Plymouth Venture Partners, II, L.P. v. GTR Source, LLC Cap. Merch. Servs.

20-118; 20-850
Plymouth Venture Partners, II, L.P. v. GTR Source, LLC; Cap. Merch. Servs., LLC
United States Court of Appeals
For the Second Circuit
August Term 2020
Argued: February 4, 2021
Decided: October 27, 2022
Nos. 20-118, 20-850
PLYMOUTH VENTURE PARTNERS, II, L.P., PLYMOUTH
MANAGEMENT COMPANY, in their capacities as receivers
for FUTURENET GROUP, INC.,
Plaintiffs-Appellants,
v.
GTR SOURCE, LLC, STEPHEN W. BIEGEL, in his capacity as
NEW YORK CITY MARSHAL, Badge No. 27,
Defendants-Appellees. *
Appeal from the United States District Court
for the Southern District of New York
No. 19-cv-1471, John G. Koeltl, Judge.
* The Clerk of Court is respectfully directed to amend the official case caption as set forth above.
PLYMOUTH VENTURE PARTNERS, II, L.P., PLYMOUTH
MANAGEMENT COMPANY, in their capacities as receivers
for FUTURENET GROUP, INC.,
Plaintiffs-Appellants,
v.
CAPITAL MERCHANT SERVICES, LLC,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of New York
No. 19-cv-904, Katherine Polk Failla, Judge.
Before: WALKER, SACK, and SULLIVAN, Circuit Judges.
Basil Simon, as receiver for debtor FutureNet Group, Inc., sued FutureNet’s
judgment creditors – GTR Source, LLC (“GTR”) and Capital Merchant Services,
LLC (“CMS”) – and the New York City Marshal for allegedly violating New York’s
procedural rules when they executed state-court judgments against FutureNet. In
the action against GTR and the Marshal, the district court (Koeltl, J.) dismissed
Simon’s claims, concluding principally that FutureNet would not suffer any injury
even if the executions and levies were procedurally defective, since the seized
property was used to satisfy valid underlying judgments. In a similar action
against CMS, the district court (Failla, J.) dismissed the suit based on issue
preclusion, finding that Simon’s claims hinged on the same question of law at the
heart of the GTR case. The district court also held that, absent preclusion,
dismissal was appropriate because FutureNet suffered no damages. Simon was
subsequently replaced by two of FutureNet’s senior creditors, Plymouth Venture
Partners, II, L.P. and Plymouth Management Company, which now challenge both
district-court decisions. On appeal, we rejected GTR’s argument that we lacked
jurisdiction under the Rooker-Feldman doctrine and found that the district court
erred in dismissing the CMS case based on issue preclusion. We nevertheless
reserved decision and certified two questions to the New York Court of Appeals:
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(1) whether a judgment debtor suffers cognizable damages in tort
when its property is seized pursuant to a levy by service of
execution that does not comply with the procedural
requirements of the New York Civil Practice Law and Rules
(“CPLR”) 5232(a), even though the seized property is applied
to a valid money judgment; and, if so
(2) whether the judgment debtor can, under these circumstances,
bring a tort claim against either the judgment creditor or the
marshal without first seeking relief under CPLR 5240.
Now guided by the New York Court of Appeals’s decision that Article 52 of the
CPLR is a judgment debtor’s exclusive avenue for relief from a procedurally
defective execution and levy, we AFFIRM the district courts’ judgments
dismissing Plaintiffs’ actions.
AFFIRMED.
SHANE R. HESKIN, White and Williams LLP,
New York, NY, for Plaintiffs-Appellants
Plymouth Venture Partners, II, L.P. and Plymouth
Management Company, in their capacities as
receivers for FutureNet Group, Inc.
RYAN K. CUMMINGS (James Zawodzinski, Jr., on
the brief), Hodgson Russ LLP, Buffalo, NY, for
Defendant-Appellee GTR Source, LLC.
ANDREW P. SCHRIEVER (Troy D. Lipp, on the
brief), Cuddy & Feder LLP, White Plains, NY,
for Defendant-Appellee Stephen W. Biegel, in his
capacity as New York City Marshal, Badge No. 27.
CHRISTOPHER R. MURRAY, Stein Adler Dabah &
Zelkowitz, LLP, New York, NY, for Defendant-
Appellee Capital Merchant Services, LLC.
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RICHARD J. SULLIVAN, Circuit Judge:
Basil Simon, as receiver for debtor FutureNet Group, Inc., sued FutureNet’s
judgment creditors – GTR Source, LLC (“GTR”) and Capital Merchant Services,
LLC (“CMS”) – and the New York City Marshal for allegedly violating New York’s
procedural rules when they executed state-court judgments against FutureNet. In
the action against GTR and the Marshal, the district court (Koeltl, J.) dismissed
Simon’s claims, concluding principally that FutureNet would not suffer any injury
even if the executions and levies were procedurally defective, since the seized
property was used to satisfy valid underlying judgments. In a similar action
against CMS, the district court (Failla, J.) dismissed the suit based on issue
preclusion, finding that Simon’s claims hinged on the same question of law at the
heart of the GTR case. The district court also held that, absent preclusion,
dismissal was appropriate because FutureNet suffered no damages, since the
funds were taken pursuant to a valid judgment. Simon was subsequently replaced
by two of FutureNet’s senior creditors, Plymouth Venture Partners, II, L.P. and
Plymouth Management Company, which now challenge both district-court
decisions. On appeal, we rejected GTR’s argument that we lacked jurisdiction
under the Rooker-Feldman doctrine and found that the district court erred in
dismissing the CMS case based on issue preclusion. See Plymouth Venture
Partners, II, L.P. v. GTR Source, LLC (Plymouth I), 988 F.3d 634, 641–42 (2d Cir. 2021).
But because the crux of Defendants’ defense – that FutureNet suffered no damages
from the executions and levies, since the underlying money judgments were valid,
and that FutureNet’s sole remedy was to seek relief under Article 52 of the New
York Civil Practice Law and Rules (“CPLR”), which it failed to do – presented
unresolved issues of New York law, we certified two questions to the New York
Court of Appeals:
(1) whether a judgment debtor suffers cognizable damages in tort
when its property is seized pursuant to a levy by service of
execution that does not comply with the procedural
requirements of CPLR 5232(a), even though the seized property
is applied to a valid money judgment; and, if so
(2) whether the judgment debtor can, under these circumstances,
bring a tort claim against either the judgment creditor or the
marshal without first seeking relief under CPLR 5240.
See id. at 645.
The New York Court of Appeals graciously accepted certification, see
Plymouth Venture Partners, II, L.P. v. GTR Source, LLC (Plymouth II), 36 N.Y.3d 1077(2021), and advised us that Article 52 of the CPLR is a judgment debtor’s exclusive
avenue for relief from a procedurally defective execution and levy, see Plymouth
Venture Partners, II, L.P. v. GTR Source, LLC (Plymouth III), 37 N.Y.3d 591 (2021).
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Now, with the benefit of that decision, we conclude that FutureNet’s claims
against Defendants failed under New York law because FutureNet did not seek
relief under Article 52 of the CPLR. We therefore AFFIRM the district courts’
judgments dismissing Plaintiffs’ actions.
I. BACKGROUND
The facts and initial procedural history of this case are set forth in our first
opinion in these appeals, and we recount them only as relevant here. See
Plymouth I, 988 F.3d at 637–40. FutureNet is a corporation that provides
infrastructure services to governments and commercial customers. GTR and CMS
are both merchant cash-advance businesses that advanced cash to FutureNet in
2017 in exchange for daily withdrawals from FutureNet’s account at Comerica
Bank.
Beginning in February 2018, FutureNet was unable to meet its daily
payment obligations, which led GTR and CMS to declare defaults and, ultimately,
obtain judgments against FutureNet in New York state court. GTR and CMS
thereafter began a series of collection efforts, including directing Comerica not to
transfer FutureNet’s funds and requesting the Marshal and Rockland County
Sheriff to levy on FutureNet’s Comerica account by serving notices of execution
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on Comerica’s registered agent in New York, Corporate Creations Network, Inc.
Comerica complied with the levies by debiting FutureNet’s account and issuing
checks to the Marshal and Sheriff, who then remitted funds to GTR and CMS.
Following these seizures from FutureNet’s bank account, a state court in
Michigan – where FutureNet was incorporated and headquartered – appointed
Basil Simon as the receiver overseeing FutureNet’s assets. Simon thereafter filed
a motion in New York state court to vacate GTR’s judgment, which was denied by
the court on jurisdictional and procedural grounds. See generally GTR Source, LLC
v. FutureNet Grp., Inc., 89 N.Y.S.3d 528 (Sup. Ct. Orange Cnty. 2018). In February
2019, Simon commenced a federal action in the Southern District of New York,
arguing that GTR and the Marshal had taken possession of FutureNet’s property
without authority, thereby rendering them liable in tort for wrongful execution,
conversion, and trespass to chattels. In December 2019, the district court (Koeltl, J.)
entered summary judgment in favor of both GTR and the Marshal on all of Simon’s
claims. See generally Simon v. GTR Source, LLC, No. 19-cv-1471 (JGK), 2019 WL
7283279 (S.D.N.Y. Dec. 26, 2019). In particular, the district court found that
FutureNet had sustained no injury, since “[t]he debt owed by FutureNet to GTR,
which [Simon] does not dispute is a valid debt, has now been satisfied as a result
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of the Marshal’s execution and a satisfaction of judgment has been entered.” Id.
at *4.
In January 2019, Simon brought a parallel suit against CMS in the Southern
District of New York, arguing that CMS’s execution and levy were invalid because
Corporate Creations was not a proper agent for service within the meaning of
CPLR 318 and 5232(a). Following the decision in the GTR case, the district court
(Failla, J.) dismissed this suit based on issue preclusion, finding that Simon’s
claims hinged on the same question of law at the heart of GTR. See generally Simon
v. Cap. Merch. Servs., LLC, No. 19-cv-904 (KPF), 2020 WL 615091 (S.D.N.Y. Feb. 10,
2020). Judge Failla also agreed with Judge Koeltl that FutureNet suffered no
damages because the alleged torts led to the satisfaction of valid underlying
judgments. See id. at *11–12.
Simon was subsequently replaced by two of FutureNet’s senior creditors,
Plymouth Venture Partners, II, L.P. and Plymouth Management Company, which
now appeal both district-court decisions. 1 Following oral argument, we rejected
GTR’s contention that we and the district court lack jurisdiction under the
Rooker-Feldman doctrine; we also concluded that the district court in the CMS case
1Although the party driving these and other related actions has changed over time, we refer to
these entities collectively as “FutureNet” for simplicity’s sake.
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wrongly dismissed FutureNet’s claims based on issue preclusion. See Plymouth I,
988 F.3d at 641–42. We nevertheless found that these cases presented “unresolved
question[s] of New York law” that “implicate[] a host of important state interests.”
Id. at 637. We therefore reserved decision and certified the following questions to
the New York Court of Appeals:
(1) whether a judgment debtor suffers cognizable damages in tort
when its property is seized pursuant to a levy by service of
execution that does not comply with the procedural
requirements of CPLR 5232(a), even though the seized property
is applied to a valid money judgment; and, if so
(2) whether the judgment debtor can, under these circumstances,
bring a tort claim against either the judgment creditor or the
marshal without first seeking relief under CPLR 5240.
See id. at 645. The New York Court of Appeals accepted certification, see
Plymouth II, 36 N.Y.3d at 1077, and held that “a judgment debtor’s exclusive
avenue for relief under these circumstances is to bring an appropriate action
pursuant to CPLR [A]rticle 52.” Plymouth III, 37 N.Y.3d at 595. With this guidance
from the New York Court of Appeals, the only remaining question in these appeals
is whether we should affirm the district courts’ judgments dismissing FutureNet’s
actions for its failure to seek relief under Article 52 of the CPLR.
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II. STANDARD OF REVIEW
We review the district courts’ dismissal of a complaint and grant of
summary judgment de novo. See Plymouth I, 988 F.3d at 640 (citing Yamashita v.
Scholastic Inc., 936 F.3d 98, 103 (2d Cir. 2019), cert. denied, 140 S. Ct. 2670 (2020))
(dismissal under Rule 12(b)(6)); ING Bank N.V. v. M/V Temara, IMO No. 9333929,
892 F.3d 511, 518 (2d Cir. 2018) (summary judgment). In doing so, we may affirm
the district courts’ judgments on any ground that finds adequate support in the
record. See McCall v. Pataki, 232 F.3d 321, 323 (2d Cir. 2000) (dismissal under
Rule 12(b)(6)); Holtz v. Rockefeller & Co., 258 F.3d 62, 69 (2d Cir. 2001) (summary
judgment).
III. DISCUSSION
Answering the questions we certified in this case, the New York Court of
Appeals held that “[t]here is no need [for a judgment debtor] to contort traditional
tort claims to . . . recover funds used to satisfy a valid judgment based on alleged
violations of [New York’s] civil procedure law.” Plymouth III, 37 N.Y.3d at 599.
Instead, “[A]rticle 52 . . . is the exclusive avenue for a judgment debtor seeking
relief from the use of an enforcement mechanism that does not comply with
[A]rticle 52’s requirements.” Id.
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Under Article 52, before a property is used to satisfy a valid money
judgment, “any interested person may commence a special proceeding against the
judgment creditor . . . to determine rights in the property.” N.Y. C.P.L.R. § 5239.
In that proceeding, “[t]he court may vacate the execution or order, void the levy,
direct the disposition of the property or debt, or direct that damages be awarded.”
Id. Article 52 further allows the court, “at any time, on its own initiative or the
motion of any interested person,” to “make an order denying, limiting,
conditioning, regulating, extending[,] or modifying the use of any enforcement
procedure.” Id. § 5240. The New York Court of Appeals reasoned that these
provisions “provide[] courts with the ability to craft flexible and equitable
responses to claims that arise with respect to enforcement of valid money
judgments,” Plymouth III, 37 N.Y.3d at 601, and observed that “empowering a
judgment debtor to evade these proceedings . . . would eviscerate the purpose of
[A]rticle 52,” id. at 604.
Although FutureNet argues on appeal that it was “not required to . . . file a
post-judgment motion under CPLR § 5240 . . . before commencing [these]
action[s],” Reply Br. in CMS at 8, the New York Court of Appeals unequivocally
held that a judgment debtor must “bring an appropriate action pursuant to CPLR
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[A]rticle 52” for relief from a procedurally defective execution and levy,
Plymouth III, 37 N.Y.3d at 595. Because FutureNet has not done so here, we affirm
the district courts’ judgments dismissing FutureNet’s actions, which allege only
common-law torts.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the judgments of the district courts.
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