48 A.D.2d 352 | N.Y. App. Div. | 1975
Lead Opinion
The defendants appeal from an order which denied their motion to vacate an order of attachment. This appeal raises for review the question whether an ex parte order of attachment, entered without notice to the debtor and without an opportunity for him to be heard, violates the mandates of the due process clause of the Fourteenth Amendment of the Constitution of the United States. More particularly, the defendants challenge the constitutionality of our State attachment procedure when the ground
The following are the essential facts. The defendant Algo Distributors, Ltd. (Algo) is a distributor of some of the products manufactured by the plaintiff, AMF Incorporated (AMF). On July 31, 1972 the plaintiff and Algo entered into an agreement whereby AMF acquired a security interest, later perfected, in all inventory sold to Algo, including the proceeds realized from any resale thereof by Algo. This security interest was given to secure the performance of the covenants and obligations of the agreement and to secure the payment of an indebtedness in the face amount of $150,000. The agreement further provided that Algo "shall have the right in the ordinary course of business to resell the goods to others and to otherwise deal with the goods in any manner which does not impair, reduce the company’s [AMF’s] security interest in the goods, but Debtor covenants to account to Company for the proceeds of any goods upon request.”
Having accepted delivery of the plaintiff’s products to be used in its business inventory, pursuant to the terms of the security agreement, Algo, acting through its president, defendant Alan Swartz, and by its vice-president, defendant George Swartz, on February 1, 1973 made and delivered to AMF its promissory note, in the face amount of $113,000, payable on November 10, 1973. The note was signed by the above-mentioned individual defendants in their corporate capacities.
Subsequently, a sale of most of the inventory covered by the security interest occurred. However, Algo refused to turn over any of the proceeds thus realized to AMF and, moreover, defaulted on its promissory note.
On February 13, 1974 the plaintiff obtained an ex parte
On February 28, 1974 the defendants moved to vacate the order of attachment on the grounds that the papers upon which the order of attachment was granted were insufficient in that they failed to show that a cause of action for conversion existed in favor of the plaintiff against all of the defendants and that any ex parte attachment based upon subdivision 8 of CPLR 6201 is unconstitutional. Their motion was denied. The defendants now raise the same arguments on appeal.
First, we turn to a consideration of whether the papers submitted in support of the application for the warrant of attachment were legally sufficient and spelled out a cause of action in conversion against all of the defendants. CPLR 6212 (subd [a]) requires a creditor to show by affidavit
In its complaint the plaintiff alleges that the defendants
In addition to the verified complaint, the plaintiff submitted the supporting affidavit of Harold Suffel, AMF’s regional sales manager, who had dealt with Algo on a regular basis. He deposed that in October, 1973 he met with the defendants George and Alan Swartz at Algo’s place of business and discussed with them a sale that the corporate defendant had conducted, as advertised in a local newspaper. Mr. Suffel averred that both of those defendants admitted that they had in fact caused a sale to take place in which most of the inventory subject to the security agreement had been sold, through a dealer, to buyers who attended the sale. George Swartz told Suffel that the proceeds of the sale had been received in the form of cash. From the quantity of merchandise which Alan Swartz admitted had been sold, Suffel determined that approximately $62,000 in cash had been received by Algo from the sale. As a result of this computation, Suffel demanded that an immediate payment of at least $50,000 be made to the plaintiff, which request was refused. Instead, George Swartz allegedly told him that all of the moneys received from the sale had been disbursed for the general business purposes of Algo.
On the basis of the foregoing pleadings, we find that a prima facie cause of action has been spelled out against the defendants George and Alan Swartz, but not as against Mildred and Marion Swartz. As we have recently reiterated, in order to establish a cause of action for conversion two things must be shown: first, the plaintiff must demonstrate legal ownership or an immediate superior right of possession to a specific identifiable thing (i.e., specific money); and, second, it must be shown that the defendant exercised unauthorized dominion over the thing in question, to the exclusion of the
Indeed, the facts as alleged by the plaintiff are strikingly similar to those present in Independence Discount Corp. (supra). The creditor therein financed the purchase of inventory by the defendant corporation and, pursuant to a security agreement, obtained a security interest in the inventory and in the proceeds from any sale thereof. The inventory was subsequently sold and the proceeds were commingled with the general corporate funds of the debtor. The debtor thereafter went into bankruptcy. The creditor then instituted an action in conversion against the two principal officers and majority shareholders of the defendant corporation. We held that no cause of action in conversion existed. That decision, however, does not require a similar result in this case. The crucial distinction is to be found in the difference between the terms of the security agreements involved in these cases. The agreement in Independence did not impose upon the debtor the obligation to account for specific moneys derived from the sale of the inventory. Rather, it merely provided that upon such sale the debtor was to pay immediately "all amounts due [plaintiff] with respect to the Products financed * * * [thereunder].” Unlike the case here, no specific fund from which the money owed to the creditor would be paid was intended to be created.
In fact, the case at bar comes within the ambit of the holding in Hinkle Iron Co. v Kohn (229 NY 179). In Hinkle, the defendant corporate president assigned to the plaintiff the sum of $4,500, representing part of a designated payment
Accordingly, we find that the plaintiffs complaint and affidavits establish a prima facie cause of action against Algo and George and Alan Swartz. Moreover, these defendants, on their motion to vacate, have not established that the plaintiff must ultimately fail (see American Reserve Ins. Co. v China Ins. Co., 297 NY 322, supra).
The more serious issue raised is whether the failure to afford the defendants notice and an opportunity for a hearing prior to the seizure of their property denied them due process of law. Until recently the leading case in the area was Fuentes v Shevin (407 US 67). In Fuentes, the court held unconstitutional, as violative of due process, two State statutes which allowed a secured installment seller to repossess goods in the debtor’s possession without notice or a prior opportunity to be heard and without judicial order or supervision, but solely upon a writ issued by a court clerk and
However, the Supreme Court has apparently retreated from its broad holding in Fuentes in its recent pronouncement in Mitchell v Grant Co. (416 US 600).
New York’s statutory provisions regarding attachment (see CPLR 6201 et seq.) are closely analogous to the Louisiana statute which passed constitutional muster in Mitchell. Our statute also mandates judicial scrutiny over the attachment application and requires a creditor to show by affidavit "that there is a cause of action and the one or more grounds for
Our statutory scheme was recently evaluated in light of Mitchell and found to be constitutionally defective. In Sugar v Curtis Circulation Co. (383 F Supp 643 [presently before the Supreme Court of the United States on appeal]) a three-Judge District Court concluded that the fatal flaw in CPLR article 62 was its failure to provide for an immediate postseizure hearing at which the creditor has the burden of proving the grounds "upon which the writ issued” (supra, p 648). In reaching that conclusion, the court stated that "the sole basis for vacating the attachment under the CPLR [6223] is not that the grounds upon which it has been issued are unproven, but rather that the attachment 'is unnecessary to the security of the plaintiff; and the burden of proof is not, as in Mitchell, on the plaintiff, but on the defendant” (supra, p 648 [emphasis in original]).
We are not in accord with the decision reached in Sugar. As one distinguished commentator has noted, the holding in Sugar "misconstrues CPLR 6223 since a motion to vacate on the ground that the attachment is unnecessary for security is just one ground for vacating the attachment” (New York Trial Practice by Joseph McLaughlin, NYLJ, Nov. 8, 1974, p 4, cols 1-2). Thus, for example, an order of attachment will be vacated if the defendant has no interest in the property
In our view New York’s statutory scheme "effects a constitutional accommodation of the conflicting interests of the parties” (see Mitchell v Grant Co., 416 US 600, 607, supra). At the initial stage of the attachment procedure the burden is upon the creditor to establish, by competent pleadings and proof, the necessity and propriety for this drastic remedy. Although the order of attachment may be obtained ex parte, the debtor’s interest in the property is scrupulously protected by the Judge before whom the application is made. In addition, the debtor is afforded two postseizure remedies. Under CPLR 6222 a debtor may regain possession of the property by posting his own security bond and by making himself amenable to any judgment recovered against him. Further, CPLR 6223, as construed by our courts, permits the debtor to immediately attack the validity of the attachment order on a number of grounds, including the insufficiency of the creditor’s pleadings or cause of action. As we understand this section, broad discretion is given to a Judge to vacate an attachment order "when evidence, though not lacking altogether, may seem too weak or uncertain to justify the remedy” (see Zenith Bathing Pavilion v Fair Oaks S. S. Corp„ 240 NY 307, 313, supra). The mere fact that the burden of proof is placed upon the debtor to establish the order’s invalidity is not a ground upon which the entire statutory scheme should fall. As the court noted in Mitchell: "The requirements of due process of law 'are not technical, nor is any particular form of procedure necessary’ ” (supra, p 610 [citing Inland Empire Council v Millis, 325 US 697, 710]). Moreover, it is for the Legislature to decide what causes of action will justify the remedy of attachment (see Rothschild v Knight, 184 US 334, 341).
Accordingly, we hold that an ex parte order of attachment based upon subdivision 8 of CPLR 6201 is constitutional. However, as the plaintiff’s pleadings were insufficient as to Mildred and Marion Swartz, the motion to vacate the order of
. CPLR 6201 provides, in pertinent part:
“An order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when: * ** *
”8. There is a cause of action to recover damages for conversion of personal property, or for fraud or deceit.” The Special Term granted the order of attachment on three of the grounds specified in CPLR 6201, to wit: subdivisions 4, 6 and 8. Since the defendants’ constitutional argument was addressed solely to CPLR 6201 (subd 8), the Special Term found it unnecessary to reach that issue. On appeal, the plaintiff concedes that the seizure of the defendants’ property cannot be justified on the basis of subdivisions 4 or 6 of CPLR 6201. We agree that the attachment can only be upheld on the basis of subdivision 8.
. We note that a verified complaint may be treated like an affidavit and used by the movant to establish the fact that a cause of action exists (see CPLR 105, subd [s]).
. Although the statute refers to CPLR 6203, that is an apparent legislative mistake; the reference was clearly intended to be to CPLR 6201.
. Although the full impact of Mitchell is still unclear, Mr. Justices Powell and Stewart acknowledged that Fuentes has, in effect, been overruled (416 US, at pp 623, 634-635).
. See n 3, supra.
. See Cawley v Clarke (278 App Div 828).
. See 7A Weinstein-Korn-Miller, NY Civ Prac, par 6223.13.
. See n 3, supra.
. See American Reserve Ins. Co. v China Ins. Co. (297 NY 322, supra) Stines v Hertz Corp. (22 AD2d 823, affd 16 NY2d 605, supra) and 7A Weinstein-Korn-Miller, NY Civ Prac, par 6223.11 and the cases cited therein.
Concurrence Opinion
I fully agree with my brethren in the result reached in this case, even though my views are contrary to those of the court, as set forth in Independence Discount Corp. v Bressner (47 AD2d 756). Had I been in that case, I would have voted to the contrary.
Gulotta, P. J., Latham and Christ, JJ., concur with Martuscello, J.; Benjamin, J., concurs, with a separate memorandum.
On this appeal from an order of the Supreme Court, Westchester County, dated March 15, 1974, this court rendered a decision and order, both dated May 7, 1975. Now, on this court’s own motion said decision and order are recalled and vacated and the following decision is rendered.
Order of March 15, 1974 modified so as to provide that the defendants’ motion to vacate the order of attachment is granted as to defendants Mildred Swartz and Marion Swartz and, except as so granted, is otherwise denied. As so modified, order affirmed, without costs.