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FEDERAL INS. CO. v. COUNTY OF WESTCHESTER

April 8, 1996

FEDERAL INSURANCE COMPANY, Plaintiff,
v.
THE COUNTY OF WESTCHESTER, Defendant.



The opinion of the court was delivered by: RAKOFF

 JED S. RAKOFF, U.S.D.J.

 The primary legal issue raised by this application for a stay pending appeal is whether Rule 62(f) of the Federal Rules of Civil Procedure automatically accords a political subdivision of the State of New York the same right to a stay as the subdivision would have under New York Law. The Court concludes that it does not.

 Background

 On March 7, 1996, Magistrate Judge Fox, before whom this diversity action was tried on consent, issued a final judgment ordering defendant The County of Westchester (1) to pay damages to plaintiff Federal Insurance Company in the sum of $ 2,639,436.25; (2) to return to Federal Insurance all cash, bonds and other securities held as "retainage," together with all proceeds and interest earned thereon; and (3) to furnish Federal Insurance with a full accounting of the retainage. *fn1" After filing a notice of appeal in the Second Circuit, the County moved, by order to show cause, for an order of the District Court staying execution of the judgment pending appeal. See Rule 8(a), Fed. R. App. P. 8. In its supporting papers, the County argued that it was entitled to a stay, without having to post a bond, either as a matter of right under Rule 62(f), Fed. R. Civ. P., or as a matter of discretion under Rule 62(d), Fed. R. Civ. P. See generally, Texaco, Inc. v. Pennzoil Co., 784 F.2d 1133, 1154 (2d Cir. 1986), rev'd on other grounds, 481 U.S. 1, 95 L. Ed. 2d 1, 107 S. Ct. 1519 (1987); Morgan Guaranty Trust Co. Of New York v. Republic of Palau, 702 F. Supp. 60, 65 (S.D.N.Y. 1988); Trans World Airlines Int'l v. Hughes, 314 F. Supp. 94, 96 (S.D.N.Y. 1970).

 On March 13, 1996, upon receipt of the proposed order to show cause, the Court held a hearing, at which counsel for both sides appeared and argued. In the course of the hearing, the County relinquished its request for a stay of so much of Magistrate Judge Fox's judgment as requires defendant to supply an accounting of the retainage. In fact this accounting has now been supplied. (See Affidavit of Peter P. Pucillo, dated March 25, 1996, stating total of retainage account as $ 2,549,398.16 as of February 29, 1996.) Accordingly, the Court need no longer consider this portion of the request for a stay.

 Following the hearing, the Court granted a temporary stay pending receipt of further written submissions on the issues presented. The Court, having now reviewed the submissions of the parties and the relevant authorities, hereby lifts the temporary stay and denies the County's motion for a stay except to the extent consented to by Federal Insurance, as set forth below.

 Discussion

 First, the Court concludes that a stay under Fed. R. Civ. P. 62(f) is not available to the defendant in this case. Rule 62(f) provides as follows:

 
Stay According to State Law. In any state in which a judgment is a lien upon the property of the judgment debtor and in which the judgment debtor is entitled to a stay of execution, a judgment debtor is entitled, in the district court held therein, to such stay as would be accorded the judgment debtor had the action been maintained in the courts of that state.

 It is uncontested that if this action had been maintained in the courts of New York, the County would be entitled to an automatic stay pending appeal (without having to post a bond) pursuant to CPLR 5519(a)(1). But Rule 62(f) adopts the stay provisions of the forum state only where the underlying judgment is "a lien upon the property of the judgment debtor" in that state (i.e., where there is the functional equivalent of a bond in terms of security). Here, New York law expressly precludes the filing of such a lien. See CPLR 5203(1)(5).

 As Judge Eginton stated in Marandino v. D'Elia and Jofr Assocs., 151 F.R.D. 227, 229 (D. Conn. 1993): "Rule 62(f) is unambiguous. As a prerequisite, a judgment must be a lien in the state where the district is located." See also Matthews v. CTI Container Transport Int'l Inc., 689 F. Supp. 348, 351 (S.D.N.Y. 1988). Since this condition is not met in this case, The County is not entitled to a stay pursuant to Rule 62(f).

 It is true that one federal court eliminated this prerequisite in a case where, to do otherwise, would have effectively contravened what the court found was a strong policy of the forum state favoring stays without security in certain cases. See Castillo v. Montelepre, Inc., 999 F.2d 931 (5th Cir. 1993). In the instant case, as CPLR 5519(a) makes evident, a strong state policy likewise obtains, favoring automatic stays without security where the judgment debtor is a political subdivision. But the court in Castillo never explains how any such policy consideration can override the plainly expressed requirement of Rule 62(f) that the underlying judgment be a lien.

 Even as a matter of policy, moreover, the argument is unpersuasive, because Rule 62(f), on its face, represents a considered balance between state and federal interests, neither of which is given priority. Thus, as even the court in Castillo acknowledged, while one purpose of Rule 62(f) is to allow judgment debtors to receive in a federal forum the same rights to a stay as they would receive in their state forum, "this purpose ... is qualified by the requirement that the state forum treat judgments as a lien, or encumbrance, on the property of judgment debtors. The purpose behind this [additional] requirement is also plain: judgment creditors must be afforded security while judgment debtors appeal." Id. This latter purpose clearly reflects a federal policy determination that judgment creditors must be afforded security by all judgment debtors, not just by those from whom state law requires security, and that the security must take the form of a lien, and not some lesser or different security. For if it were otherwise, the rule would have been drafted as a simple adoption of state rules of stay, rather than with the prerequisite that the state forum treat judgments as a lien. It is highly unlikely that the draftpersons of Rule 62(f) were unaware of the special consideration afforded ...


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