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Trust v. Kummerfeld Associates

August 5, 2009

CORDIUS TRUST, PLAINTIFF,
v.
KUMMERFELD ASSOCIATES, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Ronald L. Ellis, United States Magistrate Judge

OPINION AND ORDER

I. INTRODUCTION

Pending before the Court is Plaintiff/Petitioner Cordius Trust's ("Cordius") motion to hold Respondent Donald D. Kummerfeld, his wife, Defendant Elizabeth M. Kummerfeld, and their company, Defendant Kummerfeld Associates, Inc. ("KAI") (hereinafter collectively "the Kummerfelds"), in contempt for failing to comply with the discovery order of the undersigned and failing to comply with Cordius's execution of the judgment against them. For the reasons that follow, I find that the Kummerfelds are in contempt, and are subject to the following sanctions: 1) the Kummerfelds shall pay Cordius $10,000 for fees and costs related to filing the instant motion for contempt; 2) Donald Kummerfeld shall review Cordius's discovery requests that triggered this motion and the documents he was ordered to produce pursuant to this Court's May 6, 2008 Order, provide any unproduced responsive documents within three (3) weeks of the filing of this Order, and submit an affidavit verifying that production is complete; and 3) the Kummerfelds shall provide Cordius with documentation as to the value of their Cape Cod property for each year from 2000--the year judgment was first entered against KAI and Elizabeth Kummerfeld--to present, including documentation explaining any material change in that value.

II. BACKGROUND

Defendant Elizabeth Kummerfeld ("Ms. Kummerfeld") executed a promissory note on behalf of her and KAI pursuant to the settlement of Cordius's claims against them for fraud and securities violations. (Mem. of Law in Supp. of Petitioner's Mot. for Contempt ("Pet'r Mem."), July 17, 2008 at 1.) KAI and Ms. Kummerfeld subsequently defaulted on that note, and Cordius obtained a $1,418,000.00 judgment against them on April 11, 2000, affirmed by the Second Circuit on November 30, 2000. Cordius Trust v. Kummerfeld, 242 F.3d 364 (2d Cir. 2000). Cordius was unable to enforce this judgment, and subsequently sought and won a verdict to pierce the corporate veil of KAI in order to reach the assets of Donald Kummerfeld. (Pet'r Mem. at 1.) Following that January 18, 2008 verdict, District Judge Cote entered judgment against the Kummerfelds on January 25, 2008, in the amount of $2,656,796.02, plus postjudgment interest at the rate of 6.87% per annum. (Id.) On March 31, 2008, the Court also awarded Cordius attorneys' fees in the amount of $327,595.00. (Id.)

Cordius argues that since entry of the original judgment, "the Kummerfelds have evaded all of Cordius's efforts to enforce the Judgment through the usual means available, such as the attachment of real and personal property." (Id. at 2.) When Cordius was unsuccessful in pursuing the Kummerfelds' property, it sought documentary discovery from Donald Kummerfeld to facilitate identification of assets. Cordius asserts that while Kummerfeld never objected, he "provided essentially nothing in response, even though Cordius extended him ample time beyond the deadline to do so." (Id. at 3.) Kummerfeld was subsequently deposed on the subject on April 23, 2008, and he "admitted to possessing many of the documents previously requested by Cordius." (Id.) Based on agreeing with this conclusion, on May 6, 2008, the undersigned ordered Kummerfeld to comply with the document production requests made by Cordius. (Id.; Affidavit of James A. Wade ("Wade Aff."), July 16, 2008, ¶ 8.) Cordius asserts that "Kummerfeld has failed to produce the vast majority of those materials, or to disclose the location of his assets." (Pet'r Mem. at 3.) Cordius maintains that the Kummerfelds have "willfully . . . disobeyed, resisted, and interfered with the Court's lawful process, orders, directives, and instructions--including the Judgment and its execution--by: (1) violating restraining orders issued pursuant to C.P.L.R. § 5222(b); (2) fraudulently encumbering property subject to execution; and (3) failing to comply with the Court's orders regarding discovery." (Id. at 5.)

The Kummerfelds respond that this contempt motion is merely Cordius's attempt to use the Court's "contempt powers to circumvent the appropriate and mandatory . . . states' law remedies and procedures." (Mem. of Law in Opp'n to Pl.'s Mot. for Contempt ("Opp'n Mem."), Aug. 4, 2008 at 1.) They argue that Cordius was unsuccessful in executing the judgments against the property at issue with respect to enforcement of both a foreign judgment and one that was not final since an appeal was pending.*fn1 (Id. at 2.) The Kummerfelds conclude that Cordius "now improperly seeks to use this Court's contempt power to (a) achieve the conveyance of the property to itself and bypass the laws of the Commonwealth of Massachusetts and (b) to evade substantial financial liability should the most recent judgment be reversed." (Id.)

III. DISCUSSION

A. Legal Standards for Finding Civil Contempt*fn2

The Court's inherent power to hold a party in contempt "reach[es] conduct before the court and beyond the court's confines" and is a necessary function for purposes of managing and maintaining order in the efficient and expeditious administration of justice. Leadsinger, Inc. v. Cole, No. 05 Civ. 5606 (HBP), 2006 WL 2266312, at *8 (S.D.N.Y. Aug. 4, 2006) (referencing Young v. United States ex rel. Vuitton et Fils, S.A., 481 U.S. 787, 798 (1987); Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991)).The "power to hold a party in civil contempt may be exercised only when (1) the order the party allegedly failed to comply with is clear and unambiguous, (2) the proof of noncompliance is clear and convincing, and (3) the party has not diligently attempted in a reasonable manner to comply." N.Y. State Nat'l Org. for Women v. Terry, 886 F.2d 1339, 1351 (2d Cir. 1989); see also In re Weiss, 703 F.2d 653, 660 (2d Cir. 1983) (referencing Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 441 (1911)); Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 655 (2d Cir. 2004) (quoting King v. Allied Vision, Ltd., 65 F.3d 1051, 1058 (2d Cir. 1995)). Contemptuous conduct generally includes "willful disobedience of, resistance to, or interference with the court's lawful process, order, directive, or instruction or its execution." 17 AM. JUR. 2d Contempt § 22 (2008). However, the Court does not need to find the conduct at issue was willful in order to conclude that it merits a civil contempt finding. See Manhattan Indus., Inc. v. Sweater Bee by Banff, Ltd., 885 F.2d 1, 5 (2d Cir. 1989); Zino Davidoff SA v. CVS Corp., No. 06 Civ. 15332 (RJS), 2008 WL 1775410, at *6 (S.D.N.Y. April 17, 2008).

1. Federal Rule of Civil Procedure 37

"If a party . . . fails to obey an order to provide or permit discovery, including an order under Rule 26(f), 35, or 37(a), the court where the action is pending may issue further just orders." FED. R. CIV. P. 37(b)(2)(A). Such orders include "treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination." FED. R. CIV. P. 37(b)(2)(A)(vii). Cordius argues that the Kummerfelds have failed to comply with the Court's May 6, 2008 Discovery Order, the result of a hearing before the undersigned at which the Court ordered Kummerfeld to produce all documents identified and requested during his April 23, 2008 deposition within two weeks of his receipt of a list of the requested documents. (Pet'r Mem. at 11; Wade Aff. ¶ 8.) Cordius sent a letter to Kummerfeld's counsel on May 9, 2008, and, after agreeing to an extension of time to respond, Kummerfeld responded on May 27, 2008. (Pet'r Mem. at 11; Wade Aff. ¶ 38.) Cordius argues that "[f]ar from a diligent effort to comply with the Court's order to produce all of the requested documents . . . , Mr. Kummerfeld provided only a handful of documents, and nowhere near all of the materials that he had identified at his deposition." (Pet'r Mem. at 11; Wade Aff. ¶¶ 9, 39, 40.) Cordius maintains that this "unwillingness to comply" is illustrative of the Kummerfelds' "pre-judgment behavior." (Pet'r Mem. at 11.) Cordius highlights instances where the Court has identified Kummerfeld's failure to cooperate in discovery and asserts that contempt is an appropriate sanction for failure to comply with this Court's May 6 Order. (Id. at 12.) The Kummerfelds sought to cure any purported deficiency in their production of responsive documents by including them in opposing Cordius's motion for contempt. They argue that this substantially satisfies all discovery demands and the Court's Order. (Opp'n Mem. at 4.)

Cordius replies that Kummerfeld represented to the Second Circuit on July 29, 2008, that he had produced all responsive KAI documents in his possession in January 2008. Cordius asserts that this contradicts Kummerfeld's representation to this Court that he has only just fulfilled his discovery obligations with his production of documents on August 4, 2008. (Pet'r Mem. at 7 (referencing Brief & Special App'x of Respondent-Appellant, July 29, 2008 at 20).) Cordius further argues that the "Kummerfeld's August 4, 2008 production of hundreds of pages of KAI documents responsive to requests outstanding for months and years demonstrates the wisdom and accuracy of Judge Cote's appraisal that the testimony of the Kummerfelds was 'on many points, incredible.'" (Pet'r Reply at 7-8 n.3 (quoting Trial Transcript ("Tr."), Jan. 18, 2008 at 713:14-15).) Cordius maintains that regardless of the last-minute production, contempt sanctions are appropriate. It argues that it is at least entitled to its attorneys' fees and expenses incurred in preparing this motion. (Pet'r Reply at 8); see FED. R. CIV. P. 37(b)(2)(C).

The Court finds that (1) its order to Kummerfeld to produce outstanding discovery by a date certain was clear and unambiguous, (2) evidence of Kummerfeld's noncompliance is particularly clear through his own admission and his accompanying submission of additional responsive documents with his oppositions papers, and (3) Kummerfeld fails to explain his lack of compliance prior to Cordius's filing of the instant contempt motion, which suggests a lack of diligence to reasonably comply. Further, the Court concludes that, while production may now be complete, Kummerfeld cannot remedy his noncompliance with this Court's order by belatedly producing documents, and only after the filing of a motion for contempt. Therefore, this Court finds Kummerfeld in contempt of its May 6, 2008 Order.

2. Kummerfelds' Failure to Comply with the Judgment

This Circuit has concluded that a contempt order may be appropriate where a party has failed to pay a monetary judgment or sanction issued against it. See, e.g., Huber v. Marine Midland Bank, 51 F.3d 5, 10 (2d Cir. 1995) (confirming that a party's inability to comply with an order to pay court-imposed monetary sanctions is a defense to a charge of civil contempt and the alleged contemnor bears the burden of producing evidence of his inability to comply); United States v. Chusid, 372 F.3d 113, 116-17 (2d Cir. 2004) (affirming contempt finding where contemnor has the ability to direct the payment of funds, and incarcerating him until he satisfies his obligations to make restitution and pay the fine imposed by the court). A party is obligated to pay as much of any judgment against it as is possible under the circumstances. See SEC v. Contini, No. 93 Civ. 4400 (RWS), 2005 WL 2649092 (S.D.N.Y. Oct. 17, 2005).

Cordius asserts that the Kummerfelds have not met their burden of proving that they cannot satisfy the judgment. (Pet'r Reply at 3.) It argues that the Kummerfelds should be subject to sanctionsas a result of their "extended campaign of obfuscatory and even deceptive conduct in an attempt to avoid satisfying the judgment against them." (Pet'r Mem. at 12-13.) It reiterates that the Kummerfelds have spent more than one million dollars that "flowed through" KAI's bank accounts, but have not met their burden of demonstrating their inability to pay the judgment against them. (Pet'r Mem. at 13.) Cordius also asserts that it has demonstrated that the Kummerfelds possess in their Cape Cod property the means to pay at least a substantial portion of the judgment against them, and that the Kummerfelds are specifically in violation of restraining orders issued as a result of those judgments.

a. Contempt for Failure to Comply with C.P.L.R. § 5222

(1) Forum for Motion for Contempt

A federal district court judgment is enforced through the procedures in place in the state in which the court rendering the judgment is found. FED. R. CIV. P. 69(a)(1). New York's procedure may be found in C.P.L.R. § 5222, disobedience of which is punishable by contempt. A judgment creditor may move in federal court to hold a judgment debtor in civil contempt for transferring property in violation of N.Y. C.P.L.R. § 5222(b) (2000).*fn3 See Adidas Sportschufabriken v. New Generation, No. 88 Civ. 5519 (PKL), 1995 WL 646213, at *3 (S.D.N.Y. Nov. 3, 1995). Once the creditor has served the debtor with a restraining order, C.P.L.R. § 5222 prohibits the debtor from transferring or assigning property before the judgment has been satisfied. Similarly, the refusal or willful neglect to obey a restraining notice is punishable as contempt under C.P.L.R. § 5251. Several cases in this district have concluded that disobeying a restraining notice issued under C.P.L.R. § 5222 is a contempt of federal court where the restraining order was initiated by the judgment creditor as a means of executing a judgment entered in federal court. See, e.g., Vinos Argentinos Imports USA, Inc. v. Los Andes Imports, Inc., No. 91 Civ. 2587 (JSM), 1993 WL 465353, at *1 (S.D.N.Y. Nov. 8, 1993); see also Adidas Sportschufabriken, 1995 WL 646213, at *3 (recognizing that § 5222(b) applies to federal proceeding pursuant to Federal Rule of Civil Procedure 69(a) where the judgment creditor moves for contempt against debtor for his failure to comply with postjudgment discovery demands and restraining notice); Fasolino Foods Co., Inc. v. Banca Nazionale Del Lavoro, No. 90 Civ. 334 (JMC), 1992 WL 123650 (S.D.N.Y. May 28, 1992) (reviewing a motion for contempt resulting from a supplementary proceeding pursuant to C.P.L.R. §§ ...


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