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People v. Frumusa

New York Court of Appeals

June 8, 2017

The People & c., Respondent,
v.
Lawrence P. Frumusa, & c., Appellant.

          Drew R. DuBrin, for appellant.

          Kelly C. Wolford, for respondent.

          FAHEY, J.

         For over one hundred years, this Court has applied and refined its holding in People v Molineux (168 NY 264 [1901]). Here, we are presented with a more fundamental question concerning how to identify such propensity evidence in the first instance. We are asked to determine whether the trial court abused its discretion as a matter of law by admitting into evidence a contempt order issued in a civil action involving the same funds defendant was criminally charged with stealing. We conclude that the contempt order did not constitute Molineux evidence. We further conclude that the trial court did not abuse its discretion as a matter of law at the pretrial hearing in concluding that the evidence was admissible because it was relevant to defendant's larcenous intent and its probative value was not substantially outweighed by the danger of undue prejudice to defendant.

         I.

         In 2006, defendant entered into a joint business venture with Marianela Hernandez to construct and operate a hotel. Defendant and Hernandez formed Webster Hospitality Development LLC (WHD) for that purpose. Hernandez initially invested $1 million in exchange for a 25% ownership share in WHD. Defendant had a 75% ownership share and acted as WHD's managing member, with authority to obtain financing, manage the hotel's accounting, and pay creditors.

         The hotel opened in 2007, and despite a steady flow of customers, the hotel quickly encountered financial problems. Hernandez became suspicious of defendant's business practices after she learned of liens placed on the property by unpaid construction contractors. Sometime in 2008, Hernandez discovered that some of the hotel's proceeds were being transferred into accounts defendant held for his other separate businesses. She consulted attorneys and commenced a civil action against defendant in New York Supreme Court in early 2009. Defendant was indicted on the criminal charge of grand larceny in the second degree in September 2010. The People alleged that defendant stole approximately $300, 000 from WHD between December 2008 and June 2009 by diverting credit card proceeds from the hotel to accounts that he held for his other businesses.

         Several orders entered by Supreme Court in the civil action were admitted into evidence during the criminal trial without objection by defendant. In February 2009, Supreme Court appointed a receiver to take control of WHD and prohibited both defendant and Hernandez from transferring, encumbering, or otherwise disposing of WHD's assets, and from taking any action whatsoever on behalf of WHD. The receiver, Timothy Foster, was authorized to oversee all WHD operations, hire a management company to continue operation of the hotel, and manage all bank accounts and accounting for WHD. Defendant and Hernandez were ordered to pay over to Foster any WHD assets currently in their possession and were further enjoined from collecting any money on behalf of WHD.

         In June 2009, Hernandez and Foster learned that defendant had opened bank accounts in the names of his other businesses at PNC Bank and had been transferring credit card proceeds from the hotel into those bank accounts. Motion practice in the civil action followed, and in October 2009, Supreme Court issued the contempt order at issue.

         That contempt order held three of defendant's other businesses in contempt for failing to obey a July 2009 order of the court directing defendant's businesses to turn over all WHD funds deposited into the PNC accounts. The contempt order stated that defendant's businesses had "willfully and deliberately failed to obey the terms" of the earlier order "in that they have converted $249, 196.28 of WHD's monies and refused to comply with the express directions in the [earlier order] to pay over to WHD all monies received by each of them." In addition, the contempt order stated that the conduct of defendant's businesses "was calculated to and actually did defeat, impair, impede and prejudice the rights and remedies of WHD." Defendant's businesses were allowed to purge themselves of the contempt by paying a fine and returning the funds to WHD. Hernandez and Foster testified at trial that neither defendant nor his businesses ever returned those funds to WHD.

         Before defendant's criminal trial began, the People sought permission to introduce the contempt order as Molineux evidence. The People anticipated that defendant would contend at trial that he did not act with larcenous intent when he took the funds from WHD, and the People argued that because defendant was the majority owner of WHD, his intent could not be easily inferred from his actions. The People contended that the contempt order was relevant to defendant's intent in that he failed to return to WHD the funds that his businesses were ordered to turn over. Defendant opposed the motion, arguing that the jury might afford undue weight to the contempt order and that the burden of proof was "completely different" in a civil case. For those reasons, defendant asserted that the prejudice to defendant would outweigh any probative value of the contempt order. The court granted the People's Molineux application.

         During the criminal trial, defendant did not dispute that he transferred WHD funds to the PNC accounts in violation of court orders prohibiting him from doing so. He contended, however, that he did not act with larcenous intent because when he took the funds, he merely intended as the managing member of WHD to ensure the continued operation of the business and the payment of its creditors, and his actions were the result of his concerns regarding the competence of Foster as receiver.

         The People presented evidence that defendant opened the accounts at PNC Bank before a receiver was appointed in the civil action, and defendant began transferring credit card proceeds to those accounts two days after Foster was first appointed receiver. Foster testified that defendant never informed him of the existence of those accounts, despite a lengthy meeting the two had in late February 2009. By March of 2009, the PNC accounts were accessible only by defendant. Furthermore, defendant gave an interview to a local business newspaper in August 2009, in which he admitted that certain credit card proceeds paid to the hotel were being transferred to an account he referred to as "mine, " and that Foster did not know about that account because he never asked about it. According to the People's evidence, between January and June of 2009, defendant transferred approximately $299, 500 of WHD's credit card revenue into the PNC accounts. The jury found defendant guilty as charged.

         On appeal, a divided Appellate Division affirmed the judgment. The court held that the contempt order was properly admitted as relevant to defendant's intent and that the probative value of the order outweighed its potential prejudice (see People v Frumusa, 134 A.D.3d 1503, 1504 [4th Dept 2015]). The two dissenting Justices concluded that the contempt order was not Molineux evidence, but even if it was, its probative value did not outweigh its prejudicial effect, inasmuch as the contempt order constituted "a judicial finding of defendant's larcenous intent" (id. at 1507 [Centra & ...


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