May Lender seeking to enforce guaranty against nonresident guarantors of loan attach ownership/membership interests in various out-of-state business entities?
seeking to enforce guaranty against nonresident guarantors of loan
attach ownership/membership interests in various out-of-state business
By agreement dated in 2005, Lender made a loan to borrower for the
purpose of developing and renovating real property. This loan was made
by Lender and accepted by the borrower in New York. Further, the
proceeds of this loan were disbursed from New York. On that same day,
Guarantors executed a guaranty of payment (guaranty) under which they
unconditionally agreed to be jointly and severally liable for the
borrower's obligations under the loan and submitted to the jurisdiction
of any federal or state court in New York City in any suit, action or
proceeding arising out of or relating to the guaranty. By executing this
guaranty, Guarantors waived all defenses and counterclaims that might
have been asserted against Lender in the event the borrower defaulted on
the loan. In addition to being negotiated in New York, the guaranty was
to be governed by and construed in accordance with the laws of New York
The borrower thereafter defaulted on the loan and filed for bankruptcy
protection. Lender seeks to enforce the guaranty and recover the amounts
due under the loan. Lender sought and obtained a prejudgment order of
attachment seeking to attach Guarantors' property interests as security
for the collection of any judgment entered against Guarantors.
Attachment simply keeps the debtor away from his property or, at least,
the free use thereof; it does not transfer the property to the creditor.
It is frequently used when the creditor suspects that the debtor is
secreting property or removing it from New York and/or when the creditor
is unable to serve the debtor, despite diligent efforts, even though
the debtor would be within the personal jurisdiction of a New York
The property at issue consisted of Guarantors' interests in 22 limited
liability companies formed in Delaware, Georgia and Florida and a
Florida corporation solely owned by Guarantor. Unlike stock
certificates, which are tangible property, Guarantors'
ownership/membership interests are intangible and uncertificated.
Lender eventually obtained a judgment against the Guarantor. To date,
the judgment has not been satisfied. Guarantor challenges the
attachment because he does not live in New York and his temporary
presence in New York when he was served was insufficient to support the
attachment and that the Court lacked jurisdiction over the ownership
interests Lender sought to attach because they were not located in New
York and, thus, could not be properly attached.
Guarantor voluntarily submitted to the personal jurisdiction of the
court by executing the personal guaranty. Because personal jurisdiction
was properly asserted over Guarantor the Court had the authority to
order pre-judgment attachment of the property Guarantor owned and/or
controlled, and service of the order upon him while he was in New York
The next consideration is whether the property sought to be attached was
subject to attachment. The intangible property Lender sought to
attach-Guarantor’s ownership/membership interests in 22 out-of-state
limited liability companies-are akin to intangible contract rights, and
are clearly assignable and transferable. Thus, the interests in question
Here, the intangible interests sought to be attached are not evidenced
by written instruments, such as certificates or negotiable instruments.
If these interests were so evidenced, their situs would be where the
written instruments were physically present. Just as a debt clings to
the debtor when he enters a state other than the state where the debt
was incurred, it follows that Guarantors' uncertificated ownership
interests, which Guarantor possesses or has custody over, travel with
him, and were attachable in New York based on his presence this state.