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RASHI TEXTILES v. RHOMBERG TEXTIL GESELLSCHAFT M.B

June 29, 1994

RASHI TEXTILES, U.S.A., INC., Plaintiff,
v.
RHOMBERG TEXTIL GESELLSCHAFT M.B.H., OF AUSTRIA, Defendant.



The opinion of the court was delivered by: ALLEN G. SCHWARTZ

 DEFENDANT'S APPLICATION FOR COSTS AND ATTORNEY'S FEES

 INTRODUCTION

 Rhomberg Textil Gesellschaft m.b.H. of Austria ("Rhomberg") has applied to this court for attorney's fees and costs pursuant to New York Civil Practice Law & Rules ("CPLR") Section 6212(e) *fn1" on the ground that Rashi Textiles U.S.A., Inc. ("Rashi") wrongfully attached its property on August 12, 1993. Rashi attached Rhomberg's checks and accounts receivable in order to secure a breach of contract claim Rashi had initiated in New York Supreme Court, New York County. Rhomberg alleges that because the attachment was vacated due to the existence of an ongoing foreign bankruptcy proceeding, the attachment was wrongful, and that Rhomberg is therefore entitled to fees and costs. For the reasons set forth below, we grant Rhomberg's motion. *fn2"

 BACKGROUND

 Pursuant to an agreement dated July 23, 1990, Rashi, a New York corporation, became the exclusive sales representative for Rhomberg, a company that maintained its principal place of business in Dirnborn, Austria. Roger Rashi Aff. (Aug. 5, 1993) P 4-5. The agreement provided that Rashi would receive 5% commissions on all invoices for textiles sold on behalf of Rhomberg in the United States, and was renewed yearly. Id.

 On April 19, 1993, Rhomberg initiated a voluntary bankruptcy proceeding in Austria which, according to the bankruptcy laws of Austria, is known as a composition proceeding. The general goal of an Austrian composition proceeding parallels a Chapter 11 bankruptcy in the United States, namely to allow the bankrupt to continue to do business rather than to liquidate its assets. During a composition proceeding in Austria, the debtor continues to conduct business, but requires the trustee's approval for any actions that go beyond the ordinary course of business. Additionally, a composition proceeding in Austria requires that all pre-petition debts be partially paid and all post-petition debts be paid in full.

 Rhomberg informed Rashi by facsimile of the Austrian composition proceeding on April 30, 1993. Gilbert Rashi Aff. (Nov. 4, 1993) P 4. On May 3, 1993, Gilbert Rashi, president of Rashi Textiles, traveled to Austria and met with Rhomberg's management and Leonard Lindner ("Lindner"), the court-appointed trustee for the Austrian bankruptcy. Id. P 6. On May 12, 1993, Rashi submitted to the Austrian bankruptcy court a list of debts that Rhomberg owed it. Id. P 4. During the course of the composition proceeding on June 8, 1993, AKV, an Austrian company representing all creditors in the bankruptcy, contacted Rashi and explained that they would represent Rashi as well if Rashi consented to the representation and paid AKV for these services. Hearing Before Judge Kenneth Conboy, Nov. 15, 1993 [hereinafter "November 15 Hearing"] Tr. at 77. On June 14, 1993, Rhomberg agreed to pay Rashi approximately $ 51,000 to settle one of its post-petition debts. Gilbert Rashi Aff. (Nov. 4, 1993) P 7.

 Rhomberg withdrew its petition for the composition proceeding three days before the Austrian bankruptcy court placed Rhomberg into involuntary bankruptcy on June 18, 1993. In an Austrian involuntary proceeding, the trustee represents the debtor and the debtor's management loses the power to carry on its business. The trustee, however, may authorize management actions. By letter dated June 24, 1993, Rhomberg terminated its business agreement with Rashi on the basis of Rhomberg's ongoing financial difficulties. Roger Rashi Aff. (Aug. 5, 1993) P 7. On July 1, 1993, Lindner released the $ 51,000 payment that Rhomberg had agreed to pay during the composition proceeding to Rashi. *fn3" Letter from Rhomberg (D. Pralon-Wissinger & Dr. L. Lindner) to Rashi Textiles of July 1, 1993.

 On July 13, 1993, Rashi brought a breach of contract action in New York Supreme Court claiming $ 755,800 in damages as a result of Rhomberg's contract termination. Rashi Compl. P 11. On July 29, 1993, AKV again informed Rashi that it would represent them in the bankruptcy if Rashi paid for this representation. November 15 Hearing Tr. at 74. On August 2, 1993, AKV filed a proof of claim on Rashi's behalf in the involuntary proceeding without Rashi's consent or knowledge. Id. at 47.

 On August 12, 1993, Rashi obtained an ex parte order of attachment of Rhomberg's property in New York pursuant to CPLR Section 6201(1). *fn4" See Ex Parte Order of Attach. (Aug. 12, 1993). The ex parte order of attachment stated that the attached property were checks and accounts receivable made payable to Rhomberg in the amount of $ 288,400 and that Rashi was entitled to an attachment on the basis that Rhomberg was a foreign corporation not authorized to do business in the State of New York. Id. at 2. The order also stated that Rashi had provided an undertaking in the amount of $ 25,273.00. Id. at 2. The order required Rashi to pay $ 12,636.50 of the undertaking, including reasonable attorney's fees, if a court finally decided that Rashi was not entitled to the attachment. Id. The order stated further that Rashi must use the balance of the undertaking to reimburse the Sheriff for all of his allowable fees. Id. at 3.

 On November 1, 1993, Judge Conboy ordered the parties to submit papers on the issue of whether the Austrian bankruptcy would adequately protect Rashi's claim for breach of contract damages. See Order (Nov. 1, 1993). At a hearing before Judge Conboy on November 15, 1993 (the "November 15 Hearing"), Rhomberg's expert witness testified that the involuntary bankruptcy proceeding in Austria would protect Rashi's claim. See November 15 Hearing Tr. at 47. The expert witness explained that Rashi could submit a claim in the Austrian involuntary proceeding and that it would receive equal treatment with other creditors under Austrian bankruptcy laws. Id. at 47-48.

 On November 18, 1993, Judge Conboy issued an order vacating the attachment and recognizing Rashi's voluntary discontinuance of its motion to confirm the attachment under Federal Rules of Civil Procedure 41(a)(1). Notice of Voluntary Dismissal & Vacatur of Ex Parte Order of Attach. (Nov. 18, 1993) (Conboy, J.) ("Vacatur Order"). In the Vacatur Order, Rashi consented to vacatur of the attachment and the release of the attached funds to the trustee in bankruptcy in the Austrian proceeding. Id. at 4. The Vacatur Order stated that testimony provided at the November 15 Hearing established that Rashi's interests would be "fairly and equitably treated in the Austrian bankruptcy proceeding." Id. Subsequently, Judge Conboy directed the Sheriff to release the levy on Rhomberg's property on December 2, 1993. Order Directing Sheriff to Release Levy (Dec. 2, 1993) (Conboy, J.).

 DISCUSSION

 Two issues confront this court on Rhomberg's application. First, we must determine whether Rashi's attachment was wrongful because, as noted, CPLR Section 6212(e) entitles Rhomberg to attorney's fees only if it is finally decided that plaintiff was not entitled to an attachment of defendant's property. Second, in the event that this court finds that plaintiff was not entitled, Rashi has contested the amount of damages sought by Rhomberg. Therefore, we must assess whether the damages requested actually exceed the amount of fees and costs Rhomberg expended. We address these issues in turn.

 A. Wrongful Attachment

 CPLR Section 6212(e) provides for recovery of costs and fees where it has been finally decided that a plaintiff was not entitled to an attachment of a defendant's property. N.Y. Civ. Prac. L. & R. § 6212(e). A defendant is not required to prevail on the merits in order for the court to award damages. See Fantasy Records, Inc. v. Travelers Indemnity Co., 54 Misc. 2d 799, 283 N.Y.S.2d 473, 476 (N.Y. Civ. Ct. 1967). Insofar as defendant's fees and costs were proximately caused ...


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