Jackson Hewitt Inc. v Adams

[*1] Jackson Hewitt Inc. v Adams 2009 NY Slip Op 50297(U) [22 Misc 3d 1126(A)] Decided on February 24, 2009 Supreme Court, Nassau County Palmieri, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 24, 2009
Supreme Court, Nassau County

Jackson Hewitt Inc., Petitioner,

against

Albert D. Adams, FINETTA CALDERON, FIRST GLOBAL BUSINESS CORPORATION, DHME CORPORATION, V AND H BROTHERS CORP., and "JOHN DOE No.1" through "JOHN DOE #10", the last ten names being fictitious and unknown to petitioner, the persons or parties intended being the entities in which Albert Adams has an ownership interest, persons or entities in possession of property belonging to or transferred by Albert D. Adams, and/or persons or entities who are indebted to Albert D. Adams, Respondents.



17331/08



Jonathan M. Borg, Esq.

Day Pitney, LLP

Attorney for Petitioner

7 Times Square

New York, NY 10036

Peter M. Zirbes, Esq.

Attorney for Respondents

108-18 Queens Boulevard Ste. 604

Forest Hills, NY 11737

Daniel R. Palmieri, J.

This is a special proceeding in which the Court is called upon to wade through numerous statutes available to a creditor seeking to enforce a money judgment, and must consider the interplay of certain sections to reach a proper result.

The proceeding is brought pursuant to CPLR Articles 23, 52,62, the Judiciary Law and the Debtor and Creditor Law.

Petitioner and judgment creditor, Jackson Hewitt, Inc. ("JH") seeks various forms of relief, as follows:

(1)pursuant to CPLR 2308(b), 5210 , 5224, and 5251, holding the respondents, Albert D. Adams ("Adams") and Finetta Calderon ("Calderon") in contempt for their failure to comply with an Information Subpoena issued upon them, and punishing both of [*2]them by fine or imprisonment, or both, ordering Adams and Calderon to appear for judgment debtor examination and to produce the documents demanded in the Subpoenas Duces Tecum, and ordering Adams to fully complete the Questionnaire served with the Information Subpoena.

(2)pursuant to CPLR 5210, 5222, and 5251, in the event the documents produced herein and the examinations of respondents herein show a failure by Adams to comply with the Restraining Notice served upon him, entering an Order and Judgment holding Adams in contempt and punishing him by fine or imprisonment, or both;

(3)awarding to JH its contractual costs and attorneys' fees, and damages incurred by JH in connection with the attempts to enforce the Judgment against Adams;

(4)pursuant to CPLR 408, granting JH leave to obtain disclosure from respondents herein as to the assets of Adams;

(5)pursuant to CPLR 5226, requiring Adams to make installment payments to JH in partial satisfaction of the Judgment;

(6)pursuant to CPLR 5225 and 5227, directing the turnover of all sums and property belonging to Adams and/or due Adams from Calderon, First Global Business Corporation ("FGBC"), DHME Corporation ("DHME") and/or V and H Brothers Corp. ("V & H");

(7)pursuant to Debtor and Creditor Law 270, et. seq., avoiding all transfers made by Adams on the basis that same are fraudulent as to JH, directing the turnover of such property pursuant to CPLR 5225 and 5227;

(8)pursuant to CPLR 6201, et. seq., issuing an Order of Attachment against Adams and all of his assets up to the amount of the Judgment and, upon granting same, pursuant to CPLR 6220, directing respondents to make disclosure as to Adams' assets, and those assets transferred by him, and any other property in which Adams has an interest or debts which are due to Adams; and,

(9)awarding to JH its costs and attorney's fees incurred herein.

JH brought an action in the United States District Court for the District of New Jersey against Adams in the case entitled Jackson Hewitt, Inc. v. Albert D. Adams, United States District Court for the District of New Jersey, Case No. CV-04-3610 (the "NJ Action"). The NJ Action concerned Adams' failure to make payments to JH pursuant to a [*3]Development Advance Note and two franchise agreements between Adams and JH. On August 6, 2007, a judgment (the "Judgment") was entered against Adams in the NJ Action in the amount of $414,998.58 following his failure to appear for a Court-ordered conference, and the striking of his Answer. On October 3, 2007, the Judgment was registered with the United States District Court for the Eastern District of New York by the filing of a Certificate of Registration of Judgment in Another District, and on October 4, 2007, an Abstract of Judgment issued by the United States District Court for the Eastern District of New York was filed in the office of the County Clerk of the County of Nassau. The Judgment has not been satisfied and remains wholly unpaid.

Respondents have not opposed JH's requests for: (1) disclosure pursuant to CPLR 408; (2) an Order directing Adams to make installment payments to JH pursuant to CPLR 5226; and (3) an award of contractual attorneys' fees from Adams pursuant to the terms of the Franchise Agreement. Accordingly, this relief is granted. With respect to attorney's fees, an inquest is required.This shall be held at the time of a hearing regarding CPLR 5226 relief, as is provided for in the instant order. Determined below are JH's requests for contempt, attachment and turnover, which also will address the discovery sought.

CONTEMPT

On June 7, 2008, JH served an Information Subpoena and Questionnaire, a Restraining Notice, and a Subpoena Duces Tecum (collectively referred to herein as the "Enforcement Documents") upon Adams. JH also served a Subpoena Duces Tecum upon Calderon. Pursuant to CPLR 5224, both Adams and Calderon were required to produce documents on June 16, 2008, appear for a judgment debtor's examination on June 30, 2008, and Adams was also required to answer the Information Subpoena within seven days of service. Pursuant to CPLR 5222, Adams was also prohibited from transferring or encumbering any of his assets absent a Court Order or direction of the Sheriff.

Petitioner claims that Adams and Calderon have failed to produce documents or appear for their examinations in compliance with the subpoenas served upon them. Petitioner also claims that Adams has failed to respond to the Information Subpoena. JH submits that this has all been in violation of respondents' obligations under the CPLR, that Adams has failed to comply with the Restraining Notice because he has continued to transfer assets in violation of the Restraining Notice served upon him, and that the failure of Adams and Calderon to comply with their obligations is intentional and calculated to frustrate petitioner's ability to enforce the Judgment. Petitioner claims that these actions and omissions have prejudiced its ability to do so by preventing it from discovering, inter alia, where Adams maintains his assets, the nature of those assets, what real property he owns individually or through various entities, what property or assets he has transferred since the time the obligation to JH was incurred, and whether he has complied with the Restraining Notice served upon him.

The respondents, Adams and Calderon, contend in their opposition (which while [*4]procedurally improper for not being in compliance with CPLR 403(b), will, for the purposes of this petition, be treated as a responsive pleading), that petitioner's failure to specifically and properly identify the documents or even their existence compels a denial of their petition in its entirety. Respondents also state that they responded to the Petitioner's Information Subpoena and submit the unsigned and unsworn handwritten responses to that Subpoena as an exhibit to their opposition. Respondents also submit brief affidavits.[FN1] Calderon states in her affidavit that she "do[es] not possess any financial documents, much less any of the documents that may be described in the Petitioner' s Information Subpoena [and she does] not possess any personal knowledge of my boyfriend, Albert D. Adams' financial situation."

Respondents' arguments made in opposition to the Petition are insufficient to defeat JH's requests for an Order directing Adams and Calderon to appear for judgment debtor examinations; for the production of documents demanded in the Subpoena Duces Tecum; and for a direction that Adams fully comply with the questionnaire served with the Information Subpoena.

Pursuant to CPLR 5210, "[e]very court in which a special proceeding to enforce a money judgment may be commenced, shall have power to punish a contempt of court committed with respect to an enforcement procedure." Further, CPLR 5251, provides, in pertinent part, that "Refusal or willful neglect of any person to obey a subpoena or restraining notice issued, or order granted, pursuant to this title...shall each be punishable

as a contempt of court."

In this case, there is no dispute that the Enforcement Documents were served upon the respondents. Further, while respondents contend that they complied with the Information Subpoena by serving answers through their counsel on January 5, 2009, such a "response" - to the extent that it can be considered an "answer" at all - is certainly precluded as untimely. Pursuant to CPLR 5224, a response to the Information Subpoena was required within seven days of service. The Affidavit of Service for the Information Subpoena confirms that it was served on Adams on June 7, 2008. Adams' response - purportedly served on January 5, 2009 - was well beyond the seven day deadline provided in the CPLR. As such, both Calderon and Adams violated their obligations pursuant to CPLR 5224.

The opposition fails to offer any excuse for non-compliance; instead, respondents contend through their attorney that JH is not entitled to contempt because it failed to specify, identify, and establish the existence of the documents its seeks. Even assuming the truth of these allegations, respondents are not relieved of their legal obligations pursuant to the Subpoena Duces Tecum. CPLR 2308(a). Further, it cannot be overlooked [*5]that the Subpoena Duces Tecum in this case clearly sets forth categories of documents that are calculated to provide relevant financial information to JH. These categories are clearly set forth and are outlined so that reasonable persons could understand the solicited requests for papers and documents; the Subpoena Duces Tecum does not contain any "vague and amorphously described" documents. Thus, respondents' argument that JH failed to identify the documents it sought is disingenuous.

Moreover, the contentions in the Calderon Affidavit that she does not possess any financial documents and has no knowledge of the financial situation are completely unsupported by any facts and are wholly conclusory. Respondents' argument that requiring Calderon to comply with a properly issued Subpoena Duces Tecum for her appearance and production would cause her "unreasonable annoyance, disadvantage and prejudice" is meritless. Pursuant to CPLR 5223, service of a subpoena is explicitly permitted upon any person to determine information relevant to the satisfaction of a judgment. In this case, the service of a subpoena requiring the production of documents and an appearance by a live-in companion of a judgment debtor, a companion who is a party to this proceeding, is hardly improper or unreasonable. Respondents' reliance upon Riverside Capital Advisors, Inc. v. First Secured Capital Corp., 28 AD3d 457 (2d Dept. 2007) is misplaced. Unlike the case at bar, the information subpoena in Riverside related to a lengthy questionnaire served upon a non-party.

For these reasons, pursuant to CPLR 2308(b), 5210, 5224 and 5251, this Court grants JH's application for leave to obtain disclosure from Adams and other parties to this special proceeding as to the dates and amounts of moneys and assets transferred by Adams and hereby directs Adams to fully respond to the Information Subpoena including the questionnaire served therewith.

In view of the foregoing, the Court also finds all respondents in contempt for their wilful failure to obey the subpoenas served upon them, and that such failure has actually defeated, impaired, impeded and prejudiced the rights of the petitioner. Judiciary Law §770.[FN2]

The respondents may purge themselves of the contempt by appearing for a deposition in the Supreme Court, Nassau County, Lower Level, to be sworn at such time and answer questions put to them by counsel 15 days after service upon them of a copy of this order as directed herein (excluding the day of service), or the next business day if such period ends on a Saturday, Sunday or legal holiday. Another date and time may be selected by the parties, but such date, once established, shall have the same force and effect as if set down in this Order. At least 5 days prior to the examination, respondents are to produce to JH the documents demanded in the Subpoena Duces Tecum.

A copy of this order, with notice of entry thereof, must be served on the [*6]contemnors pursuant to CPLR 308(1) [personal delivery] or (2) [delivery to a person of suitable age and discretion at defendant's residence or place of business, with follow-up mailing] and on the corporate entities pursuant to CPLR 311(a)(1) [excepting service under the Business Corporation Law]. If service is made pursuant to CPLR 308(2), the 10-day completion of service period is waived.

Should the contemnors not purge the contempt under the terms set forth herein, the Court fines each such person $50.

In addition, upon such failure to appear and purge the contempt, and upon an affidavit from petitioner's counsel attesting to proper service of this order and the failure to appear and purge the contempt thereunder, the Court will award reasonable counsel fees against the contemnor upon an affidavit of services rendered, which may include the making of this present motion and any additional services made necessary by the failure to purge under this order. Cf., Saffra v Rockwood Park Jewish Ctr., 249 AD2d 480 (1998); see also Barclay's Bank v Hughes, 306 AD2d 406 (2003). This is separate and apart from the inquest for attorney's fees directed earlier.

The Court shall retain jurisdiction of this matter until the contemnors have purged themselves of the contempt, or to award fees as set forth above upon a failure to so purge.

TURNOVER

Pursuant to CPLR 5201, any property owned by Adams is subject to execution and turnover. New York law provides that a judgment creditor is entitled to recover property from a judgment debtor and/or to recover from a third party that property of a judgment debtor which is due to, or not in the possession of, the judgment debtor. CPLR 5225; CPLR 5227. Relief from alleged fraudulent conveyances has also been sought under the Debtor and Creditor Law.Petitioner alleges that Adams is an owner of, or has other interests in, numerous entities, including but not limited to V & H, DHME, and FGBC, which he uses to provide himself with moneys or other things of value as part of a fraudulent scheme to conceal his assets from creditors, including JH.

The sole argument made in response is that "[p]etitioner's demand for the turnover of property pursuant to CPLR 5225 and 5227, and ... the Debtor and Creditor Law, must be denied because the Petitioner has failed to specifically identify any property that would be subject to a turnover." Aff. In Opp., ¶10. Respondents do not contend that JH is not entitled to a turnover because of the nature of the relief; rather they contend JH has not specifically identified the property subject to turnover.

As stated above, however, any inability of JH to specifically identify any particular assets which are, or were owned by, due to, and/or fraudulently conveyed by Adams to third parties, including but not limited to the other respondents, is the result of the failure of Adams and Calderon to comply with the Subpoenas Duces Tecum served upon them. Respondents' reliance upon Gelbard v. Esses, 96 AD2d 573 (2nd Dept. 1983) is misplaced. [*7]In fact, Gelbard supports petitioner 's position that while the burden of proving that a given conveyance was fraudulent by reason of insufficient consideration is normally upon a petitioner- judgment creditor, the burden of proof shifts to the respondent where all the information concerning the nature and circumstances of such transfers are within the control of the transferees. Id.

Nevertheless, the Court still must dismiss the fraudulent conveyance claims because some factual allegation of a "conveyance" as defined in section 270 of Debtor and Creditor Law must be made, and has not been adequately pled. CPLR 3211(a)(7). This is to be distinguished from the more general allegations that third parties, including the respondents here, are in possession of assets that belong to Adams or are owed to him, which subjects them to a turnover order.

Although a fraudulent conveyance may be addressed in a proceeding under Article 52, the showings required are still those found in the Debtor and Creditor Law. Gelbard, supra. The sine qua non of that law is that the property sought is now no longer owned by the judgment debtor, or is owed to him, but rather legally belongs (at least facially) to a third party without any interest remaining in the debtor. Thus, it must be legally disgorged, not simply turned over. Consequently, some particular "conveyance", as defined in section 270 of the Debtor and Creditor Law, must be alleged, even if the burden of proof that a particular conveyance was in fact fraudulent may be shifted to the third party from whom the disgorgement is sought. See, Palermo Mason Constr., Inc. v. Aark Holding Corp., 300 Ad2d 458, 459-460 (2d Dept. 2002) ("... Home Depot [third party] demonstrated its entitlement to summary judgment with respect to Palermo's [creditor's] claim that Aark [debtor] fraudulently conveyed assets to Home Depot by way of an assignment ..."[conveyance]) (Emphasis supplied).

The absence of any allegation of a "conveyance" therefore requires that this claim under the Debtor and Creditor Law be dismissed. Simply stating that Adams has interests in the entities named does not amount to a fraudulent conveyance to those entities. This dismissal is, however, without prejudice to a separate action under the Debtor and Creditor Law, or another proceeding under Article 52 (see. WBP Central Assocs., LLC v. DeCola, 50 AD3d 693 [2d Dept. 2005]), should such conveyances come to light.

The balance of the turnover relief is granted. By virtue of the Judgment held by JH against Adams, any moneys due to Adams from, or in the possession of, third parties, including receivables and ownership interests, constitute property which is subject to the lien of the Judgment and execution thereupon. CPLR 5201. Upon completing disclosure pursuant to CPLR 408, JH will be in a position to specifically identify any and all assets which belong to Adams and upon which JH may execute pursuant to CPLR 5201.

Accordingly, JH is entitled to an Order and Judgment 1) directing Adams to turn over all his moneys to JH and turn over all his property to the Sheriff, to the extent of the money Judgment, and 2) directing all third parties in possession of property, or money owed to Adams, to turn over and deliver same to the Sheriff, to the extent of the [*8]Judgment. Any personal or real property may be sold at auction to satisfy the Judgment or applied to the Judgment. Having issued this order for turnover, this Court also finds that JH is entitled to recover its statutory costs against Adams' co-respondents, as they have resisted a turnover, and are thus deemed to have disputed Adams' interest in property in their possession. CPLR 5225(b). Submission of this Order and Judgment shall await the result of the hearing directed herein regarding attorneys' fees and an installment payment order.

ATTACHMENT AND INJUNCTION

This special proceeding is based upon the Judgment. Pursuant to CPLR 6201(5):

An order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when:

***

5.the cause of action is based on a judgment, decree or order of a court of the United States or of any other court which is entitled to full faith and credit in this state, or on a judgment which qualifies for recognition under the provisions of article 53.

JH has demonstrated that it has a substantial likelihood of success on the merits of substantive relief sought - i.e., enforcement mechanisms, and therefore entitlement to injunctive relief enjoining, restraining, and staying all respondents from transferring, or permitting the transfer of assets, accounts, or other property owned by Adams or in which he has an interest, including the assets of any company in which Adams has an interest.

Respondents offer no basis for any objection to the injunctive relief other than the lack of specifically identified property. First, contrary to respondents' claim, there is no requirement contained within Article 62 of the CPLR that such property be specifically identified; rather, CPLR 6202 provides that any property against which a judgment may be enforced is subject to attachment. Here, where the Judgment has been issued, it is clearly proper to seek an Order of Attachment against all property belonging to Adams which is subject to the jurisdiction of this Court.

Further, Respondents do not dispute that JH satisfies the requirements of CPLR 6201, 6210 and 6212.

A temporary restraining order against the dissipation or transfer of Adams' assets pursuant to CPLR 6210 is appropriate to maintain the status quo pending disclosure by respondents as to Adams' assets; maintaining the status quo until specific property can be identified is the very reason for this provision.

While attachment is a discretionary remedy, respondents offer no factual or legal argument to support their request that this Court exercise its discretion to refuse such [*9]relief. Here, there is no dispute that the Judgment remained unpaid prior to commencement of this proceeding, and that Adams has failed to provide JH with any information regarding his assets. As such, any exercise of discretion on respondents' behalf is unwarranted.

For these reasons, Adams' property is subject to an Order of Attachment pursuant to CPLR 6201(5). The Petitioner shall submit such an Order to this Court in compliance with CPLR 6212, including provision for an undertaking as required by CPLR 6212(b), which will be fixed upon execution of that Order, within fifteen (15) days of the date hereof. The Court will consider the parties' contentions regarding the amount of an appropriate undertaking. Pending the issuance of an Order of Attachment, this Court hereby issues a temporary restraining order pursuant to CPLR 6210, prohibiting Adams from concealing, transferring, mortgaging his assets and/or moving them beyond the reach of any execution issued by JH. Upon issuance of the Order of Attachment, the Court requires each of the respondents to be examined pursuant to CPLR 6220, which shall be subsumed in the examinations directed to purge respondents' contempt.

Finally, after completion of the depositions required to purge the respondents' contempt, or earlier at petitioner's option, a hearing shall be held with respect to petitioner's request for an installment payment order. There are insufficient facts presented on the present records to permit the Court to make the findings required by CPLR 5226. As previously noted, the inquest for attorneys' fees shall also occur at that time.

With regard to this CPLR 5226 relief, and the attorneys' fees, petitioner is directed to file a Note of Issue, together with the required fee, at the office of the County Clerk of Nassau County forthwith upon receipt of a copy of this order. Thereafter, the proceeding shall be added the CCP calendar for April 16, 2009, at 9:30 a.m.

A copy of this order shall be served on the Calendar Clerk and accompany the Note of Issue when filed. The failure to file a Note of Issue or to appear as directed may be deemed an abandonment of the claim giving rise to the hearing.

This directive with respect to a hearing is subject to the right of the Justice presiding in CCP II to refer the matter to a Justice, Judicial Hearing Officer or a Court Attorney Referee as he or she deems appropriate.

As noted earlier, upon completion of the hearing for attorneys' fees and CPLR 5226 relief directed herein, the petitioner may submit a Judgment and Order consistent with the results of that hearing and the relief granted in this present Order. However, the Order of Attachment must be submitted within 15 days of the date of this Order, and the respondents may separately purge their contempt.

This shall constitute the Decision and Order of this Court.

E N T E R

DATED: February 24, 2009 [*10]

_____________________________

HON. DANIEL PALMIERI

Acting Supreme Court Justice

TO:

Jonathan M. Borg, Esq.

Day Pitney, LLP

Attorney for Petitioner

7 Times Square

New York, NY 10036

Peter M. Zirbes, Esq.

Attorney for Respondents

108-18 Queens Boulevard Ste. 604

Forest Hills, NY 11737 Footnotes

Footnote 1: However, it should be noted that Adams incorporated the responses to the Information Subpoena by reference in his affidavit, and thus will be accepted notwithstanding the omissions noted.

Footnote 2: In their response to this application, no distinction has been made by respondents between the individuals and the corporate entities, and no evidence has been advanced in the latters' defense.