Travelers Cas. & Sur. Co. of Am. v Target Mech. Sys., Inc.
Annotate this CaseDecided on December 30, 2004
Supreme Court, Kings County
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, Petitioner,
against
TARGET MECHANICAL SYSTEMS, INC., RONALD MOSES, MARSHAL OF CITY OF NEW YORK, NEW YORK COUNTY, WASSERMAN, GRUBIN, & ROGERS, LLP., Respondents.
4666/04
Francois A. Rivera, J.
By order to show cause an pursuant to CPLR §5239, Travelers Casualty and Surety Company of America (hereinafter Travelers or petitioner) moves for an order declaring Travelers' right to certain funds, directing the City Marshall to vacate an execution levy, and issuing a temporary restraining order enjoining the enforcement of a money judgment entered in favor of Target Mechanical Systems, Inc. (hereinafter Target). Respondent Target opposes the petition and seeks an order dismissing the petition and directing the firm of Wasserman, Grubin, & Rogers, LLP (hereinafter Wasserman) to pay the disputed funds to Target.
Travelers is a surety company duly authorized to do business in the State of New York. Target is a construction corporation organized and existing under the laws of the state of Connecticut. Defendant Ronald Moses, is a duly qualified Sheriff of the County of New York, State of New York. Wasserman is a limited liability partnership duly authorized to do business in New York and counsel to the Town of Orangetown, New York.
The following facts are not in dispute. Sometime during the end of 2001 and early 2002, Trataros Construction, Inc.(hereinafter TCI), a general contractor, hired Target to perform [*2]construction work on a public project at the Hatton Elementary School in Southington, Connecticut. Travelers furnished a payment bond pledging payment to TCI's contractors and suppliers in the event of TCI's failure to make payment. At some point during the construction project, TCI failed to pay Target sums due and owing on that project and Target made a demand for payment.
In or about March 2002, Target commenced an action against TCI and Travelers in the Superior Court of Connecticut under docket number CV-020513583-S. Target brought a claim for money damages in connection with the work it performed on the Hatton project. During a proceeding held on October 31, 2002, Target settled its claims against Travelers. The terms of the settlement were set forth in a written and executed final release and assignment. The ninth paragraph of the document explicitly reserved Target's rights, claims, and defenses against the principal, TCI.
On January 8, 2003, counsel for Target and TCI settled the remaining claims. On January 9, 2003, the parties stipulated in open court to a judgment in favor of Target against TCI in the amount of one hundred and sixty thousand dollars ($160,000.00). The required terms included TCI's obligation to make four scheduled payments of five thousand dollars ($5,000.00) to Target. The first payment was to be received by January 17, 2003; the second by February 17, the third by March 20, and the fourth by April 21, 2003. If any payment was not received by Target as agreed, then the entire judgment amount was to become immediately due and payable.
On April 22, 2003, Target entered a judgment in its favor against TCI in Kings County, New York based on TCI's failure to comply with the payment schedule. Target made several unsuccessful attempts to enforce the judgment in New York. On or about October 17, 2003, Target became aware of funds TCI was expecting from the Town of Orangetown, New York and from Andrews & Clark, Inc., a New Jersey engineering firm, as a result of a settlement reached in a lawsuit. The lawsuit was brought in the Rockland County Supreme Court under index number 3564/96 and the name of the case was Trataros Construction, Inc. v. Town of Orangetown, et al
On or about December 8, 2003, TCI, The Town of Orangetown, and Andrews & Clark, Inc, among other defendants, entered into a Stipulation of Settlement and Order resolving the Rockland County litigation. On December 11, 2003, the settlement agreement was so ordered. Paragraph one of the settlement agreement provided that separate payments would be made to TCI from both the Town of Orangetown and Andrews & Clark, Inc. in the aggregate amount of one million seven hundred and fifty thousand dollars ($1,750,000.00).
On or about January 6, 2003, Target served a restraining notice upon Wasserman, counsel for the Town of Orangetown, regarding the Kings County judgment in favor of Target against TCI for the sum of $156,451.91. On or about January 30, 2004, defendant City Marshal served an execution levy and final demand upon Wasserman on behalf of Target in the amount of one hundred and seventy five thousand seven hundred and seventy three dollars and twenty cents ($175,773.20).
However, on June 19, 2002, approximately eighteen months prior to City Marshal serving an execution levy and final demand, TCI executed a general agreement of indemnity ("GAI") in favor of Travelers. In sum and substance, the GAI essentially granted Travelers a security interest in all of TCI's equipment, machinery vehicles, tools and material, as well as sums due or to become due in connection with any contract. On or about July 26, 2002, Travelers perfected [*3]its security interest, per the terms of the GAI, by filing a UCC-1 financing statement.
Additionally, on or about September 17, 2002, Seaboard Surety Company, also a surety for TCI, filed its own UCC-1 financing statement to protect its rights as a secured creditor, which conferred an absolute right, second only to Travelers, to the property of TCI. Travelers and Seaboard, in recognition of their respective rights as sureties and secured creditors, entered into an agreement outlining their rights with respect to the projects each surety bonded. Seaboard and Travelers agreed that among their secured interests, that the surety which bonded the respective project would have priority to the proceeds over the non-bonding surety. The only exception to the agreement between Travelers and Seaboard was with respect to their respective rights in connection with the Orangetown Sewer Treatment Plant expansion. Pursuant to the agreement, Seaboard, who issued the bonds on that project, assigned its rights and interests to all funds that came due in that project to Travelers. Seaboard, in essence, assigned its rights to Travelers with respect to the Orangetown project.
By the instant order to show cause filed with the Kings County Clerk on February 13, 2004, Travelers moves for an order pursuant to CPLR 5239 declaring its security interest superior to that of Target over the funds being held by Wasserman. CPLR 5239 is a special proceeding which enables multiple creditors to expeditiously bring all their claims to court to have their priorities and substantive claim adjudicated. The proceeding may be commenced by any interested person against the judgment creditor or other person with whom a priority dispute exists. The proceeding can try any fact question arising in respect of any of the claims (Siegel, New York Practice 3rd ed §521 (1999).
UCC article 9 sets out a comprehensive scheme to regulate security interests in personal property. It establishes a system that enables creditors to protect their interests in collateral often held by debtors or other third parties. The article includes a notice-filing concept by which, as a matter of public record, personal property is declared encumbered. Secured creditors may avail themselves of the protections afforded in article 9 by filing UCC-1 financing statements in prescribed repositories. The filings serve to warn others, such as potential purchasers, transferees, or other creditors, of encumbrances. In that matter, creditors gain protection, as do others who choose to do business with debtors (Badillo v Tower Ins. Co., 92 NY2d 790, 795 [1999], citing UCC §§ 9-401 to 9-410).
UCC §9-502 contains the requirements for a proper filing of a financing statement. UCC §9-502 (a)(1)(2), and (3) states in pertinent part:
"... a financing statement is sufficient only if it: (1) provides the name
of the debtor, (2) provides the name of the secured party or a representative
of the secured party, and (3) indicates the collateral covered by the financing
statement; and..."
In order for a security interest to be valid and enforceable against the debtor and third parties, the debtor must sign a document describing the collateral, the security interest must attach, and must be perfected (see Lashua v LaDuke, 272 AD2d 750 [3rd Dept. 2000]). Here, petitioner Travelers filed its UCC-1 financing statement with the Secretary of State on or about July 26, 2002. The financing statements filed with the Secretary of State contained two agreements of indemnity between Travelers and TCI. The General Agreement of Indemnity was executed on or about June 19, 2002 ("GAI") and a general agreement was also executed on or [*4]about June 19, 2002 ("Agreement"). The agreements contain Traveler's security interests in TCI's property. The agreements were executed by the principal and the indemnitors, in which the principal and the indemnitors granted, conveyed, and assigned to the surety, a lien on the real property and a security interest in all the personal property described. The personal property included TCI's equipment, machinery vehicles, tools and material, as well as sums due or to become due in connection with any contract.
Target contends that the collateral listed in the GAI and general agreement between Travelers and TCI was so ambiguous that another creditor reviewing the filed documents would not have adequate notice that certain property is encumbered. Target further contends that this ambiguity should operate to defeat Travelers claim of a superior security interest.
Pursuant to UCC §9-203, the security agreement embodies the intentions of the parties. It is the primary source to which a creditor or potential creditor is directed and it must be reasonably specific (In re Laminated Veneers Co., Inc. 471 F2d 1124-1125 [C.A. 2 1973]; see also Mammoth Cave Production Credit Association v York, 429 S.W.2d 26 [Ky. 1968]). The GAI executed by Travelers and TCI on June 19, 2002 explicitly conveyed a security interest in the sums due or to become due to TCI in connection with any contract or other contract. The court found no ambiguity in the language describing the collateral and finds that Travelers filed a valid financial statement.
Travelers filed their financing statement on July 26, 2002, eighteen months prior to Target executing its judgment and levy. Where secured creditor's UCC-1 filing predated perfection by judgment creditors of their judgment liens, rights of secured creditor come first (see In the Matter of Larry Resner, et. al., v Greeley, 212 AD2d 619 [2nd Dept. 1995]). Therefore, petitioner Traveler's rights are superior to Target's rights. Even if Travelers security interests were limited to projects that it issued bonds for, it still had superior rights to settlement funds from the Town of Orangetown litigation. Seaboard, the Surety that did issue bonds for the Town of Orangetown project, and filed its own financing statement to become a secured creditor of Target, second only to Travelers, assigned its security interest to Travelers.
Petitioner has a prior security interest and is entitled to immediate possession of the funds held by defendant Wasserman. The execution levy served by the Marshal of the City of New York on behalf of respondent, Target, is vacated.
The foregoing constitutes the decision and order of the court.
______________________
J.S.C.
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