Court Opinion

ID: 9477274
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:18:59.809815+00
Date Added: 2024-06-11T17:45:47.413849
License: Public Domain

RYAN, Circuit Judge,
dissenting.
In my judgment, the district court was without authority to issue the preliminary injunction the court approves today. The authorities in support of that view are mar-shalled in a clear, coherent, and persuasive fashion in my brother’s opinion for the court. Unfortunately, the dispositive final paragraph for affirmance is antithetical to the discussion that proceeds it and, in my view, offers no basis in law to justify the court’s conclusion.
The issue, as correctly stated in the majority opinion, is “whether the district court may employ its injunctive powers under Fed.R.Civ.P. 65 instead of its attachment authority under Rule 64 in order to preserve assets prior to trial or judgment, and, if so, under what circumstances.” The answer is no, not as it was done in this case. Most of the reasons are clearly spelled out in my brother’s opinion.
I.
It is uncontroverted that the district court issued its injunction in this case solely to secure a fund from which the plaintiff will be able to satisfy a money judgment if one is entered in its favor following trial. Stated otherwise, the purpose of the injunction is to assure that, come judgment day, the defendant will be collectible.
As my brother correctly observes (it is difficult to avoid reference to the majority opinion since, save for the final paragraph, it states much of the case for this dissent concisely, eloquently, and correctly), Rule 64 provides that state law determines the remedies available in a federal court for the seizure of property to secure a fund from which to satisfy an anticipated money judgment. In this case, that law is Ohio Rev.Code Ann. § 2715.01-.56 which pro*337vides for prejudgment attachment. In addition, it is settled in Ohio, as my brother points out, that the attachment remedy may not be bypassed and resort had to equitable relief merely to secure a fund for the purpose of satisfying an anticipated judgment, unless the moving party demonstrates that the attachment statute is not an adequate remedy. See Blythin v. Zangerle, 83 Ohio App. 355, 77 N.E.2d 379, 384 (1947); Adams v. Long, 60 N.E.2d 629, 632, 42 O.L.A. 334 (Ohio App.1944); Jebb Realty Service Co. v. McIntosh, 26 Ohio App. 92, 93-94, 159 N.E. 143 (1926).
Here, EBSCO has an adequate legal remedy under Ohio’s attachment statute. But the district court determined that the attachment remedy was “inadequate” for two reasons: (1) the plaintiff, when asked by defendants’ attorneys about his personal assets, invoked the fifth amendment privilege against self-incrimination; and (2) the attachment statute requires that the party seeking attachment post a bond in an amount equal to the value of the asset to be attached or double the amount of the judgment sought, and that such a bond, in this case, is “onerous.” For those reasons, the district court declared the attachment statute to be an inadequate remedy at law and proceeded to enter the sweeping injunction under review.
The Ohio legislature, in enacting the attachment statute, fixed the formula for determining the amount of bonds to be posted under the statute. It is not for the district court or this court to effectively overrule or disregard that determination by concluding that when the amount of the bond is very substantial because the amount of the judgment sought is substantial, the attachment statute is therefore an inadequate legal remedy. The defendant, the district court, and this court, have cited no authority to support the novel notion that Ohio plaintiffs have no adequate legal remedy in attachment for cases in which the amount the plaintiffs seek is in the millions, thus requiring a security bond in the multimillions.
Moreover, the district court’s findings of fact are wholly inadequate to support its conclusion that the plaintiff does not have an adequate remedy under the Ohio attachment statute. Although the court observed that, in its judgment, the Ohio attachment statute would not provide the plaintiff “with adequate protection against the probability of continued disreputable conduct that would result in the dissipation and concealment of assets ...,” it did not explain why it reached that conclusion. The defendant’s refusal to tell the plaintiff where the defendant’s assets are located, and the fact that the plaintiff seeks a judgment in an amount which, if it wishes to seize defendant’s assets even before it proves its entitlement to judgment, requires, under the statute, a very substantial bond, do not, alone or in combination, demonstrate the inadequacy of Ohio’s attachment statute; they demonstrate at best that the plaintiff has failed thus far to locate any attachable assets, and that the legislative judgment as to the amount of the required prejudgment attachment bond is more than the plaintiff would like to post.
II.
But even if the court were correct in its conclusion that the Ohio attachment statute is an inadequate legal remedy in order to secure a fund of property for post-judgment levy, the injunction issued by the court is entirely beyond the court’s lawful power.
A federal court may not issue a temporary injunction restraining a defendant in a suit for money damages from disposing of substantially all of his, her, or its assets, identified and unidentified, in hand and after acquired, solely to assure the existence of a fund from which the plaintiff, if successful, may later satisfy favorable money judgment. DeBeers Consol. Mines v. United States, 325 U.S. 212, 65 S.Ct. 1130, 89 L.Ed. 1566 (1945); Wahlgren v. Bausch & Lomb Optical Co., 77 F.2d 121 (7th Cir.1935); Martin v. James B. Berry Sons Co., Inc., 83 F.2d 857 (1st Cir.1936).
The DeBeers Court explained why:
Every suitor who resorts to chancery for any sort of relief by injunction may, on a mere statement of belief that the defend*338ant can easily make away with or transport his money or goods, impose an injunction on him to use so much of his funds or property as the court deems necessary for security or compliance with its possible decree. And, if so, it is difficult to see why a plaintiff in any action for a personal judgment in tort or contract may not, also, apply to the chancellor for a so-called injunction sequestering his opponent’s assets pending recovery and satisfactory of a judgment in such law action. No relief of this character has been thought justified in the long history of equity jurisprudence.
325 U.S. at 222-23, 65 S.Ct. at 1135.
What a federal court may do, in an appropriate case to assure that misappropriated funds will not be dissipated pending trial and judgment, is impose a constructive trust upon the misappropriated property in the hands of the wrongdoer or upon property into which the misappropriated funds can be directly traced. United States v. Brimberry, 779 F.2d 1339 (8th Cir.1985). That is especially true when it is alleged, as it is here, that the defendant wrongdoer has acquired funds belonging to the plaintiff, in violation of a fiduciary duty owed the plaintiff. See McCandless v. Furlaud, 296 U.S. 140, 56 S.Ct. 41, 80 L.Ed. 121 (1935); USACO Coal Co. v. Carbomin Energy, Inc., 689 F.2d 94 (6th Cir.1982). It is well-settled, however, that such a constructive trust, must be imposed upon the specific ascertainable assets — the res — misappropriated from the plaintiff and now in the defendant’s hands or upon property into which the misappropriated funds have been converted. See Dobbs, Remedies, § 4.3, pp. 240-43 (West 1980):
This device [constructive trust] is used only when property in some form can be identified as belonging in good conscience to the plaintiff.12 If defendant obtains Blackacre from the plaintiff by fraud, sells it and dissipates the money, this gives the plaintiff no claim to other property owned by the defendant, and it may not be said that the defendant is a constructive trustee of such other property.13 In such a case, he is liable for damages.... [T]he constructive trust can be imposed only when there is some specific property identified as belonging, in equity and conscience, to the plaintiff.
(Footnote 13 omitted.)
But that is not this case at all. Plaintiff has made no attempt whatever to trace the funds said to have been misappropriated from it into a specific res which might be the object of a constructive trust. Indeed, the testimony introduced at the hearing before the district court on the plaintiff’s petition for an injunction is that there is no evidence that the defendant actually received any of the misappropriated funds for which the plaintiff seeks recovery, but instead fraudulently diverted them to the First National Bank in payment of the three million dollar promissory note made by Four Seasons and guaranteed by the defendant.
The learned district judge appears to have acknowledged, albeit somewhat obliquely, that the court’s power to issue an injunction solely to secure a corpus from which the plaintiff might later satisfy a money judgment is limited to an injunction which imposes a constructive trust upon a specific res. The court stated in its Findings of Fact and Conclusions of Law:
Because the nature of this case involves fraud and embezzlement, as has been conceded for the purposes of this lawsuit, the freezing of defendant Lilly’s assets is in effect the freezing of plaintiff’s assets. The result is a situation akin to a constructive trust such that no substantial harm will visit defendant or his business enterprises. (Emphasis added.)
The difficulty with that observation, of course, is that there is no evidence in the record that the “freezing of defendant Lilly’s assets is in effect the freezing of plaintiff’s assets” because, as has been observed, the bulk of the evidence is that the *339misappropriated funds are not in Lilly’s hands, and never were, but have been diverted to First National Bank in payment of the aforementioned promissory note. In all events, “freezing the defendant Lilly’s assets” by enjoining him from transferring or encumbering any of his assets presently in hand, and from spending any after acquired income, in excess of $1,000 a month for living expenses, is not the imposition of a constructive trust upon a specific identifiable res once in the hands of the plaintiff and now traceable to the defendant, and it is not “akin” to it. Indeed, the sweeping injunction in this case was entered specifically because, as the district court put it, “the plaintiff does not know what assets to attach....” Both the district court and this court rely upon USACO Coal Co., 689 F.2d 94, to justify the injunction that has been issued. A careful reading of USACO Coal Co. reveals why it is no authority for what has been done here. In that case, one Schierack was alleged to have breached his fiduciary duty as a promoter of a newly organized plaintiff corporation by diverting funds raised for the corporate promotion to himself and to several other corporations controlled by him. The plaintiffs brought a civil RICO action against the individual promoter and the several corporations controlled by him into which the plaintiffs’ funds had been diverted. This court approved the issuance of an injunction, freezing in place the assets, not of the individual wrongdoers, but of the specifically identified defendant corporations into which the promoter had diverted the plaintiffs’ fund. This court troubled to observe that it was not approving an injunction issued for the purpose of creating a collectible defendant, as in this case, but was approving the imposition of a constructive trust upon specific, identifiable assets in the possession of identified corporate defendants:
It is entirely clear that the district court issued the injunction freezing defendants’ assets in order to protect the rights of the plaintiff corporations and their shareholders to restitution of funds obtained by [the individual promoter] in breach of his promoter’s fiduciary duty. The injunction was not issued in order to secure a RICO treble damages award that might ultimately result from count one of the complaint, but rather was issued to protect rights to reach the defendants’ property as a result of the allegation of breach of fiduciary duty contained in count two of the complaint.... The injunction here preserves assets for which the defendants may be accountable under a constructive trust.
USACO Coal Co., 689 F.2d at 97. Here, indisputably, the injunction was issued solely for the purpose of “securing] a ... damages award.”
If EBSCO wished to attach or sequester defendant’s assets, it was obligated, under Rule 64, to comply with the Ohio statutory requirements for posting a bond. If it wished instead, to impose a constructive trust, it was obligated to identify and “freeze” an ascertainable res that is traceable back to the plaintiff. The district court required neither in this case, with the result that the injunction issued is beyond its lawful authority.
I would reverse and remand for specific findings concerning the res of the constructive trust or, in the alternative, for an order that plaintiff deposit a bond or cash deposit meeting the requirements of Ohio Rev. Code Ann. § 2715.01.

 Occasionally courts speak of a constructive trust even though there is no res or property to which a trust might attach. This makes sense only on the assumption that the court is referring to the substantive principle against unjust enrichment, as grounds for granting an ordinary judgment.