Judgment of a Foreign Criminal Court Held Not Penal Under the Uniform Foreign Country Money-Judgments Recognition Act

April 17, 2014

Dan Goldman and Rachel Snyder

The Uniform Foreign Country Money-Judgments Recognition Act (the “Act”) provides for the recognition and enforcement of specified foreign country judgments in U.S. courts.[1]  It defines “foreign country judgment” as “any judgment of a foreign state granting or denying recovery of a sum of money, other than a judgment for taxes, a fine or other penalty, or a judgment for support in matrimonial or family matters.”[2]  In Harvardsky Prumyslovy Holding v. Kozeny, a New York appellate court held that the Czech judgment at issue was not “a fine or other penalty” within the meaning of the statute and was therefore entitled to recognition in New York even though it had been issued by a criminal court in the Czech Republic.[3]  This represents the first time that courts of New York have construed the intersection of criminal and civil proceedings to determine when a judgment falls within the rubric of the Act.

As part of the Czech government’s privatization program following the fall of Communism, the government issued vouchers to Czech citizens for the acquisition of shares in newly privatized companies.  People could use the vouchers to purchase shares directly or invest in mutual funds.  Capitalizing on this program, Victor Kozeny established Harvard Capital and Consulting (now Harvardsky), which collected vouchers from thousands of Czech citizens.  According to the Municipal Court in Prague, Kozeny looted the funds, diverting them to a series of shell companies in Cyprus and then moved to the Bahamas (where he still lives).  When efforts to extradite Kozeny failed, he was prosecuted in absentia, found guilty of fraud, and sentenced to ten years imprisonment.[4]  In accordance with Czech law, Harvardsky joined in the action on behalf of its shareholders, and Kozeny was ordered to pay over 400 million USD to the company in compensation for damages to the victims of his crime.
In an effort to collect on the judgment against Kozeny’s assets in the U.S., Harvardsky sought recognition of the Czech judgment in New York.  The New York County Supreme Court dismissed the complaint on the ground that, because the judgment was rendered by a Czech criminal court, it constituted a “fine or other penalty” and therefore could not be recognized in New York.  The Appellate Division, First Department, reversed.
The rule that foreign penal judgments cannot be recognized in U.S. courts is deeply embedded in American legal history, most famously associated with Chief Justice Marshall’s aphorism from The Antelope that “[t]he Courts of no country execute the penal laws of another.”[5]  But American courts have long made clear that the term penal in this context is narrowly circumscribed.  In Huntington v. Attrill, the Supreme Court held that the fact that the law underlying a judgment might be characterized as penal for some purposes, does not make it penal for purposes of recognition and enforcement in other states:[6]

The question whether a statute of one state which in some aspects may be called penal is a penal law in the international sense, so that it cannot be enforced in the courts of another state, depends upon the question whether its purpose is to punish an offense against the public justice of the state, or to afford a private remedy to a person injured by the wrongful act.[7]

The court went on to state that “[t]he test is not by what name the statute is called…but whether it appears to the tribunal which is called upon to enforce it to be in its essential character and effect a punishment of an offense against the public or a grant of a civil right to a private person.”[8]

The New York Court of Appeals has taken a similar approach.  In Loucks v. Standard Oil Co. of New York, then-Judge Cardozo wrote:

[T]he question is not whether the statute is penal is some sense.  The question is whether it is penal within the rules of private international law.  A statute penal in that sense is one that awards a penalty to the state, or to a public officer in its behalf, or to a member of the public, suing in the interest of the whole community to redress a public wrong…. The purpose must be, not reparation to one aggrieved, but vindication of the public justice.[9]

In Harvardsky, the Appellate Division followed the same logic.  The critical question is not whether the court that issued the judgment is characterized as civil or criminal, but the nature of the judgment itself.[10]  Here, the monetary judgment was plainly remedial – intended to compensate the shareholder-victims for their loses.  Since the damages were compensatory, the judgment constitutes a “judgment of a foreign state granting…a sum of money” under the Act, and is entitled to recognition in New York.[11]

[1] New York’s version is codified in New York Civil Practice Law and Rules §§ 5301-09.
[2] CPLR § 5301(b).
[3] No. 651826/12, 2014 N.Y. App. Div. LEXIS 2197, at *5-7 (Apr. 1, 2014).
[4] Kozeny also faces charges in the United States for violations of the Foreign Corrupt Practices Act for a similar scam in Azerbaijan.  See Douglas Gillison, An American law is stranding rich foreign executives on the lam, for life, Global Post, July 22, 2013, http://www.globalpost.com/dispatch/news/business/130718/international-america-bribe-rich-exiles.

[5] 23 U.S. (10 Wheat.) 66, 123 (1825).
[6] 146 U.S. 657, 673-83 (1892).
[7] Id. at 673-74.
[8] Id. at 683.
[9] 224 N.Y. 99, 102-03 (1918).

[10] Harvardsky, 2014 N.Y. App. Div. LEXIS 2197, at *6-7.
[11] CPLR 5301(b).