Plymouth Venture Partners, II, L.P. v. GTR Source, LLC Capital Merchant ( 2021 )

20-118; 20-850
Plymouth Venture Partners, II, L.P. v. GTR Source, LLC; Capital Merchant Services, LLC
United States Court of Appeals
For the Second Circuit
August Term 2020
Argued: February 4, 2021
Decided: February 23, 2021
Nos. 20-118; 20-850
PLYMOUTH VENTURE PARTNERS, II, L.P., PLYMOUTH
MANAGEMENT COMPANY IN THEIR CAPACITIES AS
RECEIVERS FOR FUTURENET GROUP, INC.,
Plaintiffs-Appellants,
v.
GTR SOURCE, LLC, STEPHEN W. BIEGEL, IN HIS CAPACITY
AS NEW YORK CITY MARSHAL, BADGE NO. 27,
Defendants-Appellees. *
Appeal from the United States District Court
for the Southern District of New York
No. 19-cv-1471, John G. Koeltl, Judge.
* The Clerk of Court is respectfully directed to amend the caption as set forth above.
PLYMOUTH VENTURE PARTNERS, II, L.P., PLYMOUTH
MANAGEMENT COMPANY IN THEIR CAPACITIES AS
RECEIVERS FOR FUTURENET GROUP, INC.,
Plaintiffs-Appellants,
v.
CAPITAL MERCHANT SERVICES, LLC,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of New York
No. 19-cv-904, Katherine Polk Failla, Judge.
Before: WALKER, SACK, and SULLIVAN, Circuit Judges.
These cases present an unresolved question of New York law: whether a
judgment debtor suffers cognizable tort damages when a judgment creditor has a
marshal or sheriff seize the judgment debtor’s property pursuant to a valid money
judgment, but the levy by service of execution does not comport with the service
requirements of Article 52 of the CPLR. Because we conclude that this issue
implicates a host of important state interests, we reserve decision and certify the
question to the New York Court of Appeals.
REVERSED IN PART, DECISION RESERVED, AND QUESTION CERTIFIED.
SHANE R. HESKIN, White and Williams LLP,
New York, NY, for Plaintiffs-Appellants
Plymouth Venture Partners, II, L.P. and Plymouth
Management Company, in their capacities as
receivers for FutureNet Group, Inc.
2
RYAN K. CUMMINGS (James Zawodzinski, Jr., on
the brief), Hodgson Russ LLP, Buffalo, NY, for
Defendant-Appellee GTR Source, LLC.
ANDREW P. SCHRIEVER (Troy D. Lipp, on the
brief), Cuddy & Feder LLP, White Plains, NY,
for Defendant-Appellee Stephen W. Biegel, in his
capacity as New York City Marshal, Badge No. 27.
CHRISTOPHER R. MURRAY, Stein Adler Dabah &
Zelkowitz, LLP, New York, NY, for Defendant-
Appellee Capital Merchant Services, LLC.
RICHARD J. SULLIVAN, Circuit Judge:
These cases present an unresolved question of New York law: whether a
judgment debtor suffers cognizable tort damages when a judgment creditor has a
marshal or sheriff seize the judgment debtor’s property pursuant to a valid money
judgment, but the levy by service of execution does not comport with the service
requirements of Article 52 of the CPLR. Because we conclude that this issue
implicates a host of important state interests, we reserve decision and certify the
question to the New York Court of Appeals.
I. Background
A. Facts
FutureNet Group, Inc. is a Michigan corporation that provides
infrastructure services to governments and commercial customers. GTR Source,
3
LLC and Credit Merchant Services, LLC (“CMS”) are both merchant cash advance
businesses, which offer companies cash today in exchange for a portion of those
companies’ future accounts receivable.
In November 2017, GTR Source entered into such an agreement with
FutureNet whereby GTR Source advanced FutureNet $200,000 in exchange for
approximately $291,000 in future accounts receivable. The contract explained that
FutureNet’s receivables were to be direct deposited into the company’s bank
account with Comerica Bank, from where GTR Source would be permitted to debit
daily payments of $3,999.00. Around the same time, FutureNet entered into a
similar agreement with CMS. The only difference was the magnitude of the deal:
CMS advanced FutureNet $550,000 in exchange for a little over $780,000 in
accounts receivable. And like GTR Source, CMS received payment in daily debits
from FutureNet’s Comerica bank account.
In February 2018, FutureNet was unable to meet its daily payment
obligations, causing both GTR Source and CMS to declare defaults and file
affidavits of confession of judgment pursuant to CPLR 3218 in New York state
court. Later that month, both creditors received a state court judgment.
Thereafter, GTR Source and CMS served restraining notices on Comerica,
4
directing the Detroit, Michigan branch at which FutureNet held its account to
refrain from transferring any of FutureNet’s funds. 1 Even though Comerica is a
Texas-based entity with no banking branches in New York, the notices indicated
that Comerica was subject to jurisdiction in New York and warned that failure to
comply could result in legal action against Comerica.
A week later, GTR Source issued an “execution with notice to garnishee” to
the New York City Marshal, Stephen Biegel (the “Marshal” and, together with
GTR Source and CMS, “Defendants”), naming Comerica as FutureNet’s
garnishee. 2 See GTR Source App’x at 55–56. GTR Source directed the Marshal to
serve that execution on Comerica through Corporate Creations Network, Inc., a
Rockland County-based entity and Comerica’s designated agent in New York.
Upon receipt of the execution, the Marshal levied on FutureNet’s property by
serving the execution on Corporate Creations by certified mail.
1GTR Source served the notice directly on the bank’s Detroit branch, while CMS served the notice
on Corporate Creations Network, Inc., Comerica’s designated New York agent, which is based in
Rockland County, New York.
2 “A ‘garnishee’ is a person who owes a debt to a judgment debtor, or a person other than the
judgment debtor who has property in his possession or custody in which [the] judgment debtor
has an interest.” CPLR 105(i). A judgment creditor may seize such property of the judgment
debtor by having a sheriff or marshal serve a copy of the execution on the garnishee, which is a
process known as “[l]evy by service of execution.” See CPLR 5230, 5232(a).
5
On March 14, 2018, the Marshal’s office delivered an amended execution to
Comerica’s Detroit branch via fax. The fax cover sheet indicated that the execution
was sent by someone named “Alona,” not the Marshal. A week later, Comerica
issued a bank check to the Marshal for a little over $127,000, which the Marshal
then distributed to GTR Source (after deducting his 5% poundage fee). 3 With that
money in hand, GTR Source filed a satisfaction of judgment in the New York state
court action.
The following month, CMS pursued a similar collections approach. On
April 17, 2018, CMS issued an “execution with notice to garnishee” to the Rockland
County sheriff, directing him to levy upon FutureNet’s Comerica bank account by
serving the execution on Corporate Creations. See CMS App’x at 37–39. Once the
sheriff served the execution as directed, Comerica turned over a bank check for
around $322,000 to the sheriff, which the sheriff then remitted to CMS. Despite
this recovery, more than half of CMS’s money judgment against FutureNet
remains unsatisfied.
3When a New York City marshal collects money by virtue of an execution, the marshal is
ordinarily permitted to take a 5% fee, known as a “poundage fee,” as payment for his services.
See Solow Mgmt. Corp. v. Tanger, 10 N.Y.3d 326, 330 & n.3 (2008) (citing CPLR 8012(b)(1) and N.Y.C.
Civ. Ct. Act § 1609(1)(a)). In this case, that fee amounted to a little over $6,000.
6
B. Procedural History
On February 28, 2018, before GTR Source had seized FutureNet’s funds,
FutureNet moved in state court to vacate the judgment held by GTR Source due
to alleged procedural and jurisdictional defects in the affidavit of confession of
judgment. Two weeks later, the state court denied FutureNet’s application,
holding that FutureNet would need to pursue its requested relief in a separate
plenary action. See generally GTR Source, LLC v. FutureNet Grp., Inc., 98 N.Y.S.3d
500 (Table) (Sup. Ct. Mar. 13, 2018).
After GTR Source and CMS seized funds from FutureNet’s bank account,
FutureNet’s secured creditors commenced a Michigan state court action, seeking
to appoint a receiver to oversee FutureNet’s assets. Basil Simon was appointed as
receiver over certain intangibles and, on August 24, 2018, acting in his capacity as
receiver, he commenced another New York state court action seeking to vacate the
GTR Source judgment. Three months later, the state court denied Simon’s motion
on jurisdictional and procedural grounds. See generally GTR Source, LLC v.
FutureNet Grp., Inc., 89 N.Y.S.3d 528 (Sup. Ct. 2018).
On February 25, 2019, Simon commenced an action against GTR Source and
the Marshal in the Southern District of New York. Unlike the prior cases, this
7
action did not seek to invalidate GTR Source’s judgment. Rather, it sought to hold
GTR Source and the Marshal liable for tort damages that they allegedly caused as
a result of an improper execution and levy. In short, Simon took the position that
the execution and subsequent levy by service were improper because the Marshal
served the execution on Corporate Creations, which is based in Rockland County,
and the Marshal’s jurisdiction is limited to New York City. See N.Y.C. Civ. Ct. Act
§ 1609(1)(a) (explaining that “[t]he authority of a marshal extends throughout the
city of New York”); see also GTR Source App’x at 147. Simon argued that because
the execution issued by GTR Source directed the Marshal to act outside of his
jurisdiction, and because the Marshal did, in fact, act outside his jurisdiction, the
execution and levy were void from inception. According to Simon, this meant that
GTR Source and the Marshal took possession of FutureNet’s property without
authority, which rendered both defendants liable under state tort law for wrongful
execution, conversion, and trespass to chattels. 4 On each claim against each
defendant, Simon asserted damages of just over $127,000 – the total amount
collected pursuant to the allegedly unlawful levy.
4Simon also argued that the Marshal was required to personally serve the execution by hand and
was not permitted to fax the amended execution to Detroit or to have some other member of his
office serve the execution on his behalf.
8
On December 26, 2019, the district court (Koeltl, J.) entered summary
judgment in favor of both GTR Source and the Marshal on all of Simon’s claims.
See generally Simon v. GTR Source, LLC, No. 19-cv-1471 (JGK), 2019 WL 7283279(S.D.N.Y. Dec. 26, 2019). The district court concluded that, regardless of whether
the execution and levy were valid, FutureNet had suffered no damages.
Specifically, the district court found that “[t]he debt owed by FutureNet to GTR
[Source], which [Simon] does not dispute is a valid debt, has now been satisfied as
a result of the Marshal’s execution and a satisfaction of judgment has been
entered,” meaning that FutureNet was not harmed. Id. at *4.
Separately, on January 25, 2019, Simon initiated a similar suit against CMS
in the Southern District of New York, arguing that CMS’s execution and levy were
invalid because Corporate Creations is not a proper agent for service within the
meaning of CPLR 318 and 5232(a). 5 Following the decision in the GTR Source case,
CMS sought to dismiss the suit based on issue preclusion. The district court
(Failla, J.) agreed, finding that Simon’s claims hinged on the same question of law
at the heart of GTR Source: whether a judgment debtor is damaged by an improper
5As Simon pointed out, CPLR 5232(a) states that for service of an execution to be made on an
agent, that agent must meet the specifications of CPLR 318, which Simon alleged Corporate
Creations does not.
9
execution and levy when the seized property is used to satisfy a valid money
judgment. See generally Simon v. Cap. Merch. Servs., LLC, No. 19-cv-904 (KPF), 2020
WL 615091 (S.D.N.Y. Feb. 10, 2020). Because GTR Source had already answered
that question in the negative, the district court concluded that it would be
improper to permit Simon to have another bite at the apple. See id. at *8–11.
Nevertheless, the district court went on to state that had Simon been free to
relitigate the issue, the court would have arrived at the same conclusion as the
GTR Source court, namely, that FutureNet suffered no damages because the
alleged conversion resulted in the property being used to satisfy a valid money
judgment. See id. at *11–12.
Thereafter, both decisions were appealed to this Court by two of
FutureNet’s senior creditors, Plymouth Venture Partners, II, L.P. and Plymouth
Management Company (together, “Plymouth”), who were assigned Simon’s
claims and permitted to substitute into the actions as appellants. Although the
party driving these and other related litigations has changed over time, we refer
to these entities collectively as “FutureNet” for simplicity’s sake.
10
II. Standard of Review
The parties ask us to review a variety of decisions decided at different
procedural junctures across the two cases. But because each of those decisions
ultimately turned on determinations of law, we review them all de novo. See
Yamashita v. Scholastic Inc., 936 F.3d 98, 103 (2d Cir. 2019) (Rule 12(b)(6) dismissal),
cert. denied, 140 S. Ct. 2670 (2020); Sung Cho v. City of New York, 910 F.3d 639, 644
(2d Cir. 2018) (Rooker-Feldman doctrine); ING Bank N.V. v. M/V Temara, IMO No.
9333929, 892 F.3d 511, 518 (2d Cir. 2018) (summary judgment); Bank of N.Y. v. First
Millennium, Inc., 607 F.3d 905, 919 (2d Cir. 2010) (issue preclusion).
III. Discussion
Both appeals raise the same core question: whether FutureNet suffered
damages from a procedurally improper execution and levy when the property
seized pursuant to that execution and levy was used to satisfy a valid money
judgment. But, before getting there, each appeal presents a threshold issue that
we must address. With respect to the GTR Source appeal, GTR Source argues that
we – and the district court – lack jurisdiction to hear the case because FutureNet’s
action is barred by the Rooker-Feldman doctrine. As for the CMS appeal, CMS
argues that the district court correctly dismissed FutureNet’s claims based on issue
11
preclusion. Although we conclude that neither of these threshold issues presents
an impediment, we nevertheless find that the core question is an unsettled issue
of New York law that merits certification to the New York Court of Appeals.
A. Jurisdiction & Rooker-Feldman Doctrine
Under the Rooker-Feldman doctrine, federal district courts lack subject matter
jurisdiction over “cases brought by state-court losers complaining of injuries
caused by state-court judgments rendered before the district court proceedings
commenced and inviting district court review and rejection of those judgments.”
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005). The doctrine
is a consequence of 28 U.S.C. § 1257, which “vests authority to review a state
court’s judgment solely in th[e] [Supreme] Court.” Id. at 292. We have described
the Rooker-Feldman doctrine as having four elements: (1) “the federal-court
plaintiff must have lost in state court”; (2) “the plaintiff must complain of injuries
caused by a state-court judgment”; (3) “the plaintiff must invite district court
review and rejection of that judgment”; and (4) “the state-court judgment must
have been rendered before the district court proceedings commenced.” Hoblock v.
Albany Cnty. Bd. of Elections, 422 F.3d 77, 85 (2d Cir. 2005) (internal quotation marks
and brackets omitted). As Rooker-Feldman goes to subject matter jurisdiction, id.12
at 83, it must be addressed first before the other issues raised on appeal, see
Sinochem Int’l Co. v. Malay. Int’l Shipping Corp., 549 U.S. 422, 430–31 (2007).
In the GTR Source case, the district court determined that GTR Source was
unable to demonstrate the second element of the Rooker-Feldman test: that
FutureNet’s alleged injuries were caused by the state-court judgment. We agree.
“[T]he applicability of the Rooker-Feldman doctrine turns not on the similarity
between a party’s state-court and federal-court claims (which is, generally
speaking, the focus of ordinary preclusion law), but rather on the causal relationship
between the state-court judgment and the injury of which the party complains in
federal court.” McKithen v. Brown, 481 F.3d 89, 97–98 (2d Cir. 2007). The upshot
of this rule is that Rooker-Feldman preclusion does not apply to claims seeking to
redress injuries that “existed prior in time to the state-court proceedings.” Id. at 98(emphasis omitted).
FutureNet brought two prior actions in state court seeking to have GTR
Source’s underlying judgment vacated. The state court refused to grant relief.
Naturally, if FutureNet’s federal claims were based on harms flowing directly
from those decisions or the underlying judgment, those claims would be
precluded under Rooker-Feldman. But that is not this case. FutureNet now admits
13
that GTR Source’s judgment is valid, and FutureNet is simply looking to recover
damages related to an allegedly improper execution and levy. That is a separate
inquiry from whether the judgment itself is valid. And, more to the point, the
allegedly improper execution and levy (and any damages flowing therefrom) were
not caused by the prior state-court judgment.
Consequently, we agree with the district court that it had jurisdiction to hear
FutureNet’s claims against GTR Source and the Marshal.
B. Issue Preclusion
As for the CMS appeal, the district court concluded that the core legal issue
underlying FutureNet’s claims against CMS was decided against FutureNet in the
GTR Source case and that, as a result, FutureNet was precluded from relitigating
the issue. In reaching that conclusion, the district court acknowledged that the
issue is one of pure law, but explained that, under federal preclusion law, issue
preclusion still applies to purely legal issues unless policy considerations counsel
otherwise. See Cap. Merch. Servs., 2020 WL 615091, at *9 (citing Env’t Def. v. EPA,
369 F.3d 193, 203 (2d Cir. 2004)). Finding no overriding policy considerations, the
district court dismissed FutureNet’s complaint. But while the district court’s
14
reasoning might have been persuasive if federal preclusion law applied in this case,
it does not.
The GTR Source case was before the district court based on the parties’
diversity of citizenship. And as the Supreme Court has instructed, federal
diversity judgments should be accorded the same preclusive effect that would be
applied by state courts in the state in which the federal diversity court sits. See
Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 507–08 (2001); see also Joseph
v. Athanasopoulos, 648 F.3d 58, 66 n.8 (2d Cir. 2011); Duane Reade, Inc. v. St. Paul Fire
& Marine Ins. Co., 600 F.3d 190, 195 (2d Cir. 2010). Here, that means the preclusive
effect of the GTR Source judgment is governed not by federal law, but by New York
state preclusion rules.
“Under New York law, collateral estoppel bars relitigation of an issue when
(1) the identical issue necessarily was decided in the prior action and is decisive of
the present action, and (2) the party to be precluded from relitigating the issue had
a full and fair opportunity to litigate the issue in the prior action.” Evans v. Ottimo,
469 F.3d 278, 281 (2d Cir. 2006). Importantly, however, the New York Court of
Appeals has declared that issue preclusion is inapplicable to pure questions of law.
See Am. Home Assurance Co. v. Int’l Ins. Co., 90 N.Y.2d 433, 440 (1997) (explaining
15
that the plaintiff’s arguments concern “a pure question of law,” meaning that “the
doctrine of collateral estoppel does not preclude [the plaintiff] from litigating that
issue again”); see also 11th St. Assocs. LLC v. City of New York, 30 N.Y.S.3d 550, 551
(1st Dep’t 2016) (same).
CMS does not dispute that the district court’s conclusion in GTR Source
turned on a pure question of law. Under New York law, then, issue preclusion is
unavailable. See Am. Home Assur., 90 N.Y.2d at 440. Consequently, we conclude
that the district court erred in finding issue preclusion in the CMS case and reverse
that portion of its decision. But, of course, that leaves the district court’s
alternative holding that FutureNet suffered no damages, which is identical to the
holding by the district court in the GTR Source case.
C. Certification of the Issue of FutureNet’s Damages
“We may certify a question to the New York Court of Appeals where that
court ‘has not spoken clearly on an issue and we are unable to predict, based on
other decisions by New York courts, how the Court of Appeals would answer a
certain question.’” Ortiz v. Ciox Health LLC, 961 F.3d 155, 158 (2d Cir. 2020)
(quoting Tire Eng’g & Distr. L.L.C. v. Bank of China Ltd., 740 F.3d 108, 114 (2d Cir.
2014)); see also 2d Cir. R. 27.2(a); 22 N.Y.C.R.R. § 500.27(a). “In deciding whether
16
to certify a question[,] we consider: (1) the absence of authoritative state court
decisions; (2) the importance of the issue to the state; and (3) the capacity of
certification to resolve the litigation.” O’Mara v. Town of Wappinger, 485 F.3d 693,
698 (2d Cir. 2007). Each of these factors weighs in favor of certification here.
First, the Court of Appeals has not decided the specific question raised in
these cases, and there is insufficient precedent from other New York courts to
confidently predict how the Court of Appeals would resolve the issue. See CFTC
v. Walsh, 618 F.3d 218, 231 (2d Cir. 2010) (observing that certification is appropriate
where an issue has not been litigated often enough in New York courts to give rise
to “sufficient precedents . . . to make a determination concerning [its] proper
outcome” (internal quotation marks omitted)).
FutureNet argues that the executions and levies at issue in these cases did
not comply with the requirements of Article 52 of the CPLR, specifically,
CPLR 5232(a). As a result, FutureNet contends that the executions and levies were
examples of “void or irregular process” and, therefore, “furnish[] no justification
to [Defendants] for acts done under [them].” 6 Day v. Bach, 87 N.Y. 56, 60 (1881);
see also Fischer v. Langbein, 103 N.Y. 84, 89–91 (1886); Silberstein v. Presbyterian Hosp.
6In this context, “process” is the execution or levy, and not the judgment itself. See Williams v.
Williams, 23 N.Y.2d 592, 596 & n.1 (1969).
17
in N.Y.C., 463 N.Y.S.2d 254, 255–56 (2d Dep’t 1983). In other words, FutureNet
maintains that the executions and levies must be treated as legal nullities, and that
Defendants therefore had no right to seize FutureNet’s property, rendering them
liable in tort. See Tausend v. Handlear, 68 N.Y.S. 77 (Mem), 33 Misc. 587, 590–91
(App. Term 1901); V. Loewer’s Gambrinus Brewing Co. v. Lithauer, 73 N.Y.S. 947, 948
(App. Term 1901) (holding that “neither marshal had power to perform any official
function in Kings county[,] . . . [meaning] that all the defendant did there in the
way of taking and retaining possession of the property was tortiously done”), aff’d,
80 N.Y.S. 1150 (Mem) (1st Dep’t 1903); cf. Cla-Mil E. Holding Corp. v. Medallion
Funding Corp., 6 N.Y.3d 375, 379 (2006) (explaining that a marshal can be held liable
for damages he negligently inflicts on a judgment debtor while seizing property
pursuant to a judgment). 7
Defendants counter primarily that FutureNet suffered no damages from the
executions and levies because, regardless of the procedures employed, the
7In addition to simply having money wrongfully removed from its account, FutureNet points
out that Defendants’ actions have harmed FutureNet’s more senior creditors, such as Plymouth,
by preventing FutureNet’s limited funds from being distributed in accordance with creditor
seniority. See, e.g., Lines v. Bank of Am. Nat’l Tr. & Sav. Ass’n, 743 F. Supp. 176, 182–83
(S.D.N.Y. 1990). While that may be so, this action has been brought only on FutureNet’s behalf
and so it is only FutureNet’s damages with which we are concerned. Had FutureNet’s senior
creditors wanted to sue on their own accounts, they could have done so, perhaps through a
proceeding to determine adverse claims under CPLR 5239.
18
underlying money judgments are valid, and the seizure of FutureNet’s funds
satisfied those judgments (either in whole or in part) to FutureNet’s benefit.
Defendants further argue that FutureNet’s sole remedy was to seek relief under
CPLR 5240 (which permits courts to issue orders regulating judgment enforcement
procedures) or CPLR 5222-a (which permits a judgment creditor to claim
exceptions to execution), which the company failed to do.
To be sure, Defendants’ argument is difficult to square with the rule that
“[o]ne who has wrongfully taken property [ordinarily] cannot mitigate damages
by showing that he has himself applied the property to the owner’s use without his
consent.” Higgins v. Whitney, 24 Wend. 379, 381 (N.Y. Sup. Ct. 1840); see also Ball v.
Liney, 48 N.Y. 6, 14–15 (1871); Sam R. Levy Fabrics, Inc. v. Shapiro Bros. Factors Corp.,
19 N.Y.S.2d 593, 596 (1st Dep’t 1940) (explaining that whether damages were
mitigated because the converted property was used to pay a valid obligation of
the plaintiff “might depend on whether the application was at the instigation of
the wrongdoer”); Kelly v. Archer, 48 Barb. 68, 72–73 (N.Y. Sup. Ct. 1866); cf.
MacGuire v. Elometa Corp., 592 N.Y.S.2d 730, 730–31 (1st Dep’t 1993) (recognizing
that even where a conversion results in no damages, the plaintiff may still be
entitled to nominal damages and “should be given an opportunity to prove at trial
19
any other damages [it] sustained as a result of the conversion”). But it is possible
that New York law recognizes a distinction in this context between a simple debt
and a valid money judgment, and neither party identifies a New York Court of
Appeals opinion addressing that precise issue. In fact, two recent New York
Supreme Court decisions have reached differing results on the topic.
In Bam Bam Entertainment LLC v. Pagnotta, the Supreme Court for Kings
County rejected a judgment debtor’s attempt to sue the New York City marshal in
a factually similar scenario, concluding that the judgment debtor had suffered no
damages. 75 N.Y.S.3d 804, 810 (Sup. Ct. 2018) (explaining that “the Plaintiff
can[not] establish any damages as there simply is no dispute that the Judgment
Debtor and the Plaintiff owe the money that was levied upon to pay the monies
owed the Judgment Creditor”). But the Supreme Court for Ontario County
reached the opposite conclusion in Silver Cup Funding LLC v. Horizon Health Center,
Inc., holding that a judgment creditor was required to pay restitution to a
judgment debtor for a procedurally improper execution and levy, and indicating
that, although that case was instituted under CPLR 5240, the judgment creditor
“may have a cause of action for damages” in a separate plenary action. 135
N.Y.S.3d 631 (Table), 2020 WL 7550558, at *4 (Sup. Ct. Dec. 18, 2020).
20
Given that lower state courts have split on this issue, and absent clear
guidance from the New York Court of Appeals, we conclude that certification of
the question to the New York Court of Appeals is preferable to resolving it
ourselves. See Ortiz, 961 F.3d at 159; CFTC, 618 F.3d at 231.
Second, resolving this issue involves making decisions and weighing
competing interests that the New York Court of Appeals is better positioned to do
in the first instance. On the one hand, a ruling for the plaintiffs could lead to an
increase of suits against state officers who in good faith carry out instructions to
execute on valid judgments. On the other hand, a ruling for the defendants could
serve to immunize such officers from liability for wrongful conduct. Moreover,
New York law is clear that New York state courts are vested with primary
oversight authority over marshals. See N.Y.C. Civ. Ct. Act §§ 1605, 1608–1612.
Finally, this case could affect the collection efforts made on tens of thousands of
judgments issued by New York courts. Given the competing state interests at
stake, this issue is therefore best answered by the New York Court of Appeals. See
Ortiz, 961 F.3d at 159.
Third, the answer to the certified issue will no doubt control the outcome of
the two cases before us. Should the Court of Appeals determine that no tort
21
damages exist in a scenario such as this, FutureNet’s claims plainly cannot
proceed. In the alternative, if the Court of Appeals decides that tort damages are
available, the district courts’ decisions would be undermined, and the cases would
have to be remanded for further proceedings.
IV. Conclusion
For the reasons stated above, we reserve decision and certify the following
questions to the New York Court of Appeals:
(1) whether a judgment debtor suffers cognizable damages in tort
when its property is seized pursuant to a levy by service of
execution that does not comply with the procedural
requirements of CPLR 5232(a), even though the seized property
is applied to a valid money judgment; and, if so
(2) whether the judgment debtor can, under these circumstances,
bring a tort claim against either the judgment creditor or the
marshal without first seeking relief under CPLR 5240.
The Court of Appeals is not limited to the questions stated. Rather, the Court of
Appeals may modify the certified questions as it sees fit and may direct the parties
to address other issues that it deems relevant to the circumstances presented in
this appeal. This panel will retain jurisdiction following the response of the New
York Court of Appeals.
It is therefore ORDERED that the Clerk of this Court transmit to the Clerk
of the Court of Appeals of the State of New York a Certificate, as set forth below,
22
together with complete sets of briefs and appendices, and the records filed in this
Court by the parties.
Certificate
The foregoing is hereby certified to the Court of Appeals of New York
pursuant to Second Circuit Local Rule 27.2 and New York Codes, Rules, and
Regulations Title 22, § 500.27(a), as ordered by the United States Court of Appeals
for the Second Circuit.
23