Four judgment creditors, Global Forwarding, Inc., Skidmore & Mason, Inc., Bona Vista Food Services, Ltd. and United Airlines, Inc., appeal from orders of Judge Owen (S.D.N.Y.) on June 4, and July 2, 1982, granting priority to the competing claim of a fifth judgment creditor, the Clarkson Company Limited, to stock owned by the judgment debtors, John Shaheen and Shaheen Natural Resources, Inc. Affirmed.
Feinberg, Chief Judge, Lumbard and Meskill, Circuit Judges.
This appeal arises out of enforcement proceedings brought by the Clarkson Company Ltd., to collect on its judgment against John Shaheen, Shaheen Natural Resources (SNR) and others. On June 4, 1982, Judge Owen of the Southern District of New York granted Clarkson's claim to stock owned by SNR priority over the competing claims of four other judgment creditors, Global Forwarding, Inc., Skidmore & Mason, Inc., Bona Vista Food Services, Ltd., and United Airlines (the state judgment creditors). The state judgment creditors appeal, challenging Clarkson's priority on the ground that it never perfected a levy against the securities in question. We affirm. Several months before the state judgment creditors attempted to levy on the stock, the district court took custody of the certificates for the benefit of Clarkson. We hold that no subsequent levy against SNR's interests in the stock could give the state judgment creditors priority over Clarkson's claim.
The Clarkson Company Ltd. filed the underlying lawsuit in this matter in March of 1976 as trustee in the bankruptcy of the Newfoundland Refining Company, Ltd. (NRC), a company controlled by John Shaheen. Clarkson sought to recover money that NRC had advanced or loaned to Shaheen, Shaheen Natural Resources, Inc., which Shaheen controlled, and others. On July 31, 1980, the district court entered judgment for Clarkson against the defendants for approximately $50 million; the judgment was affirmed in relevant part on appeal to this court. Clarkson v. Shaheen, 660 F.2d 506 (2d Cir. 1981), cert. denied, 455 U.S. 990, 71 L. Ed. 2d 850, 102 S. Ct. 1614 (1982). Clarkson immediately began its attempt to collect on the debt.
On July 1, 1980 after the jury had returned a verdict for Clarkson, the district court restrained the defendants from transferring assets. Nevertheless, on July 31, 1980, only nine days after the district court entered judgment on the jury's verdict, SNR transferred 185,000 shares of MacMillan Ring-Free Oil Co., Inc., to Ian Outerbridge, a Canadian attorney. The shares in MacMillan, a Delaware corporation that was controlled by Shaheen and had its principal place of business in New York, represented the bulk of SNR's principal asset. Thus, unbeknownst to Clarkson, when it levied against SNR in September, 1980 the MacMillan stock certificates were no longer in SNR's actual possession. When SNR failed to turn over the stock, Clarkson attempted to perfect its levy by commencing a "turn-over" proceeding in the district court to compel SNR's compliance with the execution levy. New York Civ. Prac. Law §§ 5225 & 5232(a) (McKinney 1978).
Clarkson did not learn of the transfer to Outerbridge until December 5, 1980. It moved immediately for relief, and in a hearing that day the court ordered MacMillan and its transfer agents not to transfer or assist in the transfer of the stock then in Outerbridge's possession. Three days later, after further consideration and a second hearing, the court ordered Outerbridge to retain the stock and to preserve any dividends or proceeds.
The following month, Clarkson began a second § 5225 turn-over proceeding to recover the MacMillan stock, this time naming Outerbridge as an additional respondent. Outerbridge voluntarily submitted himself to the jurisdiction of the court, but contested the turn-over proceeding on the ground that he had received the stocks in good faith for services rendered. The district court directed Outerbridge to bring the certificates within the jurisdiction of the Southern District. And on March 13, 1981, as the district court later described it, "the Court ordered the Spengler Carlson firm to take custody of those shares from its client Outerbridge and to hold them as 'trustee ' for the Court, which the firm did. From that moment until the present, the shares have been in the custody of this Court." 76 Civ. 1373, slip op. at 7 (January 26, 1982) (emphasis in original).
On October 27, 1981, the district court found that the MacMillan stock transfer was a fraudulent conveyance in violation of the court's July 1, 1980 restraining order. The court specifically found that neither Shaheen nor Outerbridge acted in good faith and that the transfer was not for fair consideration. The court ordered Spengler Carlson to turn the stock over to Clarkson.*fn1
Spengler Carlson refused to do so on the ground that it was subject to contradictory commands. Several other judgment creditors had begun to take an interest in the stock. They sought to enforce outstanding judgments totaling about $100,000, obtained against SNR in New York courts*fn2 between 1976 and 1978. In July and September of 1981, several months after Spengler Carlson had taken the stock as trustee for the district court, the state judgment creditors had levied against the stock in the firm's possession and had commenced a § 5225 turn-over proceeding against the firm in New York state court. Spengler Carlson argued that the state judgment creditors' levies made it impossible to comply with the district court's order to turn the stock over to Clarkson.
On November 2, 1981, on Clarkson's motion, the district court enjoined the state court turn-over proceedings and ordered Spengler Carlson to turn the stock over either to Clarkson or to the district court. Spengler Carlson then applied to this court for a stay of the order. However, on November 3, we denied the application, and the firm complied with our order to turn the stock over immediately to the district court.*fn3
On February 3, 1982, pursuant to a January 26, 1982 decision of Judge Owen, Clarkson began proceedings under Civ. Prac. Law §§ 5225 and 5239 (McKinney 1978) to determine its priority over the state judgment creditors. In an opinion filed on June 4, 1982, the district court held that Clarkson's rights in the MacMillan shares were ...