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SUGAR v. CURTIS CIRCULATION CO.

June 17, 1974

Bert Randolph SUGAR and Wrestling Revue, Inc., Plaintiffs,
v.
CURTIS CIRCULATION COMPANY, Defendants


Lasker, District Judge.


The opinion of the court was delivered by: LASKER

MEMORANDUM

LASKER, District Judge.

 In recent years, the constitutionality of statutes permitting the ex parte prejudgment seizure of property has been increasingly open to question. In this suit, plaintiffs seek injunctive and declaratory relief against the enforcement of Article 62 of the Civil Practice Law and Rules ("CPLR") of the State of New York, which permits prejudgment attachment of property without prior notice or a hearing. Plaintiffs claim that CPLR §§ 6201(4), (5) and (8) and 6211 are unconstitutional on their face, because they permit a deprivation of property without due process of law in violation of the Fourteenth Amendment.

 Plaintiffs request the convening of a three judge court pursuant to 28 U.S.C. §§ 2281 and 2284. Defendant, Curtis Circulation Company ("Curtis"), moves to dismiss on the grounds that 1) plaintiffs lack standing to sue because they have not been deprived of property by the operation of the statute; 2) they have waived their right to assert the constitutional claim raised here; and 3) there is a prior action pending in the state courts in which plaintiffs can obtain the full relief sought here. *fn1"

 I.

 Plaintiff, Bert Sugar, controls two corporations which publish sports periodicals, Champion Sports Publishing Inc. ("Champion") and Wrestling Revue, Inc., ("Wrestling"), a plaintiff in this action. In August, 1971, Sugar and Champion entered into a written agreement with Curtis, pursuant to which the latter was to distribute periodicals for the former. Curtis subsequently made advances to Champion which it was entitled, under the agreement, to recoup from payments received by Champion from distribution of Champion's periodicals.

 After the agreement had been in effect for over a year, by which time Champion was substantially indebted to Curtis, the latter became aware of facts which led it to believe that a fraud was being perpetrated on it by Sugar and his controlled corporations. In particular, Curtis learned that Wrestling was holding itself out as the owner of periodicals which Curtis was distributing for Champion and that Wrestling had contracted to sell some of these periodicals to third parties, the consideration for the sale to be received by Wrestling and not by Champion.

 As a result of these discoveries, Curtis notified one of the parties with whom Wrestling had contracted, National Sports Publishing Corporation ("National"), a defendant here, that, by virtue of the sums owed it by Champion, it was asserting a claim for the money payable by National to Wrestling. On February 28, 1973, National informed Wrestling and Sugar that it was withholding payment of a sum which became due on that date, because of the interest asserted by Curtis. On March 5, 1973, Wrestling sued National in the New York Supreme Court, Westchester County, on the ground that its failure to make the February 28th payment constituted a breach of their contract. On April 13, 1973, Curtis sued Sugar, Wrestling and Champion in the same court for the sums owing under the distribution agreement. In that action, Curtis obtained an order attaching the funds withheld by National on April 16, 1973, and National paid the sum in question to the Sheriff in compliance with the order. The attachment order also covered money owed by National to Wrestling payable subsequent to the entry of the order. National has continued to pay over such sums to the Sheriff as they have become due. In May, the two Supreme Court actions were consolidated at the request of Sugar, Champion and Wrestling.

 Thereafter, Sugar and Wrestling filed suit in this court claiming that the procedure by which the order of attachment was obtained violated their constitutional rights.

 II.

 Based on these facts, Curtis moves to dismiss. In the first instance, it contends that plaintiffs do not have standing to challenge the attachment procedure as an unconstitutional deprivation of property, because the order of attachment which gives rise to their attack did not in fact deprive them of any property. The argument runs as follows: When National on February 28, 1973, informed plaintiffs of their intention to withhold payment of the money which it owed them pending determination of who, as between plaintiffs and Curtis, was entitled to receive it, plaintiffs did not have possession of the funds and thus their only recourse was to sue National for breach of contract, which they subsequently did in early March. This right, Curtis argues, was entirely unaffected by the order of attachment obtained by Curtis in the second state court proceeding; attachment merely substituted the Sheriff for National as the holder of the disputed funds. Accordingly, Curtis contends, it deprived plaintiffs of nothing and left them exactly as they were prior to attachment. *fn2" Curtis argues further that dissolving the attachment would effectively decide the merits of the state court litigation by according plaintiffs possession of the funds, which they did not have prior to the state court litigation and the right to which constitutes the subject of the litigation.

 The argument, although ingenious, overlooks a crucial point. Although plaintiffs' possession of the funds was blocked prior to attachment by National's decision to withhold payment, the subsequent attachment transformed the situation in a critical respect. The superimposition, at Curtis' behest, of judicial sanction on National's until then purely voluntary withholding of the money deprived plaintiffs and National of the ability to resolve their dispute. It is true that attachment did not destroy plaintiffs' right to sue National, a right which they had already exercised; however, it made the objective of the suit unattainable either by compromise or victory on the merits. As a result of the attachment, resolution of the National-Wrestling conflict would no longer have resulted in possession by Wrestling of the disputed funds, since National would have had an off-set to the extent of the amount paid over to the Sheriff. CPLR § 6204. Accordingly, Wrestling and National's theretofore private disagreement could no longer be worked out between themselves, but only in conjunction with a resolution of Curtis' dispute with Champion. Clearly, this result was precisely what Curtis intended in seeking the attachment, which it now argues was merely an empty gesture. It is noteworthy that the deprivation to plaintiffs of the ability to acquire possession of the funds through compromise with National, which at the time of attachment was only potential, is now actual, since Wrestling and National have in fact reached a settlement of their dispute, which, were it not for the attachment order, would give Wrestling possession of the funds.

 Nor is it correct, as Curtis argues, that dissolution of the attachment order would place plaintiffs in a better position than they were in prior to attachment. To the contrary, dissolving the attachment order would return the funds to National, and thus reconstitute the status quo ante attachment. National would then be free, now as before, to turn the money over to Wrestling or to continue to withhold it.

 We turn to the other grounds asserted on the motion to dismiss, which are predicated on the existence of state court proceedings involving the same parties as are before us. Curtis argues that these proceedings require dismissal, because 1) plaintiffs' failure to assert their constitutional claim in state court constitutes a waiver precluding the suit in this court; 2) relegating plaintiffs to the state courts would further the interests of judicial economy; and 3) this court should abstain pending a determination by the state court.

 It is important, at the outset, to note that plaintiffs did not themselves initiate a state court proceeding in which it would have been possible to challenge the constitutionality of Article 62. The suit which plaintiffs brought was against National, not Curtis, and was brought prior to attachment. Since National was merely the garnishee, plaintiffs had no claim against it based on the validity of the attachment. Accordingly, the issue is reduced to whether the fact that Curtis sued plaintiffs obligated them to ...


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