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June 23, 2022

CPLR Article 52 Is Exclusive Vehicle to Challenge Use of Enforcement Procedures

In April 2021, we reported on a decisioni by the United States Court of Appeals for the Second Circuit that certified to the New York State Court of Appeals two questions regarding whether a judgment debtor has the ability to bring a tort claim seeking monetary damages from a judgment creditor as a result of the creditor’s alleged improper use of judgment enforcement procedures under New York State law. Those questions were:

(1)    Whether a judgment debtor suffers cognizable damages in tort when its property is seized pursuant to a levy by service of an execution that does not comply with the procedural requirements of CPLR 5232(a) even though the seized property is applied against a valid money judgment.
(2)    If so, whether the judgment debtor can, under these circumstances, bring a tort claim against either the judgment creditor or the enforcement officer without first seeking relief under CPLR 5240. 

These questions arose from the Second Circuit’s consideration of appeals from two Southern District of New York decisions that had dismissed two tort actions commenced by a judgment debtor (debtor), each against a judgment creditor and an enforcement officer who the debtor alleged had improperly employed enforcement procedures under Article 52 of New York’s Civil Practice Law and Rules (CPLR). One creditor had issued an execution with notice to garnishee to the New York City marshal, who purported to levy the execution against the debtor’s bank accounts at a Michigan branch of a Texas-based bank (bank) having no branches in New York by mailing the execution to the debtor’s purported agent for service of process in Rockland County, New York (agent). The other creditor had issued an execution with notice to garnishee to the Rockland County sheriff, who also purported to levy on the debtor’s same accounts at the bank by serving the execution on the agent. Based on the respective enforcement officers’ purported levies, the bank turned over the debtor’s monies to the enforcement officers, and these monies were eventually applied by the respective creditors in full or partial payment of their judgments against the debtor.
    
The debtor’s successor in interest thereafter commenced two actions in the US District Court for the Southern District of New York, which sought tort damages against the respective creditors and enforcement officers. Each of those actions was eventually dismissed on the basis that, notwithstanding any claimed irregularities in the creditor’s enforcement procedures, the debtor had suffered no cognizable damages because the funds recovered by the enforcement officers had been used to pay valid debts owed by the debtor under valid court judgments. On appeal, the US Court of Appeals for the Second Circuit consolidated the two cases and subsequently certified the two above questions to the New York State Court of Appeals.

Now, the New York State Court of Appeals, over three dissents (and two dissenting opinions), has held that a judgment debtor’s “exclusive avenue for relief” under circumstances like those at issue in the two district court actions—use of enforcement procedures alleged to violate CPLR Article 52—is to “bring an appropriate action pursuant to CPLR Article 52” in New York State court.ii

The court’s majority, agreeing with respondent judgment-creditors’ arguments, stated that there was “no need to contort traditional tort claims to accommodate a novel theory by a judgment debtor seeking to recover funds used to satisfy a valid judgment based on alleged violations of our civil procedure law.” Rather, “CPLR article 52, which provides a mechanism for addressing the ‘innumerable situations [that] can arise that manifest abuse of the enforcement devices’ authorized in that statute, is the exclusive avenue for a judgment debtor seeking relief from the use of an enforcement mechanism that does not comply with article 52’s requirements.”

Specifically, the court emphasized that CPLR 5239 enables any interested person to commence a special proceeding against a judgment creditor or any other person to seek determination of rights in property or debt and that the venue court has broad authority to render judgments in these proceedings for whatever relief or remedy is warranted. Similarly, CPLR 5240 grants courts “broad discretionary power to control and regulate the enforcement of . . . money judgment[s],” and empowers the court on its own initiative or on motion of any interested person to make an order denying, limiting, conditioning, regulating, extending, or modifying the use of any enforcement procedure. In the court’s view, that power “provides courts with the ability to craft flexible and equitable responses to claims that arise with respect to enforcement of valid money judgments,” including if the judgment debtor’s assets have been transferred to a judgment creditor, reversing that transfer, and directing restitution by the judgment creditor.

This holding by the New York State Court of Appeals precludes a judgment debtor from bringing a tort claim—and presumably any other type of claim—based on, or to challenge the use or result of any judgment enforcement proceeding under, CPLR article 52. Motions and special proceedings under CPLR 5239, CPLR 5240, or both, are now the exclusive procedural means by which a judgment debtor may seek relief from or against a judgment creditor for alleged abuse of any enforcement device.

Barclay Damon’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area issues alerts on an ongoing basis to keep clients and friends up to date on important developments in the insolvency space. If you have any questions regarding the content of this alert, please contact the author, Frank Heller, partner, at fheller@barclaydamon.com; Janice Grubin or Jeff Dove, co-chairs of the Restructuring, Bankruptcy & Creditors’ Rights Practice Area, at jgrubin@barclaydamon.com and jdove@barclaydamon.com, respectively; or Bob Wonneberger, partner, at rwonneberger@barclaydamon.com
 

                                                      

iPlymouth Venture Partners, II, L.P., et al. v. GTR Source, LLC, et al.
iiPlymouth Ventures Partners, II L.P., et al. v. GTR Source, LLC, et al. 37 N.Y.3d 591.
 

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