Court Opinion

ID: 2754920
Source: CourtListenerOpinion
Date Created: 2014-11-25 15:01:05.272049+00
Date Added: 2024-06-11T10:26:46.197408
License: Public Domain

Case: 13-13871   Date Filed: 11/25/2014   Page: 1 of 16

                                                       [DO NOT PUBLISH]

          IN THE UNITED STATES COURT OF APPEALS

                   FOR THE ELEVENTH CIRCUIT
                     ________________________

                           No. 13-13871
                     ________________________

                D.C. Docket No. 0:07-cr-60172-JAL-1

UNITED STATES OF AMERICA,

                                                                   Plaintiff,

                                versus

PATRICK COULTON,

                                                        Defendant–Appellee,

                                versus

EMMANUEL ROY,

                                                     Respondent–Appellant.

                     ________________________

              Appeal from the United States District Court
                  for the Southern District of Florida
                    ________________________

                          (November 25, 2014)
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Before ED CARNES, Chief Judge, RESTANI, ∗ Judge, and MERRYDAY, **
District Judge.

PER CURIAM:

       A June 2007 indictment in the Southern District of Florida charged Patrick

Coulton with a formidable array of drug and money-laundering offenses.

Although not admitted to practice in the Southern District of Florida, Emmanuel

Roy (now disbarred and imprisoned) appeared in this criminal action as counsel for

Coulton. To compensate Roy for the representation, Coulton’s wife transferred to

Roy a vehicle, jewelry, and real property. Unaware of Mrs. Coulton’s payments,

other members of Coulton’s family further compensated Roy with cashier’s

checks. In total, Roy accepted from Coulton’s wife and Coulton’s other family

members a grossly excessive fee for representation that was both illicit and

ineffective.

       After discovering the excessive compensation, Coulton moved for “return of

unearned legal fees and imposition of sanctions.” A September 16, 2011

       ∗
         Honorable Jane A. Restani, United States Court of International Trade Judge, sitting by
designation.
       **
           Honorable Steven D. Merryday, United States District Judge for the Middle District of
Florida, sitting by designation.

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disgorgement order grants the motion and directs Roy to return the legal fees, to

cooperate with Coulton in effecting the return, and — if Roy otherwise failed to

comply with the disgorgement order — to submit personal and business financial

affidavits. Roy wholly failed to comply with the order, and Coulton moved for

contempt.

      The magistrate judge held eight hearings on Coulton’s motion for contempt.

After initially testifying that he was “penniless,” Roy declined under the Fifth

Amendment to respond to Coulton’s questions about his ability to comply with the

district court’s disgorgement order. Roy called several witnesses in an effort to

prove that he neither had money nor owned any other valuable asset and that,

therefore, his compliance with the disgorgement order was impossible.

      The magistrate judge found that Roy had “intentionally divested himself

of assets, used corporate alter-egos to maintain bank accounts, and used friends

and relatives to hold his assets as nominees.” Although strongly suspecting that

Roy retained undisclosed wealth, the magistrate judge “reluctantly” concluded

that “none of the testimony elicited by Coulton established conclusively that Roy

had the present ability to comply with the financial obligations of the Court’s

[disgorgement] Order.” Regardless, because Roy failed to comply with the

cooperation and disclosure portions of the order, neither of which required assets

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for compliance, the magistrate judge recommended finding Roy in contempt and

sanctioning Roy. Adopting the report and recommendation, the district judge

sanctioned Roy for the attorney’s fees and costs incurred by Coulton “in

connection with” the contempt proceeding.

      Before the magistrate judge’s final hearing in the contempt proceeding, Roy

filed a petition in bankruptcy. Relying on the automatic stay under 11 U.S.C.

§ 362(a), Roy attempted to halt the magistrate judge’s contempt proceeding. Both

the magistrate judge and the district judge determined that, because the imposition

of contempt against Roy was necessary to “enforce [the court’s] police or

regulatory power,” Section 362(b)(4) exempted the contempt proceeding from the

automatic stay. Further, although the magistrate judge’s report and

recommendation and the district judge’s order adopting the report and

recommendation each discusses in detail Roy’s financial ability to pay the

disgorgement amount, neither order explicitly evaluates Roy’s financial ability to

pay the sanction.

      Roy appeals the district court’s order, which adopts the magistrate judge’s

report and recommendation, finds Roy in contempt, and imposes on Roy a

monetary sanction. Roy argues that the court’s assessing the sanction against Roy

impermissibly violated the automatic stay under Section 362(a) and that the court

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erroneously imposed the sanction against Roy without explicitly evaluating Roy’s

ability to pay the sanction.

                               1. Standard of review

      A civil contempt order is reviewed for abuse of discretion. Citronelle-

Mobile Gathering, Inc. v. Watkins, 943 F.2d 1297, 1301 (11th Cir. 1991). A fact-

finding is reviewed for clear error. Jove Eng’g, Inc. v. I.R.S., 92 F.3d 1539, 1545

(11th Cir. 1996). A sanction is reviewed for abuse of discretion. Barnes v. Dalton,

158 F.3d 1212, 1214 (11th Cir. 1998). Whether the Section 362(b)(4) regulatory

exception applies to a civil contempt proceeding under the circumstances of this

action is a question of law for de novo review. See In re Morgan, 182 F.3d 775,

777 (11th Cir. 1999) (interpreting and applying the bankruptcy code involve

questions of law subject to de novo review); In re Berg, 230 F.3d 1165, 1167 (9th

Cir. 2000) (applying the Section 362(b)(4) exception involves interpreting the

bankruptcy code and is subject to de novo review).

                                2. Bankruptcy stay

      In his report and recommendation, the magistrate judge acknowledged that

the automatic stay attendant to a petition in bankruptcy usually halts a judicial

proceeding against a debtor. However, under Section 362(b)(4), “[t]he filing of a

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[bankruptcy] petition . . . does not operate as a stay . . . of the commencement or

continuation of an action or proceeding by a governmental unit . . . to enforce such

governmental unit’s . . . police and regulatory power . . . .”

      Relying primarily on In re Berg, 230 F.3d 1165, 1168 (9th Cir. 2000), which

holds that Section 362(b)(4) “exempts from the automatic stay an award of

attorneys’ fees imposed under Rule 38 as a sanction for unprofessional conduct in

litigation,” the magistrate judge found that Section 362(b)(4) applies to the

contempt proceeding against Roy:

          Here, sanctions were imposed on Roy . . . , in part, for [his]
          reprehensible behavior as [an] officer[] of the court and for the
          abuse of [his] fiduciary position with respect to [his] client.
          Moreover, the Court’s Order was predicated . . . upon . . . the
          Court’s inherent powers to vindicate its authority. The Court
          found that Roy . . . , inter alia, had acted in bad faith and had
          caused the unreasonable and vexatious multiplication of the
          proceedings. Thus, the undersigned finds that the instant matter
          is exempted from the automatic stay provisions of the
          Bankruptcy Code. To find otherwise would reward wrongful
          behavior and sly craftsmanship.

Adopting the report and recommendation, the district judge declined to stay the

contempt proceeding.

      Although Roy argues that In re Berg “was a narrow decision that does not

apply,” Roy cites no limiting words in In re Berg, and no limiting words appear.

In re Berg, 230 F.3d at 1168, upholds the district judge’s “sanction for

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unprofessional conduct . . . because it is clear that the purpose of [the district

court’s] sanction[] is to effectuate public policy, not to protect private rights or the

government’s interest in the sanctioned person’s property.” Further, demonstrating

broad applicability, In re Berg, 230 F.3d at 1167–68, states, “Several other courts

have explicitly addressed the issue presented in this case. The majority of those

courts agree that a claimant may proceed to collect attorneys’ fees imposed as a

sanction for the debtor’s improper conduct in litigation without regard to the

automatic stay.”

      In this action, the magistrate judge clarified that the primary purpose of

Roy’s sanction was neither to protect Coulton’s property nor to protect the

government’s interest in Roy’s property. The magistrate judge explained that the

sanction aims to vindicate the interest of the judiciary by redressing Roy’s

“wil[l]ful disregard of the Court’s authority resulting in the Court having to expend

its efforts and resources unnecessarily.” Thus, in accord with In re Berg, the

district court properly declined to stay the contempt proceeding.

      Also, Roy argues that the automatic stay barred the sanction in this action

because Coulton, not the government, moved for the sanction. As noted above,

Section 362(b)(4) states, “The filing of a [bankruptcy] petition . . . does not operate

as a stay . . . of the commencement or continuation of an action or proceeding by a

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governmental unit . . . to enforce such governmental unit’s . . . police and

regulatory power . . . .” Roy bases his interpretation of Section 362(b)(4) on U.S.

International Trade Commission v. Jaffe, 433 B.R. 538, 543 (E.D. Va. 2010)

(Ellis, J.), which states, “[B]y its plain terms, § 362(b)(4) applies only where . . .

the action is brought by the government . . . .” Jaffe supports Roy’s argument, if at

all, less than the selected quote suggests. Favorably citing United States ex rel.

Doe v. X, Inc., 246 B.R. 817 (E.D. Va. 2000) (Ellis, J.), which holds that a private

party’s qui tam action is “brought” by the government even if the government has

not intervened, Jaffe, 433 B.R. at 544, holds that a governmental investigation is

“brought” by the government even if a private party’s complaint incited the

investigation.

      Discussing an action in which a district court granted under Section

362(b)(4) a private litigant’s motion for a Rule 11 sanction, Alpern v. Lieb, 11 F.3d
689, 690 (7th Cir. 1993), rejects an argument comparable to Roy’s:

          Rule 11 is not a simple fee-shifting provision, designed to
          reduce the net cost of litigation to the prevailing party. It
          directs the imposition of sanctions for unprofessional conduct
          in litigation, and while the form of sanction is often and was
          here an order to pay attorney’s fees to the opponent in the
          litigation, it is still a sanction, just as an order of restitution in a
          criminal case is a sanction even when it directs that payment be
          made to a private person rather than to the government. The
          Rule 11 sanction is meted out by a governmental unit, the court,
          though typically sought by a private individual or

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         organization — a nongovernmental litigant, the opponent of the
         litigant to be sanctioned. There is no anomaly, given the long
         history of private enforcement of penal and regulatory law. The
         private enforcer, sometimes called a “private attorney general,”
         can be viewed as an agent of the “governmental unit,” the
         federal judiciary, that promulgated Rule 11 in order to punish
         unprofessional behavior. The fact that the sanction is entirely
         pecuniary does not take it out of section 362(b)(4).

(citation omitted). Alpern sees the movant for sanctions as both a private actor and

a governmental surrogate enforcing the judiciary’s regulatory power through the

mechanism of a sanction. Thus, Section 362(b)(4) applies in this action because

the judiciary, acting through Coulton as a surrogate, in effect “brought” the

contempt proceeding.

      Further, before the final hearing in the contempt proceeding, Coulton filed a

“notice of waiver of attorney’s fees,” in which Coulton (for a reason not apparent

in the record) relinquishes his claim for attorney’s fees and costs and suggests a

contempt order that compels Roy to perform community service. The district

judge construed Coulton’s notice as an objection to the magistrate judge’s

recommendation and overruled the objection. Quite plainly, the district judge

declined Coulton’s attempt to spare Roy a monetary sanction and instead, acting

purposefully to vindicate the judicial authority, “continu[ed]” the proceeding under

Section 362(b)(4) in her determination to sanction Roy. Notwithstanding that

Coulton initiated the claim for contempt, the claim conspicuously became —

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within the meaning of Section 362(b)(4) — “an action or proceeding by a

governmental unit . . . to enforce such governmental unit’s . . . police and

regulatory power” no later than the moment of Coulton’s abandonment of the

claim and the court’s continuation and pursuit of the claim.

      But the claim for contempt was at all times an action of the court. The court

need not move sua sponte for a sanction — either before or contemporaneous with

a party’s motion — to preserve the court’s distinct interest in compliance with a

court order. With or without a party’s motion, the court’s interest in compliance

with a court order activates immediately in each action in which the court’s

authority is defied, in each instance in which the court’s authority is defied, and as

to each actor through whom the court’s authority is defied. The pursuit of

compliance is — by the nature of the court and by the purpose and effect of a

sanction — an action by the court.

      The district judge neither abused her discretion nor clearly erred (nor erred

at all) in vindicating the regulatory power of the judiciary by continuing the

contempt proceeding against Roy despite the automatic stay under Section 362(a)

and in accord with the exception prescribed in Section 362(b)(4).

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                               3. Roy’s ability to pay

      Roy argues in his initial brief on appeal that the district judge and the

magistrate judge erred by failing, when sanctioning him, to evaluate his ability to

pay the sanction. In supporting his argument on appeal, Roy features Martin v.

Automobili Lamborghini Exclusive, Inc., 307 F.3d 1332, 1337 (11th Cir. 2002),

which states, “[W]hen exercising its discretion to sanction under its inherent

power, a court must take into consideration the financial circumstances of the party

being sanctioned.” Martin, 307 F.3d at 1337, explains the reason for the required

financial evaluation:

          Sanction orders must not involve amounts that are so large that
          they seem to fly in the face of common sense, given the
          financial circumstances of the party being sanctioned. What
          cannot be done must not be ordered to be done. And, sanctions
          must never be hollow gestures; their bite must be real. For the
          bite to be real, it has to be a sum that the person might actually
          pay. A sanction which a party clearly cannot pay does not
          vindicate the court’s authority because it neither punishes nor
          deters.

(citations omitted).

      The resolution of Roy’s argument requires a brief procedural explanation.

In September 2011, the district court ordered Roy to disgorge $275,800 to Coulton,

to cooperate with Coulton in the disgorgement, and to disclose to Coulton, if

necessary, the details of Roy’s financial circumstance. After Roy pervasively

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failed to comply with the disgorgement order, Coulton moved for contempt. Roy

argued against contempt by claiming that his non-compliance was not willful

because he was “penniless” and thus, despite best efforts, he was financially unable

to comply with the disgorgement order.

        The magistrate judge determined (1) that, although Roy perhaps could not

have paid the disgorgement amount, Roy could have complied with the disclosure

and cooperation components of the disgorgement order and (2) that Roy willfully

chose to defy the order. Thus, the magistrate judge recommended both finding

Roy in contempt and sanctioning Roy in an amount equal to Coulton’s attorney’s

fees.

        Careful review confirms that Roy’s argument to the magistrate judge failed

to mention a claimed inability to pay a sanction and failed to request an evaluation

of Roy’s ability to pay a sanction. Because Roy never asserted to the magistrate

judge an inability to pay a sanction, the magistrate judge conducted no distinct and

explicit evaluation of Roy’s ability to pay the sanction.

        In only three pages and without citing legal authority, Roy lodged with the

district judge seven objections to the magistrate judge’s report and

recommendation. In the objections, Roy argued that he could not comply with the

disgorgement order but argued neither that the magistrate judge erroneously failed

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to evaluate Roy’s ability to pay the sanction nor that Roy could not pay the

sanction. Overruling Roy’s objections, the district judge adopted the magistrate

judge’s recommendation and sanctioned Roy. Like Roy and the magistrate judge,

the district judge included in her order no evaluation of Roy’s ability to pay the

sanction.

      Roy argues on appeal for reversal of the district court’s judgment because

neither the magistrate judge nor the district judge evaluated his ability to pay the

sanction. Roy raises this argument for the first time in his initial brief on appeal.

      For a sound and familiar reason, a party is barred from raising on appeal an

argument that the party failed to raise in the district court. As Access Now, Inc. v.

Southwest Airlines Co., 385 F.3d 1324, 1331 (11th Cir. 2004), explains:

            This Court has repeatedly held that an issue not raised in the
            district court and raised for the first time in an appeal will not
            be considered by this court. The reason for this prohibition is
            plain: as a court of appeals, we review claims of judicial error
            in the trial courts. If we were to regularly address questions —
            particularly fact-bound issues — that districts court never had a
            chance to examine, we would not only waste our resources, but
            also deviate from the essential nature, purpose, and competence
            of an appellate court.

(internal quotation marks omitted). Similarly, a district judge need not consider an

argument that a party failed to present to the magistrate judge. Williams v. McNeil,

557 F.3d 1287, 1292 (11th Cir. 2009) (“[W]e . . . hold that a district court has

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discretion to decline to consider a party’s argument when that argument was not

first presented to the magistrate judge.”).

      As discussed above, neither Roy’s presentation to the magistrate judge nor

Roy’s presentation to the district judge contains a claim of inability to pay the

sanction, contains a demand for an evaluation of his ability to pay the sanction, or

contains any other detectible manifestation of the argument that Roy raises for the

first time on appeal. Accordingly, because Roy twice failed — once to the

magistrate judge and once to the district judge — to request an evaluation of his

ability to pay the sanction, Roy is barred from raising the argument on appeal.

      Also, a person’s claim of inability to pay a sanction is a form of affirmative

defense that is waived if not asserted. Considering a similar circumstance, Willhite

v. Collins, 459 F.3d 866, 870 (8th Cir. 2006), explains:

          The district court did not investigate Van Sickle’s ability to pay
          such a large sanction, but Van Sickle did not express to the
          district court an inability to pay [the sanction]. If inability to
          pay [the sanction] was a concern for Van Sickle, it was his
          “obligation to raise that point before the district court, since he
          was the one who had that information.”

(quoting Landscape Props., Inc. v. Whisenhunt, 127 F.3d 678, 685 (8th Cir. 1997)).

      At least two other circuits take the same approach. Gaskell v. Weir, 10 F.3d
626, 629 (9th Cir. 1993), holds:

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          [T]he sanctioned party has the burden to produce evidence of
          inability to pay [the sanction]. Simple logic compels this result:
          the sanctioned party knows best his or her financial situation.
          Canatella, as the sanctioned party, had the burden to produce
          probative evidence of his inability to pay the sanctions.

(citations omitted). White v. General Motors Corp., 908 F.2d 675, 685 (10th Cir.

1990), holds that the “[i]nability to pay . . . [a] sanction should be treated as

reasonably akin to an affirmative defense, with the burden upon the parties being

sanctioned to come forward with evidence of their financial status.” Of course, if

ability to pay is not raised and resolved in the district court, the court of appeals

lacks a sufficient record on which to conduct an informed review.

       Stated generally, a district court need not explicitly, or even implicitly,

evaluate a person’s ability to pay a sanction unless that person asserts to the district

court an inability to pay the sanction, a claim in the nature of an affirmative

defense, on which the asserting person bears the burden of proof. Thus, Roy

waived this objection by asserting the objection neither to the magistrate judge nor

to the district judge.

                                   CONCLUSION

       The district court’s judgment is AFFIRMED. However, the district court

failed to stay execution of the money judgment against Roy. See 11 U.S.C.

§ 362(b)(4) (exempting from the Section 362(a) automatic stay “the

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commencement or continuation of an action or proceeding by a governmental unit

. . . to enforce such governmental unit’s . . . policy and regulatory power, including

the enforcement of a judgment other than a money judgment, obtained in an action

or proceeding by the government unit to enforce such governmental unit’s . . .

police or regulatory power” (emphasis added)); Collier on Bankruptcy, Vol. 3,

¶ 362.05[5][b] (16th ed. 2014) (“[T]he governmental unit still may commence or

continue any police or regulatory action, including one seeking a money judgment,

but it may enforce only those judgments and orders that do not require payment.

Enforcement of a money judgment remains subject to the automatic stay.”). This

action is REMANDED WITH INSTRUCTIONS to stay execution and levy on

the money judgment against Roy pending dissolution of the automatic stay under

Section 362(a).

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