Receiver Appointed Over Judgment Debtors' Interests in Business Entities After Judgment Debtors Violate Court Orders and Evade Judgment Enforcement

On April 19, 2024, Justice Melissa A. Crane of the New York County Commercial Division issued a decision in DB Auraria LLC v. Nelson, et al., Index No. 653436, granting a judgment creditor's motion to appoint a receiver over the interests of judgment debtors in any business entity, explaining:

In deciding whether to appoint a receiver, the court considers: (1) whether there are less drastic alternative remedies; (2) the degree to which receivership will increase the likelihood of satisfaction and (3) the risk of fraud or insolvency were the court not to appoint a receiver (see Hotel Mezz Lender LLC v Falor, 14 NY3d 303, 317 (2010).

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However, there are glaring reasons to appoint a receiver. First and foremost is the judgment debtors' inability to comply with court orders.

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Equally disturbing were defendants' efforts to distance themselves from their own documents when they became inconvenient.

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It is also clear from the evidence that Nelson Partners Property Management (NPPM), an entity over which this court does not currently have jurisdiction, is now paying personal expenses for Mr. Nelson. Mr. Nelson testified that NPPM is paying his child support and mortgage and is even paying NP's employee salaries. There are several instances where NPPM loaned money to NP and then the money was immediately transferred to Mr. Nelson, his ex-wife or his mother ( see, e.g. Pl Ex 6). Thus, it is clear that the judgment debtors are attempting an end run around the restraining notices by having an affiliate they control pay personal expenses and other debts of their choosing.

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Finally, the evidence shows that there is a high risk of insolvency within and among the Nelson Partners empire. Receivers or bankruptcy trustees have taken over at least 8 managed properties. Investors have sued. Yet, Mr. Nelson blames everyone else for his business failings: the documents are wrong because the person who wrote them made mistakes; this court's order spooked the lender for the sale of University Gardens that tanked the deal; plaintiffs are predatory lenders. It is always someone else's fault, never his own.

For all these reasons, a receiver is more than appropriate at this juncture (see In re 4042 East Tremont Cafe Corp., v Sodano III, 177 AD3d 456, 459 (1st Dep't 2019]).

While directing that a receiver be appointed over a judgment debtor's assets is a drastic remedy, as this case shows, the court will not hesitate to do so when it believes that its orders are being disobeyed and a judgment debtor is attempting to evade judgment enforcement. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning a receivership motion or judgment enforcement.