Equipment lessors often face the following unfortunate scenario: the lessee defaults and stops making payment under the equipment lease, but remains in possession and uses the equipment while not paying. Under Article 71 of New York’s Civil Practice Law and Rules (“CPLR”), where an equipment lessor sues to remedy a lease payment default, the equipment lessor can make a pre-trial application to the court for the equipment to be removed from the lessee’s premises and eventually turned over to the lessor, pending the outcome of the case. The remedy is known as an Order of Seizure and is an important litigation weapon for an equipment lessor who is looking to preserve the lessor’s collateral and to prevent the insult to injury of the lessee who refuses to pay and wants to keep using the equipment.
Known in other jurisdictions as replevin, New York’s pre-trial remedy of Order of Seizure is different because its purpose is not to restore possession of the property to the person from whom it was wrongfully taken. Rather, the Order of Seizure is a means to hold and protect the property until the action is determined at trial.
Article 71 is applicable only to chattels and includes all specific personal property such as goods and equipment. It also includes certificates of stock, bonds, notes, or other securities and obligations.
In order to obtain an Order of Seizure, the plaintiff must proceed by Order to Show Cause and submit an affidavit showing the following:
1. that the plaintiff is entitled to possession by virtue of facts set forth;
2. that the chattel is wrongfully held by the defendant named;
3. whether an action to recover the chattel has been commenced, the defendants served, whether they are in default, and, if they have appeared, where papers may be served upon them;
4. the value of each chattel or class of chattels claimed, or the aggregate value of all chattels claimed;
5. if the plaintiff seeks the inclusion in the order of seizure of a provision authorizing the sheriff to break open, enter and search for the chattel, the place where the chattel is located and facts sufficient to establish probable cause to believe that the chattel is located at that place;
6. that no defense to the claim is known to the plaintiff; and
7. if the plaintiff seeks an order of seizure without notice, facts sufficient to establish that unless such order is granted without notice, it is probable the chattel will become unavailable for seizure by reason of being transferred, concealed, disposed of, or removed from the state, or will become substantially impaired in value. See CPLR 7102 (c).
Simultaneously with the application, the plaintiff must also submit a bond or undertaking whereby “the surety is bound in a specified amount, not less than twice the value of the chattel stated in the plaintiff’s affidavit, for the return of the chattel to any person to whom possession is awarded by the judgment, and for payment of any sum awarded by the judgment against the person giving the undertaking”. See CPLR 7102 (e).
The Order of Seizure procedure is normally obtained on notice to the defendant and Article 71 meets the due process requirements established by the United States Supreme Court. See Morning Glory Media, Inc. v. Enright, 100 Misc.2d 872, 878, 420 N.Y.S.2d 176, 180 (Sup.Ct.Monroe Co.1979).
It should, however, be noted that Article 71 is the not the only means by which a creditor can obtain possession of collateral. In the circumstance where the creditor has a security interest in the collateral, New York’s Uniform Commercial Code Section 9-609 provides a self-help remedy whereby a creditor can peaceably take possession of the collateral without the need for a court order. Another method, though not as effective as the Order of Seizure, would be a preliminary injunction, whereby the creditor would have to convince the court that the chattel is unique (see CPLR 7109(b)).
An equipment lessee is entitled to possess and use the equipment as long as payments are made under the lease. Once a lessee defaults, having possession of the equipment should provide no advantage to the breaching party. New York’s Order of Seizure remedy places possession of the equipment in the hands of the injured party; namely, the lessor, until the case has been resolved.