Opinion
Index No. CV-003613-16/NY
08-29-2024
New Era Lending LLC, Plaintiff(s), v. Cavallino Auto Service LLC; CAVALLINO LUXURY MOTORS LLC; WILL'S AUTO REPAIR; CAVALLINO LUXURY MOTORS; KRAVEC, Defendant(s).
Plaintiff's counsel: ZACHTER LLC Defendant's counsel: Lebedin Kofman LLP
Unpublished Opinion
Plaintiff's counsel: ZACHTER LLC
Defendant's counsel: Lebedin Kofman LLP
Wendy Changyong Li, J.
I. Papers
Upon reading Defendant's Motion (" Motion ") submitted without opposition on default, seeking an order to, i) void the restraining notice sent to Coinbase, Inc. (" Coinbase ") seeking to recover on a judgment against Defendants, ii) lift all restrains and executions, iii) stay all judgment enforcement action, iv) direct restitution, and v) other relief (collectively, the" Relief "), Defendant's Motion is DENIED for the reasons set forth below.
II. Background
According to court's record, a default judgement in the amount of $22,245.21 was entered against Defendant on August 3, 2016 on the motion of Zachter LLC after the Summons and Complaint was filed on March 4, 2026. The Motion indicated that a restraining notice to garnishee dated October 26, 2023 was issued by Zachter LLC to Coinbase. As a result, Defendants filed the instant Motion seeking the above Relief.
III. Discussion
In its Motion, Defendant presented copy of a restraining notice to garnishee (" Restraining Notice "), information subpoena and its supporting documents and prayed for the Relief, arguing that the Restraining Notice on Coinbase was improperly issued because "a judgment creditor's service of a restraining notice on a garnishee bank's New York branch is ineffective under the separate entity rule to freeze assets held in the bank's foreign branches" (Motorola v Std. Bank, 24 N.Y.3d 149, 163[2014]). Defendant further argued that "the exception to the separate entity rule is applicable only where the restraining notice is served on the bank's main office; the main office and the branches where the accounts in question are maintained are within the same jurisdiction; and the bank branches are connected to the main office by high-speed computers and are under its centralized control" (Natl. Union Fire Ins. Co., 269 A.D.2d at 102, citing Limonium Mar. v. Mizushima Marinera, 961 F.Supp. 600, 607-08 [S.D.NY 1997]). Defendant believed that Coinbase, a third party had a principal place of business outside of the State of New York and all Defendants are located, incorporated, and principally did business in the State of Arizona, therefore, there was no operation nexus. Further, Defendant argued that service of Plaintiff's Restraining Notice on Coinbase trough Corporation Service Company (" CSC ") at 80 State Street, Albany, NY 12207 was improper; as a result, the Restraining Notice was "void" and shall be vacated pursuant to CPLR 5240 and Defendant was entitled to a "full restitution" pursuant to CPLR 5523.
Is Cryptocurrency a Property? Is Coinbase a bank and the service upon it Proper?
In New York, cryptocurrency is recognized as property in the same vein as stocks (New York Department of Taxation and Finance, TSB-M-14). It is well established that "as long as the debtor is subject to the court's personal jurisdiction, a delivery order can be effective even when the property sought is outside the state" (Koehler v Bank of Bermuda Ltd., 12 N.Y.3d 533 [2009], citing Siegel, NY Prac § 510, at 866 [4th ed]). "It is presumed in favor of such a judgment that the court duly obtained jurisdiction over the person of the defendant and was authorized to enter the judgment in personam" (Coakley v Rickard, 136 AD 489 [1st Dept 1910], citing Smith v. Central Trust Co., 154 NY 333). Because there was a prior default judgment, it is presumed that jurisdiction had been duly established. Since cryptocurrency is recognized as property, Plaintiff may restrain Defendants' Coinbase account to secure property located outside of New York pursuant to Koehler v Bank of Bermuda Ltd.
Coinbase is not a bank, so the separate entity rule does not apply to Coinbase. Even if it were, but it is not, based on the separate entity rule, "each bank is a separate entity and that in order to reach a particular bank account, the branch of the bank where the account is maintained must be served" (Lease Fin. Group, LLC v Fiske, 46 Misc.3d 841 [Civ Ct, New York County 2014], citing Natl. Union Fire Ins. Co. v Advanced Empl. Concepts, Inc., 269 A.D.2d 101 [1st Dept 2000], see McCloskey v Chase Manhattan Bank, 11 N.Y.2d 936; Therm-X-Chem. & Oil Corp. v Extebank, 84 A.D.2d 787; 11 Weinstein-Korn-Miller, NY Civ Prac P 5222.09). There exists an exception to the separate entity rule "due to the advent of high-speed computers and sophisticated communications equipment,... [so that] service of a restraining order upon a bank's main branch is adequate" (Lease Fin. Group, LLC v Fiske, 46 Misc.3d 841 [Civ Ct, New York County 2014], citing Natl. Union Fire Ins. Co. v Advanced Empl. Concepts, Inc., 269 A.D.2d 101 [1st Dept 2000]). However, there are limitations to this exception, "only where the restraining notice is served on the bank's main office; the main office and the branches where the accounts in question are maintained are within the same jurisdiction; and the bank branches are connected to the main office by high-speed computers and are under its centralized control" (Lease Fin. Group, LLC v Fiske, 46 Misc.3d 841 [Civ Ct, New York County 2014], citing Limonium Mar., S.A. v Mizushima Marinera, S.A., 961 F.Supp. 600 [SDNY 1997]).
Here, Coinbase, which is an online platform for cryptocurrency exchange, does not have branch locations. Personal service upon a corporation shall be made "upon any domestic or foreign corporation, to an officer, director, managing or general agent, or cashier or assistant cashier or to any other agent authorized by appointment or by law to receive service" (CPLR 311 [a][1]). Service of Plaintiff's Restraining Notice was completed through CSC, which acts not as a branch of Coinbase but as a process agent on behalf of Coinbase. Service of Plaintiff's Restraining Notice was proper pursuant to CPLR 311.
Subject Matter Jurisdiction of Civil Court over Defendant's Motion
NY Constitution, article VI, § 15 states that the Civil Court of the City of New York has "jurisdiction over... actions and proceedings for the recovery of chattels and actions and proceedings for the foreclosure of mechanics liens and liens on personal property where the amount sought to be recovered or the value of the property does not exceed twenty-five thousand dollars exclusive of interest and costs..." (NY Const, art VI, § 15[b]). New York Lien Law provides that an owner of a chattel "may commence a special proceeding to determine the validity of the lien[;] [and that] [t]he special proceeding may be brought in any court which would have jurisdiction to render a judgment for a sum equal to the amount of the lien..." (NY Lien Law § 201-a). Here, the court would have had the subject matter jurisdiction over a special proceeding to determine the validity of the lien placed on the cryptocurrency (" Coin ") if such special proceeding were commenced in the court. However, in our instant matter, Plaintiff did not initiate the special proceeding for a determination of the validity of the lien imposed on the Coin, but instead moved to void the Restraining Notice, lift all restrains and execution, stay all judgment enforcement and request full restitution. Here, Defendant was essentially requesting the court to issue a preliminary injunction order or restraining order to stop the enforcement of the judgment without the proceeding to determine the validity of the lien.
Most Civil Courts of the City of New York believe, after legislative intent and history were investigated, that they lack the power to grant "preliminary injunctive relief" (Maloney v Rincon at 164, cited by Mobile Woods Ambulette Trans. Corp. v E-Z Parking Mgmt., 2003 NYLJ Lexis 2702; Mongelli v. Cabral, 632 N.Y.S.2d 927; Hollyer v Leacock, 1994 NYLJ Lexis 9383). Accordingly, this Court does not have the jurisdiction to issue a preliminary injunction order to void the Restraining Notice, lift all restrains and execution, stay all judgment enforcement if no proceeding was commenced to determine the validity of the lien. However, Defendant is not left without any other option. Here, Defendant did not seek to vacate the default judgment where an excusable default and a meritorious defense must be established. If Defendant were to seek such, the determination of the validity of the lien would have been resolved pending resolution of the matter.
IV. Order
Accordingly, it is
ORDERED that Defendant's motion is DENIED without prejudice.
This constitutes the DECISION and ORDER of the Court.