Strachman v. Palestinian Authority

OPINION OF THE COURT

Catterson, J.

The sole issue in this appeal is whether the plaintiffs, judgment creditors of the Palestinian Authority (hereinafter referred to as PA) and the Palestine Liberation Organization (hereinafter referred to as PLO), have a right to a jury trial in a declaratory judgment action. The action seeks to establish the PA’s ownership of more than $100 million in securities and debt instruments frozen by Swiss American Securities Inc., (hereinafter referred to as SASI) in New York. Thus, as set forth below, this Court’s task is to find an 1894 analog for a claim of money-laundering designed to interfere with the execution of a judgment.

The plaintiffs are the survivors and the administrator of the estate of United States citizen Yaron Ungar, who was murdered with his pregnant wife in a terrorist machine-gun attack in June 1996 in Israel. The plaintiffs alleged that the attack was carried out by members of Hamas acting under the command of the PA and the PLO. In July 2004, the plaintiffs obtained a default judgment against the PA and PLO in an amount of $116,409,123. (See Estates of Ungar & Ungar ex rel. Strachman v Palestinian Auth., 325 F Supp 2d 15 [D RI 2004], affd sub nom. Ungar v Palestine Liberation Org., 402 F3d 274 [1st Cir 2005], cert denied 546 US 1034 [2005].)

In 2005, the federal judgment was domesticated in New York. The federal court issued a restraining order and injunction, and the plaintiffs served information subpoenas and restraining notices pursuant to CPLR 5222 on a number of entities believed to be holding assets of the PA and the PLO. The notices stated that the federal injunction applied to all assets of the PA and the PLO “however titled.” In response to the notice, SASI froze more than $100 million in accounts titled variously as the Palestinian Pension Fund for the State Administrative Employees and the Palestinian Pension Fund for the State Administrative Employees of the Gaza Strip.

On or about December 7, 2005, defendant, the Insurance and Pension Fund (hereinafter referred to as IPF), appeared for the first time and asserted that the names on the account are aliases of the IPF not the PA, and that IPF is an independent entity. IPF moved to vacate the restraining order. The plaintiffs did not respond but instead filed for a turnover proceeding against SASI, and filed a sheriff’s, levy coextensive with the proceeding. The plaintiffs further filed this declaratory judgment action seeking a declaration that the assets held by SASI belong to the PA not IPF, and alleging that the PA and the IPF engaged in a fraudulent scheme to prevent the Ungars from enforcing their judgment against the assets frozen by SASI.

In or around March 2006, the court deemed the motion to vacate the restraining notice moot in view of the fact that the plaintiffs had withdrawn it. IPF moved to dismiss the turnover proceeding and the court granted the motion.

Discovery in this declaratory judgment action was completed in February 2007, and the plaintiffs filed a corrected note of issue demanding a trial by jury on all issues. Four months later, on May 30, 2007, defendant Palestinian Pension Fund for the State Administrative Employees of the Gaza Strip (hereinafter referred to as the Gaza Fund) moved to strike the plaintiffs’ demand for a jury trial.^* By decision and order entered May 7, 2008, the court denied the defendant’s motion to strike the jury demand. (2008 NY Slip Op 33602[U].)

For the reasons set forth below, we affirm. CPLR 4101 provides for a jury trial in “an action in which a party demands and sets forth facts which would permit a judgment for a sum of money only” or in “any other action in which a party is entitled by the constitution or by express provision of law to a trial by jury.” (CPLR 4101 [1], [3].)

The declaratory judgment action was unknown at the time of the adoption of the 1894 NY Constitution which “fr[o]ze” the right to a jury trial to those types of cases in which it was recognized at common law or by statute as of the adoption of the Constitution. (See Independent Church of Realization of Word of God v Board of Assessors of Nassau County, 72 AD2d 554, 554 [2d Dept 1979].)

However, the right to trial by jury is not limited to those instances in which it was used as of 1894 but extends to cases that are analogous to those which were traditionally tried by jury. (Id., citing Wynehamer v People, 13 NY 378, 426 [1856] and Colon v Lisk, 153 NY 188, 193 [1897].) Hence, as the motion court correctly noted, it is necessary to examine which of the traditional common-law actions would most likely have been used to present the instant claim had the declaratory judgment action not been created. (See Siegel, NY Prac § 439 [4th ed]; see also James v Powell, 25 AD2d 1 [1st Dept 1966], revd on other grounds 19 NY2d 249 [1967].)

It then follows that if the traditional action that most likely would have been used is an action at law, then the plaintiffs will be entitled to a jury trial. (See Matter of DES Mkt. Share Litig., 79 NY2d 299, 304-305 [1992].) If the traditional action that would have been presented is equitable, there is no right to a jury trial. (Independent Church of Realization of Word of God, 72 AD2d at 555.)

While the parties agree on the applicable standard, on appeal they disagree, as they did before the motion court, as to which traditional action would have been used instead of the instant declaratory judgment action. The defendant argues that this is essentially a “quiet title” claim and thus the action lies in equity because disputes concerning ownership of property including personal property such as securities were treated as equitable claims.

The plaintiffs assert that the gravamen of their complaint is that the Gaza Fund is a fictitious name used by the judgment debtor PA to shield PA assets. More significantly, they allege that the IPF’s claim that it owns the assets is false and an attempt to mislead the court and to unlawfully prevent the plaintiffs from enforcing their judgment against the PA. Thus, the plaintiffs argue that the motion court held correctly that the action is substantively analogous to an action at law for tor-tious interference with the enforcement of a judgment. We agree.

The plaintiffs further assert correctly that a cause of action for unlawful interference with enforcement of a judgment has long been recognized in New York, and that it was always an action triable by a jury. (See Yates v Joyce, 11 Johns 136 [1814] [party liable for damages after its fraudulent misconduct where plaintiff acquired a legal lien on a property and injury to property was done with a full knowledge of the plaintiffs rights]; see also Quinby v Strauss, 90 NY 664 [1882].) In Quinby, an action for damages was held maintainable against a judgment debtor and his attorney for conspiring to keep defendant’s property out of the reach of his creditors by securing fictitious debts under which the property was sold to his attorney.

There is no question, therefore, that the cause of action existed at the time that the Constitution was enacted in 1894. Nor is there any doubt that the action was an action at law and thus triable by a jury. (See Quinby, 90 NY at 664-665.)

In James v Powell, this Court further explained:

“At common law, whoever by improper means interfered with the execution of a judgment was liable for the damage he caused to the judgment creditor (Mott v. Danforth, 47 Pa. 304; Collins v. Cronin, 117 Pa. 35). The right of action [for unlawful interference with execution on a judgment] has been recognized and discussed at length by the United States Supreme Court in Findlay v. McAllister (113 U.S. 104) and is undoubtedly part of the common law of this State (Quinby v. Strauss, 90 N. Y. 664)” (25 AD2d at 2).

This Court then discussed the measure of damages for such an action:

“In any event, this is neither a suit on the judgment nor for the same relief, and not even specif!-cally to collect it. It is for damages resulting from a tort. The amount of the judgment is not the measure of the damages; it is rather the loss or expense caused by the interference (Penrod v. Mitchell, 24 Pa. 522). Conceivably, this could embrace the judgment itself (see Quinby v. Strauss, supra), in which event satisfaction of the judgment so obtained would also operate to satisfy the original judgment.” (25 AD2d at 4; see also Arrow Communication Labs, v Pico Prods., 219 AD2d 859 [4th Dept 1995] [the trial court properly denied defendant’s motion to strike plaintiffs jury demand; although plaintiff sought equitable relief in the form of a declaratory judgment and an accounting, underlying controversy sought monetary damages]; Hebranko v Bioline Labs., 149 AD2d 567 [2d Dept 1989] [plaintiffs allegation of facts upon which damages alone will afford full relief entitled him to jury trial notwithstanding inclusion of a request for equitable relief].)

We reject the dissent’s contention that any reliance on Quinby is misplaced because the plaintiffs did not have any interest in the allegedly fraudulently “transferred” property at the time of the transfer. This position appears to amplify the equivocation of the court which, while concluding that the most analogous action here is tortious interference, nonetheless was compelled to recognize that “the alleged overall scheme was designed to hide the PA’s and the PLO’s assets for all purposes, and not solely to thwart execution of plaintiffs’ judgment.” (2008 NY Slip Op 33602DU], *5.)

The dissent relies on Federal Deposit Ins. Corp. v Porco (147 AD2d 422, 423 [1989], affd 75 NY2d 840 [1990]) for the proposition that a judgment creditor must have “a lien or other interest in fraudulently transferred property of his debtor in order to maintain an action for damages.” The dissent therefore would reverse on the ground that, if the PA or PLO set up accounts like the Gaza Fund as aliases in a general scheme prior to the federal judgment, then the plaintiffs could not allege tortious interference because the alleged tortious “transfer” was effected before the judgment.

However, in our view, that misses the point of the plaintiffs’ complaint. At the very heart of the declaratory judgment action is the question of whether the Gaza Fund is a fictitious account owned or controlled by the PA, or whether it is a synonym for the IPF, which the plaintiffs acknowledge may be a separate juridical entity, and a legitimate pension fund.

Hence, in seeking a declaration that the PA not the IPF owns the assets, the plaintiffs are essentially seeking a declaration that the IPF’s interjection into the suit, with its claim that it owns the assets held in the SASI accounts, was the tortious act of interference. Moreover, plaintiffs claim that the IPF’s claim of ownership was specifically aimed at thwarting the plaintiffs’ execution on the judgment since the IPF’s interjection and fraudulent assertion occurred after the judgment in favor of the plaintiffs, and after the plaintiffs filed their restraining notices.

Finally, the court properly rejected defendant’s contention that the action is analogous to a quiet title action. In every case cited by the defendant in support of its “quiet title” theory, the plaintiff or plaintiffs alleged an ownership claim to the property at issue, be it real property or securities. (See Wright v Nos-trand, 94 NY 31 [1883]; Cushman v Thayer Mfg. Jewelry Co., 76 NY 365 [1879]; New York & New Haven R.R. Co. v Schuyler, 17 NY 592 [1858].) Here the plaintiffs are in the shoes of a judgment creditor, rather than an alleged pwner, and are asking for a judgment declaring a third party, codefendant PA, as the true owner of the securities held by SASI.

The defendant initially ignored the issue of plaintiffs not claiming ownership to the SASI securities. The court raised the issue, and defense counsel admitted at oral argument that the precedent on quiet title involved only parties who claimed ownership to the property at issue. The defendant was unable to cite a single “quiet title” action where the plaintiff sought a finding of ownership with respect to a third party. Further, on appeal, defendant did not address the issue either in its 31-page brief or even in its 17-page reply brief after the plaintiffs specifically raised this point. We find that this is not coincidental or a mere harmless omission.

Accordingly, the order of the Supreme Court, New York County (Shirley Werner Kornreich, J.), entered May 7, 2008, which, insofar as appealed from, denied the motion to strike plaintiffs’ demand for a jury trial, should be affirmed, with costs.

In this declaratory judgment action, plaintiffs seek to satisfy a judgment obtained against defendant Palestinian Authority (PA) from funds held on behalf of the Pension Fund by a New York custodian, nonparty Swiss American Securities Inc. Pursuant to a federal injunction, Swiss American has frozen over $100 million in securities and debt instruments held in the Pension Fund’s account.

* The plaintiffs take exception to the defendant naming itself the Palestinian Pension Fund for State Administrative Employees of the Gaza Strip in its motion to strike the jury trial demand, since they assert that defendant first appeared in the motion to vacate the restraining order as the Insurance and Pension Fund. Defendant explains in a footnote that it has used the “abbreviation” of Insurance and Pension Fund in papers filed in this action and in related proceedings “rather than using its full and proper name.” The plaintiffs are right that, by so doing, the defendant attempts to prejudge the very issue at the heart of this action, that is, whether the IFF and the Gaza Fund sire legitimately interchangeable names.