Looks like the United States Tennis Association (“USTA”) met its match, but this time not on its own court, but rather in another, the Appellate Division, Second Department. The court in Matter of Bravado Intl. Group Merchandising Servs., Inc. v United States Tennis Assn. Inc., recently affirmed the judgment of Westchester Commercial Division Justice Linda S. Jamieson which granted a petition in a CPLR Article 52 proceeding to recover damages for violation of a restraining notice served pursuant to CPLR 5222(b).
Once a judgment is obtained, among the available enforcement devices is the “restraining notice” authorized by CPLR 5222(b). The procedure is explained well in Doubet, LLC v. The Trustees of Columbia Univ.:
“Although CPLR 5222(a) permits an attorney for the judgment creditor to issue a restraining notice without the court’s involvement, it is legal process nonetheless. In that circumstance, the restraining notice is issued by the attorney ‘as an officer of the court.’ CPLR 5222(a). Like any legal process, it is an assertion of the court’s, and the state’s, power. Although valid service is required, legal process is not effective, notwithstanding valid service, unless the state, and the court, has a sufficient jurisdictional basis over the person served. ‘The restraining notice operates like an injunction. Indeed, it is an injunction, issued by the attorney acting as an officer of the court.’ Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C5222:4. Thus, the effect of a restraining notice is in the nature of a provisional remedy, like an injunction or an attachment; it is an assertion of state court jurisdiction over the garnishee.”
That tool allows a judgment creditor to serve a restraining notice upon a third party effectively prohibiting the transfer of any property held by the third party in which the third party “knows or has reason to believe the judgment debtor . . . has an interest.” The courts have long recognized that simply because the judgment debtor itself may not come into physical possession of the property does not vitiate the mandate of a restraining notice (Ray v. Jama Prods.). That is, the third party served, must ensure funds are not transferred. The key to the analysis is whether the judgment debtor will “directly benefit from the payment” of the funds (Id.).
So what happened in this case? Bravado Int’l Group Merchandising Servs., Inc. (“Bravado”) obtained a judgment in the amount of $1,357,458.43 against Facility Merchandising, Inc. (“FMI”). Bravado sold merchandise to FMI. FMI sells the merchandise throughout the US at various arenas and sporting venues. In short, FMI purchased goods from Bravado, for which it did not pay. FMI had transacted business with the USTA. Specifically, during the US Open in September 2014, FMI was selling goods through various concessions at the US Open. FMI and the UTA’s agreement provided, however, that all funds received by FMI from the sale of goods would be placed into an account that FMI had no access. USTA would, in turn, be responsible for paying FMI’s obligations. This arrangement was done apparently because FMI had certain financial problems.
Armed with a $1.3 million judgment, Bravado then served a restraining notice upon USTA during the 2014 Open. Notwithstanding the service of the restraining notice, USTA apparently transferred funds to vendors and licensees in which it was claimed that FMI had an interest. Bravado then brought a CPLR Article 52 proceeding against USTA.
Although most of the court file is sealed, Justice Jamieson’s decision and order on the petition is not. Reviewing the parties’ submissions, the court concluded that USTA transferred funds to vendors in violation of the restraining notice, thus obligating the USTA to pay the remaining judgment amount to Bravado. The Appellate Division affirmed.
When a client is served with a restraining notice, care must be taken to determine whether any property within the possession of the third party (your client) is for the benefit of the judgment debtor or the judgment debtor will somehow obtain a direct benefit by the third party’s payment of the funds to another. Remember, simply because the funds or property don’t pass through the hands of the judgment debtor doesn’t mean the funds are not subject to the mandate of a restraining notice.