Court Opinion

ID: 4190688
Source: CourtListenerOpinion
Date Created: 2017-07-28 20:02:06.056369+00
Date Added: 2024-06-11T14:39:43.722239
License: Public Domain

FILED
                                 NOT FOR PUBLICATION
                                                                             JUL 28 2017
                       UNITED STATES COURT OF APPEALS                    MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                                 FOR THE NINTH CIRCUIT

In re: KENNY G ENTERPRISES, LLC,                 No.   16-55007

               Debtor,                           D.C. No. 8:15-cv-00551-GW

------------------------------
                                                 MEMORANDUM*
KENNETH GHARIB,

               Appellant,

 v.

THOMAS H. CASEY, Chapter 7 Trustee,

               Appellee.

In re: KENNY G ENTERPRISES, LLC,                 No.   16-55008

               Debtor,                           D.C. No. 8:15-cv-00551-GW

------------------------------

THOMAS H. CASEY, Chapter 7 Trustee,

               Appellant,

 v.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
KENNETH GHARIB,

             Appellee.

                   Appeal from the United States District Court
                      for the Central District of California
                    George H. Wu, District Judge, Presiding

                         Argued and Submitted April 3, 2017
                                Pasadena, California

Before: WARDLAW and CALLAHAN, Circuit Judges, and KENDALL,**
District Judge.

      Kenneth Gharib (“Gharib”) appeals the district court’s decision affirming in

part and vacating in part the bankruptcy court’s order finding him in contempt of

court in the bankruptcy proceedings of Kenny G Enterprises, LLC (“the Debtor”).

The district court affirmed the portion of the bankruptcy court’s contempt order

fining Gharib $1,420,043.70, but vacated the portion of the order imposing $1,000

in daily sanctions. Thomas H. Casey cross-appeals. We have jurisdiction under 28

U.S.C. § 158(d). We affirm in part and reverse in part.

      1.     The district court properly affirmed the bankruptcy court’s

$1,420,043.70 sanction against Gharib. The bankruptcy court may hold Gharib in

      **
            The Honorable Virginia M. Kendall, United States District Judge for
the Northern District of Illinois, sitting by designation.
                                         2
civil contempt for failing to comply with his statutory turnover obligations. See 11

U.S.C. § 105(a) (“The court may issue any order, process, or judgment that is

necessary or appropriate to carry out the provisions of this title.”). The record

supports the bankruptcy court’s decision to hold Gharib in contempt. The

bankruptcy court found that on August 14, 2013, Dana Douglas, representing the

Debtor, notified Gharib that the Debtor’s bankruptcy case was converted from one

under Chapter 11 to one under Chapter 7. The conversion triggered Gharib’s

obligations under 11 U.S.C. § 542(a) and Central District of California Local

Bankruptcy Rule (“LBR”) 3020-1(b)(5) to turn over to the trustee of the Debtor’s

estate all of the Debtor’s assets that were in Gharib’s possession, which amounted

to $1,420,043.70. Gharib failed to do so. A year and a half later, after extensive

briefing, discovery, and an evidentiary hearing to determine the precise scope of

Gharib’s turnover obligations and to discover where the assets had gone, the

bankruptcy court concluded that “in all likelihood the alleged Iran transaction is

entirely fiction and the Hillsborough proceeds [amounting to $1,420,043.70] (or

what is left of them) are still here and under Gharib’s control.” Based on the

record before us, we cannot conclude that the bankruptcy court’s finding was

clearly erroneous. See Atlanta Corp. v. Allen (In re Allen), 300 F.3d 1055, 1058

(9th Cir. 2002).

                                           3
      Because complying with the bankruptcy court’s order will cure his

contempt, Gharib’s contempt is civil, not criminal. See Shillitani v. United States,

384 U.S. 364, 368 (1966) (holding that when an incarcerated contemnor “carr[ies]

the keys of [his] prison in [his] own pockets” (internal quotation marks omitted),

his contempt is civil in nature). Accordingly, the bankruptcy court acted within its

11 U.S.C. § 105(a) civil contempt powers when it sanctioned Gharib in the amount

of $1,420,043.70, and did so again when it ordered Gharib incarcerated for his

continued failure to comply. See Cal. Emp’t Dev. Dep’t v. Taxel (In re Del

Mission Ltd.), 98 F.3d 1147, 1151–52 (9th Cir. 1996) (where an entity failed to

perform its § 542(a) obligations, § 105 authorized the bankruptcy court’s coercive

fines); see also Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821,

828 (1994) (“The paradigmatic coercive, civil contempt sanction . . . involves

confining a contemnor indefinitely until he complies with an affirmative command

such as an order to pay alimony, or to surrender property ordered to be turned over

to a receiver, or to make a conveyance.” (internal quotation marks omitted)).

Therefore, the district court did not err in affirming the bankruptcy court’s

$1,420,043.70 sanction against Gharib, and the bankruptcy court acted within its

civil contempt authority in detaining Gharib for his continued failure to pay the

sanction.

                                           4
      2.     However, the district court erred by vacating the portion of the

bankruptcy court’s order imposing daily sanctions on Gharib for failure to pay the

contempt fine. The district court reviewed the bankruptcy court’s contempt order

only with reference to the language of § 542, which mandates the turnover of

“property or the value of such property.” 11 U.S.C. § 542(a). From this, the

district court erroneously concluded that the amount of the bankruptcy court’s

sanctions against Gharib had to be cabined to “the value of” the assets Gharib was

required to turn over, or $1,420,043.70 only. But in the face of a § 542 violation

the bankruptcy court may invoke its contempt power under § 105, which allows

the court to “issue any order, process, or judgment that is necessary or appropriate

to carry out the provisions of this title.” 11 U.S.C. § 105(a). See In re Del

Mission, 98 F.3d at 1151–52 (9th Cir. 1996) (noting that § 105(a) provides the

remedy for a § 542(a) violation). As long as the sanctions are coercive in nature

and not punitive, § 105(a) articulates no specific monetary limit on the scope of

contempt sanctions available to the court. To the contrary, the Supreme Court has

noted that “a per diem fine imposed for each day a contemnor fails to comply with

an affirmative court order . . . exert[s] a constant coercive pressure, and once the

jural command is obeyed, the future, indefinite, daily fines are purged.” Int’l

Union, 512 U.S. at 829. Therefore, where per diem fines can be prospectively

                                           5
purged “through full, timely compliance” with the court’s order, then daily fines

“operate[] as a coercive imposition upon the defendant . . . to compel [his]

obedience.” Id. at 830 (internal quotation mark omitted). Because this precisely

describes the nature of the $1,000 daily sanctions the bankruptcy court imposed,

the court acted within its § 105(a) civil contempt authority when it imposed them.

         3.   Because the monetary sanctions imposed and Gharib’s ensuing

incarceration for noncompliance with those sanctions are properly coercive, they

are not punitive. However, we are mindful that Gharib has remained incarcerated

for civil contempt since May 2015. At some point, due process considerations will

require the bankruptcy court to conclude that Gharib’s continued detention and the

daily $1,000 sanctions have ceased to be coercive and instead have become

punitive. When that occurs, Gharib must be released from custody.

         4.   In light of our disposition, we decline to reach Gharib’s claim that he

lacked notice of the bankruptcy court’s August 14, 2013 oral temporary restraining

order.

         AFFIRMED IN PART; REVERSED IN PART.

                                           6