The opinion of the court was delivered by: Denise Cote, District Judge
The present motion for contempt and supplemental relief arises out of the efforts of Cordius Trust ("Cordius") to enforce judgments against Donald D. Kummerfeld ("Mr. Kummerfeld"), his wife, Elizabeth M. Kummerfeld ("Ms. Kummerfeld"), and their company, Kummerfeld Associates, Inc. ("KAI") (collectively, the "Kummerfelds"). In the almost ten years since the first judgment in April 2000, Cordius has been unable to collect a single cent from the Kummerfelds. Cordius now seeks an order holding the Kummerfelds in contempt for (1) failing to comply with a May 6, 2008 discovery order issued by Magistrate Judge Ronald L. Ellis, and (2) for violations of restraining orders served on the Kummerfelds pursuant to New York Civil Practice Law and Rules ("N.Y. C.P.L.R.") § 5222.
Cordius requests that the Court provide the following relief based on its inherent authority to effectuate enforcement of its judgments: (1) declare a mortgage on the Kummerfelds' Cape Cod property, located in Brewster, Massachusetts (the "Cape Cod property"), given to John Brinitzer, their son-in-law, void as a fraudulent transfer; (2) declare a Homestead Declaration filed by the Kummerfelds in Massachusetts void as fraudulent; (3) order the Kummerfelds to quit-claim the Cape Cod property to Cordius; (4) order the Kummerfelds to make monthly payments to Cordius in the same amount as they currently pay on the primary mortgage on the Cape Cod property; and (5) order whatever other alternative relief --- including incarceration pending curative action --- that the Court finds just and proper.
The Court referred Cordius' motion to Magistrate Judge Ellis. On September 4, 2009, Magistrate Judge Ellis issued a Report and Recommendation in which he recommended that the Kummerfelds be held in contempt, but denied the relief sought by Cordius. The Kummerfelds filed objections to the Report and Recommendation on September 17. Cordius filed its reply to the Kummerfelds' objections on October 8, and separately objected to the alternative relief recommended by Magistrate Judge Ellis. This Court held a hearing on Cordius' motion on October 15 and reserved decision. For the reasons stated herein, the Court now finds the Kummerfelds in contempt and grants Cordius certain relief as an exercise of this Court's equitable powers to enforce its judgments.
The Court assumes familiarity with all prior decisions in this action and sets forth here only a summary of the events and rulings most pertinent to the present motion. Cordius originally filed a complaint against Ms. Kummerfeld and KAI on May 4, 1999, seeking payment on a promissory note executed by Ms. Kummerfeld, on behalf of herself and KAI. On April 11, 2000, following a one-day bench trial on the enforceability of the promissory note, the Court awarded Cordius judgment (the "April 2000 Judgment") in the amount of $1,418,000 plus interest and reasonable attorneys fees and costs. This judgment was affirmed by the Second Circuit in an order dated November 30, 2000. See Cordius Trust v. Kummerfeld Assocs., Inc., 242 F.3d 364 (2d Cir. 2000).
In its efforts to collect the April 2000 Judgment against Ms. Kummerfeld and KAI, Cordius served both with a restraining notice pursuant to N.Y. C.P.L.R. § 5222(a) and (b) on February 20, 2001.*fn1 While Cordius was unable to enforce the April 2000 Judgment, the Kummerfelds continued to spend KAI funds to support their lifestyle, including the purchase of U.S. Open tennis tickets. In 2001 and 2002 alone, the Kummerfelds spent over $140,000 in KAI funds on U.S. Open tickets. The Kummerfelds continued to purchase U.S. Open tickets annually, at least through 2006 when they spent over $64,000 on tickets.*fn2 In addition, the Kummerfelds spent over $1,000,000 of KAI funds between March 2001 and April 2006 on magazines, cable television, dining clubs, telephones, credit card bills, vacation, reserved car parking in Manhattan, and other personal expenditures.
Cordius has identified one substantial asset owned by Mr. and Ms. Kummerfeld: the Cape Cod property. In June 2001, Mr. and Ms. Kummerfeld paid off the original mortgage on that property, of which approximately $113,000 remained, and took out a new $650,000 mortgage. None of the proceeds from the new mortgage were paid to Cordius to satisfy the April 2000 Judgment.
Cordius' post-judgment discovery efforts to identify other assets of the Kummerfelds were consistently thwarted. On March 25, 2003, Cordius moved pursuant to Federal Rule of Civil Procedure 69 for a writ of execution and turnover order to enforce the April 2000 judgment and for an order piercing the corporate veil of KAI to render Mr. Kummerfeld's assets amenable to attachment. The Court granted Cordius' Rule 69 motion on March 30, 2004, see Cordius Trust v. Kummerfeld, No. 99 Civ. 3200, 2004 WL 616125 (S.D.N.Y. Mar. 30, 2004), and judgment was entered against Mr. Kummerfeld on April 30, 2004 (the "April 2004 Judgment"). One day after the Court granted Cordius' Rule 69 motion, Mr. and Ms. Kummerfeld increased the primary mortgage on the Cape Cod property to $700,000. Again, none of the proceeds were remitted to Cordius. On April 8, 2004, Mr. and Ms. Kummerfeld filed a "Declaration of Homestead" on the Cape Cod property pursuant to Mass. Gen. L. ch. 188, § 1 thereby subjecting the property to the statutory exemption of $500,000, and reducing the equity available in the property to satisfy the judgments.
After the entry of judgment against Mr. Kummerfeld in his individual capacity, Cordius filed a motion for leave to register the April 2000 and April 2004 judgments with the U.S. District Court for the District of Massachusetts pursuant to 28 U.S.C. § 1963, which was granted on August 4, 2004. Cordius also served on Mr. Kummerfeld a restraining notice pursuant to N.Y. C.P.L.R. § 5222(a) and (b) on July 19, 2004. On August 2, 2004, Cordius served on Mr. Kummerfeld a Notice to Judgment Debtor pursuant to N.Y. C.P.L.R. § 5222(d) and (e), with a copy of the July 19, 2004 restraining notice previously served. After the restraining notice was served, Mr. Kummerfeld failed to turn over to Cordius the 2004 U.S. Open tickets that he had purchased; those tickets were specifically identified in the notice. In addition, between May 10, 2005 and July 11, 2007, more than $420,000 was deposited into the Kummerfelds' joint checking account, of which approximately $269,000 was deposited by Ms. Kummerfeld. None of this money was used to satisfy the judgments. On January 9, 2006, Mr. and Ms. Kummerfeld gave a mortgage on the Cape Cod property to their son-in-law, John Brinitzer ("Mr. Brinitzer"), in the amount of $262,490, allegedly to repay legal fees that Mr. Brinitzer paid on their behalf.
Mr. Kummerfeld appealed the April 2004 Judgment. Following a partial reversal by the Second Circuit in an order dated October 4, 2005, see Cordius Trust v. Kummerfeld, 153 Fed. App'x 761 (2d Cir. 2005), a jury trial was held in January 2008 on Cordius' action for writ of execution and turnover order piercing the corporate veil of KAI. Evidence at trial established that nearly $1.5 million flowed through KAI's bank accounts after the April 2000 Judgment was entered and after Mr. Kummerfeld had assumed sole control of the company. This despite the fact that KAI ceased "active business operations" in 2002 according to Ms. Kummerfeld's testimony at trial. On January 18, 2008, the jury rendered a verdict in favor of piercing the corporate veil in order to render the assets of Mr. Kummerfeld amendable to attachment. On January 25, 2008, the Court entered a judgment ("the January 2008 Judgment") awarding Cordius $2,656,796.02, plus interest. See Cordius Trust v. Kummerfeld, No. 99-Civ-3200, 2008 WL 216405 (S.D.N.Y. January 25, 2008). The Court granted Cordius' motion to register the January 2008 judgment with the District of Massachusetts pursuant to 28 U.S.C. § 1963 on February 11, 2008. The Court subsequently entered a judgment granting attorneys' fees and costs of $327,595.00 to Cordius on February 29, 2008. Mr. Kummerfeld appealed the January 2008 Judgment, but not the award of attorneys' fees. On June 2, 2009, the Second Circuit affirmed the January 2008 Judgment. See Cordius Trust v. Kummerfeld, No. 08-0939-CV, 2009 WL 1528762 (2d Cir. June 2, 2009).
To this day, Cordius has been unable to enforce the January 2008 Judgment against the Kummerfelds. It sought additional documentary discovery from Mr. Kummerfeld concerning the Kummerfelds' assets, particularly the Cape Cod property. Cordius served Mr. Kummerfeld with post-judgment interrogatories and requests for production on January 22, 2008. Mr. Kummerfeld responded to the interrogatories and requests for production on March 5, 2008, producing a total of four pages of documents, none of which were originals. Cordius deposed Mr. Kummerfeld on April 23, 2008, where he testified that he possessed many of the documents previously requested by Cordius.
At a conference*fn3 with both parties on May 6, 2008, Magistrate Judge Ellis orally ordered Mr. Kummerfeld, who attended the conference, to produce all documents identified and requested during his April 23, 2008 deposition within two weeks of his receipt of a list of the documents from Cordius ("the May 6, 2008 Discovery Order").*fn4 Magistrate Judge Ellis also ordered Cordius to provide a status update as to Mr. Kummerfeld's compliance with the May 6, 2008 Discovery Order by May 30, 2008.*fn5
On May 9, 2008, Cordius provided Mr. Kummerfeld with a written list of fifty-five categories of documents that had been requested during his April 23, 2008 deposition. In the May 9 document, Cordius stated explicitly in the first paragraph that it was providing the list pursuant to Magistrate Judge Ellis' May 6, 2008 Discovery Order requiring Mr. Kummerfeld to produce all of the documents within two weeks. Neither Mr. Kummerfeld nor his counsel objected to Cordius' reference to the May 6, 2008 Discovery Order and its two-week deadline.
Mr. Kummerfeld requested an extension of time by which to respond, to which Cordius agreed. On May 27, 2008, the deadline, Mr. Kummerfeld responded by producing 114 pages of documentation that covered, in whole or in part, eight of the fifty-five requested categories of documents. On May 30, 2008, Cordius sent a status report to Magistrate Judge Ellis, as required, and provided a copy to Mr. Kummerfeld's counsel. Cordius' May 30 letter again referenced the May 6, 2008 Discovery Order, stating: "Per your order, Mr. Kummerfeld was to have produced that additional documentation within two weeks of his counsel's receipt of [the May 9] letter, which would have been Tuesday, May 27, 2008." The May 30 letter indicated to Magistrate Judge Ellis that Mr. Kummerfeld had failed to comply with the May 6, 2008 Discovery Order. Neither Mr. Kummerfeld nor his counsel raised any objection to Cordius' depiction of the order or its assertion that Mr. Kummerfeld had failed to comply. The same day, Cordius provided Mr. Kummerfeld's counsel with a memorandum detailing the documents that Mr. Kummerfeld had failed to produce in accordance with the May 6, 2008 Discovery Order.
On July 18, 2008, Cordius filed the present motion for an order holding the Kummerfelds in contempt and seeking the relief to enforce the judgments described above. The Court referred the motion to Magistrate Judge Ellis for consideration. On August 4, 2008, the same day that the Kummerfelds filed their opposition to Cordius' motion, Mr. Kummerfeld produced 522 additional pages of documentation in response to the May 6, 2008 Discovery Order. In his opposition brief, Mr. Kummerfeld claimed that his August 4, 2008 document production substantially satisfied his obligations pursuant to the order.
Notably, Mr. Kummerfeld did not argue in his opposition that Magistrate Judge Ellis never issued the May 6, 2008 Discovery Order, nor did he dispute Cordius' assertion in their motion and supporting affidavit that the order imposed a two-week deadline. A year later, on August 5, 2009, Mr. Kummerfeld filed another affidavit stating that the document production was "complete."
On September 4, 2009, Magistrate Judge Ellis issued a Report and Recommendation in which he certified facts to this Court pursuant to 28 U.S.C. § 636(e) and recommended that the Kummerfelds be held in contempt.*fn6 Magistrate Judge Ellis recommended that instead of the relief requested by Cordius, the Court provide the following relief: (1) the Kummerfelds should pay Cordius $10,000 for fees and costs related to filing the instant motion for contempt; and (2) the Kummerfelds should provide Cordius with documentation as to the value of their Cape Cod property for each year from 2000 to present. The Kummerfelds filed their objections to the Report and Recommendation on September 17. Cordius filed its reply to the Kummerfelds' objections on October 8, and separately objected to the alternative relief recommended by Magistrate Judge Ellis.
At a hearing held by the Court on October 15, 2009, the Court advised the parties that it was considering granting the relief requested by Cordius, with certain modifications, which went beyond traditional contempt sanctions. The Court stressed that given the Kummerfelds' obstruction of Cordius' efforts to enforce the judgments, typical contempt sanctions, such as fines, might be ineffective in coercing the Kummerfelds' compliance. The Court provided both parties an opportunity to present additional evidence and arguments.
At the hearing, Mr. Kummerfeld testified, inter alia, that given his age and the events of the last two years, he "could not recall" the precise contours of the May 6, 2008 Discovery Order, but believed that he was only required to produce the documents on a rolling basis. He testified that his recollection was that Magistrate Judge Ellis had instructed him to "make [his] best efforts to secure and transmit the documents."*fn7
Mr. Kummerfeld further testified that the Kummerfelds' financial position has deteriorated significantly over the past year. Mr. Kummerfeld asserted that he is unemployed, their only source of income is Social Security, they are barely able to afford basic living expenses, and they are therefore dependent on the charity of friends and family. He testified that he and Ms. Kummerfeld were evicted from their Manhattan apartment on or about August 14, 2009 and presently live in a New Jersey apartment paid for by others. In addition, Mr. Kummerfeld testified that the bank holding the primary mortgage on the Cape Cod property has initiated foreclosure proceedings ...