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GMCK Realty, LLC v. Mihalatos
Citations: 95 A.D.3d 947; 944 N.Y.S.2d 220
Court: Appellate Division of the Supreme Court of the State of New York; May 8, 2012; New York; State Appellate Court
Defendants appeal an order from the Supreme Court, Queens County, which found them in civil contempt for failing to comply with a stipulation requiring them to provide a certified accounting under Lien Law § 75 and to deposit a bond of $250,000 related to subcontractors' claims. The appeal follows a motion by the plaintiff, the property owner, who sought damages for breach of contract and violations of trust fund provisions. The defendants, retained for construction work, failed to pay subcontractors who then sought payment directly from the plaintiff or filed mechanics liens. After an initial stipulation on June 10, 2009, requiring the defendants to provide an accounting, the plaintiff rejected their documentation as insufficient. Subsequent hearings led to the Supreme Court imposing sanctions, including the striking of the defendants' answer and counterclaims, and the incarceration of defendant Dennis Mihalatos. However, the appellate court reversed the order, denying the plaintiff's motion, reinstating the defendants' answer and counterclaims, and vacating the sanctions and incarceration directive. The appellate court's decision was made after acknowledging the defendants' inability to post the required bond. Defendants' appeal is granted, and the prior ruling is reversed. To establish civil contempt, the movant must prove that the charged party willfully violated a clear court order while aware of its terms, resulting in prejudice to the movant. The burden of proof lies with the movant to show contempt by clear and convincing evidence. The defendants provided substantial documentation in response to a June 10, 2009 stipulation, including hundreds of checks and financial statements, though this did not fully comply with Lien Law requirements. However, this documentation indicates that the defendants did not willfully violate the stipulation. Furthermore, their failure to post a bond was insufficient grounds for contempt. The Supreme Court's decision to hold the defendants in civil contempt and impose further penalties, including striking their answer and counterclaims, sanctions, attorney fees, and incarceration of Mihalatos, was erroneous. Consequently, the remaining arguments by the defendants are deemed irrelevant.