Decided October 5, 2005.
Dirk A. Galbraith, Esq., Holmberg, Galbraith, VanHouten Miller, Attorneys for Petitioner, Ithaca, NY.
David W. Feeney, II, Esq., Harris Beach Law Firm, Attorneys for Respondent Sciarabba Walker, Ithaca, NY.
Ottavio Campanella, Esq., Attorney for Respondent Christopher Denton, Elmira, NY.
Petitioner, Radio Engineering Industries, Inc., has brought this special proceeding seeking a judgment, pursuant to 22 NYCRR 1200.46 (c) (4), directing the respondent, Christopher Denton, to pay over and deliver to the respondent, Sciarabba, Walker Company, LLP, as receiver, the sum of $33,324.39 together with interest thereon from May 11, 2001, or, in the alternative, that judgment be entered in favor of the petitioner and/or the respondent/receiver against Christopher Denton for said sum together with interest and the cost and disbursements of this proceeding. The respondent, Sciarabba, Walker Company LLP, has submitted an affidavit of its counsel in support of the relief requested by the petitioner herein. The respondent, Christopher Denton, has submitted an answer to the petition which raises various affirmative defenses and he has also submitted an affidavit in opposition to the petition.
This special proceeding arises out of attempts by Radio Engineering Industries, Inc. to satisfy a judgment for $253,498.93 that it obtained against Thomas A. York on February 2, 1999 in an action that was venued in Supreme Court, Schuyler County. The respondent, Christopher Denton, is an attorney who began representing Thomas A. York and other related defendants in December of 2000 in connection with the post-judgment applications that were being made under Schuyler County Index No. 97-157.
The record reflects that by order of the Supreme Court, Schuyler County (O'Shea, J.) dated November 20, 2000, the accounting firm of Sciarabba Walker Company. LLC was appointed receiver of the property of the judgment debtor, including "all payments due any defendant from National Seating Company". Further, by order of said Court dated February 2, 2001 (Castellino, J.), the terms of the earlier order appointing a receiver were modified and by order signed March 6, 2001, Justice Castellino directed that "the Defendant, Thomas A. York, may, without violating any previous order of this Court, enter into a contractual or employer/employee relationship for commission sales services or salary service with National Seating Company and that the income and monies therefrom shall be considered earned compensation and subject to claims of creditors not to exceed10% of the gross thereof".
The record further reflects that on December 8, 2000, Thomas A. York and his co-defendants executed an irrevocable assignment which assigned their "right to receive all payments from National Seating Company pursuant to a certain Sales Representation Agreement dated November 1, 1986, a copy of which is annexed hereto and designated Exhibit "A", to Sciarabba, Walker Co. having offices at 200 East Buffalo Street, Ithaca, New York 14850 as receiver duly appointed by order of this Court dated November 20, 2000." Said assignment indicated that it was being made pursuant to the order of the Supreme Court, Schuyler County, dated November 6, 2000.
On or about May 11, 2001, National Seating Company sent a letter to Attorney Denton enclosing a check to Thomas York for services he provided to National Seating Company from November 2000 to February 2001. The letter requested that the check be put "in escrow for ten days to allow the receiver to make a claim if they feel they need to." The record indicates that the check was for the sum of $37,027.10. On May 17, 2001, counsel for the petitioner made a written demand to Mr. Denton that he have his client endorse that check over to the receiver and deliver it to the receiver. On May 21, 2001, Attorney Denton responded to the petitioner's counsel in writing and stated that the check " represents earned wages by Mr. York for employment of Mr. York by National Seating Company after the termination of the contract with Elmira-Watkins Glen Corp. Mr. Denton further took the position that due to Justice Castellino's order (March 6, 2001), the receiver was entitled to ten percent (10%) of the check and that he was willing to forward that percentage of the check to the receiver. Thereafter, the record indicates that on May 24, 2001, Mr. Denton sent a check in the amount of $33,324.39 to his client, Mr. York, which represented 90% of the funds received earlier from National Seating Company and on May 29, 2001, Mr. Denton sent a check in the amount of $3,702.71 to the receiver, which represented the remaining 10% of the funds received from National Seating.
The record reveals that in June of 2001, counsel for the petitioner herein brought a motion before Justice Castellino seeking certain relief, including an order directing that the defendants and/or Mr. Denton "turn over to the receiver all sums received by the defendants or their attorney from National Seating Company for services rendered by any defendant prior to the entry of the order of this Court dated March 6, 2001". Justice Castellino, by Decision and Order dated August 3, 2001, dismissed that portion of the motion without prejudice on the basis that, since the order of March 6, 2001 had not yet been entered, the motion sought interpretation and enforcement of an order that was not yet legally binding and the motion was deemed to be premature.Subsequent thereto, counsel for the receiver brought a motion seeking further post-judgment relief and on April 30, 2003, Justice O'Shea issued a Resettled Order under Schuyler County Index No. 97-157 which, among other things, directed that the defendant, Thomas York, account for, turn over and pay to the receiver herein 100% of all sums received by him from National Seating Company prior to August 8, 2001 and 10% of all wages received by him as a result of his employment contract with National Seating Company after August 8, 2001. The record indicates that August 8, 2001 was the date that Justice Castellino's order of March 6, 2001 was formally entered. The portion of Justice O'Shea's Resettled Order referred to above was affirmed by order of the Appellate Division, Third Department, dated and entered January 20, 2005 ( 14 AD3d 893).
The petitioner and the receiver herein now assert that based upon the documentary evidence submitted, including the irrevocable assignment executed by Thomas York and his co-defendants on December 8, 2000 and the court orders in effect, Attorney Denton had actual knowledge that the funds he received from National Seating Company on or about May 11, 2001 had been assigned to the receiver, that Mr. Denton disregarded the aforesaid assignment and transferred 90% of the funds received from National Seating to his client, Mr York, in violation of the provisions of 22 NYCRR 1200.46 (c) (4).
The respondent, Christopher Denton, has submitted an answer and his affidavit in opposition to the petition. The answer raises various affirmative defenses including claims that the petitioner lacks standing to bring this proceeding, the statute of limitations has expired and the relief sought by the petitioner, which the respondent characterizes as equitable, is barred since the petitioner is guilty of laches and/or lacks clean hands. Although a respondent in a special proceeding need not bring a motion to dismiss the petition and may effectively raise objections in point of law in his answer (CPLR 404), such objections, if raised in the answer, should be accompanied by proof through supporting affidavits. (See, Siegel, New York Practice, 4th Ed., Sec. 554, p. 952-953). In this instance, the respondent has not offered any affidavits or memorandum of law in support of the objections (affirmative defenses) raised in his answer and the documentary evidence attached to the answer is, in this Court's view, insufficient, on its own, to establish a valid objection. The respondent's affidavit in opposition to the petition addresses the substantive merits of the proceeding but does not sufficiently address the threshold affirmative defenses raised in the answer. Under such circumstances, the Court is constrained to deny the objections contained in the First, Second, Third, Fourth, and Fifth Affirmative Defenses raised in the respondent's answer, however, such denial shall be without prejudice to a renewal of any of those objections upon submission of supporting affidavits together with any other competent proof on or before November 7, 2005. (See, CPLR 409). The Court notes that any further application to bar this proceeding pursuant to the provisions of BCL 1312 would require proof that Radio Engineering, Inc. is doing business in this state. (See, Uribe v. The Merchants Bank of New York , 266 AD2d 21; Airline Exchange, Inc. v. Bag , 266 AD2d 414; Repair Tech, Inc. v. Zakarin , 8 Misc 3d 1022A).
As to the merits of this proceeding, it appears to be undisputed that Thomas York and his co-defendants executed an irrevocable assignment on December 8, 2000 which assigned their "right to receive all payments from National Seating Company pursuant to a certain Sales Representation Agreement dated November 1, 1986". Assuming said assignment was valid, an ethical duty or obligation was created pursuant to 22 NYCRR 1200.46 (c) running from Mr. Denton to the receiver with respect to payments made under or pursuant to said Agreement. (See, Leon v. Martinez , 84 NY2d 83). (See also, Matter of Feingold , 252 AD 547). However, upon the record presented herein, the Court finds that questions of fact exist as to whether there was a breach of that duty or obligation. There are questions of fact as to whether or not the funds forwarded to Attorney Denton by National Seating Company on May 11, 2001 were for services rendered by the defendant under or pursuant to said Sales Representation Agreement dated November 1, 1986. Attorney Denton has alleged that the funds he received from National Seating in May of 2001 were for services rendered by his client pursuant to an individual employment contract that his client, Thomas York, entered into with National Seating in November of 2000. Attorney Denton also alleges that Justice Castellino's order of March 6, 2001 required that only 10% of the funds he received in May of 2001 were to be paid to the receiver. Questions of fact also exist as to when the Sales Representation Agreement of November 1, 1986 was terminated, if at all, and whether or not Mr. Denton could reasonably believe that Justice Castellino's order of March 6, 2001 applied to the funds received by him in May of 2001.
Lastly, the Court finds that Justice O'Shea's Resettled Order of April 30, 2003 and the affirmance of the relevant portion thereof by the Appellate Division's Decision and Order of January 20, 2005 are not determinative of the issue of what Attorney Denton knew or should have known relative to the funds that were transferred to him by National Seating Company in May of 2001, since those orders were rendered years later and did not address that particular issue.
In light of the above, the Court determines that a trial shall be conducted pursuant to CPLR 410.
Accordingly, for the reasons set forth above, it isORDERED, that the relief requested by the respondent, Christopher Denton, contained in the First, Second, Third, Fourth and Fifth Affirmative Defenses raised in his answer is hereby denied in its entirety, without prejudice to a renewal of any of those objections upon the filing and service of supporting affidavits together with any other competent proof regarding same on or before November 7, 2005, and upon the filing and service of such supporting affidavits, the petitioner and receiver shall be granted twenty (20) days to submit reply papers, and it is further
ORDERED, that a trial in this proceeding shall be conducted on December 22, 2005 at 10:00 a.m. at the Hazlett Building, 203 Lake Street Elmira, New York. This proceeding is presently scheduled as a back-up trial on that date, and it is further
ORDERED, that the Sixth, Seventh and Eighth Affirmative Defenses raised in the respondent's answer shall abide the trial in this matter.
This shall constitute the Decision and Order of the Court.