Source: http://www.jdbar.com/Cases/James-Powell/james-powell.html
Timestamp: 2019-04-20 04:11:17+00:00

Document:
Esther James, Respondent, v. Adam C. Powell, Jr., et al., Appellants.
Henry R. Williams, Lawrence R. Bailey, Thomas V. Sinclair, Jr., William C. Chance, Jr., and Lucille Chance for appellants.
Judges VAN VOORHIS, BURKE, BERGAN and KEATING concur with Chief Judge FULD; Judge SCILEPPI dissents, in part, in an opinion; Judge BREITEL taking no part.
The parties in this litigation are not strangers to our court. In July, 1964, we affirmed a libel judgment for $46,500 in favor of the plaintiff against the defendant, Congressman Adam Clayton Powell (14 N.Y.2d 881; see, also, 18 N.Y.2d 931). And now we are called upon to review an award of damages to the plaintiff against the defendant and his wife, Yvette Powell, based upon the charge that they had transferred real property owned by them in order to frustrate collection of the original libel judgment.
That judgment was entered in the office of the Clerk of the County of New York on April 5, 1963, and execution was duly issued on the same day, to be returned wholly unsatisfied two months later.1 On April 17, 1963, Yvette Powell, "acting in her own capacity and as the holder of power of attorney from her * * * husband", transferred certain real estate which they owed in Puerto Rico to her uncle and aunt, Gonzalo and Carmen Diago. The documents on file in the Registry of Property at Bayamon, Puerto Rico, recite that, as consideration for the conveyance, the Diagos gave the defendants $1,500 in cash and a purchase-money mortgage of about $38,000 and also cancelled a debt of some $10,000 allegedly owing to the Diagos from the defendants "on account of expenses * * * incurred in the construction of the residence which has been installed on the property". The Diagos simultaneously placed two additional mortgages "in favor of the Bearer" aggregating $25,000, which "bearer" mortgages are now in the hands of unknown persons. The conveyance and mortgages did not come to the plaintiff's attention until December, 1963, and all efforts to examine the defendants with respect to them have been to no avail. The plaintiff never docketed the libel judgment in Puerto Rico nor, since she could find no property listed in Powell's name in Puerto Rico, did she institute any proceedings for the purpose of levying execution there.
The Powells moved, under CPLR 3211 (subd. [a]), to dismiss the complaint on two grounds, one that the court lacked jurisdiction of the subject matter of the cause of action (par. 2) and the other that the pleading failed to state a cause of action (par. 7). The court at Special Term denied the motion and on appeal the Appellate Division, two justices dissenting, affirmed the resulting order. The Appellate Division divided on the question whether, under the law of this State, a judgment creditor, having no lien on specific property, has a right of action for damages against his judgment debtor or others for transferring the debtor's property with intent to defraud the creditor and prevent collection of his judgment (25 A.D.2d 1).
While that appeal was pending in the Appellate Division, the defendants failed to appear, in response to a court order, to be examined before trial and have their depositions taken. In consequence of that default, an order was made, pursuant to CPLR 3126 (subd. 3), striking the answers interposed by them and directing an inquest to fix the amount of the plaintiff's damages. Counsel for the defendants appeared at the inquest where they again challenged the sufficiency of the complaint and urged that, in any event, there could be no recovery of any punitive damages. A Supreme Court Justice, sitting without a jury, awarded the plaintiff compensatory damages against both defendants in the sum of $75,000, inclusive of the costs of the litigation and attorney's fees, plus punitive damages in the amount of $500,000 against the defendant Powell and in the sum of $25,000 against Mrs. Powell. The Appellate Division, on appeal, unanimously affirmed the order striking the defendants' answers but modified the final judgment by reducing the award of compensatory damages against both defendants to slightly less than $56,000 and the award of punitive damages against Powell to $100,000 and by entirely eliminating the punitive damages assessed against his wife.
The parties have assumed that the substantive law of New York is completely dispositive of the appeal, and the courts below have in fact decided the case under such law. In so doing, they have overlooked the applicable choice of law principle which establishes that the legal consequences of the defendants' acts in this case must be determined under the law of Puerto Rico. The rule is that the validity of a conveyance of a property interest is governed by the law of the place where the property is located. (See Wyatt v. Fulrath, 16 N.Y.2d 169; Hutchison v. Ross, 262 N.Y. 381; Davis v. Hudson Trust Co., 28 F.2d 740, 744, cert. den. 278 U.S. 655; Marcus v. Kane, 18 F.2d 722; see, also, Restatement, Second, Conflict of Laws, Tent. Draft No. 5 , § 218; Restatement of the Law, Conflict of Laws , § 218, comment f; Annot., 111 ALR 787; cf. Uniform Commercial Code, § 9-103, subd. .) Recently, in the Wyatt case (16 N.Y.2d 169, supra), we applied the law of the situs to determine whether the Spanish heirs of a Spanish domiciliary were defrauded by his testamentary transfers of chattels through joint bank accounts maintained in New York and London. The same choice of law rule is equally applicable here.
Whatever right the plaintiff had to levy execution on the land in question necessarily arose solely under the law of Puerto Rico, the jurisdiction empowered to deal with the res. Manifestly, if Puerto Rico regarded the property, when it was owned by the defendants, as not being subject to execution or attachment, the plaintiff could not be heard to complain about the conveyance, regardless of the defendants' motives. The plaintiff would likewise have no cause for complaint if, under the law of Puerto Rico, the land was subject to execution by her prior to the conveyance to the Diagos and remained subject thereto even after such transfer.
Assuming that the plaintiff did initially have a right to proceed against the land and that, by reason of the conveyance, her right was frustrated, impaired or made more costly to enforce, her remedy, if any, must arise under the law of Puerto Rico. Such remedy is a concomitant of the right itself; it simply represents an alternate means for satisfying a judgment when the judgment creditor has been blocked or checked in his efforts to reach the land. We should, as a general rule, afford the plaintiff no greater or lesser remedy than she is given under the law creating the right which the remedy is designed to safeguard.
In this regard, we note that the Restatement Second of Conflict of Laws (Tent. Draft No. 5 , § 218; see, also, Restatement, Conflict of Laws , § 218, Comment f) provides for the "validity of a conveyance" of land to be "determined by the law of the state where the land is." More specifically, in their Comment to this provision — under the heading "Conveyance in fraud of third persons" — the authors of the Restatement declare (Comment b, p. 23): "The law of the state where the land is determines whether the conveyance was made in fraud of third persons. This law therefore determines whether a conveyance, valid between the parties to it, is either void or voidable with respect to others because made, for example, in fraud of creditors". Although considerable has happened in the field of conflict of laws since 1959 when the Comment was written, we believe that it still reflects the best and most pragmatic view of how to deal with a case stemming from an alleged fraudulent conveyance of real property located in a foreign jurisdiction. It would be unrealistic to give the plaintiff a cause of action for fraud against his debtor and others on the basis of their having made a conveyance of property in Puerto Rico if what they did was perfectly valid under the law of that jurisdiction.
One point remains — whether the courts below were empowered to make an award of punitive damages against the defendant Powell.5 Although it is clear that the measure of compensatory damages is determined by the same law under which the cause of action arises (see Long v. Pan Amer. World Airways, 16 N.Y.2d 337, 343; Davenport v. Webb, 11 N.Y.2d 392), this is not necessarily true with regard to exemplary damages. An award of compensatory damages depends upon the existence of wrongdoing — in this case, an issue for resolution under the lex situs of the property alleged to have been fraudulently conveyed. An award of punitive damages, on the other hand, depends upon the object or purpose of the wrongdoing and on this issue we should look to the "law of the jurisdiction with the strongest interest in the resolution of the particular issue presented". (Babcock v. Jackson, 12 N.Y.2d 473, 484; see, e.g., Macey v. Rozbicki, 18 N.Y.2d 289; Long v. Pan Amer. World Airways, 16 N.Y.2d 337, supra; Dym v. Gordon, 16 N.Y.2d 120; Restatement, Second, Conflict of Laws, Tent. Draft No. 9 , § 390b, Comment c.) On the assumption that the conveyance was invalid, the particular wrong which would serve as a predicate for punitive damages would be the attempt to frustrate satisfaction of a New York judgment. It cannot be disputed that New York has the "strongest interest" in the protection of its judgment creditors and, accordingly, New York law should govern as to whether the judgment debtor's conduct in the case before us — if it should prove wrongful under Puerto Rican law — was such as to warrant an award of punitive damages.
In point of fact, the record yields the impression that the courts below were impelled to award punitive damages against the defendant Powell — $500,000 by the trial court, reduced to $100,000 by the Appellate Division — because of his many citations for contempt of court (see, e.g., James v. Powell, 18 N.Y.2d 931, supra) rather than because of his act in conveying this property in Puerto Rico. Our statutes provide sanctions for contumacious conduct and, if those provisions are ineffective or inadequate, the matter should be made known to the Legislature. It is not proper for the courts, under the guise of awarding damages on account of a fraudulent transfer, to punish the defendant for other wrongful conduct not connected with such transfer.
To recapitulate — the Appellate Division erred in awarding compensatory damages under the law of New York, since the applicable law on that issue is that of Puerto Rico. In view of the fact that the parties have not previously dealt with the law of Puerto Rico, they should be given an opportunity to do so. On the question of punitive damages, however, the law of New York is controlling, and under that law no award of such damages would, in any event, be justified.
The appeal from the affirmance of the order striking the defendants' answers should be dismissed, without costs, upon the ground that it does not finally determine the action within the meaning of the Constitution.
The order of the Appellate Division modifying the judgment of the Supreme Court should be reversed, without costs, and the matter remitted to the Supreme Court, New York County, for further proceedings in accordance with this opinion.
I dissent from that part of the majority opinion as deals with the question of punitive damages and holds that they may not be assessed in this case. It is my view that this question should also be remitted to the Supreme Court to make the necessary factual determination prerequisite to awarding punitive damages. To do so on this record, unnecessarily and prematurely precludes plaintiff from developing facts at the new trial, which could conceivably furnish sufficient basis for awarding punitive damages under New York law if plaintiff is successful in proving that the conveyance was fraudulent under Puerto Rican law (see I. H. P. Corp. v. 210 Cent. Park South Corp., 12 N.Y.2d 329; Walker v. Sheldon, 10 N.Y.2d 401; Kujek v. Goldman, 150 N.Y. 176).
Appeal dismissed, without costs, upon the ground that the order appealed from does not finally determine the action within the meaning of the Constitution.
Order reversed, without costs, and matter remitted to the Supreme Court, New York County, for further proceedings in accordance with the opinion herein.
1. While this case was sub judice in our court, the defendant Powell made several payments to the plaintiff and he claims that the original libel judgment has now been fully satisfied.
2. A second cause of action against the Powells and the Diagos, alleging a "malicious agreement and conspiracy" to accomplish the same ends, was severed in earlier proceedings and is not before us.
4. Of course, if, in exploring the law of Puerto Rico, it were to be found that it was specifically designed to thwart the public policy of other states — for example, by denying a remedy to all judgment creditors in the plaintiff's circumstances in order to attract foreign investment in its real estate — the courts of this State would be privileged to apply the law of New York rather than that of Puerto Rico.
5. As previously indicated, the Appellate Division eliminated the award of punitive damages against Mrs. Powell.
The case of James v. Powell is provided as part of a free educational service by J. Douglas Barics, attorney at law, for reference only. Cases such as James v. Powell may be overruled by subsequent decisions, different judicial departments may have different controlling case law, and the level of the court deciding each case will determine whether it is controlling law or not. James v. Powell is presented here to help illustrate how the law works in general, but for specific legal matters, an attorney should be consulted.

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