Office Create Corporation v. Planet Entertainment, LLC

Background

Office Create Corporation previously obtained confirmation of an arbitration award against Planet Entertainment, LLC and Steve Grossman, and the court entered judgment in Office Create’s favor. The award exceeded $23 million, and the respondents were jointly and severally liable. This order addresses Office Create’s efforts to enforce that judgment.

Office Create served Merrill Lynch with an information subpoena and restraining notice concerning seven accounts in which it claimed Grossman had an interest. Two were identified as cash management accounts, and five were identified as retirement cash management accounts. Grossman submitted an exemption claim asserting that the accounts contained pension or retirement payments. Office Create objected and asked the court to declare the accounts nonexempt and direct release of the funds.

Legal standard

Because the case involved enforcement of a money judgment, the court applied New York enforcement procedures under Federal Rule of Civil Procedure 69(a)(1), including New York Civil Practice Law and Rules section 5222-a. A properly completed exemption claim form is preliminary evidence that funds are exempt, but the judgment creditor bears the burden of proving that the funds are not exempt.

Service argument

Grossman argued that Office Create might have served Merrill Lynch in the wrong state and therefore could not reach assets held elsewhere under New York’s “separate entity rule.” That rule can treat different bank branches as separate entities for certain judgment-enforcement purposes. The court rejected the argument because the record described Merrill Lynch as a registered broker-dealer rather than a bank, and Grossman did not explain why the rule should apply to these brokerage accounts.

Retirement accounts

The court considered New York Civil Practice Law and Rules section 5205, which exempts certain property held in trust for a judgment debtor and includes assets or payments from plans qualified under section 401 of the Internal Revenue Code. The statute also contains an exception for certain additions made within 90 days before the claim underlying the judgment or arising from potentially voidable transactions.

The parties agreed that the five retirement accounts were qualified under section 401. Grossman argued that the Employee Retirement Income Security Act of 1974, or ERISA, preempted the New York exception and generally barred garnishment of pension benefits held in an ERISA-covered plan. Office Create did not respond to that preemption argument in its briefing. Instead, Office Create argued that the accounts were not ERISA-qualified because they covered only Grossman and his wife.

The court found that the adoption agreement signed by Grossman and his wife did not establish that they were the plan’s only participants. Grossman submitted plan documents, annual federal forms, an employee census, and participant statements indicating that the plan had additional participants. The court also found that the documents concerned the same plan named on the retirement accounts. Because Office Create did not meaningfully support its challenges to the declaration and exhibits and failed to meet its burden of showing that the retirement-account funds were not exempt, the court denied the objection as to those accounts.

That denial was without prejudice. The court stated that New York law contemplates a possible hearing and allowed Office Create to request one by April 23, 2024, with evidence such as documents or witness testimony. If Office Create did not request a hearing by that date, its objection to the retirement accounts would be denied with prejudice.

Cash management accounts

Office Create argued that the two cash management accounts were ordinary brokerage accounts with check-writing features rather than retirement accounts. The court agreed that the record contained no evidence supporting the exemption claimed for those accounts. The exemption form was not conclusive proof of exemption, and Grossman had not supplied evidence comparable to the plan documentation supporting the retirement accounts.

The court therefore found that the exemption claim was deficient as to the Merrill Lynch accounts ending in 1857 and 1877. It ruled that funds in those accounts were not exempt from application toward satisfaction of the judgment. The court nevertheless allowed Grossman to request a hearing by April 23, 2024, to present evidence that the cash management accounts qualified for an exemption.

Disposition

Judge Ramos granted in part and denied in part Office Create’s objection to Grossman’s exemption claim. The objection was denied as to the retirement accounts, without prejudice as described above, and granted as to the cash management accounts.