Pantheon Properties, Inc. v. Houston

Background

Pantheon Properties, Inc. and other plaintiffs sued Johnathen Houston, Marvin M. Love, JH Consulting Firm LLC (JHC), and M & M Lightning Strikes (M&MLS). The plaintiffs alleged that Houston, formerly employed by Pantheon as an executive assistant, diverted company payments. According to the allegations, Houston changed the payees on checks intended for third-party vendors so that the checks were payable to JHC or M&MLS. The plaintiffs identified 47 checks paid to or negotiated by those entities between May 2019 and April 2020. Pantheon also alleged that Houston used its company credit card to buy more than $10,000 in products from Amazon for personal use.

The plaintiffs asserted claims for conversion, unjust enrichment, fraud, conspiracy to commit fraud, and violations of the Racketeer Influenced and Corrupt Organizations Act. Shortly after filing the lawsuit, Pantheon sought an order attaching property belonging to Houston, JHC, and M&MLS. An attachment is a court-ordered restraint on property to help secure a potential money judgment. On May 12, 2021, the court granted the attachment. Three accounts belonging to Houston containing $6,659.13 were frozen. A JHC account had a negative balance, and an account associated with M&MLS had been closed.

After discovery ended, Houston, Love, JHC, and M&MLS moved under Federal Rule of Civil Procedure 64 and New York Civil Practice Law and Rules § 6201 to vacate the attachment of Houston’s and JHC’s accounts. Defendants argued that the plaintiffs were unlikely to succeed because they had not produced invoices matching all of the checks and because, defendants contended, Cohen had authorized the payments. The plaintiffs argued that forensic and documentary evidence supported their embezzlement theory and that the attachment remained necessary.

Legal standard

Under Federal Rule of Civil Procedure 64, a federal court may attach property under the law of the state where the court is located. New York law requires a plaintiff seeking attachment to show a valid cause of action, a probability of success on the merits, a statutory ground for attachment, and that the amount sought exceeds known counterclaims. When an attachment has already been ordered, the defendant may move to vacate or modify it, but the motion should be granted only if the plaintiff cannot establish the continuing need for the levy. The plaintiff continues to bear the burden of proving the grounds for attachment and the probability of success.

Court’s analysis

The court held that the plaintiffs had established grounds for attaching Houston’s accounts under New York law because sufficient evidence showed that Houston was domiciled in Texas and currently lived there. His New York rental property did not establish New York domicile for attachment purposes.

The court also held that the plaintiffs had established grounds for attaching the JHC account based on alleged efforts to defraud creditors or frustrate enforcement of a future judgment. The court relied on evidence that Houston allegedly redirected checks to JHC and M&MLS, sent funds out of New York, purchased a home in Texas, spent money at luxury retailers, and withdrew or transferred more than $25,000 from the JHC account after the alleged fraud was discovered. The court treated the timing of the withdrawals, Houston’s evasive deposition answers, and his inability to account clearly for the funds as evidence supporting fraudulent intent.

The court found a continuing need for security because Houston was a Texas resident, the restrained assets were liquid, the plaintiffs had substantial evidence supporting their misappropriation allegations, and the plaintiffs had attached less than $7,000—only a small portion of the more than $250,000 they alleged Houston had taken. The court also noted that there was no indication that Houston, JHC, or M&MLS had other sufficient assets in New York.

For the probability-of-success requirement, the court examined the plaintiffs’ evidence concerning Pantheon’s accounting software. The plaintiffs alleged that Houston used his Yardi Voyager credentials to change vendor names to JHC or M&MLS before checks were printed and then restore the legitimate vendor names in the company records. Audit records documented at least 20 such payee changes. The court also considered an email in which Houston asked a payment-services vendor to enter an amount directly into Yardi Voyager, followed by a change of the payee from a legitimate vendor to JHC and the printing of a check the next morning.

The court rejected defendants’ arguments that the plaintiffs’ evidence was incomplete or inconsistent. Although the court stated that the claim that Houston forged Cohen’s signature was difficult to assess without further evidence, it concluded that the plaintiffs did not overlook that issue. The court also found that defendants’ other challenges did not sufficiently undermine the plaintiffs’ evidence.

Disposition

The court concluded that the plaintiffs had established the grounds for attachment, the continuing need for the levy, and the probability that they would succeed on their claims. Judge Sarah Netburn denied defendants’ motion to vacate the attachment and directed the Clerk of Court to close the motion at ECF No. 82.