It would be a mistake for a creditor to believe only that which can be seen, touched or smelled is property which is subject to a Sheriff’s levy. There are a host of other kinds of property which the creditor’s attorney should not ignore, and these are in the category of what is generally referred to as intangibles. Section 9-102 (42) of the Uniform Commercial Code defines “General intangibles” as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.” In the strict context of post-judgment collections in New York, Section 5201 (b) of New York’s Civil Practice Law and Rules (“CPLR”) provides that “[a] money judgment may be enforced against any property which could be assigned or transferred, whether it consists of a present or future right or interest and whether or not it is vested, unless it is exempt from application to the satisfaction of the judgment.”
What if all that a debtor has left is literally its good name and that name has been legally registered with the United States Patent and Trademark Office? Though there are not many cases dealing with the subject, two cases in New York say yes, provided the trademark will be used by someone in the same business as the debtor. The first case involved a debtor who published a magazine called Chocolate Singles and had obtained trademark registration for the name. Victoria Graphics, Inc. v. Priorities Publications, Inc., 167 Misc.2d 607 (Civ. Ct. Queens Co. 1996) (“Victoria Graphics”). Unable to find any other assets of the debtor, who was for all intents and purposes defunct, the creditor commenced an Article 52 turnover proceeding to force the debtor to assign the trademark to the creditor. Analyzing the issue by analogy to the power of a bankruptcy trustee to assign a trademark, the Court in Victoria Graphics stated that often trademarks are assigned where the assignment is made in conjunction with all of the good will associated with the trademark and other tangible assets are being assigned as well. However, the Victoria Graphics Court when on to state that some assignments of tradenames are made separate from the underlying business, particularly where “the assignee is producing a product … substantially similar to that of the assignor [such that] consumers would not be deceived or harmed” or when there is “continuity of management, and “[t]hus, a trademark may be validly transferred without the simultaneous transfer of any tangible assets, as long as the recipient continues to produce goods of the same quality and nature previously associated with the mark.” Based upon this holding, the Court in Victoria Graphics set the matter down for a hearing to detemine, among other things, whether the creditor or another person, as assignee, would be utilizing the trademark in a substantially similar business.
The second case, Application of GE Commercial Finance Business Property v. Hakakian, 13 Misc.3d 413 (Nassau Co. 2006) (“Hakakian”) involved a creditor, GE Commercial Finance (“GE”), who commenced a turnover proceeding to have the debtor’s trademark assigned in partial satisfaction of the subject judgment. Citing Victoria Graphics, the Court in Hakakian held that a trademark could not be assigned “in gross” apart from the business or good will associated with the trademark, but that a person in a similar business could be such an assignee. Based upon this restriction, the Court determined that GE could not force a turnover to itself as GE was not in the same business as the debtor, a retail clothing operator. Neither would the Hakakian Court allow the trademark to be subject to a Sheriff’s sale for fear that insiders would diminish the value of the trademark. Perhaps as a consolation, the Court in Hakakian did allow GE to file a judgment lien on the trademark in the United States Patent and Trademark Office, thereby encumbering the intangible property of the debtor for the protection of the creditor.
While Victoria Graphics and Hakakian are not inconsistent, the Courts in each case reached different procedural results. Clearly, GE had no right to be the assignee of the trademark as it was not in the same business as the debtor, a clothing retailer. Yet, the unwillingness of the Court in Hakakian to allow a Sheriff’s sale seems illogical. Undoubtedly, a Court has the power to set conditions for the sale to insure that a fair price would be had and that the buyer is in a substantially similar business to the debtor (indeed such a buyer would have no reason to collude with any “insiders”).
Given that very few creditors are in the same business as their debtors, New York does need to allow more flexibility in seeing that a trademark can be sold so as to protect the integrity of the mark and the public’s expectations as well as protecting the interest of a creditor in the good name of the debtor which may be the only property the debtor has left.