Marvin H. Schein Descendants LLC v. Brown
- Jesse Furman
- 1:15-cv-01738
- U.S. District Court · Southern District of New York
- 4
In Levine v. Brown, Judge Furman granted Levine’s motion to order turnover of funds held for Brown by Wells Fargo.
The ruling affected Leslie J. Levine, as trustee and judgment creditor; Michael D. Brown, the judgment debtor; Back Bay Consulting Corporation, which the court found to be Brown’s alter ego; and Wells Fargo Bank, N.A., which held the funds. The court ordered Levine to serve Wells Fargo and directed that the proceeds be turned over under a separate order.
What happened
In Leslie J. Levine, solely as trustee of the Marvin H. Schein Descendants’ Trust v. Michael D. Brown, Levine sought to enforce a 2015 default judgment. The motion asked the court to order funds held by Wells Fargo turned over to satisfy that judgment.
Brown did not dispute Levine’s status as the judgment creditor or that Brown was the judgment debtor. Brown argued that the court could not exercise jurisdiction over Wells Fargo, that a federal tax lien prevented turnover, and that the funds belonged to Back Bay Consulting Corporation rather than Brown.
Judge Furman granted Levine’s motion. He found that Back Bay was Brown’s alter ego, rejected Brown’s arguments about Wells Fargo and the tax lien, and directed Levine to serve the order on Wells Fargo; a separate order would direct turnover of the funds.
The detailed version
- Marvin H. Schein Descendants LLC v. Brown · No. 1:15-cv-01738
- Jesse Furman
- Feb. 4, 2020
Background
Levine moved under Federal Rule of Civil Procedure 69 and New York Civil Practice Law and Rules § 5225(b) for a turnover order. A turnover order is a post-judgment order requiring property held by a third party to be delivered to a judgment creditor. The court stated that Rule 69 requires enforcement of a money judgment in the Southern District of New York to follow New York execution procedures.
The court found that Levine was the judgment creditor for a default judgment entered on June 19, 2015. Brown did not challenge Levine’s status, and the court found no basis to do so. Brown was the judgment debtor, and the petition and supporting documents had been properly served on him.
Issues and Analysis
Under New York Civil Practice Law and Rules § 5225(b), a judgment creditor may seek property held by a third party by showing, among other things, that the judgment debtor is entitled to possess the property or that the creditor’s rights are superior to those of the person holding it. The statute also requires notice to the judgment debtor in the manner specified by the statute.
Brown argued that the court lacked jurisdiction over Wells Fargo Bank, N.A., which held the funds. The court rejected that argument because personal jurisdiction is an individual right that may be waived, and Brown could not assert a jurisdictional defense on Wells Fargo’s behalf. The court also noted that Wells Fargo had been served and given opportunities to object but had not done so.
The funds were nominally owned by Back Bay Consulting Corporation. The court applied New York’s alter-ego and corporate-veil principles, which generally require complete domination of a corporation concerning the transaction at issue and use of that domination to commit a wrongful act that injured the plaintiff. The court had previously ordered an evidentiary hearing and discovery, but Brown and Back Bay jointly stated that they would offer no defense at the hearing. Based on uncontested evidence that Brown completely controlled and personally used the Back Bay accounts and used Back Bay to avoid his judgment obligations, the court found that Back Bay was Brown’s alter ego.
Brown also argued that the court should not turn over his assets until he paid an over-$33 million debt to the Internal Revenue Service. The court held that Levine was not required to establish that the judgment took priority over the federal tax lien. It explained that § 5225 does not require a judgment creditor to notify other claimants or require the court to determine competing priorities when those claimants, including the Internal Revenue Service, have not objected.
Ruling
Judge Furman granted Levine’s motion for a turnover order. By a separate order, the court would order turnover of the proceeds. Levine was ordered to serve the opinion and turnover order on Wells Fargo, including the relevant branch or branches holding the accounts, within two business days and to file proof of service within one business day after service. The Clerk of Court was directed to terminate ECF No. 22.
Read the full 4-page opinion on CourtListener, the free public archive maintained by the Free Law Project.