CSX Transportation, Inc. v. Island Rail Terminal, Inc.
879 F.3d 462
| 2d Cir. | 2018Background
- CSX obtained a federal judgment against Emjay for $1,056,444.15; several other creditors (ELS, Sullivan Gardner, Crescimanni) also held judgments against Emjay.
- CSX served restraining notices on third-party garnishees Island Rail, Maggio, and Eastern Resource (Garnishees) to freeze funds owed to Emjay under N.Y. C.P.L.R. § 5222(b).
- While the restraining notices remained in effect, Garnishees participated in a New York state-court–approved $2.2 million settlement that distributed proceeds to other creditors; Garnishees later paid out those settlement funds.
- CSX moved in federal court for a turnover order and alternatively sought damages for Garnishees’ alleged violation of the restraining notices; the district court awarded CSX $1,056,444.15 in damages without holding an evidentiary hearing.
- Garnishees appealed, arguing CSX should have used a CPLR article 52 special proceeding, that the state-court order authorized the disbursements, and that the district court erred in awarding damages without a hearing and despite priority issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper procedure to enforce judgment against garnishee (motion v. CPLR special proceeding) | CSX: may proceed by motion under Fed. R. Civ. P. 69(a) applying state procedure | Garnishees: CSX was required to commence a CPLR article 52 special proceeding to obtain personal jurisdiction and follow state procedure | Court: Allowed motion practice under Rule 69(a); special proceeding not required so long as court has personal jurisdiction over garnishee (affirmed) |
| Whether disbursement pursuant to state-court settlement complied with restraining notices (interpretation of CPLR § 5222(b)) | CSX: state settlement did not dissolve federal restraining notices; § 5222(b)’s "order of the court" refers to the court that issued the restraining notice | Garnishees: payments were "pursuant to an order of the court" (state court), so § 5222(b) permitted the disbursements | Court: § 5222(b) unambiguously refers to the issuing court; state settlement did not lift federal restraining notices and Garnishees negligently violated them (affirmed) |
| Damages despite CSX being "last in line" (priority among judgment creditors) | CSX: entitled to damages because garnishees paid out funds while notice in effect; priority not determinative of liability | Garnishees: CSX suffered no damages because other creditors had superior priority and would have been paid first | Court: Liability depends on whether debtor's property was available for CSX when notice was in effect; district court abused discretion by awarding damages without resolving priority facts (vacated and remanded for hearing) |
| Need for hearing to fix damages / resolve factual disputes (priority, dates of executions) | CSX: no triable fact on damages; district court can calculate damages from record | Garnishees: disputed factual issues about priority (e.g., ELS execution date) required a hearing | Court: Because priorities and facts were unclear, district court abused its discretion by not holding a hearing; remanded for an evidentiary hearing on damages and priorities (vacated portion) |
Key Cases Cited
- Exp.-Imp. Bank of the Republic of China v. Grenada, 768 F.3d 75 (2d Cir. 2014) (abuse-of-discretion standard for attachment orders)
- Zappia Middle E. Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247 (2d Cir. 2000) (abuse-of-discretion review of denial of evidentiary hearing)
- Aurelius Capital Partners, LP v. Republic of Argentina, 584 F.3d 120 (2d Cir. 2009) (standards for abuse of discretion)
- Tire Eng’g & Distrib. L.L.C. v. Bank of China Ltd., 740 F.3d 108 (2d Cir. 2014) (de novo review of state-law questions)
- Cruz v. TD Bank, N.A., 22 N.Y.3d 61 (N.Y. 2013) (garnishee liability for violation of restraining notices)
- Aspen Indus., Inc. v. Marine Midland Bank, 52 N.Y.2d 575 (N.Y. 1981) (damages require that debtor property was available to satisfy judgment)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (summary relief and conversion between motion practice and special proceedings)