Opinion
96 Civ. 5567 (RPP)
February 8, 2001
Robert C. Finkel, Esq., Wolf Popper LLP, New York, NY, Deborah Clark-Weintraub, Esq., Millberg Weiss Bershad Hynes Lerach LLP, New York, NY, Counsel for Plaintiffs.
Karen Clarke, Esq., Proskauer Rose LLP, New York, NY, Counsel for Judgment Creditor.
Sheldon Eisenberger, Esq., The Law Office of Sheldon Eisenberger, New York, NY, Counsel for Defendants Gaming Lottery and Jack Banks.
OPINION AND ORDER
On December 5, 2000, Proskauer Rose, LLP ("Proskauer") moved as a judgment creditor of Defendant GalaxiWorld.com, Limited ("GalaxiWorld") for (1) a turnover order and an installment payment order pursuant to Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 69(a) and New York Civil Practice Law and Rules ("CPLR") §§ 5225 and 5226 to pay Proskauer from its G. Cash revenue stream, its Royal Bank of Scotland account, or any other source, funds totaling $411,381.71, plus post-judgment interest accruing thereon since January 14, 2000, to satisfy Proskauer's outstanding judgment; and (2) an order pursuant to Southern District of New York Local Civil Rule 83.9 holding Defendants Galaxi World and its former president Jack Banks in contempt for their wilful and continued failure to comply with the Court's orders of January 13, 2000, January 26, 2000, and March 6, 2000, requiring payment of outstanding fees due to Proskauer, and imposing civil sanctions on them for such contempt until they comply with those orders. On January 10, 2001, those orders of the Court were affirmed by the Court of Appeals for the Second Circuit.
On December 21, 2000, this class of plaintiffs ("Class Plaintiffs") filed a cross-motion to broaden the turnover order and installment payment order submitted by Proskauer against Galaxi World to encompass Class Plaintiffs' default judgment entered by the Court on February 17, 2000, in the amount of $22,084,884. Class Plaintiffs opposed Proskauer's motion requesting that Galaxi World's assets be turned over to Proskauer and moved instead for those assets to be maintained in a fund by the Court and distributed pursuant to supplemental proceedings.
On December 21, 2000, and December 27, 2000, Defendants filed memoranda of law in opposition to Proskauer's and Class Plaintiffs' motions, respectively. On January 2, 2001, Proskauer filed a reply memorandum of law.
On February 1, 2001, oral argument was heard on the motion and the Court decided the motion with opinion to follow. This Opinion and Order reflects the Court's decision made at oral argument on February 1, 2001.
For the following reasons, Proskauer's motion for a turnover order and installment payment order is granted, and Proskauer's motion for an order holding Defendants Galaxi World and its former president Jack Banks in contempt and imposing civil sanctions is granted. Class Plaintiffs' cross-motion to broaden the turnover order and installment payment order to encompass their judgment against Galaxi World is granted. Class Plaintiffs' cross-motion requesting that any of Galaxi World's assets that are turned over pursuant to the turnover order or installment payment order be maintained in a fund by the Court and distributed pursuant to supplemental proceedings is denied.
DISCUSSION
A. Turnover Order and Installment Payment Order
Pursuant to the motion and cross-motion, Proskauer and Class Plaintiffs seek an order requiring Galaxi World to turn over funds from its account at the Royal Bank of Scotland, from those funds that Galaxi World receives from G. Cash on a monthly basis pursuant to the Customer Merchant Agreement entered into by G. Cash and Galaxi World, or from any other source of funds.
Defendants argue that this Court does not have jurisdiction to enter a turnover order or an installment payment order because the assets of Galaxi World are not located in the Southern District of New York and 28 U.S.C. § 1963 provides that a judgment may not be registered and enforced in a district other than the district where the judgment was entered if the judgment has not become final by appeal. Defendants point out that an appeal of the judgment for Class Plaintiffs against Galaxi World is sub judice in the Second Circuit. Defendants also argue that Proskauer has failed to comply with the statutory service requirement of CPLR § 5225(a) and CPLR § 5226, which require that service be made upon the judgment debtor "in the same manner as a summons, by registered or certified mail, return receipt requested."
28 U.S.C. § 1963 provides in pertinent part:
A judgment in an action for the recovery of money or property entered in any court of appeals, district court, bankruptcy court, or in the Court of International Trade may be registered by filing a certified copy of the judgment in any other district or, with respect to the Court of International Trade, in any judicial district, when the judgment has become final by appeal or expiration of the time for appeal or when ordered by the court that entered the judgment for good cause shown.28 U.S.C. 1963 (West 2000).
CPLR § 5225(a) provides:
(a) Property in the possession of judgment debtor. Upon motion of the judgment creditor, upon notice to the judgment debtor, where it is shown that the judgment debtor is in possession or custody of money or other personal property in which he has an interest, the court shall order that the judgment debtor pay the money, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor and, if the amount to be so paid is insufficient to satisfy the judgment, to deliver any other personal property, or so much of it as is of sufficient value to satisfy the judgment, to a designated sheriff. Notice of the motion shall be served on the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested.
NY CPLR § 5225(a) (McKinney 2000).
CPLR § 5226 provides in pertinent part:
Upon motion of the judgment creditor, upon notice to the judgment debtor, where it is shown that the judgment debtor is receiving or will receive money from any source, or is attempting to impede the judgment creditor by rendering services without adequate compensation, the court shall order that the judgment debtor make specified installment payments to the judgment creditor. Notice of the motion shall be served on the judgment debtor in the same manner as a summons or by registered or certified mail, return receipt requested.
NY CPLR § 5226 (McKinney 2000).
The short answer to these arguments is that Proskauer and Class Plaintiffs are not seeking to register or enforce judgments in another district under 28 U.S.C. § 1963. They are seeking to enforce judgments in this district before the court which has had jurisdiction over the judgment debtor since 1996. Furthermore, the pendency of an appeal of the judgment for Class Plaintiffs does not prevent the enforcement of a judgment in the district court unless a stay is obtained. See 20 J. Moore, Moore's Federal Practice § 308.10; 11 Wright Miller Kane, Federal Practice and Procedure Civil 2d § 2905 at 524. A party wishing to obtain a stay of enforcement of a judgment pending appeal must post a supersedeas bond to be approved by the court.See Fed.R.Civ.P. 62(c); Fed.R.App.P. 8(a). Galaxi World has not obtained a stay or posted a supersedeas bond.
As for proper service, Galaxi World has entered a general appearance in this Court and its present counsel, Sheldon Eisenberger, Esq., has entered appearances for both Defendants Galaxi World and Jack Banks in this Court. Defendants do not claim that Mr. Eisenberger was not served. Furthermore, Proskauer served Galaxi World at its Gibraltar address by registered mail, return receipt requested, which is one of the methods specified in CPLR §§ 5225(a) and 5226.
Galaxi World also argues that this Court does not have jurisdiction to enter a turnover order or an installment order pursuant to CPLR § 5225(a) or 5226 because the assets of Galaxi World are located outside of New York. This argument is also unavailing. The very purpose of CPLR § 5225 is to reach funds that are beyond the reach of a sheriffs levy. See CPLR § 5225, David D. Siegel, Practice Commentaries, C5225: 1 at 261 (McKinney 1997). CPLR § 5201(a) provides that a "money judgment may be enforced against any debt, which is past due or which is yet to become due, certainly or upon demand of the judgment debtor, whether it was incurred within or without the state, [or] to or from a resident or non-resident." CPLR § 5201(b) provides that a "money judgment may be enforced against any property which could be assigned or transferred, whether it consists of a present or future right or interest and whether or not it is vested."
CPLR § 5201(a) provides:
Debt against which a money judgment may be enforced. A money judgment may be enforced against any debt, which is past due or which is yet to become due, certainly or upon demand of the judgment debtor, whether it was incurred within or without the state, to or from a resident or non-resident, unless it is exempt from application to the satisfaction of the judgment. A debt may consist of a cause. of action which could be assigned or transferred accruing within or without the state.
NY CPLR § 5201(a) (McKinney 2000).
CPLR § 5201(b) provides:
Property against which a money judgment may be enforced. A money judgment may be enforced against any property which could be assigned or transferred, whether it consists of a present or future right or interest and whether or not it is vested, unless it is exempt from application to the satisfaction of the judgment. A money judgment entered upon a joint liability of two or more persons may be enforced against individual property of those persons summoned and joint property of such persons with any other persons against whom the judgment is entered.
NY CPLR § 5201(b) (McKinney 2000).
The funds held in Galaxi World's name in an account at the Royal Bank of Scotland are on their face subject to the full possession and control of Galaxi World and thereby available to judgment creditors under CPLR § 5201. Although Galaxi World has previously taken the position that these funds were to be held in trust by Galaxi World to pay tendering minority shareholders of Galaxi World, it has offered no documentation to support its assertion. The account at the Royal Bank of Scotland does not bear any trust designation. (See Declaration of Karen E. Clarke, Esq., dated December 4, 2000 ("Clarke Decl."), Exs. I and L.)
This Court has the power under CPLR § 5225(a) to order a turnover of funds held in another jurisdiction. In Starbare II Partners L.P. v. Sloan, 216 A.D.2d 238, 239, 629 N.Y.S.2d 23 (1st Dep't 1995), the Appellate Division, First Department directed the defendant to turn over artwork located outside the state pursuant to CPLR § 5225(a) on the basis of the court's having personal jurisdiction over the judgment debtor. See also In re Feit Drexler v. Drexler, 760 F.2d 406, 414 (2d Cir. 1985) (holding that the district court, sitting in bankruptcy, had the power to compel the defendant to deliver property from outside the court's territorial jurisdiction because the court had personal jurisdiction over the defendant). Defendants' reliance on Alliance Bond Fund, Inc. v. Grupo Mexicano De Desarrollo, S.A., 190 F.3d 16 (2d Cir. 1999), is also misplaced. In Alliance Bond Fund, the turnover order was vacated by the Second Circuit not because the assets were located in Mexico, as Defendants state, but because "the district court received no evidence and made no findings concerning either the nature of Mexico's promise to exchange government notes for toll road receivables [of the judgment debtor] or the financial characteristics of those government notes." Id. at 22. Thus the Court was unable to determine whether the turnover order complied with New York law. See id. Here, the funds received by Galaxi World from G. Cash are available to all debtors pursuant to CPLR § 5201 and the exact nature of G. Cash's obligation to pay Galaxi World is set forth in the Customer Merchant Agreement. The funds in Galaxi World's account at the Royal Bank of Scotland are also available to all debtors pursuant to CPLR § 5201. Accordingly, Proskauer's motion for a turnover order pursuant to CPLR § 5225(a) is granted and Class Plaintiffs' cross-motion to broaden the turnover order to encompass Class Plaintiffs' judgment is also granted.
Proskauer shall turn over the first $8,517 of funds received pursuant to the turnover order from Galaxi World's account at the Royal Bank of Scotland to Mr. Frank P. Citrano, by agreement of the parties. The remainder of the proceeds from Galaxi World's account at the Royal Bank of Scotland shall be paid in satisfaction of Proskauer's judgment, then in satisfaction of Class Plaintiffs' judgment.
Proskauer and Class Plaintiffs by their motions also seek an installment payment order pursuant to CPLR § 5226 relating to the revenues received and to be received by Galaxi World from G. Cash, the entity that has a contract with Galaxi World to conduct a world-wide internet gambling business. (See In re Gaming Lottery Sec. Litig., No. 96 Civ. 5567 (RPP) (S.D.N Y Feb. 28, 2000); In re Gaming Lottery Sec. Litig., No. 96 Civ. 5567 (RPP) (S.D.N.Y. June 2, 2000).) Proskauer and Class Plaintiffs are seeking those contractual revenues as either (1) a debt that is past due or certain to become due under CPLR § 5201(a), or (2) property that could be assigned or transferred under CPLR § 5201(b).
Under the terms of the Customer Merchant Agreement between Galaxi World and G. Cash, G. Cash is contractually obligated to turn over revenues to Galaxi World on a monthly basis after G. Cash takes its commission and pays the winning customers. (See Declaration of Sheldon Eisenberger, Esq., in Opposition to Proskauer Rose LLP's Motion, dated December 21, 2000 ("Eisenberger Decl."), Ex. D (Certification of Levy Benaim dated February 16, 2000, Ex. 4 (Customer Merchant Agreement))). G. Cash has paid those net revenues, less commission, on a monthly basis in the past.See id.) The certification of Mr. Benaim of G. Cash establishes that in December 1999 and January 2000 the internet gambling business generated revenues in excess of $1 million a month. (See id.) Mr. Benaim also stated in his certification that "as [is] usually the case, the credits to Galaxi World . . . exceed the amount of refunds made by G. Cash to customers." (Id. ¶ 12.) Thus there is a monthly revenue stream flowing from G. Cash to Galaxi World and Galaxi World has the ability to produce those revenues to be received monthly from G. Cash. Although Galaxi World's revenues received from G. Cash may be irregular in amount, they may be reached through an installment payment order pursuant to CPLR § 5226. See Rabideau v. Oswald, 78 A.D.2d 944, 945, 433 N.Y.S.2d 255, 256 (3d Dep't 1980) (holding that the wording of CPLR 5226 is broad and should be read expansively to promote the legislature's intent).
Galaxi World argues that its contract rights do not qualify as property under § 5201(b) because they are not assignable. This argument is irrelevant. By these motions, Proskauer and Class Plaintiffs are not seeking to garnish moneys held by G. Cash or even an assignment of Galaxi World's contract rights under Galaxi World's Customer Merchant Agreement with G. Cash. Instead, they seek the money that Galaxi World receives pursuant to that Agreement. Accordingly, Proskauer's motion for an installment payment order pursuant to CPLR § 5226 is granted and Class Plaintiffs' cross-motion to broaden the installment payment order to encompass Class Plaintiffs' judgment is also granted.
Even though Proskauer is a prior judgment creditor, Class Plaintiffs in their cross-motion ask the Court to maintain any funds turned over by Galaxi World pursuant to the turnover order or installment payment order in a fund and to distribute those funds pursuant to supplemental proceedings. Class Plaintiffs thereby ask the Court to invoke its equity powers and treat their claim on a par with the claim of Proskauer, citing the large fees that Proskauer has already collected from Galaxi World in defending the class action. This is an action at law seeking enforcement of this Court's judgments, however, not an action in equity. Accordingly, the judgments should be enforced in the order in which they were entered. Furthermore, even if the Court were to act as a bankruptcy trustee, the rights of the plaintiff class of shareholders would be subordinated to the creditor rights of Proskauer. See Stirling Homex Corp. v. Raichle, 579 F.2d 206, 213 (2d Cir. 1978) (holding that in liquidation of a corporation, the equities favor conventional general creditors rather than allegedly defrauded stockholders). Therefore, Class Plaintiffs' motion requesting that Galaxi World's assets that are turned over pursuant to the turnover order or installment payment order be maintained in a fund by the Court and distributed pursuant to supplemental proceedings is denied.
B. Contempt and Sanctions
Proskauer's motion to hold defendants Banks and Galaxi World in contempt is granted.
A court's inherent power to hold a party in civil contempt may be exercised only when (1) the order the party allegedly failed to comply with is clear and unambiguous, (2) the proof of noncompliance is clear and convincing, and (3) the party has not diligently attempted in a reasonable manner to comply.N.Y. State Nat. Org. for Women v. Terry, 886 F.2d 1339, 1351 (2d Cir. 1989) (citing EEOC v. Local 638. Local 28 of Sheet Metal Workers' Int'l Ass'n, 753 F.2d 1172, 1178 (2d Cir. 1985)).
First, the three orders are clear and unambiguous in that they explicitly require payment of a sum certain by a specific date in two cases and "forthwith" in the third. Second, there has been no compliance with any of the orders. Two of the Court's orders have been outstanding for over a year and the third has been outstanding for eleven months. Third, Defendants have made no showing that Galaxi World has made any attempt to comply with the Court's orders or that Mr. Banks, while president of Galaxi World, made any effort to cause Galaxi World to comply with those orders. Nor have Defendants offered any evidence or any excuse for their failure to make such efforts. While the fact that the control of Galaxi World had passed to Ostel Management, Inc., as of the dates of the Court orders on January 13, 2000, January 26, 2000, and March 6, 2000, is of interest, it has not been shown to have prevented Mr. Banks, who remained as President of Galaxi World, from signing checks to comply with the Court's orders. In addition, pursuant to Galaxi World's Customer Merchant Agreement with G. Cash, Galaxi World receives a revenue stream based upon revenues of more than $1 million a month. (See Clarke Dccl., ¶ 19; Eisenberger Decl., Ex. D (Benaim Affidavit).) Thus it is clear that Galaxi World has been receiving significant revenues while making no effort to comply with this Court's orders. Not only have Defendants failed to make any payments, they have failed to cooperate in any way in supplementary proceedings. The orders of contempt containing daily fines against Defendants until Galaxi World complies with the judgment of the Court are imposed as sanctions in order to obtain compliance with those orders and with this order, as requested by Proskauer.
A party should not be able to seek affirmative relief in this Court while defying judgments entered against it by this Court which have been affirmed on appeal. See Silva Run Worldwide v. Galaxiworld.com Ltd., Nos. 00-7285, 00-7293, 00-7295, 00-7555, 00-7623, 2001 WL 40902 (2d Cir. Jan. 12, 2001) (finding that "the district court did not abuse its discretion when it conditioned Galaxiworld's ability to move forward with claims in Silva Run on payment of fees owed in In re Gaming [Lottery].") Here, neither Galaxi World nor Banks has made any attempt to comply with the orders of this Court dated November 6, 2000, and December 5, 2000, which held them in contempt for failure to supply discovery to Proskauer and Class Plaintiffs and imposed daily fines. Money sanctions do not appear likely to effect compliance with this Court's orders by this foreign corporation. Consequently, further sanctions are warranted to obtain compliance with this Order. If Galaxi World does not make payment of the outstanding judgments against it within ten days, the Court will dismiss all of Galaxi World's claims, crossclaims and counterclaims that it is seeking to enforce in Silva Run v. Gaming Lottery (now Galaxi World) et al., which is a litigation arising out of the same facts as In re Gaming Lottery Securities Litigation, as a sanction for failure to comply with this Court's orders.
Furthermore, because Galaxi World has taken no steps to make payments to Proskauer on a judgment outstanding for over a year and has failed to comply with the Court's multiple orders finding it in contempt in supplementary proceedings, Proskauer will be awarded reasonable attorney's fees that have been incurred in the supplementary proceedings. See Chambers v. NASCO. Inc., 501 U.S. 32, 45-46(1991);Weitzman v. Stein, 98 F.3d 717, 719-20 (2d Cir. 1996).
CONCLUSION
For the foregoing reasons, Proskauer's motion for a turnover order and installment payment order is granted, and Proskauer's motion for an order holding Defendants Galaxi World and its former president Jack Banks in contempt and imposing civil sanctions is granted. Class Plaintiffs' cross-motion to broaden the turnover order and installment payment order to encompass their judgment against Galaxi World is granted. Class Plaintiffs' cross-motion requesting that any of Galaxi World's assets that are turned over pursuant to the turnover order or installment payment order be maintained in a fund by the Court and distributed pursuant to supplemental proceedings is denied.
At oral argument on February 1, 2001, the Court directed Proskauer to submit a proposed order and judgment on behalf of itself and Class Plaintiffs, with three days notice to Defendants' counsel. Proskauer submitted its proposed order on February 6, 2001. The order shall provide that upon satisfaction of Proskauer's outstanding judgment, payments from Galaxi World pursuant to the turnover order and installment payment order will thereafter be turned over to Class Plaintiffs in satisfaction of their judgment. The order shall further provide for payment within five days of $8,517 to Frank P. Citrano from any funds turned over by Galaxi World from Galaxi World's account at the Royal Bank of Scotland.
IT IS SO ORDERED.