Opinion
01 CV 11765 (CSH).
February 1, 2007
MEMORANDUM OPINION AND ORDER
After a bench trial, this Court entered a judgment, filed on October 4, 2006, in favor of Plaintiff Network Enterprises, Inc. and against defendants APBA Offshore Productions, Inc. and Michael D. Allweiss, jointly and severally, in the amount of $572,350.92.
Defendants filed a timely notice of appeal to the Second Circuit. Allweiss, the individual defendant, has now filed a motion before this Court for an order staying execution of the judgment pending appeal and waiving the requirement imposed by Rule 62(d), Fed.R.Civ.P., that he give a supersedeas bond in order to obtain a stay of the judgment against him. Plaintiff opposes that motion. This Court has jurisdiction to consider Allweiss's motion, notwithstanding the prior filing of a notice of appeal.
"In determining whether to stay a judgment pending appeal, a court must consider (1) whether the petitioner is likely to prevail on the merits of his appeal, (2) whether, without a stay, the petitioner will be irreparably injured, (3) whether issuance of a stay will substantially harm other parties interested in the proceedings, and (4) wherein lies the public interest." De La Fuente v. DCI Telecomm., Inc., 269 F. Supp. 2d 237, 240 (S.D.N.Y. 2003) (citations omitted). "The weight accorded to each of these factors should be flexible to ensure a just result according to the unique circumstances of each case." Palazzetti Import/Export, Inc. v. Morson, No. 98 Civ 722, 2002 WL 562654 (S.D.N.Y. Apr. 16, 2002), at *2 (citation and internal quotation marks omitted). Indeed, notwithstanding the mandatory language of Rule 62(d) the Second Circuit has noted that "an inflexible requirement for impressment of a lien and denial of a stay of execution unless a supersedeas bond in the full amount of the judgment is posted can in some circumstances be irrational, unnecessary and self-defeating, amounting to a confiscation of the judgment debtor's property with due process." Texaco Inc. v. Pennzoil Co., 784 F.2d 1133, 1154 (2d Cir. 1986).
Turning to the case at bar, the first of the four relevant factors is whether Allweiss is likely to prevail on the merits of his appeal. That appeal contends principally that this Court should not have pierced the veil of the corporate defendant so as to impose personal liability upon Allweiss. Allweiss also contends that this Court committed reversible error in applying New York rather than Florida law to resolve that issue. Allweiss makes these contentions with great vigor. Plaintiff rejects them with equal vigor. In determining whether this Court should conclude that Allweiss "is likely to prevail on the merits of his appeal," it is not necessary for me to confess error and predict a reversal by the Second Circuit. In keeping with the previously noted principle that these four requirements must be applied flexibly and according to the unique circumstances of each case, it has been held that where the other factors favor the interim relief of waiving a supersedeas bond, a court may require "only that the petitioner demonstrate a substantial case on the merits, even if ultimate success is not a mathematical probability." Morgan Guar. Trust Co. of New York v. Republic of Palau, 702 F. Supp. 60, 65 (S.D.N.Y. 1988) (citation and internal quotation marks omitted).
While I rejected Allweiss's contentions with respect to his alter ego liability, and remain of the opinion that I was right in doing so, it is equally clear that Allweiss has a substantial case to lay before the Court of Appeals. Accordingly, I conclude that the first factor has been satisfied.
The second factor is whether, without a stay of execution on the judgment, Allweiss will be irreparably injured. On the basis of the present record, I must conclude that he would be. Allweiss states in his initial affidavit that he and his wife have three children, ages 9, 11 and 12; that his wife is not employed; that he is currently the sole source of income for his family; and that, while he has resumed working full-time as an attorney, he does not personally have the resources to post security in the amount of the judgment against him. Judging by the modest entries in Martindale-Hubbell, Allweiss is a sole practitioner in the St. Petersburg, Florida area. To obtain a bond in excess of $500,000 from a surety company within this district, Allweiss would undoubtedly have to furnish 100% collateral. There is nothing in the present record to suggest that he could do so. In consequence, requiring Allweiss to post a supersedeas bond in that amount, followed by his failure to do so, would permit the plaintiff to pursue and levy upon Allweiss's personal property during the pendency of Allweiss's appeal. Indeed, as will appear infra, the plaintiff has already commenced efforts to do just that. Allweiss further states under oath that absent a stay of execution of the judgment "I most likely will be forced to declare bankruptcy which in turn will damage my reputation and ability to practice law and thus provide for my family." Affidavit, dated Nov. 22, 2006 at ¶ 9. These factors constitute the ingredients of irreparable injury.
In determining whether to stay execution of a judgment, district courts apply a balancing test. See Texaco, 784 F. 2d at 1154 ("Against the hardship to Texaco from denial of a stay the district court was required to balance the threat to Pennzoil's interests caused by granting the stay."). This second prong implicates the third relevant factor, namely, whether issuance of a stay will substantially harm plaintiff's interests. One must of course recognize that "[b]ecause a supersedeas bond is designed to protect the appellee, the party seeking the stay without a bond has the burden of providing specific reasons of why the court should depart from the standard requirement of granting a stay only after posting of a supersedeas bond in the full amount of the judgment." De La Fuente, 269 F. Supp. 2d at 240 (citation omitted). However, as Texaco and the other cases cited supra indicate, the rule is not inflexible, and may yield to a showing of irreparable harm to the appellant.
The plaintiff at bar expresses the concern that if Allweiss is allowed to proceed with his appeal without posting a supersedeas bond, he will in the interim dispose of assets sufficient to satisfy the judgment if it is affirmed, thereby rendering himself as judgment-proof as apparently is the corporate defendant. This is a logical concern, but it assumes (1) that Allweiss has nearly $1 million in liquid assets (the judgment amount plus interest) and (2) that he could successfully dispose of or shield those assets in order to avoid paying the judgment while still retaining the benefit of them. As to the first assumption, the present record contains no evidence indicating that Allweiss has personal assets in that amount or rebutting his sworn statements that he does not. I decline plaintiff's invitation to infer from Allweiss's past handling of corporate funds that he has presently squirreled away this amount in personal funds. As to the second assumption, plaintiff would have available discovery in aid of enforcing the judgment which might reveal a paper trail proving a fraudulent and recoverable transfer under state law; should Allweiss file for bankruptcy protection, as he indicates he might, plaintiff would have the status of a judgment creditor in the bankruptcy proceeding with the concomitant right to seek to set aside transfers under the Bankruptcy Code. Cf. Texaco, 784 F.2d at 1155 ("[I]f Texaco should be placed in bankruptcy, it [Pennzoil, a state judgment creditor] would have the same creditor status as it would have in the immediate bankruptcy that would have occurred in the absence of injunctive relief.") (affirming district court's order enjoining Pennzoil on constitutional grounds from enforcing a Texas court judgment in the amount of $11.12 billion on condition that Texaco post $1 billion security). I do not think that the third factor, harm to the plaintiff if execution of the judgment against Allweiss is stayed without requiring a supersedeas bond in the amount of the judgment plus interest, trumps the irreparable harm to Allweiss if the judgment is enforced while Allweiss's appeal proceeds.
The fourth relevant factor, the public interest, is not implicated in any way in this case.
An additional complication arises in this case as the result of certain recent and rather mysterious events taking place in Florida. Those events are revealed by Allweiss's reply papers on the present motion. It would appear that plaintiff retained a Miami attorney named Michael C. Marsh to file with the Clerk of the Sixth Judicial Circuit in and for Pinellas County, Florida, a copy of the judgment entered by this Court in this case. The certified copy of this Court's judgment which Mr. Marsh presented to the Pinellas County Clerk identified as the plaintiff "Network Enterprises, Inc.," that being the named plaintiff throughout the entire trial in this Court. However, Mr. Marsh struck a line across that name of the plaintiff's and wrote in the initials "MTV." In support of that filing, Mr. Marsh submitted to the Pinellas County Clerk an affidavit reciting that he was "local counsel for MTV Network Enterprises, Inc. ("MTV") in the case ofMTV Network Enterprises Inc. v. APBA Offshore Productions, Inc., and Michael D. Allweiss, venued in the United States District Court for the Southern District of New York Civil Action No. 01-11765-CSH." In response to that filing, the Pinellas County Clerk issued a notice of filing of foreign judgment, whose caption identifies as the party plaintiff "MTV Network Enterprises, Inc."
Spurred on by this change in the name of the party plaintiff, Allweiss conducted further corporate research and concludes that the named party plaintiff in this Court, Network Enterprises, Inc., was in reality a tentacle of the Viacom corporate octopus. In consequence, Allweiss argues in his reply brief, that entity known as Network Enterprises, Inc. "was neither the real party in interest" nor "the proper plaintiff in this case." Reply Brief at 2. In the light of these circumstances, Allweiss has filed in the Pinellas County Circuit Court a complaint to stay enforcement of the foreign judgment.
It is not entirely clear what effect, if any, Allweiss contends these corporate mysteries have upon the litigation in this Court or in the Second Circuit. Allweiss's reply papers call these circumstances to this Court's attention, but they are not made the basis of an application to this Court for relief from its judgment pursuant to Fed.R.Civ.P. Rule 60(b); I note in passing that Rule 17(a) provides that "[e]very action shall be prosecuted in the name of the real party in interest." In any event, all that Allweiss asks of this Court at this time is an order staying the execution of this Court's judgment and waiving the need for a supersedeas bond in the full amount of that judgment, "while I pursue an appeal and litigate in the Florida Courts." Allweiss Supplemental Affidavit, at ¶ 28. That request implicates the discretion of this Court and, to a degree, principles of equity. The mystery of the change in plaintiff's corporate name is factored into the equitable mix, although it is not essential to my decision.
These corporate intricacies in respect of the plaintiff might pose problems for Allweiss if the judgment against him is enforced, his assets and property (such as they are) come into plaintiff's hands, Allweiss succeeds on his appeal, the judgment against him is vacated, and Allweiss then seeks to recover the assets plaintiff obtained by enforcing that judgment.
Upon consideration of all the factors, and concluding that the interests of justice require it, and in the exercise of my discretion, I stay the execution of the judgment against Allweiss rendered by this Court, and relieve Allweiss of the requirements that he file a supersedeas bond under Rule 62(d).
The foregoing is SO ORDERED.