Neidorf v. Neidorf

Supreme Court of New York · Corporations

CorporationsSequestrationStock transfer restrictionsDomestic relationsDomestic Relations Law § 233Personal Property Law § 174Uniform Stock Transfer Actcorporate separateness

Facts

The husband owned all of the stock of Rolet Realty Corp. and one-third of the stock of Benson Chevrolet, Inc., both New York corporations. Benson had agreed to pay Rolet $5,000 per month for 16 years under a sale contract, and Benson also paid the husband $400 per week plus bonuses, continuing the same compensation arrangement that existed with its predecessor. A stockholders' agreement among the husband and Benson's other two shareholders required unanimous consent to fix or change any party's compensation, provided that the husband would continue to receive his full salary as long as he remained a stockholder regardless of disability or incapacity, and heavily restricted transfer of Benson stock. The corporations asserted that they did not possess the husband's stock certificates and believed he had them in Florida.

Issue

Whether, in a sequestration proceeding against a nonresident husband, the court could order turnover of his interests in two New York corporations and of ongoing payments made to him by one corporation. More specifically, the court had to decide whether the corporate assets and contract payments of a wholly owned corporation could be reached, whether stock represented by certificates outside the state could be sequestrated, and whether weekly payments labeled salary were seizable as property.

Rule

Under Domestic Relations Law § 233, sequestration is limited to property within the state that beyond reasonable question belongs to the husband; if there is an arguable controversy over ownership, a plenary action is required. Personal Property Law § 174 bars sequestration of stock represented by an outstanding certificate unless the certificate is seized, surrendered, or its transfer is effectively prevented, but effective transfer restrictions satisfying that purpose permit sequestration. Corporate assets of a separate corporation are not the shareholder's property absent a showing that the corporation lacks business substance or is merely a shelter, and future payments may be reached if they stem from an existing property right rather than compensation contingent on future services.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In a New York separation action, a court appoints Dana Ortiz as receiver to sequestrate property of her husband, Leo Ortiz, who lives in Arizona and is not personally subject to New York jurisdiction. Leo owns all shares of Hudson Parcel Holdings, Inc., a Brooklyn corporation that owns warehouses, owes commercial rent and taxes, and is entitled to monthly installment payments from a prior asset sale.

Dana asks the court in the sequestration proceeding to order Hudson Parcel Holdings to turn over the installment payments and all corporate cash on hand, arguing that Leo owns 100% of the stock. How should the court rule?

Explanation. Sequestration under Domestic Relations Law § 233 reaches only property within the state that beyond reasonable question belongs to the husband. A corporation remains a separate entity, and its assets and contract rights are not automatically the shareholder's property merely because he owns all of its stock. Unless it is shown that the corporation has no business substance or purpose and is being used simply as a shelter, turnover of corporate assets is improper in this summary proceeding.