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Citibank, N.A. v. Prime Motor Inns P'ship - 98 N.Y.2d 743, 750 N.Y.S.2d 818, 780 N.E.2d 503 (2002)

Rule:

In a turnover proceeding arising out of a judgment debtor's assignment of a $ 500,000 settlement payment to a judgment creditor, "as security for the payment" of the judgment, the courts below correctly determined that the debtor provided the creditor with a security interest in the settlement payment (see UCC former 1-201 [37]; 9-102 [2]), which was subject to the perfection and priority rules of the Uniform Commercial Code. Accordingly, plaintiff bank, which secured a judgment against the debtor four years prior to the creditor and levied upon the $ 500,000 (see CPLR 105 [i]; 5232 [a]) before the creditor perfected his security interest, has a superior right as a lien creditor to the settlement proceeds (see UCC former 9-301 [1] [b]).

Facts:

In 1993, Citibank secured a $5.3 million judgment against Martin W. Field. Four years later, Joseph and Tremayne Selig obtained a judgment against Field in the amount of $19.5 million. Thereafter, Prime Motor Inns L.P. (“PMI”) offered to pay Field $ 500,000 to abandon his proxy fight for ownership of PMI's hotels, subject to the approval of the PMI partners. Before the partnership vote, Field executed an instrument entitled "Collateral Assignment" which assigned to Joseph Selig "all sums due and to become due" under the PMI settlement "as security for the payment" of his judgment. Citibank levied upon the $ 500,000 shortly before Selig filed a UCC-1 statement in New Jersey. After the partners of PMI approved the payment to Field, Citibank initiated this turnover proceeding. The state Supreme Court and the Appellate Division determined that the Field assignment to Selig was a security interest and that Citibank had a superior right as a lien creditor.

Issue:

Was an assignment to the judgment holder by a judgment debtor considered a security interest; therefore, the bank had a superior right as a lien creditor?

Answer:

Yes

Conclusion:

The appellate court agreed with the courts below that Field provided PMI with a security interest in the settlement payment, under former N.Y. U.C.C. Law §§ 1-201(37)9-102(2), which was subject to the perfection and priority rules of the Uniform Commercial Code. Citibank properly levied upon the settlement pursuant to N.Y. C.P.L.R. 105(I)§ 5232(a), before the judgment holder perfected his security interest and thereby established its superior right to the settlement proceeds under former N.Y. U.C.C. Law § 9-301(1)(b).

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