Assets In Which Judgment Debtor Has Beneficial Interest, Even if Not Legal Title, Are Subject to Levy

On February 9, 2022, Justice Barry R. Ostrager of the New York County Commercial Division issued a decision in Pacific Alliance Asia Opportunity Fund L.P. v. KwokHo Wan, 2022 N.Y. Slip Op. 30460(U), holding a "billionaire" judgment debtor in civil contempt for failure to turn over a yacht called the Lady May, rejecting the debtor's argument that the yacht was not his, explaining:

The Court has the authority to hold Kwok in [*11] civil contempt under Judiciary Law § 753—and "to punish [him], by fine and imprisonment"—where, as here, the Court "expressly find[s] that [Kwok's] actions were calculated to or actually did defeat, impair, impede, or prejudice the rights or remedies of a party to a civil proceeding." Oppenheimer v. Oscar Shoes, Inc., 111 A.D.2d 28, 28, 488 N.Y.S.2d 693 (1st Dep't 1985) (citing N.Y. Judiciary Law § 753). Section 753 sets forth four requirements: "[T]o find that contempt has occurred in a given case, it must be determined that [1] a lawful order of the court, clearly expressing an unequivocal mandate, was in effect. [2] It must appear, with reasonable certainty, that the order has been disobeyed . . . [3] Moreover, the party to be held in contempt must have had knowledge of the court's order, although it is not necessary that the order actually have been served upon the party . . . [4] Finally, prejudice to the right of a party to the litigation must be demonstrated."

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The extent of PAX's ongoing "prejudice" turns on whether PAX has demonstrated that it could ultimately levy on the Lady May to satisfy its now centi-million dollar judgment against Kwok. Under CPLR § 5225, "money or other personal property" is leviable where the debtor holds the requisite "interest." To satisfy this requirement, "[i]t is not necessary that the judgment debtor have legal title to the property; a beneficial interest is sufficient." Weinstein, Korn & Miller, New York Civil Practice: CPLR ¶ 5225.09. "A beneficial interest is '[a] right or expectancy in something . . . as opposed to legal title to that thing.'" Peterson v. Islamic Rep. of Iran, 2013 U.S. Dist. LEXIS 40470, 2013 WL 1155576, at *30 (S.D.N.Y. Mar. 13, 2013) (citing Black's Law Dictionary, Interest (9th ed. 2009)). Kwok has much more than a beneficial interest in the Lady May. Not only does Kwok control the yacht, it appears he provided the funds to purchase it and he is the person who principally enjoys the use of the yacht.

The key factor is whether "the property benefitted [the beneficial owner] as if he had received the property directly." Id. (quoting Exp.-Imp. Bank of U.S. v. Asia Pulp & Paper Co., Ltd., 609 F.3d 111, 120 (2d Cir. 2010); see also Gliklad v. Chernoi, 129 A.D.3d 604, 12 N.Y.S.3d 65 (1st Dep't 2015) (upholding rejection of the judgment debtor's contention that he no longer held an interest in property because he transferred his interest to his daughters); Colfin Bulls Funding B, LLC v. Ampton Invs., Inc ., 62 Misc. 3d 1208(A), 112 N.Y.S.3d 868 (Table), at *2, 6 (N.Y. Sup. Ct. 2018) (granting judgment [*13] creditor's turnover motion notwithstanding judgment debtor's assertion that he transferred property to a corporation, because even if true, the evidence showed that he "retained control and/or an interest" in the property).

The evidence clearly and convincingly demonstrates that Kwok holds a beneficial interest in and controls the Lady May. In the latter connection, the Court takes notice of the filing of the Zeng case and draws an inference from all the record facts that Kwok has taken extraordinary steps to shield the yacht from his creditors. Moreover, Kwok's "family office" funds the yacht's day -to-day operations and maintenance.

The Court finds that Ms. Guo's testimony was not only internally inconsistent and dissembling, but also significantly undermined by the testimony of Captains Heaslop and Ivanov and Mr. Stockil, who stated that they have never taken yacht-related direction from Ms. Guo in the four and-a-half years that she directly or indirectly held title to the yacht.

Sophisticated judgment debtors often attempt to protect their assets from creditors by transferring them out of their name, even though they continue to control and benefit from those assets. But this strategy may not be successful if a court holds that the debtor has a beneficial interest in the asset at issue, and as this case shows, the punishment for refusing to comply with court orders is contempt. The attorneys at Schlam Stone & Dolan regularly litigate sophisticated judgment-enforcement issues and bring contempt motions against uncooperative judgment debtors. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning executing on a judgment against an uncooperative debtor.