556 B.R. 79
Bankr. E.D.N.Y.2016Background
- Debtor Raymond Dieffenbacher filed chapter 7 on December 18, 2012; John S. Pereira was appointed chapter 7 trustee.
- Trustee served multiple Rule 2004 orders (including against defendant Eduard Yagudayev) directing production of documents and examinations; Defendants did not comply.
- The bankruptcy court entered orders to compel compliance and, finding contempt, imposed daily civil fines of $100 per day against each noncompliant defendant (including Yagudayev) and additional fines for failure to reschedule examinations.
- Trustee commenced an adversary proceeding seeking money judgments for accrued contempt sanctions (totaling $202,900 across defendants), alter-ego/declaratory relief, conversion, unjust enrichment, and an accounting for diminished corporate asset value.
- Trustee settled with Debtor, Pichkhadze, ERIA, and ERRI for $30,000; Shay was later dismissed from the motion; Trustee moved for default judgment against Yagudayev for $76,200 (sanctions through March 31, 2015) and for an accounting; Yagudayev did not respond.
- Court concluded a full $76,200 contempt money judgment would be excessive and ordered the Trustee to submit evidence of reasonable attorney’s fees/costs attributable to Yagudayev’s contempt; default judgment on conversion, unjust enrichment, and accounting claims was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether to enter money judgment for civil contempt equal to accrued daily fines ($76,200) | Trustee: award entire sanctions amount accrued under the Sanctions Orders through March 31, 2015 | Yagudayev: did not appear or respond (no opposition presented) | Court declined to award full accrued amount as excessive; limited sanction to reasonable attorneys’ fees and costs attributable to Yagudayev’s contempt and ordered Trustee to submit records supporting allocation. |
| Proper measure of civil contempt relief (coercive vs. compensatory) | Trustee sought monetary judgment reflecting daily fines (coercive/compensatory) | N/A (court evaluates nature and proportionality) | Court held contempt sanctions should compensate estate for reasonable fees/costs caused by contempt; full daily fines could be punitive here given estate size. |
| Whether Trustee can recover corporate assets via alter-ego/reverse-piercing, conversion, unjust enrichment, and obtain an accounting against Yagudayev | Trustee: ERIA and ERRI are alter-egos of Debtor; corporate assets should be estate property; Yagudayev converted assets and was unjustly enriched | Yagudayev: no answer; factual deficiencies noted in complaint regarding veil-piercing and corporate shell allegations | Court denied default judgment on these claims because Trustee settled with corporations, did not allege prima facie reverse-piercing facts, and no determination was made that corporate assets belong to estate. |
| Procedure for awarding fees as contempt sanction | Trustee: submit calculation or seek full sanctions judgment | N/A | Court directed Trustee to submit affidavit, time records, and allocation showing fees attributable to Yagudayev; judgment to be settled based on that submission. |
Key Cases Cited
- Mar. Asbestosis Legal Clinic v. LTV Steel Co. (In re Chateaugay Corp.), 920 F.2d 183 (2d Cir. 1990) (bankruptcy courts may hold persons in civil contempt for failing to comply with discovery orders)
- United States v. Rangolan, 464 F.3d 321 (2d Cir. 2006) (contempt power is integral to judicial independence)
- Local 28 of the Sheet Metal Workers’ Int’l Ass’n v. EEOC, 478 U.S. 421 (U.S. 1986) (civil contempt sanctions serve coercive and compensatory purposes)
- Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821 (U.S. 1994) (distinguishing civil contempt’s coercive nature from punitive criminal contempt)
- New York State Nat’l Org. for Women v. Terry, 159 F.3d 86 (2d Cir. 1998) (contemnor may be liable for reasonable attorneys’ fees and costs incurred by the party prosecuting contempt)
- Am. Fuel Corp. v. Utah Energy Dev. Co., Inc., 122 F.3d 130 (2d Cir. 1997) (reverse piercing doctrine under New York law follows same analysis as piercing)
- Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131 (2d Cir. 1991) (corporate veil-piercing focuses on domination and use for personal ends)
- In re Drexel Burnham Lambert Grp., Inc., 123 B.R. 702 (Bankr. S.D.N.Y. 1991) (Rule 2004 discovery is broad and functions to uncover estate assets)