AngioDynamics, Inc. v. Biolitec AG ( 2015 )

United States Court of Appeals
For the First Circuit
No. 13-1626
No. 13-2179
ANGIODYNAMICS, INC.,
Plaintiff, Appellee,
v.
BIOLITEC AG; BIOMED TECHNOLOGY HOLDINGS, LTD.; and
WOLFGANG NEUBERGER,
Defendants, Appellants.
BIOLITEC, INC.,
Defendant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
Before
Lynch, Chief Judge,
Stahl and Kayatta, Circuit Judges.
Edward Griffith, with whom Michael K. Callan, Doherty,
Wallace, Pillsbury, and Murphy, P.C., and The Griffith Firm were on
brief, for appellants.
William E. Reynolds, with whom Bond, Schoeneck & King, PLLC
was on brief, for appellee.
March 11, 2015
STAHL, Circuit Judge. This is a companion case to
AngioDynamics v. Biolitec AG, No. 14-1603. In this appeal,
Defendants argue that the district court exceeded the bounds of its
authority when it issued civil contempt sanctions after Defendants
violated the court's preliminary injunction order. Defendants also
aver that the district court should have vacated the underlying
preliminary injunction. We affirm.
I. Facts & Background
This court previously set out the basic factual contours
of this case in AngioDynamics, Inc. v. Biolitec AG, 711 F.3d 248
(1st Cir. 2013) (per curiam). Plaintiff AngioDynamics, Inc.
("ADI") obtained a $23 million judgment in New York against
defendant Biolitec, Inc. ("BI"), a New Jersey corporation with its
principal place of business in Massachusetts, based on an
indemnification clause in the supply and distribution agreement
governing BI's sale of medical equipment to ADI. Plaintiff sought
to secure payment on that judgment by bringing suit in the District
of Massachusetts against BI's President and CEO, Wolfgang
Neuberger, and its corporate parents, Biomed Technology Holdings
("Biomed") and Biolitec AG ("BAG") (collectively, "Defendants"),1
1
At the time this action began, Biolitec AG, a German
corporation headquartered in Germany, owned ninety percent of
Biolitec, Inc.'s stock. Neuberger, a citizen of Austria with
residences the world over, served as the President, CEO, and
Chairman of the Board of Directors of both Biolitec, Inc. and
Biolitec AG. He was the sole owner of Biomed Technology Holdings,
a Malaysian corporation that owned approximately seventy-five
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alleging that Defendants had looted BI of over $18 million in
assets in order to render it judgment-proof.
We will recount only the portions of the procedural
background of this case pertinent to the issues raised in this
appeal. In August 2012, ADI learned that BAG planned to merge with
an Austrian subsidiary. Since American judgments are unenforceable
in Austria, the merger would place BAG's assets out of ADI's reach.
The district court issued a temporary restraining order -- later
converted into a preliminary injunction -- barring the merger.
Defendants unsuccessfully filed a motion to vacate the injunction
in the district court, then appealed. In March 2013, while that
appeal was still pending, Defendants effected the merger anyway,
moving BAG's corporate domicile from Germany to Austria. This
court affirmed the preliminary injunction on April 1, 2013, the
same day as that panel heard oral argument. AngioDynamics, 711
F.3d at 252.
ADI filed an emergency motion for contempt shortly after
learning that BAG had merged with its Austrian affiliate. On April
11, 2013, the district court issued a twenty-page contempt decision
authorizing coercive fines against Defendants and a warrant for
Neuberger's arrest. AngioDynamics, Inc. v. Biolitec AG, 946 F.
Supp. 2d 205, 215 (D. Mass. 2013). The monthly fines escalate in
percent of Biolitec AG's stock. Biolitec, Inc. has filed for
Chapter 11 bankruptcy and is not a party to this appeal.
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amount each month that the merger remains in place. Id. at 216.
The district court's contempt order made clear that it would lift
the fines and arrest warrant once Defendants undo the merger and
restore the status quo ante. Id. at 215. Four months later,
Defendants filed another round of motions to revoke the contempt
order and vacate the underlying injunction; the district court
denied the motions yet again. AngioDynamics, Inc. v. Biolitec AG,
974 F. Supp. 2d 1, 5–11 (D. Mass. 2013). These appeals followed.
II. Analysis
A. Denial of Rule 60(b) Motion to Vacate Preliminary Injunction
We begin with Defendants' challenge to the district
court's denial of their motion to vacate the preliminary injunction
pursuant to Federal Rules of Civil Procedure 60(b)(4) and
60(b)(6).2 Defendants presented two sets of declarations in
2
ADI urges us to dismiss this appeal based on the fugitive
disentitlement doctrine, which permits an appellate court to
decline to hear appeals from a fugitive from justice. See Degen v.
United States, 517 U.S. 820, 824 (1996); see also Ortega-Rodriguez
v. United States, 507 U.S. 234, 239, 242 (1993) (observing that the
well-settled doctrine "serves an important deterrent function and
advances an interest in efficient, dignified appellate practice").
In the context of civil proceedings, dismissal requires a
determination that, first, the fugitive's status bears some
connection to the civil action, and second, dismissal addresses
concerns underlying the doctrine, including "prejudice to the
opponent, delay, frustration, and unenforceability [of any
potential judgments against the fugitive]." Walsh v. Walsh, 221
F.3d 204, 215 (1st Cir. 2000).
We decline to exercise our discretion to apply the doctrine to
the two corporate defendants here, given that no criminal sanctions
are pending against them. Cf. United Elec., Radio & Mach. Workers
v. 163 Pleasant St. Corp., 960 F.2d 1080, 1097-98 (1st Cir. 1992)
(rejecting plaintiffs' motion to dismiss corporate defendant's
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support of their motion to refute the district court's finding at
the preliminary injunction stage that relocating BAG to Austria
would make it more difficult or impossible for ADI to enforce its
judgment against the company.
Rule 60(b)(4) permits a party to move for relief from an
order on grounds that it is void. We review the denial of a Rule
60(b)(4) motion de novo, as the validity of a judgment is not a
discretionary question. Fafel v. Dipaola, 399 F.3d 403, 409–10
(1st Cir. 2005). Rule 60(b)(6), by contrast, is a catch-all
provision warranting excusal from an order or judgment for "any
other reason that justifies relief"; the denial of such a request
appeal based on civil contempt order lodged against the
corporation; "in general, a court should be extremely reluctant to
invoke the equitable doctrine of disentitlement when an appellant
has not committed any criminal act").
As for Neuberger, the gravity of his conduct and the nexus
between the district court's arrest warrant and ADI's complaint
provides strong support for application of the doctrine as to his
appeal. See Goya Foods, Inc. v. Unanue-Casal, 275 F.3d 124, 129–30
(1st Cir. 2001) (dismissing appeal under the fugitive
disentitlement doctrine where defendants, in an attempt to avoid
satisfying the plaintiff's underlying judgment against them,
violated injunction barring them from transferring certain assets;
defendants' flight from the arrest warrant "grows directly out of
[plaintiff's] effort to enforce its judgment . . . and the appeal
is from actions and orders of the district court designed to
enforce that very judgment"). However, application of this
doctrine is "discretionary rather than automatic and to be applied
with caution." Id. at 129. Given that Neuberger's appeal rests on
identical grounds as his corporate co-defendants, and given the
relative ease with which we can dispose of Defendants' appeal on
the merits, we decline to dismiss Neuberger's appeal on these
grounds.
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is reviewed for abuse of discretion. Ungar v. Palestine Liberation
Org., 599 F.3d 79, 83 (1st Cir. 2010).
Under either standard, Defendants cannot use their Rule
60(b) motion to collaterally attack the preliminary injunction,
which this court already has considered and affirmed.
AngioDynamics, 711 F.3d at 252. A Rule 60(b) motion "must satisfy
a special set of criteria; it is not enough merely to cast doubt on
the soundness of the underlying judgment." Nansamba v. N. Shore
Med. Ctr., 727 F.3d 33, 37 (1st Cir. 2013). The moving party must
demonstrate in a timely motion that "'exceptional circumstances
exist, favoring extraordinary relief; that if the judgment is set
aside, he has the right stuff to mount a potentially meritorious
claim or defense; and that no unfair prejudice will accrue to the
opposing parties should the motion be granted.'" Id. (quoting
Fisher v. Kadant, Inc., 589 F.3d 505, 512 (1st Cir. 2009)).
Defendants' motion does little to even cast doubt on the
underlying injunction. First, they offer two declarations from one
of their experts on German law -- an expert who previously offered
multiple declarations in opposition to ADI's original preliminary
injunction motion -- to refute the district court's finding that
ADI cannot enforce its judgment in Austria, but might be able to
enforce it in Germany. Essentially, Defendants assert that the
downstream merger with the Austrian subsidiary will have no
practical impact on ADI's ability to collect, and thus ADI will
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suffer no harm from Defendants' violation of the court's
preliminary injunction. The expert opined that ADI would face the
same burden enforcing its judgment in Germany as in Austria,
virtually the same opinion Defendants' experts had offered and the
district court and this court have already rejected.
Second, Defendants offer Neuberger's own declaration in
support of their assertion that a German court will not recognize
the district court's jurisdiction over BAG -- and thus will not
enforce ADI's judgment -- because ADI is unable to present
affirmative evidence that BAG's stock certificates were located in
the United States at the time ADI commenced this action. In
affirming the preliminary injunction, this court noted that
Defendants had failed to offer information concerning the location
of BAG's stock certificates, despite their "assertion that ADI's
ability to enforce the judgment in Germany would turn on whether
[the] stock certificates were located in the United States."
AngioDynamics, 711 F.3d at 252. Defendants attempt to remedy this
deficiency with Neuberger's statement that he "personally
recall[s]" seeing BAG's stock certificates in Germany both in 2000
and on some indeterminate date after, although he "do[es] not
recall the precise year or the circumstances." While Neuberger's
declaration provides some new evidence that the stock certificates
were located outside the United States when ADI filed suit, which
could preclude ADI from enforcing its judgment in Germany,
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Neuberger's vague memories hardly provide conclusive proof that the
stock certificates were not in this country when this suit began.
Further, Neuberger's statement is undermined by evidence in the
record that BI's counsel kept the stock certificates showing BAG's
ownership of BI in the company's East Longmeadow, Massachusetts,
office from before 2009 and at least until the date of his
deposition in 2012.
For all their repeated assertions, Defendants'
submissions in support of their Rule 60(b) motion fail to
demonstrate that the preliminary injunction, already affirmed by
this court, warrants extraordinary relief under Rule 60(b)(6) or is
void under Rule 60(b)(4).
B. Civil Contempt Sanctions
Next, we turn to the district court's imposition of civil
contempt sanctions and its denial of Defendants' Rule 60(b) motion
for relief from the same.
A district court may issue a civil contempt order if the
moving party establishes by clear and convincing evidence that the
alleged contemnor violated the order despite clear and umambiguous
notice of the order and the ability to comply with it. Hawkins v.
Dep't of Health & Human Servs. for N.H., Comm'r, 665 F.3d 25, 31
(1st Cir. 2012). Defendants do not dispute the district court's
contempt finding, but argue that the scope and gravity of the
penalties rise to the level of a criminal sanction, thus exceeding
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the bounds of the district court's authority. Mindful that the
district court enjoys wide latitude in its choice of sanctions, our
review is limited to abuse of discretion. Goya Foods, Inc. v.
Wallack Mgmt. Co., 290 F.3d 63, 77–78 (1st Cir. 2002). Under that
deferential standard, we conclude that no abuse of discretion
occurred here.
A district court's authority to issue a contempt order
derives from its inherent power to "sanction . . . litigation
abuses which threaten to impugn the district court's integrity or
disrupt its efficient management of [case] proceedings." United
States v. Kouri-Perez, 187 F.3d 1, 7 (1st Cir. 1999). Since the
civil contemnor may absolve herself of the sanction by complying
with the contempt order, civil contempt sanctions may be imposed
with merely notice and an opportunity to be heard. United States
v. Winter, 70 F.3d 655, 661 (1st Cir. 1995). Conversely, criminal
contempt is a "crime in the ordinary sense," requiring full
procedural protections before imposition. Int'l Union, United Mine
Workers of Am. (UMWA) v. Bagwell, 512 U.S. 821, 826–27 (1994)
(internal quotation marks omitted).
"Civil contempt is a forward-looking penalty meant to
coerce compliance rather than to punish past noncompliance."
Hawkins, 665 F.3d at 32. There is no dichotomous split between
coercion and punishment, however, and a civil contempt sanction may
evidence a punitive flavor. After all, "[m]ost contempt sanctions,
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like most criminal punishments, to some extent punish a prior
offense as well as coerce an offender's future obedience." Int'l
Union, UMWA, 512 U.S. at 828. In addition to nudging a party to
comply with a past court order, a district court may also utilize
sanctions to compensate the complainant for harms suffered as a
result of the contempt and to reinforce the court's own authority.
See Goya Foods, 290 F.3d at 78. This court examines the character
and purpose of the district court's sanctions to determine whether
they are civil or criminal in nature. Int'l Union, UMWA, 512 U.S.
at 827–28.
Defendants' argument that the sanctions are so punitive
as to rise to the level of a criminal contempt order rests on
territory familiar to this litigation: first, ADI suffered no harm
from the prohibited merger; second, the district court should have
allowed Defendants' expert to testify that the underlying judgment
would be as difficult to enforce in Germany as in Austria; and
third, it is impossible for Defendants to undo the merger and
restore the status quo ante.3 This court has already rejected the
argument that no harm will come to ADI as a result of the merger,
3
Defendants raised these arguments in support of their motion
for relief from the contempt order pursuant to Federal Rules of
Civil Procedure 60(b)(4) and 60(b)(6), and in support of their Rule
59(e) motion, which the district separately rejected as untimely.
See AngioDynamics, Inc. v. Biolitec AG, 974 F. Supp. 2d 1, 5–11 (D.
Mass. 2013). We reject Defendants' challenge to the district
court's denial of their Rule 60(b) motions for substantially the
same reasons that their challenge to the underlying contempt order
fails.
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AngioDynamics, 711 F.3d at 251–52, and Defendants have presented
this argument to the district court multiple times. The district
court was well within its discretion in declining to hear
additional testimony on German law from another of Defendants'
experts. We easily reject Defendants' third argument as well: as
Defendants conceded to the district court and here at oral
argument, it is not "impossible" for Defendants to undo the merger,
but merely costly and inconvenient. Thus, Defendants fail to meet
their burden to show that they are unable to comply with the terms
of the district court's order. See United States v. Puerto Rico,
642 F.3d 103, 108 n.8 (1st Cir. 2011) (stating that an alleged
contemnor cannot meet his burden to prove impossibility if he
"offers no evidence as to his inability to comply" or offers only
"his own denials which the court finds incredible in context"
(quoting Maggio v. Zeitz, 333 U.S. 56, 75–76 (1983))).
Defendants also assemble a cherry-picked set of the
district court's expressions of frustration in an attempt to
demonstrate that the court had the primarily punitive purpose of
vindicating its authority. A careful review of the contempt
hearing transcripts and the sanctions order, however, reveals that
the district court consistently justified the fines and civil
arrest warrant as tools to coerce Defendants' compliance with the
preliminary injunction. Int'l Union, UMWA, 512 U.S. at 827–28. As
the district court stressed, "[t]he goal of this court is not to
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punish Defendants gratuitously; the goal is to obtain compliance
with the court's order." AngioDynamics, 974 F. Supp. 2d at 9.
That leaves us to consider whether the district court
abused its discretion in delineating the fines set out in the
contempt order,4 totaling over $160 million as of oral argument --
an amount far greater than the $23 million judgment that spurred
this action in the first place. Defendants' characterize the fines
as "draconian," "wildly disproportionate," and certain to lead to
"financial ruin." For the most part, we disagree. The fine
accumulates over time, incentivizing Defendants to cure the
contempt promptly. While the monthly dollar amounts are high, the
district court determined in its discretion that it needed to set
a large enough fine to prod Defendants, heretofore recalcitrant and
even obstinate in the face of court orders, to take action to undo
the merger. The district court's order states that the court will
"lift[]" the fines as soon as Defendants come into compliance with
the preliminary injunction. AngioDynamics, 946 F. Supp. 2d at 215
("Defendants have the keys to their prison in their own pockets.
The coercive fines and arrest warrant . . . will be lifted as soon
as the court is satisfied that the status quo ante has been
4
The fine schedule gave Defendants thirty days from the date
of the order to begin undoing the downstream merger. The contempt
order delineates that at the thirty day mark, on May 10, 2013, the
court would assess a $1 million fine, then $2 million on June 1, $4
million on July 1, $8 million on August 1, and thereafter $8
million on the first of each month. AngioDynamics, Inc. v.
Biolitec AG, 946 F. Supp. 2d 205, 215 (D. Mass. 2013).
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restored.") (internal quotation marks and citations omitted).
Defendants thus retain the power to end the accruing of the fines
and avoid the potential fiscal catastrophe invoked in their brief.
Cf. In re Grand Jury Proceedings, 744 F.3d 211, 214 (1st Cir. 2014)
("In keeping with [the] coercive function [of civil contempt
orders], courts have long recognized that civil contempt sanctions
are necessarily limited to the period in which the contemnor can
unlock the figurative prison door by purging himself of
contempt."). The district court acted well within its discretion
in setting out a "prospective, conditional fine" to achieve
compliance. United States v. Prof'l Air Traffic Controllers Org.
(PATCO), Patco Local 202, 678 F.2d 2, 4 (1st Cir. 1982).
That said, at this point, the amount of the cumulative
fine far exceeds the amount of the original judgment ADI is
attempting to collect. This is in large part Defendants' own
doing, since they have failed to take steps to undo the merger, and
the fines continue to accumulate each month. We remand only to
direct the district court to amend the sanction order so that the
fines cease to accrue at some total amount. If Defendants purge
their contempt by restoring the status quo ante, we expect that the
district court will make good on its promise to reassess the fine
amount if Defendants come into compliance with the preliminary
injunction. AngioDynamics, 974 F. Supp. 2d at 8.
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C. Alternative Method of Service on Biomed and Neuberger
As alternate grounds for reversal, Defendants Biomed and
Neuberger argue that the preliminary injunction and contempt order
are void as to them because they were not served in accordance with
international law and the Federal Rules of Civil Procedure. We
review the district court's decisions regarding service of process
for abuse of discretion. Crispin-Taveras v. Municipality of
Carolina, 647 F.3d 1, 6 (1st Cir. 2011).
Federal Rule of Civil Procedure 4(f) provides that an
individual or corporation5 may be served in a foreign country by
(1) "any internationally agreed means of service that is reasonably
calculated to give notice"; (2) a method prescribed by the foreign
country's laws or directives, or, if permitted by that country, by
personal delivery or certified mail; or (3) "by other means not
prohibited by international agreement, as the court orders." The
advisory committee note to this subdivision states that, in the
interest of "reasonable notice," "an earnest effort should be made
to devise a method of communication that is consistent with due
process and minimizes offense to foreign law." Fed. R. Civ. P.
4(f) advisory committee's note (1993 Amendments).
5
Rule 4(f) applies to corporations through Rule 4(h)(2),
which states that a domestic or foreign corporation may be served
outside a United States judicial district "in any manner prescribed
by Rule 4(f) for serving an individual, except personal delivery."
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The record demonstrates that ADI endeavored to serve both
Biomed and Neuberger in multiple countries on multiple occasions
and by various methods. Despite ADI's repeated requests, Neuberger
would not authorize his counsel to accept service on his behalf,
despite his admitted awareness of the suit. ADI tried to serve
Biomed and Neuberger four times in Germany in accordance with the
Hague Convention, including an attempt at a BAG shareholder meeting
which Neuberger unexpectedly failed to attend. After Defendants
argued that Neuberger and Biomed should have been served by
registered mail in Dubai and Malaysia, Plaintiff delivered service
documents by registered mail, with return receipt requested, to
Neuberger's address in Dubai and Biomed's headquarters in Malaysia.
Nevertheless, Neuberger and Biomed refused to concede at the
alternative service motion hearing that these mailings effectuated
service of process on them. In the face of these difficulties and
the "possibly inadvertent but nevertheless misleading statements
made by [defense] counsel," the district court authorized
alternative service on Biomed, a Malaysian corporation located in
Malaysia, and Neuberger, a citizen of Austria with residences on
four continents, pursuant to Rule 4(f)(3). AngioDynamics, Inc. v.
Biolitec AG, No. 09-cv-30181-MAP, 2011 WL 1878145, at *1 (D. Mass.
May 17, 2011).
By its plain terms, Rule 4(f)(3) does not require
exhaustion of all possible methods of service before a court may
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authorize service by "other means," such as service through counsel
and by email. Given that the district court was presented with "an
elusive international defendant, striving to evade service of
process," the court acted within its discretion when it authorized
alternative service under Rule 4(f)(3). Rio Props., Inc. v. Rio
Int'l Interlink, 284 F.3d 1007, 1016 (9th Cir. 2002) (affirming
court-ordered alternative service methods on a foreign business,
including service via email). Thus, the judgment is not rendered
void for failure to serve Biomed and Neuberger.
III. Conclusion
For the foregoing reasons, we affirm both the district
court's denial of Defendants' motion to vacate the preliminary
injunction and the district court's civil contempt finding. We
remand for the sole purpose of directing the district court to take
action with respect to the total accruing fine amount, in
accordance with this opinion. We award costs of this appeal to
Plaintiff.
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