You are contacted by Vermont based counsel for a small business which recently entered Confessed Judgment in Vermont against a New York business for its failure to satisfy certain promissory notes. The Vermont client wants to quickly domesticate the judgment in light of rumors that the New York based business may shut down in short order. Mindful that Article 62 of the CPLR may apply to found an efficient attachment of the New York Corporation’s assets, you ask for more information and are advised as follows.
AA Corporation, a Vermont Corporation, sold its business to a New York entity, DD Corporation, resulting in an Asset Purchase Agreement which is secured by a Confessed Judgment Promissory Note. DD was represented by counsel during the negotiation, drafting and execution of the APA and, incident thereto, DD, for consideration, voluntarily and knowingly waived its right to prejudgment notice and hearing prior to the entry of a Confession of Judgment and likewise submitted to in personam jurisdiction in Vermont, irrevocably waiving any basis to dispute Vermont’s jurisdiction. After DD failed to make an installment payment due to AA, counsel for AA sent DD and its counsel a Notice to Cure, followed by a Notice of an Event of Default. After no payment was made, AA’s counsel confessed judgment against DD in AA’s favor in the Clerk’s Office of the local County in Vermont under the terms of the Confessed Judgment Provision of DD’s Confessed Judgment Promissory Note to AA.
In that light, AA may have a basis for seeking an immediate attachment. CPLR § 6211(a) permits plaintiff to proceed with an ex parte application for an order of attachment “before or after service of a summons and at any time prior to judgment.” CPLR § 6212(a) provides that plaintiff bears the burden of establishing four prongs to demonstrate entitlement to an order of attachment: (1) a cause of action exists against the defendants; (2) it is probable that plaintiff will succeed on the merits; (3) one of the five grounds for an attachment specified in CPLR § 6201 is applicable; and (4) the amount demanded from the defendants exceeds all counterclaims known to the plaintiff.
The Complaint against DD will undoubtedly allege breach of contract. ((As an aside, CPLR § 5406 provides an unimpaired right for plaintiff to proceed pursuant to CPLR § 3213 to enforce the sister-state judgment.)) To sustain an attachment, plaintiff in a breach of contract action must demonstrate evidentiary facts making out a prima facie case. ((Lepow v. Cervo Export Corp., 82 N.Y.S.2d 423 (N.Y. Sup. Ct. 1948).)) In determining whether plaintiff has sustained the burden of stating a prima facie case in support of the complaint upon which the attachment is based, the court must give the plaintiff the benefit of all the legitimate inferences that can be drawn from the stated facts. ((National Bank & Trust Co. of North America, Ltd. v. J. L. M. Intern., Inc., 421 F.Supp. 1269 (S.D.N.Y. 1976).)) A well crafted, detailed and documented client affidavit will serve as the keystone for a Court’s attachment order to the extent that the same will establish that DD failed to satisfy its payment obligations despite due notice of default, that the sums remain outstanding and that corresponding judgments have been entered in Vermont.
With the foregoing factual background, the plaintiff has established that a cause of action exists and it is probable that plaintiff will succeed on the merits. See Considar, Inc. v. Redi Corp. Establishment ((238 A.D.2d 111, 655 N.Y.S.2d 40 (1st Dep’t 1997). )) (evidence that principal terms of oral agreement were confirmed in signed memorandum, together with seller’s undisputed lack of performance, established probability of buyer’s success on merits of breach of contract claim, as required for buyer to obtain attachment order); Philipp Bros. Division of Engelhard Minerals & Chemicals Corp. v. El Salto, S.A. ((487 F.Supp. 91 (S.D.N.Y. 1980).)) (in breach of contract action brought by sugar buyer against sugar seller wherein buyer sought to confirm ex parte attachment and sought preliminary injunction, record established that buyer sufficiently demonstrated its intention, willingness and ability to purchase the sugar it contracted to buy and that seller terminated agreement for reasons not authorized by written contract, thus establishing buyer’s likelihood of succeeding on merits as required to confirm the ex parte attachment and to issue the preliminary injunction).
Next, plaintiff must satisfy the third element necessary to demonstrate entitlement to an attachment. In that regard, CPLR § 6201 provides in pertinent part:
§ 6201. Grounds for attachment
An order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when: …
5. the cause of action is based on a judgment, decree or order of a court of the United States or of any other court which is entitled to full faith and credit in this state, or on a judgment which qualifies for recognition under the provisions of article 53.
Because the plaintiff’s New York action is based upon a judgment from Vermont it is per se entitled to found a New York action.
This subsection [CPLR § 6201(5)] is utilized by plaintiffs who want to commence an action to enforce a foreign judgment against a defendant in New York. Upon an application by the plaintiff, the Court will determine whether the foreign judgment that remains unsatisfied is likely to be recognized in New York.
Duplicating the language utilized in CPLR § 6201(5), CPLR § 5401 defines a “foreign judgment” as “any judgment, decree, or order of a court of the United States or of any other court which is entitled to full faith and credit in this state …”.
While a cognovit judgment may not be entitled to full faith and credit if it fails to satisfy due process considerations, a confession of judgment which satisfies due process standards is entitled to recognition and enforcement in New York.
While an outright “cognovit” instrument (not seen much today) may not be entitled to full faith and credit at all for example, and hence not entitled to New York recognition through any procedure (CPLR 5401 or otherwise), a confession of judgment not guilty of the cognovit’s offenses may satisfy due process and, while not being allowed mere registration under CPLR 5401, nevertheless be entitled to full faith and credit and hence New York enforcement through one of the other means.
It is important to bear in mind that the mere fact that a sister-state judgment was rendered “by default in appearance, or by confession of judgment” (the language of CPLR 5401) does not mean that it is not entitled to full faith and credit. Default judgments rendered with jurisdiction are surely so entitled (or every defendant could defeat full faith and credit merely by defaulting). The same goes for confessed judgments taken pursuant to procedures that satisfy due process. In this sense the practitioner should note the caption of Article 54, which in general terms applies to all “full faith and credit” judgments, and the specific language of CPLR 5401, which excludes default and confession judgments from use of the Article 54 registration procedure even though they may be entitled to full faith and credit. The specific language of CPLR 5401 of course controls whether the simple registration procedure is to be allowed. ((Siegel, David D, Supplemental Practice Commentaries, C5406:1.))
AA will argue that a review of the Vermont Judgment, coupled with an understanding of the circumstances surrounding the execution of the same, confirms that the Vermont Judgment must be recognized in New York. The Court’s sole inquiry is whether Vermont possessed personal jurisdiction over DD. See Augusta Lumber v. Herbert H. Sabbeth Corp. ((101 A.D.2d 846, 475 N.Y.S.2d 878 (2nd Dep’t 1984).)) (in a breach of contact action to enforce a Vermont default judgment, the Second Department affirmed a trial court finding that plaintiff established personal jurisdiction over the defendant, ceasing further analysis of the sister-state Judgment). In light of the fact that DD submitted to in personam jurisdiction, plaintiff will argue that it is beyond refute that DD specifically submitted to personal jurisdiction in Vermont and expressly waived any basis to dispute Vermont’s jurisdiction. ((See, e.g., National Union Fire Ins. Co. v. Worley, 257 A.D.2d 228, 231, 690 N.Y.S.2d 57, 59 (1st Dep’t 1999).)) Fiore v. Oakwood Plaza Shopping Center, Inc. ((189 A.D.2d 703, 592 N.Y.S.2d 720 (1st Dep’t 1993).)) is instructive. In Fiore, the First Department went so far as to affirm a trial court ruling according full faith and credit to a cognovit judgment. The Fiore Court, after reviewing certain aspects of the judgment, concluded that it “cannot be said that the cognovit judgment amounted to a deprivation of property rights without due process.”
As for the fourth prong of whether an attachment is proper, plaintiff will assert that no known counterclaim exists, and the claim asserted herein exceeds any counterclaim that the defendants could conceivably assert, thereby establishing its right to an attachment pursuant to CPLR § 6201(5). But the analysis does not end with the statutory criteria. ((Despite compliance with the foregoing statutory and common law criteria for an attachment, the decision whether to execute the Order still lies within the sound discretion of the Court. Because the provisional remedy is such a drastic measure, it is incumbent upon movant to demonstrate to the Court that equity warrants the Order of Attachment. Again, a detailed and well documented affidavit is imperative.))
Finally, because CPLR § 6212(b) mandates that plaintiff furnish an undertaking in an amount to be established by the Court, an analysis of the quantum of the undertaking is appropriate. Pursuant to CPLR § 6212(e), plaintiff’s liability to the defendants would be “for all costs and damages, including reasonable attorney’s fees, which may be sustained by reason of the attachment if the defendant recovers judgment, or if it is finally decided that the plaintiff was not entitled to an attachment of the defendant’s property.” With respect to provisional remedies generally, an undertaking is utilized to secure defendants for actual losses and costs — not theoretical losses, “if it is later finally determined that the [provisional remedy] was erroneously granted.” ((Margolies v. Encounter, Inc., 42 N.Y.2d 475, 398 N.Y.S.2d 877 (1977).)) Indeed, the court’s discretion in setting the amount of the undertaking must be “rationally related” to the potential damages and costs that DD may suffer. ((Lelekakis v. Kamamis, 303 A.D.2d 380, 755 N.Y.S.2d 665 (2nd Dep’t 2003).)) Conclusory assertions of potential monetary loss by DD are insufficient to justify anything more than a minimal bond. ((7th Sense, Inc. v. Liu, 220 A.D.2d 215, 631 N.Y.S.2d 835 (1st Dep’t 1995).))