Opinion
Index No. 112833/09
03-29-2011
CIT LENDING SERVICES CORPORATION, Plaintiff, v. 654 BROADWAY PARTNERS LLC, KYLE RANSFORD, TREVOR STAHELSKI, GRUBB & ELLIS NEW YORK, INC., NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK CITY DEPARTMENT OF ENVIRONMENTAL PROTECTION, NEW YORK CITY DEPARTMENT OF FINANCE, AND JOHN DOE # 1 THROUGH JOHN DOE # 10, Defendants.
INTERIM DECISION/ORDER
,
MEMORANDUM DECISION
In this mortgage foreclosure action, plaintiff CIT Lending Services ("CIT") moves for an order holding defendants 654 Broadway Partners LLC ("654 Broadway"), Kyle Ransford, and Trevor Stahelski (collectively, "defendants") in contempt of court for failing to turn over $425,000 in prepaid rents, plus interest accrued thereon, from Shoe Mania XI LLC, as successor in interest to Shoe Mania XI Corp. ("Shoe Mania"), to receiver David Gold ("Receiver") pursuant to this Court's order, dated February 23, 2011.
The Factual Background is taken from the plaintiff's motion papers.
In June 2008, 654 Broadway, as lessor, and Shoe Mania, as lessee entered into a lease (the "Shoe Mania Lease") for certain premises, which provides that in "the event that the Tenant is unable to exercise the ROFOR [right of first refusal to purchase the retail space] as set forth in section 88 . . . Landlord shall refund to Tenant the sum of $425,000.00 [of the $500,000 Security Deposit] with all interest accrued, and thereafter the Security Deposit shall be $75,000.00 for the remainder of the Term, or at Tenant's option, such sum shall be applied to rent until extinguished (¶ 75(B)). Upon entering into the Shoe Mania Lease, Shoe Mania provided to defendants a $500,000 Security Deposit.
After the commencement of this action, this Court appointed the Receiver to collect and receive the rents (the "Receiver Order"). Upon learning that Shoe Mania provided the defendants with $500,000 as a Security Deposit, the Receiver requested that defendants turn over this Deposit. In response, defendants claimed the money had already been spent to improve the Premises.
CIT then moved to hold defendants in contempt of the Receiver Order. On December 14, 2009, this Court held a hearing on CIT's contempt motion, at which time, Shoe Mania's owner, Mark Cohen ("Cohen"), testified that the contemplated sale of the commercial space at the Premises (or ROFOR) never occurred, and that Shoe Mania had previously requested that $425,000 of the Security Deposit be returned to it. However, despite this request, the $425,000 was never returned to Shoe Mania. Finally, Cohen testified that his expectation going forward was that the Security Deposit would be applied as "either offsetting the rent or eventually trying to make a deal for it to be a deposit towards the condo sale." Thus, this Court ordered that defendants turn over all the prepaid rents and security deposits for the tenants at the premises other than Shoe Mania's $425,000.
Thereafter, Shoe Mania demanded that the Receiver apply the $425,000 as prepaid rent until the sum is extinguished (the "Shoe Mania Letter"). After receipt of the Shoe Mania Letter, the Receiver requested defendants to remit the $425,000, that they are required to be holding on behalf of Shoe Mania as prepaid rent, so it may be applied to the rent owed by Shoe Mania. Defendants refused to turn over the $425,000.
Thus, CIT moved to compel defendants to turn over the $425,000 to the Receiver as prepaid rent (the "Turnover Motion"). The Court denied the Turnover Motion because Shoe Mania remained equivocal as to whether it wanted the $425,000 treated as prepaid rent or as a deposit toward a purchase (the "April 27, 2010 Order").
Then, the Receiver brought an eviction action against Shoe Mania in Landlord Tenant Court. At the eviction proceeding hearing, Shoe Mania argued that pursuant to the Shoe Mania Letter, it elected to treat the $425,000 as prepaid rent. Accordingly, the Landlord Tenant Court dismissed the eviction proceeding and ordered that the sum of $425,000 be applied as prepaid rent to pay off all arrears to date.
As a result, CIT moved to impose a trust and compel defendants to turn over the $425,000 in prepaid rents to the Receiver, which the Court granted. The Court directed defendants to turn over the $425,000, representing the prepaid rent from Shoe Mania, plus interest accrued thereon to the Receiver within seven days and held such funds could not be used for any purpose related to the operation of the subject property except to the extent permitted by law.
Now CIT moves for an order holding defendants in contempt for failing to comply with the Court's directive, as defendants failed to tender any amounts pursuant to the Court's order.
In opposition, defendants argue that contempt is an inappropriate remedy because their financial inability to pay a money judgment is a complete defense to a civil contempt. Defendants' compliance is factually impossible. Ransford and Stahelski have submitted affidavits detailing their financial inability to pay the Receiver. Both have significantly negative net worths. Neither thy nor Broadway Partners have the money to satisfy the order. And, their inability to pay is through no fault of their own. At the time defendants allocated the $425,000 for building expenses and improvements, they did so in a manner they believed to be consistent with the Shoe Mania lease, and under the assumption that the premises would be converted to condominium units. Defendants have not wilfully disobeyed the Court's order. Further, CIT cannot show prejudice. The Receiver has been operating the building since October 2009, without the subject funds, and has never represented that the income from building operations is insufficient to operate the building. CIT also has not filed any motions to proceed with foreclosure, which is the quickest path to achieve its desired result.
Discussion
It is established that "[p]ursuant to the Judiciary Law, a court may punish a party to a pending civil action by fine and/or imprisonment for disobedience to its lawful mandate which disobedience may defeat, impair, impede, or prejudice a right or remedy of another party to the action" (Dankner v. Steefel. 41 AD3d 526, 527 [2d Dept 2007]). Further, "[t]he failure to obey a lawful order of a court is a species of contempt" (Rubackin v. Rubackin, 62 A.D.3d 11 [2d Dept. 2009]). A period of incarceration may be imposed upon a finding of either a criminal or civil contempt (Cicero v. Cicero, 23 Misc 3d 1131, 889 N.Y.S.2d 881 [Sup. Ct. Richmond Cty 2009]). Civil contempt is defined as disobedience to a lawful mandate of the court which prejudices the rights or remedies of another party to the litigation (id), and must be proven by "clear and convincing evidence" (Romanello v. Davis, 49 AD3d 652, 653 [2d Dept. 2008] [internal citations omitted]; Kalish v. Lindsey, 47 AD3d 889, 891 [2d Dept. 2008]).
The Court's power to punish a person for a civil contempt "where he refuses or willfully neglects to pay money directed to be paid by him by a judgment or order which '(1) requires the payment of money into court or to an officer of, or receiver appointed by, the court, except where the money is due upon the express or implied contract or as damages for the non-performance of a contract; or (2) requires a trustee or a person acting in a fiduciary relationship to pay a sum of money for a willful default or dereliction of his duty'" is discretionary and is to be exercised in the light of the facts and circumstances in each particular case (In re Hildreth, 28 A.D.2d 290, 284 N.Y.S.2d 755 [1st Dept. 1967]). If it appears that the inability of the respondent to pay or perform was occasioned by his flagrant or wrongful act or that there has been a willful and contemptuous refusal to pay over a specific and particular existing fund in the respondent's possession, there is little room for the exercise of discretion (id. at 292). "Where a party alleges an excuse for disobedience to a judgment or order of a court or alleges matters in mitigation, the burden of proof is upon him to establish the same. Such burden must be met by a factual showing. Vague and conclusory allegations of sickness or inability to pay or perform are not acceptable" (id. at 294). And, if "it appears that there is a bona fide dispute in material and relevant facts, the court may set the matter down for a hearing" (id. at 294-295).
Here, the opposition raises a bona fide dispute as to whether defendants are unable to pay the $425,000 pursuant to the Court's order. Therefore, this issue shall be decided upon a hearing to be held on April 4, 2011, 9:30 a.m. (Lyons v Salamone, 32 A.D.3d 757, 821 N.Y.S.2d 188 [1st Dept 2006] [stating that the motion for contempt was properly denied upon a showing of the business's poor financial condition and the difficulties in reconstructing its financial history]).
Conclusion
Based on the foregoing, it is hereby
ORDERED that the parties shall appear in Part 35 for the hearing noted above on April 4, 2011, 9:30 a.m.
This constitutes the Interim Decision and Order of the Court. Dated: March 29, 2011
/s/_________
Hon. Carol Robinson Edmead, J.S.C.