The New York Appellate Division of the Supreme Court has ruled on a significant case involving Robert Edward Smallwood and Stanley Supply & Tool, Inc. The court's decision, issued on September 23, 2026, addresses issues related to a restraining notice and the turnover of funds. This ruling affects Smallwood, who has been embroiled in a legal battle concerning the recovery of damages for conversion.
The case began in 2012 when Stanley Supply & Tool, Inc. filed a lawsuit against Smallwood and others, seeking damages for conversion. Conversion refers to the wrongful possession or control of someone else's property. In April 2015, the Supreme Court ruled in favor of Stanley Supply, ordering Smallwood to pay a total of $3,402,774.23. This decision set the stage for ongoing legal disputes regarding the enforcement of the judgment.
In July 2024, Stanley Supply served a restraining notice and an information subpoena to Smallwood's attorney, Jeff Morgenstern. The restraining notice was intended to prevent the transfer of certain funds that were allegedly in Morgenstern's possession and belonged to Smallwood. In response, Smallwood and Morgenstern filed a motion to vacate the restraining notice and quash the subpoena. They argued that the notice was improperly served and that the court lacked jurisdiction over Morgenstern.
The Supreme Court, led by Judge Marguerite A. Grays, issued an order on July 11, 2025. The court denied Smallwood's motion to vacate the restraining notice and quash the subpoena. However, the court also granted Stanley Supply's cross-motion, directing Morgenstern to turn over certain funds to the plaintiff. This order prompted Smallwood to appeal the decision.
The Appellate Division, consisting of Judges Colleen D. Duffy, Linda Christopher, Barry E. Warhit, and Elena Goldberg Velazquez, reviewed the case. The court ruled that the appeal regarding the restraining notice was dismissed as academic, meaning it was no longer relevant due to the expiration of the notice's effectiveness. According to the court, "the effective period of restraint as to a garnishee is limited to one year from the date of service." Since the restraining notice was re-served in July 2024, it was no longer valid.
Furthermore, the court modified the lower court's order regarding the turnover of funds. The Appellate Division stated that the Supreme Court should have denied Stanley Supply's cross-motion because it lacked jurisdiction over Morgenstern, who was not a party to the original action. The court explained, "the plaintiff should have commenced a special proceeding against Morgenstern pursuant to CPLR 5225(b)." This ruling clarifies the legal process required for a judgment creditor to recover property not in the possession of the debtor.
This decision has important implications for Smallwood and the future of the case. By denying the turnover order, the Appellate Division has reinforced the necessity of following proper legal procedures when seeking to recover funds from a non-party. It also highlights the limitations of restraining notices and the importance of jurisdiction in legal proceedings.
The ruling may set a precedent for similar cases involving conversion and the enforcement of monetary judgments. It emphasizes the need for clarity in legal processes, especially when non-parties are involved. Smallwood's situation remains precarious, as he must navigate the complexities of the legal system to address the outstanding judgment against him.
Looking ahead, it is unclear whether Smallwood will seek further appeals or if there are related cases pending that could impact this situation. The court's decision has clarified some aspects of the legal proceedings, but the overall outcome for Smallwood and Stanley Supply is still uncertain. The legal landscape surrounding this case will continue to evolve as both parties consider their next steps.