Ann Cole-Hatchard, et al., appellants, v. James Nicholson, et al., defendants-respondents;  Lee S. Richards, nonparty-respondent. (2010)

Argued-April 16, 2010

DECISION & ORDER

Appeal by the plaintiffs from so much of an order of the Supreme Court, Rockland County (Berliner, J.), dated August 31, 2009, as granted the motion of the nonparty receiver Lee S. Richards to vacate a judgment by confession filed in the Rockland County Clerk's office on February 20, 2009, which was in favor of them and against the defendants in the principal sum of $931,724.

ORDERED that the order is affirmed insofar as appealed from, with costs.

This appeal stems from a judgment by confession in favor of the plaintiffs and against the defendants James Nicholson (hereinafter Nicholson) and Donna Nicholson.   Allegedly, the plaintiffs are two of many victims of a Ponzi scheme perpetrated by Nicholson.   Days prior to Nicholson's arrest in connection with the Ponzi scheme, the plaintiffs obtained from Nicholson the underlying affidavit of confession of judgment, which they immediately filed in the Rockland County Clerk's Office, followed a few days later by the filing of a transcript of judgment in the Suffolk County Clerk's Office.   As relevant to this appeal, the affidavit of confession of judgment states that the sum of $931,724 is justly due to the plaintiffs for return of funds invested.

On the date of Nicholson's arrest, the United States Securities and Exchange Commission (hereinafter the SEC) commenced an action against Nicholson, “Westgate Capital Management, LLC” (hereinafter Westgate), and certain designated “Relief Defendants” in federal court with respect to the Ponzi scheme.   In connection with that action, the United States District Court appointed the nonparty, Lee S. Richards (hereinafter the Receiver), as the receiver of Nicholson's estate and of the estates of Westgate and the “Relief Defendants.”   Thereafter, the Receiver moved in the Supreme Court, Rockland County, to vacate the judgment by confession, inter alia, on the ground that the affidavit of confession of judgment does not comply with CPLR 3218(a)(2), which requires that, for money due, such an affidavit state concisely the facts out of which the debt arose, and show that the sum confessed is justly due (see CPLR 3218[a][2] ).

Contrary to the plaintiffs' contention, the Receiver had standing to seek vacatur of the judgment by confession on the ground that the affidavit of confession of judgment does not comply with CPLR 3218(a)(2) (see County Nat'l Bank v. Vogt, 28 A.D.2d 793, 794, affd 21 N.Y.2d 800;  In re Horowitz, 98 N.Y.S.2d 881, 882, affd 277 App.Div. 1130;  7-3218 New York Civil Practice:  CPLR P 3218.00;  see generally Eberhard v. Marcu, 530 F3d 122, 133;  Scholes v. Lehmann, 56 F3d 750, 755, cert denied sub nom.   African Enterprise, Inc. v Scholes, 516 U.S. 1028;  SEC v. Shiv, 379 F Supp 2d 609;  cf.  Burtner v. Burtner, 144 A.D.2d 417, 418;  Magalhaes v. Magalhaes, 254 App.Div. 880, 881), and the Receiver was not required to commence a plenary action to the extent he sought to vacate the judgment by confession on that ground (see County Natl. Bank v. Vogt, 28 A.D.2d 793, affd 21 N.Y.2d 800;  Mall Commercial Corp. v. Chrisa Rest., 85 Misc.2d 613, 614;  cf.  Engster v. Passonno, 202 A.D.2d 769, 769;  Affenita v. Long Indus., 133 A.D.2d 727, 728;  Bufkor, Inc. v. Wasson & Fried, 33 A.D.2d 636, 637).

Also contrary to the plaintiffs' contention, the affidavit of confession of judgment, which failed, inter alia, to set forth any facts explaining why Nicholson was indebted to the plaintiffs with respect to the money they invested with him, or why such debt was justly due, does not comply with CPLR 3218(a)(2) (see Franco v. Zeltser, 111 A.D.2d 367, 368;  County Nat'l Bank v. Vogt, 28 A.D.2d at 793;  Wood v. Mitchell, 117 N.Y. 439, 441;  cf.  Harrison v. Gibbons, 71 N.Y. 58, 60;  Perkins Davis Group, Inc. v. Chelsea 82973, LLC, 24 AD3d 645, 645;  Eurofactors Intl., Inc. v. Jacobowitz, 21 AD3d 443, 445;  ILMS Realty Assn. v. Madden, 174 A.D.2d 603, 603;  Princeton Bank & Trust Co. v. Berley, 57 A.D.2d 348, 352-354).   In that regard, given that the affidavit of confession of judgment does not simply contain some minor error of fact, but rather, is wholly insufficient under CPLR 3218(a)(2), the Supreme Court providently exercised its discretion in declining to amend the judgment by confession as an alternative to granting the Receiver's motion to vacate it (see Baehre v Rochester Dental Prosthetics, 112 Misc.2d 270, 276;  cf.  Princeton Bank & Trust Co. v Berley, 57 A.D.2d at 354).

MASTRO, J.P., COVELLO, ENG and BELEN, JJ., concur.

ENTER:

James Edward Pelzer

Clerk of the Court