Opinion ID: 466307
Heading Depth: 1
Heading Rank: 2

Heading: review of the contempt citation

Text: 20 A district court's decision on a contempt petition is discretionary in character and is not to be reversed except for abuse of such discretion or unless clearly erroneous. See Walaschek & Associates v. Crow, 733 F.2d 51, 53 (7th Cir.1984) (quoting Jewel Tea Co. v. Kraus, 204 F.2d 549, 551 (7th Cir.1953)). We thus review the two general grounds advanced by the trial court to support the contempt order to see if the order falls within the trial court's realm of discretion. First, the court held that the two-month rule violated the amended decree. Second, the court found that prior to the 1979 amended decree HUD's nationwide practice had been to use the advancement rule, and after the decree HUD changed to the two-month rule in violation of the decree.
21 In order to hold a party in contempt, the court must be able to point to a decree from the court which set[s] forth in specific detail an unequivocal command which the party in contempt violated. See H.K. Porter Co. v. National Friction Products, 568 F.2d 24, 27 (7th Cir.1977). We must look to the amended decree to determine whether the decree unambiguously forbid HUD to use the two-month rule (or, conversely, unambiguously required HUD to use the advancement rule). 22 Before examining the decree, however, one point deserves mention because both the district court and the plaintiffs appear to have mistakenly relied upon it. Both the court below in its various opinions and the plaintiffs in their brief and at oral argument at times seemed to argue the proposition that because the district court had, in 1983, interpreted the 1979 amended decree to require the advancement rule, HUD could not now argue that the decree did not unambiguously command the advancement rule for purposes of this contempt proceeding. This proposition is erroneous, because the court in the contempt proceeding faced a different issue than the one it decided when it interpreted the amended decree in 1983. 2 In 1983, the court decided which of two conflicting rules was the correct rule, i.e., the most reasonable interpretation of the decree. In the contempt proceeding, the court had to decide whether the amended decree so unambiguously spelled out the advancement rule that HUD's use of the two-month rule amounted to contempt. 3 We therefore must examine the various provisions of the amended decree which the plaintiffs claim (and the district court held) required HUD, even before the district court's 1983-84 decisions, to use the advancement rule. 4 23 The plaintiffs claim that HUD violated the following provisions by using its two-month rule: (1) Note to HUD Handbook 4330.2 Sec. 2-1; (2) HUD regulations 24 C.F.R. Secs. 203.330 & 203.331; and (3) Etheridge v. Beasley, supra. For the time being, we will lay aside the question of whether HUD's two-month rule was a change in HUD policy, for that matter is discussed in the next subsection. For now, we look only to see whether HUD's use of the two-month rule, in and of itself, violated the 1979 amended decree.
24 The date of default is referred to in the note to HUD Handbook 4330.2 Sec. 2-1(d). 5 Section 2-1 is captioned ELIGIBILITY CRITERIA, and subsection (d) explains and gives examples illustrating when a mortgagor qualifies for assistance based upon a default caused by a circumstance or set of circumstances beyond the mortgagor's control which temporarily rendered the family financially unable to cure the delinquency within a reasonable time or make full mortgage payments. 25 Both HUD and the plaintiffs claim that the note to section 2-1(d) supports their method of calculating the date of default. The plaintiffs argue that the first sentence of the note, which provides that only the current default is relevant, supports the advancement rule. The plaintiffs contend that the last sentence, which appears to support the two-month rule, merely states the obvious: that if the account is current, all past defaults have been cured (i.e., paid). HUD argues the last sentence of the note incorporates the two-month rule that HUD applied prior to the district court's 1983-84 decisions. 26 The district court declined to follow the plaintiffs' argument, but ruled instead that the note addressed not the issue of fixing the date of default, but rather the issue of determining the cause of the default. Like the district court, we reject plaintiffs' argument that HUD's use of the two-month rule clearly violated the terms of the note. Indeed, even if we were to reinterpret the note, it is at best ambiguous. The terms plaintiffs rely upon to support their claim, such as current default in the first sentence, are susceptible to multiple interpretations and fall far short of spelling out an unequivocal command. 6 27 Next, plaintiffs argue that sections 203.330 and 203.331, 24 C.F.R. Secs. 203.330 & 203.331 (1985), control the date of default and are inconsistent with HUD's two-month rule. The district court followed this argument, particularly with respect to section 203.330, in its contempt order. Section 203.330 7 is titled Delinquency and default, and section 203.331 8 is titled Date of default. HUD argues that section 203.330 merely defines a default and section 203.331 only applies to HUD's relationship with the mortgagees. 28 Once again, we need not reassess whether the district court's interpretation of these sections to require the advancement rule is sound. It is enough for us to conclude, as we are forced to do, that these sections are at best too ambiguous to support a finding of contempt. The HUD two-month rule does not violate any unequivocal command, as demonstrated by HUD's arguments that these sections can reasonably be read as consistent with the two-month rule. 29 As HUD points out, section 203.330 fails to mention the consequences of late payments. The section thus does not state whether late payments operate to advance the date of default for purposes of mortgage assignment relief. HUD interpreted the regulation as merely defining what constitutes a default. Although the district court later rejected HUD's construction of the section, HUD's interpretation violates no unequivocal command. 30 Likewise, HUD points out that section 203.331, unlike section 203.330, specifically applies only to Subpart B of the regulations, the subpart which governs HUD's insurance contract with the mortgagee. Thus the late payment advancement rule in 203.330 is limited to the regulations dealing with the rights and obligations between HUD and the mortgagee. Under Subpart B, the late payment advancement rule is the only reasonable rule, because under the program, when HUD takes an assignment, it must pay the mortgagee all payments since the mortgagor's date of default. Clearly, different equities and considerations are involved when HUD must calculate the date of default to determine whether the defaulting mortgagor qualifies for the assistance program. Because section 203.331 is expressly limited to a quite different situation than determining whether a mortgagor qualifies for relief, 9 HUD did not violate any unequivocal command by not applying section 203.331 to determine the date of default for purposes of a mortgagor's eligibility for the assignment program. Therefore, HUD's use of the two-month rule did not violate any unequivocal command contained in the 1979 amended decree.
31 The district court also relied upon a decision by Judge O'Kelley in the Northern District of Georgia as enunciating an unequivocable command. 10 Etheridge v. Beasley, 532 F.Supp. 266 (N.D.Ga.1981). In that case, the court granted a summary judgment to mortgagors who sought a ruling that HUD could not use the two-month rule. Id. at 271. The court concluded that 32 without deciding whether the plaintiffs will ultimately be entitled to require HUD to accept assignment of their mortgage, ... the federal defendants used an improper legal standard in denying the plaintiffs' request for assignment. The court concludes that the regulations and guidelines do not mandate the application of a two month rule or a one month rule [i.e., the plaintiffs' advancement rule]; they rather require HUD officials to exercise their independent judgment in determining whether, in light of all the surrounding circumstances, the mortgagor's default was beyond his or her control. 33 Id. 34 The plaintiffs point to language in the opinion where the court said applying accepted rules of statutory construction would lead one to reach the conclusion espoused by the plaintiffs, i.e., that the relevant date of default is thirty days after a payment is due and unpaid. Id. at 270. Given the equivocal nature of that statement, however, and the Etheridge court's later references (in particular the one set out above in the court's conclusion) to the necessity of HUD applying its judgment to each case, id. at 270-71 & n. 9, we can only conclude that the Etheridge court rejected both HUD's two-month rule and the advancement rule favored by the plaintiffs in favor of a less rigid rule that required HUD to exercise greater judgment. At the very least, HUD's interpretation of Etheridge to prohibit only the rigid application of the two-month rule, as opposed to combining use of the rule with judgment, falls short of the violation of an unequivocal command necessary to support a contempt citation. 11 Indeed, the fact that the Etheridge court's construction of the decree is arguably at odds with the district court's construction in this case merely points out how ambiguous the provisions of the decree actually are. 35 Even if we were to conclude that Etheridge laid down an unequivocal command, we have some reservations as to whether that decision would support this finding of contempt. The Etheridge case was not brought by the plaintiffs in this case, and the Supreme Court decision in United States v. Mendoza, 464 U.S. 154, 104 S.Ct. 568, 78 L.Ed.2d 379 (1984), which dealt with the use of offensive collateral estoppel against the government, pointed out the problems involved in allowing a party not involved in a prior suit to use that decision in a subsequent suit against the government. The Etheridge opinion bound HUD only in the Northern District of Georgia and did not obligate HUD to seek an opinion from the district court below in this case. Even if HUD did engage in some sort of coverup to circumvent the Etheridge decision in the Northern District of Georgia, which plaintiffs allege and HUD vehemently denies, HUD would be in contempt of the Etheridge court, not the district court in the current case.
36 Although the district court abused its discretion in holding that HUD violated an unequivocal command in the 1979 amended decree, the court put forth a second ground to support the contempt citation. The court found that, after the 1979 amended decree took effect, HUD switched from using the advancement rule to using the two-month rule. The court concluded: 37 It is clear that HUD not only used the two month rule, but that it did so knowing that it was a change in procedure [i.e., from the advancement rule] which reduced mortgagors' rights and after [the two-month rule] had been held invalid [in Etheridge ]. This change curtailed basic rights of mortgagors under the assignment program in violation of paragraphs 3 and 14 of the Amended Stipulation. Whatever HUD's intent, this clear violation of an unambiguous command of our order of November 8, 1979 constitutes contempt. Not only did HUD change the method of calculating the date of default, it did so without following the notice provisions of paragraph 3 of the Amended Stipulation. This action also constitutes contempt of our order. 38 HUD argues that the district court abused its discretion by finding that HUD changed its policy following the 1979 amended decree. First, HUD argues that the district court failed to base its decision on the clear and convincing evidence necessary for a finding of contempt. See United States v. Huebner, 752 F.2d 1235, 1241 (7th Cir.1985) (in civil contempt proceeding for violation of consent decree, plaintiffs must prove violation by clear and convincing evidence). HUD then contends that the court abused its discretion in basing its finding of contempt on a factual issue that was not at issue before the court, and thus an issue that HUD had no opportunity to litigate. Moreover, HUD alleges the court abused its discretion by denying HUD's post-trial Rule 59 motion in which HUD attempted to present evidence of its actual practice in 1979. Because we hold that the court below abused its discretion in basing its finding upon a factual issue not at issue, and thus one that HUD had no opportunity to contest, we need not decide whether the district court's finding was clearly erroneous. 39 The plaintiffs claim that their petition for contempt put HUD on notice that the issue of HUD's practice prior to the 1979 amended decree was at issue. Plaintiffs point to sections of their petition which discuss HUD's use of the two-month rule and an attached letter, a memorandum of the HUD Tampa Office Supervisor, which according to plaintiffs indicated that the field office practice prior to being ordered to use the two-month rule was to use the 'current default' on all assignment requests. 40 Plaintiffs point out that HUD did not deny the factual allegations in the petition, but rather agreed to try the contempt matter on the basis of the papers already filed. Plaintiffs further point out that at no time prior to the court's March 22, 1985 ruling did HUD indicate surprise or lack of preparedness to litigate the entire matter. Finally, plaintiffs argue that all the Rule 59 evidence filed by HUD was available to HUD at the time of the prior hearing. Thus, plaintiffs argue that the district court acted within its discretion in finding that HUD changed its policy, and then denying HUD's Rule 59 motion. 41 Upon close examination, however, plaintiffs' argument that HUD was on notice that its prior policy was at issue cannot prevail. A careful reading of the plaintiffs' petition reveals that HUD reasonably thought it was litigating only one issue--whether its use of the two-month rule violated an unambiguous command from the court. Nowhere in the section of the petition which plaintiffs relied upon at oral argument to demonstrate HUD had notice of the issue do the plaintiffs mention paragraph 3 of the 1979 amended decree, the section which requires HUD to notify plaintiffs' counsel before modifying the assignment program. 12 This failure to mention paragraph 3 is emphasized by the fact that later in the petition plaintiffs do list several alleged HUD policy changes about which HUD allegedly failed to notify plaintiffs' counsel. The two-month rule is noticeably not among the listed changes. 42 Were this a normal trial between two adversarial parties, we would possibly treat the plaintiffs' new change-in-policy argument as waived. We recognize, however, that a trial court has a great deal more latitude in enforcing its own decrees in a contempt proceeding. See Thompson v. Cleland, 782 F.2d 719, 721 (7th Cir.1986) (judicial sanctions in civil contempt appropriate to (1) coerce defendant into compliance with court's order and (2) to compensate plaintiff for loss). Nevertheless, it is still an abuse of discretion for the trial court to find a party in contempt without giving the party an opportunity to contest the issue. In this case, HUD had no reason to litigate its pre-1980 policy; HUD justifiably litigated solely the issues raised in the plaintiffs' petition for contempt. 43 When HUD discovered that the district court had based its contempt citation in part on its finding that HUD had changed its policy, HUD filed, under Fed.R.Civ.P. 59, a motion for a new trial, to vacate judgment, and enter new judgment. HUD sought a new trial to correct alleged manifest errors of law or fact, primarily flowing from the court's finding about HUD's change in policy. HUD offered 12 new affidavits and over 150 pages of additional documentation because the issue to which the previously available evidence would be responsive had not been clearly and timely framed in the proceedings before the court, and thus HUD had been unfairly surprised by the new approach and focus taken by the court. 44 Plaintiffs argued that HUD was merely attempting to relitigate the issue. The district court agreed. Both the district court and the plaintiffs point out that HUD had all the new evidence previously available. HUD concedes that it had the evidence available, but argues that prior to the district court's opinion it had no reason to present the evidence. As we said above, HUD had no reason to present the evidence in the earlier hearing because HUD's pre-1980 policy was not at issue. The denial of HUD's Rule 59 motion further prevented HUD from receiving the fair hearing to which it was entitled before being held in contempt. The district court abused its discretion in holding HUD in contempt because the 1979 amended decree contained no unambiguous command which HUD violated and HUD did not have an opportunity to litigate the change-in-policy charge. Therefore, we must vacate the district court's contempt citation. 13