United States of America v. JK Peris, Inc. et al

Filing 40

DECISION AND ORDER that Defendants are found in civil contempt of the Courts Injunction Order; and that on or before August 31, 2018, the Government shall file with the Court and serve on Defendants a sworn declaration from Revenue Officer Weaver set ting forth the exact amount due and owing by Defendants to the Government under the terms of the Injunction Order as of the date of this Decision and Order. Revenue Officer Weavers sworn declaration shall explain how this amount was calculated and s hall, to the extent possible, include supporting documentation; and that Defendants shall have until September 28, 2018, to purge themselves of their civil contempt by remitting to the Government the amount set forth in Revenue Officer Weavers sworn declaration; and that if Defendants fail to purge themselves of their civil contempt as set forth above, the Government shall file with the Court and serve on Defendants, on or before October 12, 2018, a proposed receivership order identifying a receiver and recommending the terms of the receivership. (Clerk is directed to mail a copy of Decision and Order to Defendants.) Signed by Hon. Michael A. Telesca on 8/16/18. (JMC)-CLERK TO FOLLOW UP-

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
No. 6:12-cv-6628(MAT)
DECISION AND ORDER

Plaintiff,
-vsJK PERIS, INC., JOHN PERIS, and KATHY
PERIS,
Defendants.

BACKGROUND
Plaintiff the United States of America (the “Government”)
commenced the instant action on November 16, 2012, alleging that
defendant JK Peris, Inc. (“JK Peris”), a New York corporation, and
defendants John Peris and Kathy Peris, the vice-president and
president of JK Peris, respectively, (collectively “Defendants”)
had failed to timely file tax returns and had failed to pay federal
employment and unemployment taxes. The parties subsequently entered
into a stipulation, pursuant to which this Court entered judgment
against JK Peris and in favor of the Government in the amount of
$291,503.37, as well as a permanent injunction order requiring,
among other things, that: (1) “Defendants . . . remit the sum of
$1,000 per month commencing February 15, 2013, via pay.gov,” with
such

payments

to

“be

applied

to

the

outstanding

judgment”;

(2) “Defendants . . . deposit withheld FICA and income taxes, as
well as the share of FICA and FUTA taxed for defendant JK Peris,
Inc. in an appropriate federal depository bank in accordance with
federal deposit regulations”; and (3) “Defendants . . . sign and

deliver affidavits to [Internal Revenue Service] Revenue Officer
Ronald P. Weaver . . . on the first date of each month stating that
the requisite withheld income, FICA and FUTA tax deposits were
timely made.”

Docket No. 17 at 1-3 (hereinafter the “Injunction

Order”).
On December 27, 2013, the Government moved for sanctions and
to hold Defendants in civil contempt.

Docket No. 18.

The

Government submitted evidence to the Court showing that Defendants
had failed to comply with the terms of the Court’s order by failing
to deposit withheld FICA and income taxes for October 2013, failing
to make the required payroll tax deposits required for the quarter
ended September 30, 2013, and failing to remit the monthly payments
of $1,000 for the months of October and November 2013.

Id. at 1.

The Government asked the Court to find Defendants in civil contempt
and, as a sanction, to incarcerate either Mr. Peris or Mrs. Peris
in

order

to

coerce

compliance.

Id.

Defendants

opposed

the

Government’s motion, explaining that the missed payments were due
to insufficient funds and submitting evidence to show that two
payments had been made on January 8, 2014 to cover the withholding
taxes owed.

Docket No. 19.

On June 12, 2014, the Court entered a

Decision and Order in which it noted that it appeared Defendants
had made the delinquent payments on which the motion for contempt
was based.

Docket No. 25.

The Court therefore denied the

Government’s motion, but stated that it could “renew its motion for

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contempt should it become aware that defendants have failed to
comply with this Court’s . . . Injunction Order.”

Id. at 2.

On December 6, 2017, the Government filed a motion requesting
that the Court issue an order to show cause why Defendants should
not be held in contempt of court.

Docket No. 26.

In support of

its motion, the Government submitted evidence demonstrating that
Defendants had failed to make at least 47 required monthly payments
and had failed to submit the required affidavits to Revenue Officer
Weaver on at least 24 occasions, in direct violation of this
Court’s Injunction Order.

Id.

The Court granted Defendants two different extensions of time
to respond to the Government’s motion for an order to show cause
(see Docket Nos. 28 and 31), but Defendants nonetheless failed to
file any opposition to the Government’s motion, or to submit any
evidence to contradict the Government’s claim that they had failed
to comply with this Court’s Injunction Order.

Accordingly, on

May 1, 2018, the Court granted the Government’s motion and issued
an Order to Show Cause.

Docket No. 34 (the “Order to Show Cause”).

The Order to Show Cause required Defendants to “to show cause
in writing on or before June 15, 2018, why they should not be found
in contempt of this Court’s permanent injunction order.” Id. at 2.
Defendants were advised that failure to respond to the Order to
Show Cause could result in the imposition of sanctions against
them, including but not limited to the appointment of a receiver to

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marshal JK Peris’ assets for the benefits of its creditors and/or
an award of compensatory damages to the Government. Id. at 3.
Defendants filed a response to the Order to Show Cause on
June 14, 2018.

Docket No. 38.

Defendants indicated that they had

incorrectly believed that attorneys who were assisting them with
other matters were also going to respond to the Court’s Order to
Show Cause.

Id. at 1.

Defendants further represented that JK

Peris had undergone “difficult financial times over the years,”
causing them to “miss some payments.”

Id. Defendants claimed that

they had “caught up and paid the missed payments from 2016 and have
remained current since.” Id. However, Defendants did not file any
documents

or

other

corroborating

evidence

to

support

this

contention. Defendants further represented that Mr. and Mrs. Peris
are in financial distress, but that JK Peris’s financial outlook is
improving, and asked the Court to deny the Government’s request
that they be found in contempt and permit them additional time to
repay their debts.

Id. at 1-2.

On June 22, 2018, the Government filed a reply in further
support of its request that Defendants be found in contempt.
Docket No. 39.
Defendants’

The Government submitted evidence contradicting

claim

that

they

had

“caught

up”

on

their

missed

payments, demonstrating that the last Court-ordered payment made by
Defendants was in April 2015 and that there was a balance due on
Defendant’ quarterly tax obligations from the fourth quarter of
2015 through the second quarter of 2017.
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Docket 39-1 at ¶¶ 10-12.

Accordingly, the Government reiterated its request that the Court
find Defendants in contempt.
DISCUSSION
I.

Standard for Civil Contempt
Civil contempt encompasses “[a] sanction imposed to compel

obedience to a lawful court order or to provide compensation to a
complaining party.” New York State Nat. Org. for Women v. Terry,
886 F.2d 1339, 1351 (2d Cir. 1989); see also Vuitton et Fils S. A.
v. Carousel Handbags, 592 F.2d 126, 130 (2d Cir. 1979)(“Generally,
the sanctions imposed after a finding of civil contempt serve two
functions:

to

coerce

noncompliance.”).
enforce

their

Distributors

compliance

and

to

remedy

past

“Federal courts maintain the inherent power to

orders

of

future

by

Greater

civil
NY,

contempt.”

Inc.,

274

F.

Drew-King
Supp.

(E.D.N.Y. 2017) (internal quotation omitted).

Deep

132,

3d

v.

136

The Court may hold

a party in civil contempt for failure to comply with an order if
“(1) the order the contemnor failed to comply with is clear and
unambiguous,

(2)

the

proof

of

noncompliance

is

clear

and

convincing, and (3) the contemnor has not diligently attempted to
comply

in

a

reasonable

manner.”

Paramedics

Electromedicina

Comercial, Ltda v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645,
655 (2d Cir. 2004)(internal quotation omitted).

A violation need

not be willful in order to warrant civil contempt.
II.

Id.

Defendants are in Civil Contempt of the Injunction Order

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The Court finds that the requirements for holding Defendants
in civil contempt are met in this case.

Defendants have failed to

comply with the terms of the Injunction Order, which is clear and
unambiguous.

Defendants have not disputed that the Injunction

Order clearly and unambiguously required them to make monthly
payments towards the outstanding judgment and to comply with their
tax obligations going forward.
The

proof

of

Defendants’

noncompliance

is

clear

and

convincing, consisting of records maintained by the Government and
sworn declarations by Revenue Officer Weaver, who has personal
knowledge

of

the

information

he

has

provided

to

the

Court.

Moreover, Defendants do not dispute that they have missed payments
that were required by the Court’s Injunction Order.

See Docket

No. 38 at 1. “In the context of civil contempt, the clear and
convincing

standard

requires

a

quantum

of

proof

adequate

to

demonstrate a reasonable certainty that a violation occurred.”
Levin v. Tiber Holding Corp., 277 F.3d 243, 250 (2d Cir. 2002)
(internal quotation omitted).

This standard has been amply met in

this case.
The Court further finds that Defendants have not attempted to
comply with the Court’s order that it make monthly payments of
$1000 with reasonable diligence, despite their claims that they
failed to make the payments due to financial inability. Because
“[a] civil contempt order is designed to be coercive rather than
punitive[,] . . .

“a party’s complete inability, due to poverty or
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insolvency, to comply with an order to pay court-imposed monetary
sanctions is a defense to a charge of civil contempt.” Huber v.
Marine Midland Bank, 51 F.3d 5, 10 (2d Cir. 1995).

However, “[t]he

alleged contemnor bears the burden of producing evidence of his
inability

to

comply,”

and

he

is

required

to

inability clearly, plainly, and unmistakably.”

“establish

his

Id. Moreover,

“[w]hen an order requires a party to pay a sum certain, a mere
showing that the party was unable to pay the entire amount by the
date specified is insufficient to avoid a finding of contempt.
When a party is absolutely unable to comply due to poverty or
insolvency, inability to comply is a complete defense. Otherwise,
the party must pay what he or she can.” S.E.C. v. Musella, 818 F.
Supp. 600, 602 (S.D.N.Y. 1993) (internal citations omitted and
emphasis added).
In this case, the proof submitted by Defendants regarding
their alleged inability to make the payments required by the
Injunction Order consists of unsworn statements to the effect that:
(1) for the last several years, Mr. Peris’s salary from JK Peris
has been under $16,000; (2) Mrs. Peris has not received a check
from JK Peris in over 10 years; (3) Mr. and Mrs. Peris have two
vehicles, one of which is 14 years old and the other of which is
23 years old; and (4) Mr. and Mrs. Peris have no cash on hand or in
the bank.

Docket 38 at 2.

These statements are insufficient to

establish, “clearly, plainly, and unmistakably,” that Defendants
were unable to make payments of any amount towards the outstanding
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judgment.

Defendants

have

not

provided

the

Court

with

any

information regarding JK Peris’s revenue during the time period at
issue,

nor

have

they

provided

the

Court

with

comprehensive

information regarding Mr. and Mrs. Peris’s expenses, income, and
assets. The Court cannot conclude from the information provided by
Defendants that they were wholly unable to make even partial
payments over the course of multiple years, or to otherwise at
least attempt to comply with the terms of the Injunction Order.
See S.E.C. v. Universal Exp., Inc., 546 F. Supp. 2d 132, 140
(S.D.N.Y.

2008)

(“generalized

assertions

of

poverty”

are

insufficient to demonstrate an inability to pay).
Revenue

Officer

Weaver’s

sworn

statements

confirm

that

Defendants did not act with reasonable diligence in this case.
Revenue Officer Weaver reports that “[o]n many occasions,” he
visited the business offices of JK Peris in an attempt to secure
compliance with the Injunction Order.

Docket No. 27 at ¶ 11.

However, Defendants refused to answer the door or to discuss the
matter with Revenue Officer Weaver.
the

actions

obligations.

of

parties

diligently

Id. at ¶ 12.
attempting

These are not
to

meet

their

Revenue Officer Weaver further reports that on seven

occasions, Defendants submitted signed affidavits that falsely
represented payroll tax deposits had been made when they in fact
had not been.

Id. at ¶ 10. Defendants’ submission of false

affidavits (particularly coupled with the fact that they falsely
claimed in their response to the Court’s Order to Show Cause to be
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“caught up” on their missed payments) is inconsistent with their
claim that they were sincerely attempting to comply with the terms
of the Injunction Order.
The Court further notes that Defendants were put on notice by
the Government’s filings in this matter that they were required to
“pay as much as is possible to pay under the circumstances.”
Docket No. 27 at 6 (internal quotation and alterations omitted);
see also Docket No. 29 at 3 (“The law is clear: Defendants were
required

to

pay

as

much

as

is

possible

to

pay

under

the

circumstances.”) (internal quotation and alterations omitted).
Nonetheless, Defendants have failed to make even a de minimis
payment towards their outstanding debt during the pendency of the
Government’s motion and the Order to Show Cause, further confirming
that they have not been diligent in attempting to comply with the
Court’s Injunction Order.
Defendants have not satisfied their burden of demonstrating a
complete inability to make even partial payments towards their past
liability, nor have they otherwise shown reasonable diligence in
attempting to comply with the Court’s Injunction Order.

The

standard for a finding of civil contempt is therefore met in this
case.
III. Appropriate Sanctions
Having found that Defendants are in civil contempt due to
their failure to comply with the Injunction Order, the Court must
next consider the appropriate sanction.
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As set forth above, civil

contempt sanctions may permissibly serve two purposes: to compel
obedience with the Court’s orders in the future or to provide
compensation to an injured party. Terry, 886 F.2d at 1351.

“So far

as the first of these functions is concerned, the district judge,
sitting in equity, is vested with wide discretion in fashioning a
remedy.” Vuitton et Fils, 592 F.2d at 130.

On the other hand,

“once the plaintiff has proved that he has suffered harm because of
a violation of the terms of an injunction, compensatory damages are
appropriate,” and as such, “[t]he district court is not free to
exercise its discretion and withhold an order in civil contempt
awarding damages, to the extent they are established.”

Id.

In this case, the Government seeks both a coercive sanction
and a compensatory sanction.

First, the Government asks the Court

to order that, unless Defendants make the outstanding payments, a
receiver be appointed to administer JK Peris’s assets. Second, the
Government asks the Court to award a compensatory sanction of
$47,000, the amount of the monthly payments that Defendants have
failed to make.
A.

The Court considers each of these requests below.

Coercive Sanction

The Court agrees with the Government that appointment of a
receiver as a coercive sanction is warranted in this case if
Defendants do not promptly purge their contempt. United States v.
Latney's Funeral Home, Inc., 41 F.Supp.3d 24 (D.D.C. 2014) is
instructive in this regard. There, as in this case, the defendants
were a family-owned business and its co-operators who had failed to
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satisfy their federal tax obligations.

Id. at 27.

The Government

brought an action against them, and an injunction was entered that
required the defendants to comply with the provisions of the
Internal Revenue Code.

Id.

The defendants failed to comply with

the court’s injunction, and the Government requested that they be
held in civil contempt.

Id.

The court granted the Government’s

request and appointed a limited receiver to ensure the defendants’
compliance with the court’s order going forward.

Id. at 36-38.

The Court agrees with the reasoning set forth in the Latney’s
Funeral Home case with respect to its authority to appoint a
receiver as a coercive sanction. As the court in that matter
explained, “[f]ederal courts have broad equitable powers to craft
remedial sanctions for civil contempt,” including “the ability to
appoint a receiver to enforce compliance with the law.”

Id. at 36.

The Court’s power to appoint a receiver is also codified by the
Internal Revenue Code, which provides in relevant part that “[t]he
district courts of the United States at the instance of the
United States shall have such jurisdiction to make and issue . . .
orders

appointing

receivers

.

.

.

as

may

be

necessary

or

appropriate for the enforcement of the internal revenue laws.”

26

U.S.C. § 7402(a).
Further

authority

for

the

Court’s

ability

to

appoint

a

receiver in this matter is found in Federal Rule of Civil Procedure
69(a) and New York Civil Practice Law and Rules (“CPLR”) § 5228.
Pursuant to Rule 69(a), enforcement of a money judgment (such as
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that obtained by the Government in this matter) is governed by the
procedure of the state where the court is located - in this case,
New York.

CPLR § 5228 in turn provides that “[u]pon motion of a

judgment creditor, . . . the court may appoint a receiver who may
be authorized to administer, collect, improve, lease, repair or
sell any real or personal property in which the judgment debtor has
an interest or to do any other acts designed to satisfy the
judgment.”

N.Y. C.P.L.R. § 5228(a).

Based on the foregoing

authority, the appointment of a receiver to administer JK Peris’s
property is within the Court’s powers.
The Court further finds that the Government has demonstrated
appointment of a receiver is warranted in this matter.

Like in

Latney’s Funeral Home, “Defendants have demonstrated a pattern and
practice

of

noncompliance

41 F.Supp.3d at 37.

with

the

internal

revenue

laws.”

As Revenue Officer Weaver’s sworn statements

set forth in detail, Defendants have not only failed to make in
excess of 40 monthly payments towards their prior tax liability,
they have also failed to comply with their ongoing quarterly tax
filing obligations, such that there is an outstanding balance on
each period from the fourth quarter of 2015 through the second
quarter of 2017.

Docket 39-1 at ¶¶ 8-12.

Appointment of a

receiver is thus an appropriate “remedial mechanism through which
[the Government] will recover Defendants’ years of unpaid taxes and
guarantee compliance with the Injunction moving forward.” Latney’s
Funeral Home, 41 F.Supp.3d at 38.
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“The Court appreciates that appointing a receiver is an
extraordinary remedy, but this is an extraordinary situation.” Id.
(internal quotations and alterations omitted). Despite being under
Court order to comply with their ongoing tax obligations and to
make payments towards their outstanding tax liability, Defendants
have failed to do so for multiple years. Moreover, based on the
record and Defendants’ conduct in this matter,

“the Court is not

persuaded that Defendants can remedy their historic noncompliance
or repay their substantial outstanding tax judgment without close
supervision

and

support.”

Id.

Under

these

circumstances,

appointment of a receiver is warranted.
For all the foregoing reasons, the Court finds that, if
Defendants fail to promptly cure their contempt of the Injunction
Order, appointment of a receiver is warranted.

As set forth in

further

to

detail

below,

should

Defendants

fail

purge

their

contempt in the time alloted by the Court, the Government, as it
has requested, shall submit to the Court “a proposed receivership
order identifying a receiver and recommending the terms of the
receivership, including but not limited to a proposal for limited
funding of the receiver’s costs and fees by the Government.”
Docket No. 27 at 9.
B.

Compensatory Sanction

The Government also contends that it is entitled to $47,000
(the

amount

of

Defendants’

compensatory sanction.

missed

monthly

The Court disagrees.
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payments)

as

a

As the Government

acknowledges, the purpose of a compensatory sanction is to “‘make
reparation to the injured party and restore the parties to the
position they would have held had the injunction been obeyed.’”
Docket No. 27 at 10 (quoting Vuitton et Fils, 592 F.2d at 130).
Importantly, a compensatory sanction cannot be punitive. See Terry,
886 F.2d at 1351 (a sanction “imposed to punish for an offense
against the public and to vindicate the authority of the Court”
amounts to criminal contempt).
Here, the Government already has a judgment against Defendants
for $291,503.37, which includes the $47,000 that Defendants failed
to pay.

The Government remains free to collect this judgment in

the manner customarily available to a judgment creditor.

Were the

Court to impose an additional sanction of $47,000 on Defendants, it
would amount to a potential double recovery for the Government,
rather than restoring the Government to the position it would have
been in had Defendants complied with the Injunction Order.
The Government has failed to set forth any other compensatory
damages

to

which

it

might

be

entitled

-

for

example,

“the

reasonable costs of prosecuting the contempt.” Vuitton et Fils, 592
F.2d at 131.

In a civil contempt proceeding, “the party seeking

compensation carries the burden of proof as to those damages.”
Cordius Tr. v. Kummerfeld Assocs., Inc., 658 F. Supp. 2d 512, 524
(S.D.N.Y. 2009). Accordingly, because the Government has not shown
that it is entitled to the $47,000 sanction it seeks, and because
the Government has not provided proof of any other compensatory
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damages to which it might otherwise be entitled, the Court declines
to impose a compensatory sanction at this time.
CONCLUSION
For the reasons discussed above, the Court holds Defendants in
civil contempt.

Defendants shall be given an opportunity to purge

themselves of their contempt, as described more fully below.

If

Defendants fail to purge themselves of their contempt, the Court
shall issue a further order appointing a receiver to enforce
Defendants’ compliance with the Injunction Order and the Internal
Revenue Code.
ORDER
For all the foregoing reasons, it is hereby
ORDERED that Defendants are found in civil contempt of the
Court’s Injunction Order; and it is further
ORDERED that on or before August 31, 2018, the Government
shall

file

with

the

Court

and

serve

on

Defendants

a

sworn

declaration from Revenue Officer Weaver setting forth the exact
amount due and owing by Defendants to the Government under the
terms of the Injunction Order as of the date of this Decision and
Order.

Revenue Officer Weaver’s sworn declaration shall explain

how this amount was calculated and shall, to the extent possible,
include supporting documentation; and it is further
ORDERED that Defendants shall have until September 28, 2018,
to purge themselves of their civil contempt by remitting to the

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Government the amount set forth in Revenue Officer Weaver’s sworn
declaration; and it is further
ORDERED that if Defendants fail to purge themselves of their
civil contempt as set forth above, the Government shall file with
the Court and serve on Defendants, on or before October 12, 2018,
a

proposed

receivership

order

identifying

a

receiver

and

recommending the terms of the receivership.
ALL OF THE ABOVE IS SO ORDERED.
s/Michael A. Telesca
HONORABLE MICHAEL A. TELESCA
United States District Judge
Dated:

August 16, 2018
Rochester, New York.

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