City of New York v. HC2 Holdings

Full title: THE CITY OF NEW YORK, Petitioner, v. HC2 HOLDINGS INC., Respondent.

Court: SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PART IAS MOTION 37EFM

Date published: Mar 8, 2021

2021 N.Y. Slip Op. 30675 (N.Y. Sup. Ct. 2021)

Opinion

INDEX NO. 452635/2020

03-08-2021

THE CITY OF NEW YORK, Petitioner, v. HC2 HOLDINGS INC., Respondent.

HON. ARTHUR F. ENGORON Justice

NYSCEF DOC. NO. 52 PRESENT: HON. ARTHUR F. ENGORON Justice MOTION DATE N/A MOTION SEQ. NO. 002

DECISION + ORDER ON MOTION

The following e-filed documents, listed by NYSCEF document number (Motion 002) 18, 19, 20, 21, 22, 23, 24, 25, 29, 31, 40, 41, 42, 43, 44, 46 were read on this motion to REARGUE AND/OR RENEW. Upon the foregoing documents and for the reasons set forth herein, the instant motion (Seq. No. 002), of the City of New York ("the City"), pursuant to CPLR 2221, for leave to reargue (and renew) its application for a CPLR 5232 order extending an execution and levy that the City initially delivered to a New York City sheriff on May 10, 2019 is granted, and, upon reargument, the City's motion to extend that execution and levy is hereby granted to the extent of extending it to and including June 30, 2021, without prejudice to the City's seeking further extensions.

Background

On March 25, 2019, a judgment in the original amount of $13,500,000.00 ("the Judgment") was entered in favor of the City and against Harbinger Capital Partners Offshore Manager, LLC ("Harbinger") and Philip Falcone ("Falcone") in an action captioned The City of New York v Harbinger Capital Partners Offshore Mgr., LLC, Index No. 450328/2019 (NYSCEF Doc. 4). The City asserts that it has "acted diligently to collect" on the Judgment and that a $2,907,085.51 balance remains (NYSCEF Doc. 1, at 2). On May 10, 2019, the City delivered an execution and levy ("the 2019 Execution and Levy") to a New York City sheriff ("the Sheriff") with a notice to respondent, HC2 Holdings Inc. ("HC2"), "as garnishee, with respect to all property in which [Falcone] has an interest, including annual cash incentive payments and the stock options or other rights to purchase shares of common stock of [HC2]." The Sheriff then served HC2 with the 2019 Execution and Levy. (NYSCEF Doc. 1, at 2.) By Decision and Order dated October 3, 2019 in a special proceeding captioned The City of New York v HC2 Holdings Inc., Index No. 451275/2019, the Hon. W. Franc Perry extended the 2019 Execution and Levy to and including December 31, 2020 (the "October 2019 Extension") (NYSCEF Doc. 7). On May 14, 2020, pursuant to the subject levy, HC2 apparently delivered to the Sheriff a stock certificate "representing 298,617 shares of HC2 stock" that Falcone owns or owned. According to the City, HC2 asserted that "nothing else was presently due and payable to Falcone in 2020, but it provided information to the Court and the City showing that it would pay $2.2 million on or before March 15, 2021, representing an incentive cash bonus," that it owes to Falcone pursuant to a company bonus plan. (NYSCEF Doc. 19.) By petition dated December 23, 2020 (approximately one week prior to the expiration of the 2019 Execution and Levy), the City commenced the instant special proceeding to extend the 2019 Execution and Levy to December 31, 2021 (NYSCEF Doc. 1). By Decision and Order dated February 4, 2021 this Court denied this request (NYSCEF Doc. 15). The City now moves [1] pursuant to CPLR 2221, to reargue and renew its application for a CPLR 5232 order extending the 2019 Execution and Levy to and including December 31, 2021; and [2] forbidding HC2 from "[making] or [suffering] any sale, assignment or transfer of, or any interference with any property in which [Falcone] has an interest, or pay over or otherwise dispose of any debt owed to [Falcone], to any person other than the Sheriff, except upon direction of the Sheriff or pursuant to an order of the Court" (NYSCEF Doc. 29). The Court notes that, in the City's reply papers, dated February 26, 2021, the City claims that the 2019 Execution and Levy should be extended to at least March 31, 2021 (NYSCEF Doc. 43, at 7). The City notes that neither HC2 nor Falcone has submitted written opposition to the instant request; and the City asserts that the requested extension would not prejudice any judgment creditor. The City further states that the Court "erroneously found that the City did not explain the delay since May 2019, in seeking the collection of property," even though the City had in fact "aggressively pursued" said collection, essentially by commencing various proceedings "to preserve its rights against HC2 pursuant to the levy" and by moving to intervene in other proceedings "affecting the levy served on HC2." (NYSCEF Doc. 19.) By Decision and Order dated February 18, 2021 in a related special proceeding captioned The City of New York v Harbinger Capital Partners Offshore Mgr., LLC., Index No. 451347/2020, this Court ordered, essentially, as follows: [1] Falcone must either pay money to the City to satisfy the remainder of the Judgment; or [2], pursuant to CPLR 5225(a), Falcone must turn over and deliver all shares of stock, stock options, and restricted stock units ("RSUs") that he owns in HC2 to the City or the Sheriff, or such lesser amount sufficient to satisfy the Judgment fully; or [3] alternatively, pursuant to CPLR 5225(b) and (c) and 5227, in the event that such shares, options, and RSUs are not in Falcone's possession or custody, or in the event that Falcone fails to turn over such shares, options, and RSUs that he owns in HC2 to the City or to the Sheriff, in that event, HC2 and respondent American Stock Transfer & Trust Company, LLC ("AST") must issue and deliver to the City or the Sheriff substitute certificate(s) for all stock, options, and RSUs that Falcone owns in HC2, with such further documents as may be necessary to transfer, assign, and sell such stock, options, and RSUs. By Decision and Order dated February 22, 2021 in another related special proceeding, this one captioned Dontzin Nagy & Fleissig LLP v HC2 Holdings Inc., Index No. 156889/2020, this Court held, in part, as follows:

The City asserts that it had not previously directed the Sheriff to sell the subject HC2 stock "because of the low stock price, which was expected to rebound over time." The stock market in general, and, presumably, the price of HC2 shares in particular, are volatile and unpredictable. The City had no right to wait for a hoped-for-but-uncertain rise in the stock price while keeping other creditors at bay. Thus, this Court finds that the "execution and levy" has become dormant.

In that Decision and Order, this Court also determined that Dontzin Nagy & Fleissig LLP ("Dontzin"), which is not a party to the instant special proceeding, had priority over the City "to all property and all debts that HC2 owes in which Falcone has an interest." This Court notes that the Appellate Division stayed the enforcement of that Decision and Order pending further review in that court. Also on February 22, 2021, the City filed a Notice of Appeal of this Court's February 4, 2021 Decision and Order that denied the City's motion to extend the 2019 Execution and Levy to and including December 31, 2021 (NYSCEF Doc. 37). On February 24, 2021, Dontzin opposed the City's instant motion to renew and reargue, asserting, inter alia, that (1) the City failed to meet its CPLR 2221 burden to establish that the Court "overlooked or misapprehended" any facts or law in its February 4, 2021 Decision and Order; (2) the "remedy" for the City at this time is an appeal, and the City has already filed a notice of appeal; (3) the City had failed to explain its delay in "proceeding with" the 2019 Execution and Levy since May 2019 (and, according to Dontzin, the City's assertions that it filed "multiple proceedings" and engaged in "numerous communications" do not cure said delay); and (4) said delay has prejudiced Dontzin, which also levied on HC2, while the City has accrued over $325,000.00 in post-judgment interest. (NYSCEF Doc. 40.) On March 1, 2021, during an omnibus oral argument ("the March 1 Appearance"), the City noted that Dontzin has not yet moved to intervene in the instant special proceeding. In reply, the City asserts the following, inter alia: (1) the City was not required "affirmatively [to] tell the Sheriff to sell the stock" and did not direct the Sheriff not to sell the stock; (2) the City's only communication with the Sheriff about selling the stock occurred in January 2021 when the City informed the Sheriff that the City would seek an order "allowing the Sheriff to use the services of a stockbroker to sell the stock on a publicly traded exchange, in order to get the best price, as required by the CPLR"; (3) according to the Sheriff, from March to September 2020, no public auctions were scheduled due to the COVID-19 pandemic, and "there is nothing in Article 52 that requires an auction sale by the Sheriff be conducted within a specific time frame"; and (4) "the dormancy doctrine is not contained in" CPLR Article 52. (NYSCEF Doc. 43.) The City also notes that in Dontzin Nagy & Fleissig LLP v HC2 Holdings Inc., supra, this Court cited to Metro Burak, Inc. v Rosenthal & Rosenthal, 83 Misc 2d 637, 643 (Sup Ct, Richmond County 1975), in stating that the City "allowed its lien under the levy to become dormant," whereas the court in Metro held that "[t]he rule that an execution creditor will lose his priority if he permits his execution to become dormant, does not apply where the delay in enforcing the execution does not result from the judgment creditor's conduct." Id., at 642. The City also points out that the "dormancy" cases that this Court cited in the February 22, 2021 Decision and Order are all somewhat distinguishable (NYSCEF Doc. 43). The City argues that this Court's refusal to extend the 2019 Execution and Levy causes "a forfeiture of the City's established priority under the CPLR." (NYSCEF Doc. 43, at 7). At the March 1 Appearance and by email to the Court dated March 2, 2021, the City referred to Executive Order 202.8, which states, in pertinent part: "any specific time limit for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding, as prescribed by the procedural laws of the state...is hereby tolled from the date of this executive order until April 19, 2020." (This Court notes that said tolling order was extended to November 3, 2020.) By email to this Court dated March 2, 2021, Dontzin, inter alia, (1) objected to the City's failure to submit that legal argument prior to the March 1 Appearance; and (2) asserted that "no such 'specific time limit' was involved in the Court's finding that the City allowed its execution and levy to go dormant." Also during the March 1 Appearance and by email to the Court on that same day, the City emphasized that "fraud is the underlying rationale for the dormancy doctrine," relying on Weinstein-Korn-Miller, NY Civ Prac ¶ 5234.11, "Dormancy May Cause Loss of Priority."

Renew and Reargue Standards

CPLR 2221(d), "A motion for leave to reargue," states, in part, as follows:

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2. shall be based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion, but shall not include any matters of fact not offered on the prior motion; and

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CPLR 2221(e), "A motion for leave to renew," states, in part, as follows:

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2. shall be based upon new facts not offered on the prior motion that would change the prior determination or shall demonstrate that there has been a change in the law that would change the prior determination; and

3. shall contain reasonable justification for the failure to present such facts on the prior motion.

CPLR 2221(f), states as follows:

A combined motion for leave to reargue and leave to renew shall identify separately and support separately each item of relief sought. The court, in determining a combined motion for leave to reargue and leave to renew, shall decide each part of the motion as if it were separately made. If a motion for leave to reargue or leave to renew is granted, the court may adhere to the determination on the original motion or may alter that determination.

Summary of Decision and Order

Pursuant to CPLR 2221(d), the City has established that this Court overlooked and/or misapprehended various matters of law in its February 4, 2021 Decision and Order. Thus, the City is entitled to reargue its application for a CPLR 5232 order extending the 2019 Execution and Levy, and, upon reargument (and renewal), the City's motion to extend the 2019 Execution and Levy is hereby granted to the extent of extending it to and including June 30, 2021, without prejudice to the City's seeking further extensions.

Discussion

Weinstein-Korn-Miller, NY Civ Prac ¶ 5234.11, "Dormancy May Cause Loss of Priority," states the following in outlining justifications for "dormancy": "an instruction to the sheriff by the judgment creditor that delays enforcement of the judgment and allows the judgment debtor to retain possession and use of his personalty is said to be a 'fraud' on other judgment creditors because they may refrain from enforcing their judgments." It also notes as follows: "[t]he dormancy doctrine is inapplicable when the delay in enforcing an execution does not result from the judgment creditor's conduct. For example, the judgment creditor's rights are not affected if the sheriff procrastinates, even if the judgment creditor passively acquiesces in the sheriff's inaction." This Court overlooked the full implications of the foregoing commentary, as well as case law that holds that the dormancy doctrine requires a finding that the judgment creditor engaged in fraud. Specifically, as the City notes, this Court overlooked McCarthy v Farley, 149 Misc 360, 360-61 (Sup Ct, NY County 1931), which held, in pertinent part, as follows:

Failure to proceed after delivering the attachment is not sufficient to destroy the lien. Constructive fraud or estoppel, which in the final analysis is the principle underlying dormancy, may not be spelled out of mere inactivity. Especially is this true where the inactivity was not the result of instructions given by the attaching creditor or some action on his part staying further proceedings, but was unintentional and caused by ignorance of the fact that the lien of the attachment had been made effective.

(Emphasis added.) The court in Metro Burak, Inc. v Rosenthal & Rosenthal, 83 Misc 2d 637, 643, (Sup Ct, Richmond County 1975), supra, also addressed the "inactivity" that McCarthy referenced, holding, in pertinent part, as follows: "[t]he rule that an execution creditor will lose his priority if [he/she] permits [his/her] execution to become dormant, does not apply where the delay in enforcing the execution does not result from the judgment creditor's conduct." Additionally, this Court recognizes that the decision in In re Monarch Acetylene Co., 229 F 474 (WDNY 1916), which quoted from Excelsior Needle Co. v Globe Cycle Works, 48 AD 304, 310 (4^th Dept. 1900) and which this Court cited in its February 22, 2021 Decision and Order in the special proceeding captioned Dontzin Nagy & Fleissig LLP v HC2 Holdings Inc., Index No. 156889/2020, in the City's words, "was based on clear evidence of fraud, estoppel and inequitable conduct" in which, here, the City has not engaged (NYSCEF Doc. 43, at 6-7). Thus, the fact that the City did not affirmatively ask the Sheriff to sell the subject HC2 stock does not demonstrate the "fraud" required to implicate the dormancy doctrine. In opposing the City's instant requests, Dontzin attempts to rely on a document titled "Sheriff's Directions to Garnishee and Judgment Debtor" (NYSCEF Doc. 50). However, (1) simply and obviously, said document does not tell the Sheriff not to sell the subject stock or not to do anything; and (2) there is no evidence that the City actually directed the Sheriff in any way, other than this mere unsubstantiated and uncorroborated (and inadmissible) hearsay. The City also plausibly argues that it is entitled to reargument based on its various attempts to collect on the Judgment during the relevant period and on the fact that HC2's financial obligations to Falcone were spread over time. This Court has considered Dontzin's other arguments against reargument and finds them to be unavailing and/or non-dispositive. The City's request to renew is hereby denied without prejudice solely as moot and/or duplicative.

Conclusion

Thus, for the reasons stated herein, the instant motion (Seq. No. 002) by petitioner, the City of New York ("the City"), pursuant to CPLR 2221, for leave to reargue (and renew) its application for a CPLR 5232 order extending an execution and levy that the City initially delivered to a New York City sheriff on May 10, 2019 ("the 2019 Execution and Levy") is hereby granted, and, upon reargument, the City's motion is granted to the extent of extending the 2019 Execution and Levy to and including June 30, 2021, without prejudice to the City's seeking further extensions. 3/8/2021

DATE

/s/ _________

ARTHUR F. ENGORON, J.S.C.