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JK&E PARTNERSHIP v. CHASE MANHATTAN BANK

January 16, 2004.

JK&E PARTNERSHIP, Petitioner, -against- THE CHASE MANHATTAN BANK, SAN JAMES REALTY CORP., THESSALONICA COURT ASSOCIATES, A New York Limited Partnership, and GLICK DEVELOPMENT AFFILIATES, Respondents


The opinion of the court was delivered by: DAVID TRAGER, District Judge

MEMORANDUM AND ORDER

Petitioner JK&E Partnership brought this action in 1995 as a turnover proceeding under a New York debt collection statute. The case was removed to federal court in May, 2003. The petitioner brought this motion to remand the case back to state court for lack of federal jurisdiction.

Background

  Respondent Thessalonica Court Associates ("Thessalonica"), a limited partnership, owns a federally regulated and subsidized housing project located in Bronx, New York. (Gladston Decl. ¶ 6.) At its creation, respondent Glick Development Affiliates ("GDA") had a one percent general partnership interest, a ninety-eight percent limited partnership interest, and was the managing partner of Thessalonica. (Gladston Decl. ¶ 8.) Respondent San James Realty Corp. ("San James") had a one percent general partnership interest. (Gladston Decl. ¶ 7.) San James is wholly owned by James Sanchez. (Id.) JK&E Partnership ("JK&E") is a creditor of GDA. JK&E became a creditor of GDA by purchasing in 1990 the rights of Marine Midland Bank in a Page 2 pending action for recovery under a promissory note, and rights and remedies arising from agreements between Marine Midland Bank and GDA, the most relevant of which is a September 1989 Collateral Assignment of Partnership Interest from GDA to Marine Midland Bank relating to Thessalonica (the "Collateral Assignment"). (Ex. E.)*fn1

  JK&E obtained a State Court Judgment against GDA in the amount of $3,788,469.93 in March, 1992. (Ex. A.) Pursuant to this judgment, Thessalonica paid GDA's surplus cash distributions for 1992 and 1993 to JK&E. (Gladston Decl. ¶ 12.) This case began in the Supreme Court of the State of New York, County of Nassau, in 1995 as a turnover/enforcement proceeding pursuant to CPLR § 5255(b), a New York debt collection statute. (Ex. 1.) In the course of this litigation, Thessalonica has paid JK&E the surplus cash distributions due to GDA for the years 1994, 1995, 1996, and 1997. (Gladston Decl. ¶ 12, Ex. G, Ex. L.) The state court retained jurisdiction over the case, which the appellate division held was proper "[g]iven [Thessalonica and San James's] prior attempts to thwart payment." (Ex. T.)

  In 1999, JK&E sought a declaration that GDA was still the managing partner of Thessalonica, an injunction to stop San James from acting as managing partner, the appointment of a temporary receiver or in the alternative the right to exercise power of attorney to review Thessalonica's records and payments, as well as other relief. (Ex. O.) On the basis of this motion, the case was then removed to federal court by Thessalonica and San James. In February 1999, Judge Raggi held that if JK&E was willing to withdraw its claims regarding control of management Page 3 of Thessalonica, she would remand the case. (Ex. Q.) JK&E withdrew those requests for relief, and the case was remanded. (Ex. R.)

  Although Thessalonica's counsel represented to Judge Raggi that Thessalonica would pay JK&E the 1998 distribution due GDA (Ex. Q at 8), no such payment was ever made. (Ex. 2 at 8.) Instead, this payment was made to East Atlantic Realty, Inc. ("East Atlantic"), a company wholly owned by James Sanchez's daughter, Michol Sanchez. (Id.) East Atlantic had acquired another judgment against GDA, and then foreclosed upon its judgment. On August 13, 1999, the Sheriff of the City of New York conducted a foreclosure sale of GDA's right to income from Thessalonica (the "Sheriff's Sale"). (Ex. V.) In a letter dated August 13, 1999, counsel for Thessalonica and San James assured the New York City Housing Development Corp. that the Sheriff's Sale would not "involve a transfer of assets or ownership interests as governed by the regulatory agreement. . . . Rather it only conveys the right to receive income that would otherwise be distributed to the partner." (Ex. W.) Citing cases interpreting New York Partnership Law, Thessalonica's counsel asserted, "here the purchaser of GDA's partnership interest would receive only that surplus cash that GDA would have received in the absence of the sale." (Id.) East Atlantic bought the interest at the Sheriff's Sale (Ex. V), and shortly afterwards the 1998 distribution due GDA was paid to East Atlantic (see Ex. 2 at 8 n.9). East Atlantic has also received GDA's share of surplus cash distributions from Thessalonica for the years 1999 through 2002. (Ex. 2 ¶ 14.)

  On May 7, 2003, JK&E filed a motion in the continuing enforcement proceeding seeking a judgment of at least $368,044, plus interest. (Ex. 2.) In an affidavit attached to this motion, Mr. Feiring, a partner of JK&E, noted that "GDA's indebtedness to JK&E is secured by a 1989 duly Page 4 perfected collateral assignment of certain of GDA's partnership interests in Thessalonica, including GDA's 99% share of the maximum yearly surplus cash distribution from Thessalonica. . . ." (Id. ¶ 8.) The affidavit explained the $368,044 represented the partnership distributions due GDA for 1998 through 2001, and also asserted that JK&E was owed GDA's distributions for 2002. (Id. ¶ 3.)

  On May 21, 2003, Thessalonica and San James filed a Notice of Removal. In August, 2003, JK&E filed the present motion to remand.

  Discussion

 A. Timeliness

  Both JK&E and Thessalonica characterize JK&E's 1995 petition which commenced the turnover action as raising no federal questions. (See Mem. of Law in Supp. of Mot. to Remand at 8; Mem. of Law in Opp. of Mot. to Remand at 23). When the initial pleading is not removable, removal must be filed within thirty days from the defendant's receipt of "a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable."28 U.S.C. § 1446(b). San James and Thessalonica filed the Notice of Removal only 14 days after receiving JK&E's motion dated May 7, 2003. Therefore, the only issue is whether that May 7 motion has made the case removable.

 B. Federal Question Jurisdiction

  The Supreme Court recently articulated the standard for determining ...


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