Garnishee Liable for Transfer of Restrained Funds

On January 22, 2020, the Second Department issued a decision in Matter of Bravado Intl. Group Merchandising Servs., Inc. v. United States Tennis Assn. Inc., 2020 NY Slip Op. 00410, holding that a garnishee was liable for transferring restrained funds, explaining:

Pursuant to CPLR 5222(b), a judgment creditor may serve a notice to restrain or prohibit the transfer of property held by a third party, where the third party is in the possession of property in which he or she knows or has reason to believe the judgment debtor has an interest. Here, the petitioner established that at the time of service of the restraining notice, the USTA was in the possession of funds in which FMI had an interest. We agree with the Supreme Court's determination that certain transfers of funds violated the restraining notice because FMI, as judgment debtor, had an interest in the funds, inasmuch as they were used to satisfy FMI's obligations to vendors and licensees. One may not circumvent the mandates of a restraining notice by claiming that the judgment debtor has no interest in the money merely because he or she will not acquire physical possession of such money. The fact that a judgment debtor will directly benefit from the payment of these funds is sufficient to require the party served with the restraining notice to comply with the provisions or be subject to appropriate legal sanctions.

Contrary to the USTA's contention, it failed to raise a triable issue of fact as to its negligent transfer of funds to vendors and licensees in violation of the restraining notice. Accordingly, we agree with the Supreme Court's determination to grant the petition. As these improperly transferred funds would have been sufficient to satisfy the balance of the petitioner's judgment and constituted property in which FMI had an interest, we agree with the court's award to the petitioner of damages equivalent to the outstanding balance of its judgment against FMI.

(Internal quotations and citations omitted).

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