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Mitchell v. Garrison Protective Services, Inc.

United States Court of Appeals, Second Circuit

April 11, 2016

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

         Submitted April 4, 2016.

         On Appeal from the United States District Court for the Eastern District of New York. 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.

         Before: KEARSE, CABRANES, and CHIN, Circuit Judges.

          OPINION

         Per Curiam:

         Interested party-appellant Garrison Protective Services, Inc. (" Garrison" ) appeals from a June 16, 2015 judgment of the District 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]

         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 based on the annual revenues that they generated." Mitchell v. Garrison Protective Servs., Inc., 579 Fed.Appx. 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 Fed.Appx. at 23. In particular, we asked the District Court to consider whether the book of business was assignable or transferrable: " If the book of 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 Fed.Appx. 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.'" SeeVera 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" § 5225(b). SeeVera, 802 ...


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