Defendant Schur Management Company, Ltd.'s ("Schur") motion for an order sanctioning plaintiffs Banana Kelly Community Improvement Association, Inc., et al. ("Banana Kelly") and their attorneys, Wasserman, Grubin & Rogers, LLP, is denied.

By decision and order dated April 2, 2013, this court held plaintiffs in civil contempt for their failure to post an undertaking in the amount of $435,641.41 in contravention of two court orders. A hearing was held to determine whether plaintiffs and their counsel should be sanctioned for frivolous conduct.

Harold DeRienzo testified that he is the President and Chief Operating Officer ("CEO") of Banana Kelly, one of the plaintiffs in this action. As the CEO of Banana Kelly, Mr. DeRienzo [*2]is familiar with the company's tax returns. A copy of Banana Kelly's 2011 tax return was admitted into evidence. The 2011 tax return indicates that Banana Kelly had $500,094.00 in cash and revenue totaling $2,020,968.00. In spite of what the tax return reads, Mr. DeRienzo explained that Banana Kelly did not have over $500,000.00 in cash on hand. He stated that the bulk of the money was acquired as a result of a sponsored fund for low income housing tax credit. This amount represents excess reserves which are held in a special account earmarked to deal with problems Banana Kelly was having in their buildings.

In an affidavit dated March 23, 2012, Mr. DeRienzo indicated to the court that Banana Kelly was economically impoverished and if defendant turned over approximately $230,000.00, plaintiffs would be able to post the required undertaking. However, even after defendant turned over the sum of $230,000.00, plaintiffs did not obtain and post the undertaking.

After receiving the April 20, 2012 court order, Mr. DeRienzo contacted a broker who works with various surety companies to post the undertaking. The surety company required Banana Kelly to post their buildings and the sum of $200,000.00 as collateral. After forwarding financial statements for all of the buildings involved in the instant litigation to the surety company, Banana Kelly received wiring instructions to post the $200,000.00 cash collateral. Thereafter, Mr. DeRienzo received an email from the surety company notifying him that Banana Kelly would need to post all 15 buildings as collateral in order to obtain the bond. Mr. DeRienzo explained that ten of the buildings were redeveloped through the Federal Low Income Housing Tax Credit Program. Banana Kelly is prohibited from granting any interest in these buildings without express permission from the Department of Housing Preservation and Development ("HPD"). HPD denied Mr. DeRienzo's request to pledge the ten buildings as security. Due to the inability to post all of the buildings as collateral, Banana Kelly was unable to post the undertaking.

22 NYCRR §130-1.1 allows the court discretion to award costs, including reasonable attorneys fees, and to impose sanctions against a party or an attorney who engages in "frivolous conduct." Frivolous conduct is defined as conduct that is "1) completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; 2) it is undertaken primarily to delay or prolong the resolution of the litigation or maliciously injure another; or 3) it asserts material factual statements that are false." 22 NYCRR § 130-1.1. "In determining whether the conduct undertaken was frivolous, the court shall consider among other issues the circumstances under which the conduct took place, including the time available for investigating the legal and factual basis of the conduct, and whether or not the conduct was continued when its lack of legal and or factual basis was apparent, should have been apparent, or was brought to the attention of counsel or the party." 22 NYCRR § 130—1.1(c)(3).

Based upon the evidence submitted and the testimony adduced at the hearing, this court finds that plaintiffs attempted in earnest to comply with this court's previous orders. The record does not demonstrate that Banana Kelly's refusal to comply with this court's orders was undertaken primarily to delay this litigation or maliciously injure Schur. Accordingly, defendant's motion for an order sanctioning plaintiffs and their attorneys for frivolous conduct is [*3]denied.

Banana Kelly is directed to serve a copy of this order with notice of entry upon Schur and file proof thereof with the clerk's office.

This constitutes the decision and order of this court.

Dated:November 18, 2013

ENTER:

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J.S.C.