(CN) - A federal judge went too far in telling Nova Group to deposit the $30 million judgment it owes with the court as a sanction, the 2nd Circuit ruled Monday.
The judgment stems from an arbitrator's 2012 decision that Nova Group owed $26 million to fulfill the terms of two insurance policies taken out by Holdings Capital Group on its employee Sash Spencer's life.
Spencer named Universitas Education, an education savings plan provider, as the sole beneficiary of the policies.
After Spencer's death, however, Nova refused to pay the death benefits based on Universitas' alleged failure to file a timely claim.
When the arbitrator ruled that it was required to pay, Nova filed suit in court to vacate the award.
A federal judge nevertheless confirmed the arbitrator's decision and entered a judgment of $30.1 million, the original award plus interest.
This ruling prompted further litigation. Nova argued in a bid to dismiss that the federal court lacked jurisdiction.
Nova appealed unsucessfully after the court found its motion "wholly without merit."
Universitas then moved for sanctions, seeking attorneys' fees for opposing the motion to dismiss.
A magistrate judge found sanctions appropriate given Nova's "stubborn and baseless efforts to impede Universitas' collection of the judgment," and also recommended that Nova be ordered to deposit the entire $30 million judgment with the court.
"With the judgment deposited with the court, there will no longer be a need for Universitas to engage in or for Nova Group to stubbornly resist collection efforts through the filing of baseless motions," the magistrate's recommendation said.
Though a federal district judge adopted the recommendation in its entirety, the 2nd Circuit in Manhattan vacated the sanctions order Monday.
"Because the district court's December 18, 2014 order makes clear that the sanction imposed here are for the express purpose of ending post-judgment litigation by having the district court collect the outstanding judgment amount on behalf of the plaintiffs, we vacate the sanction," Judge Rosemary Pooler wrote for a three-judge panel. "The district court cannot become a de facto collection agency for plaintiffs struggling with recalcitrant judgment debtors."
The court said there is no doubt that Nova deserves sanctions for its abusive litigation.
A sanction cannot be used, however, as a "means of enforcing a judgment," the 14-page opinion concludes.
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