Schaefer v BE4, LLC (2014 NY Slip Op 50099(U))

Schaefer v BE4, LLC

2014 NY Slip Op 50099(U) [42 Misc 3d 1219(A)]

Decided on January 30, 2014

District Court Of Suffolk County, Third District

Hackeling, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and will not be published in the printed Official Reports.

Randy J. Schaefer (hereafter "the Receiver") as the Receiver of rents and profits of the real property know as 8 Judith Drive, Greenlawn, New York, commenced this petition pursuant to NY CPLR § 403 and Judiciary Law §§ 753 and 756 seeking a finding of civil contempt as against the above named respondents via Order to Show Cause dated November 25, 2013.

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All the respondents appeared by counsel and interposed an unverified attorney "affirmation in opposition" and an adjourned hearing of the action was conducted January 30, 2014.

An application seeking to adjudicate a party in contempt is treated in the same fashion as a motion. Quantum Heating Ser. Inc. v. Austern, 100 AD2d 843 (NYAD 2d Dept. 1984). The petitioner bears the burden of proof in this special proceeding. However the respondents are entitled to an evidentiary hearing only as to such controverted issues of fact as to which there exists a reasonable doubt and dispute of same. In re McDonald v. Frawley, 23 AD2d 729 (NYAD 1st Dept. 1965). The respondents have not submitted any affidavits or verified responses in contravention of the Receiver's verified petition, nor did they produce a witness or offer any sworn testimony on this proceeding's return date. Accordingly, the following facts are determined to be undisputed:

1. Bruce Engel (hereafter "Engel"), individually, took title to the real property premiseslocated at 8 Judith Drive, Greenlawn, New York ( hereafter "the premises") by deeddated May 3, 2004.

2. Engel incorporated Breen, LLC ( hereafter "Breen") on October 31, 2007 under thelaws of North Carolina, with its principal place of business being located at 6135 So.Park Drive, Charlotte, North Carolina. [*2]

3. Contemporaneously, Engel also incorporated BE4, LLC ( hereafter "BE4") under thelaws of North Carolina with the same business address as Breen, LLC.

4. Thereafter, Engel also incorporated Jureli, LLC (hereafter "Jureli") pursuant to thelaws of Wyoming.

5. None of the respondent corporations are registered with the State of New York or areformally authorized to conduct business in New York State.

7. Breen was convicted, after trial, of violating §§ 198-120(A) and 87-25(A) of theHuntington Town Code regarding illegal apartments on the premises on December 15,2011 and assessed a $9,000.00 fine and a conditional discharge directing the defendantBreen to put the premises into compliance with the Town Code.

8. Breen filed an appeal and was granted an Appellate stay without the need to post abond.

9. During the appeal, Breen dissolved its corporate status on July 15, 2012 andtransferred the subject premises via a deed dated July 19, 2012, signed by Engel, toJureli. Breen did not pay its $9,000.00 fine, and the judgment entered by the Court forsame did not affix as a lien to the premises by virtue of the transfer of the premisesduring the Appellate stay period.

10. Breen, failed to perfect its appeal and same was dismissed with the stay havingbeen vacated prior to August 2012.

11. After a "Violation of Conditional Discharge" hearing held August 15, 2012; the Courtappointed the Receiver pursuant to the provisions of Judiciary Law UDCA§203(a)(9)(b) and (c) to collect rents, issues and profits and to bring thepremises into conformity with all applicable zoning and housing codes.

12. The Receiver served notices of "attornment" of rents and a copy of the Court's orderon all the premise's tenants and upon Breen on August 23, 2013. [*3]

13. Commencing August 31, 2012 and running through June 1, 2013, Engel personallydemanded and received rental payments for the premises from tenant Susan Willetts inthe sum of $12,989.00. The checks were made out to BE4 and endorsed whendeposited by Bruce Engel.

14. The respondents' affirmation acknowledges that Jureli commenced an action in theNew York State Supreme Court against the Receiver, individually and in herfiduciary capacity in the fall of 2013. The action was removed to the Federal Court.Jurelli did not seek or obtain permission of this appointing Court to sue the Receiver.

The Court will summarily dispose of the respondents threshold contentions that the Court should recuse itself and that personal service was not obtained over them. The Court denies the respondents counsel's oral application to recuse for the reasons placed in the January 30, 2014 hearing record. Those reasons and the authorities cited therein, are incorporated herein by reference.

The respondents counsel's argument that personal or substitute service was not effected pursuant to New York CPLR §311-a or §308 is not persuasive. As evidenced by the Receiver's affidavit of service dated December 30, 2013, the petition was served via order to show cause in the manner directed by the Court as statutorily authorized in CPLR §403(d).

Mr. Engel, via the use of multiple out of state corporate entities and questionable litigation tactics has successfully managed to maintain illegal apartments in violation of local law even after being called to account for and convicted of same. Clearly, the Court's prior imposition of fines is not a deterrent to a judgment proof dissolved corporation. With this in mind, the Court attempted to correct the blatant and unrepentant housing/zoning violations via the utilization of a Receiver pursuant to the provisions of New York Judiciary Law, UDCA §203(a)(9). In response to same, Engel now seeks to frustrate the Receiver's efforts to bring the premises into zoning compliance by intimidating his tenants into allowing him to convert receivership funds. The Court notes that Engel deposited these funds not into a Breen or Jureli corporate account, but into a BE4 account. BE4 has at no time had a deeded or leasehold interest in the premises. The significance of same is that Engel no longer has even a quasi [*4]collorable

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argument that it was all a misunderstanding or ignorance of the law and of the scope of this Court's orders. The Court deems the aforesaid acts nothing less than an intentional theft which probably rises to the level of a criminal contempt. For the time being, the Court will be satisfied in treating the matter as a civil contempt as requested by the Receiver.

The relevant part, §753 of the New York Judiciary Law provides as follows:

A Court of record has power to punish, by fine and imprisonment, or either, a neglect or violation of duty, or other

misconduct, by which a right or remedy of a party to a civil

action or special proceeding, pending in the Court may be

defeated, impaired, impeded, or prejudiced, in any of the following. . . a party to the action or special proceeding, an attorney, counselor, or other person, for the non-payment of a sum of money, ordered or adjudged by the Court to be paid, in a case where by law execution can not be awarded for the collection of such sum except as otherwise specifically provided by the civil practice law and rules; or for any other disobedience to a lawful mandate of the Court.

A civil contempt is one where the rights of an individual have been harmed

by the contemptor's failure to obey a Court Order. In re Peer, 50 AD3d 1511 (NYAD 4th Dept. 2008). In order to prevail upon a motion to punish for civil contempt, the movant must demonstrate the violation of a clear and unequivocal Court Order thereby prejudicing a right of another party to the litigation. See Moore v. Davidson, 57 AD3d 862 (NYAD 2d Dept. 2008) citing to Goldsmith v. Goldsmith, 261 AD2d 576 (NYAD 2nd Dept. 1999); McCain v. Dinkins, 84 NY2d 216 (NY 1994). A civil contempt, as different from a criminal contempt, need not involve a wilful disobedience. See People ex rel Negus v. Dwyer, 90 NY 402 (NY 1882). A civil contempt is one where the rights of an individual have been harmed by the contemptor's failure to obey a Court Order. . . any penalty imposed is designed not to punish but rather, to compensate the injured private party or to coerce compliance with the Court's mandate or both. In re Dept. of Envtl. Protection of City of NY v. Dept. of Envtl. Protection of State of NY, 70 NY2d 233 (NY 1987). The law is long since settled that a landlord's collection of rents after the appointment of a Receiver to do same constitutes a civil contempt of Court. See, Hittleman v. Polk Ave. Bldg. Co., 227 A.D. 737 (NYAD 2nd Dept. 1929).

In the absence of sworn testimony controverting the Receiver's assertion of contempt, or even attempting to advance an explanation or mitigating excuse; the Court finds that all the respondents acted in civil contempt of its Orders and [*5]directives. This finding includes Bruce Engel acting in his individual capacity, as well as in his capacity as an officer of the corporate respondents. Corporate officers are individually punishable for their contemptive acts on behalf of their corporate entities. See Schreiber v. Garden, 152 AD 817 (NYAD 1st Dept. 1912); citing to In re Westminster Realty Corp, 123 AD 797 (NYAD 2d Dept. 1908). As such the respondents are all subject to a fine equal to the aggrieved petitioner's (the Receiver) losses, including the costs attributed to rectifying the contemptuous conduct inclusive of attorney fees. In re Clayden,103 AD3d 1051 (NYAD 3rd Dept. 2013), NY Jud. L. §773. To the extent that the respondents do not purge themselves of their contempt, a non-corporate contemptor may also be arrested and subjected to commitment for up to six months if the fine is greater than $500.00. NY Jud. L. §774.

Accordingly, the Court assesses all the respondents, jointly and severally, a fine of

$12, 989.00 plus statutory interest from August 31, 2012 and attorneys fees to be determined by a subsequent application. The respondents are directed to pay said sum to the Receiver on or before February 28, 2014 and to transfer the premises via recorded deed back to Breen. In the event the respondents fail to cure their contempt by February 28, 2014, the Receiver may enter judgments against all respondents, jointly and severally, in the aforesaid sums. The Receiver is also authorized to submit a "warrant of arrest and commitment" for a six month period for respondent Bruce Engel. If arrested and committed, Engel shall be eligible to make application for release upon purging himself of his civil contempt, by paying the aforesaid sums and by transferring the premises via appropriate deed, back to Breen.

In the event the respondents do not purge themselves of their contempt by February 28, 2014, the Court also invokes its injunctive powers granted in UDCA §203(c) ^[FN1] to enjoin the respondents and all their agents, officers and attorneys from transferring the premises by deed or other conveyance and authorizes the Receiver to record this Order in the premises chain of title; and also enjoins Jureli and the other respondents and its attorneys from prosecuting any legal action against the Receiver outside this Court without first obtaining its permission.^[FN2] [*6]

The above captioned Receivership is extended to February 28, 2015. On ten (10) days notice, Silverman Acampora, Llp are granted leave to submit a proposed judgment for all attorneys fees incurred on behalf of the Receiver in investigating and prosecuting this petition as well as for the fees and expenses incurred in defending any unauthorized litigation commenced by Jureli or the other respondents against the Receiver. The respondents are granted leave to file opposition to the proposed judgment during the 10 day period and to demand a hearing on same, which will then be scheduled by the Court.