Opinion
CV930303908S
12-16-2017
GREAT COUNTRY BANK v. Jeffrey OGALIN et al.
UNPUBLISHED OPINION
Caption Date: December 17, 2017
OPINION
Alfred J. Jennings, Jr., Judge Trial Referee
Background
On March 15, 1994 the original plaintiff Great Country Bank obtained a foreclosure deficiency judgment in this matter against the defendant Frank F. Ogalin a/k/a/ Frank F. Ogalin, Jr. (herein, " defendant") in the amount of $137, 055.17. Thereafter, the judgment was assigned to the present plaintiff The Cadle Company. On December 3, 2015 the plaintiff caused to he served, through a state marshal, a personal property execution upon defendant’s employer Drywall Construction Corporation of Connecticut (Drywall), a third party believed to have property of and/or debts due and owing to the defendant. The marshal’s subsequent return of service indicated that the property execution served upon Drywall was unsatisfied. On April 10, 2014 the plaintiff filed an Application for Orders in Aid of Execution pursuant to Conn. Gen. Stat. § 52-356b asking the court to enter a turnover order against Drywall with respect to non-wage debts due to the defendant Frank F. Ogalin from Drywall. The plaintiff alleged that it had determined through postjudgment discovery that Drywall, a closely-held family business whose then-president was Christina Ogalin, the daughter of defendant, owed money for non-wage debts to the defendant in the form of reimbursement for business expenses incurred on behalf of Drywall but paid for by the defendant. Drywall denied that it was indebted to the defendant for reimbursement of any expenses as of the date of the property execution, claiming that all such expenses had been previously reimbursed and that not all of the expenses were incurred by the defendant alone. Following a hearing this court (Kamp, J.) found on April 7, 2015 that Drywall was indebted to defendant Frank J. Ogalin in the amount of $19, 887.27 and granted plaintiff Cadle Company’s Motion for Turnover Order against Drywall in the amount of $19, 887.27. That order was affirmed by the Appellate Court on October 11, 2016. Great Country Bank v. Jeffrey Ogalin, 168 Conn.App. 783 (2016).
Section 52-356b provides in relevant part: (a) " If a judgment is unsatisfied, the judgment creditor may apply to the court for execution and an order in aid of the execution directing the judgment debtor, or any third person, to transfer to the levying officer either or both of the following: (1) Possession of specified personal property that is sought to be levied on; or (2) possession of documentary evidence of title property of, or a debt owed to, the judgment debtor that is sought to be levied on. (b) the court may issue a turnover order pursuant to this section, after notice and hearing or as provided in subsection (c) of this section, on a showing of need for the order. If the order is to be directed against a third person, such person shall be notified of his right pursuant to section 52-356c to a determination of any interest claimed in the property."
Now before the court is plaintiff’s Motion for Civil Contempt Remedies, as amended, against Drywall Construction Corporation of Connecticut and its officers Christina Ogalin and Frank F. Ogalin, Jr. for failure to comply with the court’s turnover order of April 7, 2015. The Court heard evidence on February 16, 2017, April 6, 2017, May 11, 2017 and July 13, 2017. Post-hearing memoranda have been filed.
Discussion
The Court finds that no part of the $19, 887.27 turnover order has been paid by Drywall to the plaintiff. Plaintiff is asking the court to incarcerate Drywall’s officers Christina Ogalin and Frank F. Ogalin for contempt of court. Under our law corporate presidents and/or persons-in-charge may be held accountable, through contempt powers of the court, for corporate actions that constitute contempt of court orders. See, Wilson v. United States, 221 U.S. 361, 376, 31 S.Ct. 538, 55 L.Ed. 771 (1911) (A command to a corporation constitutes a command to those in charge of it who, if knowing of the order, fail to bring about corporate compliance, are themselves recalcitrant, liable in contempt of court and subject to punishment for such contempt.) accord, MCI Telecommunications Corp. v. World Telecommunications, Inc. (S.D.N.Y. February 26, 1998). 1998 WL 85757 (order entered that if corporation fails to comply with court order by a date certain, then its president will be arrested under the court’s contempt powers). The turnover order issued from this court on April 27, 2015 and became final on October 11, 2016 (or twenty days later when no petition for certification was filed with the Supreme Court). Christina Ogalin testified, and the court finds, that she resigned as president of Drywall as of February 1, 2016 when Drywall ceased operations, with the effect that she could not have been in contempt of the turnover order as an officer of Drywall on October 11, 2016. Defendant Frank Ogalin remained and is currently Director and Vice President of Drywall (Pl. Ex. 16), and he admitted that he remained as the " person-in-charge" of the corporation for purposes of winding up its affairs. In that status he could be held in contempt and punished for Drywall’s failure to comply with the turnover order if that remedy is legally appropriate.
During the course of these contempt proceedings the Connecticut Supreme Court issued its decision on May 2, 2017 in Robert Pease v. The Charlotte Hungerford Hospital et al., 325 Conn. 363 (2017), which held as a matter of first impression in Connecticut that a litigant who lost a lawsuit against the hospital which then obtained a Practice Book § 18-5 taxation of costs award against him, could not be held in contempt of court for failure to pay those court costs to the hospital.
We conclude that, under ordinary circumstances, such as those in this case, the court’s inherent contempt power is not an appropriate means of enforcing an award of costs or other monetary judgment. Id., 364.
Citing and quoting 17 Am.Jur.2d, 568, Contempt § 128 (2017), the court said:
Contempt does not generally support the enforcement of debts reduced to judgments, or monetary judgments, when the effect of the order would be jail nonpayment of a debt. Contempt cannot be used as a mere debt-collecting device. Id., 376
Noting that the use of contempt power to enforce civil judgments is banned by constitutional prohibition or by statute in most other states, the Court further said:
To a large extent these rules arose out of and reflect the early nineteenth century movement to abolish imprisonment for commercial debt ...
Connecticut is one of the handful of states that have not adopted a constitutional amendment prohibiting debtor’s prisons. Id., 1035. Nevertheless as Justice Shea persuasively argues in his dissenting opinion in Fox v. First Bank, [198 Conn. 34 (1985) ] 42-43, the history and public policy rationales that have led our sister courts to bar the use of contempt power to enforce ordinary monetary judgments counsel the same result here. Connecticut abolished imprisonment for contractual debt by statute as early as 1838. See Armstrong v. Ayres, 19 Conn. 540 (1849); and, as noted, has continued to restrict the types of debt for which contempt is a permissible sanction ... As have our sister states, Connecticut has rejected the practice of imprisonment for debt as inhumane, unjust, and generally ineffective. (Citations omitted.) Id., 376-77.
The Court concluded
Accordingly, we see no reason why Connecticut should diverge from the majority rule that, outside of the marital dissolution and child support context, ordinary monetary judgments and taxation of costs are not subject to enforcement by civil contempt absent extraordinary circumstances. Id., 378.
By its footnote 15 the Court addressed the " extraordinary circumstances" reference: " Because none were alleged, we need not decide what types of exceptional circumstances- if any- might justify holding a party in contempt for failure to pay a civil award of costs, nor whether the standards governing awards of costs differ from those governing monetary judgments. See DHRI, Inc. v. Hanback, 288 Va. 249, 255 n.2 765 S.E.2d 9 (2014) (leaving open the question whether civil contempt proceedings can ever be appropriate process for enforcing monetary judgments outside of domestic relations cases.)"
The plaintiff Cadle Company argues for a finding of contempt in that Drywall’s claimed inability to make any payments in response to the turnover order is wilful and caused by the fault of members of the Ogalin family including defendants Frank F. Ogalin and Christina Ogalin in setting up new companies engaging in the same business as Drywall and diverting new business and some of Drywall’s assets or resources to use by those new entities, thereby depriving Drywall of income that might have been devoted to satisfaction of the turnover order. First of all it must be noted that this is not a fraudulent transfer case or a case for violation of a restrictive covenant or a violation of fiduciary duties, and those new entities are not parties before the court. This is strictly a case where the court is being asked to use its powers of contempt to enforce a civil order in aid of a property execution for money damages. The same argument of wilfulness was made and rejected in Pease v. Charlotte Hungerford Hospital, supra, where the defendant hospital complained on appeal that the trial court had improperly denied its motion for contempt without first determining whether the plaintiff’s failure to pay was wilful. After explaining the historical and policy reasons for its ruling that the award of costs could not be enforced by the court’s contempt power and consequent incarceration, the Court concluded " as a matter of law" that the trial court properly denied the motion for contempt without first determining whether the plaintiff’s failure to pay was wilful. 325 Conn. at 378.
Defendants in their brief refer to the Pease court’s footnote 11, which implies a distinction between ordinary debt and an order to turn over a specific asset. The footnote states, in part, " Exception is frequently made for cases of fraud or refusal by a party to turn over specific assets." See note, " State Bans on Debtors Prisons and Criminal Justice Debt" 129 Harv.L.Rev. 1024, 1026-27, 1034 (2016)" Defendant argues that such exception, if there is one, would not apply here because the turnover order in question does not direct that Drywall turn over any particular asset(s) but rather just creates an ordinary debt of Drywall to the plaintiff. The court agrees. The Harvard Law Review Note cited in footnote 11, in discussing states which have a constitutional ban on imprisonment for debt, mentions the recognized exception to such bans: " And if a court ordered a party to turn over specific assets, that party’s refusal to comply would give rise to the jailable offense of civil contempt of court without offending the constitutional limit" and, " Courts emphasize that the contempt lies in failing to comply with an injunction to turn over specific property that is currently under the debtor’s control." The Note’s footnote 117 cites among other cases, Lepak v. McClain, 884 P.2d 852 (Okla. 1992) where the Oklahoma Supreme Court sustained the contempt-of-court power " when used to require the delivery of ... identified property owned by and in the possession or control of the judgment debtor" but struck down the use of contempt power when used " to require the judgment debtor to set aside and deliver a portion of his/her future income toward the satisfaction of judgment debt." Id. at 855. The Chief Justice, in his concurring opinion, elaborated:
I write separately to explain and to re-emphasize the court’s rationale that postjudgment orders directing an obligor (a) to pay from a specific non-exempt fund or account, (b) to deliver described non-exempt property in a person’s possession or under one’s control, or (c) to sell a specific non-exempt asset and use the proceeds to pay scheduled installments may be enforced by contempt, while orders that generally call for the payment of money adjudged to be owing cannot. 854 P.2d at 859.
Judge Kamp’s turnover order in this case is neither (a), (b), or (c) of Chief Justice Opala’s analysis, but rather falls squarely into the category of a general call for the payment of money by Drywall to The Cadle Company. The only possible source of that payment mentioned in Judge Kamp’s Memorandum of Decision is deposition testimony by Drywall’s then-president Christina Ogalin concerning the four manilla envelopes containing receipts for business expenses advanced by Frank Ogalin and other Drywall employees; " I normally would generate the receipts and have a total on the manilla [envelope], and from that total would write out checks when the business had money, and then that total would be wiped out once I hit that total." Memorandum of. Decision Re: Application for Turnover Order, April 7, 2015, p. 3. This case, then, would not be exempt from the ruling of the Connecticut Supreme Court in Pease v. Charlotte Hungerford Hospital under any exception for turnover of specific assets.
Finally, plaintiff attempts to distinguish Pease v. Charlotte Hungerford Hospital on the ground that the hospital " sought to totally bypass Connecticut’s statutory scheme for post-judgment collection procedures and, instead, directly sought to have the cost award enforced through contempt remedies customarily used by litigants when an adversary violates a court order, ... whereas Cadle Company has not bypassed Connecticut’s post-post judgment collection statutes; has followed them faithfully and that course has brought us to these contempt proceedings." (Post-Hearing Brief, 1-2.) The Pease Court did mention the availability of collection remedies set forth in Chapter 906 of the Connecticut General Statutes as a factor in its decision to declare that a court’s inherent contempt power is no longer an appropriate means of enforcing an award of costs or other monetary judgment. But that decision is primarily grounded on the history and public policy rationales that have led a majority of United States jurisdictions to bar the use of contempt power to enforce ordinary monetary judgments, and to be consistent with Connecticut’s abolition of imprisonment for contractual debt almost 200 years ago as inhumane, unjust, and generally ineffective 325 Conn. at 376-77. There is nothing in the decision limiting its benefit to those debtors against whom no Chapter 906 collection remedies had been attempted. Indeed, to limit the right to freedom from contempt and imprisonment for unpaid judgment debt to those against whom no collection remedies had been engaged- arguably in many cases the judgments least collectible due to lack of income or assets- would deny the benefit of those freedoms to those most in need of their protection.
Furthermore, plaintiff’s argument that it has exhausted its collection remedies under Chapter 906 and has no further option other than enforcement by contempt as things have developed during the course of these proceedings, may no longer be accurate. As the evidence has shown, Drywall’s only significant asset at this time is a cause of action against Montango Construction Inc. (Montagno), for whom Drywall performed a large subcontract to provide labor and materials on a project in Stamford in 2014. At the conclusion of the project Montagno sued Drywall for failure to allow credits for change orders deleting some work from the subcontract, failure to perform work with promptness and diligence, defective drywall work, and failure to pay its subcontractors and suppliers in a timely manner. The case, Montagno Construction, Inc. v. Drywall Construction Corporation of Connecticut is pending in the Superior Court at Waterbury as Docket No. CV16-60311379S, of which this court has taken judicial notice. Drywall has recently engaged new counsel, Atty. Michael J. Leventhal, for representation in that case, who has filed an Amended Counterclaim against Montagno for alleged breaches of subcontract for failures to pay for extra labor and materials at the Project pursuant to change orders submitted by Drywall. The Amended Counterclaim seeks $164, 810.63 in damages plus an award of attorneys fees pursuant to a provision in the subbcontract. The case is now scheduled for trial commencing May 2, 2018. The counterclaim against Montagno at least opens the door for Cadle Company to commence garnishment proceedings against Montagno under Conn. Gen. Stat. § 52-381 et seq., part of Chapter 906. in fact formal garnishment proceedings may not be necessary as Atty. Leventhal, who has also appeared for Frank F. Ogalin and Drywall in this case, offered on the record at the final day of testimony for this motion on July 13, 2017 to have Drywall assign its counterclaim against Montagno to Cadle Company to the full extent of its $19, 887 turnover order.
Order
For the foregoing reasons the Plaintiff’s Motion for Order of Civil Contempt Remedies (No. 184) and Amendment to Motion for Order of Civil Contempt Remedies against defendants Drywall Construction Corporation of Connecticut and its officer Frank F. Ogalin and its former officer Christina Ogalin are denied.