Mitchell v. Garrison Protective Services, Inc.
819 F.3d 636
| 2d Cir. | 2016Background
- Plaintiffs obtained a default judgment against Lyons Professional Services, Inc. (LPS) for sex discrimination and sought to enforce it under Rule 69(a) by invoking New York law (CPLR/DCL).
- Plaintiffs alleged LPS (through its shareholder Christopher Lyons) fraudulently transferred LPS’s customer accounts (its “book of business”) to Garrison Protective Services, Inc. shortly after the judgment, via a Consulting Agreement.
- District Court found at bench trial that LPS’s book of business was transferred to Garrison, LPS received no fair consideration, the book of business was worth at least $300,000, and entered judgment against Lyons and Garrison for $266,590.
- Garrison appealed, arguing the book of business was not transferable property under CPLR §5201(b) because client contracts were terminable and thus not subject to CPLR §5225(b) enforcement.
- This Court remanded for clarification whether the book of business was transferable or contained transferable components; on remand the District Court and this Court treated the action as a plenary fraudulent-transfer suit under DCL §273‑a rather than a New York “special proceeding.”
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the enforcement motion should be treated as a CPLR §5225 special proceeding or as a plenary action under DCL §273‑a | Mitchell: The claim seeks to avoid a fraudulent transfer under DCL §273‑a and may be pursued on the record presented | Garrison: Plaintiffs proceeded under CPLR §5225(b); special‑proceeding requirements should control | Court: Proper to construe the filing as a plenary action under New York substantive law; no prejudice to Garrison |
| Whether LPS’s “book of business” is property/asset subject to avoidance and enforcement | Mitchell: The book of business (including accounts, lists, proprietary info) is an asset transferred to Garrison | Garrison: Client contracts were terminable and clients independently left; therefore not transferable property under CPLR §5201(b) | Court: Book of business can be an asset; District Court did not clearly err in finding it was transferred and constituted transferable value |
| Whether LPS (not Lyons personally) owned and transferred the accounts | Mitchell: Evidence showed accounts belonged to LPS and were transferred through the Consulting Agreement | Garrison: Transfer was not a corporate conveyance of LPS assets but movement of clients | Court: Affirmed District Court’s factual finding that LPS owned the accounts and they were transferred to Garrison |
| Whether the transfer was made without fair consideration (DCL §273‑a element) | Mitchell: LPS received no fair consideration for the transfer; plaintiffs met DCL §273‑a elements | Garrison: Argued some consideration or that no fraudulent transfer occurred | Court: Affirmed finding of lack of fair consideration and that plaintiffs satisfied DCL §273‑a elements |
Key Cases Cited
- Mitchell v. Lyons Professional Services, Inc., 708 F.3d 463 (2d Cir.) (prior appeal describing underlying action)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir.) (federal courts may construe §273‑a claims as plenary actions despite procedural labels)
- N. Mariana Islands v. Canadian Imperial Bank of Commerce, 717 F.3d 266 (2d Cir.) (Rule 69 ties federal execution procedure to state law)
- Vera v. Republic of Cuba, 802 F.3d 242 (2d Cir.) (discussing differences between New York "special proceedings" and federal practice)
- Grace v. Bank Leumi Trust Co. of N.Y., 443 F.3d 180 (2d Cir.) (elements required to establish a fraudulent conveyance under DCL §273‑a)
- Connors v. Connecticut General Life Ins. Co., 272 F.3d 127 (2d Cir.) (standards of review for bench trials)
- Citizens Bank of Clearwater v. Hunt, 927 F.2d 707 (2d Cir.) (asset value and transfer are factual questions)