On October 26, 2015, Justice Kornreich of the New York County Commercial Division issued a decision in Hamilton Capital VII, LLC v. Khorrami, LLP, 2015 NY Slip Op. 31986(U), threatening to jail a litigant for failing to provide evidence.
In Hamilton Capital VII, the plaintiff brought an action to appoint a receiver over a law firm that owed money to the plaintiff. The court appointed a receiver, but the receiver’s work was hindered by the refusal of the firm’s named partner, Khorrami, to turn over evidence regarding the firm’s finances.
The plaintiff moved for contempt and sanctions. The court had no trouble finding Khorrami in contempt, explaining:
To establish civil contempt, a party must demonstrate, by clear and convincing evidence, a violation of a lawful, clear mandate of the court, of which the party against whom the contempt is sought had knowledge and that the violation prejudiced the rights of the movant. Plaintiff met its burden.
Defendants were made aware of the court’s order appointing the Receiver and its subsequent order directing them to cooperate with and respond to the Receiver’s requests. These orders were explicit and, without doubt, understood by defendants, a law firm and lawyer who were represented by counsel. However, not only did defendants ignore the orders but Khorrami acted in a manner that contravened the orders by hiding assets and transferring litigation.
Without question, defendants’ conduct undermined the ability of the Receiver to do her job and prejudiced plaintiff. 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, or prejudiced. Since there is no question that defendants knowingly and willfully violated the orders of this court, impeding and prejudicing plaintiffs rights, the court finds defendants in civil contempt.
As to the remedy, the court granted the plaintiff its fees, but gave Khorrami one last chance before having him jailed, explaining:
[The plaintiff’s] compensation for defendants’ contempt should be tailored to the harm suffered by [it], namely, the undue expense incurred in enforcing the court’s orders. Since the court is, as explained below, referring Hamilton’s attorneys’ fees claim to a Special Referee to hear and report, the Referee shall also recommend the amount of the civil contempt sanction.
Additionally, Judiciary Law § 750(3) provides the court with the power to punish a person for criminal contempt for willful disobedience to its lawful mandate. It is well settled that the same act may be punishable as both a civil and a criminal contempt. That said, the aim in a criminal contempt proceeding is solely to punish the contemnor for disobeying a court order, the penalty imposed being punitive rather than compensatory. To hold a party in criminal contempt, a hearing must be held and willful disobedience of a court order must be proved beyond a reasonable doubt.
Pursuant to Judiciary Law § 751, a party held in criminal contempt may be fined up to $1,000 and can be jailed for up to 30 days. However, a party charged with criminal contempt must be afforded notice of the charge and be allowed a reasonable time and opportunity to present a defense. Where, as here, these requirements have not only been met, but where defendants have demonstrated a total disregard for the judicial system and its mandates, defendants should be held in both civil and criminal contempt. Though a contemnor, once adjudicated in criminal contempt, will often be allowed to purge the contempt by performance of the act required, there is no right, as such, to a purge order.
Nonetheless, as ordering a civil litigant to jail is a harsh remedy, this court will not do so, even in the case of such an obstinate litigant as Khorrami, except as a last resort. Therefore, Khorrami’s criminal contempt will be purged, and he can avoid the issuance of a warrant in second state, if two conditions are met: (1) he complies with each and every order this court has issued; and (2) he personally appears in this court on the date set forth below to attest to his compliance. If he intends on appearing, he must notify [the plaintiff], the Receiver, and the court at least 10 days beforehand so [the plaintiff] does not waste its time appearing in court if Khorrami does not intend to show up.
(Internal quotations and citations omitted).