Axginc Corporation v. Plaza Automall, Ltd.
1:14-cv-04648
| E.D.N.Y | Mar 2, 2021Background
- Axginc obtained a $2,735,929.59 judgment (affirmed on appeal) against Plaza Automall, Ltd.; post-judgment enforcement followed including restraining notices and a writ of execution.
- Plaintiff seeks turnover under Fed. R. Civ. P. 69 / CPLR §5225(b) for multiple transfers Plaza Automall made to related parties and third parties: $300,000 to John Rosatti; ~$509,000 and ~$239,356 to Plaza Honda; $125,000 to Acura of Brooklyn; ~$602,119 to >1,000 consumers pursuant to a settlement; $215,037.76 to the NY Comptroller; and $245,000 returned escrow funds.
- Plaza Automall operated as a centralized paymaster using a single M&T bank account; defendants contend many transfers were pass-through funds owned by affiliated dealerships or Rosatti, not Plaza Automall’s assets.
- Rosatti is the sole shareholder/CEO of Plaza Automall and of the Plaza dealerships and majority owner/CEO of Bay Ridge Hyundai; he visits and transacts business in New York.
- Magistrate Judge Scanlon: (1) found personal jurisdiction over the corporate respondents and over Rosatti; (2) concluded Plaintiff proceeded on the wrong legal theory (moved under garnishee turnover but tried to rely on transferee turnover in reply); (3) recommended denying the motion on the present papers but granting leave to renew a properly supported transferee turnover motion within 15 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May Plaintiff proceed under Rule 69 here rather than a CPLR §5225(b) special proceeding in state court? | Rule 69 governs and permits proceeding in federal court without a state special proceeding. | N/A (defendants raised other defenses but did not contest Rule 69 after CSX). | Granted — Rule 69 motion in federal court is permissible (CSX controlling). |
| Is there personal jurisdiction over the respondents, including John Rosatti? | Jurisdiction exists because defendants transact business in NY and transfers occurred here. | Rosatti is a Florida resident who visits NY; but he had corporate roles. | Granted — personal jurisdiction over Bay Ridge Hyundai and Plaza dealerships (conceded) and over Rosatti (specific jurisdiction based on his NY activities and the September 2016 conduct). |
| Must Plaintiff show Plaza Automall “has an interest” in the funds (garnishee turnover threshold)? | Plaintiff’s opening papers treated the motion under the Beauvais garnishee two-step test. | Defendants argue many transfers were pass-through funds; Plaza had no direct ownership/asset interest. | Denied on present papers — Plaintiff failed to prove Plaza Automall had an interest under the garnishee test and improperly shifted theory in reply. |
| Can Plaintiff proceed as a transferee-turnover claimant based on fraudulent conveyance (new theory raised in reply)? | In reply, Plaintiff argues transferee turnover under §5225(b) applies and does not require proving Plaza’s interest; seeks to hold transferees liable for fraudulent conveyances. | Defendants contend Plaintiff never pleaded or proved the transferee theory and did not give adequate notice or evidence; many transfers were pass-through or to third parties. | Not decided on merits — court refused to consider the new transferee theory raised first in reply, but granted leave to renew with full briefing/evidence and set issues to be addressed. |
Key Cases Cited
- CSX Transp., Inc. v. Island Rail Terminal, Inc., 879 F.3d 462 (2d Cir.) (Rule 69 permissibly used in lieu of a state special proceeding where federal court has personal jurisdiction)
- Beauvais v. Allegiance Securities, Inc., 942 F.2d 838 (2d Cir.) (CPLR §5225(b) garnishee turnover is a two-step test: debtor must have an interest and creditor must show superior rights)
- Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50 (2d Cir.) (standards for purposeful availment and specific personal jurisdiction under CPLR §302)
- World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (U.S.) (due-process principle that defendant must reasonably anticipate being haled into forum)
- Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70 (2d Cir.) (presumption of ownership follows from possession of funds in a bank account; presumption rebuttable by evidence funds were held for another)