Opinion
99 Civ. 11075 (CSH)
September 24, 2001
MEMORANDUM OPINION AND ORDER
In an earlier opinion in the captioned case, familiarity with which is assumed, I granted respondent Herbert Feinberg's cross-petition to vacate one aspect of the award in the underlying arbitration between petitioner Norman Katz and Feinberg, and granted Katz's petition to confirm the award in all other respects. See Katz v. Feinberg, 99 Civ. 11705, 2001 WL 363668 (S.D.N.Y. April 11, 2001) (the "Opinion"). Subsequently, after considering the proposed crossjudgments to implement the Opinion, I entered a judgment (the "Judgment") on June 13, 2001 requiring Feinberg to pay Katz $363,496.29 plus interest at the rate of 9% per annum through June 13, 2001, plus postjudgment interest calculated in accordance with 28 U.S.C. § 1961. Shortly thereafter, Feinberg moved to stay enforcement of the Judgment. He seeks the stay to await the outcome of a separate arbitration pending between I. Appel Corporation ("I. Appel" or the "Company," now known as L.A. Alliance Corporation) and Katz, which he believes will establish his contractual right to withhold all or part of the Judgment funds. With the parties' consent, I temporarily stayed the Judgment pending my decision on Feinberg's motion. See Order dated June 27, 2001. Briefing on the motion was completed September 6, 2001.
Resolution of this motion was delayed by the disruption of the courthouse facilities in the aftermath of the tragic events at the World Trade Center on September 11, 2001.
The Purchase Agreement among Katz, Feinberg and I. Appel which was central to the Opinion contains two provisions which are at the heart of Feinberg's argument in support of a stay. The first, Section 8(d), provides in relevant part that Katz as "Seller" and Feinberg as "Buyer" agree that Seller and the Company will split evenly payments and litigation expenses in connection with certain identified disputes to which the Company was a party. With certain caveats, Katz is required to pay the Company 50% of the "Losses" (defined in the Agreement) upon demand by the Company. Section 8(d) also instructs that:
In the event that Seller does not make any payment of Losses within fifteen (15) days after demand therefor, Buyer may setoff the amount of such obligation, together with interest thereon against any payment obligations of Buyer under the Closing Date Promissory Note or Final Promissory Note.
(Emphasis added). The Purchase Agreement contains a separate setoff provision echoing the substance of Section 8(d):
11. Setoff. Any amounts due from Seller to Buyer pursuant to Sections 3(e) or 8(d) of this Agreement that have not been paid within fifteen (15) days after demand has been made to Seller therefor may be recovered by Buyer, at its option, by setoff against any amount due or to become due under.., the Closing Date Promissory Note or Final Promissory Note, but Buyer shall not be required to recover any such amount in such manner.
(Emphasis added).
In November 1999 I. Appel filed an arbitration petition against Katz which demands payment to the Company of over $435,000 in claims primarily arising under Section 8(d) of the Purchase Agreement. Feinberg was initially a petitioner in that arbitration but has since withdrawn his demand after conceding that any obligation that Katz has under Section 8(d) of the Purchase Agreement is owed to the Company, not to Feinberg. That arbitration is pending.
Feinberg contends that pursuant to Sections 8(d) and 11 of the Purchase Agreement he will be entitled to setoff from what he owes Katz in principal and interest under the Judgment (which constitutes the amounts due under the Closing Date Promissory Note) any amounts that the arbitrators determine Katz owes I. Appel under Section 8(d). He seeks a stay of the Judgment to guard against the possibility that his right to setoff will become worthless if I. Appel prevails in the arbitration but Katz does not satisfy his obligation. Feinberg presents this as a serious concern because, he alleges, Katz has a history of avoiding his monetary obligations. Much of what Feinberg offers to demonstrate this purported history consists of unsubstantiated allegations concerning Katz's proclivity toward concealing assets and secreting them outside of the United States and out of reach of creditors. But Feinberg has also submitted credible evidence that shows that as of June 1, 2001 the New York State taxing authorities had an unsatisfied judgment against Katz dated March 10, 1998 in the amount of $329,674.94. Katz does not challenge this evidence.
Rule 62, Fed.R.Civ.P., governs the stay of proceedings to enforce a judgment but none of its provisions has application here. Rule 62 does not strictly contemplate motions, such as this one, that seek to stay a judgment pending disposition of a proceeding in a different case. Although this motion does not fall within the strictures of the Federal Rules of Civil Procedure, this Court nonetheless has the inherent authority to grant the stay pursuant to the All Writs Act, 28 U.S.C. § 1651 (a). The Supreme Court long ago recognized that "the power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise ofjudgment, which must weigh competing interests and maintain an even balance." Landis v. North American Co., 299 U.S. 248, 254-55 (1936) (holding that district court had power to stay proceedings in two cases pending the decision in another case involving different parties but a connected question of law; power to stay is not confined to cases involving identical parties and issues). See also Butler v. Ungerleider, 199 F.2d 709 (2d Cir. 1952) (holding that court had inherent power in exercise of its discretion to grant plaintiffs motion to stay proceedings to enforce a judgment against him in a prior suit pending determination of his action seeking to vacate that judgment).
Katz has appealed the Opinion but Feinberg has not. Thus, Feinberg may not receive, and properly has not sought, an automatic stay upon the filing of a supersedeas bond pursuant to Rule 62(d).
That statute provides: "The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law."
The party seeking a stay "must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to some one else." Landis, 299 U.S. at 255. As Landis instructed, a court considering a stay is charged with the task of weighing the competing interests which may be affected by the grant or denial of a stay. Id. at 254.
Among these competing interests are the possible damage which may result from the granting of a stay, the hardship or inequity which a party may suffer in being required to go forward, and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay.CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962). Although no provision of Rule 62 is involved here, the factors that traditionally inform the exercise of a court's discretion with respect to the propriety of a stay pending appeal under that rule are also instructive. These factors include the likelihood of success on the merits of the appeal; the threat of irreparable injury without a stay; the threat that other parties will be substantially harmed in the event of a stay; and the public interest. See, e.g., 767 Third Avenue Associates v. Permanent Mission of the Republic of Zaire, 787 F. Supp. 389, 392 (S.D.N.Y. 1992) (applying factors to Rule 62(d) motion to stay judgment pending appeal).
Katz does not challenge the inherent power of this Court to issue the requested stay. He does not cite, nor could the Court find, any case that circumscribes the Court's power to issue a stay to the situations described in Rule 62. He argues instead that there is no basis for the exercise of that power under the circumstances here. In opposing the motion, Katz focuses primarily on the alignment of parties in the ongoing arbitration. He argues that because Feinberg is not a party to the arbitration, Katz can never become obligated to Feinberg as a result of that proceeding and therefore the entire basis for the stay — that he would be entitled to setoff the amount of an award in that arbitration — evaporates. Under Katz's logic, if Feinberg is not a party to the pending arbitration then Katz cannot become obligated to him and therefore Feinberg has no basis for a setoff. This logic is flawed.
According to the Purchase Agreement, Feinberg, as Buyer, may setoff from his purchase payment amounts owed the Company under Section 8(d). If Katz becomes obligated to pay Section 8(d) Losses to the Company, Section 8(d) explicitly provides that Feinberg is entitled to set them off from the purchase price if the loss amounts remain unpaid by Katz for 15 days. Thus it is simply not relevant that Feinberg is not a party to the arbitration. The setoff provision does not require Katz to become liable to Feinberg directly. In fact, the opposite is true — Section 8(d) allows Feinberg to setoff unpaid Losses owed to the Company.
The issues underlying Feinberg's entitlement to a setoff are being considered in the arbitration. If I. Appel prevails there, Feinberg can arguably setoff the amount Katz owes I. Appel from the amount he owes Katz under the Judgment. I say "arguably" because I do not undertake to decide whether Feinberg is conclusively entitled to a setoff. As this Court has repeatedly noted, the setoff dispute is not properly before it. My function instead is to determine whether grounds exist for a stay. One of the factors that should be considered is whether Feinberg's claim to the funds is likely to be successful. Given the straightforward language of Section 8(d) of the Purchase Agreement, it is at least possible that if the arbitrators find Katz liable to I. Appel for Section 8(d) Losses, Feinberg will be entitled to setoff the amount Katz owes from the remainder of the purchase price as reflected in the Judgment.
The threat of injury to Feinberg in the event that the Judgment is not stayed is genuine. If Feinberg is required to pay the full purchase price before Katz must pay the Company for the alleged Section 8(d) Losses, his right to setoff contemplated by the Purchase Agreement becomes a nullity. The fact that the New York State taxing authorities have been unable to collect a judgment of $329,674.94 against Katz for over three years does not bode well for Feinberg's ability to recover the monies already paid out under the Judgment if it turns out he is entitled to deduct them from the purchase price. Katz does not deny or explain the existence of an unsatisfied judgment against him, which presumably has priority over any subsequent judgment.
By contrast, Katz will suffer no significant hardship if the stay issues. Feinberg has agreed to post a bond to secure the amount of the Judgment if the stay is granted. The existence of a bond ensures that in the event the arbitration ends with a disposition that does not entitle Feinberg to a setoff (or entitles him to a setoff in an amount less than the Judgment) the Judgment will be satisfied. Given the provision for postjudgment interest, it is difficult to see that Katz will suffer anything other than inconvenience if the stay issues. Indeed, Katz does not attempt to argue that he will be harmed in any way by the stay.
The public interest is not implicated by this application and is therefore a neutral factor in this analysis.
Evaluating the relative merits of the parties' positions, Feinberg is clearly entitled to a stay. He has a cognizable claim for a setoff under the Purchase Agreement and his fear of being unable to recoup the setoff funds is well-founded. Moreover, Katz will suffer no harm if the stay issues because he will be protected by a bond posted by Feinberg. Granting the stay will protect Feinberg's rights under the setoff provisions and do no harm to Katz's interests. Fairness dictates that result.
Accordingly, I grant Feinberg's motion to stay enforcement of the Judgment pending resolution of the ongoing arbitration between Katz and I. Appel. The stay is effective immediately. Within ten (10) days of the date of this Opinion and Order, Feinberg is directed to post a bond of 110% of the amount of the Judgment owing as of the date of this Opinion. If Feinberg fails to post bond in the proper amount and in timely fashion, Katz may apply for an order lifting the stay.
IT IS SO ORDERED.