Opinion
INDEX NO. 152744/2019
05-03-2019
In the Matter of SAMANTHA KURLAND, Petitioner, v. PAUL AGRESTI, THE BOARD OF DIRECTORS OF CAST IRON CORP., and CAST IRON CORP. Respondents.
NYSCEF DOC. NO. 48 PRESENT: HON. JOHN J. KELLEY Justice MOTION DATE 04/30/2019 MOTION SEQ. NO. 001
DECISION AND ORDER
The following e-filed documents, listed by NYSCEF document number (Motion 001) 2, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 41, 42, 43, 44, 45, 46 were read on this motion to/for CONTEMPT.
Samantha Kurland (the petitioner) petitions to hold the respondents Cast Iron Corp., a residential cooperative corporation, and Board of Directors of Cast Iron Corp. (together Cast Iron) in civil contempt of court for violating a restraining notice served upon them in accordance with CPLR 5222. She also seeks summarily to recover damages for their wrongful transfer of funds subject to the restraint. Cast Iron opposes the petition. The petition is granted, and the matter is set down for a hearing to determine the appropriate sanction.
The petitioner commenced an action to recover for nuisance against Cast Iron and Paul Agresti. On May 18, 2018, Agresti and Cast Iron settled their cross claims against each other in that action, with Cast Iron agreeing to pay Agresti $100,000, plus one month's maintenance in the amount of $2,250, in consideration for Agresti's immediate relinquishment of his proprietary lease and shares in Cast Iron Corp. Cast Iron agreed to place Agresti's apartment on the market for sale, and Agresti agreed that it could invest up to $50,000 in upgrading and marketing the unit, and recoup those expenses from the sales proceeds, with a credit to him of 50% of that sum. He further agreed that it could retain a broker who would accept a brokerage fee to be paid from the proceeds of sale. Agresti and Cast Iron also agreed that:
"Agresti will receive $350,000 and 50 percent of the difference between the sale price net of all usual and customary brokerage fees, transfer fees, and all costs of the sale and net of all expenditures by Cast Iron Corp. to ready apartment 303 for sale, and net of any unpaid maintenance or other generally assessed costs of occupancy."The $100,000 described above was to be held in escrow by Agresti's attorney, from which he agreed to reimburse Cast Iron for all maintenance due and unpaid in connection with Agresti's apartment, 50% of the interest and late fees due on the unpaid maintenance, legal fees that Cast Iron incurred in an earlier nonpayment proceeding that it had commenced against Agresti in the Civil Court, and 50% of the legal fees that Cast Iron already incurred in a then-pending nonpayment proceeding.
The court notes that after Agresti and Cast Iron placed the terms of the settlement on the record, the petitioner's attorney asserted: "I can't agree to anything until I'm clear with Mr. Van der Tuin," Cast Iron's counsel. Indeed, the petitioner's counsel never agreed, calling the settlement between the respondents an "evil agreement."
On May 23, 2018, the court entered a $510,377.46 judgment in favor of the petitioner and against Agresti, upon a jury verdict. The petitioner thereafter served restraining notices upon Agresti and Cast Iron in accordance with CPLR 5222, forbidding Agresti from selling, assigning, transferring, or interfering with any property in which he had an interest that could be levied upon to satisfy the judgment debt, and forbidding Cast Iron from selling, assigning, transferring, or interfering with any of its property to the extent that it owed a debt to Agresti. The petitioner alleges that Cast Iron nonetheless transferred $102,250 to Agresti's attorney sometime between June and September 2018, that it thus violated the restraining notice, and that it should thus be held in contempt and answerable in damages. The petitioner did not serve a restraining notice upon Agresti's attorney; it appears that this attorney had no knowledge that the restraining notices had been served upon Cast Iron or Agresti.
By order dated January 11, 2019, the court denied as unnecessary the petitioner's motion to preliminarily enjoin all of the respondents from transferring assets subject to the restraining notices, explaining that the petitioner's recourse was to commence a plenary action or special proceeding to recover damages for wrongful transfer and/or to hold Cast Iron in contempt. This proceeding ensued.
To prevail on an application to punish a party for civil contempt, a party must establish that the party to be held in contempt violated a clear and unequivocal court order or mandate that was known to the parties (see Judiciary Law § 753[A][3]; see also McCormick v Axelrod, 59 NY2d 574 [1983], amended 60 NY2d 652 [1983]). The applicant must also establish that the party to be held in contempt engaged in conduct that was calculated to and actually did defeat, impair, impede, and prejudice the rights of the applicant (see 450 West 14th St. Corp. v 40-56 Tenth Avenue, LLC, 15 AD3d 166 [1st Dept 2005]; Lipstick, Ltd. v Grupo Tribasa, S.A. de C.V., 304 AD2d 482 [1st Dept 2003]). "[W]ilfulness is not an element of civil contempt" (El-Dehdan v El-Dehdan, 26 NY3d 19, 35 [2015]). A civil contempt must be proven by clear and convincing evidence (see Classe v Silverberg, 168 AD3d 603, 604 [1st Dept 2019]).
"[T]he restraining notice serves as an injunction prohibiting the transfer of the judgment debtor's property" (Distressed Holdings, LLC v Ehrler, 113 AD3d 111, 116 [2d Dept 2013]). It is well settled that a party is bound to adhere to an order granting an injunction, however misguided or erroneous it may have been. A party who violates an injunction is not free to disregard it and decide for itself the manner in which to proceed, notwithstanding its good-faith belief in the incorrectness of the injunction; that party may still be held in contempt for violating the injunction (see Matter of Balter v Regan, 63 NY2d 630, 631 [1984]; Matter of Lindsey BB. v Ruth BB., 72 AD3d 1162, 1163-1164 [3d Dept 2010]; State of New York v Rosse, 18 AD3d 982, 984 [3d Dept 2005]; Matter of Bickwid v Deutsch, 229 AD2d 533, 534-535 [2d Dept 1996]; Sigmoil Resources N.V. v. Vittorio Lecca Ducagini Duca Di Guevara Suardo Fabbri, 228 AD2d 335, 336-337 [1st Dept 1996]; Matter of Village of St. Johnsville v Triumpho, 220 AD2d 847, 848 [3d Dept 1995]). This rule is applicable even where the underlying order violated by the contemnor is later reversed on appeal (see Matter of Village of St. Johnsville v Triumpho, 220 AD2d at 848; Matter of Cost, 198 Misc 782 [Sup Ct, Nassau County 1950], affd 277 App Div 1049 [2d Dept 1950], affd 304 NY 800 [1952]) or where the contemnor was awaiting a determination of an appeal from the underlying order (see Burchell v Cimenti, 38 AD2d 897 [1st Dept 1972]).
The remedy for an erroneously issued injunction or restraint is to seek a vacatur, modification, or stay pending appeal or reargument of the subject order or restraint. "[A]n individual against whom an injunction has been granted must comply with the terms of the injunction or be liable for contempt for failure to do so, notwithstanding that the injunctive order is illegal. His remedy lies in judicial challenge to the injunction, not in personal refusal to obey its command" (Rivera v Smith, 63 NY2d 501, 516 [1984]; see Brummer v Wey, 166 AD3d 475, 478 and n 3 [1st Dept 2018]; Matter of Lindsey BB. v Ruth BB., 72 AD3d at 1164; Zafran v Zafran, 28 AD3d 753, 756 [2d Dept 2006]).
Crucially, this rule is applicable to restraining notices that are allegedly improper or overbroad; the remedy for such a restraining notice is to move pursuant to CPLR 5240 to vacate the restraint or narrow its scope (see CPLR 5240; Wimbledon Fin. Master Fund, Ltd. v Bergstein, 2018 NY Slip Op 30868[U], *13 n 15 [Sup Ct, N.Y. County, May 10, 2018]; see also Pan American World Airways, Inc. v Chemical Bank, 78 AD2d 844, 844 [1st Dept 1980]; cf. Motorola Credit Corp. v Standard Chartered Bank, 24 NY3d 149, 170 [2014] ["As for jurisdictions where a [party] is faced with potential liabilities for complying with a restraining notice, CPLR 5240 gives a court discretion to deny, limit, condition or modify the use of any enforcement procedure"). The court notes that a restraining notice gives the judgment creditor no lien on the judgment debtor's property and no special priority in a race with other secured creditors (see 54 NY Jur 2d Enforcement and Execution of Judgments § 209; Kitson & Kitson v City of Yonkers, 10 AD3d 21 [2d Dept 2004]).
The court rejects Cast Iron's contention that it was free to ignore the restraining notice because the petitioner consented to the settlement agreement resolving the cross claims in the underlying nuisance action. The transcript reveals that she did not consent to the settlement. Even if the petitioner is deemed to have consented, such consent did not constitute a waiver of any priority she may have in connection with the transferred funds or her right to restrain those funds after she secured a judgment against Agresti. In fact, in addressing a question by Agresti, the court warned that the settlement could be affected by a subsequent restraining notice, stating, "[i]f there is a judgment against [Agresti]..., [the petitioner is] going to file a restraining notice against [Cast Iron] that says that [it] cannot release any funds to Agresti until [her] judgment is satisfied" (emphasis added).
A waiver is an intentional, voluntary relinquishment of a known right (see Jefpaul Garage Corp. v Presbyterian Hosp. in City of N.Y., 61 NY2d 442 [1984]; Russo v Rozenholc, 130 AD3d 492 [1st Dept 2015]). An implied waiver may be recognized where a party permits an adversary to engage in conduct over a substantial period of time without objection (see GM Acceptance Corp. v Clifton-Fine Cent. Sch. Dist., 85 NY2d 232, 236 [1995]). Cast Iron makes no claim that the petitioner expressly waived her right to seek priority over or restrain the disputed fund. Nor is there anything in the transcript that would support their waiver-by-implication theory (see Jordan Panel Sys., Corp. v Turner Constr. Co., 45 AD3d 165, 175 [1st Dept 2007]). In fact, the transcript reflects the opposite, that is, that the petitioner reserved her rights to claim priority and restrain any amounts that Cast Iron obligated itself to pay Agresti, regardless of Agresti's intentions as to how he might disburse or spend those funds.
Nor is there any merit to Cast Iron's contention that the restraining notice was unclear or equivocal, or that the petitioner understood that she was only seeking to restrain it from transferring Agresti's shares in Cast Iron Corp. The terms of the restraining notice provide that:
"WHEREAS it appears that you owe a debt to the judgment debtor or are in possession or in custody of property in which the judgment debtor has an interest;
"TAKE NOTICE that pursuant to subdivision (b) of Section 5222 of Civil Practice Law and Rules, which is set forth in full herein, you are hereby forbidden to make or suffer any sale, assignment or transfer of, or any interference with any property ("Property"), including, but not limited to, any interest CAST IRON CORP. or PAUL AGRESTI may have in Apartment 303 located at 67 East 11th Street, New York, New York 10003, including proprietary shares or otherwise, except upon direction of the Sheriff or pursuant to an Order of the Court, until the Judgment is satisfied or vacated. Property includes any payments to be made by the Cast Iron Corporation.The notice thus unambiguously restrained Cast Iron from transferring any property, money, payments, or corporate debts in which Agresti had an interest. That property and money would necessarily include any money that Cast Iron may have owed Agresti pursuant to their stipulation of settlement.
"TAKE FURTHER NOTICE that this notice also covers all property in which the judgment debtor has an interest hereafter coming into your possession or custody, and all debts hereafter coming due from you to the judgment debtor" (emphasis added).
The court also rejects the argument that Cast Iron was not bound to obey the restraining notice because UCC 9-322(h)(1) gives it priority over all other security interests in Agresti's unit, as well as the petitioner's judgment lien. That statute provides that "[w]ith respect to all amounts secured, a cooperative organization security interest has priority over all other security interests in a cooperative interest." Generally, a perfected security interest in shares of stock, commercial paper, or money has priority over a judgment lien where the security interest was perfected prior to the entry of the judgment (see Berkowitz v Chavo Intl., Inc., 74 NY2d 144, 150 [1989]). "[A] security interest in money may be perfected only by the secured party's taking possession under [UCC] Section 9-313" (UCC 9-312 [b][3]).
Even if Cast Iron's interpretation of the law is correct, it was not authorized to determine unilaterally that the disputed funds were not subject to restraint. In any event, Cast Iron had control of the $102,250 in controversy when it was served with the restraining notice, and it appears that it only came into possession of those funds after the judgment was entered. More critically, those funds consisted of money that Cast Iron obligated itself to pay Agrestri in settlement of a cross claim; merely because Agresti agreed to use that money to repay Cast Iron for unpaid maintenance, late fees, interest, and attorneys' fees does not transmute it into a fund in which Cast Iron had a "cooperative organization security interest." When Cast Iron first came into possession of that money, it had no security interest in it at all. Rather, the money was meant to be disbursed to Agresti, and Cast Iron's interest in recovering any portion thereof was purely contractual. In other words, had Agresti refused to repay Cast Iron in accordance with the settlement agreement, its remedy would have been to seek enforcement of a contractual obligation, not the foreclosure of a security interest.
The petitioner has shown, by clear and convincing evidence, that Cast Iron ignored a clear and unequivocal mandate of the court and that its conduct in this regard was calculated to and actually did defeat, impair, impede, and prejudice her rights. The court has considered all of Cast Iron's arguments and submissions, and despite having been given a full and fair opportunity to either demonstrate that it did not ignore such a mandate or engage in such conduct---or to raise factual issues in connection therewith---it has not done so. Cast Iron is thus held in civil contempt.
"[C]ivil contempt seeks 'the vindication of a private right of a party to litigation and any penalty imposed upon the contemnor is designed to compensate the injured private party for the loss of or interference with that right'" (El-Dehdan v El-Dehdan, 26 NY3d at 34, quoting Matter of McCormick v Axelrod, 59 NY2d 574, 583 [1983]). The extent of damages that the petitioner sustained as a consequence of the interference with her ability to collect the disputed $102,250 immediately, rather than later, ultimately may be equal to the entire amount wrongfully transferred, particularly since the sale of Agresti's shares and apartment is not imminent. Any amount that the petitioner recovers in this proceeding would, of course, be allocated to satisfy a portion of her judgment against Agresti, and would concomitantly reduce the amount that she needed to secure from the proceeds of sale to satisfy the remainder of the judgment.
As to the branch of the petition that summarily seeks damages for the wrongful transfer of the funds (see Aspen Indus. v Marine Midland Bank, 52 NY2d 575, 579 [1981]; Accounts Receivable Solutions, Inc. v Tompkins Trustco, Inc., 45 AD3d 612 [2d Dept 2007]), the claim seeks the same relief as the request for contempt. Hence, that branch of the petition is granted on the issue of liability, and the hearing on the issue of the appropriate sanction for contempt also will dispose of the issue of damages in connection with the claim for wrongful transfer.
Accordingly, it is
ORDERED that the petition is granted to the extent that the respondents Cast Iron Corp. and Board of Directors of Cast Iron Corp. are (1) held in contempt for violating a clear and unequivocal mandate of the court set forth in the restraining notice served upon them and engaging in conduct that was calculated to and actually did defeat, impair, impede, and prejudice the petitioner's rights to collect money they owed to the respondent Paul Agresti and (2) liable in damages for the wrongful transfer of funds duly restrained; and it is further,
ORDERED that the parties shall appear before the court on June 10, 2019, at 9:30 a.m., for a hearing to determine the appropriate sanction and damages arising from the contempt and the wrongful transfer of funds subject to restraint.
This constitutes the Decision and Order of the court. 5/3/2019
DATE
/s/ _________
JOHN J. KELLEY, J.S.C.