At issue in this turnover proceeding is whether payments made by respondent Transcom Enhanced Services, Inc. ("Transcom") to the judgment debtor Global Naps Networks, Inc. ("GNAPS") constitute debt or property within the meaning of CPLR 5201 and, therefore, are subject to levy by petitioner/judgment creditor Verizon New England, Inc. ("Verizon").

On January 29, 2009, a judgment was entered in Massachusetts in favor of Verizon against GNAPS in the sum of $57,716,714. The judgment was domesticated in New York on March 6, 2009. Verizon sought to enforce its judgment by serving a restraining notice and information subpoena upon GNAPS and its business partners. One such entity is Transcom, which makes payments to GNAPS for telecommunications services provided by the judgment debtor.

Transcom was served with a restraining notice on April 2, 2009. In its information subpoena, Verizon asked Transcom to identity all transactions, contracts and agreements it had entered into with GNAPS; the dollar value of the transaction; and the goods and services provided.

Transcom responded to the information subpoena by identifying a Telephone Switch Service Agreement dated October 21, 2003, that it had entered into with GNAPS. The agreement required a monthly recurring payment of $28,000 per circuit for eight circuits, plus an additional $57,000 per month for additional charges for local origination and termination [*2]services [Information Subpoena, Response 2].

Verizon alleges that documentation provided by Transcom establishes that as of service of the restraining notice and through January 2010, $2,454,250 has been paid to GNAPS. These sums were a debt owed by Transcom to GNAPS and are subject to restraint under the restraining notice. Verizon maintains that it has sustained damages in the amount Trascom improperly paid GNAPS. It seeks a judgment against Trascom for turnover of property and/or debts owed to GNAPS; a judgment in the sum of $2.4 million dollars for violation of the restraining notice; and a finding of civil contempt for violation of the restraining notice.

In its answer to the petition, Transcom maintains that at the time Verizon served the restraining notice, Transcom did not owe a debt to GNAPS, nor did it hold property in which GNAPS had any interest. Rather, Transcom paid in advance for telecommunications services from GNAPS. Since Transcom prepaid for the services, there was no obligation to pay GNAPS at the time payment was made. Nor was there an obligation to use GNAPS's services in the future. Therefore, the restraining notice was not violated, and the turnover petition and request for damages should be denied.

An evidentiary hearing was held before this court on April 19, 2010. Respondent called two witnesses — Larry Dewey and Scott Birdwell.

Mr. Dewey testified that he has worked for Transcom since 2002. He has been the Chief Accounting Officer for the last year to year-and-a-half. He is responsible for making payment to GNAPS. Mr. Dewey explained that Transcom's arrangement with GNAPS was to prepay for services for the following week [Tr. P. 6, L. 22]. GNAPS did not bill for arrears [Tr. P. 6, L. 4]. Instead, Transcom would receive from GNAPS a monthly recurring charge for the month following the invoice [Tr. P. 9, L. 3]. An invoice received on March 1 would be logged in on April because they were related to services for April [Tr. P. 10, L. 1].

Respondent introduced into evidence its accounting records, the Vendor Balance Detail, relating to transactions with GNAPS. Mr. Dewey testified that monies were not owed to GNAPS because each week a payment would be made for the following seven days of service which had not yet been received [Tr. P. 12, L. 21].

In cross-examination, Mr. Dewey conceded that Transcom's accounting system reflected an accounts payable to GNAPS in the sum of $246,000 on April 1, 2009 [Tr. P. 18, L. 3]. Looking at the accounting records (Respondent's 1), it would appear that $184,000 was owed to GNAPS on April 2.

Petitioner introduced into evidence Transcom's contract with GNAPS. Mr. Dewey was asked to look at the provision of the contract relating to automatic renewal. The provision provided for automatic renewal "on a month to month basis, unless either party provides the other party with written notification, at least 30 days prior to the expiration of the then current terms of this agreement ..." [Tr. P. 22, L. 13]. Mr. Dewey stated that he was not sure about the terms of the agreement. However, he maintained that Transcom did not make payments in accordance with the contract's terms [Tr. P. 23, L. 13].

On redirect, the witness testified that while the contract called for payments on the first and in the middle of the month, payments were made weekly [Tr. P. 27, L. 20]. He also stated that the accounting records introduced into evidence were incomplete and for internal use. If the records were to be utilized by outsiders, he would have eliminated the liability as the services had [*3]not yet been performed [Tr. P. 29, L. 17].

Scott Birdwell, Transcom's Chief Executive Officer, testified that Transcom purchases voice termination services from GNAPS's existing markets. They run for seven days. If GNAPS's services are still running, then Transcom pays for an additional seven days [Tr. P. 35, Ls. 18-23]. Birdwell maintained that his company has always prepaid for services because GNAPS cannot be trusted financially, nor can its service be trusted [Tr. P. 38, Ls. 2-6].

The two companies do not have common ownership or control. Their relationship has been strained for several years as GNAPS's service quality is poor [Tr. P. 33, Ls. 10- 19]. It would not be technically difficult or time-consuming to switch from GNAPS [Tr. P. 36, L. 10]. However, because of the cost, it was not practical to make the switch to another vendor.

Mr. Birdwell stated that the terms of the parties' contract changed significantly several years ago after GNAPS began to "lose footprint." The parties moved off the contract terms, and Transcom began paying weekly [Tr. P. 39, L. 2]. He maintained that the contract was not followed today because of GNAPS's service and financial instability [Tr. P. 40, Ls. 6-12].

On cross-examination, Mr. Birdwell was questioned on Transcom's response to the information subpoena. He stated that the response that Transcom paid a monthly charge of $28,000 per circuit for eight circuits and additional charges of $57,000 was not accurate [Tr. P. 44, L. 25]. It does not reflect the current agreement with GNAPS [Tr. P. 45, L. 23].

The witness acknowledged that there was no other written agreement entered into with GNAPS after the October 21, 2003 agreement [Tr. P. 47, L. 4]. Nor did Transcom indicate in its response to the information subpoena that there was an oral amendment [Tr. P. 48, L. 7]. After the restraining notice was received, Transcom's financial records were reviewed. While Mr. Dewey's working payments showed accounts payable, no amounts were owed to GNAPS at that time [Tr. P. 49, Ls. 14-18 ]. Written notice terminating the agreement was never sent to GNAPS [Tr. P. 50, L. 22]. Transcom continued to make payments to GNAPS after receipt of the restraining notice [Tr. P. 51, L. 24].

On redirect, Mr. Birdwell testified that Transcom's payments to GNAPS were for the prepayment of services [Tr. P. 52, L. 3]. Nor is there an oral commitment on Transcom to purchase services from GNAPS [Tr. P. 52, L. 9].

Respondent rested. Petitioner did not call any witnesses in rebuttal.

Discussion

CPLR 5201 provides a broad outline of what property is available to satisfy a judgment. The rule states:

(a) Debt against which a money judgment may be enforced. A money judgment may be enforced against any debt, which is past due or which is yet to become due, certainly or upon demand of the judgment debtor, whether it was incurred within or without the state, to or from a resident or non-resident, unless it is exempt from application to the satisfaction of the judgment. A debt may consist of a cause of action which could be assigned or transferred accruing within or without the state.

(b) Property against which a money judgment may be enforced. 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 [*4]application to the satisfaction of the judgment. A money judgment entered upon a joint liability of two or more persons may be enforced against individual property of those persons summoned and joint property of such persons with any other persons against whom the judgment is entered.

The Court of Appeals addressed the issue of whether intangible contractual rights constitute "debt" or "property" in the seminal case ABKCO Indus. v. Apple Films, 39 NY2d 670 [1976]. The issue in ABKCO was whether an absent debtor's intangible contract right to net profits from the future promotion of a film was "debt" or "property" within CPLR 5201, so as to support an attachment for purposes of securing quasi in rem jurisdiction.

The Court found that pursuant to CPLR 5201, "property" included "the bundle of rights under the Agreement, of which ... the obligation ... to pay under the 80% clause was the principle feature of economic significance" (Id., 39 NY2d at 674.). The Court held that the contract right was property that could be assigned and, therefore, was subject to levy under CPLR 5201(b).

Verizon urges that the court should not look any further than the October 21, 2003 Telephone Switch Agreement which was identified in Transcom's response to the information subpoena. Transcom may have orally modified the agreement or operated in ways that were inconsistent with the agreement. However, Transcom never exercised its termination rights by giving thirty days notice to opt out of its contract with GNAPS. Instead, it paid GNAPS $2.4 million dollars under the contract. Therefore, as in ABKCO, GNAPS interest in the contract is subject to restraint and execution.

This court disagrees.

Verizon is correct that the contract provides that it may only be amended by written agreement and that Transcom never exercised its right to terminate the agreement by giving notice. However, under Massachusetts law, which governs the construction, interpretation, and performance of the October 21, 2003 agreement, language in a written agreement, prohibiting subsequent changes to the contract unless reduced to a writing, will not bar oral modifications where it is clear that both parties assent to the change (Creative Marine, Inc. v. Zaccai, 2006 WL 2678307 [Mass. Sup. Ct., Aug. 29, 2006]). "Mutual agreement on modification of the requirement of a writing may ... be inferred from the conduct of the parties and from the attendant circumstances' of the instant case" (First Pennsylvania Mortgage Trust v. Dorchester Savings Bank, 395 Mass. 614, 625, 481 NE2d 1132, 1139 [Mass. 1985]).

The undisputed and credible testimony given by Larry Dewey and Scott Birdwell established that the business relationship between Trancom and GNAPS evolved from a contract-based payment into one that was based on prepayment for services. Transcom was not bound to accept additional services offered by GNAPS. On the contrary, the record reflects that Transcom was free to purchase services from other service providers without suffering any penalty under its business relationship with GNAPS.

In short, the Court finds that the conduct of GNAPS and Transcom demonstrates clearly that they waived the provision barring oral modification of the 2003 contract and, several years ago, entered into an arrangement where Transcom prepaid weekly for services offered by GNAPS.

In light of this reality, the next issue is whether prepayment for services is a form of property or debt that is subject to a restraining notice, levy and turnover. [*5]

The "principle feature of economic significance" is that Transcom had no continuing obligation or commitment of any sort to purchase the services offered by GNAPS. Transcom was not in possession of property in which GNAPS had an interest. Since GNAPS had no right to payment in advance under its business arrangement with Transcom, it had no right that it could assign to its creditors. In light of this economic reality, the court finds that there is no property or debt in the instant matter subject to a restraining order, levy or turnover pursuant to Article 52 of the CPLR.

Finally, we turn to respondent's contention that petitioner's application should be denied on the grounds that Verizon has submitted to the exclusive jurisdiction of the United States District Court for the District of Massachusetts with regard to any property of GNAPS.

Contrary to respondent's contention, the Monitor Order contains specific language expressly authorizing actions in other jurisdictions. Paragraph 13 of the Monitor Order states:

Any and all persons claiming any interest in any of the Property shall be and are hereby enjoined from commencing any action in any court or elsewhere against the Monitor in connection with or otherwise based upon the discharge of the duties of the Monitor herein, except with the express permission of this Court obtained after filing a motion on notice to the Monitor, all parties to this action, and SNET. Such restraint is not intended to bar any current action asserted against the Judgment Debtors or their affiliates in this or any other court.

(Monitor Order, p. 8, para. 13).

In light of the unambiguous language above, respondent's contention that the Massachusetts court has exclusive jurisdiction is clearly meritless.

For the above reasons, turnover is denied, and the petition is dismissed with prejudice. Any and all restraints are vacated forthwith. The application to hold respondent in contempt is denied.

The foregoing constitutes the decision and judgment and order of the court.

Date:June 17, 2010______________________________

New York, New YorkAnil C. Singh