Contempt of Court

One Hundred Seventy-Eight East 80th Street Owners Inc. v. Jenkins was the rare case where a co-op recovered its legal fees against a shareholder and an express proprietary lease clause did not provide the basis to do so. It was the shareholder's contempt of prior court orders that gave rise to the recovery of the fee.

This landlord-tenant dispute, which was in federal court based on diversity of citizenship, had been the subject of several prior opinions. In brief, when these suits were begun, Lindsay Jenkins owned two units in a cooperative apartment building located at 178 East 80th Street on Manhattan's Upper East Side. The cooperative corporation contended that Jenkins was renting out these units in violation of her proprietary lease. Both units have since been sold and Jenkins now resides in London.

The sole remaining dispute between Jenkins and the co-op arose out of a settlement agreement that Jenkins and the co-op entered into in April 2001. Under the agreement, which was "so ordered" on April 9, 2001, Jenkins agreed not to have any overnight guests in her apartments for more than two weeks in any six-month period, and that such guests could be present only when she was "contemporaneously physically there." The agreement further provided that any application to enforce its terms could be heard and resolved by the court.

The co-op contended that Jenkins violated the agreement in 2002 by having an individual named Frank Marrero stay in her apartment for a period exceeding two weeks during which she was not also present. After this alleged violation was drawn to its attention, the court issued an order (the OSC), returnable November 1, 2002, which required Jenkins to show cause why she should not be adjudicated in contempt of court and sanctioned and fined for violating the terms of both the agreement and a prior order. The order required that by August 26, 2002: (1) the co-op would give Jenkins documents relevant to its allegation that she had violated Paragraph 7 of the agreement, and (2) Jenkins would supply the co-op with documents relating to Marrero's stay in her apartment, including any pages of her passport needed to establish her whereabouts between July 8 and August 8, 2002. In addition, the order required the parties to arrange dates for the co-op to depose Jenkins, and for Jenkins to depose the doormen and any other witnesses the co-op might call at the hearing.

The co-op subsequently sent Jenkins copies of the relevant documents in its possession. Despite her professed interest in securing discovery, however, Jenkins never took any steps to depose the co-op's witnesses and did not produce any of the documents required by the order. Jenkins also failed to make herself available to be deposed.

As the OSC hearing date approached, Jenkins filed a series of motions, including one that asked the federal judge to vacate the reference to a magistrate and require the magistrate's recusal. As a consequence of those motions, the magistrate delayed the OSC hearing to afford the federal judge an opportunity to rule. By opinion and order dated August 22, 2003, the judge denied those motions. Thereafter, the magistrate scheduled the OSC hearing for October 3, 2003. In the court's view, it was clear that Jenkins had notice of the hearing date because she was faxed a copy of the order setting the hearing date at the fax number in London that she typically had used to communicate with the court. Moreover, on September 29, 2003, Jenkins faxed to the court chambers a copy of a "notice of appeal" to the federal judge from the court's decision to hold the OSC hearing on October 3, 2003.

The OSC hearing was held, as scheduled, on October 3, 2003. Jenkins did not appear at the hearing. The sole witness called by the co-op was Joseph Seda, a doorman at the building. In addition, the co-op asked that the exhibits to the OSC application be deemed part of the hearing evidentiary record, which request was granted. Those exhibits included the affidavits of several other building doormen.

On the basis of Seda's uncontradicted testimony and the documents received into evidence, the court found as follows:

(1) Jenkins allowed Marrero to use her apartment at the building continuously from about July 8 through August 8, 2002. She was present at the building on the day that Marrero moved in and introduced him to Seda. Thereafter, however, Jenkins did not occupy the apartment during the period of approximately one month that Seda was using it as his residence.

(2) Jenkins' own letter to the co-op's managing agent, dated July 5, 2002, confirmed her intention to have Seda stay in her apartment for more than the permitted two-week period since it stated that Marrero would be staying with her "through July 25th."

(3) The occupancy of the apartment by Marrero for more than two weeks during the summer of 2002 constituted a violation of Paragraph 7 of the agreement.

(4) Jenkins' letter and her refusal to produce documents or submit to a deposition concerning her whereabouts confirmed that she committed this violation of the agreement knowingly.

(5) By refusing to comply with court-ordered discovery, Jenkins also knowingly violated the order.

(6) Having knowingly violated both the agreement and the order, Jenkins was in contempt of court.

In its OSC application, the co-op indicated that it would seek to recover the damages resulting from Jenkins' contumacious conduct, including "all legal fees, costs, and disbursements which the co-op had been (and would be) forced to incur."

Ordinarily, each party to a lawsuit is responsible for his or her own attorney's fees. In this case, because Jenkins was a tenant in a cooperative apartment building, the court assumed that her proprietary lease contained a fee-shifting provision, citing Isaacs v. Jefferson Tenants Corp. ("Plaintiff was properly required to pay defendant cooperative association's legal costs and disbursements pursuant to paragraph 28 of the proprietary lease ..."). The co-op had not alleged, however, that Jenkins' decision to let Marrero use her apartment violated the terms of the proprietary lease. Accordingly, the lease was not the basis for awarding the co-op any fees or disbursements.

Nevertheless, the court noted that Local Civil Rule 83.9 provided, in part, that "If the alleged contemner is found to be in contempt of court, an order shall be entered... (2) setting forth the amount of damages, if any, to which the complainant is entitled; (3) fixing the fine, if any, imposed by the court, which fine shall include the damages found and naming the person to whom such fine shall be payable..." The rule further provided that a "reasonable counsel fee, necessitated by the contempt proceedings, may be included as an item of damage."

The co-op sought to recover legal fees in the amount of $41,062 and expenses in the amount of $4,111.96 through September 25, 2003, based on detailed records it had presented to the court. The co-op also sought to recover an additional $2,400 in fees (i.e., ten hours of attorney time), and $50 in expenses that it estimated would be incurred through the close of the hearing.

Jenkins did not submit any papers taking issue with any of these requests. Despite Jenkins' failure to respond to the fee application, the court independently reviewed the time records, which indicated that three attorneys at the Wolf, Haldenstein Adler Freeman & Herz firm devoted time to this case in response to Jenkins' violations of the agreement and order. Of these attorneys, the court said that it was only familiar with Sladkus, an associate at the firm, who had had the "laboring oar" in connection with this matter and had acted with considerable skill.

Although Sladkus' affidavit seeking an award of legal fees did not set forth his professional history, this court took judicial notice of its own attorney admission records that confirm that he was admitted in the southern district of New York in 1995. On that basis alone, it was clear to the court that Sladkus' hourly billing rate - which increased from $210 to $240 over time - was fair and reasonable.

After careful review of the co-op's fee request, the court made several downward adjustments. First, it eliminated certain of the entries for attorneys other than Sladkus based on (1) the co-op's failure to identify them by name and set forth their professional credentials; (2) the fact that the billings for these attorneys often reflected office conferences with Sladkus; and (3) the court's belief that there was no need for additional "quality control" personnel to review Sladkus' work.

Second, the court adjusted two entries for work performed by Attorney "39" on October 30 and November 11, 2002, at billing rates higher than those of Sladkus by reducing the hourly rate to Sladkus' then current billing rate. (This resulted in a $742.50 reduction.)

Third, there were certain time entries which appeared to relate to the sale of Jenkins' units at the co-op, an action which was consistent with the co-op's goals and the terms of the agreement and, therefore, in no way related to the co-op's allegations that she should be adjudicated in contempt.

Fourth, the court eliminated in their entirety time entries that related to insurance since the co-op had not explained how they related to its application for contempt sanctions.

Finally, the court eliminated a time entry related to the preparation of a letter to "monitor" since it had no idea how this related to the co-op's OSC and reduced the reimbursable time after September 23, 2003, to seven hours, resulting in a reduction of $720 (3 x $240 = $720). It also eliminated the estimated $50 in additional expenses.

After making these adjustments, the court found that the reasonable and reimbursable expense incurred by the co-op for legal fees in connection with its successful application to have Jenkins adjudicated in contempt was $32,916.50. It also reviewed the co-op's disbursements in connection with its contempt application, which the court found were reasonable. Accordingly, it awarded as this element of the co-op's damages the full amount requested (other than the $50 in estimated future disbursements).

The court noted also that the co-op had requested, albeit halfheartedly, that the court award as damages the legal fees occasioned by Jenkins' violations of the agreement, the order, and the court's other orders and stipulations dating back to April 2001. These damages were not detailed in the co-op's papers and evidently were unrelated to the events underlying the OSC. Accordingly, the court refused to award such damages.

Finally, although the court did not impose a fine in addition to the co-op's direct damages, it recognized that collection of the sums awarded could prove difficult since Jenkins was apparently no longer living in the United States. For that reason, the court determined that the co-op should also be awarded interest on its damages from October 3, 2003, at the rate of nine percent per annum.

Accordingly, the court directed that Jenkins be fined the amount of $37,028.46, together with interest from October 3, 2003, through the date of payment at the rate of nine percent per annum, and that this fine be payable to the co-op.

Comment: The result here was most unusual. In American jurisprudence, each party normally bears its own legal expenses. Occasionally, by contract, this rule can be varied so that either one party or another bears the expenses of both parties. Often, the proprietary lease so provides. In this case, the lease was not the basis. Rather, it was the combination of the federal court venue and the shareholder's contempt of court, a unique situation.