Opinion
No. 156153/2014.
02-10-2015
ANDERSON KILL P.C., Petitioner, v. ANDERSON KILL P.C. AS ESCROWEE, Respondent.
Anderson Kill, P.C. by Jeffrey E. Glen, Esq., New York, for Petitioner. Poles Tublin Startakis & Gonzalez, LLP by Scott R. Johnston, Esq., New York, for Intervenor Stelios Coutsodontis. Jason H. Berland, Esq., Beys Stein Mobargha & Berland LLP, New York, for non-parties Sea Trade Maritime Corporation and George Peters.
Anderson Kill, P.C. by Jeffrey E. Glen, Esq., New York, for Petitioner.
Poles Tublin Startakis & Gonzalez, LLP by Scott R. Johnston, Esq., New York, for Intervenor Stelios Coutsodontis.
Jason H. Berland, Esq., Beys Stein Mobargha & Berland LLP, New York, for non-parties Sea Trade Maritime Corporation and George Peters.
Opinion
MICHAEL D. STALLMAN, J.
Petitioner seeks a turnover order directing it to release a portion of the funds it is holding as an escrow agent, to satisfy a judgment it obtained against its former clients for unpaid attorneys' fees incurred during the span of a longstanding family dispute over the shares of a shipping corporation. Intervenor Stelios Coutsodontis opposes the petition.
I.
According to the petition, petitioner represented Sea Trade Maritime Corporation and George Peters for more than eleven years, in numerous matters in New York state and federal court, including litigation against Peters's uncle, Stelios Coutsodontis, in an action in federal court entitled Sea Trade Maritime Corporation and Peters v. Coutsodontis (U.S. Dist, SD NY, 09 CIV 00488[BSJ] ). The amended complaint in the federal action alleged that there was “a long standing blood feud between Coutsodontis and Mr. Peters over the management, control, and Sea Trade....” (Ex D to Petitioner's Ex 3 [Federal Complaint] ¶ 12.) The background of this longstanding dispute is set forth in an amended complaint and several court decisions.
Sea Trade and Peters commenced an identical action in state court entitled Sea Trade Maritime Corporation and Peters v. Coutsodontis (Sup, N.Y. County, Index No. 650511/2009), which was discontinued without prejudice by a stipulation dated November 22, 2010.
Sea Trade is a Liberian corporation authorized to do business in New York. Coutsodontis's sister Athena Eliades was the president of Sea Trade, and in August 1992, she purportedly executed a power of attorney designating George Peters, her nephew, as attorney-in-fact for Sea Trade. (See Stein Reply Affirm., Ex 2.) The principal asset of Sea Trade allegedly was a cargo ship, the M/V Athena.
At the core of the family dispute is whether Coutsodontis and George Peters own any shares in Sea Trade, and their respective percentages of ownership.
A.
Sea Trade allegedly issued 500 “bearer shares” of stock, and shares of Sea Trade were allegedly distributed among family members. According to the amended complaint in the federal action, 475 shares were issued to Elias Eliades, Athena Eliades's husband, and 25 shares were issued to George Peters. (Federal Complaint ¶ 36.) The amended complaint further alleged that Elias Eliades then cancelled the 475 shares and redistributed them as follows: 150 shares to Anna Peters, 25 Shares to George Peters, and 300 shares to himself. Anna Peters is Coutsodontis's sister, sister-in-law to Elias Eliades, and George Peters's mother.
The amended complaint in the federal action alleged that Elias Eliades died in September 1996, and that his wife, Athena Eliades, inherited his 300 shares. (Id. ¶ 39.) Athena Eliades allegedly died in Greece on January 7, 2003.
In August 2000, Athena Eliades allegedly executed a holographic will which stated that she owned all 500 shares of Sea Trade, and which purportedly devised 250 shares each to Anna Peters and Coutsodontis. (Sea Trade Mar. Corp. v. Coutsodontis, 2011 WL 3251500, at *2 [SD N.Y.2011].) On September 14, 2000, Athena Eliades allegedly executed another holographic will which purportedly devised only 300 shares of Sea Trade: 250 shares to Coutsodontis and the remaining 50 shares to Anna Peters. (Id. ) Coutsodontis had allegedly coerced Athena Eliades to execute the holographic wills. (Id. )
According to the amended complaint in the federal action, immediately after Athena Eliades died, Coutsodontis and Anna Peters found 300 shares of Sea Trade in a safe in Athena Eliades's home. (Federal Complaint ¶ 53.) Coutsodontis allegedly took 250 shares, claiming that Athena Eliades had given him the shares, and allegedly gave 50 shares to Anna Peters. (I d. ¶ 54.)
Coutsodontis allegedly submitted for probate in the Greek courts a will that Athena Eliades had executed in 1999, and probate was allegedly granted on March 28, 2003. (Coutsodontis v. Peters, 11 Misc.3d 1066(A)affd, 39 AD3d 274 [1st Dept 2007].) In January 2005, Anna Peters allegedly commenced an action in Greece against Coutsodontis seeking, among other things, a declaration that the August 2000 and September 2000 “holographic wills” were null and void because of fraud. (Id. )
In February 2005, Coutsodontis commenced an action in New York state court against Peters and others, entitled Coutsodontis v. Peters, Index No. 600511/2005, which sought recognition that Coutsodontis was the lawful shareholder of 250 shares of Sea Trade. Justice Herman Cahn dismissed the action by decision and order dated February 1, 2006, reasoning that no inter vivos gift was made to Coutsodontis under New York law. (Coutsodontis, 11 Misc.3d at 1066, affd 39 AD3d 274.)
In February 2007, Peters commenced an action against Coutsodontis entitled Peters v. Coutsodontis (Sup Ct, N.Y. County, Index No. 600482/2007), alleging that Coutsodontis had brought the New York state action maliciously and solely for the purpose of later defaming Peters. This pending action is assigned to Justice Saliann Scarpulla.
According to the amended complaint in the federal action, Coutsodontis thereafter brought ex parte petitions for the arrest of the M/V Athena in Spain in July 2008 and in Louisiana in August 2008, allegedly claiming that he owned 50% of the M/V Athena. (Federal Complaint ¶¶ 63, 69.) A commercial court in Tarragona, Spain allegedly awarded Sea Trade damages against Coutsodontis resulting from the arrest of the M/V Athena in Spain. In Louisiana, the arrest of the M/V Athena was vacated. (Coutsodontis v. M/V ATHENA, 2008 WL 4330236, at *1 [ED La 2008]affd sub nom. Coutsodontis v. Sea Trade Mar. Corp., 571 F3d 1341 [5th Cir2009].)The amended complaint in the federal action stated that Sea Trade decided to sell the M/V Athena. On January 14, 2009, Coutsodontis sought and obtained an injunction from a court in Greece to enjoin the sale. (Federal Complaint ¶¶ 88–90.) On January 23, 2009, Sea Trade and Peters commenced an action in New York state court against Coutsodontis and others, alleging that Coutsodontis had, among other things, tortiously interfered with a contract to sell the M/V Athena. The action, entitled Peters and Sea Trade Maritime Corp. v. Coutsodontis et al. (Sup Ct, N.Y. County, Index No. 600206/2009) was discontinued a month later. According to the amended complaint in the federal action, the parties entered into an agreement to allow the sale of the vessel. (Federal Complaint ¶¶ 99.)
Sea Trade thereafter commenced an action in New York state court, entitled Sea Trade Maritime Corp. v. Coutsodontis, (Sup Ct, N.Y. County, Index No. 653407/2011), assigned to Justice Anil Singh, to seek enforcement of the commercial court's ruling. Sea Trade later amended its complaint to seek enforcement of a final decree of the Tarragona Court of Appeal.
By an escrow agreement made as of January 27, 2009 among petitioner, Sea Trade, and Coutsodontis, Sea Trade and Coutsodontis agreed to transfer all proceeds from the sale of the M/V Athena, net of any associated commissions, to an escrow account maintained by petitioner. According to petitioner, the total amount of funds held in escrow as of the end of May 2014 was $2,329,842.18. (Verified Petition, at 5 n. 1.)
Section 2.02 of the escrow agreement states, in pertinent part:
“Disbursement of Amounts in Escrow Account. [Petitioner] shall disburse the Escrow Funds as follows:
(1) Pursuant to jointly signed written instructions from the Parties [Sea Trade and Coutsodontis], or
(2) Upon the final non-appeal judicial determination of Coutsodontis' ownership interest in Sea Trade and Coutsodontis' entitlement to the Escrow Funds, if any.”
(Johnston Opp. Affirm., Ex 2.) The escrow agreement also permitted petitioner to deduct from the escrow, on notice, all out of pocket expenses that petitioner incurred in connection with administering the escrow account. There is no provision permitting petitioner (as escrow agent) to deduct any attorneys' fees incurred in representing Sea Trade and Peters owed to itself.
B.
In 2012, Sea Trade and Peters purportedly discharged petitioner as attorney in the various litigations. (Verified Petition ¶ 11.) In January 2013, petitioner commenced an action against Sea Trade and George Peters seeking unpaid attorneys' fees and expenses, entitled Anderson Kill & Olick, PC v. Sea Trade Maritime Corp. et al. (Sup Ct, N.Y. County, Index No. 150306/2013.) This action settled for $750,000, pursuant to a settlement agreement made as of September 12, 2013.
According to the terms of the settlement, Sea Trade agreed to seek prompt payment of the $750,000 to petitioner from Peters's share of the escrow funds, “and not from any share of the Escrow Funds which ultimately might be due to Coutsodontis, regardless of the ultimate resolution of their dispute.” (See Petitioner's Ex 3; Johnston Opp. Affirm., Ex 1.) Peters signed a letter dated September 12, 2013, which was intended to constitute joint instructions to petitioner to disburse $750,000 of the funds held in escrow “to itself from Peters' Escrow Share, as payment of consideration due to AK [petitioner] in connection with the Settlement and the Settlement Agreement resolving the Collection Action.” (See Ex L to Petitioner's Ex 3.) However, Coutsodontis did not sign the letter.
On November 22, 2013, petitioner filed a judgment upon confession against Sea Trade with the New York County Clerk in the amount of $763,130.14. (Petitioner's Ex 1.)
In the federal action, petitioner sought an order directing turnover of the escrow funds. By a report and recommendation dated July 30, 2014, United States Magistrate Judge Henry Pitman recommended denial of the petition, for lack of subject matter jurisdiction. (Sea Trade Maritime Corp. v. Coutsodontis, 2014 WL 3859114 [SD N.Y.2014].)
This proceeding followed.
II.
“A special proceeding for turnover is the procedural device provided by article 52 for enforcement of a judgment against an asset of the judgment debtor in the possession or custody of a third person; such a third person is known as a garnishee.” (JPMorgan Chase Bank, N.A. v. Motorola, Inc., 47 AD3d 293, 301 [2007].) Under CPLR 5225(b),
“a judgment creditor may seek release of money or other personal property in which the judgment debtor has an interest, or against a person who is a transferee of money or other personal property from the judgment debtor, 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.” '
(Lang v. State of New York, 258 A.D.2d 165, 169 [1st Dept 1999].)
Some appellate decisions have upheld the turnover of escrow funds to satisfy a judgment. (Matter of Centrepointe Corporate Park Partnership 350 v. MONY, 96 AD3d 1401 [4th Dept 2012] ; Hallsville Capital, S.A. v. Dobrish, 87 AD3d 933 [1st Dept 2011] ; Potter v. MacLean, 75 AD3d 686 [3d Dept 2010].) In that situation, the issues presented are: (1) whether the funds held in escrow are property in which the judgment debtor has an interest (Lang v. State of New York, 258 A.D.2d 165, 169 [1st Dept 1999] ); and (2) whether the judgment debtor retained sufficient control over the fund in question to render the fund subject to execution. (Koroleski v. Badler, 32 A.D.2d 810, 811 [2d Dept 1969].) For example, funds that an attorney holds as a retainer for legal services to be rendered, “even if deposited in an escrow account, may be attached as long as they are subject to the judgment debtor's present or future control,' or are required to be returned to the judgment debtor if not used to pay for services rendered.” (Potter, 75 AD3d at 687.)
Citing bankruptcy cases, Coutsodontis argues that, although legal title of the funds remains with the grantor, the property held in escrow is beyond the possession of the grantor, by the nature of the escrow arrangement. (In re Hooker Investments, Inc. v. Hocker, 155 BR 332 [Bankr SD N.Y.1993] ; 99 Commercial St., Inc. v. Goldberg, 811 F Supp 900 [SD N.Y.1993] [“Once funds or documents are deposited with the escrow agent, the grantor loses control over the instruments, and the grantee does not obtain title until the condition is satisfied”].) However, as petitioner indicates, the blanket rule that Coutsodontis espouses—that all funds placed into escrow cannot be the subject to a turnover petition—cannot be squared with appellate decisions affirming the turnover of escrow funds.
A.
Petitioner contends that at least half of the funds held in escrow is owned or controlled by Peters. Because the amount of the unsatisfied judgment is approximately one third of the funds held in escrow, petitioner therefore concludes that “Coutsodontis cannot be injured in any way by the payment of the AK judgment from Peters' half of the Escrow Fund.” (Verified Petition ¶ 21.) Sea Trade supports the petition. (Berland Affirm. ¶ 4.)
However, Coutsodontis claims that he owns or will own more than 50% of the shares of Sea Trade. In this proceeding, Coutsodontis claims that his late sister Athena Eliades was the sole shareholder of all 500 shares of Sea Trade, and that Athena Eliades had transferred 250 shares to him and 50 shares to his sister Anna Peters. (Intervenor's Opp. Mem. at 3–5, 13.) According to Coutsodontis, Athena Eliades held the remaining 200 shares until her death. (Id. ) Coutsodontis asserts that he will inherit half of the remaining 200 shares, which would bring his total shares in the Sea Trade to 350 shares—a 70% interest in Sea Trade.
In Coutsodontis v. Peters (Sup Ct, N.Y. County, Index No. 600511/2005), Coutsodontis apparently claimed that, after execution of the August 2000 holographic will, Athena Eliades “gave Anna Peters 200 Sea Trade shares, and that is why Athena wrote the September 2000 Writing changing the amounts of Sea Trade shares.” (Coutsodontis, 11 Misc.3d 1066(A), affd 39 AD3d 274.)
Lang v. State of New York (258 A.D.2d 165 ) appears to indicate that CPLR 5225(b) does not permit turnover where the judgment debtor has only a partial interest in property that is the subject of the turnover proceeding, even if the property were to involve money held in escrow.
In Lang, an attorney attempted to execute a judgment against her former client for unpaid legal fees for representation in a criminal case, on funds that her former client transferred to the State of New York to be paid as restitution for his criminal activity, which were being held in escrow pending the outcome of further criminal proceedings. The former client had pleaded guilty to grand larceny in the fourth degree, in connection with false billings for Medicaid reimbursement, and the plea provided, inter alia, for restitution of $500,000 to be paid prior to sentencing. The funds were turned over to the Attorney General to be held in escrow pending determination of the appeal of the judgment of conviction and denial of a motion to withdraw the plea. The Court of Appeals upheld the plea, but remitted the matter to Supreme Court for a hearing to determine the amount of restitution. (People v. Consalvo, 89 N.Y.2d 140 [1996].) On remand, the hearing court in Consalvo denied an application to release the funds and ordered that the funds remain in escrow pending a final order of restitution.
Days before the Consalvo hearing court had ordered that the funds remain in escrow, the attorney had filed a confession of judgment from her former client for unpaid legal fees, and the attorney obtained and filed a second confession of judgment and execution for additional legal fees. The attorney brought a turnover proceeding against the State of New York to establish the priority of her liens against the funds, and to compel the State to release funds to satisfy her judgments. The Appellate Division, First Department affirmed dismissal of the turnover petition. (Lang, 258 A.D.2d at 171.)
The Appellate Division in Lang reasoned that the State of New York owned the funds held in escrow, subject to a potential refund of whatever portion exceeded its losses. However, to the extent that the attorney sought turnover from the potential refund, the Appellate Division stated,
“The statute [CPLR 5225(b) ] treats the property in a unified and complete manner—it pointedly does not allow release when the interest is in any portion' of the property, or some similar device for segregating parts of the property. Manifestly, it has never been seriously disputed that Consalvo has no interest in “the” property—i.e., “the” $500,000. At best, at some point between the Court of Appeals remand for a hearing to determine the exact amount of restitution and the conclusion of that hearing, he had a theoretical interest, which was really a contingent rather than a present or actual interest, in that portion of the property that, hypothetically, might not be part of the restitution should the hearing court determine that the State's actual losses were less than $500,000.”
(Lang, 258 A.D.2d at 170 [emphasis supplied].) Because the hearing court determined that the State's losses exceeded the funds in escrow, the Appellate Division stated that any potential future or contingent interest of the judgment debtor in the escrow funds had been extinguished. (Id. ) The Appellate Division concluded that the judgment debtor had no interest in any portion of the property held in escrow at the time that the attorney had perfected her interest.
Lang appears to suggest that if the judgment debtor had an interest in only part of the $500,000 held in escrow, then a turnover petition may not be granted to release that portion of “the” property, i.e., “the” $500,000 held in escrow. Such is the situation here.
Put differently, on this turnover petition, petitioner must demonstrate that the judgment debtor, Sea Trade, is entitled to a return of 100% of the funds that petitioner is holding as escrow agent. However, petitioner indicates that if Coutsodontis were to prevail in the federal action, then Sea Trade and Peters might be entitled only to half of the escrow funds held. Therefore, under Lang, even if Sea Trade's share of the escrow funds were undisputed, CPLR 5225(b) does not permit the Court to separate Sea Trade's interest from the rest of the escrow funds and then to direct a turnover of funds from Sea Trade's portion to petitioner.
Hallsville Capital, S.A. v. Dobrish (87 AD3d 933 [1st Dept 2011] ) does stand for a contrary proposition. There, a judgment creditor sought turnover of funds held in escrow from the sale of a yacht that occurred in the midst of a divorce action. The wife argued that she had a vested interest in a portion of the escrow funds by virtue of a post-nuptial agreement, and that her portion of could not be attached by her husband's judgment creditor. Citing Domestic Relations Law § 236(B)(5)(a), the Appellate Division, First Department reasoned that the post-nuptial agreement did not grant the wife “any contingent or presented vested interest, legal or equitable” in the escrow funds at any point before the final judgment of divorce. (Hallsville Capital, SA, 87 AD3d at 934.) Therefore, Hallsville did not present the situation discussed in Lang —where the judgment creditor sought turnover of property of which the judgment debtor might only hold a portion.
B.
Assuming for the sake of argument, notwithstanding Lang, that CPLR 5225(b) allows release when the judgment debtor has an interest or entitlement to only some but not all of money held by a garnishee (i.e., property that is capable of being segregated), this turnover petition must nevertheless be denied.
“CPLR 5240 permits a court at any time, on its own initiative or the motion of any interested person' to issue an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure'—and therefore grants the court substantial authority to order equitable relief.” (Cruz v. TD Bank, N.A., 22 NY3d 61, 75 [2013].) “As the Court of Appeals has stated, this statute grants the courts broad discretionary power to control and regulate the enforcement of a money judgment under article 52 to prevent unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts.” (JPMorgan Chase Bank, N.A. v. Motorola, Inc., 47 AD3d 293, 307 [1st Dept 2007], quoting Guardian Loan Co. v. Early, 47 N.Y.2d 515, 519 [1979] [internal quotation marks omitted].) “The statute serves as an equitable safety valve which allows a court to restrain execution upon its judgment where unwarranted hardship would otherwise result. The decisional process invoked is the balancing of harm likely to result from execution, against the necessity of using that immediate means of attempted satisfaction.” ' (Colonial Surety Co. v. Lakeview Advisors, LLC, 93 AD3d 1253, 1256 [4th Dept 2012].)
Here, the turnover petition must be denied to prevent disadvantage to Coutsodontis. Because Coutsodontis might be entitled to a portion of the escrow funds and the exact percentage of his interest in Sea Trade has not yet been determined, satisfaction of petitioner's judgment could leave Coutsodontis with less than his share, if any, of the escrow funds should he prevail.
It cannot be determined, as a matter of law, that a partial turnover of escrow funds would not cause disadvantage to Coutsodontis, unless this Court were to reach out to decide the very questions that are already being adjudicated in the federal action and in the courts in Greece—whether Coutsodontis validly received or inherited any shares in Sea Trade, and his percentage of ownership, if any.
Moreover, as Coutsodontis indicates, a distribution of the escrow funds runs contrary to the intent of the escrow agreement, to which petitioner is a party. The escrow agreement provides for distribution of funds only in limited instances. Section 2.02 states, in pertinent part:
“Disbursement of Amounts in Escrow Account. [Petitioner] shall disburse the Escrow Funds as follows:
(1) Pursuant to jointly signed written instructions from the Parties [Sea Trade and Coutsodontis], or
(2) Upon the final non-appeal judicial determination of Coutsodontis' ownership interest in Sea Trade and Coutsodontis' entitlement to the Escrow Funds, if any.”
(Johnston Opp. Affirm., Ex 2.)
To grant the turnover petition would create an end-run around the status quo that the escrow agreement sought to achieve and, in effect, thwart petitioner's own contractual duties under the escrow agreement. Because petitioner is a party to the escrow agreement, this case is distinguishable from Koroleski (32 A.D.2d 810 ), where the judgment creditor successfully obtained a turnover order of escrow funds, and the provisions of that escrow agreement are somewhat similar to the escrow agreement here.
Coutsodontis argues that granting the petition would violate the fiduciary duty that petitioner owes as escrow agent to both Sea Trade and Coutsodontis. As discussed above, a partial turnover of the funds to petitioner might leave Coutsodontis with less than his share, if any, of the escrow funds should he ultimately prevail. To the extent that a conflict of interest might arise, because petitioner would be favoring its own interest over that of Coutsodontis, it is unnecessary for the Court to reach that question.
Given all the above, the Court exercises its broad discretion under CPLR 5240 to deny the petition. The Court does not address any other arguments that Coutsodontis raised in opposition to the petition.
CONCLUSION
Petitioner-escrow agent has not demonstrated entitlement to satisfy its judgment from the escrowed funds. The parties to the escrow agreement (including petitioner, who drafted it) intended that the escrow secure the sale proceeds for the benefit of the parties whose interests are being determined in the federal and Greek litigation. To permit petitioner to invade the escrow during the pendency of the litigation would subvert the parties' intent and short-circuit the litigation.
Accordingly, it is hereby
ADJUDGED that the petition is denied and the proceeding is dismissed.