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March 30, 2004.


The opinion of the court was delivered by: DENISE COTE, District Judge


This action arises out of the efforts of Cordius Trust ("Cordius") to collect a judgment entered by this Court against Elizabeth Kummerfeld ("Ms. Kummerfeld") and Kummerfeld Associates, Inc. ("KAI") on April 11, 2000, and affirmed by the Page 2 Second Circuit Court of Appeals on November 30, 2000. Donald Kummerfeld ("Mr. Kummerfeld") is Ms. Kummerfeld's husband. Together, they are the sole officers and shareholders of KAI.

  On March 25, 2003, Cordius moved pursuant to Rule 69, Fed.R. Civ. P., for the issuance of a writ of execution and turnover order piercing the corporate veil of KAI in order to render Mr. Kummerfeld's assets amenable to attachment. Attached to Cordius's motion were evidentiary submissions in support of its claims, including the deposition testimony of Mr. and Ms. Kummerfeld. This action was referred to Magistrate Judge Ronald Ellis on March 27 for post-trial supervision. Mr. Kummerfeld opposed the March 25 motion on May 16 by filing his own evidentiary submissions, including his "Affidavit in Opposition to Petition and in Support of Motion to Dismiss" and excerpts of his deposition testimony and that of Ms. Kummerfeld, as well as a motion to dismiss the petition pursuant to Rules 12(b)(5) and 12(b)(6), Fed.R. Civ. P., on the grounds that service of process was inappropriate, the petition was defective, the action was improperly commenced as a special turnover proceeding, and Cordius failed to state a claim upon which relief may be granted. Over several months, the parties and Judge Ellis discussed Mr. Kummerfeld's procedural defenses and his June 13, 2003 letter request for sanctions. After determining that the record was complete, and that neither party wished to supplement its Page 3 submissions, Judge Ellis issued a Report and Recommendation ("Report") on February 19, 2004, recommending that Mr. Kummerfeld's motion to dismiss be denied and Cordius's motion to pierce the corporate veil be granted.

  Mr. Kummerfeld has filed objections to the Report, Cordius has filed a response, and Mr. Kummerfeld has filed a brief in further support of his objections. For the following reasons, Judge Ellis's recommendations are adopted.


 The Original Action

  The following facts are undisputed, unless otherwise noted. In the original proceedings before this Court, Cordius brought suit against Ms. Kummerfeld in her individual capacity and as president of KAI for breach of a promissory noted that she executed in settlement of claims of fraud and misconduct alleged by Cordius. On February 1, 2000, the Court denied defendants' motion to compel arbitration or, in the alternative, to dismiss the action for lack of jurisdiction. On February 7, at the conclusion of a bench trial, the Court delivered an Opinion granting judgment in favor of Cordius. As described in the February 7 Opinion, Cordius's claims arose from a March 1997 agreement in which KAI promised to invest Cordius's funds in a three-phase capital enhancement program.

  Cordius provided KAI with $400,000 upon execution of the Page 4 agreement. In June, Ms. Kummerfeld informed Cordius that its investment, with a 200% profit, would be released in approximately one week. In August 1997, Cordius was provided $100,000. In March 1998, Ms. Kummerfeld reported that Cordius would receive a $325,000 return of principal and a 240% profit within two weeks. That amount was not forthcoming, and a dispute arose between the parties concerning KAI's handling of the funds made available by Cordius. On March 5, 1999, in settlement of the dispute, Ms. Kummerfeld executed in both her individual capacity and as president of KAI a promissory note for $1,418,000. None of the payments required by the promissory note were made.

  The Court entered judgment in favor of Cordius for the full amount of the note, plus reasonable costs and attorney's fees. The Opinion stated:
The defendants' promised investment program indicates to this Court an effort to defraud the plaintiff. The failure to pay and the false statements contained in the letters prepared by the defendant and submitted to the plaintiff and which have been received in evidence during the course of this trial show a course of conduct to further victimize the plaintiff and deprive it of monies to which it was lawfully entitled.
The Second Circuit affirmed the judgment in a summary order dated November 30, 2000.*fn1 Cordius Trust v. Kummerfeld Assoc., Inc. et al., 242 F.3d 264 (Table), 2000 WL 1775516 (2d Cir. Jan. 2, Page 5 2001). On February 20, 2001, Cordius served Ms. Kummerfeld and KAI with a Restraining Notice to Judgment Debtor, pursuant to New York Civil Practice Law and Rules Section 5222(b). No payments have been made on the judgment owed Cordius.


  KAI was formed in 1985 by Mr. and Ms. Kummerfeld, each of whom owns 50 percent of KAI's shares. Since the company's inception, Ms. Kummerfeld has been president and Mr. Kummerfeld has been chairman of the board and treasurer. In 1999, however, Mr. Kummerfeld could not recall who held the position of treasurer. He was also unaware of whether KAI had named a secretary or had adopted any by-laws. In 2001, Ms. Kummerfeld testified that KAI had never had a meeting of the shareholders, but that the board of directors met frequently, although no records were kept. Mr. Kummerfeld testified in 2000 that he had never attended a meeting of the shareholders or board of directors. In 2001, in another deposition taken by Cordius in its efforts to collect on its judgment, he stated that the shareholders and board of directors met, but that no records were kept of those meetings.

  In 1997, KAI earned $35,045 in revenue, received $200,000 in loans from Mr. Kummerfeld, and incurred $661,746 in expenses. In 1998, KAI earned $35,000 in revenue, received $318,500 in loans from Mr. Kummerfeld, and incurred $731,935 in expenses. In 2000, Page 6 KAI earned $48,000 in revenue, received $412,500 in loans from Mr. Kummerfeld, and incurred $534,464 in expenses. Over the course of the years for which financial information has been made available,*fn2 KAI earned a total of only $118,045, received $931,000 in loans from Mr. Kummerfeld, and spent in excess of $1,920,000.

  The expenses incurred by KAI included the following payments to Ms. Kummerfeld in 1997: $57,400 labeled "loan reimbursements," $3,741 to Ms. Kummerfeld for taxi services, $18,874.23 for meals, $9,025.30 for hotels, and $1,900 as petty cash. In 1998, Ms. Kummerfeld received $5,678.89 in petty cash, $3,411.40 for taxis, $6,747.83 for meals, and $42,789.00 for hotels. In 2000, Ms. Kummerfeld received $3,320 in petty cash, $12,901.82 for meals, and $40,611.05 for lodging.

  In 1997, the Kummerfelds flew to Lisbon and Buenos Aires at KAI's expense. Mr. Kummerfeld states that only his wife was conducting KAI business at the time, but that he received his ticket free as part of a two-for-one ticket package. In 1999, KAI funds were used to pay lawyers representing Ms. Kummerfeld in connection with federal charges of wire fraud and mail fraud Page 7 relating to a high-yield investment scheme.*fn3 In 2001, Mr. Kummerfeld used KAI's office space to operate a personal business, but paid no share of the monthly rent of $20,000. In 2000, 2001, and 2002, the Kummerfelds purchased box seats at the U.S. Open to entertain KAI clients. The price of these seats in 2000 was over $20,000.

  Based on KAI's business losses, the Kummerfelds declared tax deductions of $315,785 in 1997; $353,628 in 1998; and $417,189 in 2000. In 2001, Mr. Kummerfeld took out a $650,000 mortgage on his Cape Cod vacation home, appraised at approximately $1,700,000. He used the proceeds to loan approximately $400,000 to KAI. Cordius has been unable to attach the property ...

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