Foreign Judgment in Criminal Fraud Action Enforceable in New York

A New York Appellate Court held for the first time that a judgment issued by a foreign country’s criminal court awarding monetary compensation to a fraud victim is civil, not penal in nature, and therefore enforceable in New York State. 

In 2010, Prague’s Municipal Court found Viktor Kozeny guilty of gross fraud for looting six funds associated with the Czech Republic’s privatization of state-owned companies. Mr. Kozeny was sentenced to 10 years, and ordered to pay the equivalent of $410 million to Harvardsky Prumyslovy Holding, A.S.,-V Likvidaci (the Fund), one of the funds with approximately 250,000 investors, as “compensation for damage to the victim” under the Czech Code of Criminal Procedure (the Czech Judgment). 

The Fund subsequently commenced an action in New York under CPLR article 53 to recognize and enforce the Czech Judgment against Mr. Kozeny. Specifically, the Fund sought to attach approximately $20 million held in a bank account in the name of Landlocked Shipping Company, a Turks and Caicos company alleged to be Kozeny’s alter ego. The Supreme Court granted Landlocked’s motion to dismiss on the grounds that New York courts do not recognize foreign judgments that are penal in nature. 

A five-judge panel of the Appellate Division, First Department, unanimously reversed. Considering both Czech and New York law, the court rejected Landlocked’s view that the Czech Judgment, “otherwise construed as compensatory [if] rendered by a civil court, must be regarded as an unenforceable penalty when issued by a criminal tribunal.” The court also rejected Landlocked’s claim that the Fund sought impermissibly to “reverse-pierce” and hold Landlocked liable for the debts of its shareholder, Kozeny, as the Fund adequately pleaded that Landlocked and Kozeny were alter egos of each other. 

Harvardsky Prumyslovy Holding, A.S.,-V Likvidaci v. Kozeny, Index No. 651826/12, 2014 NY Slip Op 02250 (1st Dep’t 2014).

Topics:  Civil Monetary Penalty, Crime Victims, Criminal Prosecution

Published In: Civil Procedure Updates, Civil Remedies Updates, Criminal Law Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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