54 F. Supp. 3d 279
E.D.N.Y2014Background
- Plaintiff Dafeng Hengwei (a Chinese textile manufacturer) sued Aceco Industrial & Commercial Corp./Aceco, Inc. (collectively "Aceco"), and its principals David Liu and Chang‑Zhu Yu for nearly $2 million in unpaid invoices (breach of contract / account stated).
- The court granted an ex parte pre‑judgment order of attachment; Plaintiff caused the U.S. Marshal to levy on real property at 25 Gracewood Drive, Manhasset (owned by non‑party partnership Rockaway/Eockaway).
- Rockaway (non‑party) moved to vacate the attachment, quash a bank subpoena, obtain a protective order, and for sanctions; the motion to vacate and for sanctions was referred to Magistrate Judge Pohorelsky.
- Magistrate Judge Pohorelsky recommended vacatur of the attachment as to the Manhasset property and denial of sanctions; Plaintiff objected only to vacatur.
- Key factual disputes: whether Aceco (or Liu/Yu) retain an attachable legal/equitable interest in the property (including via Aceco’s prior mortgage guarantee) and whether transfers or asset concealment show fraud/badges of fraud sufficient to support attachment.
- The district court adopted the R&R in full, granted Rockaway’s motion to vacate the attachment on the Property, and denied Rule 11 sanctions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Aceco (or Liu/Yu) have an attachable legal/equitable interest in the Property | Aceco’s prior guaranty of Rockaway’s mortgage and alleged payments/consideration create an attachable interest or equitable claim against the Property | Rockaway (non‑party) and movants deny any current ownership interest by Liu/Yu and contend no present assignable interest exists | Court: Plaintiff failed to establish an attachable present or assignable interest in the Property; vacatur warranted |
| Whether Plaintiff proved intent to defraud / badges of fraud to justify attachment under CPLR §6201(3) | Plaintiff alleges defendants diverted/secreted assets and used Rockaway to shield assets; contends partnership ties and transactions show fraudulent intent | Rockaway and magistrate judge: Plaintiff produced only suspicion and no evidentiary showing of collusion, asset diversion, or badges of fraud | Court: Plaintiff didn’t present more than speculative allegations; statutory standard unmet; attachment vacated |
| Burden and standard on motion to vacate (need for continuing levy & probability of success) | Plaintiff contends magistrate erred in factual conclusions and that statutory grounds were met so attachment should remain | Defendants emphasize Plaintiff bears burden to show grounds, need to continue levy, and likelihood of success; evidence is weak | Court: Affirmed magistrate—Plaintiff did not meet §6223(b) burden; weak/uncertain evidence supports vacatur |
| Discretion / hardship of continuing attachment on non‑parties | Plaintiff argues interference with defendants’ indirect interests isn’t extraordinary to justify vacatur | Rockaway argued attachment imposed irremediable hardship on non‑party partners and would prevent a bona fide sale | Court: Even if borderline, exercise of discretion warranted to avoid oppressive/irremediable hardship on non‑parties; vacatur appropriate |
Key Cases Cited
- Zenith Bathing Pavilion v. Fair Oaks S.S. Corp., 240 N.Y. 307 (N.Y. 1925) (broad discretion in considering attachment motions)
- Trigo Hnos., Inc. v. Premium Wholesale Groceries, Inc., 424 F. Supp. (S.D.N.Y.) (attachment is harsh; weak or uncertain evidence may justify vacatur)
- AMF Inc. v. Algo Distribs. Ltd., 48 A.D.2d 352 (App. Div. 1975) (court discretion and standards for attachment remedies)
- DLJ Mortgage Capital, Inc. v. Kontogiannis, 594 F. Supp. 2d 308 (E.D.N.Y. 2009) (fraud not lightly inferred; need badges of fraud/evidentiary showing)
- MacMillan v. Hafner, 42 A.D.2d 533 (App. Div. 1973) (plaintiff must present more than a scintilla of proof of fraud for attachment)
- Kornblum v. Kornblum, 34 A.D.3d 748 (App. Div. 2006) (statutory factors for attachment strictly construed in favor of the party against whom attachment is sought)
- Computer Strategies, Inc. v. Commodore Bus. Machs., Inc., 105 A.D.2d 167 (App. Div. 1984) (mere transfer of assets without showing fraudulent intent does not justify attachment)
- Ames v. Clifford, 863 F. Supp. 175 (S.D.N.Y. 1994) (transfer of assets alone insufficient; must show fraudulent intent)