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ROEDEL COMPANIES, LLC, Roedel Partners of Saranac Lake II, LLC and ROK Builders, LLC, Petitioners, v. JNK HOME ENTERPRISES, LLC, Kevin Knobloch, Jean Knobloch and Edward Jones & Co., L.P., Respondents.
Petitioner Roedel Partners of Saranac Lake II (hereinafter Saranac II) owns the Hotel Saranac, a historic hotel property located at 100 Main Street in the Village of Saranac Lake, Franklin County. In September 2015, Saranac II hired petitioner ROK Builders, LLC (hereinafter ROK) as the construction manager for a project involving extensive renovations to the hotel property. ROK and respondent JNK Home Enterprises, LLC (hereinafter JNK) then entered into a contract whereby JNK was to oversee and hire subcontractors for the project, as well as provide material and equipment. As the project neared completion, ROK discovered that JNK—through its principals, respondent Kevin Knobloch and his wife, respondent Jean Knobloch—had failed to pay 18 subcontractors a total of $739,674.30 and had also failed to deposit $727,171.27 it was paid for equipment and materials—amounting in all to over $1,400,000.00.
In May 2018, Saranac II and ROK—together with petitioner Roedel Companies, LLC, which owns Saranac II—commenced an action in the Supreme Court of Warren County alleging, inter alia, that JNK and its principals intentionally diverted Lien Law trust funds. This action was subsequently resolved by Settlement Agreement dated April 3, 2019.1 Pursuant to this Agreement, respondents consented to the entry of a Judgment by Confession in the amount of $1,093,456.70, which Judgment was entered on May 8, 2019. A Partial Satisfaction of Judgment was thereafter entered on June 28, 2019, indicating that $499,137.25 of the Judgment has been satisfied and $594,319.45 remains unpaid.
On August 5, 2019, petitioners sent a subpoena duces tecum to JNK's bank—TD Bank—requesting its bank records from September 2015 to date. These records were thereafter produced and, according to petitioners, "showed [that] significant sums of monies were transferred from three (3) of the accounts held by ․ JNK to [respondent Edward Jones & Co., L.P. (hereinafter Edward Jones) ]" and, further, that "a significant amount of monies were transferred from [JNK's] accounts to ․ Jean Knobloch's personal accounts." As a result, petitioners sent a subpoena duces tecum to TD Bank on October 19, 2019 requesting Jean Knobloch's bank records from September 2015 to date. According to petitioners, these records show that — after the transfers were made to Jean Knobloch — she then transferred $10,000.00 to Edward Jones on December 6, 2016 and another $9,000.00 to Edward Jones on June 30, 2017.
Petitioners further allege that, "[u]pon information and belief, ․ JNK purchased three (3) vehicles, to wit: 2017 Subaru Crosstrek, 2016 Honda CRV and 2016 Subaru Crosstrek, [paying] for them with funds ․ from ․ JNK accounts," and that "[on] or about November 19, 2019, ․ JNK executed an Information Subpoena which indicates that the vehicles were transferred to ․ Jean Knobloch in her individual capacity in January/February 2018."
On February 13, 2020, petitioners commenced this proceeding pursuant to CPLR article 52 for an Order (1) compelling Edward Jones to turn over all monies held in accounts belonging to Kevin Knobloch and/or Jean Knobloch and, further, to produce all records concerning accounts belonging to Kevin Knobloch and/or Jean Knobloch from September 2015 to date; and (2) compelling Jean Knobloch to turn over the 2017 Subaru Crosstrek, 2016 Honda CRV and 2016 Subaru Crosstrek to petitioners. The proceeding was commenced by Order to Show Cause with petitioners simultaneously seeking a Temporary Restraining Order (TRO), which TRO was granted on February 20, 2020 to the extent that the Knoblochs were prohibited from transferring, withdrawing, selling or otherwise encumbering or disposing of any assets in their accounts at Edward Jones pending the hearing in this matter, and Jean Knobloch was further prohibited from transferring, encumbering or otherwise disposing of the 2017 Subaru Crosstrek, 2016 Honda CRV and 2016 Subaru Crosstrek.
At the outset, respondents have submitted proof that the 2017 Subaru Crosstrek, 2016 Honda CRV and 2016 Subaru Crosstrek were sold by Jean Knobloch in January and February of 2019 and, as such, petitioners have withdrawn this aspect of the proceeding. All that remains for determination is that aspect of the proceeding pertaining to the Edward Jones accounts.
In this regard, it must first be noted that Edward Jones has appeared, indicating that it "does not oppose the relief [p]etitioners seek ․ and will comply with a [C]ourt [O]rder as directed." It has, however, "expressed [some] concern with the breadth of the request for documents in the [application]." As such, petitioners executed a stipulation with Edward Jones on May 1, 2020 with respect to the scope of documents to be produced—in the event this relief is granted by the Court.
Respondents have appeared in opposition to the requested relief,2 contending that "only two accounts ․ currently exist at Edward Jones[ ] under the names of any of the respondents." Specifically, the Knoblochs have a joint checking account with a balance of $134.57, and Kevin Knobloch has an IRA with a balance of $29,707.09. Respondents have agreed to "liquidate the $134.57 checking account balance to [petitioners]," but contend that the IRA is exempt from judgment enforcement under CPLR 5205 (c) (2). According to respondents, "had [p]etitioners simply subpoenaed Edward Jones, or conducted an examination under oath of ․ respondents, then [they] would have been made aware" that only these two accounts exist and "the instant proceeding would have been avoided." Respondents "ask not only that the pending application be denied, but ․ that the Court require [p]etitioners to reimburse those costs and attorneys' fees which have been needlessly incurred in opposing the same."
In reply, petitioners contend that neither the issuance of a subpoena nor the taking of a deposition was adequate under the circumstances. A special proceeding had to be commenced to ensure that respondents were prohibited from making any additional transfers from their accounts until the nature of the accounts could be ascertained. Petitioners further contend that the parties' Settlement Agreement expressly provides that the Judgment by Confession may be enforced pursuant to CPLR article 52, which permits the commencement of a special proceeding (see CPLR 5225 [b]). Finally, petitioners contend that CPLR 5205 (c) (5) provides an exception to the general rule that IRAs are exempt from judgment enforcement, stating that "[a]dditions to an [IRA] shall not be exempt from application to the satisfaction of a money judgment if ․ deemed to be voidable transactions under article [10] of the [D]ebtor and [C]reditor [L]aw." Article 10 of the Debtor and Creditor Law then provides that "[a] transfer made ․ by a debtor is voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer ․ with actual intent to hinder, delay or defraud any creditor of the debtor" (Debtor and Creditor Law § 273 [a]). According to petitioners, Kevin Knobloch's IRA fits squarely within this exception, as it was funded entirely by Lien Law trust funds intentionally diverted during the hotel renovation project.
Indeed, the record suggests this as a distinct possibility. In his affidavit in opposition, Kevin Knobloch states that "[i]n 2016, JNK offered its employees the opportunity to participate in a company-sponsored retirement plan[, s]pecifically ․ a Simple IRA Account with the financial institution Edward Jones." Kevin Knobloch further states that he "took JNK up on this opportunity," enrolling in the IRA. According to Kevin Knobloch and Jean Knobloch, who also submitted an affidavit, the funds deposited in the IRA "were funds that would otherwise have been paid to Kevin [Knobloch] as wages." Neither Kevin Knobloch nor Jean Knobloch indicate whether any other JNK employees participated in the plan.
The TD Bank records attached to the petition include, inter alia, weekly checks from JNK to Edward Jones with the memo line reading "week ending _"—or "w/e _." Although unclear, it appears that these checks reflect deposits into the IRA account. The checks begin in September 2015 and end in January 2018. Interestingly, the checks from September 2015 to the beginning of November 2016 are in the amount of roughly $40.00 per week. This weekly amount then changes substantially, with a check marked "w/e 11/17/16" in the amount of $7,661.90; a check marked "w/e 11/25/16" in the amount of $3,680.05; a check marked "w/e 12/2/16" in the amount of $7,353.74; and a check marked "w/e 12/30/16" in the amount of $2,997.41. The checks are then in the amount of roughly $800.00 per week from January 2017 to September 2017, and $900.00 per week and from September 2017 to January 2018.
Aside from the irregularities with respect to the amounts of these checks, the Court is also concerned with the timing of them. They begin the same month that JNK entered into the contract with ROK—which is notably prior to the 2016 date given by the Knoblochs in their affidavits. They then continue throughout the hotel renovation and end in early 2018, just as respondents stopped work on the project. Under the circumstances, it certainly appears that Kevin Knobloch's IRA may fit squarely within the exception to the general rule that IRAs are exempt from judgment enforcement (see CPLR 5205 [c] [5]).
It must also be noted that respondents have failed entirely to address the $10,000.00 transferred by Jean Knobloch to Edward Jones on December 6, 2016, as well as the $9,000.00 transferred by Jean Knobloch on June 30, 2017. They have also failed to account for the $87,652.55 transferred from JNK to Edward Jones in December 2016. Indeed, respondents conveniently identify only the accounts they "currently" have at Edward Jones—there is no mention of any prior accounts. These prior accounts clearly exist, as the January 2020 account statement from Edward Jones attached to Kevin Knobloch's affidavit lists two separate IRAs—the IRA account identified by respondents and another. Of course, the status of this other IRA is unclear. Under the circumstances, there are simply too many unknowns for the Court to render a meaningful and informed determination.
Petitioners propose that this matter by decided in two phases. Specifically, petitioners propose that (1) Edward Jones be directed to turn over the requested records for review; and (2) once this review has been completed, the parties be permitted to supplement their papers with respect to the possible turnover of monies. The Court hereby adopts this proposal and directs as follows:
• Edward Jones shall have until July 17, 2020 to produce the requested records, as specified in the May 1, 2020 stipulation with petitioners;
• petitioners shall have until August 21, 2020 to supplement their papers with respect to the possible turnover of monies; and
• respondents shall have until September 11, 2020 to submit a response to these supplemental papers.
Respondents' request for costs and attorneys' fees is denied in its entirety.
The TRO is vacated insofar as the 2017 Subaru Crosstrek, 2016 Honda CRV and 2016 Subaru Crosstrek are concerned, but otherwise remains in full force and effect pending a final determination in this matter.
Therefore, having considered the Petition with exhibit attached thereto, verified January 31, 2020; Affirmation of Merritt S. Locke, Esq. with exhibits attached thereto, dated February 13, 2020; Affirmation of Scott C. Paton, Esq. with exhibits attached thereto, dated March 13, 2020; Affirmation of Kevin Knobloch with exhibits attached thereto, sworn to March 12, 2020; Affidavit of Jean Knobloch with exhibit attached thereto, sworn to March 12, 2020; Correspondence of Merritt S. Locke, Esq., dated March 12, 2020; Correspondence of Melek J. Dunn, Esq., dated March 13, 2020; and Affidavit of Merritt S. Locke, Esq. with exhibit attached thereto, sworn to May 1, 2020, it is hereby
ORDERED that the petition is granted to the extent that
• Edward Jones shall have until July 17, 2020 to produce the requested records, as specified in the May 1, 2020 stipulation with petitioners;
• petitioners shall have until August 21, 2020 to supplement their papers with respect to the possible turnover of monies; and
• respondents shall have until September 11, 2020 to submit a response to these supplemental papers; and it is further
ORDERED that the Court reserves with respect to the remainder of relief requested in the petition; and it is further
ORDERED that respondents' request for costs and attorneys' fees is denied in its entirety; and it is further
ORDERED that the TRO issued is vacated insofar as the 2017 Subaru Crosstrek, 2016 Honda CRV and 2016 Subaru Crosstrek are concerned, but otherwise remains in full force and effect pending a final determination in this matter.
The original of this Decision and Order has been e-filed by the Court. Counsel for petitioners is hereby directed to serve the Decision and Order with notice of entry in accordance with CPLR 5513.
FOOTNOTES
1. A copy of this Settlement Agreement has not been included in the record.
2. The Court notes that respondents failed to serve an answer to the petition, as is required in a special proceeding (see CPLR 402). That being said, this failure was not raised by petitioners in their reply papers. It will therefore be disregarded by the Court as a mere irregularity (see CPLR 2001), with respondents' opposition papers deemed to suffice as an answer.
Robert J. Muller, J.
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Docket No: EF2020-67759
Decided: June 22, 2020
Court: Supreme Court, New York,
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