The case of the day is Harvardsky Prumyslovy Holding A.S. v. Kozeny (N.Y. App. Div. 2014). In the 1990s, when Czech state-owned enterprises were being privatized, citizens were given vouchers to purchase shares in some of the firms. The vouchers could also be assigned to investment privatization funds, which would invest them on the citizen-assignor’s behalf. Viktor Kozeny was criminally prosecuted in the Municipal Court of Prague for engaging in a scheme in which he solicited investment in funds, including Harvardsky Prumyslovy Holding, and then “looted the [funds], diverting the funds of many Czech investors to a series of shell companies in Cyprus.” Kozeny, at the time of the prosecution, was in the Bahamas, and the government there refused to extradite him. He was therefore prosecuted in absentia, found guilty of fraud, and sentenced to imprisonment for ten years and restitution in the amount of approximately $410 million to the fund and its shareholders. The amount was, according to the judgment, “compensation for damage to the victim” under Section 228(1) of the Czech Code of Criminal Procedure.
Harvardsky sought recognition of the judgment in New York and attachment of funds held in a bank account under the name Landlocked Shipping Company, which it alleged to be a Turks and Caicos shell company that was Kozeny’s alter ego. Harvardsky sought and obtained a temporary restraining order. Landlocked then moved to dismiss on the grounds that the judgement was penal in nature and could not be recognized. The judge granted the motion and vacated the temporary restraining order. Harvardsky sought and obtained a stay pending appeal.
The main question was whether, under the UFCMJRA, the judgment was “a fine or other penalty.” Under Section 3(b) of the UFCMJRA, the statute does not apply to a judgment for a sum of money if it is penal. The key question, according to the court, was not whether the court that issued the judgment was a criminal court or a civil court, or even whether the judgment was a civil judgment or a criminal judgment, but rather, whether the amount of money awarded was intended as compensation for harm suffered. The mere fact that the restitution was awarded in a criminal proceeding or that it also had a penological purpose is not determinative.
Here, based on expert evidence, the court determined that the purpose of the relevant Czech procedure was to provide compensation and that the damages were calculated according to the civil law. Therefore, the court reversed the lower court’s decision.
I think the decision is correct. It wasn’t necessary for the court to consider what would have happened had the judgment been found penal, but it seems to me that in that case, the UFCMJRA wouldn’t have applied, and so the court would still have had to consider whether, under the common law doctrine of comity, the judgment was entitled to recognition.