Pegaso Development Inc. v. Moriah Education Management LP

Background

Pegaso Development Inc. brought two claims concerning promissory notes: a claim against Moriah Education Management LP involving a 2016 note and a claim against Moriah Software Management LP involving a 2017 note. The opinion states that Moriah Education Management LLC was incorrectly identified as Moriah Education Management LP. The second claim was dismissed with prejudice. A judgment on the first claim held Moriah Education Management LP and Moriah Education Management LLC jointly and severally liable for $2,758,567.13, plus interest accruing after March 17, 2020.

Pegaso then sought a turnover order under Federal Rule of Civil Procedure 69 and New York enforcement provisions. It sought the AnswerNet promissory note or its proceeds. The debtors said they were ready to turn over $250,000, but stated that $150,000 had been used for counsel’s advance retainer fees. The Court later ordered $400,000 connected to the AnswerNet note to remain in escrow while the turnover dispute and limited discovery proceeded.

Moriah Education Management LLC filed a cross-motion seeking authorization to pay Pegaso $400,683 from the AnswerNet note proceeds. Pegaso did not oppose that payment, provided that accepting it would not waive Pegaso’s ability to pursue discovery concerning the note’s liquidation, possible transfers of assets, and other collection efforts. Pegaso also sought documents from non-party Spiro Harrison and issued discovery requests and subpoenas concerning the note and related funds.

Rulings

The Court granted Moriah Education Management LLC’s cross-motion for authorization to pay Pegaso $400,683 and ordered payment on or before December 10, 2020. The Court reasoned that Pegaso’s turnover motion sought payment of the AnswerNet proceeds and that the authorized payment supplied the requested relief.

The Court found Pegaso’s turnover motion moot. Mootness means that a court can no longer provide meaningful relief because the dispute no longer affects the parties’ legal interests. Pegaso had conceded that authorization and payment of the $400,683 would moot that motion.

The Court rejected the assertion that payment also mooted the additional discovery issued after the September 17, 2020 order. It found that Moriah Education Management LLC had offered no supporting argument or legal authority and had not shown that it could challenge discovery served on non-parties. The Court ruled that the September 17 discovery order and discovery issued under it remained in effect. The Court stated that the motion to compel Spiro Harrison’s compliance with the subpoena would be addressed in a separate writing.

Disposition

The cross-motion for authorization to pay $400,683 was granted. Moriah Education Management LLC was ordered to pay that amount to Pegaso by December 10, 2020. Pegaso’s motion for a turnover order was found moot. The order warned that a failure to comply could result in sanctions, including contempt of court.