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Trustco Bank v. Pearl Mont Commons, LLC

Supreme Court, Schenectady County

December 29, 2016

Trustco Bank, Plaintiff,
Pearl Mont Commons, LLC and GERALYNN LYNN, Defendants.

          For Defendant: Geralynn Lynn, Pro Se

          For Plaintiff: McNamee, Lochner, Titus & Williams, P.C. By: Peter A. Pastore, Esq.

          THOMAS D. BUCHANAN, J.

         In this action, Plaintiff seeks several forms of relief, which include setting aside certain transfers of assets from defendant Pearl Mont Commons, LLC ("Pearl Mont") to defendant Geralynn Lynn. Plaintiff brought this action as judgment creditor pursuant to two judgments previously entered against Highgate Development Corp., Lynn Homes, Inc., and John W. Lynn. The two corporate entities owned certain real property on which Plaintiff held mortgages to secure commercial loans made to them by Plaintiff for construction of a housing development. John Lynn personally guarantied those loans. Plaintiff sued both corporations and Mr. Lynn on the notes, and seeks to collect on that judgment debt in this action. Mr. Lynn is either the sole owner or a co-owner of Pearl Mont. Plaintiff alleges that certain Pearl Mont assets were transferred to defendant Geralynn Lynn (the wife of John Lynn) fraudulently, as that term is used in the Debtor and Creditor Law. While the composition of Pearl Mont's ownership has been one of the issues litigated in this action, resolution of that question is not necessary to address the motion at hand.

         Defendant Geralynn Lynn ("Defendant") has moved for summary judgment dismissing the Complaint as against her on four stated grounds: (1) Plaintiff failed to deliver an execution to the Rockland County Sheriff on its judgments against John Lynn, so that there is no lien upon the assets it seeks to obtain; (2) the preliminary injunction granted in this case on February 21, 2013, was based on erroneous facts; (3) the re-issuance of the preliminary injunction on December 9, 2013, was based on erroneous facts; and (4) circumstances have changed, in that Plaintiff has now taken possession of the real property that served as collateral for the loans at issue and sold it to a third party. Plaintiff has opposed the motion. At oral argument, the Court requested additional briefing, which both parties have submitted.

         Defendant bears the initial burden of making a prima facie showing of her entitlement to judgment as a matter of law by submitting sufficient evidence to show that no material issues of fact exist (Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851');">64 N.Y.2d 851 [1985]). If she makes the requisite showing, the burden of proof then shifts to Plaintiff to show the presence of questions of fact requiring trial (Alvarez v. Prospect Hosp., 68 N.Y.2d 320');">68 N.Y.2d 320 [1986]). The facts must be construed in a light most favorable to Plaintiff as the non-moving party (see e.g. Hanna v. St. Lawrence County, 34 A.D.3d 1146');">34 A.D.3d 1146 [3d Dept 2006]).

         A. Defendant's Arguments

         1. Delivery of Execution to Sheriff.

         In advancing her first argument, Defendant appears to mis-read CPLR §5202(a) to require issuance of an execution to the sheriff of the appropriate county prior to any enforcement action on a judgment. An execution is one of several enforcement devices made available by Article 52 of the CPLR to a party holding a judgment against another. A careful reading of CPLR §5202 shows that the statute is meant to establish the priority of liens created by the various enforcement devices. The case cited by Defendant (Matter of Intl. Ribbon Mills [Arjan Ribbons], 36 N.Y.2d 121 [1975]) is simply an adjudication of priority among creditors using this statute. While it is true that the case at bar is about priority between Plaintiff and Defendant as to the ownership of personal property that once belonged to Pearl Mont, Plaintiff does not rely on its status as an "execution creditor" of John Lynn in making its claims.

         The first two causes of action seek a judgment against Pearl Mont based on Plaintiff's allegation that Pearl Mont is the alter ego of John Lynn. The next three causes of action are based on the Debtor and Creditor Law, each alleging that certain transfers were made from Pearl Mont to Defendant that should be disregarded in the eyes of the law, because they operated fraudulently to deprive Plaintiff of its ability to obtain those funds and apply them toward satisfaction of its judgment against John Lynn. The final cause of action seeks collection costs and attorney's fees in the event that actual intent to defraud, hinder or delay Plaintiff's collection efforts is found. While all of these claims rely upon the existence of Plaintiff's judgments against John Lynn, none of them require an execution lien upon personal property. Section 5202(a) thus has no application here and Defendant cannot make her prima facie showing on the first ground she asserts.

         2. & 3. Propriety of Preliminary Injunction.

         Early in this action, Plaintiff obtained a temporary restraining order which, among other things, prohibited Pearl Mont from making any transfers of funds or tangible assets to Defendant and prohibited Defendant from accessing Pearl Mont bank accounts and credit cards. The temporary restraining order was converted to a preliminary injunction on February 21, 2013. At that time, the Court was unaware of the fact that John Lynn had filed a petition in Bankruptcy Court in 2012. In an Order issued on October 23, 2013, the U.S. Bankruptcy Court for the Southern District of New York held that Plaintiff's pursuit of the case at bar had violated the statutory automatic stay of collection efforts against John Lynn resulting from his bankruptcy filing, and that the preliminary injunction was therefore void. The preliminary injunction was re-issued on December 9, 2013, after Plaintiff informed the Court that Mr. Lynn's bankruptcy proceeding - and thus the automatic stay - had terminated.

         The injunctive relief afforded to Plaintiff was based on two main factors. First, Lynn Homes had also filed a petition in Bankruptcy Court, which raised the statutory automatic stay of any actions to collect debts from Lynn Homes and thus prevented Plaintiff from foreclosing its mortgage on most of the subject property. Second, the housing development being constructed with the loan proceeds had floundered due to significant problems in securing required permits and did not appear to be a viable project. As this Court stated in its Decision and Order of February 21, 2013, it appeared from the record developed by Plaintiff that it would be "impracticable, if not impossible, for Plaintiff to realize meaningful reduction in the debt" by pursuing foreclosure. John Lynn's interest in Pearl Mont appeared to be the only viable source for Plaintiff to collect the judgment debt, which required its preservation pending the outcome of this case.

         Defendant argues that the injunction was improperly issued and re-issued because certain facts were not placed before the Court by Plaintiff. Specifically, Defendant points out that on January 16, 2013, just prior to Plaintiff's initial application for an injunction in this case, Plaintiff had obtained an order from the Bankruptcy Court lifting the automatic stay in the Lynn Homes bankruptcy, which would allow Plaintiff to proceed with the foreclosure of its mortgages. That fact was not mentioned in Plaintiff's application papers. The removal of that impediment to Plaintiff's ability to foreclose on its mortgages also removed the first basis for the injunction. Moreover, Plaintiff's ...

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