Source: https://www.lectlaw.com/files/cas78.htm
Timestamp: 2019-04-19 12:26:01+00:00

Document:
The government urges that incarceration of Mr. Bailey is necessary (a) to force him to pay $3 million, which will permit the return of stock, and (b) to force him to produce financial documents. The government has omitted to say the undisputed record evidence is that Mr. Bailey does not have $3 million but can, and desires to, pledge or transfer all of his assets to the court. And the government has not mentioned the thousands of financial documents Mr. Bailey produced, instead identifying a French "mortgage" document without acknowledging that not a single penny has changed hands pursuant to it. The document does not fit within the district court's demand for documents.
As for the lawfulness of the February 3, 1996 order of civil contempt, the government makes important concessions: that there never was a show cause order, that the order of civil contempt illegally imposed a six- month prison sentence, and that the contempt adjudicated was the failure to produce documents and an accounting (not a failure to produce money or stocks). The government also omits other key facts: that the district court is a witness to the purely oral, off-the- record contract sought to be enforced and that the government has asserted the court made and has the only writing reflecting that oral contract.
We show here compliance by Mr. Bailey with the civil contempt order's purge requirements and submission to the will of the court as expressed in the order. And we show that it was an abuse of discretion to order Mr. Bailey's incarceration. The court failed to find that financial documents had been withheld and failed to identify any such document; the record is uncontroverted that document production has been overwhelming in scope, such that any implied finding to the contrary is clearly erroneous. As for the payment of millions of dollars, the court failed to find that Mr. Bailey had the ability to pay before February 29, 1996, and the record is uncontroverted that he did not have the ability. Most critically, the district court and the government ignored Mr. Bailey's act of ultimate financial submission -- a transfer or pledge of all of his assets to the court.
A. MR. BAILEY HAS DEMONSTRATED COMPLIANCE, AND INCARCERATION WOULD BE POINTLESS AND PUNITIVE.
At the hearing on February 26 and 27, 1996, Mr. Bailey agreed immediately to pledge or transfer a11 of his assets to the court (Tr. C 178, 179, 181, 206). [Note 1 - Tr. A is the February 2-3 hearing. Tr. B is the February 14 hearing. Tr. C is the February 27-28 hearing.] Mr. Bailey took this act of complete submission because he then had only about $40,000 in cash, a limited borrowing capacity, and illiquid assets less than the $5.3 million the court's February 3, 1996 order required Mr. Bailey to pay (Tr. C 160, 167). Remarkably, the district court's order of February 29, 1996 does not mention that Mr. Bailey sought to pledge or transfer all of his assets to the court. And the matter is not mentioned anywhere in the government's opposition to a stay.
A person can do no more to meet a financial obligation than to offer all that he has. In the related context of a supersedeas bond, which is highly relevant here because the ultimate merits of the dispute between Mr. Bailey and the United States have not been litigated and the court essentially has ordered a pre-judgment attachment to secure the claim of the United States, the Seventh Circuit held that a pledge of assets is sufficient when a defendant is financially unable to obtain a bond against a multimillion dollar judgment. Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 786 F.2d 794 (7th Cir. 1986) (Posner, J.); accord, Waffenschmidt v. Mackay, 763 F.2d 711, 727 (5th Cir. 1985); see generally United States v. Antar, 53 F.3d 568, 578 (3d Cir. 1995).
Again, the court ignored the offer to pledge or transfer all assets. Instead, at page 8 of the February 29, 1996 order, the district court made the unexplained finding that Mr. Bailey "has the ability to pay at least $3.0 million," but there is no consideration of the uncontradicted evidence that a loan of this magnitude on illiquid assets takes more time to arrange than the less than 20 business days available to Mr. Bailey (Tr. C 150-65). Indeed, there is no examination at all of Mr. Bailey's finances.
The government also fails to explain how Mr. Bailey could have paid millions of dollars to the court by February 29, 1996 -- or why a pledge or transfer of all assets is insufficient. We do not mean to say that the government's explanation is wrong; we mean to say that there is no explanation. The government chose to present as evidence below concerning compliance issues. This is a fatal failure because, if the government wishes to argue that Mr. Bailey was capable of further compliance, it bears the burden of proof by clear and convincing evidence under CFTC v. Wellington Precious Metals. Inc., 950 F.2d 1525 (11th Cir. 1992). The government simply misreads Wellington's "burden of production" as the equivalent of a burden of proof, never acknowledging that a "burden of production" is a burden shifting concept and that the government bears the ultimate and heavy burden under Wellington.
Mr. Bailey met his burden of production. He presented an accounting by Arthur Andersen (Exh. 30, 2/27/96) and the testimony of one of its partners tracing funds and proving the absence of hidden funds or assets (Tr. C 89-95). (Neither the district court nor the government appear to challenge this accounting.) He presented his financial statement (Exh. 13, 2/27/96)(Tr. C 154-60, 167) showing about $42,000 in cash and the remainder in illiquid assets, mostly airplanes and boats. Mr. Bailey testified in detail about his inability to obtain bank financing on the strength of such assets (Tr. C 160-62, 179-80, 205-06, 262), as did a financing specialist engaged by Mr. Bailey to "liquefy" Mr. Bailey's assets by obtaining other financing (Tr. C 150-65, 176-77). Mr. Bailey and the financing specialist made it clear that financing would be very difficult, but doable, something that will take more than the days Mr. Bailey had available before February 29, 1996 (Tr. C 16466, 267-69). And Mr. Bailey made it crystal clear that he wished to pledge or transfer all his assets to the court (Tr. C 178, 179, 181, 206, 266, 279). [Note 2 - Financing on the strength of any asset is uncertain because of the government's contention that the equity in the assets reflected Mr. Bailey's receipt, with notice, of forfeitable property. A prudent lender would require assurance from the government, endorsed by the court, that the lender will have a valid security interest.] All of this evidence was unrebutted.
Finally, evidence concerning massive document compliance was unrebutted. The Arthur Andersen accounting and its schedules constitute a complete outline of Mr. Bailey's personal and professional financial life. In addition, Mr. Bailey produced thousands of financial records, which are exhibits (Doc. 95 & 111). One need only to flip through the documents to realize that Mr. Bailey's bank statements, cancelled checks, check registers, home purchase documents, law firm documents, Credit Suisse documents, credit card documents, and numerous other documents are there. The district court's description of this as a "start" is without any basis in the record. The record demonstrates beyond doubt that document collection and production began February 5, 1996 and that thousands of documents were produced to the court on February 14, and thereafter to the government during the week of February 19, and the remainder at the February 27 and 28 hearing Mr. Bailey requested (Tr. B 2-32; Tr. C 15-26, 61, 144-45; Transcript of "Sealed Proceedings Held in Jury Room", February 27, 1996) . Critically, the district court made no finding that there is any additional record to produce. The government purports to identify one record, a "mortgage" on a property in France which the government approved, but the record is uncontroverted that Mr. Bailey does not have such a record (it is in France) and that no penny has changed hands pursuant to this "mortgage" (Tr. C 253-56, 274-76. ) The "mortgage" is in the nature of a mechanic's lien, there being no promissory note or mortgage to fund. Most important, the so-called "mortgage" is not within the court's description of documents demanded to be produced because there were no "proceeds" from it.
B. THE DISTRICT COURT AND THE GOVERNMENT IMPERMISSIBLY RELY UPON PRE- FEBRUARY 3. 1996 CONDUCT TO JUSTIFY INCARCERATION.
The government urges that incarceration is required because of pre- February 3 conduct, with the not-so-subtle premise that punishment is appropriate. The government spent most of its time below pursuing the allegation that, in January 1996, Mr. Bailey transferred assets in violation of a freeze order Mr. Bailey testified he had not seen. In its response filed in this Court, at pages 13 through 19, the government restricts its argument concerning financial impossibility to events allegedly occurring before the February 3, 1996 contempt order. Almost unbelievably, the government never asserts that it was possible, or not impossible, for Mr. Bailey to pay millions of dollars.
The district court took pains to explain that incarceration is required because of pre-February 3, 1996 events. Nearly 100% of the court's order is devoted to these irrelevant events. The evidence concerning them is recounted at length (pages 1 to 6 of the order), and then findings concerning them are made at length (pages 6 through 8 of the order).
Finally, the district court finding that Mr. Bailey knew in January of a freeze order, in addition to being irrelevant to compliance issues, rests on a single piece of evidence, the recollection of an AUSA that Mr. Bailey said several weeks ago he had read the freeze order (Tr. C 294- 95). The government does not claim that Mr. Bailey was in court when the freeze order was entered; he was in New York. The AUSA who later spoke with Mr. Bailey prepared several typed pages of minutes of the meeting with descriptions of Mr. Bailey's statements (Exh. 44, 2/28/96)(Tr. C 303-10). Those minutes contain no reference to the statement that the AUSA recollects now. The January 12, 1996 order does not mention Mr. Bailey's bank accounts and does not apply to loans made by Credit Suisse; those loans were not, in the words of the order, "monies . . . received . . . from or on behalf of Duboc."
Similarly, the courts later order of January 25 did not purport to "freeze" anything but merely required the return of BioChem stock and replacement "stock." See Atiyeh v. Capps, 449 U.S. 1312, 1317 (1981) (Rehnquist, Circuit Justice).
C. THE FEBRUARY 3, 1996 ORDER OF CIVIL CONTEMPT WAS ILLEGAL.
By order of January 25, 1996, the court ordered Mr. Bailey to appear in court to produce stock, financial information and an accounting. When Mr. Bailey appeared, it is undisputed that, without a prior order to show cause, he was called as the first witness and, in the same proceeding, adjudicated in civil contempt. Counsel for Mr. Bailey informed the court that he needed additional time to prepare and to present his case (Tr. A 169-71). Mercer v. Mitchell, 908 F.2d 763 (llth Cir. 1990), is clear that due process requires a prior order to show cause.
It also is undisputed that the February 3, 1996 contempt order was rendered illegal by the imposition of a fixed six-month prison sentence. The government sought a modification of this defect on the last day of the possible compliance period. The district court thereupon issued its February 29, 1996 reimposing a fixed six-month sentence, but saying it could be purged at any time. This ignores, however, that the February 3, 1996 order of civil contempt was itself illegal and, thus, unenforceable.
Further, the government does not dispute that the court below is a key witness to, indeed a party to, the contract it seeks to enforce, a contract not embodied in any document other than in notes the government claims were made by the court. No aspect of this oral contract was made on the record, and the government contends it has no piece of paper reflecting the contract. The decision requires on-the-record revelation and cross-examination of the key evidence the government says the court has. The issue is not one of bias; the court is a material witness.
The government also concedes that Mr. Bailey was held in contempt on February 3, 1996 only for failure to produce financial information and an accounting. According to the contempt order, however, Mr. Bailey could not purge even if he produced all of the requested financial records and an accounting. To purge, he was required also to pay millions of dollars and to produce stock. The government cites no authority that a purge obligation can extend beyond the scope of the underlying contempt. See United States v. Smallwood, 870 F.2d 658 (6th Cir. 1989).
Finally, the government contends Mr. Bailey was not entitled to a jury trial under 21 U.S.C. 882(b) because the forfeitures at issue are criminal. The government does not tell the Court that the forfeitures below were civil forfeitures when they actually were made, that no order of criminal forfeiture was entered, and that the plea agreement did not mention the stock.
D. THE GOVERNMENT INCORRECTLY DESCRIBES THE MERITS ISSUES AND THE PUBLIC INTEREST.
In its opposition to a stay, at pages 4, 5, 14 and 15, the government retreats to its "merits" position that Mr. Bailey wrongly sold or borrowed against the BioChem shares and thereby seeks to bootstrap Mr. Bailey into a contempt. Discovery has not even begun on these "merits" issues. We are constrained, however, to point out here that the government omits or misstates the following: (1) Mr. Duboc, assisted by an AUSA and a DEA agent, made a fee simple transfer of the shares to Bailey by wire on April 26, 1994 (Tr. A 255-56); (2) the transfer was not accompanied by any document establishing a trust or otherwise restricting the transfer (Tr. A 331-33); (3) Mr. Bailey bore the full risk of loss of the value of the stock, 1088 of his fees and 1088 of the expenses he advanced (Tr. A 324-26, 339-40, 347); (4) DOJ guidelines preclude transfer of a forfeitable asset to an attorney for use as fees (as do Caplin & Drysdale and Monsanto); (5) Mr. Bailey was able to make interim expenditures without prior court approval and believed himself similarly free to take interim distributions for his time investment, all subject to eventual court approval (Tr. A 262, 268, 335, 378); (6) the government was silent at the May 17, 1994 recorded plea proceeding about any trust arrangement with respect to Mr. Bailey and the stock (Tr. A 264); (7) the written plea agreement (Doc. 16) does not mention the stock and referred only to a list of assets which had not been created yet (Tr. A 351- 52); (8) Mr. Shohat, Mr. Duboc's other attorney, drafted an unexecuted fee agreement after the stock transfer specifying that his fees were to come from nonforfeitable assets (Tr. A 187); (9) after transfer of the shares, the government took no interest in them and never acted as if it owned them (Tr. A 36467, 383- 93); and (10) the government will agree that it filed numerous civil forfeiture actions against Duboc property but never did so with respect to the shares of stock (Tr. 364- 66).
As for the public's interest in the government's management of the BioChem stock, we note that Mr. Bailey, for weeks, has sought vainly the government's agreement to the immediate sale of enough shares to remove the $2.3 million lien, which amount can be secured by Mr. Bailey's property, all in order that a11 the remaining shares be transferred to the United States forthwith. The government has resisted this approach demonstrating more interest in maintaining the perception of Mr. Bailey's noncompliance than in achieving the transfer of stock.

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