United States District Court, S.D. New York
April 8, 2005.
MICHAEL NESHEWAT, Plaintiff,
MAURICE J. SALEM f/k/a MAURICE J. NESHEWAT and CLODIA A. SALEM, Defendants.
The opinion of the court was delivered by: WILLIAM CONNER, Senior District Judge
OPINION AND ORDER
Plaintiff Michael Neshewat commenced this action against
defendants Maurice J. Salem ("Salem" or the "defendant") and his
wife Clodia Salem (collectively, the "defendants") seeking to set
aside: (1) the conveyance by Salem (f/k/a Maurice J. Neshewat) of
residential property at 7 Gellatly Drive in Wappingers Falls, New
York to himself and Clodia Salem, on May 20, 1999; and (2)
Salem's conveyance of a 1989 Model 300 Mercedes Benz to Clodia
Salem.*fn1 In addition, plaintiff seeks attorney's fees
pursuant to section 276-a of the New York State Debtor and
Creditor Law. In the present motion, plaintiff moves for summary
judgment pursuant to FED. R. CIV. P. 56 on the fraudulent
conveyance claims and for dismissal of defendant's
counterclaim*fn2 against plaintiff for failure to state a
claim upon which relief may be granted and on the basis of res
judicata, collateral estoppel and the statute of limitations. In
addition, plaintiff seeks monetary sanctions for frivolous
conduct and an injunction to prevent defendants from commencing
any further actions against plaintiff or his counsel, Paul J.
Goldstein and Goldstein & Metzger, LLP. Defendant cross-moves to
amend his counterclaim to: (1) plead specific facts underlying
the claim based on N.Y.C.P.L.R. § 5015(a)(3); (2) include a claim
of common law fraud on the court; and (3) include opposing
counsel, Paul J. Goldstein, as a third-party defendant pursuant
to N.Y.C.P.L.R. § 1007.
Additionally, the parties seek the Court's assistance with
respect to: (1) plaintiff's service of a "Restraining Notice to
Garnishee" on a temporary tenant of the subject house, seeking to
prevent or suspend rental payments to the owners of the house;*fn3
and (2) the impending April 13, 2005 Sheriff's sale of the
premises. Defendant maintains that, as a matter of law, plaintiff
cannot restrain the tenant from paying rent under N.Y.C.P.L.R. §
5222(b) and moves for an order quashing the restraining notice.
In addition, Paragon Associates of New York, Inc. ("Paragon"), a
nonparty adverse claimant, moves, pursuant to FED. R. CIV. P.
24(a)(2) and N.Y.C.P.L.R. §§ 5239 and 5227, for an order allowing
it to intervene in this proceeding to determine its rights to the
For the reasons stated hereinafter, plaintiff's motion for
summary judgment is granted with respect to setting aside the
fraudulent conveyances, but denied with respect to the imposition
of attorney's fees. Plaintiff's motion to dismiss defendant's
counterclaim is also granted, and defendant's motion to amend the
counterclaim is denied.
Additionally, Paragon's motion to intervene is denied.
Defendant's motion to quash plaintiff's "Restraining Notice to
Garnishee" and plaintiff's cross-motion seeking an order that the
rental payments generated from the 7 Gellatly Drive property be
turned over to plaintiff are both granted in part and denied in
part. In addition, defendant's motion seeking to maintain the
status quo and stay the scheduled Sheriff's sale is denied.
Lastly, plaintiff's motion for sanctions and injunctive relief is
granted with respect to enjoining Salem from commencing further
litigation in connection with the default judgment entered
against him in New York State Supreme Court. BACKGROUND
This lawsuit is one of many between the two brothers Salem and
Neshewat. In 1996, Neshewat filed an action in New York State
Court against Salem for malicious prosecution, abuse of process,
defamation, libel and slander. (Pl. Mem. Supp. Summ. J. at 4.) A
default judgment was entered against Salem. After a damages
inquest, the state court awarded damages in the amount of
$166,884.86 and a judgment was entered for that amount in the
Dutchess County Clerk's Office on June 16, 1999. (Id.)
On April 12, 1999, defendant commenced an action in the United
States District Court for the Southern District of New York,
against plaintiff Michael Neshewat; his attorney, Paul J.
Goldstein; Judge Pagones, who conducted the inquest; and various
other officials. (Id. at 5.) Defendant's lawsuit, inter alia,
challenged Judge Pagones's authority to enter the default
judgment against defendant, alleging that the judgment was
entered based on false and fraudulent statements made to Judge
Bernhard. (Id.) In a previous decision by this Court, that
action was dismissed and the dismissal was affirmed by the Second
Circuit. Salem v. Paroli, 260 B.R. 246 (S.D.N.Y. 2001) (Conner,
J.); Salem v. Paroli, 79 Fed. Appx. 455 (2d Cir. 2003).
Salem filed for bankruptcy in 2000 and later that year Neshewat
commenced an adversary proceeding in bankruptcy court seeking a
determination that the judgment against Salem was a
non-dischargeable debt. (Id. at 6.) The bankruptcy court
conducted a trial and found that Neshewat had proven by a
preponderance of the evidence that Salem caused willful and
malicious injury to him, and therefore concluded that the debt
was non-dischargeable. See In re Salem, 290 B.R. 479 (S.D.N.Y.
2003) (Conner, J.). Salem then appealed to this Court, which had
jurisdiction pursuant to 28 U.S.C. § 158. In an Opinion and Order
dated March 5, 2003, we affirmed the bankruptcy court's determination that Salem's debt was non-dischargeable.
Id. This decision was affirmed by the Second Circuit Court of
Appeals. In re Salem, 94 Fed. Appx. 24 (2d Cir. 2004).
With the intention of enforcing his right as a judgment
creditor, plaintiff commenced the instant action in the Supreme
Court of the State of New York, County of Dutchess, on November
20, 2002, seeking to set aside two conveyances made by Salem.
(Pl. Mem. Supp. Summ. J. at 1.) Plaintiff alleges that defendant
fraudulently conveyed his interest in the real property at 7
Gellatly Drive to himself and his wife on May 20, 1999 and
fraudulently conveyed a 1989 Model 300 Mercedes Benz, which was
in his name alone, to his wife on July 23, 1999. (Id. at 7.)
According to plaintiff, the conveyance of the real property "was
done immediately after Justice Pagones had rendered his decision
and order on May 7, 1999, granting judgment in the sum of
$131,622.91, and before the actual judgment, which with costs,
disbursements and interest, totaled $166,884.86, was entered on
June 16, 1999, in the Dutchess County Clerk's Office." (Id.)
Plaintiff seeks to "set aside the conveyances to Salem's wife and
return them to their pre-conveyance status; that is, ownership in
Salem's name, so that the judgment can be enforced directly
against him." (Id. at 8.)
Defendants removed this action to federal court on December 12,
2002 and also served a Verified Answer and counterclaim. (Id.
at 2.) The counterclaim seeks to set aside the $166,884.86
default judgment entered against defendant, which is the judgment
plaintiff is now seeking to enforce in the present fraudulent
conveyance action. Defendant maintains that the default judgment
entered on November 6, 1996 by Judge George G. Bernhard, Acting
Justice of the Supreme Court, County of Dutchess, was entered
because of false and fraudulent statements made by plaintiff and
plaintiff's counsel. (Id.)
This action was placed on the suspense calendar by this Court
on November 24, 2003 because each defendant, individually, had filed bankruptcy
petitions in Illinois. (Id.) The bankruptcy matters having been
resolved, this Court reinstated the action and removed it from
the suspense docket on December 15, 2004. Shortly thereafter, the
present motions were filed.
I. Motion to Dismiss Counterclaim
We will address the issues surrounding defendant's counterclaim
first because our determination with respect to the counterclaim
has a direct bearing on the analysis of plaintiff's claims and
requests for relief from the Court.
A. Motion to Dismiss Standard
On a motion to dismiss pursuant to Rule 12(b)(6), the issue is
"whether the claimant is entitled to offer evidence to support
the claims." See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974),
overruled on other grounds; Davis v. Scherer, 468 U.S. 183
(1984). A counterclaim should not be dismissed for failure to
state a claim "unless it appears beyond doubt that the [claimant]
can prove no set of facts in support of his claim which would
entitle him to relief." Padavan v. United States, 82 F.3d 23,
26 (2d Cir. 1996) (quoting Hughes v. Rowe, 449 U.S. 5, 10
(1980)). All well-pleaded factual allegations will be accepted as
true and all reasonable inferences must be drawn in favor of the
claimant. See Wright v. Ernst & Young LLP, 152 F.3d 169 (2d
Cir. 1998); In re AES Corp. Secs. Litig., 825 F. Supp. 578, 583
(S.D.N.Y. 1993). However, "[c]onclusory allegations or legal
conclusions masquerading as factual conclusions will not suffice
to prevent a motion to dismiss." 2 JAMES WM. MOORE ET AL.,
MOORE'S FEDERAL PRACTICE § 12.34[b] (3d ed. 1997); see also Hirsch v. Arthur Anderson & Co., 72 F.3d 1085, 1088 (2d Cir.
1995). Allegations that are so conclusory that they fail to give
notice of the basic events and circumstances on which plaintiff
relies, are insufficient as a matter of law. See Martin v. New
York State Dep't of Mental Hygiene, 588 F.2d 371, 372 (2d Cir.
B. Defendant's Counterclaim
Defendant filed a counterclaim in the instant action pursuant
to N.Y.C.P.L.R. § 5015(a)(3) & (d) seeking vacatur of the default
judgment entered against him in New York State Supreme Court and
restitution. (Defs. Affm. #2 ¶ 2.) The counterclaim alleges that
the default judgment was obtained by fraud and other misconduct
on the part of plaintiff. (Id.) In addition, defendant moves to
amend his counterclaim to: (1) plead specific facts supporting
the claim under C.P.L.R § 5015(a)(3); (2) include a claim of
common law fraud on the court; and (3) add opposing counsel, Paul
J. Goldstein, as a third-party defendant pursuant to C.P.L.R. §
1. Motion to Amend Counterclaim
Where, as here, a responsive pleading has been filed, Rule
15(a) allows a party to amend its pleading "only by leave of
court or by written consent of the adverse party." However the
rule mandates that "leave shall be freely given when justice so
requires." FED. R. CIV. P. 15(a). Accordingly, the Supreme Court
has ruled that "[i]n the absence of any apparent or declared
reason such as undue delay, bad faith or dilatory motive on the
part of the movant, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, futility of amendment, etc. the
leave sought should . . . be freely given." Foman v. Davis,
371 U.S. 178, 182 (1962).
The Second Circuit and this Court have interpreted the Foman
standard to allow amendments, even if there was substantial delay
in seeking the same, unless the movant has acted in bad faith,
the amendment will prejudice the nonmovant, or the amendment is
futile. See Richardson Greenshields Sec., Inc. v. Lau,
825 F.2d 647, 653 n. 6 (2d Cir. 1987) (noting that a motion to amend
should be denied only for undue delay, bad faith, futility or
prejudice to opposing party; mere delay alone, absent a showing
of bad faith or prejudice, is not grounds for denial of leave to
amend) (citations omitted); Posadas de Mexico, S.A. de C.V. v.
Dukes, 757 F. Supp. 297, 300 (S.D.N.Y. 1991) (Conner, J.)
(recognizing that leave to amend should be given unless the
motion for leave is the product of bad faith or dilatory motive,
or amendment will prejudice adversary or be futile). "In this
Circuit, an amendment is considered futile if the amended
pleading fails to state a claim, or would be subject to a motion
to dismiss on some other basis." Tri-State Judicial Servs.,
Inc., v. Markowitz, 624 F. Supp. 925, 926 (E.D.N.Y. 1985)
(internal citations omitted). In evaluating futility, all
well-pleaded allegations are accepted as true, and all inferences
are drawn in favor of the pleader. See Savitsky v. Mazzella,
No. 98 Civ. 9051, 2004 WL 2454120, at *3 (S.D.N.Y. Nov. 1, 2004)
(citing Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d
Cir. 1993)). The decision of whether to grant leave to amend is
within the sound discretion of the district court. Foman,
371 U.S. at 182.
In the present case, we deny defendant's motion for leave to
amend the counterclaim because the proposed amendments would be
futile. See Ellis v. Chao, 336 F.3d 114, 126 (2d Cir. 2003)
("[I]t is well established that leave to amend a complaint need
not be granted when amendment would be futile."). Even if we were to grant leave, defendant's proposed
amendments would be dismissed for the same reasons as the
counterclaim, as discussed infra. Furthermore, the proposed
amendments would not alter this Court's conclusion that the
counterclaim is barred by the doctrine of res judicata.
C. Dismissal of Counterclaim Res Judicata
The doctrine of res judicata, or claim preclusion, "prevents
a party from suing on a claim which has been previously litigated
to a final judgment by that party . . . and precludes the
assertion by such parties of any legal theory, cause of action,
or defense which could have been asserted in that action."
MOORE'S FEDERAL PRACTICE § 131.10[a] (3d ed. 2003); see also
Waldman v. Vill. of Kiryas Joel, 207 F.3d 105, 108 (2d Cir.
2000). The doctrine was created to address the fundamental need
of any judicial system for finality; "a claim . . . which parties
had a full and fair opportunity to litigate should, after
judgment, forever be put to rest as between those parties."
MOORE'S FEDERAL PRACTICE § 131.12 (citing Montana v. United
States, 440 U.S. 147, 153 (1979)). Whether the prior judgment
was decided correctly is not relevant when determining whether
the doctrine of res judicata bars the suit. See Nemaizer v.
Baker, 793 F.2d 58, 64-66 (2d Cir. 1986); Lacy v. Principi,
317 F. Supp. 2d 444, 448 (S.D.N.Y. 2004) (Conner, J.).
Under New York law, a final judgment on the merits must be
recognized as res judicata to prevent a party from asserting
claims that have been, or could have been, litigated in a prior
action based upon the same facts. See Smith v. Russell Sage
College, 54 N.Y.2d 185, 192-93, 429 N.E.2d 746, 445 N.Y.S.2d 68
(1981). New York applies a "transactional approach" and the
doctrine of res judicata bars all claims based on the same
facts notwithstanding variance of legal theory or requested
relief. Id. Courts consider whether the party seeking dismissal
has shown that: "(1) the previous action involved an adjudication on the merits; (2) the previous
action involved the plaintiffs [or claimants] or those in privity
with them; [and] (3) the claims asserted in the subsequent action
were, or could have been, raised in the prior action." See
Monahan v. N.Y. City Dep't of Corr., 214 F.3d 275, 285 (2d Cir.
It is clear that defendant's counterclaim is barred by res
judicata. Defendant previously brought an action against
plaintiff, Salem v. Paroli Jr., Pagones, Goldstein & Neshewat.,
No. 99 Civ. 2620 (WCC), No. 00 Civ. 5974 (WCC). In that case,
defendant asked the Court to overturn the state court $166,884.86
default judgment entered against him. See Salem,
260 B.R. at 254.*fn5 This is exactly the relief defendant is seeking in
the present case, based on the same set of facts. Changing the
legal theory upon which the request for relief is based does not
bar the applicability of res judicata. Furthermore, the
previous action involved an adjudication on the merits, involved
both parties involved in the present action, and the claims
asserted in this action were or could have been asserted in the
In addition, although defendant maintains that res judicata
is not applicable in an action based on fraud, defendant offers
no authority to support this proposition and we are aware of
none. (Defs. Mem. Opp. Summ. J. at 4.) Defendant does, however,
correctly point out that "under the doctrine of res judicata, an
existing final judgment rendered on the merits, without fraud or
collusion, by a court of competent jurisdiction, is conclusive
of the causes of action litigated and all which could have been
litigated." (Id. (emphasis in original).) However, defendant
fails to recognize that his counterclaim is not barred by res
judicata based on the default judgment that he alleges was obtained through fraud, but rather on the basis of
the lawsuit he had previously brought seeking vacatur of the
default judgment, Salem v. Paroli, 260 B.R. 246 (S.D.N.Y.
2001), aff'd, 79 Fed. Appx. 455 (2d Cir. 2003). In that prior
lawsuit between the same parties, defendant sought vacatur of the
default judgment entered against him in New York State Supreme
Court on the ground of fraud. This Court entered a judgment
dismissing that action and the judgment was affirmed by the
Second Circuit. In the present counterclaim, defendant seeks
identical relief on identical grounds, however differently he has
attempted to frame the issue. Consequently, defendant's
counterclaim is dismissed on the basis that it is barred by res
Moreover, defendant seeks relief pursuant to N.Y.C.P.L.R. §
5015; however, the statute explicitly provides that "[t]he court
which rendered a judgment or order may relieve a party from it
upon such terms as may be just, on motion of any interested
person with such notice as the court may direct, upon the ground
of: . . . (3) fraud, misrepresentation, or other misconduct of an
adverse party; or (4) lack of jurisdiction to render the judgment
or order. . . ." N.Y.C.P.L.R. § 5015 (emphasis added). This Court
is not the court which rendered the judgment defendant now seeks
to have vacated. We cannot vacate the default judgment entered
against defendant in New York State Court on the basis of
N.Y.C.P.L.R. § 5015; such relief may be granted only by the court
that entered the judgment. See Brenner v. Arterial Plaza Inc.,
29 A.D.2d 815, 287 N.Y.S.2d 308 (3d Dep't 1968); Voccola v.
Shilling, 88 Misc. 2d 103, 388 N.Y.S.2d 71 (N.Y. Sup. Ct. 1976);
Lintern v. Lintern, 58 Misc. 2d 335, 296 N.Y.S.2d 5 (N.Y. Co.
Because defendant's counterclaim is dismissed in its entirety
on the basis of res judicata, we need not address plaintiff's
other arguments for dismissal of the counterclaim. II. Summary Judgment
A. Summary Judgment Standard
Under FED. R. CIV. P. 56, summary judgment may be granted where
there are no genuine issues of material fact and the movant is
entitled to judgment as a matter of law. See FED. R. CIV. P.
56(c); Anderson v. Liberty Lobby, 477 U.S. 242, 247-50 (1986).
A fact is material only if, based on that fact, a reasonable jury
could find in favor of the non-moving party. Anderson,
477 U.S. at 248. The burden rests on the movant to demonstrate the absence
of a genuine issue of material fact. Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). In deciding whether summary judgment is
appropriate, the court resolves all ambiguities and draws all
permissible factual inferences against the movant. See
Anderson, 477 U.S. at 255. To defeat summary judgment, the
nonmovant must go beyond the pleadings and "do more than simply
show that there is some metaphysical doubt as to the material
facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986). The court's role at this stage of the
litigation is not to decide issues of material fact, but to
discern whether any exist. See Gallo v. Prudential Residential
Servs., L.P., 22 F.3d 1219, 1224 (2d Cir. 1994).
B. Fraudulent Conveyances
Plaintiff moves for summary judgment with respect to his claim
that defendant Salem fraudulently conveyed: (1) his house at 7
Gellatly Drive to himself and his wife; and (2) a 1989 Mercedes
to his wife, to prevent collection of the default judgment
entered against him in New York State Supreme Court and on his
request for voiding of those conveyances pursuant to N.Y. DEBT. &
CRED. LAW § 273-a. Plaintiff contends that there are no genuine
issues as to any material fact so that summary judgment is appropriate. (Pl. Mem. Supp. Summ. J. at
15.) Defendant, however, contends that plaintiff's fraudulent
conveyance claim is "moot" as it was decided in the Chapter 7
bankruptcy proceeding in Illinois and also that plaintiff's claim
is not "ripe" because defendant never opposed any efforts to
enforce the default judgment on the grounds that the property was
in his name and his wife's name.*fn6 (Defs. Mem. Opp. Summ.
J. at 8-10.) In the alternative, defendants maintain that there
are genuine issues of material fact as to whether defendant Salem
committed fraud by conveying the assets. (Id. at 10.)
Section 273-a of the New York Debtor and Creditor Law provides:
Every conveyance made without fair consideration when
the person making it is a defendant in an action for
money damages or a judgment in such an action has
been docketed against him, is fraudulent as to the
plaintiff in that action without regard to the actual
intent of the defendant if, after final judgment for
the plaintiff, the defendant fails to satisfy the
"The purpose of 273-a is to provide a remedy for a creditor who
has brought an action for money damages against a party who,
after being named a defendant in that action, conveys assets to a
third party for less than fair consideration leaving the ultimate
judgment unpaid." Cadle Co. v. Newhouse, No. 01 Civ. 1777, 2002
WL 1888716, at *8 (S.D.N.Y. Aug. 16, 2002) (quoting Sklaroff v.
Rosenberg, 125 F. Supp. 2d 67
, 74 (S.D.N.Y. 2000)). To prevail
on a § 273-a fraudulent conveyance claim, plaintiff must
establish three elements: (1) the conveyance was made without
fair consideration; (2) at the time of transfer, the transferor
was a defendant in an action for money damages or a judgment in
such action had been docketed against him; and (3) a final
judgment has been rendered against the transferor that remains
unsatisfied. Sklaroff, 125 F. Supp. 2d at 73 (citing Lippe v. Bairnco Corp., 229 B.R. 598, 603 (S.D.N.Y. 1999)
(citations omitted); Dixie Yarns, Inc. v. Forman,
906 F. Supp. 929, 935 (S.D.N.Y. 1995)).
Before considering whether all three of these elements are
present in this case, we must first dispose of defendants'
contention that the Illinois Bankruptcy Court decided the issue
of whether the transfer of the one-half property interest to
Clodia Salem was a fraudulent conveyance. We agree with plaintiff
that it did not. The Bankruptcy Order provided by Salem, which
was unsigned and undated, but has a May 10, 2004 date stamp,
merely authorized a bankruptcy trustee to conduct an auction sale
of Clodia Salem's right, title and interest in the residence.
whatever it might be. (Pl. Reply Aff. Supp. Summ. J. at 2.) The
deed given by the trustee explicitly states that it is "subject
to all existing liens, claims, mortgages, encumbrances and claims
of exemption." (Id.) Consequently, defendants' contention is
without merit and the fraudulent conveyance issue must be
considered by this Court.
With respect to the three elements of a fraudulent conveyance
claim under § 273-a, the second and third are clearly satisfied.
At the time of the conveyance of the real property, Salem was a
defendant in an action for money damages. Justice Pagones
rendered a decision granting plaintiff judgment against Salem for
$131,622.91, excluding interests and costs, on May 7, 1999, and
defendant conveyed the one-half property interest to his wife on
May 20, 1999. (Pl. Reply Aff. Supp. Summ. J. at 1.) Although this
judgment had not yet been docketed, section 273-a only requires
that the person making the conveyance be a defendant in an action
for money damages, which Salem was. See Petersen v. Vallenzano,
849 F. Supp. 228, 231 (S.D.N.Y. 1994) (noting that "New York
courts have applied § 273-a to conveyances which occurred before,
during and after a judgment"). Furthermore, at the time of the
conveyance of the automobile. Salem was a defendant in an action for money damages in which a judgment had been
docketed against him. The conveyance of the automobile occurred
on July 23, 1999, and the judgment was entered in the Dutchess
County Clerk's Office on June 16, 1999. Consequently, the second
requirement has been met for both conveyances. In addition, with
respect to both conveyances, final judgment had been rendered
against Salem in the amount of $166,884.86, and that entire
amount still remains unsatisfied; thus, the third requirement has
been met for both conveyances.
It remains to consider whether the conveyances were made
without fair consideration. To be deemed "fair consideration"
under New York's Debtor and Creditor Law, "the recipient of the
debtor's property must either convey property or discharge an
antecedent debt in exchange; . . . the exchange must be for a
fair equivalent; and . . . the exchange must be `in good faith.'"
In re Sharp Int'l Corp., 302 B.R. 760, 779 (E.D.N.Y. 2003)
(citing HBE Leasing Corp. v. Frank, 61 F.3d 1054, 1058-59 (2d
Cir. 1995)); see also Gasser v. Infanti Int'l, Inc.,
353 F. Supp. 2d 342, 354 (E.D.N.Y. 2005) (noting that "the hallmarks of
a valid conveyance are an exchange made in return for a fair
equivalent and good faith"). "The question of what constitutes
fair consideration is generally one of fact, to be determined
under the circumstances of the particular case." Wagman v.
Lagno, 141 A.D.2d 720, 721, 529 N.Y.S.2d 585 (2d Dep't 1988).
However, it should be noted that § 273-a explicitly states that
the intent of the transferor is irrelevant. See Gasser,
353 F. Supp. 2d at 354 ("A claim under DCL § 273 does not require proof
`of an intent to deceive or any of the traditional elements of
fraud.'") (citations omitted); see also Intuition Consol. Group,
Inc. v. Dick Davis Publ'g Co., No. 03 Civ. 5063, 2004 WL 594651,
at *3 (S.D.N.Y. Mar. 25, 2004). The creditor seeking to set aside
a conveyance as fraudulent bears the burden of proof to establish
that the conveyance was made without fair consideration.
Petersen, 849 F. Supp. at 231. However, "in cases where a conveyance has been made from one family member to another and
the facts relating to the type of consideration are within their
exclusive control, the defendant has the burden of proving the
adequacy of the consideration." Intuition Consol. Group, 2004
WL 594651, at *3 (citing United States v. McCombs, 30 F.3d 310,
324 (2d Cir. 1994)).
Salem maintains that the consideration he received for
conveying a one-half interest of the property at 7 Gellatly Drive
to his wife was the ability to refinance his mortgage. However,
he refinanced his mortgage in 1996 and did not convey the
one-half interest to his wife until May 20, 1999, thirteen days
after the $131,622.91 order*fn7 was rendered against him.
(Pl. Reply Mem. Supp. Summ. J. at 2.) Salem maintains that in
1996 when he tried to refinance his mortgage in his name only, he
was not permitted to borrow the amount of money he requested
because not all of the equity belonged to him. (Salem Aff. #1,
Ex. D.) According to Salem, he was told this was because he was
married and his wife was paying half of the mortgage payments
since the payments were made from a joint bank account. (Id.)
In addition, Salem stated that he was told that even if his wife
was not paying half of the mortgage, all income and assets
acquired after marriage become marital property. Therefore,
according to Salem "if my wife divorced me she would be entitled
to half of the equity in the house regardless of the name on the
Deed." (Id.) Consequently, when Salem was planning to refinance
his mortgage again in 1999, to lower the interest rate and borrow
as much money as possible, he was told that the deed should be
changed to list his new name*fn8 and also include his wife's
name. (Id.) As a result, Salem drafted a new deed which
transferred a one-half interest in the property to Clodia Salem which was recorded on May 20, 1999.
(Id.) Salem contends that he was not required to pay any
transfer tax because "this was not considered a transfer, it was
considered a Deed correction." (Id.) The crux of Salem's
argument is that "[e]ven if the new Deed was not recorded in May
of 1999, [his] wife would still have interest in the equity of
the house on the basis of making half the mortgage payments, and
being entitled to half the marital property." (Id.) In
addition, Salem contends that, at the very least, there is a
triable issue with respect to whether the conveyance was made in
exchange for fair consideration.
Salem ignores the fact that, irrespective of the foregoing, the
conveyance of a one-half interest to Clodia Salem was made
without consideration. (Pl. Rule 56.1 Stmt. ¶ 18.) Where a debtor
purchases or owns real property and later causes title to be
conveyed to himself and his wife as a tenancy by the entirety,
the transfer may be set aside by a creditor if it was made
without consideration. See A.L. Bazzini Co., Inc. v. Cappelini,
282 A.D. 705, 122 N.Y.S.2d 115 (2d Dep't 1953). In his
deposition, Salem admits that no money was paid for the one-half
interest that was transferred to Clodia Salem. (Salem Dep. at
14.) Instead, Salem focuses on the fact that the payments on the
mortgage were made from a joint bank account; however, he admits
that only he signed the mortgage and that he is the sole person
responsible on the mortgage. (Id. at 14-15.) In addition, the
original deed which transferred the property to Salem in the
first instance, granted it only to him; the fact that payments on
the mortgage on the property were made from a joint bank account
does not effect a transfer of ownership to a tenancy by the
entirety. See N.Y.EST.POWERS & TRUSTS LAW § 6-2.2.*fn9
Consequently, because all three elements necessary to establish a
§ 273-a fraudulent conveyance claim have been satisfied, plaintiff's
motion for summary judgment to set aside Salem's conveyance of
his house at 7 Gellatly Drive to himself and his wife is granted.
Moreover, Salem does not appear to deny that the transfer of
the automobile to his wife was without consideration. Instead,
Salem maintains that the Mercedes was transferred to Clodia Salem
to reduce the insurance rate, and that the automobile was then
donated to the American Heart Association on November 3, 2003.
(Salem Aff. #1 ¶ 14.) However, the conveyance occurred without
consideration while there was an unsatisfied judgment pending,
which has still not been satisfied. Consequently, the conveyance
of the Mercedes must be set aside.*fn10
For the reasons discussed above, summary judgment is granted
with respect to plaintiff's claims that the transfers of the
property at 7 Gellatly Drive and the Mercedes were fraudulent
Generally, "the creditor's remedy in a fraudulent conveyance
action is `limited to reaching the property which would have been
available to satisfy the judgment had there been no conveyance.'"
TLC Merchant Bankers, Inc. v. Brauser, No. 01 Civ. 3044, 2003
WL 1090280, at *3 (S.D.N.Y. Mar. 11, 2003) (quoting Mfrs. &
Traders Trust Co. v. Lauer's Furniture Acquisition, Inc.,
226 A.D.2d 1056, 1057, 641 N.Y.S.2d 947, 948 (4th Dep't 1996)
(quotations omitted)). Section 278 of New York's Debtor and
Creditor Law allows creditors, such as plaintiff, who have
established that a conveyance is fraudulent and have a mature
claim against the debtor, to seek an order from the Court to "set aside" the conveyance "to the extent necessary to
satisfy his claim" or to "[d]isregard the conveyance and attach
or levy execution upon the property conveyed." N.Y. DEBT. & CRED.
LAW § 278. "The purpose of the remedy fashioned by DCL § 278 is
to grant the creditor the right `to be paid out of assets to
which he is actually entitled and to set aside the indicia of
ownership which apparently contradict that right.'" Gasser,
353 F. Supp. 2d at 356 (quoting Hearn 45 St. Corp. v. Jano,
283 N.Y. 139, 143, 27 N.E.2d 814 (1940) (citations omitted)).
However, where the assets fraudulently transferred no longer
exist or are no longer in possession of the transferee, a money
judgment may be entered in an amount up to the value of the
fraudulently transferred assets. See TLC Merchant Bankers, 2003
WL 1090280, at *3; RTC Mortgage Trust 1995-S/NI v. Sopher,
171 F. Supp. 2d 192, 201 (S.D.N.Y. 2001) (citations omitted). "Under
New York law, a creditor may recover money damages against
parties who participate in the fraudulent transfer and are either
transferees of the assets or beneficiaries of the conveyance."
RTC Mortgage Trust, 171 F. Supp. 2d at 201-02 (citing
Stochastic Decisions, Inc. v. DiDomenico, 995 F.2d 1158, 1172
(2d Cir. 1993) (applying New York law); FDIC v. Porco,
75 N.Y.2d 840, 842, 552 N.Y.S.2d 910 (1990); Contractors Cas. &
Sur. Co. v. I.E.A. Elec. Corp., 181 Misc. 2d 469, 472,
693 N.Y.S.2d 915 (N.Y. Sup. Ct. 1999)).
In the present case, Maurice and Clodia Salem were involved in
and benefitted from the fraudulent transfers. To the extent that
the conveyances cannot be set aside, both are liable in money
damages up to the value of the default judgment entered against
Maurice Salem, but limited to the extent of the value of the
assets transferred by Salem to Clodia Salem. RTC Mortgage
Trust, 171 F. Supp. 2d at 202. 2. Attorney's Fees
In addition, plaintiff requests for relief, pursuant to N.Y.
DEBT. & CRED. LAW § 276-a, to recover attorney's fees. A finding
of actual intent to hinder, delay or defraud creditors is
required before attorney's fees will be awarded. See Schoenberg
v. Schoenberg, 113 Misc. 2d 356, 359, 449 N.Y.S.2d 137 (N.Y.
Sup. Ct. 1982). The burden of proof to establish actual fraud
under section 276 is upon the creditor who seeks to set aside the
conveyance and the creditor must meet this burden by clear and
convincing evidence. Marine Midland Bank v. Murkoff,
120 A.D.2d 122, 126, 508 N.Y.S.2d 17 (2d Dep't 1986) (citations omitted).
"[F]raudulent intent, by its very nature, is rarely susceptible
to direct proof and must be established by inference from the
circumstances surrounding the allegedly fraudulent act." Id. at
Circumstances surrounding a transfer, such as whether the
transfer was between spouses, the timing of the transfer and
whether the transfer lacked consideration, can demonstrate that a
transfer was effected with an intent to hinder, delay and defraud
a plaintiff creditor. See Prudential Farms of Nassau County v.
Morris, 286 A.D.2d 323, 324, 729 N.Y.S.2d 156 (2d Dep't 2001);
see also Marine Midland Bank, 120 A.D.2d at 128 (holding that
defendants' actual intent to defraud was proven by circumstances
established by the evidence). Furthermore, a transfer from
husband to wife is to be examined carefully. See Marine Midland
Bank, 120 A.D.2d at 128. However, "[t]he determination of
fraudulent intent `is ordinarily a question of fact which cannot
be resolved on a motion for summary judgment.'" Mfrs. & Traders
Trust, 226 A.D.2d at 1058 (quoting Grumman Aerospace Corp. v.
Rice, 199 A.D.2d 365, 366, 605 N.Y.S.2d 305 (2d Dep't 1993)).
Although the circumstances surrounding the conveyance appear to
establish that the defendants' actual intent was to hinder, delay
or defraud plaintiff based on the fact that the transfer was between spouses without consideration while an action against
Salem was pending, plaintiff has not shown by clear and
convincing evidence that this was defendants' actual intent.
Defendant's claim that the one-half interest in the property at 7
Gellatly Drive was transferred to Clodia Salem to refinance his
mortgage creates, at the very least, a question of fact with
respect to actual intent. Consequently, plaintiff's motion for
summary judgment with respect to his request for attorney's fees
pursuant to N.Y. DEBT. & CRED. LAW § 276-a is denied. However,
whether plaintiff is entitled to recover attorney's fees on
another basis will be discussed, infra Part IV.
III. Motion to Quash and Maintain Status Quo
Plaintiff also moves pursuant to N.Y.C.P.L.R. §§ 5225 and
5227,*fn11 for an order directing Luis Cruz, individually,
and any other tenant of the premises at 7 Gellatly Drive,
Wappingers Falls, New York, to turn over to plaintiff, as a
judgment creditor, the amount due for March 2005 rent, in the
amount of $2,100.00, and to continue to pay the monthly rent, to
plaintiff, as a judgment creditor. (Goldstein Aff. ¶ 2.)
Defendant, to the contrary, moves this Court for an order
quashing plaintiff's "Restraining Notice to Garnishee" which was
effectuated by plaintiff pursuant to N.Y.C.P.L.R. §§ 5225 and
5227 and also requests that this Court order that the status quo
with respect to the premises at 7 Gellatly Drive be maintained
pending disposition of this action. (Salem Affm. at 1.) In
addition, plaintiff's attorney served a Sheriff's levy on defendant,
pursuant to N.Y.C.P.L.R. § 5230,*fn12 and a Sheriff's sale
of the premises is scheduled for April 13, 2005.
A. Restraining Notice to Garnishee
N.Y.C.P.L.R. §§ 5222(b) and 5227 authorize a special proceeding
to be commenced by the judgment creditor against
"a person in possession or custody of money or other
personal property in which the judgment debtor has an
interest, or . . . a person who is a transferee of
money or other personal property from the judgment
debtor, where it is shown that the judgment debtor is
entitled to the possession of such property or that
the judgment creditor's rights to the property are
superior to those of the transferee"*fn13 or
"any person who it is shown is or will become
indebted to the judgment debtor."*fn14
Oil City Petroleum Co., Inc. v. Fabac Realty Corp.,
50 N.Y.2d 853, 403 N.Y.S.2d 38, 407 N.E.2d 1334 (1980) (quoting
N.Y.C.P.L.R. §§ 5222(b) and 5227).
A two-step analysis is required in determining when money or
property in possession of a third party must be transferred to a
judgment creditor pursuant to § 5222(b). See Beauvais v.
Allegiance Sec. Inc., 942 F.2d 838, 840 (2d Cir. 1991). "First,
the creditor must be shown to have an interest in the money or property. Second, the creditor must
be shown to be entitled to possession or have superior right to
the property." Phoenician Trading Partners, 2004 WL 3152394, at
*3 (citing Beauvais, 942 F.2d at 840). "Restraining notices
issued pursuant to § 5222 are effective against assets in which
the judgment debtor has an `interest,' and they `only reach
property and debts with such a connection to the judgment
debtor.' Thus, if third parties `do not have property or debts in
which the judgment debtor has an interest, the restraining
notices are not effective.'" JSC Foreign Econ. Ass'n
Technostroyexport v. Int'l Dev. & Trade Servs., Inc.,
295 F. Supp. 2d 366, 391 (S.D.N.Y. 2003) (quoting AG Worldwide v. Red
Cube Mgmt., No. 01 Civ. 1228, 2002 WL 417251, at *8 (S.D.N.Y.
Mar. 15, 2002)). In addition, the judgment debtor must be
provided with notice of the proceedings by the judgment creditor
under both §§ 5225 and 5227. See id. (citing Citibank (South
Dakota), N.A. v. Island Fed. Credit Union, 190 Misc. 2d 694,
740 N.Y.S.2d 546 (2d Dep't 2001)).
1. Motion to Intervene
"In effect, §§ 5225 and 5227 require the judgment creditor to
proceed against the party that can produce the asset that the
judgment creditor seeks, whether that party is the judgment
debtor itself, or some third party." However, if there are other
claimants of the debt or the property, or other interests in it,
these other claimants are permitted to intervene. See Alliance
Bond Fund, Inc. v. Grupo Mexicano De Desarrollo, S.A.,
190 F.3d 16, 21 (2d Cir. 1999) (citing § 5525(b)); see also DAVID D.
SIEGEL, Practice Commentaries § C5225:5 (McKinney 1997)
(hereinafter "Practice Commentaries") ("[A]ny person claiming
an interest in the property [that is the subject of the special
proceeding against the garnishee] may intervene [in the
proceeding]."). In the present case, Paragon seeks to intervene in this
proceeding to determine its rights to the property at 7 Gellatly
Drive with respect to the rental payments and the April 13, 2005
scheduled Sheriff's sale. Paragon claims that it should be
permitted to intervene as a claimant to the property because it
bought a one-half interest in the property at the bankruptcy
auction. See § 5525(b) ("The court may permit any adverse
claimant to intervene in the proceeding and may determine his
rights in accordance with section 5239.");*fn15 see also
Ruvolo v. Long Island R.R. Co., 45 Misc. 2d 136, 146,
256 N.Y.S.2d 279 (N.Y. Sup. Ct. 1965) (recognizing that third parties
with an interest in the property may intervene formally to
determine their rights). However, Paragon does not have any real
interest in the property. As discussed supra, Part II.B.,
Salem's conveyance of a one-half interest in the 7 Gellatly Drive
property to his wife, Clodia Salem, was a fraudulent conveyance
that, pursuant to this Order, must be set aside.
Although Paragon bought its interest at the bankruptcy auction,
it did so by quitclaim deed. A quitclaim deed transfers only the
right, title and interest the grantor has, and nothing more.
Thus, "nothing is conveyed by a quitclaim deed if the grantor
[herself] had no title to, nor interest in the property
conveyed." 43 A N.Y. Jur.2d Deeds § 228; see also Chicago Title
Ins. Co. v. Eynard, 84 Misc. 2d 605, 606, 377 N.Y.S.2d 895 (1st
Dep't 1975) (noting that the grantee received only such title as
the grantor had the in property); Ebenstein v. Pritch,
275 A.D. 256, 259, 89 N.Y.S.2d 282 (1st Dep't 1949) (acknowledging that a
quitclaim deed "in the absence of some special recital or
covenant" does not represent that the grantor had good title or
that the grantor is the owner of any interest in the property transferred); Brzozowski v. Boutinger,
181 Misc. 379, 384, 43 N.Y.S.2d 57 (N.Y. Sup. Ct. 1943). As
discussed supra, the conveyance to Clodia Salem was fraudulent
and must be set aside. Paragon bought Clodia Salem's one-half
interest in the 7 Gellatly Drive property by a quitclaim deed
that explicitly states that the property interest is "subject to
all existing liens, claims, mortgages, encumbrances and claims of
exemption." Therefore, because Clodia Salem had no interest to
convey, Paragon did not acquire and does not own an interest in
the property. Accordingly, Paragon's motion to intervene is
2. Garnishment of Rent
A motion made pursuant to N.Y.C.P.L.R. § 5225 is analytically
treated as a motion for summary judgment. Relief under this
section, when based on the parties' submissions alone, can be
granted only where there are no genuine issues of material fact.
See Aluminum Co. of Am. v. Moskovitz, No. 88 Civ. 2616, 1991 WL
177246, at *2 (S.D.N.Y. Sept. 5, 1991) (citations omitted).
Therefore, "[t]he summary disposition sought by [plaintiff] is
warranted only if the entire record would inevitably lead a
rational trier of fact to find in [his] favor." Id. (citing
Nat'l R.R. Passenger Corp. v. City of New York, 882 F.2d 710
(2d Cir. 1989)).
In the case at bar, a default judgment was entered against
Salem in the amount of $166,884.86 on June 16, 1999 in the
Dutchess County Clerk's Office. (Pl. Mem. Supp. Mot. at 2.)
Plaintiff, to no avail, has tried to enforce this judgment
against defendant, and, to date, has still not received any
payments on the judgment. (Id.) Consequently, on February 17,
2005, in the New York Supreme Court action against defendant,
plaintiff's attorney, pursuant to N.Y.C.P.L.R. § 5222, served a
Restraining Notice upon Luis Cruz, a tenant in the 7 Gellatly
Drive premises who is paying monthly rent to Salem in the amount of $2,100. (Id.) Cruz
presently owes the March 2005 rent and will continue to owe such
rent monthly. (Goldstein Aff. ¶ 11.) However, a foreclosure
action has been instituted by Citibank, N.A. ("Citibank") on the
7 Gellatly Drive premises in the Supreme Court of Dutchess
County. (Pl. Mem. Supp. Mot. at 2-3.) An application for summary
judgment by Citibank is pending in that action. (Id.)
Section 5201 of the New York C.P.L.R. provides that "[a] money
judgment may be enforced against any debt, which is past due or
which is yet to become due, certainly or upon demand of the
judgment debtor. . . ." N.Y.C.P.L.R. § 5201(a). It is clear from
the record that plaintiff has a money judgment against Salem that
is unsatisfied. Thus, plaintiff is entitled to enforce his money
judgment against Salem by way of the rent payable to him.
However, this is limited to the rent that was due for March 2005
because only that debt is certain. Plaintiff cannot serve Cruz
with a restraining notice for future rent because "[f]uture rents
are not leviable or attachable under CPLR 5225 and 5227. They do
not constitute tangible personal property or a debt certain to
become due." Oil City Petroleum Co., Inc. v. Fabac Realty
Corp., 70 A.D.2d 859, 418 N.Y.S.2d 51 (1st Dep't 1979), aff'd,
50 N.Y.2d 853, 403 N.Y.S.2d 38, 407 N.E.2d 1334 (1980) (internal
citations omitted); see also Glassman v. Hyder, 23 N.Y.2d 354,
296 N.Y.S.2d 783, 244 N.E.2d 259 (1968) (noting that a debt for
future rent is not a debt certain and therefore is not
attachable); but see ABKO Indus., Inc. v. Apple Films, Inc.,
39 N.Y.2d 670, 385 N.Y.S.2d 511, 244 N.E.2d 899 (1976) (holding a
contractual obligation leviable regardless of its contingent
nature); DAVID D. SIEGEL, New York Practice § 489 (3d ed. 1999)
(discussing ABKO's impact on the holding of Glassman and
concluding that "as long as a New York situs can be spelled out
for the intangible at issue, it can be given `property' treatment under CPLR 5201(b) and subjected to
Although defendant maintains that the rent is needed for
mortgage payments and maintenance of the property, this does not
change the fact that he is a judgment debtor who has still not
paid plaintiff the money he is rightfully owed. See Garland D.
Cox & Assocs., Inc. v. Koffman, 74 A.D.2d 687, 689,
425 N.Y.S.2d 870 (3d Dep't 1980) (holding that funds set aside in escrow by
judgment debtor for "contemplated maintenance and repair costs"
are reachable by judgment creditor).
Defendant also maintains that if plaintiff is entitled to the
rental payments, it would only be pursuant to C.P.L.R. § 5231(b),
which usually limits the amount that can be levied to ten percent
of defendant's income. We agree with defendant that plaintiff
cannot collect the future rent pursuant to § 5225(b); however, he
can collect past rent due pursuant to § 5225(b) for the reasons
discussed above. Furthermore, we note that it may be possible for
plaintiff to levy against the future rents pursuant to
N.Y.C.P.L.R. § 6216.
`Where the real property is located in the same State
of as the forum, the levying creditor has no problem.
He levies against the real property in this State
simply by filing a notice of levy in the appropriate
county clerk's office (CPLR 6216; 7A
Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 6216.01 Et
seq.). It then becomes a lien against the real
property without first discharging the lien. If it is
necessary to reach the accruing rents, a simple form
of receivership is available after judgment (CPLR
5228, subd. (a); 6 Weinstein-Korn-Miller, op. cit.
par. 5228.01 Et seq.)'
Mobil Oil Corp. v. Lovotro, 65 Misc. 729, 731, 318 N.Y.S.2d 989
(N.Y. Co. Ct. 1971) (quoting Glassman, 23 N.Y.2d at 359-60).
Nonetheless, as discussed earlier, the levying of future rent
is a moot point because the property for which the rent is
collected is scheduled to be sold at a Sheriff's sale on April
13, 2005, pursuant to N.Y.C.P.L.R. § 5230, to which we will now
turn our attention.
B. Sheriff's Sale
Defendant requests an order to stop the scheduled April 13,
2005 Sheriff's sale and to maintain the status quo with respect
to the 7 Gellatly Drive property. However, we have already
determined that defendant's counterclaim for vacatur of the
default judgment is without merit and should be dismissed and
that the conveyance of a one-half interest to his wife was a
fraudulent conveyance that must be set aside. Consequently, there
is no reason to stay the enforcement of the judgment or to stop
the impending Sheriff's sale since plaintiff properly sought
execution of his judgment against Salem pursuant to C.P.L.R. §
5230. However, it is necessary to address the pending foreclosure
action by Citibank, a mortgagee of the subject property.
Section 5236(b) of the N.Y.C.P.L.R. provides that "[r]eal
property mortgaged shall not be sold pursuant to an execution
issued upon a judgment recovered for all or part of the mortgage
debt." Although the mortgaged property appears to be the most
appropriate source from which to satisfy the debt, section
5236(b) does not permit this because the mortgagor is entitled to
a right of redemption on formal foreclosure of the mortgage.
However, "[a]ny other judgment creditor of the mortgagor can levy
against the mortgaged parcel, but the purchaser at the execution
sale will take subject to the mortgagee's lien, if senior in time
to the lien of the judgment being levied on or if the mortgage
involved is a purchase money mortgage." McKinney's Practice
Commentary [C5236:3] following N.Y.C.P.L.R. § 5236 (citing N.Y.C.P.L.R. § 5203(a)(2)).
Furthermore, "[i]t has long been established that first in time
priority obtains as between mortgages and judgments." Bank Leumi
Trust Co. v. Liggett, 115 A.D.2d 378, 380, 496 N.Y.S.2d 14 (1st
Dep't 1985) (citations omitted).
Accordingly, a creditor whose judgment lien is either senior or
junior to that of the levied judgment must, upon being notified
of the sale of the real property under the execution, deliver an
execution to the sheriff. See DAVID D. SIEGEL, New York
Practice § 500 (3d ed. 1999). If the creditor fails to do so the
lien is forfeited. See id. If a senior creditor does deliver an
execution, "he will have first crack at the proceeds of the sale,
even though it is at another judgment creditor's initiative that
the sale is taking place." Id.
Proceeds must be distributed by the sheriff in the
order of lien priority of the judgment on which he
has received executions. . . . Other categories of
senior lienholder, such as a mortgagee, retain their
liens, to which the buyer at the sale takes subject,
but junior lienors are wiped out by the sale. For
that reason, a mortgagee or other lienor junior to
the judgment being levied on is also allowed to share
in any surplus that an execution sale on that
judgment may produce.
Id. Consequently, the scheduled Sheriff's sale is permitted to
go forward. If the mortgage was recorded prior to the plaintiff
judgment creditor's lien on the property, the mortgage will pass
with the property. If, however, the mortgage was recorded
subsequent to the plaintiff's recorded lien on the property, the
mortgagee will be entitled to share in any surplus the execution
sale may produce.
We need not address defendant's motion to maintain the status
quo because we have already determined that defendant's
counterclaim to vacate the default judgment must be dismissed;
thus there is no reason to stay the enforcement of the judgment.
As a result, the default judgment in the amount of $166,884.86
stands and plaintiff is entitled to collect this judgment by way
of execution. IV. Monetary Sanctions and Injunctive Relief
Plaintiff requests that this Court sanction defendant pursuant
to FED. R. CIV. P. 11 and 28 U.S.C. § 1927, in addition to
requesting injunctive relief to enjoin defendant from commencing
further legal action. (Pl. Mem. Supp. Summ. J. at 14-15.)
Plaintiff also requests an award of attorney's fees and costs
pursuant to Rule 11 and 28 U.S.C. § 1927. (Id. at 16, 18.)
Rule 11 permits sanctions to be imposed on an attorney for
filing a claim containing frivolous legal arguments or factual
allegations utterly lacking in evidentiary support. See O'Brien
v. Alexander, 101 F.3d 1479, 1488-90 (2d Cir. 1996). Sanctions
may be imposed where court papers have been signed, filed,
submitted, or later advocated, for an "improper purpose, such as
to harass or cause unnecessary delay or needlessly increase . . .
the cost of litigation," or "the claims, defenses and other legal
contentions therein are [not] warranted by existing law or by a
nonfrivolous argument for the extension, modification, or
reversal of existing law or the establishment of a new law." FED.
R. CIV. P. 11(b). If a court determines that Rule 11 has been
violated. it "may impose . . . an appropriate sanction upon the
attorneys, law firms, or parties that have violated [the
subdivision] or are responsible for the violation." FED. R. CIV.
A court's power to impose sanctions under Rule 11 is
"discretionary rather than mandatory" and sanctions "should be
imposed with caution." Knipe v. Skinner, 19 F.3d 72, 78 (2d
Cir. 1994). "[A]ny and all doubts must be resolved in favor of
the signer." Eastway Constr. Corp. v. City of New York,
762 F.2d 243, 254 (2d Cir. 1985); see also Rodick v. City of
Schenectady, 1 F.3d 1341, 1350 (2d Cir. 1993) ("`When divining
the point at which an argument turns from merely losing to losing and sanctionable, . . . we have instructed the district
courts to resolve all doubts in favor of the signer.'")
(citations omitted). Furthermore, Rule 11 sanctions must be
tailored to the particular facts and circumstances of the
specific case, in the discretion of the court. See Weil v.
Markowitz, 829 F.2d 166, 171 (D.C. Cir. 1987). Rule 11 does not,
in any way, limit a court's choices with respect to an
appropriate sanction. Williams v. Revlon Co., 156 F.R.D. 39, 44
(S.D.N.Y. 1994). "Deterrence is frequently stated to be the chief
goal of Rule 11, but it also has been said that `[t]he
compensatory, punitive, and deterrent aspects of sanctions may
have varying claims to priority depending on the nature of the
case and the violation.'" Id. (citations omitted).
In addition, 28 U.S.C. § 1927 provides for the imposition of
sanctions against "[a]ny attorney . . . who so multiplies the
proceedings in any case unreasonably and vexatiously [and
sanctions] may be required by the court to satisfy personally the
excess costs, expenses and attorney's fees reasonably incurred
because of such conduct." 28 U.S.C. § 1927. "`By its terms, §
1927 looks to unreasonable and vexatious multiplications of
proceedings; and, it imposes an obligation on attorneys
throughout the entire litigation to avoid dilatory tactics.' The
purpose of the statute is to deter unnecessary delays in
litigation and bad faith is the `touchstone of an award under
[the] statute.'" Wechsler v. Hunt Health Sys., Ltd.,
216 F. Supp. 2d 347, 357 (S.D.N.Y. 2002) (quoting United States v.
Int'l Bd. of Teamsters, 948 F.2d 1338, 1345 (2d Cir. 1991)
(McLaughlin, J.)). Courts will generally infer bad faith "when
the attorney's actions are so completely without merit as to
require the conclusion that they must have been undertaken for
some improper purpose such as delay." ACLI Gov't Secs., Inc. v.
Rhoades, 907 F. Supp. 66, 68 (S.D.N.Y. 1995) (citing Keller v.
Mobil Corp., 55 F.3d 94, 99 (2d Cir. 1995)); see also In re 680
Fifth Ave. Assocs., 218 B.R. 305, 321 (Bankr. S.D.N.Y. 1998)
("Bad faith is present when the court finds that an attorney's
actions were motivated by an improper purpose, such as harassment or
delay, and were also entirely without color.").
The record here demonstrates that Salem is intent on litigating
the same issues over and over again in the hopes of obtaining a
more favorable result. In the present lawsuit, Salem's
counterclaim seeking to vacate the default judgment was frivolous
and completely without merit. The section on which he relies
explicitly directs that such relief must be sought from the court
which rendered the judgment. Thus, it is clear that his
counterclaim was both baseless and made without reasonable and
competent inquiry. Additionally, we note that the default
judgment which defendant has failed to pay arose out of an action
against him for malicious prosecution and abuse of process,
further demonstrating Salem's propensity for vexatious lawsuits.
Consequently, we conclude that sanctions are warranted, but that,
for the reasons discussed below, the sanctions would be most
appropriate in the form of injunctive relief.
B. Injunctive Relief
When a party files repeated lawsuits involving the same nucleus
of operative facts, a district court has the inherent power to
enjoin him from filing vexatious lawsuits in the future. See
Malley v. N.Y. City Bd. of Educ., 112 F.3d 69, 69 (2d Cir. 1997)
(affirming injunction where the plaintiff had filed repeated
lawsuits concerning the same nucleus of operative facts.); Safir
v. United States Lines, Inc., 792 F.2d 19, 24 (2d Cir. 1986)
("Ultimately the question the court must answer is whether a
litigant who has a history of vexatious litigation is likely to
continue to abuse the judicial process and harass other
parties."); Raffe v. John Doe, 619 F. Supp. 891, 898 (S.D.N.Y.
1985) (Conner, J.) (enjoining litigant from filing future
lawsuits when that litigant had a history of filing vexatious lawsuits). Moreover, the court has a constitutional
duty to enjoin the filing of frivolous lawsuits in order to
preserve judicial resources when the litigant is likely to file
more suits in the future. See In re Martin-Trigona,
737 F.2d 1254, 1261 (2d Cir. 1984) (noting that injunctive relief is
particularly appropriate when the plaintiff appears
judgment-proof because sanctions would be ineffective); see also
In re Hartford Textile Corp., 659 F.2d 299, 305 (2d Cir. 1981),
cert. denied, 455 U.S. 1018 (1982) ("The United States Courts
are not powerless to protect the public, including litigants . . .
from the depredations of those . . . who abuse the process of
the Courts to harass and annoy others with meritless, frivolous,
vexatious or repetitive . . . proceedings."). Furthermore, "the
traditional standards for injunctive relief, i.e., irreparable
injury and inadequate remedy at law, do not apply to the issuance
of an injunction against a vexatious litigant." In re
Martin-Trigona, 737 F.2d at 1262.
In the present case, we have little difficulty concluding that
the circumstances necessitate some restriction on future
litigation by Salem. Salem has instituted numerous lawsuits and
counterclaims against plaintiff and plaintiff's counsel which
have no merit and which needlessly waste precious judicial
resources in addition to harassing plaintiff and his counsel.
While we recognize that the imposition of monetary sanctions
might be warranted, it is unlikely that such sanctions would
successfully curb future litigation by Salem as he appears to be
nearly judgment-proof. Salem has still not paid the default
judgment entered against him in 1999, and in the current lawsuit
in which plaintiff sought to set aside a fraudulent conveyance
frustrating collection of this judgment, Salem has merely
repeated his previous efforts to obtain vacatur of the default
judgment. Therefore, because monetary sanctions would be
insufficient to deter future litigation, an injunction is
warranted. However, we are mindful that the injunction must be
fashioned carefully to avoid prejudicing Salem's legitimate due process rights.
Accordingly, Salem is hereby enjoined from filing or
prosecuting, without leave of this Court, further actions or
proceedings in the federal courts against Neshewat or his counsel
Paul J. Goldstein and Goldstein & Metzger, LLP seeking review of
or relief from the default judgment entered against him in New
York State Supreme Court. See Polur v. Raffe, 912 F.2d 52, 57
(2d Cir. 1990). However, the injunction does not extend to state
courts because "[a]buse of state judicial processes is not per
se a threat to the jurisdiction of Article III courts and does
not per se implicate other federal interests." In re
Martin-Trigona, 737 F.2d at 1263.
For all of the foregoing reasons, plaintiff Michael Neshewat's
motion for summary judgment is granted with respect to setting
aside the fraudulent conveyances pursuant to N.Y. DEBT. & CRED.
LAW § 273-a, but denied with respect to his request for
attorney's fees pursuant to N.Y. DEBT. & CRED. LAW § 276-a.
Plaintiff's motion to dismiss defendant Maurice Salem's
counterclaim is also granted, and Salem's motion to amend the
counterclaim is denied.
The motion to intervene made by Paragon Associates of New York,
Inc., a nonparty adverse claimant, is denied. Also, defendant's
motion to quash plaintiff's "Restraining Notice to Garnishee"
which was effectuated pursuant to N.Y.C.P.L.R. §§ 5225 and 5227
and plaintiff's cross-motion seeking an order that the rental
payments generated from the 7 Gellatly Drive property be turned
over to plaintiff are both granted in part and denied in part.
Plaintiff is entitled to collect the March 2005 rent, but with respect to future rent, plaintiff's motion is
denied as moot. In addition, defendant's motion seeking to
maintain the status quo and stay the scheduled Sheriff's sale is
denied. The Sheriff's sale, scheduled for April 13, 2005, shall
occur as scheduled.
Plaintiff's motion seeking sanctions and injunctive relief
pursuant to FED. R. CIV. P. 11 and 28 U.S.C. § 1927 is granted in
part. Salem is hereby enjoined from filing or prosecuting,
without leave of this Court, further actions or proceedings in
the federal district courts against Neshewat or his counsel Paul
J. Goldstein and Goldstein & Metzger, LLP seeking review of or
relief from the default judgment entered against him in the
Supreme Court of Dutchess County, New York on June 16, 1999.