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Gasser Chair Co., Inc. v. Infanti Chair Manufacturing Corp.

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK


February 8, 2006

GASSER CHAIR COMPANY, INC. AND GEORGE GASSER, PLAINTIFFS,
v.
INFANTI CHAIR MANUFACTURING CORP. AND VITTORIO INFANTI, DEFENDANTS.
GEORGE GASSER AND GASSER CHAIR COMPANY, INC., PLAINTIFFS, INFANTI INTERNATIONAL, INC., MARK INFANTI, NANCY APONTE INFANTI, VITTORIA INFANTI, MARGUERITA INFANTI, MARIELLA INFANTI, AMBOY NATIONAL BANK, GEORGE E. SCHARPF AND SANDERS W. GROPPER, IN HIS CAPACITY AS RECEIVER OF INFANTI INTERNATIONAL, INC., DEFENDANTS.

The opinion of the court was delivered by: Glasser, United States District Judge

MEMORANDUM AND ORDER

INTRODUCTION

Plaintiffs Gasser Chair Company, Inc. and George Gasser ("plaintiffs") obtained a judgment in excess of $15 million (the "Judgment") against Infanti Chair Manufacturing Corporation ("Infanti Chair") and Vittorio Infanti ("Mr. Infanti") on August 9, 1996. Despite their persistent efforts, plaintiffs have been unable to satisfy the Judgment. In a related proceeding in which plaintiffs seek to impose liability upon Infanti International, Inc. ("Infanti International" or the "Corporation") as a successor to Infanti Chair, and to hold Infanti International liable on the Judgment, the Court issued a decision, familiarity with which is assumed, granting partial summary judgment to plaintiffs. See Gasser v. Infanti International, Inc., 353 F. Supp. 2d 342 (E.D.N.Y. 2005). In that decision, the Court held that a patent (the "Patent") once owned by Mr. Infanti, which he subsequently conveyed to his daughter, Vittoria Infanti ("Vicky"), is owned by plaintiffs because Mr. Infanti's assignment of the Patent to his daughter, without consideration, constituted a fraudulent conveyance under New York law.*fn1

Plaintiffs have filed this supplementary proceeding by order to show cause for, inter alia, the appointment of a receiver to sell the Patent. George E. Scharpf ("Scharpf"), the President of Amboy National Bank ("Amboy"), and a creditor of Infanti International, acting in his individual capacity, opposes plaintiffs' application and asserts that he has a valid security interest in the Patent superior to any claim to it asserted by plaintiffs. In response, plaintiffs argue, among other things, that Scharpf does not have a valid security interest in the Patent.

For the reasons that follow, the Court grants plaintiffs' motion and finds that there is no evidence that Scharpf has a valid security interest in the Patent superior to the plaintiffs' claim to it. Pursuant to N.Y. C.P.L.R. § 5228(a), the Court therefore will appoint a receiver to conduct a sale of the Patent.

BACKGROUND

The transactions entered into between Scharpf, on the one hand, and Infanti International and Mr. Infanti, on the other hand, determine the Court's resolution of plaintiffs' application. They are as follows. On or about September 10, 2001, and subsequently, on or about October 4, 2001, Scharpf and Infanti International entered into two identical collateral promissory notes in the amount of $500,000 and $135,000, respectively. In order to secure the extension of credit under these notes, Infanti International granted Scharpf a security interest in certain collateral, including the "[a]ssignment of all patents related to Infanti Versi Chairs." On or about July 22, 2002, and subsequently, on or about October 17, 2002, Scharpf and Infanti International entered into two identical collateral promissory notes, each in the amount of $100,000. In order to secure the extension of credit under these notes, Infanti International granted Scharpf a security interest in certain collateral, including "a chair with a releasably detachable and interchangeable seat cushion, and releasably detachable and interchangeable front and rear seat back cushions mounted to injection molded plates." All four of these notes (collectively, the "Notes") were "guaranteed" by Mr. Infanti.*fn2

They all contained a New Jersey choice of law provision.*fn3

Scharpf claims that he perfected his security agreement in the Patent by filing a UCC-1 financing statement (the "UCC Financing Statement") in the Richmond County Clerk's office on March 19, 2002 and by recording a security agreement in the United States Patent and Trademark Office (the "PTO Security Agreement") on October 8, 2002. The UCC Financing Statement lists Infanti International and Mr. Infanti as the debtors, and Scharpf as the secured party. The PTO Security Agreement identifies Mr. Infanti and his daughter "Vittoria Infanti Valentine [sic]" as the conveying parties, and Scharpf, as the receiving party. Only the PTO Security Agreement was signed.*fn4

DISCUSSION

A. Whether Scharpf Has A Valid Security Interest in the Patent

Based on the UCC Financing Statement and PTO Security Agreement, Scharpf asserts that "as the holder of a perfected security interest in the Patent, obtained for fair value," he "has priority over Gasser." (See January 14, 2005 Letter from Scharpf to Court). Scharpf relies on N.Y. C.P.L.R. § 5202(a), which provides that "[w]hen a judgment creditor has delivered an execution to a sheriff," as plaintiffs have done here, "the judgment creditor's rights in a debt owed to the judgment debtor or in an interest of the judgment debtor in personal property, against which debt or property the judgment may be enforced, are superior to the extent of the amount of the execution to the rights of any transferee of the debt or property, except a transferee who acquired the debt or property for fair consideration before it was levied upon." (emphasis added). Scharpf argues that plaintiffs have never levied on the Patent because the Supreme Court has held that a judgment creditor cannot enforce a judgment against a patent by execution and levy. (Id., citing Stephens v. Cady, 55 U.S. 528 (1852), Stevens v. Gladding, 58 U.S. 447 (1954)). Further, according to Scharpf, even if plaintiffs could and did levy on the Patent, he "acquired his interest in [it] for fair consideration ( i.e. , the value of all of his loans), before the Patent was levied upon."*fn5 (Id.)

As a threshold matter, the Court must determine whether Scharpf's contention is correct, namely, that he is a holder of a perfected security interest in the Patent. "Perfection of security interests is determined by state law." In re Investors & Lenders, Ltd., 165 B.R. 389, 393 (Bankr. D. N.J. 1994). Under New Jersey law (and the law of New York), a security interest is enforceable against the debtor "with respect to the collateral only if ... the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party." N.J. Stat. Ann. 12A § 9-203(b). "'Rights in the collateral' merely states a truism, namely, that the debtor can normally only convey what it has." 4 James J. White and Robert S. Summers, Uniform Commercial Code, at 127 (Ch. 31-3) (5 th ed. 2002).

The Notes pursuant to which Scharpf obtained a security interest in the Patent were signed between September 10, 2001 and October 17, 2002. However, at that time, neither Infanti International, nor Mr. Infanti, had any interest in the Patent to convey to Scharpf. The undisputed facts reveal that Infanti International never had an interest in the Patent at any time.*fn6 Mr. Infanti did not have an interest in the Patent because he "testified that he transferred the Patent to his daughter Victoria 'as a gift' at or around the time (September 10, 1999) he filed his patent application with the United States Patent and Trademark Office." Gasser, 353 F. Supp. 2d at 347. Mr. Infanti therefore had no interest in the Patent at the time he guaranteed the Notes.*fn7

Vicky did not transfer a security interest in the Patent to Scharpf because there is no enforceable security agreement between them. Vicky did not sign the PTO Security Agreement. This renders the agreement unenforceable as against Vicky. It is well-established that in "order to be enforceable[,] the security agreement must be signed by the debtor." In re Maple Contractors, Inc., 172 N.J. Super. 348, 353, 411 A.2d 1186, 1189 (Super. Ct. Law Div. 1979); see also 12A N.J. Stat. Ann. § 9-203(b)(3)(A) (in order for a security agreement to be enforceable, the debtor must authenticate it and provide a description of the collateral).

Accordingly, since no one with legal interest in the Patent ever granted Scharpf a security interest in it, he never obtained one. Plaintiffs are thus the only parties with a valid interest in the Patent as creditors of Mr. Infanti. The fact that the PTO Security Agreement was filed with the United States Patent and Trademark Office is of no consequence. See 37 C.F.R. § 3.54 ("The recording of a document ... is not a determination by the Office of the validity of the document or the effect that document has on the title to a ... patent").

Accordingly, the Court finds that Scharpf never received a security interest in the Patent from anyone.

Even assuming that Scharpf had a security interest in the Patent, he failed to perfect it. Scharpf was required to perfect his security interest in the Patent pursuant to Article 9 of the New Jersey Uniform Commercial Code.*fn8 See, e.g., Lloyds Credit Corp. v. McLain Heller Ins. Co., 262 N.J. Super. 211, 214, 620 A.D.2d 472, 473 (Super. Ct. Law Div. 1992) ("The Uniform Commercial Code, as adopted in New Jersey, provides that a security interest in general intangibles may only be perfected by filing"); N.J. Stat. Ann. 12A § 9-301 (comment) ("the law governing perfection of security interests in both tangible and intangible collateral . . . is the law of the jurisdiction of the debtor's location, as determined under section 9-307"). Under the UCC, Scharpf was obligated to perfect his security interest in the Patent by filing a UCC-1 financing statement in the office of the New Jersey Secretary of State, Division of Commercial Recording, because Mr. Infanti resides in New Jersey. See N.J. Stat. Ann. 12A § 9-307(b)(1) ("Except as otherwise provided in this section, the following rules determine a debtor's location.... A debtor who is an individual is located at the individual's principal residence."); N.J. Stat. Ann. 12A § 9-310(a) (generally, "a financing statement must be filed to perfect all security interests"); N.J. Stat. Ann. 12A § 9-501(a)(2) (the office in which to file a financing statement to perfect a security interest is "the Division of Commercial Recording"); In re Wholesale Warehouse, Inc., 141 B.R. 59, 63 (Bankr. D. N.J. 1992) ("A security interest in general intangibles is perfected by filing a financing statement with the Secretary of State"). His failure to do so means that he never perfected his security interest in the Patent to the extent that he ever had one.*fn9

B. The Disposition of the Patent

Plaintiffs ask that the Court sell the Patent on their behalf to satisfy some or all of the Judgment. Fed. R. Civ. P. 69(a) provides that "[p]rocess to enforce a judgment for the payment of money shall be a writ of execution, unless the court orders otherwise."

N.Y. C.P.L.R. § 5225(a) states, in relevant part, "[u]pon motion of the judgment creditor, upon notice to the judgment debtor, where it is shown that the judgment debtor is in possession or custody of ... personal property in which he has an interest, the court shall order that the judgment debtor ... deliver any ... personal property ... to a designated sheriff." Courts have sanctioned the use of N.Y. C.P.L.R. §5225 for a judgment debtor's "intangible" property interest. See, e.g., Udel v. Udel, 82 Misc.2d 882, 884, 370 N.Y.S. 2d 426, 428 (Civ. Ct. New York Co. 1975) (even where Business Corporation Law restricts transfer of stock in a professional corporation, it does not preclude the court from directing a turnover of stock to satisfy a judgment under the predecessor to N.Y. C.P.L.R. § 5225). Here, the prerequisites for the grant of a turn-over order have been satisfied because: (a) the Court previously held that Mr. Infanti owns the Patent based on the finding that the conveyance of his interest in it to his daughter, Vicky, was fraudulent, see Gasser, 353 F. Supp. 2d at 355 ;*fn10 (b) the Judgment has not been satisfied; (c) Mr. Infanti has no money to satisfy the Judgment; and (d) adequate notice was given to Mr. Infanti regarding this application.*fn11

Typically, after the judgment debtor turns over property to the sheriff pursuant to court order issued under N.Y. C.P.L.R. § 5225, the sale of that property proceeds according to the requirements of N.Y. C.P.L.R. § 5233 (requiring public notice of sale at auction). However, in this case, because of the lack of marketability of the Patent and the difficulty in determining its true value, the Court finds that it is unlikely that a turn over of the Patent to the sheriff would result in satisfaction of some or all of the Judgment. Udel, 82 Misc.2d at 884, 370 N.Y.S.2d at 426. As one leading commentator states, pursuant to N.Y. C.P.L.R. § 5228, the Court should, in its discretion, "appoint a receiver when disposition of the debtor's property by private negotiation is preferable to an execution sale."*fn12 11 Weinstein, Korn & Miller, New York Civil Practice, ¶ 5228.05, at 52-499 (2004). A receivership has been held especially appropriate when the "property interest involved is intangible, lacks a ready market, and presents nothing that a sheriff can work with at an auction, for example, the interest of a psychiatrist/judgment debtor in a professional corporation of which he is a member." David Siegel, New York Practice, § 512 (2004) (citing Udel, supra). The Court therefore orders the appointment of a receiver under N.Y. C.P.L.R. § 5228 for the purpose of selling the Patent and distributing the proceeds of the sale to plaintiffs to satisfy all or part of the Judgment. Further, pursuant to N.Y. C.P.L.R. § 5234(c),*fn13 the Court holds, to the extent applicable, that Plaintiffs' priority interest in the Patent will not expire within sixty days after an appropriate order is entered by the Clerk of Court.

CONCLUSION

For the foregoing reasons, plaintiffs' motion for appointment of a receiver is granted. Within five business days following entry of this Memorandum and Order, plaintiffs' counsel shall provide the Court with the names, addresses and telephone numbers of three individuals who could serve as receivers for the purpose of selling the Patent, along with a proposed order for the appointment of the Receiver.

SO ORDERED.

Brooklyn, New York


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