Court Opinion

ID: 153399
Source: CourtListenerOpinion
Date Created: 2010-08-14 03:37:01+00
Date Added: 2024-06-11T16:47:27.570691
License: Public Domain

PUBLISH

                    UNITED STATES COURT OF APPEALS
Filed 5/17/96TENTH CIRCUIT
                             _____________

RELIANCE INSURANCE COMPANY,                      )
a Pennsylvania corporation,                      )
                                                 )
       Plaintiff-Appellant,                      )
                                                 )
              v.                                 )    No. 95-4054
                                                 )
MAST CONSTRUCTION COMPANY, a                     )
corporation; MAST INDUSTRIAL, INC., a            )
corporation; RONALD EARL MAST, LINDA M. )
MAST, individually and as trustees of the Ronald )
E. Mast Living Family Trust, aka Aremeco         )
Management Co.; HARDWARE SPECIALTIES, )
INC., a corporation; ROGER J. MAST; MARIE G. )
MAST; CHRISTOPHER MAST, individuals,             )
                                                 )
       Defendants,                               )
                                                 )
FIRST SECURITY BANK OF UTAH, N.A.,               )
                                                 )
       Defendant-Appellee.                       )

                                    _____________

                      Appeal from the United States District Court
                                for the District of Utah
                                  (No. 88-CV-947-S)
                                    _____________

Andrew M. Morse (David W. Slaughter and Camille N. Johnson on the brief), of Snow,
Christensen & Martineau, of Salt Lake City, Utah, for the appellant.

James S. Jardine (Steven H. Gunn and Keith A. Kelly with him on the brief), of Ray,
Quinney & Nebeker, of Salt Lake City, Utah, for the appellees.
                                   _____________

Before BALDOCK, EBEL, and BRISCOE, Circuit Judges.
                             _____________

BRISCOE, Circuit Judge.
                                    _____________
       Plaintiff Reliance Insurance Company (Reliance) appeals from the district court's

order granting summary judgment in favor of defendant First Security Bank of Utah, N.A.

(First Security) in a contempt proceeding instituted by Reliance. We affirm in part,

reverse in part, and remand.

       During a period prior to and including 1988, Reliance furnished several contractor

performance and payment bonds for Mast Construction Company (Mast) in connection

with various public construction projects in California, Utah, and Nevada, on which Mast

served as general contractor. In early October 1988, following increasing numbers of

claims upon its bonds by unpaid suppliers and subcontractors, and based upon

correspondence and other information it received indicating a potential default on at least

one of the bonded construction projects, Reliance sent representatives to meet with

Ronald Mast, president of Mast. Reliance representatives sought details of Mast's

financial standing, plans for completion of the bonded projects and payment of project-

related obligations, and assurances of its willingness and ability to hold Reliance harmless

from any bond loss or liability.

       On October 17, 1988, having failed to receive any assurances of cooperation from

Mast, and anticipating substantial losses under its bonds, Reliance filed an indemnity

action against Mast and its indemnitors, Ronald Mast and Linda Mast (Mast defendants).

On that same date, Reliance sought and obtained, ex parte, a temporary restraining order

enjoining the transfer of funds and other assets of the named defendants "other than in the

normal course of business." Appellant's append. I at 133. A copy of the temporary

restraining order, with a copy of the summons and complaint, was hand delivered to

Mast's counsel that same day.

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       A copy of the temporary restraining order was allegedly hand delivered to First

Security on October 19, 1988, and received through Larry Gwynn, branch manager at

First Security's First South Branch. As of October 19, 1988, Mast held more than $1.8

million on account at First Security. According to Reliance, these funds represented the

balance of approximately $2.37 million in project contract payments that Mast deposited

in August 1988.

       On the morning of October 20, 1988, Ronald Mast appeared at First Security's Ivy

Place Branch and withdrew or transferred the entire balance of Mast's account. In

particular, he transferred approximately $1,358,104.20 to new accounts at First Security

in the name of REMCO Construction, Inc., and U.S. General, Inc., and withdrew

approximately $500,000 in cashier's checks payable to REMCO. Two of the cashier's

checks, totaling $200,000, were subsequently deposited at another bank and used to

purchase gold coins. The remaining checks were used a week later to establish additional

accounts at First Security.

       Mast also withdrew $2,500 that same day from a "City Wide Leasing" account at

First Security's West Jordan Branch, and Linda Mast withdrew $2,500 from a "Ronald E.

Mast Family Savings Account" at First Security's 72nd South Branch.

       On October 21, 1988, Reliance sought and received an amended temporary

restraining order imposing a judicial lien upon all assets and property owned by Mast,

Ronald Mast, and Linda Mast, and "all property in which said defendants have or

maintain an interest," including "accounts of deposit." Appellant's append. I at 146. In

response to an observation from another bank's counsel that reference in the October 17

temporary restraining order to transactions "other than in the ordinary course" provided an

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ambiguous standard for compliance and enforcement, the amended order directed that

"none of such funds, assets or other property shall be paid, sold, transferred, liened or

encumbered without prior Court approval." Id. According to its terms, the amended

order purported to be "binding upon all financial institutions and . . . their officers, agents,

employees and attorneys . . . who receive actual notice of this Order, by personal service

by publication or otherwise." Id. The October 21 temporary restraining order was to

expire, according to its terms, on October 31, 1988, at 1:30 p.m. The order was

subsequently extended by a series of extension orders.

       Reliance alleges that on October 21, 1988, it attempted to hand deliver a copy of

the amended order to First Security's First South Branch, but a bank officer refused

service and directed the representative of Reliance to deliver the document to First

Security's Central Operations office in Salt Lake City. Reliance alleges that, because of

the time of day, delivery was delayed until the next business day, October 24, 1988. First

Security contends the amended order was not delivered until sometime between October

28 and October 31, 1988.

       On October 25, 1988, Ronald Mast made arrangements with Kraig Murdock, a

branch manager of First Security, to secure a line of credit loan for REMCO. On that

same date, Christopher Mast, son of Ronald Mast, purported to be the vice president of

REMCO and signed loan documents at First Security's Sugarhouse Branch for the

arranged $300,000 line of credit. Although Murdock was aware of the October 17

temporary restraining order, he waited until after Christopher Mast left to inform Lynn

Goodale, a loan processor, what had transpired. In turn, Goodale informed First

Security's area manager and counsel of the situation. Goodale also telephoned the district

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court and was advised the temporary restraining order had been extended an additional

ten days.

       On or about October 26, 1988, Murdock telephoned Ronald Mast to inform him

that, in light of the temporary restraining order, First Security had decided not to proceed

with the REMCO line of credit loan. In response, Ronald Mast informed Murdock he

intended to close his accounts at First Security. On that same day, Ronald Mast withdrew

or transferred all of his remaining funds at First Security. Between October 28 and

November 9, 1988, he used portions of the withdrawn funds to open additional accounts

at First Security and to obtain numerous cashier's checks. According to Reliance, all of

these funds were eventually converted to cash or precious metals.

       On December 22, 1988, the district court heard Reliance's motion for a preliminary

injunction prohibiting the use or transfer of the assets. At that time, the court (1)

terminated the October 17 and October 21 temporary restraining orders; (2) noted that

Reliance had an adequate remedy at law; and (3) noted that the proposed preliminary

injunction order was overly broad. Nevertheless, the court enjoined Ronald Mast from

making fraudulent conveyances or hiding assets from creditors.

       According to Reliance, it first learned of the accounts at First Security, as well as

the numerous transfers and withdrawals from those accounts, in May 1989. On May 17,

1989, at the request of Reliance, the district court issued a written order (1) appointing a

temporary receiver for all property and records of Mast; and (2) enjoining Mast, Ronald

Mast, and Linda Mast from "conveying, selling, trading, transferring, secreting, [or]

encumbering their assets, except as required for payment of necessities." Appellant's

append. I at 175.

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       On April 26, 1990, Reliance entered into a stipulated settlement agreement with

the Mast defendants. Under the terms of the agreement, Reliance received a $10,000,000

judgment against defendants. However, Reliance asserts the judgment was "empty and

largely meaningless," due in part to the withdrawals or transfers of approximately $1.8

million in funds maintained at First Security.

       In February 1991, Reliance filed suit against First Security, asserting claims of

negligence, civil contempt, and civil conspiracy. In May 1992, Reliance amended its

complaint to include trust-based theories of recovery, and the action was subsequently

consolidated with the underlying action. On September 28, 1992, the district court

dismissed Reliance's conspiracy claims and granted partial summary judgment in favor of

First Security on the negligence claims. In doing so, the court held that an alleged

violation of the court's temporary restraining order could not support a separate

negligence claim.

       On April 24, 1994, the district court issued an order granting First Security's

motion for partial summary judgment on Reliance's civil contempt claims. The court

concluded the two temporary restraining orders issued in October 1988 were

"invalidated" on December 22, 1988, when the court rejected Reliance's request for a

preliminary injunction. More specifically, the court concluded the restraining orders were

invalidated at that time "because they were overbroad and because Reliance had an

adequate remedy at law." Appellant's append. II at 674. Accordingly, the district court

refused to impose civil contempt liability based upon an alleged violation of either order.

As an additional basis for granting partial summary judgment in favor of First Security,

the court concluded that First Security did not fall within the scope of persons bound by

                                              6
restraining orders under Fed. R. Civ. P. 65(d). Specifically, the court held that the "active

concert or participation" exception for nonparties under Rule 65(d) "requires a showing of

something akin to alter ego, collusion, or identity of interest," and concluded there were

"no facts, or even allegations, from which it [could] be construed that the appearance of

the Mast defendants was 'tantamount to the appearance' of First Security in this matter."

Appellant's append. II at 674, 676.

       All remaining claims were dismissed by stipulation and a final judgment and order

was entered on March 3, 1995. Reliance appeals only the summary judgment entered on

its civil contempt claims.

       We review a district court's adjudication of civil contempt for abuse of discretion.

O'Connor v. Midwest Pipe Fabrications, 972 F.2d 1204, 1209 (10th Cir. 1992). In doing

so, however, we review the district court's conclusions of law de novo and any findings of

fact for clear error. Badger Meter v. Grinnell Corp., 13 F.3d 1145, 1154-55 (7th Cir.

1994). Abuse of discretion is established if the district court's adjudication of the

contempt proceedings is based upon an error of law or a clearly erroneous finding of fact.

Id.

       Did expiration of the temporary restraining orders eliminate Reliance's right
       to seek a compensatory civil contempt judgment for prior violation of those
       temporary restraining orders?

       Generally speaking, a person who violates an injunction or temporary restraining

order during its pendency is subject to a compensatory civil contempt judgment, even if

the injunction or restraining order later terminates due to passage of time or mootness.

See In re General Motors Corp., 61 F.3d 256, 269 n.3 (4th Cir. 1995); Coleman v. Espy,

986 F.2d 1184, 1190 (8th Cir.), cert. denied 114 S. Ct. 301 (1993); Petroleos Mexicanos

                                              7
v. Crawford Enterprises, 826 F.2d 392, 400 (5th Cir. 1987); In re Keene Corp., 168 B.R.

285, 289 (Bankr. S.D.N.Y. 1994). However, the right to this remedial relief for violation

of an injunction or temporary restraining order falls with an injunction or temporary

restraining order "which events prove was erroneously issued, . . . and a fortiori when the

injunction or restraining order was beyond the jurisdiction of the court." United States v.

United Mine Workers of America, 330 U.S. 258, 295 (1947) (citations omitted).

Although this language in United Mine Workers is dicta, it remains the principal authority

on the effect of the reversal of an erroneous order. Stated more clearly, a claim for civil

contempt must fall if the order that was disobeyed is subsequently reversed by the issuing

court or the appellate court, or if its issuance exceeded the power of the issuing court.

Keene, 168 B.R. at 291.

       Here, First Security has not claimed, and we do not conclude, that the district court

was without jurisdiction to enter either of the October restraining orders. To the contrary,

the record indicates the court had jurisdiction to enter the orders and properly exercised

that jurisdiction after determining the orders were necessary to maintain the status quo

pending a decision on Reliance's request for a preliminary injunction.

       Turning to the validity of the temporary restraining orders, we reject the notion that

expiration of the orders in December 1988 rendered them "erroneous" or "invalid" for

purposes of a subsequent compensatory civil contempt action. Although the district court

denied Reliance's request for a preliminary injunction at that time, it made no findings

with respect to the validity of the restraining orders until April 1994. Accordingly, we

conclude that expiration of the temporary restraining orders in December 1988 did not

terminate Reliance's right to seek a compensatory civil contempt judgment based upon

                                              8
First Security's alleged violation of the orders, and the district court erred in holding

otherwise. See Keene, 168 B.R. at 294 (termination of a properly issued temporary

restraining order does not affect a party's right to compensatory civil contempt damages

arising from its violation).

       With respect to the October 17 restraining order, however, we find a separate basis

for affirming the district court's entry of summary judgment on the contempt claim filed

by Reliance. In granting summary judgment in favor of First Security, the district court

found the October 17 temporary restraining order failed to meet the requirements of Rule

65(d) because it was not sufficiently definite and specific to support a civil contempt

judgment. See Grace v. Center for Auto Safety, 72 F.3d 1236, 1241 (6th Cir. 1996). We

agree. Therefore, we conclude the October 17 restraining order was invalid and cannot

provide the basis for a compensatory civil contempt action.

       As for the October 21 restraining order, the court characterized it in passing as

"overbroad," but made no specific findings as to its shortcomings. Accordingly, we

remand for further findings by the district court on the question of whether the order was

sufficiently clear and unambiguous to inform First Security of what conduct was

prohibited. See Grace, 72 F.3d at 1241.

       Can First Security, as a nonparty, be held in contempt of the district court's
       October 21 restraining order?

       Under Rule 65(d), a "restraining order . . . is binding only upon the parties to the

action, their officers, agents, servants, employees, and attorneys, and upon those persons

in active concert or participation with them who receive actual notice of the order by

personal service or otherwise." (Emphasis added.) Thus, although a nonparty is typically

not bound by a temporary restraining order, a significant exception occurs where a

                                               9
nonparty has actual notice of a restraining order and is in active concert or participation

with a party or his privy. See 11A Charles A. Wright et al., Federal Practice and

Procedure § 2956, at 337 (2d ed. 1995).

       In the present case, the district court construed this "active concert or

participation" exception to include only those situations where there is "a showing of

something akin to alter ego, collusion, or identity of interest" between a party and a

nonparty. We do not read this exception so narrowly. Although we agree that "alter ego,

collusion, or identity of interest" would be sufficient to make a restraining order binding

upon a nonparty who has actual notice of the order, we also conclude the exception

encompasses those situations where a nonparty with actual notice aids or abets a named

defendant or his privy in violating the order. See Gemco LatinoAmerica v. Seiko Time

Corp., 61 F.3d 94, 98 (1st Cir. 1995); NBA Properties v. Gold, 895 F.2d 30, 33 (1st Cir.

1990) (construing nonparty exception in Rule 65(d) "as requiring that a person either be

'legally identified with' a party in the case or 'aid and abet' the party to violate a decree").

       Here, the evidence indicates that First Security aided and assisted Ronald Mast in

completing a fairly complicated series of fund withdrawals and transfers in apparent

violation of the October 21 restraining order. Assuming that First Security had actual

notice of the October 21 order at the time of those withdrawals and transfers, we conclude

that First Security falls within the scope of Rule 65(d), that it was bound by the October

21 order, and that it can be held in contempt thereof. Although First Security claims it

was "merely . . . carrying out its own independent contractual obligation to allow a

depositor's withdrawal upon request," appellee's br. at 32, the fact is that Ronald Mast

could not have completed the transactions, thereby violating the October 21 order,

                                               10
without the aid and assistance of First Security. Moreover, Ronald Mast himself was

prohibited by the order from requesting First Security to fulfill its contractual obligations.

Accordingly, there could have been little risk to First Security in refusing his requests

until such time as the order was lifted.

       Because the district court's resolution of the contempt proceedings was based in

part upon erroneous conclusions of law and omissions of necessary factual findings, we

remand this matter to the district court for further proceedings. In doing so, we note that

Reliance faces significant hurdles before it can prevail.

       A party alleging contempt and seeking a civil remedy must prove it by clear and

convincing evidence. Grace, 72 F.3d at 1241. Under the circumstances of this case,

Reliance must prove (1) that First Security had actual notice of the October 21 order at

the time of the relevant withdrawals and transfers; (2) that the October 21 order was in

effect at the time of the transactions, Petroleos, 826 F.2d at 401; and (3) that the October

21 order was "clear and unambiguous," Grace, 72 F.3d at 1241, in its prohibition of these

transactions. Any ambiguities or omissions in the order will be construed in favor of First

Security. NBA Properties, 895 F.2d at 32.

       Assuming that Reliance can prove these elements, it must also demonstrate actual

damages. Gemco, 61 F.3d at 100 (A party "is liable in a civil contempt proceeding only

for actual damages."). As suggested by First Security, this could prove to be difficult in

light of the fact that the restraining orders were lifted in December 1988, thereby freeing

defendants to withdraw and transfer funds at will.

       AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

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