Opinion ID: 2977464
Heading Depth: 1
Heading Rank: 4

Heading: The Attorney Fee Sanction

Text: Regardless of whether the stipulated permanent injunction was properly permitted to remain in force, the district court’s sanction order must in any event be vacated. The district court sanctioned Peng for allegedly violating the injunction by ordering him “to pay the Plaintiff’s legal fees.” It characterized the award as “curative sanctions of the Court for willful violation of a Court order.” The district court did not make specific findings of facts and conclusions of law. It stated that “[s]ince the parties have not requested separate findings of fact and conclusions of law,” it would issue its opinion after reviewing the lengthy filings. The order does contain statements which can be construed as findings of facts, but not many are directly relevant to the sanctions. The court merely stated that “[t]he evidence presented by Plaintiff clearly demonstrates that Defendants willfully violated the terms of the Permanent Injunction. The Court will impose sanctions as a cure therefore.” The district court should have made specific findings of fact, and Peng may challenge its failure to do so on appeal. “In an action tried on the facts without a jury . . . the court must find the facts specially and state its conclusions of law separately.” Fed. R. Civ. P. 52(a)(1). “A party may later question the sufficiency of the evidence supporting the findings, whether or not the party requested findings, objected to them, moved to amend them, or moved for partial findings.” Id. 52(a)(5). “Findings of fact . . . must not be set aside unless clearly erroneous.” Id. 52(a)(6). The district court should have made findings of fact to aid this court in analyzing the appeal. “The findings are necessary not only to reveal the logic behind the trial court’s decision, but also to - 14 - Nos. 07-4180, 07-4251 Marck v. Peng enable an appellate court to conduct a meaningful review of the trial court’s order.” Zack v. C.I.R., 291 F.3d 407, 412 (6th Cir. 2002). “[T]here must be findings, in such detail and exactness as the nature of the case permits, of subsidiary facts on which an ultimate conclusion can rationally be predicated.” Grover Hill Grain Co. v. Baughman-Oster, Inc., 728 F.2d 784, 792 (6th Cir. 1984). “The findings should be explicit so as to give the appellate court a clear understanding of the basis of the trial court’s decision, and to enable it to determine the grounds on which the trial court reached its decision.” Id. at 792-93. The lack of findings in this case, however, does not foreclose an appellate holding that sanctions were not proper. This court has, in the past, stated that although it could “vacate the judgment of the District Court and remand the case for sufficient findings of fact under Rule 52(a) . . . . in order to avoid further extension of this protracted litigation” it would “dispose of the appeal on its merits despite the insufficiency of the findings of fact.” B.F. Goodrich Co. v. Rubber Latex Products, Inc., 400 F.2d 401, 403 (6th Cir. 1968). The record reflects that the only clear violation of the injunction shown below was that Peng did not give a copy of the court’s order to Ms. Peng, as he should have. Some, but not overwhelming, evidence suggests that Peng violated the injunction by misstating transactional values to U.S. Customs. The other evidence Marck cites does not show violations of unambiguous orders in the injunction. To sustain a finding of contempt, Marck would have had to “prove by clear and convincing evidence that [Peng] violated the court’s prior order.” Grace v. Center for Auto Safety, 72 F.3d - 15 - Nos. 07-4180, 07-4251 Marck v. Peng 1236, 1241 (6th Cir. 1996) (quotation omitted). The violated order must have been “definite and specific.” Id. (quotation omitted). “[A]mbiguities must be resolved in favor of persons charged with contempt.” Id. (quoting NBA Properties, Inc. v. Gold, 895 F.2d 30, 32 (1st Cir. 1990) (Breyer, J.)). Ms. Peng should have been, but was not, provided with a copy of the injunction by December 18, 2005. The injunction required the Peng companies to “deliver copies of the Order” to “all of their principals, officers, directors, and managers” within ten days “of the date of entry of this Order.” Anna Peng is an officer of defendant Photo U.S.A. and an officer of defendant North American Investment Corp. On March 23, 2007, Ms. Peng testified that (in the words of the examining attorney) she had “not seen the injunction that was signed in this case.” Peng does not address this testimony in either of his briefs. This evidence appears to establish a violation of the injunction. Peng may have misstated transactional values to U.S. Customs. The injunction enjoined Peng from “[s]ubmitting falsified or inaccurate documentation to U.S. Customs, including but not limited to the ‘transactional value’ of [his] products.” Peng testified that in January 2006 he submitted corrected transactional value figures for imports during the years 2001 to 2005, along with a check for $221,613, to rectify what he characterized as “something we did wrong but not intentionally.” Peng further characterized the increased value figures as “giv[ing] the benefit of the doubt to U.S. Customs.” Marck points to its expert’s testimony to call Peng’s revised figures into doubt. Its expert analyzed various documents relating to the case, including a 2005 tax return that listed a product - 16 - Nos. 07-4180, 07-4251 Marck v. Peng valuation. The expert testified that “there’s about a 20 cents per piece variance, which it appears as though the inventory . . . is overstated, or the transaction value that he reported at Customs is understated.” Peng does not address Marck’s characterization of this testimony in his reply brief. This evidence does not amount to “clear and convincing” evidence that Peng submitted “inaccurate documentation to U.S. Customs.” The evidence shows an apparent discrepancy between Peng’s tax return valuations and the valuations reported to Customs. The evidence does not directly show that the Customs figures were understated rather than that the tax figures were overstated, though that is certainly a fair inference. However, the expert’s testimony establishes that the tax number is in any event not supposed to be identical to the Customs number, and the expert’s estimates of the amount of the perceived discrepancy do not clearly explain what misstatements Peng made in submitting the corrected figures. Given Peng’s testimony that the numbers he submitted to Customs were calculated in good faith, Marck has not provided sufficient evidence that the numbers submitted to Customs were inaccurate and violative of the injunction. The other evidence Marck cites does not show a clear violation of an unambiguous directive in the injunction. None of the evidence Marck cites shows that Peng violated his duty to “accurately designate the country of origin on its products and/or packaging imported into the United States.” Each product Marck points to was either manufactured (and therefore presumably imported) before the injunction took effect, or had either the packaging or the product marked with “Made in China.” For purposes of holding him in contempt, any ambiguity in the “and/or” or the “imported into” - 17 - Nos. 07-4180, 07-4251 Marck v. Peng language in the injunction must be resolved in favor of Peng—thus, labeling either the package or the product is sufficient, and the product only need be labeled at the time of import. Marck’s allegations concerning CCIB numbers and concerning use of prison labor do not show any violation of the injunction. The injunction does not constrain Peng with respect to prison labor at all. It also does not refer to CCIB numbers. Marck attempts to characterize a mislabeled CCIB number as a “misrepresentation to Customs,” but does not show that Customs uses the CCIB number—CCIB numbers are apparently used by the FDA. Marck does not show how the CCIB label is documentation submitted to Customs within the meaning of the injunction. The evidence thus shows that Marck has only proved a violation of the permanent injunction insofar as it has shown that Peng did not give a copy of the injunction to Ms. Peng in her capacity as a corporate officer. While some sanction would have been appropriate for this violation, awarding Marck all of its attorney fees for the entire case cannot stand. The district court characterized the attorney fee sanction as “curative,” and as intended “as a cure” for willful violation of the injunction. These statements do not clearly establish whether the court meant the sanction to compensate Marck for expenses caused by past noncompliance (“compensatory”) or to encourage future compliance (“coercive”). A court should “provide an adequate explanation of the purpose or purposes” of a chosen sanction or face reversal. See Ross v. Meyers, 883 F.2d 486, 490-91 (6th Cir. 1989). Even if the district court’s contempt power extends to having a coercive award designed to encourage Peng’s future compliance be payable to Marck rather than to the court itself, the court - 18 - Nos. 07-4180, 07-4251 Marck v. Peng provided no justification for why such an award should be measured by Marck’s past expenses. The district court’s chosen sanction of Peng thus does not fit within the concept of a coercive sanction. If meant to be compensatory, the sanction was clearly inappropriate. Many of Marck’s attorney fees accrued before the injunction even took effect, and the court made no attempt to calculate which fees accruing after the injunction issued were due to Peng’s breach. The award of sanctions must therefore be vacated regardless of how the district court resolves the issue in Part III. The district court may impose sanctions for violations of the stipulated permanent injunction that occurred before its entry of final judgment below only with respect to the failure of Peng to give Ms. Peng, in her capacity as a corporate officer, a copy of the order as it required by its terms. Other relief for violations of the injunction during that period is not warranted on the evidence Marck has presented.