Failure to Serve Judgment Debtor Dooms Creditor's Attempts to Collect

On April 10, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Kasen v. Mission Cantina, LLC, 2020 NY Slip Op. 30929(U), holding that the failure to serve the judgment debtor doomed a creditor's attempts to collect, explaining:

CPLR § 5225 (a) provides:

(a) Property in the possession of judgment debtor. Upon motion of the judgment creditor, upon notice to the judgment debtor, where it is shown that the judgment debtor is in possession or custody of money or other personal property in which he has an interest, the court shall order that the judgment debtor pay the money, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor and, if the amount to be so paid is insufficient to satisfy the judgment, to deliver any other personal property, or so much of it as is of sufficient value to satisfy the judgment, to a designated sheriff. Notice of the motion shall be served on the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested.

Here, Mr. Kasen has not provided any proof that he served notice of this turnover proceeding on Mission Cantina. His motion therefore must be denied without prejudice.

In addition, to the extent that Mr. Kasen seeks an order directing Mission Cantina to immediately turn over cash sufficient to satisfy the Judgment pursuant to CPLR § 5225(a), Mr. Kasen has not shown that Mission Cantina is possession or custody of funds sufficient to satisfy the judgment. In fact, on the contrary, in his papers filed in support of the instant motion, Mr. Kasen states that upon information and belief Mission Cantina does not possess sufficient funds to satisfy the judgment.

And, inasmuch as Mr. Kasen seeks to levy Mission Cantina’s causes of action against Pan Asia and Ms. Yu in the Pan Asia Case, Mr. Kasen’s motion is likewise procedurally defective. CPLR article 52 authorizes the court, upon a special proceeding brought by the judgment creditor, to compel any debtor of the judgment debtor to pay the debt, or so much of it as will satisfy the judgment, to the judgment creditor,. This includes any causes of action that the judgment debtor may have against other defendants to the extent of satisfying the judgment.

The procedural mechanism to enforce a money judgment against a cause of action differs depending on whether the cause of action is considered a debt or property. Specifically, with respect to the enforcement of money judgments against debts of the judgment debtor, CPLR § 5201 (a) provides:

(a) Debt against which a money judgment may be enforced. A money judgment may be enforced against any debt, which is past due or which is yet to become due, certainly or upon demand of the judgment debtor, whether it was incurred within or without the state, to or from a resident or non-resident, unless it is exempt from application to the satisfaction of the judgment. A debt may consist of a cause of action which could be assigned or transferred accruing within or without the state.

And, with respect to the enforcement of money judgments against property, CPLR § 5201 (b) provides, in relevant part:

(b) Property against which a money judgment may be enforced. A money judgment may be enforced against any property which could be assigned or transferred, whether it consists of a present or future right or interest and whether or not it is vested, unless it is exempt from application to the satisfaction of the judgment.

Here, the court in the Pan Asia Case found Pan Asia and Ms. Yu to be in default and ordered Mission Cantina to file a notice of inquest and proceed to a hearing on damages. Because the court effectively granted judgment on liability, the causes of action may be deemed debts as opposed to property. Where the asset held by the garnishee is a debt the garnishee owes to the judgment debtor, the statute authorizing the proceeding is CPLR 5227.

CPLR § 5227 provides:

Upon a special proceeding commenced by the judgment creditor, against any person who it is shown is or will become indebted to the judgment debtor, the court may require such person to pay to the judgment creditor the debt upon maturity, or so much of it as is sufficient to satisfy the judgment, and to execute and deliver any document necessary to effect payment; or it may direct that a judgment be entered against such person in favor of the judgment creditor. Costs of the proceeding shall not be awarded against a person who did not dispute the indebtedness. Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. The court may permit the judgment debtor to intervene in the proceeding. The court may permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with section 5239.

The court notes, however, that even if Mr. Kasen were to proceed on the theory that the causes of action are property, notice is still required. Specifically, where the asset held by the garnishee is property of the judgment debtor, the statute authorizing the proceeding is CPLR 5225 (b). CPLR § 5225 (b) provides:

(b) Property not in the possession of judgment debtor. Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money or other personal property in which the judgment debtor has an interest,... where it is shown that the judgment debtor is entitled to the possession of such property or that the judgment creditor’s rights to the property are superior to those of the transferee, the court shall require such person to pay the money, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor.... Notice of the proceeding shall also be served upon the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested. The court may permit the judgment debtor to intervene in the proceeding. The court may permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with section 5239.

In other words, significantly for the purposes of the instant motion, both CPLR § 5225 (b) and 5227 require that notice of the proceeding be served upon the judgment debtor, whom the court may permit to intervene in the proceeding. Here, as discussed above, Mr. Kasen has failed to file proof that he served notice of the instant turnover proceeding on Mission Cantina, the judgment debtor. Without appropriate notice, Mission Cantina would be deprived of the opportunity to seek leave to intervene. For the foregoing reasons, Mr. Kasen’s motion is denied without prejudice.

(Internal quotations and citations omitted).

We have substantial experience in helping judgment creditors collect on judgments and search for and attach assets worldwide. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client need help collecting on a judgment.