Court Opinion

ID: 4098233
Source: CourtListenerOpinion
Date Created: 2016-11-15 15:00:31.297664+00
Date Added: 2024-06-11T14:46:19.714953
License: Public Domain

15-3249
Gevorkyan v. Judelson

                                  In the
            United States Court of Appeals
                        For the Second Circuit
                                  ________

                           September Term, 2016

                               No. 15-3249-cv

                 KARINE GEVORKYAN, ARTHUR BOGORAZ,
                 INNA MOLDAVER, AND SAM MOLDAVER,
                          Plaintiffs-Appellants,

                                     v.

                               IRA JUDELSON,
                             Defendant-Appellee.
                                  ________

             Appeal from the United States District Court
                for the Southern District of New York.
         No. 13-cv-08383 (RMB) ¯ Richard M. Berman, Judge.
                                  ________

                        Submitted: September 14, 2016
                         Decided: November 15, 2016
                                  ________

        Before: JACOBS, PARKER, and LIVINGSTON, Circuit Judges.
                               ________
       Plaintiffs-Appellants appeal from a judgment of the United
States District Court for the Southern District of New York (Berman,
Judge). Following trial, the district court concluded that Defendant-
Appellee Ira Judelson, a bail bond agent, could retain the premium
paid to him by the Appellants notwithstanding the fact that,
following a bail sufficiency hearing conducted pursuant to § 520.30
of the New York Criminal Procedure Law (“NYCPL”), the state
court declined to accept the bond and the criminal defendant was
never released from custody. We conclude that whether a bail bond
agent may retain a premium following the rejection of the bond
raises an unresolved question of New York law that is appropriately
certified to the New York Court of Appeals. Accordingly, we certify
the question and stay resolution of this appeal.

                              ________
                  ANDREW LAVOOTT BLUETONE, New York, NY, for
                  Plaintiffs-Appellants Karine Gevorkyan, Arthur
                  Bogoraz, Inna Moldaver, Sam Moldaver.

                  JONATHAN SVETKEY, Waters & Svetkey, New
                  York, NY, for Defendant-Appellee Ira Judelson.
                             ________

                                 2
BARRINGTON D. PARKER, Circuit Judge:
      In 2011, Plaintiff-Appellant Arthur Bogoraz was arrested in
Puerto Rico and ultimately indicted in Kings County, New York in
connection with an alleged multi-million dollar insurance fraud. His
bond was set at $2,000,000. Bogoraz, with the assistance of his wife
and family friends, sought to obtain a bail bond to secure his pre-
trial release. After two agencies declined to issue a bond, Plaintiffs
approached Defendant-Appellee Ira Judelson, a licensed bail bond
agent affiliated with the International Fidelity Insurance Company
(“International Fidelity”). Plaintiff-Appellant Karine Gevorkyan
submitted an application for the $2,000,000 bond.         International
Fidelity accepted the application and the parties executed an
Agreement of Indemnity (the “Agreement”).             Pursuant to the
Agreement, Plaintiffs paid Bogoraz, in trust for International
Fidelity, a $120,560 premium to obtain the bond.
      On March 28, 2012, Judelson posted the bail bond with the
state court as was required by New York law. That court then
elected to conduct a bail sufficiency hearing pursuant to NYCPL
§ 520.30 which provides:

      Following the posting of a bail bond . . . the court may
      conduct an inquiry for the purpose of determining the
      reliability of the obligors or the person posting cash bail,
      the value and sufficiency of any security offered, and
      whether any feature of the undertaking contravenes
      public policy. . . .

      At the conclusion of the inquiry, the court must issue an
      order either approving or disapproving the bail.

                                   3
       Following the sufficiency hearing, the state court rejected the
bond. Bogoraz appealed to the Appellate Division which concluded
that Bogoraz “ha[d] the burden of proving by a preponderance of
the evidence that the cash or collateral posted to secure a bail bond
originates from a legitimate source and is not the fruit of criminal or
unlawful conduct,”and that Bogoraz “failed to meet [t]his burden at
the bail bond source hearing.” People ex rel. Aidala v. Warden, Rikers
Island Correctional Facility, 100 A.D.3d 667, 667 (2d Dep’t 2012).
Accordingly, the Appellate Division affirmed the denial of the bond,
id., a decision the Court of Appeals declined to review, 20 N.Y.3d
858 (Feb. 7, 2013). Bogoraz was therefore never released on bail.1
       Plaintiffs then sought the return of the premium from
Judelson. Their theory, pressed throughout this litigation, was that
because bail was denied, Judelson was not entitled to retain the
premium because he was never exposed to the risk that Bogoraz
would not appear in court when required, which was the purpose of
the premium. Judelson refused to return the funds, contending that
he satisfied his contractual obligations, and thereby earned the
premium, when the bond was “posted and signed” by the state
court. App’x at 22.
       Plaintiffs then sued for return of the premium, alleging
breach of contract, unjust enrichment, and conversion. Following a
bench trial, the district court entered judgment for Judelson. Having
located no controlling New York precedent, the court relied on
common law contract principles and concluded that the language of
the Agreement was ambiguous as to whether Judelson was entitled
to retain the premium. After considering testimony as to the parties’
intent, the court found that the parties did not intend for the

1
 Bogoraz was ultimately sentenced to 3.5 to 7 years of imprisonment after pleading
guilty to money laundering and fraud charges.

                                           4
premium to be returned if the bond was not accepted and that
Judelson was entitled to retain the premium. The court stated:
“Pursuant to the terms of the Bail Bond Application, as
supplemented with extrinsic evidence, Defendant is entitled to
retain the bond premium in the amount of $120,260.”2 App’x at 36.
This appeal followed.

                                   DISCUSSION
        New York regulates the bail bond industry through Article 68
of the New York Insurance Law (“NYIL”).                        Under Article 68, a
repeat issuer of bail bonds such as Judelson must be licensed. NYIL
§ 6801(b)(1). The NYIL also strictly regulates the premium that a
bail bond agent may charge for bail bond services.3                        New York
regulates the bail bond process itself pursuant to Article 520 of the
NYCPL. For example, § 520.20 regulates how a bond is properly
“posted in satisfaction of bail,” and § 520.30 prescribes the
procedures at bail-sufficiency hearings.4 These provisions of the
NYIL and the NYCPL appear to be the only New York statutory
provisions governing bail bonds.5

2
   Because the $120,560 paid for the premium was $300 above the amount permitted by
statute, the district court ordered a return of that amount to Plaintiffs.
3
  “[T]he premium shall not exceed ten per centum of the first three thousand dollars [of
the bond] and eight per centum of the excess amount of three thousand dollars up to
ten thousand dollars and six per centum of the excess amount over ten thousand
dollars.” NYIL § 6804(a).
4
  NYCPL § 520.20(1) states: “[W]hen a bail bond is to be posted in satisfaction of bail,
the obligor or obligors must submit to the court a bail bond in the amount fixed,
executed in the form prescribed in subdivision two, accompanied by a justifying
affidavit of each obligor, executed in the form prescribed in subdivision four.” NYCPL
§ 520.30 is quoted in relevant part, supra at 3.
5
  Plaintiffs also point to NYIL §§ 1305 and 2131 to argue that “‘[u]nearned premiums’
are regulated by New York’s Insurance Law.” Br. of Appellant at 17. These provisions
do not appear to be relevant. Section 1305, although addressing the concept of
“unearned premiums,” only relates to the reserves to be maintained by insurers, and

                                            5
        The parties dispute their applicability.                      The Appellants
contend that they require return of the premium, Judelson disputes
this contention, and the district court found these sources to be “not
dispositive,” App’x at 37, a conclusion with which we are in accord.
Although Article 68 controls the amount of the premium a bail
bondsman may charge, nothing in that Article sheds light on when
that premium is actually earned.6 Nor is Article 68 of any assistance
on the question of when, if ever, a premium paid to obtain a bond
must be returned if the bond never serves the purpose for which the
premium was paid.
        The Appellants rely heavily on NYCPL § 520.30(3) which
provides that:

        A bail bond posted in the course of a criminal action is
        effective and binding upon the obligor or obligors until
        the imposition of sentence or other termination of the
        action, . . . , unless prior to such termination such order
        of bail is vacated or revoked or the principal is
        surrendered, or unless the terms of such bond expressly
        limit its effectiveness to a lesser period.

        They argue that this provision means that the bond they
procured was never “effective and binding” because Bogoraz was
never released from jail.             However, it seems to us a stretch to
construe a provision which relates to the period during which a

§ 2131, which addresses the refund of certain unearned premiums, relates only to
“rental vehicle companies, wireless communication equipment vendors and self-service
storage companies.”
6
  However, the fact that the premiums permitted under NYIL § 6804(a) are made
directly proportional to the size of the bond indicates that the state has some interest in
tying the amount of the premium to the amount of risk.

                                             6
bond is subject to forfeiture, to govern the return of premiums paid
on a bond that was never accepted.                       Suffice it to say that the
provision is unhelpful on the questions before us of whether (i) a
bail bond agent’s retention of a premium is conditioned on the bond
becoming “effective and binding,” or (ii) earning a bond premium is
contingent on a judicial determination that the collateral posted to
secure the bond originated from a legitimate source. In short, New
York’s statutory scheme does not resolve the issue we confront.
        Nor have Appellants identified any authoritative New York
case law that requires the return of a bail bond premium upon the
denial of a bond at a sufficiency hearing. What law they do cite at
best requires the return of “unearned premiums” in other areas of
insurance—i.e., automobile, life, and home insurance. On the basis of
these cases, they argue that insurers may not retain premiums
covering periods in which they were not exposed to risk. In essence,
they ask us to establish and apply a new (and potentially broad)
principle to all contracts governed by the NYIL which is that the
premium must follow the risk.
        We are reluctant to go down this path. These cases, which
involve very different areas of insurance law, do not meaningfully
address, let alone resolve, the issues that are dispositive of this
appeal.      They do, however, highlight the dearth of New York
authority on the question we confront and, for that matter, the
dearth of authority on nearly every aspect of New York bail bond
law.7

7
  For example, it appears no New York appellate court has ever analyzed (or even
cited) NYIL § 6804. Further, there is noticeably scant appellate authority discussing
bail bond premiums at all and that which does is of no assistance here. See, e.g.,
Johnson-Roberts v. Ira Judelson Bail Bonds, 140 A.D.3d 509, 510 (1st Dep’t 2016) (affirming
default judgment against defendant bailbondsman because “[a]lthough execution of
the bond is a condition precedent for retaining a premium payment, defendants failed

                                              7
        As noted, the district court, in entering judgment for Judelson,
relied exclusively on common law contract principles. To do so,
however, it necessarily (albeit impliedly) determined that New York
law allows for a bail bond agent to retain a premium where a bond it
posted was rejected by the court.8                 We are reluctant to resolve this
unsettled, significant, and potentially recurrent issue of New York
law without the assistance of the New York Court of Appeals.

                              CERTIFICATION
        Rule 27.2(a) of our Local Rules provides that: “If state law
permits, the court may certify a question of state law to that state’s
highest court.”          New York law permits us to certify questions
pursuant to § 500.27(a) of the New York Rules of Court: “Whenever
it appears to . . . any United States Court of Appeals . . . that
determinative questions of New York law are involved in a case
pending before that court for which no controlling precedent of the
Court of Appeals exists, the court may certify the dispositive
questions of law to the Court of Appeals.”9
        “‘Before certifying such a question, we must answer three
others: (1) whether the New York Court of Appeals has addressed
the issue and, if not, whether decisions of other New York courts
permit us to predict how the Court of Appeals would resolve it;
(2) whether the question is of importance to the state and may
require value judgments and public policy choices; and (3) whether

to present any documentary evidence that they had actually executed and posted any
bond”).
8
  We take no issue with the reasoned approach of the district court, which did not
have, as we do, the option of certification. See Penguin Grp. (USA) Inc. v. Am. Buddha,
609 F.3d 30, 34 (2d Cir. 2010) (noting that the “district court did not have the ability to
ask the New York Court of Appeals for guidance”).
9
  Article VI § 3(b)(9) of New York’s Constitution confers the power to make this rule.

                                               8
the certified question is determinative of a claim before us.’” In re
Santiago-Monteverde, 747 F.3d 153, 158 (2d Cir. 2014) (quoting In re
Thelen LLP, 736 F.3d 213, 225 (2d Cir. 2013)). We answer each of
these questions in favor of certification.
      First, no New York court has addressed whether the denial of
a bail package following a sufficiency hearing means that no
premium was “earned” by the bail bond agency.          There are no
analogous decisions that would allow us to predict how the Court of
Appeals would resolve this question and there are virtually no
decisions of the Court of Appeals or the Appellate Divisions bearing
even generally on the premiums earned by bail bond agencies.
      Second, this issue is “of importance to the state” and
“require[s] value judgments and public policy choices.”          In re
Santiago-Monteverde, 747 F.3d at 158.        The state’s interest in
regulating the premiums to be received by bail bond agents is clear.
NYIL § 6804(a) was intended by the Legislature to secure
compensation for bail bond agents and to protect defendants and
their families at a critical juncture in criminal proceedings.    The
proper balance between these competing interests is best struck by
the Court of Appeals.
      Third, the resolution of this question will determine the
outcome of this appeal. If New York law does not permit a bail
bond agent to retain its premium following the rejection of a bail
package at a sufficiency hearing, the district court would be
reversed. If New York law has no such prohibition, the question
becomes simply one of contract interpretation for this Court.

                                    9
                             CONCLUSION
       The following question is hereby certified to the Court of
Appeals of the State of New York pursuant to 2d Cir. Local R. 27.2
and § 500.27(a) of the New York Rules of Court:

        Whether an entity engaged in the “bail
        business,” as defined in NYIL § 6801(a)(1), may
        retain its “premium or compensation,” as
        described in NYIL § 6804(a), where a bond
        posted pursuant to NYCPL § 520.20 is denied
        at a bail-sufficiency hearing conducted
        pursuant to NYCPL § 520.30, and the criminal
        defendant that is the subject of the bond is
        never admitted to bail.

       In formulating this certified question, “we do not mean to
limit the Court of Appeals to a narrow response.              The certified
question may be deemed expanded to cover any pertinent further
issue that the Court of Appeals chooses to explain.” Rosner v. Metro.
Prop. and Liability Ins. Co., 236 F.3d 96, 104 (2d Cir. 2000); see also In re
Santiago-Monteverde, 747 F.3d at 159 (the Court of Appeals “may
reformulate or expand the certified question as it deems
appropriate”).
       It is hereby ORDERED that the Clerk of Court transmit to the
Clerk of the New York Court of Appeals this opinion as our
certificate together with a complete set of briefs, appendices, and the
record filed by the parties in this Court. This panel will retain
jurisdiction of the present appeal for resolution after disposition of
the certified question by the New York Court of Appeals or once
that court declines to accept certification.

                                     10