Opinion
No. 21695–11E.
2013-04-2
BANANA KELLY COMMUNITY IMPROVEMENT ASSOCIATION, INC., et al., Plaintiffs, Decision and Order v. SCHUR MANAGEMENT COMPANY, LTD., Defendant. Schur Management Company, Ltd., Plaintiff, 1244–1246 Westchester Avenue Housing Development Fund Corporation et al., Defendants. Schur Management Company, Ltd., Plaintiff, v. 1244–1246 Westchester Avenue Housing Development Fund Corporation et al., Defendants.
Cory S. Dworken, Esq., of Altschul & Altschul, for Defendants. Andrew K. Lipetz, Esq., of Wasserman Grubin Rogers LLP, for Plaintiffs.
Cory S. Dworken, Esq., of Altschul & Altschul, for Defendants. Andrew K. Lipetz, Esq., of Wasserman Grubin Rogers LLP, for Plaintiffs.
ALEXANDER W. HUNTER JR., J.
Defendant Schur Management Company, Ltd.'s (“Schur”) motion for an order holding plaintiffs Banana Kelly Community Improvement Association, Inc., et al. (“Banana Kelly”) in contempt for failing to comply with this court's August 17, 2012 order, sanctioning Banana Kelly for its contempt in an amount and manner determined by this court, appointing a temporary receiver for the properties at issue herein, staying this action until Banana Kelly posts an undertaking in the amount of $435,641.41, and sanctioning Banana Kelly and its attorneys for their frivolous conduct to date and misrepresenting material facts to this court, is granted to the extent that Banana Kelly is adjudicated in civil contempt, a sanctions hearing will be held, and this action is stayed pending the resolution of the undertaking issue by motion practice pursuant to C.P.L.R. 6314.
By decision and order, dated January 6, 2012, this court granted Banana Kelly's request for a preliminary injunction against Schur to the extent that Schur was enjoined from serving as property manager for the Banana Kelly properties, enjoined from further collecting rents from the subject properties, and enjoined from directing or advising the tenants and building superintendents of Banana Kelly's properties that it remains the property manager. This court further required Banana Kelly to post an undertaking pursuant to C.P.L.R. 6312(b) in an amount to be fixed by the court.
After receipt of the parties' submissions regarding the amount of the undertaking, this court issued a decision and order, dated April 20, 2012, directing Banana Kelly to “post a bond in the total amount of $435,641.41.” (Dworken aff. exhibit I). Due to Banana Kelly's failure to post an undertaking, Schur moved for an order compelling Banana Kelly to post the undertaking. On August 17, 2012, this court issued an order directing Banana Kelly to post an undertaking in the amount of $435,641.41 within forty-five days of notice of the entry of the August 17, 2012 order. Notice of entry and service was effectuated on August 29, 2012. More than forty-five days have elapsed and to date, Banana Kelly has failed to post the required undertaking. By letter dated October 15, 2012, Banana Kelly informed this court that Banana Kelly would not be posting the undertaking. (Dworken aff. exhibit P).
Schur asserts that this court's directive compelling Banana Kelly to post an undertaking created a basis for Schur to have an apparent and actual interest in the properties once managed by Schur. Should Schur ultimately prevail in this action, Schur may be unable to satisfy any judgment Schur may obtain against Banana Kelly. Schur notes that Banana Kelly has taken contrary positions as to its finances and most recently has claimed that Banana Kelly is impoverished and cannot post an undertaking. Banana Kelly's admitted state of poverty places its properties in danger of being materially injured. As such, the appointment of a temporary receiver pending litigation will protect the low-income families who reside in the properties and will protect all of the parties' interests to maintain the status quo. Moreover, Banana Kelly's willful refusal to post an undertaking severely prejudices Schur. Therefore, Schur maintains that such inequity compels this court to stay Banana Kelly from proceeding in this matter until the undertaking issue is resolved and Schur's interests are adequately protected.
This court's August 17, 2012 order clearly directed Banana Kelly to post an undertaking in the amount of $435,641.41. It is undisputed that Banana Kelly has failed to comply with the order. Schur further asserts that it is undisputed that Banana Kelly's failure to comply with this court's order was willful. Schur refers to the affidavits of Harold DeRienzo (“DeRienzo”), the President of Banana Kelly. In his May 29, 2012 affidavit, submitted in support of Banana Kelly's application seeking an order holding Schur in contempt, DeRienzo stated that “Banana Kelly cannot obtain a bond for the undertaking in the amount required by the April 20 Order without first obtaining the $229,404.80 in rent money that the April 20 and May 11 Orders required Schur to disgorge, because Banana Kelly needs that money to satisfy the surety's cash collateral requirement.” (Dworken aff. exhibit N). After the funds were turned over, DeRienzo asserted in his affidavit dated July 13, 2012, that Banana Kelly was unable to post the undertaking because “[Banana Kelly] was informed by the surety that as a condition of issuing the undertaking [Banana Kelly] [was] required to pledge interests in several additional buildings that are part of Banana Kelly's portfolio” and Banana Kelly “is prohibited from pledging buildings required by the surety.” (Dworken aff. exhibit O).
Based upon these two affidavits, Schur contends that Banana Kelly is in contempt and attempted to hide its contempt by concocting a story about Banana Kelly's inability to post the undertaking. In addition, Banana Kelly's contempt caused Schur to suffer actual prejudice as Schur's interests remain unprotected while Banana Kelly has received the benefits of preliminary injunctive relief. Pursuant to Judiciary Law § 773, Schur requests that this court schedule an inquest to determine the costs and expenses incurred by Schur in bringing the instant motion for contempt.
Schur also seeks an order imposing sanctions on Banana Kelly and its attorneys. Schur maintains that Banana Kelly's willful refusal to comply with this court's order was undertaken primarily to delay or prolong this litigation and to maliciously injure Schur. Schur points out that Banana Kelly waited two months to respond to Schur's submission of a proposed settled order regarding the amount of the undertaking. Schur also notes that Banana Kelly did not appeal or move to modify these orders. Instead, Banana Kelly chose to do nothing. It was not until October 15, 2012, the final day that Banana Kelly could comply with the August 17, 2012 order, that Banana Kelly informed the court that it would not post the required undertaking. In sum, Schur avers that this was all a scheme orchestrated by Banana Kelly to wrestle control of the properties from Schur and to wrongfully terminate Schur's contractual rights. As to Banana Kelly's attorneys, Schur contends that they should be sanctioned for enabling, facilitating, and endorsing Banana Kelly's frivolous acts.
In opposition, Banana Kelly argues that it is not in contempt as the failure to post an undertaking is a “mere irregularity” which only renders the preliminary injunction voidable until either the undertaking is provided or the injunction is vacated. Guiliano v. Carlisle, 236 A.D.2d 364, 365 (2nd Dept.1997). Banana Kelly asserts that Schur can only obtain relief for an improperly issued injunction by alleging and proving a cause of action for malicious prosecution. Schur's pleadings in this case and the companion case make no such claim for malicious prosecution. Consequently, Schur is precluded from the remedy it seeks in the instant motion.
Banana Kelly further asserts that there is no basis in law or fact to appoint a temporary receiver in this action. Banana Kelly cites to this court's May 24, 2012 order in the companion cases which reads in pertinent part that “[t]he filing of the undertaking is not related to the notice of pendency and does not support Schur Management's contention that said undertaking proves that Schur Management has a security interest in the properties at issue.” Banana Kelly avers that this court dismissed the notice of pendency because Schur could not demonstrate that it had an interest in the properties at issue. Similarly, Schur does not have a property interest to support its application for the appointment of a temporary receiver. Furthermore, Schur's contention that the properties at issue are in danger is entirely speculative.
Banana Kelly also avers that there is no basis for a stay in this action because the failure to post an undertaking is a mere irregularity and does not constitute contempt. Moreover, since a temporary receiver should not be appointed, no stay should issue. Finally, Banana Kelly contends that a review of the record will unequivocally demonstrate that Schur refused to comply with the injunction for six months until forced to do so by multiple court orders resulting from Banana Kelly's motions for contempt against Schur.
As to Schur's request for sanctions, Banana Kelly maintains that Banana Kelly has pushed this litigation forward in spite of Schur's dilatory tactics. In addition, Banana Kelly maintains that its failure to post the undertaking was not willful or malicious.
In reply, Schur asserts that the basis of its contempt motion is Banana Kelly's numerous misrepresentations to this court in attempting to excuse its failure to comply with this court's August 17, 2012 order. Furthermore, Banana Kelly acted maliciously by submitting numerous misrepresentations to this court by the submissions of the affidavits of DeRienzo. Schur asserts that these misrepresentations were made for the sole purpose of injuring and prejudicing Schur's rights in this action. Schur reiterates its arguments in support of a stay and for sanctions.
Lastly, Schur argues that this court should void the preliminary injunction granted to Banana Kelly for its failure to post the undertaking. Voiding the preliminary injunction would return the parties to their respective positions status quo ante. Schur requests that the funds and records be returned to Schur and that the management of the properties be placed back in the hands of Schur.
Judiciary Law § 753(A) provides that a court “has the power to punish, by fine or imprisonment, or either, a neglect or violation of duty, or other misconduct, by which a right or remedy of a party to a civil action or special proceeding, pending in the court may be defeated, impaired, impeded, or prejudiced in any of the following cases A party to the action or special proceeding, an attorney, counselor, or other person, for the non-payment of the sum of money, ordered or adjudged by the court to be paid, in a case where by law execution cannot be awarded for the collection of such sum except as otherwise specifically provided by the civil practice law and rules; or for any other disobedience to a lawful mandate of the court.” Judiciary Law § 750(A) provides that a court “has the power to punish for criminal contempt, a person guilty of ... willful disobedience of a lawful mandate.”
In order to hold a party in civil contempt, there must be showing that 1) a lawful judicial order expressing a clear directive was disobeyed; 2) the contemnor had knowledge of the order; and 3) the contemnor's disobedience prejudices the rights of a party. McCain v. Dinkins, 84 N.Y.2d 216 (1994); McCormick v. Axelrod, 59 N.Y.2d 574 (1983). The mere act of disobedience is enough to sustain a finding of civil contempt, provided that the disobedience defeats, impedes, or impairs the rights of a party. See, Torah v. Kesher Intl. Trading Corp., 246 A.D.2d 538 (2nd Dept.1998); Cannizzaro v.. Cannizzaro, 186 A.D.2d 776 (2nd Dept.1992); Yalkowsky v. Yalkowsky, 93 A.D.2d 834 (2nd Dept.1983).
“Although the line between the two types of contempt may be difficult to draw in a given case, and the same act may be punishable as both a civil and a criminal contempt, the element which serves to elevate a contempt from civil to criminal is the level of willfulness with which the conduct is carried out.” McCormick, 59 N.Y.2d at 583. A finding of criminal contempt requires a showing that the contemnor violated a clear and unequivocal order with proof beyond a reasonable doubt that the contemnor willfully disobeyed the court order. Department of Environmental Protection of the City of New York v. Department of Environmental Conservation of the State of New York, 70 N.Y.2d 233 (1987). Fines for civil contempt must be “remedial in nature and effect” and devised “solely to compensate or indemnify private complainants.” State of New York v. Unique Ideas, Inc., 44 N.Y.2d 345, 349 (1978). The aggrieved party must prove actual damages as a result of the contemnor's disobedience. Absent such proof, “the court may only impose a fine which does not exceed the complainant's costs and expenses, plus an additional $250.” Berkowitz v. Astro Moving & Storage Co., 240 A.D.2d 450, 452 (2nd Dept.1997); Judiciary Law § 773. In contrast, fines for criminal contempt are aimed “solely to punish the contemnor for disobeying a court order.” State of New York, supra at 349.
“A hearing is not mandated in every instance where contempt is sought; it need only be conducted if a factual dispute exists which cannot be resolved on the papers alone.' “ Jaffe v. Jaffe, 44 AD3d 825, 826 (2nd Dept.2007), quoting Bowie v. Bowie, 182 A.D.2d 1049, 1050 (3rd Dept.1992). A hearing is required only when issues of facts are raised. Quantum Heating Servs. v. Austern, 100 A.D.2d 843 (1984); Mulder v. Mulder, 191 A.D.2d 541 (2nd Dept.1993).
Here, there is no dispute that this court's August 17, 2012 order expressed a clear directive requiring Banana Kelly to post an undertaking in the amount of $435,641.41. It is also undisputed that Banana Kelly knew of its obligation to post an undertaking. Instead of moving to modify the undertaking or appealing the undertaking, Banana Kelly took no action until October 15, 2012 (the last day on which Banana Kelly could comply with this court's order) when it informed the court, matter-of-factly, that Banana Kelly would not be posting an undertaking. Based on the foregoing, Schur met its burden of establishing that Banana Kelly disobeyed this court's clear mandate and the disobedience thereof prejudiced Schur's rights. In opposition, Banana Kelly failed to contradict any of Schur's allegations and only argued that the failure to post an undertaking cannot constitute contempt. Schur does not seek to recover for an actual loss or injury that it suffered due to Banana's Kelly's contempt. As such, Schur is only entitled to its actual costs and expenses plus the statutory maximum fine of $250.00.
The failure to post an undertaking is deemed a “mere irregularity which only [makes] the injunction voidable until either the undertaking [is] provided or the injunction [is] vacated.” Guiliano v. Carlisle, 236 A.D.2d 364, 365 (2nd Dept.1997). However, “the undertaking is the source of liability and, therefore, absent an undertaking there is no right, short of an action for malicious prosecution, to recover for damage resulting from the issuance of court process.” J.A. Preston Corp. v. Fabrication Enterprises, Inc., 68 N.Y.2d 397, 401 (1986); see also, Technicare Corp. v. New York City Health & Hosp. Corp., 131 A.D.2d 371 (1st Dept.1987); Reingold v. Bowins, 34 AD3d 667 (2nd Dept.2006). As the required undertaking was never posted, this action is hereby stayed pending resolution of the undertaking issue.
22 NYCRR 130–1.1 allows the court discretion to award costs, including reasonable attorneys fees, and to impose sanctions against a party or an attorney who engages in “frivolous conduct.” Frivolous conduct is defined as conduct that is “1) completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; 2) it is undertaken primarily to delay or prolong the resolution of the litigation or maliciously injure another; or 3) it asserts material factual statements that are false.” 22 NYCRR § 130–1.1. “In determining whether the conduct undertaken was frivolous, the court shall consider among other issues the circumstances under which the conduct took place, including the time available for investigating the legal and factual basis of the conduct, and whether or not the conduct was continued when its lack of legal and or factual basis was apparent, should have been apparent, or was brought to the attention of counsel or the party.” 22 NYCRR § 130–1.1(c)(3). Based on the record, this court concludes that Schur's request for the imposition of sanctions against Banana Kelly and/or its attorneys cannot be determined without a sanctions hearing.
The request by Schur for the appointment of a temporary receiver is denied. Schur has failed to establish that it has an apparent interest in the property as required by C.P.L.R. 6401.
Accordingly, it is hereby,
ORDERED that with respect to the civil contempt adjudication, Schur is entitled to its actual costs and expenses plus the statutory maximum fine of $250.00. This matter shall be set down for an inquest to determine the costs and expenses incurred by Schur in proving Banana Kelly's contempt; and it is further
ORDERED that a sanctions hearing will be held to determine whether Banana Kelly and/or its counsel should be sanctioned for frivolous conduct and misrepresenting material facts to this court. The hearing will be held on Tuesday, May 28, 2013 at 9:30 A.M. in room 408, 851 Grand Concourse, Bronx, New York; and it is further;
ORDERED that this action is hereby stayed pending resolution of the undertaking issue by motion practice pursuant to C.P.L.R. 6314.