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United States v. J.A. Jones Construction Group

April 2, 2010

UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF SOLERA CONSTRUCTION, INC., ET AL., PLAINTIFF,
v.
J.A. JONES CONSTRUCTION GROUP, LLC, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Marilyn D. GO United States Magistrate Judge

REPORT & RECOMMENDATION

On May 31, 2006, this Court entered a default judgment in favor of plaintiff United States of America for the use and benefit of Solera Construction, Inc. and DCM Erectors, Inc., a joint venture ("Solera/DCM"), against LBL Skysystems (USA), Inc. ("LBL USA"). See ct. doc. 136. In efforts to enforce its judgment against LBL USA, Solera/DCM served an information subpoena, a subpoena duces tecum and a restraining notice upon Turner Construction Corporation ("Turner"). Solera/DCM has moved to compel responses to the subpoenas served, which it claims are designed to elicit information regarding funds allegedly due to LBL USA and its Canadian parent, LBL Skysystems Corporation ("LBL Canada"). Ct. docs. 189, 193.

Laurentian Bank of Canada (the "Bank") has moved to vacate the restraining notice Solera/DCM served on Turner to permit Turner to transfer funds to the Bank owed by LBL Canada.*fn1 See ct. doc. 194.

BACKGROUND

On or about December 4, 1996, Turner and LBL Canada entered into a subcontract agreement related to the construction of the United States Courthouse in Islip, N.Y. (the "Islip project"). See ct. doc. 214, Exh. 3; ct. doc. 221 at 2. In September 2007, Turner settled its claims and subcontractor pass-through claims relating to the Islip project with the United States General Services Administration ("GSA"). See ct. doc. 221 at 2. Shortly thereafter, Turner agreed to pay $975,000 to LBL Canada, with an additional $25,000 to be paid in the future after disputes with respect to alleged leaks are resolved. Id.

On December 16, 1998, the Bank granted to LBL Canada a credit facility in the amount of $9,150,000 CDN which was eventually increased to $20,000,000 CDN (the "Loan"). Affidavit of Alain Desrochers dated January 18, 2008 ("Desrochers Aff.") (ct. doc. 200) at ¶ 2, Exhs. A, B, C. The Loan is guaranteed by an agreement of general suretyship made by LBL USA in favor of the Bank in the amount of $20,000,000 CDN. Id. at ¶ 3, Exh. D. In connection with the Loan, the Bank entered into security agreements with LBL Canada and LBL USA dated October 19, 1999, which grant the Bank a security interest in the assets, including the receivables, of LBL Canada and LBL USA. Id. at ¶ 4, Exhs. E, F. As of December 21, 2007, the outstanding balance under the Loan was $4,901,856.40 CDN. Id. at ¶ 9, Exh. K.

On October 21, 1999, the Bank registered its security interest in LBL Canada's receivables by filing an application for registration in the Quebec Register of Personal and Moveable Real Rights. Id. at ¶ 5, Exh. G. On February 10, 2000 and November 28, 2006, the Bank filed UCC-1 financing statements with the New York Department of State, perfecting its security interest in LBL USA's receivables. Id. at ¶¶ 6-7, Exhs. H, I.

After Solera/DCM obtained a default judgment in this Court against LBL USA in the amount of $4,092,237.07, Solera/DCM's counsel issued a writ of execution to the United States Marshal for the Eastern District of New York on August 30, 2006 naming LBL USA as the entity to be levied upon. See ct. doc. 214 at 5, Exh. 8. The Marshal served the writ on Tratoros Construction Inc. on August 30, 2006. See ct. doc. 214, Exh. 8. Solera/DCM later served Turner with information subpoenas and restraining notices regarding any funds to be paid to LBL USA on October 12, 2007. See ct. doc. 214, Exh. 1.

By order dated March 20, 2009, this Court granted the request of the Bank and Turner to deposit the funds at issue with the Clerk of the Court.

DISCUSSION

I first address the question of priority to the funds that Turner owes LBL Canada since determination of this issue is dispositive of both the Bank's motion to vacate the restraining notice on Turner and Solera/DCM's motion to compel discovery.

In arguing that Solera/DCM's restraining notice should be vacated, the Bank contends that Solera/DCM's judgment against LBL USA does not entitle it to any claim to the Turner funds owed to LBL Canada, its corporate parent. Solera/DCM responds that it has a valid claim to the Turner funds because LBL USA and LBL Canada are one and the same or because the Turner funds are properly assets of LBL USA which Solera/DCM claims is the entity that did the relevant work on the Islip project. The Bank counters that even if Solera/DCM could demonstrate either that the corporate veil should be pierced between LBL Canada and LBL USA or that the Turner funds should be deemed the assets of LBL USA, the Bank has priority to the assets of both LBL entities by virtue of its prior perfected security interests.

Priority to the Assets of LBL USA

Rule 69(a)(1) of the Federal Rules of Civil Procedure provides for enforcement of judgments according to the practice and procedure of the state in which the district court is held. See Fed. R. Civ. P. 69(a)(1); see also 28 U.S.C. § 1962 (enforce ability of district court judgment depends on state court practice). The New York Civil Practice Law and Rules (the "CPLR") governs priorities in personal property between judgment creditors and transferees (see N.Y. C.P.L.R. § 5202) and among judgment creditors (see N.Y. C.P.L.R. § 5234). See David D. Siegel, N.Y. C.P.L.R. 5202, Practice Commentaries, C5202:1; David D. Siegel, New York Practice § 518 (4th ed. 2005). Article 52 of the CPLR sets forth the various procedures available for enforcement of judgments under New York law and governs the type of property that is subject to execution and levy. See Alliance Bond Fund, Inc. v. Grupo Mexicano De Desarrollo, S.A., 190 F.3d 16, 20-21 (2d Cir. 1999); Marshak v. Green, 746 F.2d 927, 930-31 (2d Cir. 1984). By contrast, ...


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