The following papers numbered EF168-177, EF180, EF182, EF186-188, and EF191-209 this motion by defendant/judgment debtor Robert Edward Smallwood for an Order: (1) (sequence number 7) pursuant to CPLR §5222(d), vacating the Restraining Notice dated January 2, 2024, served by plaintiff/judgment creditor upon non-party respondent Jeff Morgenstern, Esq., as a purported third party garnishee; and (2) this motion (sequence number 8) by defendant/judgment debtor Robert Edward Smallwood for an Order: (a) pursuant to CPLR §5222(c) and CPLR §5240, vacating the Restraining Notice dated May 20, 2024, served by plaintiff/judgment creditor upon non-party respondent Jeff Morgenstern, Esq., as a purported third party garnishee, with prejudice and (b) pursuant to CPLR §§5224, 2304, and 5240, quashing and denying the Information Subpoena served on May 24, 2024 by plaintiff/judgment debtor upon non-party respondent Jeff Morgenstern, Esq., as purported third party garnishee with prejudice. PAPERS NUMBERED Notice of Motion (seq. 7)-Affid. & Exhibits EF168-177 Answering Affid. & Exhibits EF183-185 Reply Affidavit EF186-188 Memoranda of Law EF180, 182 Notice of Motion (seq. 8) — Affid. & Exhibits EF191-202 Answering Affid. & Exhibits EF204-208 Reply Affidavit EF209 Plaintiff’s Memorandum of Law EF203 Upon the foregoing papers it is ordered that these motions (sequences 7 and 8) are consolidated for disposition and are determined as follows: Defendant/judgment debtor Robert Edward Smallwood (Smallwood) moves for an Order (sequence 7), pursuant to CPLR §5222(d), vacating the Restraining Notice dated January 2, 2024, served by plaintiff/judgment creditor Stanley Supply & Tool, Inc., (Stanley) upon non-party Jeff Morgenstern, Esq., as a purported third party garnishee. In addition, defendant Smallwood moves for an Order (sequence 8): (1) pursuant to CPLR §5222(c) and CPLR §5240, vacating the Restraining Notice dated May 20, 2024, served by plaintiff Stanley upon non-party Jeff Morgenstern, Esq., as a purported third party garnishee, with prejudice and (2) pursuant to CPLR §§§5224, 2304, and 5240, quashing and denying the Information Subpoena served on May 24, 2024 by plaintiff/judgment debtor upon non-party respondent Jeff Morgenstern, Esq., as purported third party garnishee with prejudice. Plaintiff/judgment creditor opposes the motions. The facts in this case have been set forth in previous Orders, both pre-and post-judgment, and will not be repeated here, except where relevant. This is an action for conversion, based upon defendants’ alleged theft of money and merchandise from plaintiff while defendant Robert Edward Smallwood (Smallwood) worked for plaintiff, a retailer and wholesaler of construction supplies. On April 27, 2015, plaintiff Stanley Supply & Tool, Inc. obtained a money judgment against defendants Smallwood, Dynasty Flooring Supply, Inc. and Lightning Stainless Bolt Company in the sum of three million, four hundred and two thousand, seven hundred and seventy-four dollars and twenty-three cents ($3,402,774.23). On June 26, 2019, plaintiff/judgment creditor Stanley Supply & Tool, Inc., (Stanley) served Amazon.com Inc. an Information Subpoena and Restraining Notice, in an effort to enforce the aforementioned Judgment. Amazon.com located an account held by non-party Fastenere Inc., a company in which defendant Smallwood has an interest and has served as its president. By Order dated February 10, 2020, this Court denied vacatur of a restraining notice served by plaintiff’s attorney upon non-party respondent Amazon.com, Inc., which held funds in which defendant purportedly had an interest and denied defendant’s request to release the restrained funds held by Amazon.com to non-party Fastenere. Thereafter, Stanley obtained a Turnover Order in Washington State Court for the Amazon.com funds and then Smallwood filed a Chapter 7 Bankruptcy Petition in U.S. Bankruptcy Court in the Eastern District of New York. On September 6, 2022, the United States Bankruptcy Court for the Eastern District of New York issued an Order declaring that the sum of three million two hundred thousand dollars ($3,200,000.00), in connection with the money judgment in this case, would be excepted from the Bankruptcy discharge and further ordered that the Clerk of that Court was to disburse $158,564,40 of a “Disputed Ownership Fund” held by the Bankruptcy Court, to Jeff Morgenstern, as the attorney for debtor Robert Smallwood, to be deposited into his escrow account. LAW Civil Practice Law and Rules Article 52 sets forth the procedural requirements for judgment enforcement mechanisms, including the use of a restraining notice which serves as an injunction prohibiting the transfer of a judgment debtor’s property (Matter of Best Energy Power 2015, LLC v. Federal Deposit Ins. Corp., 220 AD3d 854, 855 [2023]; see also, Aspen Indus. v. Marine Midland Bank, 52 NY2d 575, 579, [1981]). A party seeking to enforce a judgment may seek to restrain or prohibit the transfer of a judgment debtor’s money or property in the hands of a third party pursuant to CPLR §5222(b) (Verizon New England Inc. v. Transcom Enhanced Servs., Inc., 21 NY3d 66, 70 [2013]; Bravado Intl. Group Merchandising Services, Inc. v. United States Tennis Assn. Inc., 179 AD3d 914, 916 [2020]). A third-party garnishee is a “person who owes a debt to a judgment debtor, or a person other than the judgment debtor who has property in his possession or custody in which a judgment debtor has an interest” (CPLR §105[i]; Aspen Indus. v. Marine Midland Bank, 52 NY2d at 579). A restraining notice serves as an injunction prohibiting the transfer of the judgment debtor’s property and a judgment debtor or obligor served with a restraining notice is forbidden to make or suffer any sale, assignment, transfer or interference with any property in which he or she has an interest…except upon direction of the sheriff or pursuant to an order of the court, until the judgment or order is satisfied or vacated” (CPLR §5222[b]; Aspen Indus. v. Marine Midland Bank, 52 NY2d at 579). Civil Practice Law and Rules §5222(d) requires that together with a retraining notice served on a garnishee, a notice on the judgment debtor in a form prescribed by CPLR §5222(e) is also to be served within a year before service of a restraining notice, or, in the alternative, four days after the service of a restraining notice on the garnishee. Where as here, the required statutory notice to the judgment debtor providing him or her with an opportunity to claim exemptions is not served, said failure amounts to a taking of the judgment debtor’s property and is therefore a fundamental due process violation (Distressed Holdings, LLC v. Ehrler, 113 AD3d 111, 119 [2013]). When a restraining notice is served upon a garnishee, the injunctive effect of the restraining notice continues for one year or until such time as the judgment is satisfied or vacated, whichever occurs first and no more than one restraining notice may be served upon the same person with respect to the same judgment without leave of Court (CPLR §5222[b], [c]; Aspen Industries, Inc. v. Marine Midland Bank, 52 NY2d at 579; Kitson & Kitson v. City of Yonkers, 10 AD3d 21, 25 [2004]; National Bank of NY City v. ESI Group, 201 AD2d 469, 470-471 [2d Dept 1994]). When seeking leave to serve a second notice, the judgment creditor should be prepared to satisfy the court as to why a second restraint is warranted (Reilly, Prac Commentaries, CPLR C5222:6). MOTION SEQUENCE 7 Restraining Notice Dated January 2, 2024 On January 2, 2024, Stanley served an Information Subpoena and Restraining Notice on defendant Smallwood’s attorney, Jeff Morgenstern, PLLC, as garnishee, seeking to freeze the funds received from Bankruptcy Court and held in escrow. It is undisputed that plaintiff Stanley failed to serve the required notice pursuant to CPLR §5222(d) in the form prescribed by CPLR §5222(e) on Smallwood, as the judgment debtor. Defendant Smallwood now moves for an Order, pursuant to CPLR §5222(d), vacating the Restraining Notice dated January 2, 2024, served by Stanley upon non-party Jeff Morgenstern, Esq., as garnishee as plaintiff failed to serve the judgment debtor Smallwood with the required statutory notice (CPLR §5222[d]). Annexed to the motion, filed June 6, 2024, is a response to the January 2, 2024 Information Subpoena dated January 11, 2024 from Jeff Morgenstern, as a member of Jeff Morgenstern, PLLC and also annexed is an affirmation from Jeff Morgenstern, Esq. rejecting the “restraining notice, information subpoena, and document request” to the extent that they seek to enforce plaintiff’s judgment against “Amazon monies” released and allocated to the defendants. Plaintiff Stanley’s argues in opposition that as defendant Smallwood was represented by counsel, it could not communicate or serve Smallwood directly, and thus had to serve CPLR 5222(a) notice on the judgment debtor’s attorney. This argument is unavailing given the plain language of the statute and as there is no claim that a “Notice to a Judgment Debtor” in the form prescribed by CPLR §5222(e), was ever served with the Information Subpoena with Restraining Notice on Smallwood’s attorney. As a result, defendant’s motion (sequence 7) is granted and the Information Subpoena and Restraining Notice dated January 2, 2024, are vacated. MOTION SEQUENCE 8 Restraining Notice Dated May 24, 2024 It is undisputed that, without leave of Court, Stanley served a second Restraining Notice on Jeff Morgenstern, PLLC dated May 24, 2024. It is also undisputed that plaintiff judgment creditor failed to serve an original of the Information Subpoena and a copy with a prepaid stamped envelope as is required (CPLR 5224[a][3][I]). After defendant/judgment debtor Smallwood’s motion to vacate the Restraining Notice was made (sequence 7), but before it was submitted, plaintiff Stanley served a second Information Subpoena with Restraining Notice dated May 24, 2024 on Jeff Morgenstern, PLLC as garnishee and this time served Smallwood, as judgment debtor, with the CPLR §5222(d) notice, in the form required by CPLR §5222(e). Thereafter, Jeff Morgenstern, PLLC rejected the second Restraining Notice on the basis that CPLR §5222(c) only permits service of one restraining notice on a person for a particular judgment per year. Defendant Smallwood now moves (sequence 8) to vacate the Information Subpoena with Restraining Notice dated May 24, 2024 on the basis that: (1) defendant Smallwood was not properly served as he moved from the address where the notice was served more than one year prior and Stanley knew or should have known that he had a new address; (2) the restraining notice should be vacated as CPLR §5222(c) limits the number of restraining notices to be served on a person to one per year without leave of Court; and (3) Smallwood does not have an interest in the funds held by his attorney as the funds belong to Fastenere, Inc. Smallwood submits an affidavit in support of the motion and signs it both as an individual and as the president of Fastenere, Inc. Defendant provides no documentary proof that he changed his residence. Plaintiff Stanley opposes the motion, arguing that this Court has broad discretion to allow service of a subsequent, supplemental or curative notice where the only issue is whether service or mailing of notice to the judgment debtor is at issue. Plaintiff Stanley contends that it has spent years trying to obtain possession of the funds held by Smallwood’s attorney, including obtaining a Turnover Order in Washington State for these funds once held by Amazon.com. According to plaintiff, once those funds were found, Smallwood then filed a Chapter 7 Bankruptcy Petition the day before the funds were scheduled to be transferred from Amazon.com to plaintiff. Plaintiff annexes documents from the Bankruptcy Proceeding, including the settlement documents that permitted plaintiff to pursue its money judgment against defendant/judgment creditor in State Court and allowed for the transfer of the funds at issue to Smallwood’s bankruptcy attorney, Jeff Morgenstern, Esq. Lastly, plaintiff argues that any putative defect in the January 2, 2024 has been cured insofar as the a second Restraining Notice dated May 24, 2024 has been re-served on Jeff Morgenstern, PLLC and a CPLR 5222(e) notice was sent to Smallwood. Plaintiff emphasizes that it is worthy of further note that Smallwood has not asserted that the monies currently restrained fall into any category of exemption recognized by CPLR §5222. If the Court were to find any merit to defendant’s arguments as to service of the curative Restraining Notice dated May 24, 2024, plaintiff asks the Court to exercise its discretion and grant leave to serve the second notice nunc pro tunc to May 24, 2024. Defendant’s arguments regarding service of the “Notice to Judgment Debtor” are unavailing. He never claims that he did not receive the statutory notice, only that it was not served on him at his new address, and he asserts no prejudice in this regard. The arguments that the funds held by Jeff Morgenstern, Esq., from Amazon.com (by way of the Bankruptcy Proceeding), belong to Fastenere, Inc. and not him, are also without merit based on this Court’s Order dated February 10, 2020. The only issue with regard to the May 24, 2024 Restraining Notice is whether it is defective because it was the second such notice served on the purported garnishee within a one year period, and it was served without leave of Court (CPLR 5222[c]; Aspen Industries, Inc. v. Marine Midland Bank, 52 NY2d at 579; Kitson & Kitson v. City of Yonkers, 10 AD3d at 25; National Bank of NY City v. ESI Group, 201 AD2d 469, 470-471 [2d Dept 1994]). In addition, defendant Smallwood now moves to quash and deny the Information Subpoena dated May 24, 2024, served on upon Jeff Morgenstern, PLLC, as purported third-party garnishee, with prejudice pursuant to CPLR §2304 and CPLR §5240, on the basis that it was defective in form and served solely to harass the judgment debtor and Jeff Morgenstern PLLC and waste their time and money. It is noted that Jeff Morgenstern PLLC responded to the original Information Subpoena dated January 2, 2024 but then purportedly sent a Notice of Rejection of the attached Restraining Notice. Civil Practice Law and Rules §5240, permits a Court “on its own initiative or the motion of any interested person” to issue an order ‘denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure’ — and therefore grants the court substantial authority to order equitable relief” (Cruz v. TD Bank, N.A., 22 NY3d 61, 75 [2013]; Distressed Holdings, LLC v. Ehrler, 113 AD3d at 120). The Court has broad discretionary power to alter the use of procedures set forth in CPLR Article 52 (Kantrowitz, Goldhamer & Graifman, P.C. v. Spivack, 170 AD3d 821, 822 [2019]). In Plymouth Venture Partners, II, L.P. v. GTR Source, LLC, the Court of Appeals provides the underlying purpose of the statute: CPLR §5240 grants the courts broad discretionary power to control and regulate the enforcement of a money judgment under article 52 to prevent ‘unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts’” (Guardian Loan, 47 NY2d 515, 519 [1979], quoting 3d Prelim Rep of Advisory Comm on Prac and Pro, 1959 NY Legis Doc No. 17 at 314). In other words, this provision “center[s] in one place [the] pervasive judicial power to right, on a case by case basis, any wrong in connection with any of the numerous Article 52 procedures” (Siegel & Connors, NY Prac §522 at 993 [6th ed 2018]). Accordingly, CPLR §5240 provides courts with the ability to craft flexible and equitable responses to claims that arise with respect to enforcement of valid money judgments. (37 NY3d 591, 600-601 2021]). The circumstances here present include that: (1) by Order dated February 10, 2020, this Court determined that plaintiff Stanley was entitled to restrain the Amazon.com monies at issue and that a balance of the equities did not favor vacatur of that restraint; (2) plaintiff has failed to comply with CPLR §5222(c) when it served a second restraint on a third-party garnishee without leave of Court within the same year; (3) the third-party garnishee holding funds is also defendant’s attorney in this case and in defendant’s Bankruptcy proceeding; (4) the May 24, 2024 Restraining Notice served on Jeff Morgenstern PLLC as garnishee was not rejected as to form but only because plaintiff did not seek leave of court to serve it, and (5) defendant makes no showing that the funds are exempt (CPLR §5222[e]) or otherwise show prejudice. As CPLR §5240 grants the court substantial authority to order equitable relief, as it would be inequitable to terminate the restraint on the funds held by third-party garnishee at this juncture, as plaintiff’s non-compliance with its statutory obligation to seek leave of Court has caused no demonstrable prejudice, and as defendant is on notice that plaintiff seeks an Order granting leave to serve a second restraint, nunc pro tunc, the Court exercises its discretionary power and plaintiff/judgment creditor is granted leave, nunc pro tunc to May 24, 2024, to serve the second restraining notice already served, upon non-party garnishee Jeff Morgenstern, PLLC, which restraining notice remains in full force and effect (CPLR §§5240, 5222[c]). Defendant’s motion to quash the Information Subpoena dated May 24, 2024 is granted, to the extent that Jeff Morgenstern PLLC is not obligated to duplicate any answers already provided in its January 11, 2024 response. Any additional answers to the Information Subpoena shall be provided within ten (10) days after service of a copy of this Order together with Notice of Entry. Dated: November 13, 2024
