Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-00028/USCOURTS-cand-3_06-cv-00028-2/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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States District C

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For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

JOHN KONTRABECKI,

Defendant/Appellant

 v.

LEHMAN BROTHERS HOLDINGS, INC.,

Plaintiffs/Appellee

BK Adversary No. 03-3264 DM

 /

In re:

CENTRAL EUROPEAN INDUSTRIAL

DEVELOPMENT COMPANY, LLC, d/b/a

CEIDCO,

Debtor.

Bankruptcy Case No. 02-30419-11-DM

___________________________________/

No. C 06-00028 CRB

OPINION

This action is the latest in a series of appeals arising from the bankruptcy court’s

imposition of civil contempt sanctions against John Kontrabecki (“Kontrabecki”). After

carefully considering the papers and evidence filed by the parties, and having had the benefit

of oral argument, the Court DISMISSES the appeal for lack of jurisdiction.

BACKGROUND

 In August 2005, the bankruptcy court ordered Kontrabecki to pay $6 million to 

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Lehman Brothers Holdings, Inc. (“Lehman”) by September 2, 2005, as compensation for the

damages Lehman incurred as a result of Kontrabecki’s previous contempt (“the Payment

Award”). Kontrabecki did not make the payment, and the bankruptcy court found that he did

not make a good faith effort to do so. Accordingly, the court subsequently found

Kontrabecki in contempt of the Payment Award, and further found that Kontrabecki could

satisfy the Payment Award by liquidating some of his limited partner interests in an entity

known as Mission West. On January 3, 2006, the bankruptcy court issued an order directing

Kontrabecki to take certain steps toward liquidation of his Mission West assets (“the Mission

West Order”). The Order warns that Kontrabecki’s failure to take those steps could result in

his incarceration to coerce him to comply with the Order. 

Kontrabecki immediately filed a motion in this Court seeking a stay of the Mission

West Order pending resolution of his appeal of the Order. At the hearing on the motion for a

stay, it became apparent that Kontrabecki might be able to post a bond in an amount

acceptable to Lehman. The Court therefore stayed the Mission West Order for

approximately one week. Kontrabecki was unable to obtain the bond during the stay and

moved for an order continuing the stay. The Court denied Kontrabecki’s request; thus, the

Mission West Order is in effect and not stayed. Now pending for decision by the Court is

Kontrabecki’s appeal of the Mission West Order.

 Kontrabecki does not challenge the bankruptcy court’s authority to issue sanctions to

coerce him to comply with the Payment Order. “Mr. Kontrabecki does not dispute the two

general legal principals relied upon by the Bankruptcy Court; (1) a court may impose

coercive sanctions on a contemnor for failing to pay a fine that he has the resources and the

immediate ability to pay, and (2) the coercive contempt sanctions can be in the form of a

prospective, conditional fine or incarceration until the contemnor complies with the payment

order.” Emergency Motion for Stay Pending Appeal of Bankruptcy Court Order at 15-16. 

The issue on appeal is narrow: Kontrabecki appeals the form of those sanctions. He contends

that the bankruptcy court cannot order him to take specific steps to liquidate a particular asset

in order to satisfy the Payment Award. 

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JURISDICTION

The initial question is whether this Court has jurisdiction to hear Kontrabecki’s

appeal. District courts have jurisdiction to hear appeals of final judgment orders and decrees

issued by a bankruptcy court. See 28 U.S.C. § 158(a)(1). The bankruptcy court’s Payment

Award only covered costs Lehman incurred through October 2004. Thus, the bankruptcy

court still needs to adjudicate Lehman’s request for compensatory damages for the period

October 2004 to the present (and the future). The bankruptcy proceedings are therefore not

complete and the Mission West Order is not a final order. Moreover, as this Court has

previously ruled, civil contempt orders are generally not appealable. See Oliner v.

Kontrabecki, 305 B.R. 510, 521 (N.D. Cal. 2004).

Kontrabecki nonetheless argues that this Court must hear his appeal for two reasons. 

First, he contends that the Mission West Order is an injunction and bankruptcy court

injunctions are appealable as of right. In the alternative, he contends that the coercive

contempt sanction is appealable because it is criminal, rather than civil, in nature.

A. The contempt order is not an appealable injunction

Kontrabecki contends that the Mission West Order is an injunction and that parties

have a right to appeal bankruptcy court orders issuing injunctions. See In re Professional Ins.

Mgmt., 285 F.3d 268, 282 n.16 (3d Cir. 2002) (stating in dicta that bankruptcy court

injunctions are appealable as of right pursuant to 28 U.S.C. section 1292(a)(1)). Assuming,

without deciding, that Kontrabecki has the right to appeal an interlocutory injunction order,

Kontrabecki’s argument nonetheless fails because the Mission West Order is not an

injunction.

As Kontrabecki concedes, the bankruptcy court has the authority to issue orders

designed to compel Kontrabecki to pay Lehman in light of the bankruptcy court’s finding that

Kontrabecki had failed to comply with the Payment Order and had failed to establish that it

was impossible to comply. The bankruptcy court’s findings were based, in part, on the court’s

finding that Kontrabecki had not made any effort to liquidate his Mission West interests. As

Kontrabecki also concedes, the bankruptcy court could have incarcerated Kontrabecki to

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compel him to comply with the Payment Award. Instead of incarcerating Kontrabecki,

however, the bankruptcy court, in effect, gave him one last chance by spelling out for

Kontrabecki precisely what he must do to liquidate his Mission West interests and purge his

contempt of the Payment Award. That the bankruptcy court specifically explained what

Kontrabecki must do to liquidate his interests and comply with the Payment Award does not

convert the Order into an injunction. Since the bankruptcy court could have done the greater,

that is, incarcerate Kontrabecki to compel him to pay, it could do the lesser, that is, set forth

one way he could take steps to satisfy the Payment Award and avoid incarceration. If

Kontrabecki does not wish to comply with the Mission West Order he does not have to do so. 

The bankruptcy court will then consider a contempt sanction of incarceration to compel

compliance with the Payment Award. 

Kontrabecki’s reliance on International Association of Machinists & Aerospace

Workers, AFL-CIO v. Eastern Airlines, 849 F.2d 1481 (D.C .Cir. 1988), is unpersuasive. 

Eastern Airlines argued that an order labeled as civil contempt which enjoined Eastern from

selling certain assets was in fact a new injunction because it required Eastern to do something

in addition to and different from what the original order required Eastern to do. The D.C.

Circuit agreed, finding that the original order did not, in fact, prohibit Eastern from selling the

assets; therefore, the order necessarily modified the original injunction or was a new

injunction which was appealable as of right. Id. at 1485-86. Similarly, in Omaha Indemn.

Co. v. Winning, 949 F.2d 235 (8th Cir. 1991), the court held that an order restraining an

individual defendant from transferring any personal or business assets was a modification or

“strengthening” of an earlier order prohibiting defendants from transferring certain corporate

assets and therefore appealable as an injunction. Id. at 238. 

Here, in contrast, the Mission West Order flows directly from and is encompassed by

the Payment Award: in order to compel Kontrabecki to pay Lehman the bankruptcy court set

forth certain intermediate steps which Kontrabecki must take to liquidate his Mission West

interests and pay Lehman. The Order is thus designed to compel compliance with the

Payment Award; it does not create new obligations not encompassed by the Award. 

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B. The contempt order is not punitive 

In the alternative, Kontrabecki argues that the Mission West Order is punitive rather

than coercive and is therefore appealable. As this Court has previously held, “[w]hile civil

contempt sanctions are not appealable, punitive sanctions are. Thus, when deciding whether to

dismiss an appeal of a civil contempt order, an appellate court must determine whether the

contempt is civil or criminal.” Oliner, 305 B.R. at 521. The Ninth Circuit has explained:

Whether contempt is criminal or coercive civil is determined by the purpose

of the sanction. If the sanction is intended to punish past conduct, and is

imposed for a definite amount or period without regard to the contemnor’s

future conduct, it is criminal. If the sanction is intended to coerce the

contemnor to comply with the court’s orders in the future, and the sanction is

conditioned upon continued noncompliance, it is civil.

Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468, 1481 (9th Cir. 1992). “When

the petitioners carry the keys of their prison in their own pockets, the action is essentially a

civil remedy.” Shillitani v. United States, 384 U.S. 364, 368 (1965) (internal quotation marks

and citation omitted). 

It is undisputed that the explicit purpose of the Mission West Order is coercive. The

Order itself states that it is “intended to coerce Kontrabecki to comply with the Payment Order

by paying the Award.” Mission West Order at 4. It provides further that Kontrabecki’s

obligations under the Order “shall cease at such time as he has fully paid the Award,” and that

“[n]othing in this Order shall preclude Kontrabecki . . . from paying all or any portion of the

Award from one or more sources other than proceeds of [Mission West].” Id. Thus, the

Order is designed to compel Kontrabecki to satisfy the Payment Award one way or another; to

the extent he satisfies the Payment Award through another source he does not have to

liquidate his Mission West interests.

Kontrabecki nonetheless contends that the Mission West Order is punitive because he

does not have the ability to immediately pay Lehman. He asserts that even assuming the

prompt liquidation of his Mission West interests, it will take at least 60 days to comply with

the Payment Award.

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Kontrabecki’s argument appears to be that even if a defendant has the assets available

to satisfy an award of contempt damages (Kontrabecki attests that he is worth $40 million), if

those assets are illiquid and therefore not “immediately” available, a court is powerless to

issue orders designed to compel a defendant to make the assets liquid and therefore satisfy the

damages order. In other words, according to Kontrabecki, he can fail to take any steps to

liquidate his assets in defiance of the Payment Award and yet remain beyond the contempt

power of the bankruptcy court. Kontrabecki does not cite any apposite authority for this

remarkable proposition. The lack of authority is unsurprising given that such a rule would

make no sense. The bankruptcy court found that Kontrabecki has assets available to satisfy

the Payment Award, including Mission West, and that for more than for months he had taken

no steps to liquidate those assets. The Mission West Order is designed to compel Kontrabecki

to take those steps, that is, to comply with the Payment Award. 

Kontrabecki also contends that the Mission West Order is punitive because he will

incur substantial tax liabilities if he complies. Again, he cites no authority to support his

argument. Nearly all civil contempt sanctions have collateral consequences that are not

reversible; for example, Kontrabecki can not “recover” the thirteen months he was

incarcerated to compel him to comply with the bankruptcy court’s previous orders. 

Kontrabecki also does not have the right to dictate which assets to liquidate and when. He

lost that right when, as the bankruptcy court found, for several months he made no effort to

comply with the Payment Award. Kontrabecki’s claim that in December he placed property

in Livermore, California for sale, the proceeds of which could satisfy the Payment Award, is

of no moment. Kontrabecki offers no excuse for his failure to have offered the property for

sale at an earlier date; instead, it appears he finally made the property available only after he

was faced with the threat of further civil contempt sanctions. 

C. Appeal with leave of court

Under 28 U.S.C. section 158(a)(3), “[t]he district courts of the United States shall have

jurisdiction to hear appeals . . . with leave of the court, from other interlocutory orders and

decrees . . . .” “In applying section 158(a)(3) courts generally borrow the standards of 28

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U.S.C. section 1292(b), which provides for the discretionary review by circuit courts of

certain interlocutory district court orders.” In re Pacific Gas and Electric Co., 280 B.R.506,

515 (N.D. Cal. 2002). The appropriate test is whether “the appeal presents a meritorious issue

on a controlling question of law as to which there is substantial ground for difference of

opinion and an immediate appeal would materially advance the ultimate termination of the

litigation.” In re Belli, 268 B.R. 851, 858 (9th Cir. BAP 2001).

Kontrabecki has not argued that the Court should exercise its discretion to hear his

appeal; instead, he argues only that he has an appeal as of right because the Mission West

Order is an injunction and/or a criminal sanction. Nonetheless, in the interest of

completeness the Court has considered whether it should permit Kontrabecki to appeal the

Mission West Order. The appeal does present a controlling question of law; namely, whether

ordering Kontrabecki to take certain steps to attempt to liquidate his interests in Mission West

is a permissible civil coercive sanction. 

The Court’s answer to that controlling question, however, will not materially advance

the ultimate termination of the litigation. Even if Kontrabecki prevails, the bankruptcy court

will have to fashion a different coercive sanction, most likely incarceration, because

Kontrabecki will still have failed to comply with the bankruptcy court’s order that he pay

Lehman. But the order Kontrabecki is appealing, is, in effect, an incarceration order. It

provides that if Kontrabecki does not comply with the Order he may be incarcerated to coerce

him to comply. In other words, the outcome will be the same: if Kontrabecki does not comply

with the Mission West Order he could be incarcerated to coerce him to comply, that is, until

he liquidates his Mission West interests or he satisfies the Payment Award through some

other means. In these circumstances, resolving Kontrabecki’s appeal of the Mission West

Order will not materially advance the litigation. The Court therefore declines to exercise its

discretion to permit Kontrabecki to appeal.

//

//

//

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G:\CRBALL\2006\0028\OPINION.wpd 8

CONCLUSION

As Kontrabecki does not have a right to appeal the bankruptcy court’s Mission West

Order, and as this Court declines to grant Kontrabecki permission to appeal, Kontrabecki’s

appeal is DISMISSED for lack of jurisdiction. Kontrabecki may retrieve his passport from

the Clerk at 2:00 p.m. on Thursday, February 2, 2006.

IT IS SO ORDERED.

Dated: February 1, 2006 

 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

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