Posted: April 27, 2016

Rule 69, Which Provides that Money Judgments are Executed Under State Law, Applies to State Substantive Law

On April 11, 2016, the Second Circuit issued a decision in Mitchell v. Garrison Protective Servs., Inc., 15‐2137‐CV, discussing the procedure in federal court for collecting a judgment under state law as mandated by F.R.C.P. 69.
Mitchell involved a challenge to determinations made in the course of a proceeding to collect on a judgment. The issue arose in the EDNY regarding the procedural posture of an action in federal court to collect a money judgment from a defendant that allegedly had received a fraudulent transfer from the judgment debtor. Federal Rule of Civil Procedure Rule 69(a)(1), provides that the “procedure on execution” in federal court upon a money judgment “must accord with the procedure of the state where the court is located,” in this case, NY CPLR § 5225. But since federal practice does not include a “special proceeding” envisioned by CPLR 5225, what is the procedure to be followed for judgment collection in the federal courts under Rule 69 and CPLR 5225? The Second Circuit concluded that the procedure was a “plenary action pursuant to New York’s substantive law of fraudulent transfers.” The Second Circuit explained:

[CPLR] 5225(b) creates a procedural mechanism by which judgment creditors can enforce a money judgment, rather than a new substantive right. That mechanism, known as a “special proceeding,” has no equivalent under the Federal Rules of Civil Procedure, which recognize only one form of action—the civil action. It is unclear, therefore, how a party in federal court in New York satisfies the special proceeding requirements of § 5225(b). What is clear, however, is that a special proceeding under § 5225(b) is not the only mechanism for avoiding a fraudulent transfer in New York. Rather, creditors may instead bring a plenary action to avoid the transfer under New York substantive law.

Because there is no such thing as a “special proceeding” in federal court, we have afforded district courts in New York some leeway in determining whether to construe a particular fraudulent‐transfer suit as a plenary action or a special proceeding. . . . These considerations lead us to conclude that although plaintiffs initially described their motion as having been filed pursuant to § 5225(b), the District Court properly construed it as a plenary action. . . .

Accordingly, we agree with the District Court that plaintiffs’ claim depends solely on the definition of a fraudulent transfer under DCL § 273‐a.

(Internal quotations and citations omitted).

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