172 F. Supp. 3d 691
S.D.N.Y.2016Background
- Ecopetrol and KNOC (the purchasers) bought Offshore International Group and its subsidiaries; Savia (a subsidiary) paid ~ $75M in Peruvian VAT that purchasers claim Offshore should have paid. Purchasers obtained an arbitration Interim Award and a Supplemental Interim Award requiring Offshore to reimburse the VAT payments. The Court confirmed those awards and entered judgment in September 2014; the Second Circuit affirmed.
- Offshore’s financial escrow and a supplemental escrow existed; payments from the supplemental escrow (~$23M) and VAT reimbursements (~$31M) reduced but did not satisfy the confirmed judgment; parties dispute remaining balance.
- Ecopetrol served post-judgment discovery and, eight months after the September 2014 judgment, moved by order to show cause to hold Offshore and its principal William M. Kallop in civil contempt for nonpayment.
- Offshore argued the judgment is a money judgment enforceable under Fed. R. Civ. P. 69 (execution), not an equitable decree enforceable by contempt under Rule 70(e) or Rule 65; Offshore also asserted limited liquidity and some efforts to comply.
- The Clerk had entered (then vacated) a certificate of default against Kallop; Kallop opposed the contempt motion and argued Rule 65/65(d) did not apply to impose personal contempt liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the confirmed arbitration award/judgment is enforceable by contempt (Rule 70(e)) or is an ordinary money judgment (Rule 69) | Ecopetrol: the judgment includes personal commands and requires specific performance (reimbursement) and cannot be satisfied from the indemnity escrow, so contempt is an appropriate enforcement tool | Offshore: the confirmation produced an ordinary money judgment (sum certain to be paid); remedies are those for money judgments under Rule 69 (execution), not contempt | Judgment is a money judgment enforceable under Rule 69; contempt is not the appropriate remedy |
| Whether the court should exercise discretion to impose civil contempt on Offshore despite characterization as money judgment | Ecopetrol: Offshore failed to pay as required and delay warrants contempt to compel compliance | Offshore: limited liquid assets, some steps taken, and execution remedies available to Ecopetrol; contempt is a ‘‘potent weapon’’ and inappropriate where doubt exists or plaintiff has not pursued execution | The court would decline to impose civil contempt in its discretion; Ecopetrol delayed and has not exhausted execution remedies |
| Whether Kallop (Offshore’s principal) can be held in contempt personally | Ecopetrol: Rule 65(d)(2) and allegations that Kallop diverted corporate assets justify holding him personally liable | Offshore/Kallop: the judgment is not an injunction; Rule 65(d) does not apply; personal contempt requires a showing of bad-faith diversion causing inability to comply | Kallop cannot be held in contempt under Rule 65 for this money judgment; court declines to hold him in contempt and notes execution/discovery remedies are available |
| Whether criminal contempt statute (18 U.S.C. § 401(3)) applies | Ecopetrol initially cited the statute | Offshore: statute applies to criminal contempt; Ecopetrol sought civil contempt | Court: 18 U.S.C. § 401(3) inapplicable to civil contempt; Ecopetrol conceded the citation was incorrect |
Key Cases Cited
- Florasynth, Inc. v. Pickholz, 750 F.2d 171 (2d Cir. 1984) (confirmation of arbitration award converts it into a court judgment)
- Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (U.S. 2002) (distinguishing legal monetary relief from equitable relief like constructive trust)
- Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356 (U.S. 2006) (equitable remedies and imposition of constructive trust/equitable lien principles)
- Penn Terra Ltd. v. Dep’t of Envtl. Res., 733 F.2d 267 (3d Cir. 1984) (factor assessing whether remedy compensates past injury vs. prevents future harm)
- Aetna Cas. & Sur. Co. v. Markarian, 114 F.3d 346 (1st Cir. 1997) (Rule 69(a) ‘‘unless the court directs otherwise’’ interpreted narrowly)
- Jaffee v. United States, 592 F.2d 712 (3d Cir. 1979) (substance of award determines characterization as legal or equitable)
- N.Y. State Nat. Org. for Women v. Terry, 886 F.2d 1339 (2d Cir. 1989) (elements to impose civil contempt: clear order, clear and convincing proof of noncompliance, and failure to reasonably attempt compliance)
- NML Capital, Ltd. v. Republic of Argentina, 727 F.3d 230 (2d Cir. 2013) (application of Rule 65(d)(2) to bind nonparties in ‘‘active concert or participation’’)