Opinion
02 Civ. 8404 (RCC)
December 11, 2002
OPINION AND ORDER
The parties are before this Court on Robert Pressman's ("Plaintiff's") motion brought by means of an Order to Show Cause. Plaintiff moves this Court for an order (1) vacating Elizabeth Pressman Neubardt and Nancy Pressman Dressier's ("Defendants'") restraining notice, (2) directing Defendants to withdraw forthwith the restraining notice and (3) prohibiting Defendants from serving and/or enforcing any restraining notices or income executions served against Plaintiff's personal service or employment income while an alimony or child Support order remains in effect pursuant to a Connecticut state court order. Defendants counter-claim (1) that conveyances made from Plaintiff to his wife be set aside as fraudulent and in violation of restraining orders against Plaintiff and (2) to recover assets which have been conveyed to hinder or defraud the Defendants. For the reasons set forth below, Plaintiff's motion by means of an Order to Show Cause is dismissed, as are Defendants' compulsory counterclaims.
I. Background
In August of 1999, in New York State Supreme Court Defendants filed a complaint against Plaintiff for breach of fiduciary duty and fraud related to Plaintiffs position from 1986 to 1996 as trustee of Defendants' trusts. See Spiro Decl. ¶ 4. Specifically, the trusts involved the Pressman's various family held businesses, which included the upscale fashion store Barneys, New York. See Pressman Aff. ¶ 5.
On July 12, 2002, following a three week bench trial, New York State Supreme Court Justice Karla Moskowitz ruled in open court that Plaintiff committed fraud and breached his fiduciary duty. See Spiro Decl. ¶ 4. Thus, Justice Moskowitz directed entry of judgment against Plaintiff in the amount of $11,316,761. See id. Justice Moskowitz also subsequently awarded Defendants $1,000,000 in attorneys' fees. See id. ¶ 6. On August 8, 2002, Plaintiff filed a notice of appeal and sought a stay of execution of the judgment pending appeal. See id. On September 17, 2002, the Appellate Division denied the motion for a stay of execution of the judgment pending appeal. See id. ¶ 5.
On August 21, 2002 pursuant to CPLR § 5222(a), counsel for Defendants served a restraining notice on Plaintiff's employer, Newmark Company Real Estate, Inc., Newmark Retail Partners, LLC, and Newmark Retail Financial Advisors, LLC (collectively, "Newmark"). See Pressman Aff. ¶ 6; Spiro Decl. ¶ 17. The restraining notice restrained any commissions, payroll and retirement funds due Plaintiff from Newmark. See Pressman Aff. ¶ 6. However, one month before Defendants served the restraining notice on Newmark, Plaintiff ended his relationship with Newmark and entered into an employment agreement with Cushman Wakefield, Inc. See id. ¶ 4. Nevertheless, after terminating his relationship with Newmark, Plaintiff entered into an agreement whereby Newmark would pay Plaintiff $334,000 in commissions (hereinafter, "the $334,000 payment") should a real estate transaction, in which Plaintiff represented Newmark, "successfully close." See id. ¶ 2. On October 18, 2002 this transaction did in fact "successfully close." See id. ¶ 11. Pursuant to the restraining notice, Newmark has not paid Plaintiff the $334,000 payment. See id. ¶ 13. As a result, Plaintiff now moves this Court to vacate the restraining notice served upon Newmark and/or to restrain Defendants from serving and/or enforcing any restraining notices or income executions against Plaintiff while a Connecticut child support and alimony order remains in effect.
Defendants contend that an issue of fact exists as to whether the $334,000 is solely payment for services which Plaintiff rendered with respect to that one transaction. Nevertheless, because the Court abstains from exercising diversity jurisdiction, the Court does not reach this issue.
On July 19, 2002, six days after Justice Moskowitz's ruling, Holly Pressman filed motions seeking a divorce on the ground that her marriage had "broken down irretrievably." See Sprio Decl. Ex.5. Then, on August 8, 2002, one day after the approximately $11.3 million judgment was entered and docketed against Plaintiff in New York State Supreme Court, an Order was entered (expressly "by stipulation" of the Plaintiff and his wife, Holly Pressman) in Bridgeport Superior Court. This Order granted: (1) Holly Pressman's motions pendente lite for alimony, custody and support; (2) a motion for the attachment of a cooperative apartment in Larchmont, New York; and (3) a motion for the attachment of a trust. See Spiro Decl. ¶¶ 12-13. Accordingly, Defendants assert that Plaintiff has acted dishonestly, fraudulently and illegally by obtaining a court order through the institution of a collusive divorce proceeding. Therefore, Defendants argue that Plaintiff's motion to vacate the restraining notice should not be granted because Plaintiff comes before this Court with "unclean hands." However, for the reasons discussed below, the Court does not reach this issue.
II. Discussion
This Court lacks the requisite federal question jurisdiction to grant the relief requested by Plaintiff's motion and Defendants' compulsory counterclaims. Moreover, for the reasons detailed below, the Court abstains from exercising diversity jurisdiction in this matter.
A. Federal Question Jurisdiction
Plaintiff's motion contends that this Court possesses federal question jurisdiction based upon the Consumer Credit Protection Act (the "Act"), which includes certain restrictions on the garnishment of an employee's wages. The restraining notice the Defendants served against Newmark attaches 100% of the $334,000 payment. Plaintiff contends that this payment falls within the purview of the Act because the payment constitutes "personal services income. Therefore, Plaintiff argues, under the Act the Defendants may restrain only 25% of the payment. Moreover, Plaintiff asserts that given his circumstances, because he has been ordered to pay 50% of his gross employment income to his wife for alimony and child support and maintenance, Defendants are completely barred from restraining the $334,000 payment.
In Plaintiff's Supplemental Memorandum of Law and during oral argument Plaintiff relied solely on diversity grounds to assert that this Court possesses the requisite subject matter jurisdiction. Nevertheless, the Court addresses the issue of whether this Court has federal question jurisdiction given that Plaintiff did not explicitly abandon his assertion that this Court possesses federal question jurisdiction.
However, 15 U.S.C. § 1673, upon which Plaintiff relies to support his claim that this Court has subject matter jurisdiction under 28 U.S.C. § 1331, does not contemplate a private right of action by an individual debtor. Instead, 15 U.S.C. § 1676 states that: "The Secretary of Labor, acting through the Wage and Hour Division of the Department of Labor, shall enforce the provisions of this subchapter." In addition to the plain language of section 1676, courts have rejected attempts by judgment debtors to imply a private right of action under 15 U.S.C. § 1673. See Martin v. Supreme Court of the State of New York, 644 F. Supp. 1537, 1543 (N.D.N.Y. 1986) ("The income execution issued pursuant to a valid New York judgment may not be attached in this court. . . . This statute [ 15 U.S.C. § 1673] does not confer subject matter jurisdiction on a federal court over such a claim"); McCabe v. City of Eureka, 664 F.2d 680, 682 (8th Cir. 1981) (Implied private right of action did not exist . . . where legislative history contained no explicit reference to denial or creation of private right of action but did state that enforcement of garnishment provisions of subchapter "is vested in the Secretary of Labor").
Therefore, pursuant to the express language of 28 U.S.C. § 1676 and case law rejecting the notion of an implied private right of action under 28 U.S.C. § 1673, this Court finds that it lacks subject matter jurisdiction under 28 U.S.C. § 1331.
B. Diversity Jurisdiction
The diversity of the parties and the fact that the dollar amount in controversy is $334,000 confers diversity jurisdiction upon this Court. 28 U.S.C. § 1332. Nevertheless, the Court abstains from exercising diversity jurisdiction in this matter because the New York State Supreme Court has ancillary jurisdiction to enforce its judgment against Plaintiff.
Under Federal Rule of Civil Procedure 69(a), a federal court dealing with the enforcement of a judgment must look to the procedural law of the state in which it sits. Heymann v. Brechner, 1996 WL 580916, at *6 (S.D.N.Y. 1996) (Under Federal Rule of Civil Procedure 69(a), the procedure "in execution. . . and in proceedings on and in aid of execution" must be conducted in accordance with the law of the state where the district court is located). Therefore, New York's Civil Practice Law and Rules apply to the restraining notice Defendants served on Newmark.
Plaintiff cites case law in which other circuits have found that garnishment actions are independent actions that are removable from state to federal court. However, this Court is confronted with a restraining notice served on Plaintiff's employer, not with a garnishment action. Contrary to a garnishment action, the restraining notice of CPLR § 5222 acts as a freeze on the debtor's assets, which the served person may possess. During this time, the judgment creditor can then use other devices, such as an income execution as a means of trying to have the assets turned over. Although characterized as a "supplementary proceeding," the restraining notice is not a special proceeding. Instead, a restraining notice serves as an enforcement device and is therefore deemed an adjunct of the action that gave rise to the judgment. See David D. Siegel, New York Procedure § 508 (3d ed. 1999). Accordingly, pursuant to CPLR § 5240, a party seeking to vacate a restraining notice is to proceed by motion in the court in which the restraining notice was issued, and not through a plenary action. See Paz v. Long Island R.R., 661 N.Y.S.2d 20 (2d Dep't 1997) (a motion for relief from enforcement may be made in the context of the underlying action and not in a plenary action); see also Levine v. Berlin, 362 N.Y.S.2d 186 (2d Dep't 1974). A motion to vacate a restraining notice is therefore to be made before the court out of which the restraining notice issued. See CPLR § 5222 cmt.C5222:9. Plaintiff must thus proceed for vacatur of the restraining notice, which Defendants served on Newmark as a means of enforcing the $11.3 million state court judgment against Plaintiff, in New York State Supreme Court.
C. Anti-Injunction Act
Finally, Plaintiff requests that this Court enjoin the Defendants from "serving and/or enforcing any restraining notices or income executions against the Plaintiff's personal service or employment income while an alimony or child support order remains in effect." The Court also abstains from granting this request because doing so would violate the Anti-Injunction Act. 28 U.S.C. § 2283. The purpose of the Anti-Injunction Act is, inter alia, to avoid intergovernmental friction that may result from a federal injunction staying state court proceedings. Standard Microsystems Corp. v. Texas Instruments, Inc., 916 F.2d 58, 60 (2d Cir. 1990). On its face, the Anti-Injunction Act provides that a federal court may not stay proceedings in state court. The Act also applies to the enforcement of state court judgments. Id; see also Golden Dawn Shops, Inc. v. HUD, 633 F. Supp. 874, 878 (E.D. Pa. 1981).
Here, Plaintiff submits that this Court enjoin Defendants' use of income executions or restraining notices pertaining to Defendants' attempt to enforce a judgment rendered by the New York State Supreme Court. The restraining notice at issue in this case is a state court proceeding within the meaning of the Anti-Injunction Act. See David D. Siegel, New York Practice §§ 508, 523 (3d ed. 1999). Therefore, granting Plaintiff's request would impede the enforcement proceedings related to a New York State Supreme Court judgment. In conclusion, even if this Court were not to abstain from exercising diversity jurisdiction in this matter, the Anti-Injunction Act would serve as a limitation on the exercise of this Court's equity jurisdiction.
III. Conclusion
For the reasons explained, Plaintiffs motion and Defendants' compulsory counterclaims are hereby dismissed without prejudice. The Clerk of the Court is therefore directed to close the case.
Scott v. Long Island Sav. Bank, 937 F.2d 738, 743 (2d Cir. 1991) (finding that compulsory counterclaims may be dismissed where the initial claim is dismissed); see also Hickory Pine Assocs. Ltd. P'ship v. Purchase Envtl. Prot. Ass'n, 1995 WL 231311, at *2 (S.D.N.Y. 1995);Spencer v. Banco Real, S.A., 623 F. Supp. 1008, 1011 (S.D.N.Y. 1985).
So ordered.