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Westchester Teamsters Local 456 Annuity Fund v. Fleet National Bank

February 21, 2007

WESTCHESTER TEAMSTERS LOCAL 456 ANNUITY FUND, WESTCHESTER TEAMSTERS LOCAL 456 PENSION FUND, WESTCHESTER TEAMSTERS LOCAL 456 HEALTH & WELFARE FUND, WESTCHESTER TEAMSTERS LOCAL 456 UNEMPLOYMENT FUND, SAUL L. SINGER, TRUSTEE, AND ROSS PEPE, TRUSTEE PLAINTIFFS,
v.
FLEET NATIONAL BANK, UNITY MANAGEMENT, INC., KENNETH DECTER, AND H. PHILIPP HUFNAGEL, DEFENDANTS.



The opinion of the court was delivered by: Alvin K. Hellerstein, United States District Judge:

ORDER DISCHARGING THE ATTACHMENT AND REGULATING CLAIMS AGAINST ATTACHED FUNDS AND FEES

Following judgment, filed August 28, 2006 in the aggregate amount of $4,333,740, in favor of the four funds of Plaintiff, Westchester Teamsters Local 456 Annuity, Pension, Health & Welfare, and Unemployment Funds, and jointly and severally against the four defendants, Fleet National Bank, Unity Management, Inc., Kenneth Decter and H. Philipp Hufnagel, three issues remain for my consideration: (1) a motion by the escrow agent, Sexter & Warmflash, former counsel to Defendant Kenneth Decter, to discharge the attachment and escrow of $196,802.30; (2) a motion for attorneys' fees and expenses by Plaintiff, Westchester Teamsters, the prevailing party in this ERISA lawsuit, and (3) a motion to release and discharge the bond posted by Fleet National Bank. I will address these issues, in turn, below.

Discharging the Attachment and Regulating the Claims Against the Attached Funds

The attachment was ordered by the New York Supreme Court, New York County, effective July 23, 2002, and filed, with the requisite bond in the County Clerk's Office for the County of New York on July 29, 2002. (Affirm. Richard F. Lawler, Ex. 2, ¶ 3; Decl. Jeremy A. Welfer, Sep. 28, 2006, Ex. B). Decter deposited the funds covered by the attachment, reflecting his beneficial ownership in a sale of commercial real estate at 388-390 Old Country Road, Garden City, New York, owned in the name of a corporation half-owned by Decter. The sale of that property resulted in net proceeds of $319,548.42. Of that amount, $122,556.13 was paid to the United States Internal Revenue Service to satisfy unpaid tax liabilities of Decter, and the balance, $196,992.29, remained subject to the attachment. By agreement among the potentially interested parties, the attached funds were kept, subject to the attachment, in an escrow kept by Decter's lawyers, Sexter & Warmflash. After the case was removed from the New York Supreme Court to this Court, an Order of Attachment of this Court, filed October 15, 2002, replaced the state court attachment.

The escrowed funds are now sought by Kenneth Decter's former wife, Ellyn Sosin, and the Plaintiff, Westchester Teamsters Local 456 Annuity and Pension Funds. The New York State Department of Taxation and Finance, although it has not intervened in the lawsuit, filed a claim with the Escrow Agent, Sexter & Warmflash, Decter's former counsel, for Decter's unpaid income taxes in the amount of $39,711.46, and Decter argues that the state tax claim should have priority. Lastly, Sexter & Warmflash seeks its attorneys' fees for preparing and filing the motion to discharge.

Sosin, supported by Decter, makes claim to half the attached amount. She bases her claim on an agreement that she reached with Decter, executed July 25, 2002. The agreement was incorporated, but not merged, into their divorce decree entered in the New York Supreme Court, Nassau County September 20, 2002. (Decl. Ellyn Sosin, Oct. 16, 2006, ¶ 6, Exs. A, B). Pursuant to the agreement, Decter agreed to give his wife one-half of the net proceeds of approximately $300,000 he expected to receive from a sale of the Old Country Road property.

Westchester Teamsters, supported by Fleet Bank as Plaintiff's fiduciary, objects to Sosin's claim, and makes claim to the fund in its entirety, to be applied against the judgment obtained by Plaintiff against Decter, jointly and severally with the other defendants, in the amount of $4,333,740.

Since Decter failed to disclose to Westchester Teamsters or to Fleet Bank his obligation to Sosin, and since the attachment became fixed before any legal property conveyances from Decter to Sosin came to pass, and because Westchester Teamsters was not on notice and did not have knowledge of Sosin's contract expectancy against Decter, the interest of Westchester Teamsters, as the attachment creditor, has priority over Sosin. N.Y. C.P.L.R. § 6203; 6216; cf. Glassman v. Hyder, 23 N.Y. 2d 354, 359 (1968). Neither Decter's July 25, 2002 settlement with his wife, nor the incorporation (but not merger) of that settlement in the decree of divorce, dated September 20, 2002, effected a transfer of the ownership interest of Decter's corporation in real property.

Sosin appeared at the motion to assert her interest in the proceeds in escrow with Sexter & Warmflash. She failed to show, however, an interest superior to the attachment creditor, nor has she shown that she gave "fair consideration" for that interest, or that she was "without notice" of the attachment. N.Y. C.P.L.R. § 6203.

New York State Department of Taxation made two demands against Sexter & Warmflash, the escrow agent: a claim of October 12, 2005 in the amount of $36,342.28 for Decter's unpaid income tax obligations, and an updated claim, as of June 21, 2006, in the amount of $39,711.46. New York State did not intervene in this lawsuit and its Tax Compliance Levy demanding the release of funds from Sexter & Warmflash was made years after the attachment in this case was duly filed. Being first in time, the attachment creditor, Westchester Teamsters, has priority. See Cayuga Constr. Corp. v. United States, 1994 WL 392233 at *1 (S.D.N.Y. Jul. 27, 1994) (citing IMFC Prof'l Servs., Inc. v. State, 399 N.Y.S. 2d 804 (4th Dept. 1977)); In re Gruner, 295 N.Y. 510, 520-25 (1946). The claim of Westchester Teamsters is paramount over the claims of both Sosin and the New York State Department of Taxation.

As for the Sexter & Warmflash claim, it has not been quantified, and the basis for it has not been shown. Accordingly, I reject its claim.

Accordingly, for the reasons stated, the entire amount in escrow, $196,992.29, and any interest or accumulations thereon, should be paid to Westchester Teamsters, in partial satisfaction of its judgment claim, and in discharge of the obligations of the escrowee, Sexter & Warmflash.

Recovery by Plaintiff of its Attorneys' Fees and Expenses

Regarding the issue of attorneys' fees, the court may award such in ERISA actions "in its discretion." 29 U.S.C. ยง 1132(g)(1). Legal fees are to be awarded according to a number of criteria: (1) the degree of the offending party's culpability or bad faith, (2) the ability of the offending party to satisfy an award of attorneys' fees, (3) whether an award of fees would deter other persons from acting similarly under like circumstances, (4) the relative merits of the parties' positions, and (5) whether the action conferred a common benefit on a group of pension plan participants. Paese v. ...


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