The opinion of the court was delivered by: ARTHUR D. SPATT
The plaintiff Harold Bernstein ("Bernstein") has brought this diversity action to enforce a judgment obtained in the New York State Supreme Court, New York County against the defendant Herbert Somekh ("Somekh"). The plaintiff alleges that Somekh and the other defendants have engaged in a scheme to make Somekh judgment-proof by transferring his assets to the other defendants. To halt this alleged scheme and prevent any further dissipation of the Somekh assets available to satisfy his judgment, Bernstein moves for the Court to enjoin the defendants from transferring any of their property, or in the case of the defendant Chemical Bank from transferring any property pledged to it by Somekh, except in satisfaction of Bernstein's judgment.
The defendants oppose the motion, and cross-move for this Court to decline jurisdiction pursuant to the abstention doctrine set forth in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976).
This case arises from failed partnerships between the plaintiff and Somekh. Bernstein, his late brother Raymond Bernstein and Somekh formed a variety of general and limited partnerships to finance real estate ventures around the country. According to Bernstein, Somekh looted, misappropriated, and wrongfully diverted partnership assets for his personal use, causing Bernstein to infuse extra funds into the partnerships. Allegedly, Somekh used partnership funds to pay off his personal debt, and the debt of his own independent partnerships and corporations. Bernstein claims that when various creditors sued the partnerships on outstanding debts, Somekh refused to pay his share of the partnership debts.
Because each of the partners had executed personal guarantees of the partnerships' debt, Bernstein and his brother's estate were personally liable for the partnership debts. In the suits by the creditors, the Bernsteins paid the debts to the creditor, and became subrogated to the creditor's right to recover Somekh's portion of the debt. For example, Citibank was owed $ 4 million by the partnerships, and sued the partnership and the partners individually in Florida state court. Bernstein's son and sister-in-law paid the Citibank debt, and sued Somekh in the New York State Supreme, Nassau County for $ 1.5 million, which allegedly represents Somekh's share of the partnership debt owed to Citibank.
The present action stems from a suit against the partnership brought by the creditor Fleet Bank in the N.Y. Supreme Court, New York County. Fleet was owed $ 2.5 million by the partnerships. Bernstein paid Fleet, and in turn sued Somekh to recover his share of the debt. Judgment was entered in Bernstein's favor on April 21, 1993 in the sum of $ 865,671 plus interest. See Harold Bernstein, successor-in-interest to Fleet bank (f/k/a Norstar Bank) v. Bernstein, Bernstein & Somekh, Harold P. Bernstein and Herbert Somekh, No. 30692/92 (Sup. Ct. N.Y. Co. April 12, 1993) (Justice Shainswit). It is this judgment which Bernstein seeks to preserve and enforce in the present case.
1. Bernstein's Enforcement Efforts.
Bernstein contends that he has been unsuccessful in enforcing the judgment he obtained in the New York State Supreme Court because Somekh has "engaged in a massive scheme to conceal his assets." According to the plaintiff, this scheme is evidenced by (i) Somekh's use of the defendants Hosiery Manufacturing Corporation of Morganton, Inc. ("Hosiery") and the Herbert N. Somekh Family Trust I ("Trust") -- allegedly Somekh's alter-egos -- to hide personal assets, (ii) fraudulent conveyances of Somekh's property to Hosiery and the Family Trust, and (iii) participating in a scheme with Chemical Bank to grossly over-collateralize a $ 6 million personal loan obligation by providing Chemical with $ 10 million in pledges of virtually all of Somekh's and Hosiery's assets.
Bernstein's enforcement efforts are varied. One effort to enforce the judgment has been to initiate supplementary proceedings before the same court that issued the judgment. In this respect, Bernstein has resorted to the enforcement procedures available under New York Civil Practice Law and Rules ("CPLR") Article 52. These procedures include issuing restraining notices, subpoenas, and seeking installment orders against Somekh. The most recent order in that proceeding by Justice Shainswit was entered on March 15, 1994, in which the state court denied Somekh's motion to stay or dismiss the action, and granted Bernstein's cross-motion for an installment order pursuant to New York CPLR § 5226. The installment order, however, awaits a referee's report and recommendation regarding the amount of monetary benefits Somekh receives from his family and Hosiery. Bernstein has also served restraining notices pursuant to CPLR § 5222 on the Somekhs and Chemical Bank, has served Chemical Bank with subpoenas, and has undertaken depositions and other discovery against Chemical.
In a related enforcement action in the New York State Supreme Court, Nassau County, Bernstein's son and sister-in-law, who had paid Citibank in the Florida suit by Citibank, were granted summary judgment in their enforcement suit against Somekh on May 24, 1993. Jay and Selma Bernstein v. Herbert and Denise Somekh, No. 17305/92 (Sup. Ct. Nassau Co.) (Justice Goldstein). In the Supreme Court Nassau County case Somekh commenced a third party proceeding against his other two partners, for the winding up and final accounting of the partnerships. A receiver was appointed to wind up the affairs of the partnerships, and an accounting hearing was scheduled to take place on April 11, 1994. In this case the court also issued a temporary restraining order against the Somekhs in February 1993, enjoining them from transferring any of their property, as well as restraining notices against the Somekhs and Chemical Bank.
The Court notes that there are two other related suits in the New York Supreme Court, Nassau County. In the first case, Hosiery has sued Bernstein on a note involving Bernstein's purchase of two limited properties. In the second, Somekh has sued his former partners on a promissory note involving one of the Oklahoma limited partnerships.
2. The Chemical Bank Action.
Like the other bank creditors of the partnerships, Chemical bank has sued Bernstein, the Somekhs and the estate of Raymond Bernstein on personal guarantees they executed in connection with Chemical loans to the partnership. Chemical Bank v. Harold Bernstein, et al., No. 123037/93 (Sup. Ct. N.Y. Co. September, 1993). Bernstein has asserted counterclaims against Chemical and cross-claims against Hosiery and Somekh in that action, alleging that Chemical and Somekh have plotted to tie up all of Somekh's and Hosiery's assets by pledging them to Chemical, in order to make the assets unavailable to judgment creditors like Bernstein.
Bernstein alleges that a $ 6 million loan to Chemical was oversecured by Somekh's pledging more than $ 10 million of his and Hosiery's assets -- certain notes, bonds, works of art, stock in a cooperative apartment, and leases in a number of factories -- to Chemical. Moreover, Bernstein alleges that Hosiery is Somekh's alter-ego, and that Somekh has made fraudulent conveyances of his assets to Hosiery. Significantly, these counterclaims and cross-claims are the same claims asserted against Chemical, Somekh and Hosiery in the present suit by Bernstein.
THE PLAINTIFF'S COMPLAINT
In the Complaint in the present action, the plaintiff alleges that he has been unsuccessful in enforcing the judgment against Somekh, because of a massive scheme on the part of the defendants to conceal Somekh's assets.
With respect to the defendant Hosiery, the plaintiff alleges that Hosiery is Somekh's alter ego, because it is totally dominated and controlled by Somekh. For example, Bernstein alleges that: (1) Somekh operates Hosiery out of his Manhasset home, and the company's address and phone number are the same as Somekh's; (2) the company does not have a certificate to do business in New York; (3) Somekh makes all the corporate decisions and writes all the checks; (4) neither Somekh's wife, the only other officer of Hosiery, nor I his daughters, the other shareholders, have any role in the corporation; (5) Hosiery has no full time employees and does not distribute dividends; (6) Somekh uses his own bank accounts and Hosiery's interchangeably, and pays for personal expenses such as credit card, phone, and country club bills with checks drawn against Hosiery; and (7) Somekh borrows funds personally, and guarantees the loan with Hosiery assets as collateral.