National Union Fire Insurance v. Olympia Holding Corp. ( 2005 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
July 21, 2005
No. 04-15621 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 94-02081-CV-GET-1
NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PENNSYLVANIA,
Plaintiff-Counter-Defendant-
Appellee,
versus
OLYMPIA HOLDING CORPORATION
a.k.a. P-I-E Nationwide, Inc., et al.,
Defendants-Counter-Claimant-
Cross-Claimant,
LEONARD A. PELULLO,
Defendant-Cross-Defendant-
Counter-Claimant-Appellant,
JOSEPH M. FIORAVANTI,
Defendant-Appellant,
NCNB NATIONAL BANK, et al.,
Defendants-Counter-Claimants,
NATIONSBANK OF FLORIDA, N.A., et al.,
Defendants.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(July 21, 2005)
Before BLACK, CARNES and MARCUS, Circuit Judges.
PER CURIAM:
The district court imposed civil contempt sanctions of $283,172.80 on
Leonard Pelullo and Joseph Fioravanti, Appellants, for violation of its March 31,
1997 permanent injunction. Appellants contend the district court abused its
discretion by (1) finding them in contempt, (2) awarding an excessive amount of
sanctions, and (3) not holding an evidentiary hearing. We affirm.
I. BACKGROUND
In 1994, National Union Fire Insurance Company of Pittsburgh,
Pennsylvania (National Union) filed an interpleader action to resolve competing
claims under a directors and officers insurance policy (D & O policy) it issued to
P-I-E Nationwide, Inc. Pelullo, an officer and director of P-I-E, was indicted in
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Jacksonville, Florida (Jacksonville action), as well as in Philadelphia,
Pennsylvania (Philadelphia action) and Newark, New Jersey (Newark action).
Pelullo made claims for coverage and defense costs under the D & O policy,
eventually gaining coverage for the Jacksonville action but not the Philadelphia or
Newark actions.
On March 31, 1997, the district court granted National Union a permanent
injunction “enjoining defendants from commencing or prosecuting any action
affecting the proceeds of the policy.” National Union and Pelullo also entered into
a Defense Costs Funding Agreement (“DCFA”), which followed the district
court’s order and provided for defense costs to be provided from the D & O
policy.
On November 7, 2000, Pelullo and other plaintiffs, with assistance from
counsel, Fioravanti, filed a civil RICO action in Philadelphia against National
Union, law firms insured by National Union, and law firms retained by National
Union to represent entities controlled by Pelullo. The first amended complaint,
filed in February 2001, alleged that National Union and other defendants sought to
limit National Union’s exposure by engaging in a RICO conspiracy, and made
specific reference to the D & O policy and the March 31, 1997 district court order.
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National Union filed a motion for order to show cause why Pelullo and
Fioravanti should not be held in civil contempt for violating the March 31, 1997
permanent injunction, which the district court granted on October 2, 2001. Pelullo
then filed a second amended complaint on November 21, 2001, which reasserted
the earlier claims and added two new claims against National Union, including an
allegation that National Union breached the DCFA and acted in bad faith.
On January 9, 2002, the district court issued an order finding Pelullo and
Fioravanti in contempt and imposing sanctions. The monetary sanctions consisted
of the “reasonable attorney’s fees, costs and expenses” National Union incurred as
a result of defending the RICO complaint, as well as the “reasonable attorney’s
fees, costs and expenses” incurred in prosecuting the motion for contempt. The
district court also directed Pelullo and Fioravanti to dismiss the RICO action.
More than two years of wrangling ensued regarding the appropriate amount
of sanctions. On December 3, 2003, the district court issued an order finding that
National Union was entitled to recover fees incurred for defending Pelullo’s RICO
complaint through January 15, 2002, when those claims were dismissed, as well as
fees incurred in prosecuting the motion for contempt.
The district court’s final order was filed August 4, 2004, directing Pelullo
and Fioravanti to pay $283,172.80 in sanctions, consisting of $219,128.97 for
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National Union’s RICO defense and $64,043.83 for National Union’s prosecution
of the motion for contempt. Pelullo and Fioravanti appeal.
II. DISCUSSION
We review a grant or denial of civil contempt for an abuse of discretion.
Jove Eng’g, Inc. v. IRS, 92 F.3d 1539, 1545 (11th Cir. 1996). District courts “have
inherent power to enforce compliance with their lawful orders through civil
contempt.” Citronelle-Mobile Gathering, Inc. v. Watkins, 943 F.2d 1297, 1301
(11th Cir. 1991) (citing Shillitani v. United States, 384 U.S. 364, 370, 86 S. Ct.
1531, 1535 (1966)). To achieve compliance, courts can impose both coercive and
compensatory sanctions. Id. at 1304.
A. Finding of contempt
The district court’s January 9, 2002 order found Pelullo and Fioravanti in
contempt of its March 31, 1997 permanent injunction. The 1997 order enjoined
Pelullo “from commencing or prosecuting any action affecting the proceeds of the
policy,” which encompasses not only actions seeking the proceeds themselves but
also any action concerning the proceeds or undermining the final judgment of the
district court. The district court’s January 2002 order found
the only reasonable interpretation of the claims asserted by Pelullo is
that the recovery sought would “affect [] the proceeds of the [D & O]
policy” in violation of this court’s permanent injunction. For
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example, Pelullo alleges a breach of the Defense Funding Agreement
which specifically provided for payment out of policy proceeds.
Furthermore, the damages sought by Pelullo include legal fees for the
Philadelphia, Newark and Jacksonville Criminal Actions which were
the subject of the instant interpleader action. Such relief would
directly affect the proceeds of the D & O policy.
We agree with the district court.
Civil contempt orders should be upheld if the defendant’s contempt is clear
and convincing, and demonstrates “(1) the allegedly violated order was valid and
lawful; (2) the order was clear, definite and unambiguous; and (3) the alleged
violator had the ability to comply with the order.” McGregor v. Chierico, 206
F.3d 1378, 1383 (11th Cir. 2000) (quotation omitted).
Pelullo and Fioravanti do not argue the district court’s injunction was
invalid or unlawful, or unclear and ambiguous. Nor do they argue they were
unable to comply with the permanent injunction. Instead, they contend they did
not willfully violate the district court’s injunction, and therefore they should not
be held in contempt. But their subjective intent is not relevant: “[T]he focus of
the court’s inquiry in civil contempt proceedings is not on the subjective beliefs or
intent of the alleged contemnors in complying with the order, but whether in fact
their conduct complied with the order at issue.” Howard Johnson Co., Inc. v.
Khimani, 892 F.2d 1512, 1516 (11th Cir. 1990).
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By itself, Count X of the RICO complaint violated the permanent injunction
because, if successful, it would affect the proceeds of the D & O policy. Count X
alleged National Union breached the DCFA, which concerned the payment of
legal fees by National Union to Pelullo under the D & O policy. Under Count X,
paragraph 208(a) sought “the damages alleged in paragraph 182.” Paragraph 182
outlined damages suffered by Pelullo, including millions of dollars in legal fees
for the Philadelphia and Newark actions. In other words, Pelullo’s RICO
complaint sought payment of legal fees, fines, forfeitures, and restitution for the
Philadelphia and Newark actions. But the district court’s June 4, 1996 judgment
(amended by the March 31, 1997 judgment) denied coverage and legal fees for
Pelullo’s defense in the Philadelphia and Newark actions. Thus, the RICO
complaint by Pelullo and Fioravanti would affect the proceeds of the D & O
policy, which the district court’s permanent injunction expressly prohibited.
Similarly, Count II alleged National Union organized and supervised a
conspiracy to “ensure that M. Pelullo would remain incarcerated and be convicted
in the Jacksonville Criminal Action, which conviction would then require
Mr. Pelullo to reimburse National Union for Mr. Pelullo’s legal fees and costs paid
by National Union under the D & O policy.” According to Count II, among the
method and means employed by National Union included “National Union’s
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breach of its obligations under the D & O Policy and the Funding Agreement.” If
Pelullo succeeded on Count II, the proceeds of the D & O policy might be
affected.
The district court correctly determined Pelullo’s RICO complaint, if
successful, would affect the D & O policy, and therefore violated its permanent
injunction. We find no abuse of discretion.
B. Amount of sanctions
Once a district court finds a party in contempt, it has “broad discretion in
fashioning a contempt sanction.” Sizzler Family Steak Houses v. W. Sizzlin Steak
House, Inc., 793 F.2d 1529, 1536 n.8 (11th Cir. 1986). As noted above, sanctions
can be imposed for both coercive and compensatory reasons. Citronelle-Mobile,
943 F.2d at 1304.
As part of its sanctions, the district court sought to compensate National
Union for the costs it incurred in defending the RICO complaint and in
prosecuting the civil contempt order. In its December 3, 2003 order, the district
court reviewed the attorneys’ fees paid by National Union, and found “the rates
and hours billed are consistent with those charged by lawyers of similar
experience in an action such as this.” The August 4, 2004 final order reaffirmed
this finding: “[B]ased on the court’s review of the unredacted billing records filed
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under seal by the plaintiff, the court adheres to its original finding that the fees
requested by plaintiff are reasonable.” Thus, on two separate occasions, the
district court reviewed the attorneys’ fees, costs, and expenses paid by National
Union, and found them reasonable.
We find no abuse of discretion in the district court’s calculation of sanctions
for Pelullo’s and Fioravanti’s civil contempt.1
C. Evidentiary hearing
Appellants contend the district court abused its discretion by failing to
conduct an evidentiary hearing before holding them in contempt, claiming material
facts were in dispute.
“[W]hen there are no disputed factual matters that require an evidentiary
hearing, the court might properly dispense with the hearing prior to finding the
defendant in contempt and sanctioning him.” Mercer v. Mitchell, 908 F.2d 763,
769 n.11 (11th Cir. 1990). Here, there were no material issues of fact requiring an
evidentiary hearing. The validity of the permanent injunction was never
1
Relying principally on Norman v. Hous. Auth. of City of Montgomery, 836 F.2d 1292
(11th Cir. 1988), Appellants seek to import the lodestar method of calculating attorneys’ fees into
a district court’s calculation of sanctions, but we see no reason to do so. Sanctions for civil
contempt are not equivalent with typical payment of attorneys’ fees, and civil contempt sanctions
do not require the use of the lodestar method. We yield to the broad discretion enjoyed by
district courts in fashioning sanctions for civil contempt, and do not find the amount of sanctions
unreasonable.
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questioned, and neither party disputes that Pelullo and Fioravanti filed the RICO
complaint. Neither party disputes the contents of that complaint, nor do they
dispute the existence and validity of the DCFA. As to the amount of sanctions,
National Union provided uncontradicted evidence of the attorneys’ fees, costs, and
expenses it paid.
Appellants challenge the interpretation of the facts, but not the existence of
the facts themselves. Although they object to the fees paid by National Union,
deeming them excessive, their concern goes to necessity and propriety, not the fact
of whether the fees were paid.
With no disputed material facts in issue, the district court did not abuse its
discretion by not holding an evidentiary hearing before finding Pelullo and
Fioravanti in contempt.
III. CONCLUSION
The district court did not abuse its discretion in finding Appellants in
contempt. Nor did the district court abuse its discretion in determining the amount
of sanctions, and by not holding an evidentiary hearing.
AFFIRMED.
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