Court Opinion

ID: 4089154
Source: CourtListenerOpinion
Date Created: 2016-10-13 00:01:01.974352+00
Date Added: 2024-06-11T14:34:03.162949
License: Public Domain

Case: 15-20243          Document: 00513715854        Page: 1   Date Filed: 10/12/2016

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT    United States Court of Appeals
                                                      Fifth Circuit

                                                                                 FILED
                                                                             October 12, 2016
                                            No. 15-20243
                                                                              Lyle W. Cayce
                                                                                   Clerk

In the Matter of: SKYPORT GLOBAL COMMUNICATIONS,
INCORPORATED, formerly known as Skyport International, Incorporated,
doing business as SkyPort International PC, doing business as SkyComm
International, Incorporated,

                 Debtor.

------------------------------------------------------
SAMUEL GOLDMAN; FRANKLIN CRAIG,

                 Appellants,

v.

BANKTON FINANCIAL CORPORATION, L.L.C.; ROBERT KUBBERNUS;
BALATON GROUP, INCORPORATED; BANKTON FINANCIAL
CORPORATION; TRUSTCOMM, INCORPORATED,

                 Appellees.

-----------------------------------------------------------------------------------
In the matter of: SKYPORT GLOBAL COMMUNICATIONS,
INCORPORATED, formerly known as Skyport International, Incorporated,
doing business as SkyPort International PC, doing business as SkyComm
International, Incorporated,

                 Debtor.

------------------------------------------------------
     Case: 15-20243     Document: 00513715854       Page: 2    Date Filed: 10/12/2016

                                    No. 15-20243
FRANKLIN CRAIG,

              Appellant,

v.

TRUSTCOMM, INCORPORATED; ROBERT KUBBERNUS; BALATON
GROUP, INCORPORATED,

              Appellees.

------------------------------------------------------------------------------------
In the matter of: SKYPORT GLOBAL COMMUNICATIONS,
INCORPORATED, formerly known as Skyport International, Incorporated,
doing business as SkyPort International PC, doing business as SkyComm
International, Incorporated,

              Debtor.

-------------------------------------------------
SAMUEL GOLDMAN; FRANKLIN CRAIG,

              Appellants,

v.

TRUSTCOMM, INCORPORATED, formerly known as Skyport Global
Communications, Incorporated; ROBERT KUBBERNUS; BALATON
GROUP, INCORPORATED; BANKTON FINANCIAL CORPORATION,
L.L.C., BANKTON FINANCIAL CORPORATION,

              Appellees.

               Appeal from the United States District Court
                    for the Southern District of Texas
            USDC Nos. 4:13-CV-3041, 4:13-CV-3044, 4:13-CV-3047

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                                      No. 15-20243
Before ELROD, GRAVES, and COSTA, Circuit Judges.
JAMES E. GRAVES, JR., Circuit Judge:*

       This is an appeal stemming from a bankruptcy court’s order holding
attorney Samuel Goldman and Franklin Craig in contempt for violating the
court’s preliminary injunction and assessing attorneys’ fees and expenses
against them. The district court affirmed the bankruptcy court. We AFFIRM.
                                      I.     Facts
       This appeal involves one of many disputes arising out of the bankruptcy
proceedings of SkyPort Global Communications, Inc., now known as
TrustComm, Inc. (SkyPort). SkyPort filed for Chapter 11 bankruptcy relief in
the United States Bankruptcy Court for the Southern District of Texas.
SkyPort’s reorganization plan provided for SkyPort’s merger with its sole
shareholder, SkyComm Technologies Corporation (SkyComm), with all shares
of stock owned by SkyComm’s shareholders to be canceled and all shares of
SkyPort to be reissued to Balaton Group, Inc. The bankruptcy court confirmed
SkyPort’s reorganization plan in August 2009. Its confirmation order enjoined
derivative claims filed on behalf of SkyPort or SkyComm, but did not enjoin
direct claims against third parties.
       In February 2010, a group of 49 investors, collectively referred to as the
Schermerhorn parties, filed a Texas state court petition seeking $32 million in
damages for various misdeeds allegedly committed in connection with
investments in and management of SkyPort and SkyComm. Appellant Samuel
Goldman represented the Schermerhorn parties. The defendants removed the
state court action to the bankruptcy court and sought a preliminary injunction

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.

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to preserve the status quo pending a determination by the bankruptcy court as
to which claims included in the petition were barred by the injunction
contained in the confirmation order.
       At the bankruptcy court’s preliminary injunction hearing, Robert
Kubbernus, one of the state court defendants and the Chairman of the Board
of Directors at SkyPort, testified that the Schermerhorn parties had been
contacting people associated with SkyPort, including its former president,
Dawn Cole. The bankruptcy court announced at the hearing that it was
granting the motion for a preliminary injunction. On June 10, 2010, the
bankruptcy court entered its preliminary injunction. The injunction order
temporarily enjoined the Schermerhorn parties from pursuing any and all
claims or causes of action, derivative or otherwise, against the defendants, and
from contacting SkyPort’s former or current vendors, employees, and customers
without permission of SkyPort’s counsel or the bankruptcy court. 1 The
preliminary injunction contained Goldman’s signature, which indicated his
agreement as to the form of the order. The Schermerhorn parties never
appealed the injunction.
       Beginning the day the injunction was entered, and continuing over the
next several months, Goldman, Craig, and Cole engaged in extensive
communication that gave rise to the sanctions in this case. Craig was an
investment advisor to several of the Schermerhorn parties and had accused
Kubbernus of fraud and ousted him from management of another fund. He was
also a personal friend of Goldman’s. Although Craig was not a party to the
litigation in this case, his e-mails reveal his awareness of the injunction.

       1The order specifically states that “Plaintiffs may contact former and current vendors,
employees, and customers of the Debtor if and only if a written request is made by Plaintiffs’
counsel to counsel for SkyPort, and counsel for SkyPort either a) agrees to the proposed
contact or b) does not respond within 1 business day.”
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      Specifically, Cole sent Goldman and Craig an e-mail complaining that
information she had provided to Craig was being used by Goldman against
Kubbernus      without     her   permission.     Further,      Craig   and    Goldman
communicated by telephone and e-mail about contacting Cole. Craig sent Cole
an e-mail describing Kubbernus as a “desperate criminal” and urging her that
“[w]e need to do the right thing and put this criminal away.” Cole called Craig
twice the next day and Craig reported on the conversations to Goldman. Among
other communications, Craig e-mailed Cole on June 18, telling her to call
Goldman and stating that “[h]e may need some info from you” and that she
would “do better on our side.” Craig forwarded Cole’s response e-mail to
Goldman. Goldman sent Craig an e-mail asking about Cole’s claims against
Kubbernus and stating that he could help her get a lawyer. Craig forwarded
the e-mail to Cole. The same day, Craig wrote to Cole that he had talked with
Goldman, that Cole should “join our ranks NOW,” that the Schermerhorn
parties’ expense account might be used to pay for Cole’s attorney, and that “I
am sure that Sam [Goldman] and I, we can find a deal . . . but Sam needs your
100% cooperation.” Craig forwarded his message to Goldman.
      This pattern of Craig communicating separately with Goldman and Cole,
then forwarding their communication to each other, continued through June,
July, and August. 2 On June 20, Goldman wrote to Craig that he did not want
Craig talking to Cole except at her initiative, but also asked questions about
Cole’s possible help. Craig conveyed these questions to Cole and then
forwarded her response to Goldman. Ultimately, after a series of e-mails,
Goldman wrote to Craig that “I do not want to create an appearance that we
are using you to communicate with [Cole].” Nevertheless, the communications

      2  The bankruptcy court extensively chronicled these communications in thirty-seven
pages of its opinion imposing contempt sanctions. We include only a sampling of the most
significant communications.
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continued, and Craig continued to forward his e-mail conversations with Cole
to Goldman.
      On July 1, after Craig and Cole spoke by telephone, Craig wrote to
Goldman that he had spoken to Cole, that she was willing to “join our side” and
“go[] after” Kubbernus, and that she was “very interested in the prospect of our
lawyers representing her” and of suing Kubbernus. Craig then asked Goldman,
“How do you want to proceed?” In the following four days, Cole, Craig, and
Goldman exchanged over 50 e-mails discussing how to convey Cole’s
information to the bankruptcy judge and obtain permission for Goldman to talk
to her without disclosing their communications. In one of these e-mails, Craig
wrote to Goldman, “I just lied to [Cole] about sending you the emails so
PLEASE don’t use them w/o her express permission” and noted that Cole was
right in that “you shouldn’t be seeing anything BEFORE the judge gives you
permission to talk to her.”
      Over the next month, Cole and Craig exchanged more than 30 e-mails
about the provision of legal representation to Cole, which included an
agreement by Craig to provide her $10,000 for a legal retainer. Goldman was
aware of these communications and ultimately located legal counsel to
represent Cole.
                   II.     Bankruptcy Court Proceedings
      In April 2011, the Schermerhorn parties moved to dissolve the
preliminary injunction. At the motion hearing, as part of its third motion for
contempt, SkyPort announced the discovery of 46 instances in which the
Schermerhorn parties had violated the bankruptcy court’s injunction by
communicating with Cole, a former SkyPort employee. In support of this
assertion, SkyPort introduced into evidence many of the e-mails between Craig
and Cole. The bankruptcy court denied the Schermerhorn parties’ request to
dissolve the injunction and continued the hearing on the contempt motion to
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                                  No. 15-20243
allow the parties to address the e-mails. After discovery, the bankruptcy court
held seventeen days of evidentiary hearings spanning eleven months on the
motion to dissolve the injunction, the contempt motion, and other pending
motions.
      On August 7, 2013, the bankruptcy court issued a 187-page opinion
finding Goldman and Craig in contempt. The bankruptcy court stated that the
purpose of its opinion was “to discuss Goldman’s and Craig’s contumacious
conduct, to restore integrity to the judicial process, and most importantly, to
affirm that its orders cannot be ‘flouted, obstructed, and violated with
impunity.’” Although the bankruptcy court found that “[t]he SkyPort parties
have not demonstrated that they suffered harm as a result of Goldman and
Craig’s conduct,” it nevertheless awarded them attorneys’ fees and costs as
“compensation” for their expenses incurred in “bringing Goldman and Craig’s
contempt to this Court’s attention.” The bankruptcy court declined to award
punitive damages, recognizing that sanctions for civil contempt could only be
compensatory or coercive, and declined to award a coercive bond against future
violations or to impose a permanent injunction. A month later, after a hearing
on the amount of damages, the bankruptcy court awarded monetary sanctions
to the SkyPort parties. The award was one quarter of the requested attorneys’
fees and 95% of the requested expenses, in the total amount of $137,513, for
which Goldman and Craig were held jointly and severally liable.
                       III.   District Court Proceedings
      Goldman and Craig appealed the bankruptcy court’s ruling to the district
court, which affirmed the bankruptcy court’s ruling in all respects. The district
court’s 119-page opinion affirmed fifteen orders of the bankruptcy court—
including the orders at issue in this case—that had been appealed as part of
four civil actions in the district court, and dismissed all four cases. A separate
panel of our court affirmed the judgment of the district court as it related to an
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                                  No. 15-20243
order of the bankruptcy court imposing sanctions on the Schermerhorn parties
for filing a state court petition that contained misrepresentations and claims
barred by the reorganization plan. See In re Skyport Glob. Commc’n, Inc., No.
15-20246, 2016 WL 1042526 (5th Cir. Mar. 14, 2016) (unpublished).
                                 IV.    Analysis
      Goldman and Craig now argue that: (1) the bankruptcy court lacked
jurisdiction because the nature of the contempt proceeding was criminal; (2)
the attorneys’ fees assessed were not reasonable and necessary because neither
compensatory damages nor coercive relief was granted; (3) the award was
erroneous because the preliminary injunction was dissolved; and (4) Goldman
and Craig did not violate the preliminary injunction as they reasonably
understood it.
                                        A.
      “Like the district court, this court reviews a bankruptcy court’s findings
of fact for clear error, and its legal conclusions de novo.” In re Bradley, 588 F.3d
254, 261 (5th Cir. 2009). “Where the district court has affirmed the bankruptcy
court’s factual findings, we will only reverse if left with a firm conviction that
error has been committed.” Id. (citation omitted). We review a bankruptcy
court’s discretionary assessment of monetary sanctions for contempt under an
abuse of discretion standard, id., but our review is not perfunctory, Hornbeck
Offshore Servs., L.L.C. v. Salazar, 713 F.3d 787, 792 (5th Cir. 2013) (discussing
preliminary injunctions in the district court). “A court abuses its discretion
when its ruling is based on an erroneous view of the law or on a clearly
erroneous assessment of the evidence.” Chaves v. M/V Medina Star, 47 F.3d
153, 156 (5th Cir. 1995).
                                        B.
      The bankruptcy court issued a written injunction order under Rule 65 of
the Federal Rules of Civil Procedure. The court, in its own words, “issued the
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                                         No. 15-20243
injunction in order to prevent irreparable harm to the reorganized debtor,”
SkyPort. Goldman and Craig conspired to thwart this order by pursuing barred
claims and impermissibly contacting a former employee of SkyPort. They now
contend that the bankruptcy court exceeded its authority in sanctioning them.
We do not agree.
       “‘A party commits contempt when he violates a definite and specific order
of the court requiring him to perform or refrain from performing a particular
act or acts with knowledge of the court’s order.’” Hornbeck Offshore Servs.,
L.L.C., 713 F.3d at 792 (quoting Travelhost, Inc. v. Blandford, 68 F.3d 958, 961
(5th Cir. 1995)). “The first duty of an appellate court in reviewing a contempt
judgment is to determine whether the nature of the contempt proceeding was
civil or criminal.” Smith v. Sullivan, 611 F.2d 1050, 1052 (5th Cir. 1980);
accord Bradley, 588 F.3d at 263.
       A bankruptcy judge has jurisdiction to impose civil sanctions, but not
criminal sanctions. In re Hipp, Inc., 895 F.2d 1503, 1521 (5th Cir. 1990).
Goldman and Craig maintain that the bankruptcy court exceeded its authority
and conducted a criminal contempt proceeding.
       As we explained in depth in Bradley, to determine whether a contempt
order or judgment is criminal or civil, we look to its primary purpose. 588 F.3d
at 263; accord Lamar Fin. Corp. v. Adams, 918 F.2d 564, 566 (5th Cir. 1990).
The bankruptcy court characterized the proceedings as “concern[ing]
compensatory or remedial civil contempt.” 3 “Civil contempt . . . can be used to
compensate a party who has suffered unnecessary injuries or costs because of
contemptuous conduct.” Travelhost, Inc., 68 F.3d at 961–62 (5th Cir. 1996).
“[R]emedial contempt is civil, because it remedies the consequences of defiant

       3 “‘[A] court’s characterization of its proceedings [as civil or criminal] is a factor to be
considered in determining the character of a contempt, although it is not conclusive.’” Id. at
263 n.7 (quoting Lewis v. S. S. Baune, 534 F.2d 1115, 1119 (5th Cir. 1976)).
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conduct on an opposing party, rather than punishing the defiance per se.”
Bradley, 588 F.3d at 263–64. 4
       We agree with the bankruptcy court’s characterization. Essentially, the
sanction restores the SkyPort parties to where they were before they incurred
attorneys’ fees in an attempt to ensure compliance with the injunction. See
Cook v. Ochsner Found. Hosp., 559 F.2d 270, 272 (5th Cir. 1977) (observing
that courts may “order[] the award of attorneys’ fees for compensatory
purposes” where a party “necessarily expended [fees] in bringing an action to
enforce” the injunction); see also A.S. Klein, Annotation, Allowance of
Attorneys’ Fees in Civil Contempt Proceedings, 43 A.L.R. 3d 793, § 2 (1972)
(“Almost without exception it is within the discretion of the trial court to
include, as an element of damages assessed against the defendant found guilty
of civil contempt, the attorneys’ fees incurred in the investigation and
prosecution of the contempt proceedings. . . .”).                 Because the sanction
compensated the SkyPort parties for their enforcement of the injunction, we
hold that the bankruptcy court had jurisdiction to impose it.
                                             C.
       Next, Goldman and Craig argue that the attorneys’ fees assessed were
not reasonable and necessary because neither compensatory damages nor
coercive relief was granted. Specifically, they argue that the “amount involved
and the result obtained” was zero. We disagree.
       As   previously      stated,   the    bankruptcy       court’s   contempt      order
compensates the SkyPort parties for the attorneys’ fees that they incurred in
seeking compliance with the bankruptcy court’s order and protecting the

       4 A criminal contempt sanction serves “to punish the contemnor and vindicate the
authority of the court,” while a civil contempt sanction serves “to coerce the contemnor into
compliance with a court order, or to compensate another party for the contemnor’s violation.”
Id. at 263.
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debtor. Here, the bankruptcy court carefully calculated the fees and awarded
far less than was requested. 5 The contempt order reasonably compensates the
SkyPort parties for a portion of the fees and expenses they incurred as a result
of Goldman and Craig’s conduct.
                                               D.
       Goldman and Craig also argue that the preliminary injunction was
dissolved, and thereafter no relief could be awarded. It is true that “[i]f the civil
contempt proceeding is coercive in nature, the general rule is that it is mooted
when the proceeding out of which it arises is terminated.” Travelhost, Inc., 68
F.3d at 962 (quoting Petroleos Mexicanos v. Crawford Enterprises, Inc., 826

       5  “In this circuit, courts apply a two-step method for determining a reasonable
attorney’s fee award.” Combs v. City of Huntington, Texas, 829 F.3d 388, 391 (5th Cir. 2016)
(citation omitted). “The court must first calculate the lodestar, ‘which is equal to the number
of hours reasonably expended multiplied by the prevailing hourly rate in the community for
similar work.’” Id. at 392 (quoting Jimenez v. Wood Cty., 621 F.3d 372, 379 (5th Cir. 2010)).
“In calculating the lodestar, ‘[t]he court should exclude all time that is excessive, duplicative,
or inadequately documented.’” Id. (quoting Jimenez, 621 F.3d at 379–80). “[T]he lodestar is
presumed reasonable. . . .” Id. (citing Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 553–54
(2010)). The court may, however, “enhance or decrease it based on the twelve Johnson
factors.” Id. (citing Jimenez, 621 F.3d at 380). “The court must provide a reasonably specific
explanation for all aspects of a fee determination.” Id. (quotations and citations omitted).

               The Johnson factors are: (1) the time and labor required; (2) the
               novelty and difficulty of the issues in the case; (3) the skill
               requisite to perform the legal services properly; (4) the
               preclusion of other employment by the attorney due to
               acceptance of the case; (5) the customary fee charged for those
               services in the relevant community; (6) whether the fee is fixed
               or contingent; (7) time limitations imposed by the client or the
               circumstances; (8) the amount involved and the results obtained;
               (9) the experience, reputation, and ability of the attorneys; (10)
               the undesirability of the case; (11) the nature and length of the
               professional relationship with the client; and (12) awards in
               similar cases.

Id. at 391, n.1 (citing Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717–19 (5th
Cir. 1974)). The bankruptcy court properly reduced the fee based upon the success of the
SkyPort parties and its denial of some of the requested relief.

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F.2d 392, 400 (5th Cir. 1987)). “However, if the contempt order is compensatory
in nature, it is not mooted by termination of the underlying action.” Id.
      Here, the contempt order relates directly to a prolonged bankruptcy
proceeding and compensates the SkyPort parties for attorneys’ fees resulting
from Goldman and Craig’s contemptuous conduct. Thus, the preliminary
injunction’s dissolution does not change our analysis.
                                        E.
      Goldman and Craig also argue that they did not violate the preliminary
injunction as they reasonably understood it. Rule 65(d) provides that the order
must “state its terms specifically; and describe in reasonable detail . . . the act
or acts restrained or required.” FED. R. CIV. P. 65(d).
      Here, the language and terms of the order are clear. The preliminary
injunction states, “Plaintiffs may contact former and current . . . employees . . .
of the Debtor if and only if a written request is made by Plaintiffs’ counsel to
counsel for SkyPort, and counsel for SkyPort either a) agrees to the proposed
contact or b) does not respond within 1 business day.” The injunction also
provides that the “Plaintiffs are temporarily enjoined from: pursuing any and
all claims or causes of action, derivative or direct, against all of the
Defendants.”
      Despite the clear terms of the injunction, Goldman and Craig continued
to pursue evidence and witnesses―namely Cole. They encouraged Cole to
pursue her own claims against Kubbernus in other courts by arranging for her
counsel, providing for a “loan” for her counsel’s retainer, and pursuing financial
backing and support for the state court litigation. Goldman and Craig’s
attempts to implicate Cole as the primary communicator fail—they initiated
contact with her on numerous occasions. They did not “inadvertently” violate
the injunction.

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                                      F.
      Finally, Craig contends that he was not bound by the injunction because
he was not specifically named in the order. The Federal Rules of Civil
Procedure specifically mandate that an injunction binds “other persons who
are in active concert or participation with [the parties and their attorneys].”
FED. R. CIV. P. 65(d)(2)(C); see also Whitcraft v. Brown, 570 F.3d 268, 272 (5th
Cir. 2009) (“A court order binds not only the parties subject thereto, but also
non-parties who act with the enjoined party.”). Craig was actively involved in
the case, knew about the injunction, and knew that he was restrained from
contacting Cole and other employees. Goldman wrote to Craig that “I do not
want to create an appearance that we are using you to communicate with
[Cole].” Yet, that is exactly what happened. Accordingly, Craig was also bound
by the injunction and improperly colluded with Goldman to violate it.
                               V. Conclusion
      The record reveals that Goldman and Craig repeatedly violated the
injunction. The record also demonstrates that they were aware of the terms of
the injunction, yet they willfully violated it. The SkyPort parties spent a
substantial amount to ensure compliance and the bankruptcy court acted
appropriately in awarding fees in a civil contempt proceeding. Accordingly, we
AFFIRM.

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