant to an order of the state court, and C.P.L.R. § 5222(b)
permits transfers ʺpursuant to an order of the court.ʺ Third, Garnishees contend
that even if they did violate the Restraining Notices, the district court erred in
concluding that CSX suffered damages when CSX was the creditor ʺlast in line,ʺ
Appellantsʹ Br. 29, and in failing to hold a hearing before fixing the amount of
damages.4
4 CSX suggests that Garnisheesʹ appeal is limited to the denial of the motion for
reconsideration. But Garnisheesʹ Amended Notice of Appeal identifies the initial
turnover order, the order denying their motion for reconsideration, the Second
Amended Judgment, as well as the district courtʹs post‐judgment order denying their
motion to alter the judgment. CSX offers no argument for limiting the scope of our
review to the single order denying the motion for reconsideration. We therefore
consider and resolve Garnisheesʹ appeal of all relevant orders in this dispute.
‐ 10 ‐
I. Procedure for Enforcing Money Judgments
First, we agree with the district court that CSX was permitted to seek
relief from Garnishees by motion under Rule 69(a), rather than by instituting a
special proceeding pursuant to New York law. See Fed. R. Civ. P. 69(a).
A. Applicable Law
A motion to enforce a money judgment is governed by Rule 69(a),
which provides that ʺproceedings supplementary to and in aid of judgment or
execution . . . must accord with the procedure of the state where the court is
located.ʺ Id. In New York, C.P.L.R. article 52 governs the enforcement and
collection of money judgments. See N.Y. C.P.L.R. §§ 5201‐5252. Section 5225(b)
enables a judgment creditor to commence a ʺspecial proceedingʺ against a third
party who ʺis in possession or custody of money or other personal propertyʺ in
which the judgment debtor has an interest. Id. § 5225(b).5 Section 5227 allows a
judgment creditor to commence a special proceeding against a third party ʺwho
5 Section 5225(b) provides in pertinent part:
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 the transferee, the court shall require such
person to pay the money . . . .
‐ 11 ‐
it is shown is or will become indebted to the judgment debtor.ʺ Id. § 5227.6
Violation of a restraining notice subjects a garnishee to personal liability in a
special proceeding under C.P.L.R. article 52 or a separate plenary action. Cruz v.
TD Bank, N.A., 22 N.Y.3d 61, 77‐78 (2013). C.P.L.R. article 4 sets forth the
procedure for special proceedings. See N.Y. C.P.L.R. §§ 401‐411.
B. Application
Although we have assumed in prior cases that parties may seek
turnover orders by motion, we have not squarely addressed the issue. See, e.g.,
Vera v. Republic of Cuba, 802 F.3d 242, 244 n.3 (2d Cir. 2015); HBE Leasing Corp. v.
Frank, 48 F.3d 623, 633 & n.7 (2d Cir. 1995).7 We now hold that a party seeking a
6 Section 5227 provides in pertinent part:
Upon a special proceeding commenced by the judgment creditor, against any person
who it is shown is or will become indebted to the judgment debtor, the court may
require such person to pay to the judgment creditor the debt upon maturity, or so much
of it as is sufficient to satisfy the judgment, and to execute and deliver any document
necessary to effect payment; or it may direct that a judgment be entered against such
person in favor of the judgment creditor.
7 District courts in this circuit have also consistently allowed parties to request
turnover orders by motion rather than by special proceeding. See, e.g., Bernard v.
Lombardo, 2016 WL 7377240, at *5 (S.D.N.Y. Nov. 23, 2016); Gen. Elec. Capital Corp. v. E.
Bus. Sys., 2016 WL 3582061, at *2 (E.D.N.Y. June 28, 2016); State Farm Mut. Auto. Ins. Co.
v. Grafman, 2015 WL 9460131, at *4 (E.D.N.Y. Dec. 23, 2015); Universitas Educ., LLC v.
Nova Grp., Inc., 2014 WL 3883371, at *8 (S.D.N.Y. Aug. 7, 2014); SEC v. Vuono, 2013 WL
6837568, at *3 (E.D.N.Y. Dec. 26, 2013); N. Mariana Islands v. Millard, 845 F. Supp. 2d 579,
581‐82 (S.D.N.Y. 2012); JW Oilfield Equip., LLC v. Commerzbank, AG, 764 F. Supp. 2d 587,
591 (S.D.N.Y. 2011); Mitchell v. Lyons Profʹl Servs., Inc., 727 F. Supp. 2d 120, 122‐23
(E.D.N.Y. 2010). But see Wasserman Media Grp., LLC v. Bender, 2012 WL 1506181, at *3
‐ 12 ‐
money judgment against a non‐party garnishee may proceed by motion and
need not commence a special proceeding, as long as the court has personal
jurisdiction over the garnishee. We reach this conclusion for three reasons.
First, a special proceeding is a procedural vehicle under New York
law with no equivalent under the Federal Rules of Civil Procedure, which
recognize only ʺone form of action ‐‐ the civil action.ʺ Fed. R. Civ. P. 2; see
Mitchell v. Garrison Prot. Servs., Inc., 819 F.3d 636, 640 (2d Cir. 2016) (per curiam).
It is therefore ʺunclearʺ how a party in a federal district court in New York could
comply with the special proceeding requirements, Mitchell, 819 F.3d at 640,
which we have indicated ʺneed 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,ʺ Vera, 802 F.3d at 244 n.3.
Second, a special proceeding is more akin to motion practice than a
plenary action. See HBE Leasing Corp., 48 F.3d at 633 (summary relief available in
a special proceeding under C.P.L.R. article 52); OʹBrien‐Kreitzberg & Assocs. v.
K.P., Inc., 630 N.Y.S.2d 76, 76 (1st Depʹt 1995) (action seeking to enforce a money
(S.D.N.Y. 2012) (ʺ[P]etitionerʹs motion for a turnover order in the instant action is
procedurally defective . . . . If petitioner seeks a turnover order, it must bring a separate
action . . . .ʺ); Runaway Dev. Grp. v. Pentagen Techs. Intʹl Ltd., 396 F. Supp. 2d 471, 473‐74
(S.D.N.Y. 2005) (same).
‐ 13 ‐
judgment is ʺmore appropriately obtained in a supplementary special proceeding
pursuant to [C.P.L.R.] article 52 rather than a plenary actionʺ (citation omitted)).
See generally C.P.L.R. § 401, cmt. 401:1 (practice commentary) (ʺLike an action, [a
special proceeding] ends in a judgment [], but the procedure is similar to that on
a motion []. Speed, economy and efficiency are the hallmarks of this
procedure.ʺ); David D. Siegel, New York Practice § 547 (5th ed. 2017) (ʺA special
proceeding is . . . . as plenary as an action, culminating in a judgment, but is
brought on with the ease, speed, and economy of a mere motion.ʺ).
Third, New York law explicitly contemplates that proceedings
brought as motions may, if necessary, be converted to special proceedings by the
court. Under C.P.L.R. § 103(c), ʺ[i]f a court has obtained jurisdiction over the
parties, a civil judicial proceeding shall not be dismissed solely because it is not
brought in the proper form . . . . If the court finds it appropriate in the interests of
justice, it may convert a motion into a special proceeding . . . .ʺ See also Jackson v.
Bank of Am., N.A., 53 N.Y.S.3d 71, 74‐75 (2d Depʹt 2017) (citing C.P.L.R. § 103(c)
and refusing to dismiss an action for failure to commence a special proceeding
under article 52, even where that provision provided the exclusive remedy). The
court must, however, have personal jurisdiction over the parties. See N.Y.
‐ 14 ‐
C.P.L.R. § 103(c); Commonwealth of N. Mariana Islands v. Canadian Imperial Bank of
Commerce, 21 N.Y.3d 55, 64 (2013) (ʺ[P]ersonal jurisdiction is the linchpin of
authority under section 5225(b).ʺ).
Accordingly, we conclude that CSX was not required to institute a
separate proceeding against Garnishees and could proceed by motion under
Rule 69(a), so long as the district court otherwise had personal jurisdiction over
Garnishees. Here, personal jurisdiction is clear: Garnishees do not contest that
they are New York corporations with their principal places of business in the
Eastern District of New York. Although Garnishees contend that no summons
was served, the record reflects that CSX complied with Rule 4 of the Federal
Rules of Civil Procedure by serving the summons on Cathy McByrne, a person
authorized to accept service on behalf of Vincent Maggio, Jr., Chief Executive
Officer for Garnishees. We therefore conclude that the district court properly
allowed CSX to proceed by motion.
II. Statutory Construction of C.P.L.R. § 5222
Second, Garnishees argue that they did not violate the Restraining
Notices because they transferred the restrained funds pursuant to the state
courtʹs settlement order, and C.P.L.R. § 5222(b) authorizes disbursements
‐ 15 ‐
ʺpursuant to an order of the court.ʺ We agree with the district court that the
plain meaning of the statute does not support Garnisheesʹ interpretation.
A. Applicable Law
Under C.P.L.R. § 5222, an attorney for the judgment creditor may, as
an officer of the court, serve a restraining notice on a third party who ʺowes a
debt to the judgment debtor or . . . is in the possession or custody of property in
which he or she knows or has reason to believe the judgment debtor . . . has an
interest.ʺ N.Y. C.P.L.R. § 5222(a)‐(b). A party subject to a restraining notice is
ʺforbidden to make or suffer any sale, assignment or transfer of, or any
interference with, any such property, or pay over or otherwise dispose of any
such debt . . . except upon direction of the sheriff or pursuant to an order of the
court . . . .ʺ Id. § 5222(b) (emphasis added). A court has broad authority to
regulate the use of enforcement devices. Id. § 5240 (ʺThe court may at any time,
on its own initiative or the motion of any interested person, and upon such
notice as it may require, make an order denying, limiting, conditioning,
regulating, extending or modifying the use of any enforcement procedure.ʺ).
‐ 16 ‐
B. Application
ʺIn determining the law of the State of New York, ʹwe will consider
not only state statutes but also state decisional law.ʹʺ Elliott Assocs., L.P. v. Banco
de la Nacion, 194 F.3d 363, 370 (2d Cir. 1999) (citation omitted). Here, the parties
have not cited and we are unaware of any New York cases that precisely address
the issue before us, so ʺwe will carefully predict how the highest court of the
state would resolve the uncertainty or ambiguityʺ by ʺconsider[ing] all of the
resources to which the highest court of the state could look.ʺ Id. (citations
omitted). We begin by examining the text of the statute to discern whether it has
a plain and unambiguous meaning. Louis Vuitton Malletier S.A. v. LY USA, Inc.,
676 F.3d 83, 108 (2d Cir. 2012); see also Elliott, 194 F.3d at 371 (noting that we ʺlook
first to the plain language of a statute and interpret it by its ordinary, common
meaningʺ when interpreting a New York statute (citation omitted) (internal
quotation marks omitted)). The meaning of a statute can be understood ʺin
context with and by reference to the whole statutory scheme, by appreciating
how sections relate to one another.ʺ Auburn Hous. Auth. v. Martinez, 277 F.3d 138,
144 (2d Cir. 2002). ʺA statute should be interpreted in a way that avoids absurd
‐ 17 ‐
results.ʺ United States v. Venturella, 391 F.3d 120, 126 (2d Cir. 2004) (quoting
United States v. Dauray, 215 F.3d 257, 264 (2d Cir. 2000)).
Here, the plain and unambiguous meaning of C.P.L.R. § 5222(b) is
that ʺtheʺ court refers to the court out of which the restraining notice issued. The
use of the definite article ʺtheʺ indicates a singular court, whereas the indefinite
article ʺanyʺ or ʺaʺ denotes multiple courts. See Natʹl Foods, Inc. v. Rubin, 936 F.2d
656, 660 (2d Cir. 1991) (ʺ[a]bsent some reason to conclude otherwise . . . ʹthe
courtʹ referred to the second time . . . should be the same one referred to the first
time ‐‐ a ʹcourt of competent jurisdictionʹʺ); see also Renz v. Grey Advert., Inc., 135
F.3d 217, 222 (2d Cir. 1997) (ʺPlacing the article ʹtheʹ in front of a word connotes
the singularity of the word modified. . . . In contrast, the use of the indefinite
article ʹaʹ implies that the modified noun is but one of several of that kind.ʺ).
In addition, as the district court explained, permitting a second court
to dissolve a restraining notice issued out of the first court would injure the
rights of creditors and threaten the first courtʹs injunctive power. See Nardone v.
Long Island Tr. Co., 336 N.Y.S.2d 325, 327 (2d Depʹt 1972) (recognizing that a stay
contained in an ex parte order ʺdid not serve to suspend the effectiveness of the
restraining noticeʺ; ʺotherwise, any judgment debtor could obtain such an order,
‐ 18 ‐
without notice to the court that a restraining notice had been served, or to the
judgment creditor, and recover his property theretofore properly made the
subject of the restraining noticeʺ); see also Sumitomo Shoji New York, Inc. v. Chem.
Bank N.Y. Tr. Co., 263 N.Y.S.2d 354, 358‐59 (N.Y. Sup. Ct. 1965), aff’d, 267 N.Y.S.2d
477 (1st Depʹt 1966) (discussing legislative history of C.P.L.R. § 5222 as favorable
to judgment creditors in light of governorʹs veto of an amendment that would
ʺunnecessarily hamper judgment creditors in the collection of their judgmentsʺ).
We therefore agree with the district court that the phrase ʺan order of the courtʺ
in C.P.L.R. § 5222(b) refers only to the court out of which the restraining notice
issued. Although Garnishees contend that our reading undermines the broad
authority conferred on New York courts by C.P.L.R. § 5240, there is no
suggestion that the state court, in ʺso orderingʺ the settlement, intended to lift the
Restraining Notices issued out of the federal district court. Indeed, the State
Settlement Order does not mention CSX, let alone the Restraining Notices. The
order therefore did not dissolve Garnisheesʹ obligations under the Restraining
Notices.
We also agree with the district court that Garnishees negligently
violated the Restraining Notices. The Restraining Notices ʺserve[d] as a type of
‐ 19 ‐
injunction prohibiting the transfer of the judgment debtorʹs property.ʺ Aspen
Indus., Inc. v. Marine Midland Bank, 52 N.Y.2d 575, 579 (1981). After Garnishees
were served with the Restraining Notices, they were ʺforbidden to make or suffer
any sale, assignment or transfer of, or any interference with, any such propertyʺ
in which the judgment debtor Emjay is known or believed to have an interest.
N.Y. C.P.L.R. § 5222(b). Garnishees were properly served with the Restraining
Notices on November 12, 2014, and the Restraining Noticesʹ injunctive effect was
still in place on February 26, 2015, when Garnishees agreed to pay $2.2 million on
behalf of Emjay to settle Emjayʹs debts to ELS, Sullivan Gardner, and
Crescimanni in the State Settlement Order. The Garnishees do not dispute that
Emjay clearly had an interest in the $2.2 million that Garnishees paid on Emjayʹs
behalf in that settlement. See Ray v. Jama Prods., Inc., 425 N.Y.S.2d 630, 631 (2d
Depʹt 1980) (ʺThe fact that a judgment debtor will directly benefit from the
payment [to satisfy the judgment debtorʹs debts] is sufficient to require the party
served with the restraining notice to comply with the provisions or be subject to
the appropriate legal sanctions.ʺ). In such circumstances, while Garnishees were
entitled to contest the validity of the district courtʹs Turnover Order, they were
not free to simply ignore the injunctive effect of the Restraining Notices. See
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Sykes v. Bank of Am., 723 F.3d 399, 406 (2d Cir. 2013) (ʺA garnishee has no
discretion to ignore a restraining notice that is valid on its face . . . even if it
questions the legal foundation on which the notice is based.ʺ). Garnishees
plainly violated the Restraining Notices in doing so.
III. Damages
Third, Garnishees argue that even if they did violate the Restraining
Notices, CSX is not entitled to recover because CSX sustained no damages as the
creditor ʺlast in lineʺ under New York law on priority of judgments. Appellantsʹ
Br. 29. Relatedly, Garnishees contend that the district court erred by failing to
hold a hearing, entertain testimony, or receive admissible evidence before
holding them liable for CSXʹs unpaid judgment. For the reasons set forth below,
we conclude that the district court abused its discretion by failing to hold a
hearing to resolve factual issues concerning the relative priorities of judgment
creditors ‐‐ a necessary predicate to determining the proper amount of damages,
if any, sustained by CSX.
A. Applicable Law
A garnishee that violates a restraining notice may be liable to an
aggrieved judgment creditor if the creditor establishes that ʺit sustained damages
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as a result of the garnisheeʹs disobedience of the [restraining] notice.ʺ Aspen
Indus., 52 N.Y.2d at 581. To establish damages, a creditor must ʺdemonstrate that
property of the judgment debtor was available to satisfy the judgment at the time
the restraining notice was in effect.ʺ Id.; see also Nardone, 336 N.Y.S.2d at 327
(damages for violating a restraining notice are ʺthe amount of the judgment
remaining unsatisfied, but limited to the amount in the account which would
have been available to satisfy the judgmentʺ). In Aspen, for instance, a judgment
creditor could not establish damages resulting from a garnishee bankʹs violation
of restraining notices, because the garnishee bank had a superior right of setoff to
any debt owed to it by the judgment debtor based on section 151 of the Debtor
and Creditor law. 52 N.Y.2d at 581‐82.
New York has a comprehensive statutory scheme establishing
priorities for directing the assets of a judgment debtor to competing judgment
creditors. Under C.P.L.R. § 5234, ʺthe order of priority among judgments is to be
determined strictly in accordance with the chronological service of execution
levies and the filing of orders for turnover.ʺ City of New York v. Panzirer, 259
N.Y.S.2d 284, 286 (1st Depʹt 1965) (citing N.Y. C.P.L.R. § 5234(c)). ʺThe mere
service of restraining notices under [§] 5222 . . . does not invoke standing in the
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ranking of priorities.ʺ Id.; Aspen Indus., 52 N.Y.2d at 579‐80. Instead, a judgment
creditor must take additional steps ‐‐ such as securing a turnover order or an
execution levy ‐‐ to prevent intervening parties from attaining higher priority.
See Aspen Indus., 52 N.Y.2d at 580.
A court ʺmay grant summary relief where there are no questions of
fact, but ʹit must conduct a trial on disputed issues of fact on adverse claims in a
turnover matter.ʹʺ HBE Leasing Corp. v. Frank, 48 F.3d 623, 633 (2d Cir. 1995)
(quoting General Motors Acceptance Corp. v. Norstar Bank of Hudson Valley, 549
N.Y.S.2d 862, 863 (3d Depʹt 1989)); see also Port of New York Auth. v. 62 Cortlandt
St. Realty Co., 18 N.Y.2d 250, 255 (1966) (standards of summary judgment apply
to special proceedings); Gonzalez v. City of New York, 8 N.Y.S.3d 290, 291 (1st
Depʹt 2015) (ʺIt is settled that a special proceeding is subject to the same
standards and rules of decision as apply on a motion for summary judgment,
requiring the court to decide the matter ʹupon the pleadings, papers and
admissions to the extent that no triable issues of fact are raised.ʹʺ (citations
omitted)). In general, a hearing is required to fix damages where it is unclear
what amount in a garnisheeʹs possession is the property of the judgment debtor
and available to satisfy the judgment. See Nardone, 336 N.Y.S.2d at 327. Absent a
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factual issue concerning damages, however, a hearing is not required. See, e.g.,
Gen. Motors Acceptance Corp., 549 N.Y.S.2d at 863 (ʺAlthough a court may grant
summary relief where there are no questions of fact in a special proceeding, it
must conduct a trial on disputed issues of fact on adverse claims in a turnover
matter.ʺ (citing N.Y. C.P.L.R. §§ 409(b), 5225(b), 5239)); Michigan Assocs. v.
Emigrant Sav. Bank, 345 N.Y.S.2d 329, 336 (Civ. Ct. 1973) (determining damages
without any hearing because ʺthere is no issue of fact concerning damagesʺ).
B. Application
To recover damages for Garnisheesʹ violation of the Restraining
Notices, CSX had to demonstrate that the ʺproperty of the judgment debtor
[Emjay] was available to satisfy the judgment at the time the restraining notice
was in effect.ʺ Aspen Indus., 52 N.Y.2d at 581. In other words, CSX had to
demonstrate that Garnisheesʹ debt to Emjay was available to satisfy CSXʹs
judgment. Garnisheesʹ debt to Emjay, in turn, had to be assessed in light of the
priority of Emjayʹs various creditors pursuant to C.P.L.R. § 5234 ‐‐ because if
other creditors had superior claims to the restrained funds before Garnishees
violated the Restraining Notices, then CSX did not suffer damages.
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Here, the district court recognized that the Restraining Notices did
not confer priority and that priority creditors were entitled to be paid first. After
reviewing the timeline of judgments and executions, the district court concluded
that only Crescimanni served an execution before the state courtʹs February 26,
2015 settlement order that ʺgrant[ed] him a superior right.ʺ Sp. App. 28.
Therefore, the district court found, ʺeven if the Court preserved the $2.2 million
settlement figure and offset Crescimanniʹs $402,013.83 judgment, the Garnishees
would have had $1,797,986.17 left over to satisfy CSXʹs $1,056,444.15 judgment.ʺ
Sp. App. 27. The district court concluded that ʺGarnishees have not raised any
issues of factʺ and that it ʺneed not hold a hearing to determine the proper
judgment amount.ʺ Sp. App. 33. The district court subsequently declined in its
discretion to recognize new evidence from Garnishees demonstrating that ELS
had actually served its execution on November 5, 2014 ‐‐ not March 10, 2015 ‐‐
thereby also granting ELS higher priority.
We conclude that, at a minimum, the partiesʹ submissions and the
record demonstrate a lack of clarity as to the order of priority of judgment
creditors, precluding the district courtʹs grant of summary relief to CSX.
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At the time of judgment, the order of priority was unclear. The
record shows that, during state court proceedings on February 24, 2015, the
participating judgment creditors ‐‐ including Crescimanni, ELS and Sullivan
Gardner ‐‐ indicated that they believed, ʺ[w]ithout fixing the priorities in any
way between us, we all had a higher priority than CSX.ʺ App. 190. CSXʹs
counsel was informed of the competing judgment creditorsʹ views as to priority.
Id. at 191. On June 26, 2015, Garnishees alleged in their opposition to CSXʹs
turnover motion that ʺother than serving its Restraining Notices, CSX did
nothing to enforce its judgment and, unlike Emjayʹs other creditors whose claims
have a priority position, took no steps whatsoever to create or perfect an
enforceable lien.ʺ Id. at 125. On the other hand, CSX never asserted that it had a
higher priority than any of the other creditors, and in fact even now suggests that
priority is not relevant to damages. We reject CSXʹs argument because, as noted
above, damages cannot be assessed without delineating the relative priority of
judgment creditors.
The district court did not consider priorities when it invited CSX to
apply for a judgment for damages in its initial turnover order. It did correctly
recognize the importance of priority in its subsequent order denying Garnisheesʹ
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motion for reconsideration. But the district courtʹs final reasoning suggests that,
had it possessed a complete picture of the relevant players and priorities before
judgment, it might have reached a different outcome. And while the district
court rejected as untimely Garnisheesʹ submission regarding the correct date of
ELSʹs execution, a hearing would have given Garnishees the opportunity to
present this evidence.
Failure to resolve these factual issues before summarily awarding
damages to CSX was an abuse of discretion. Therefore, we vacate that portion of
the district courtʹs judgment and orders holding CSX liable for $1,056,444.15 in
damages, and remand with instructions for the district court to hold a hearing to
resolve factual issues concerning damages including, but not limited to, the order
of priority of judgment creditors. During the hearing, the district court should,
at minimum, revisit the two factual issues that Garnishees raised in their letter
motion to alter the judgment.
CONCLUSION
For the reasons set forth above, we AFFIRM IN PART, VACATE IN
PART, and REMAND the case for further proceedings consistent with this
opinion.
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