Tranzact Technologie v. 1Source Worldsite ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-1418
TRANZACT TECHNOLOGIES, INC.,
Plaintiff-Appellant,
v.
1SOURCE WORLDSITE and JOHN WANG,
Defendants-Appellees.
____________
Appeal from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 01 C 8508—Edward A. Bobrick, Magistrate Judge.
____________
ARGUED JANUARY 14, 2005—DECIDED MAY 4, 2005
____________
Before RIPPLE, MANION, and KANNE, Circuit Judges.
KANNE, Circuit Judge. The close business relationship
between Tranzact Technologies, Inc. (“Tranzact”), and
1Source Worldsite (“1Source”) soured when 1Source failed
to repay its debts. The two companies became involved in a
lawsuit that ended with a stipulation and agreed judgment
order. When 1Source’s chairman, John Wang, did not
comply with the order, Tranzact moved to hold Wang in
contempt of court. The district court dismissed the motion
as moot, and Tranzact appealed. For the reasons stated
herein, we reverse.
2 No. 04-1418
I. History
Tranzact is an Illinois corporation in the logistics busi-
ness. Its main service is arranging the shipment of goods to
warehouses and customers. Michael Regan, Tranzact’s
chairman, met with John Wang in January 2000 to discuss
the formation of a global sourcing company that would sell
products to businesses and consumers with free shipping.
The plan was for Tranzact to provide logistics services for
the new company, 1Source, which was formed later that
year. Wang was chairman and majority shareholder of
1Source, with Regan serving as a director and CEO.
Tranzact invested $120,000 in 1Source stock—stock which
Tranzact says it never received. In addition, 1Source exe-
cuted a promissory note for $200,000 in favor of Tranzact
and a collateral agreement assigning Tranzact rights in cer-
tain computer assets. 1Source ultimately failed to repay the
note; this and other conflicts ended the friendly relationship
between the two entities.
In November 2001, Tranzact filed a complaint against
1Source and Wang in district court claiming breach of con-
tract and unjust enrichment. The claims against Wang were
dropped for lack of personal jurisdiction. After discovery,
Tranzact and 1Source consented to having a magistrate
judge try the case. The magistrate judge suggested that the
parties attempt to come up with a stipulated judgment
based on 1Source’s representations that it had limited assets
to satisfy any judgment. The parties eventually consented
to the stipulation and agreed judgment order entered on
February 14, 2003. Under this order, Wang was to turn over
the collateral securing the $200,000 promissory note free
and clear of any liens, claims, or encumbrances.
Almost a year passed before Tranzact was able to take
possession of any of the collateral computer equipment. On
the day after the order was entered, February 15, 2003,
Tranzact agent Thomas Higgins went to 1Source’s former
No. 04-1418 3
offices to collect the equipment. Wang refused to turn it
over, stating that he would not release the collateral unless
Tranzact paid the storage fees. Wang reiterated this
demand in a phone conversation with Higgins the following
week.
When Tranzact’s counsel contacted Wang in September
2003 advising him that a third party would be coming to
pick up the equipment, Wang stated that he had given every-
thing except for a Sun Server to the storage company to
cover the costs of storage. Wang also said that he would not
allow the Sun Server to be taken unless Tranzact would give
him a release stating that he had complied with his obli-
gations under the stipulation and agreed judgment order.
Tranzact provided no such release, and instead on
November 11, 2003, filed a motion for rule to show cause
why Wang should not be held in contempt of court (the
“contempt motion”). At an initial hearing on November 13,
Magistrate Judge Edward Bobrick ordered Wang to turn
over the Sun Server and any other remaining collateral. In
the time he was given to respond, Wang gave Tranzact the
name and address of the company storing the Sun Server.
At the resumed hearing on the contempt motion on
December 8, Wang revealed that 1Source in fact had col-
lateral in addition to the Sun Server. The court continued
the hearing on the contempt motion to ensure that Tranzact
was able to collect the Sun Server, and Tranzact was finally
able to do so. On December 19, Wang gave the name and
address of the company storing the remaining collateral.
Wang still insisted that Tranzact was responsible for stor-
age costs, saying that Higgins did not attempt collection
until April 2003.1 Without ruling on the issue of storage
1
Wang had asserted earlier that Higgins contacted him in May
or June 2003; in any case, Wang disputes Tranzact’s position
(continued...)
4 No. 04-1418
costs, the magistrate judge found that Wang had released
the Sun Server and revealed the location of the remaining
collateral and dismissed the contempt motion as moot. The
magistrate judge also made no ruling with respect to the
attorney’s fees and costs requested in Tranzact’s motion.
Tranzact filed a motion for reconsideration on January 6,
2004, and on January 12 the magistrate judge awarded
attorney’s fees against 1Source (which had apparently gone
out of business) but not against Wang. At the January 21
continued hearing, the magistrate judge began to schedule
an evidentiary hearing to resolve the question of fact on
storage costs, but then stated that Tranzact had failed to
mitigate its damages and declared the matter “over.”
Tranzact appeals from the December 19 order dismissing
the contempt motion and the January 21 judgment.
II. Analysis
This court has jurisdiction over Tranzact’s appeal under
28 U.S.C. § 1291. Post-judgment proceedings are treated as
a separate lawsuit under that statute, and an order winding
up those proceedings is appealable if it is final. See Transp.
Cybernetics, Inc. v. Forest Transit Comm’n, 950 F.2d 350,
352 (7th Cir. 1991); SEC v. Suter, 832 F.2d 988, 990 (7th
Cir. 1987). Here, the parties agreed to a judgment entered
in February 2003, so Tranzact’s November contempt motion
was certainly a post-judgment proceeding. In denying
Tranzact’s motion to reconsider dismissal of the contempt
motion on January 21, Magistrate Judge Bobrick specifi-
cally stated that there was nothing left to be done in the
1
(...continued)
(supported by Higgins’s affidavit) that Higgins attempted collec-
tion of the collateral on February 15, 2003, the day after the stip-
ulation and agreed judgment order was entered.
No. 04-1418 5
trial court; his order was final, and it disposed of all issues
raised in the contempt motion. (Jan. 21 Hr’g Tr. at 21 (“And
so I’m concluding this matter and letting the chips fall
where they may. . . .[T]here’s good reason for me to deny the
motion and conclud[e] this matter, period. It’s over.”).) We
need not discuss the finality of the December 19 order,
because the appeal from the final January 21 order brings
up the earlier order for consideration. See Suter, 832 F.2d
at 990 (appeal from final order in post-judgment proceedings
brings up issues unresolved in main case). Defendants’
protestations as to jurisdiction notwithstanding, we proceed
to the merits.2
We review the magistrate judge’s decision to dismiss the
contempt motion for abuse of discretion. See Rockwell
Graphic Sys., Inc. v. DEV Indus., Inc., 91 F.3d 914, 921 (7th
Cir. 1996). “For [a party] to be held in civil contempt, he
must have violated an order that sets forth in specific detail
an unequivocal command from the court.” United States v.
Dowell, 257 F.3d 694, 699 (7th Cir. 2001). Civil contempt
sanctions are properly imposed for two reasons: to compel
compliance with the court order and to compensate the
complainant for losses caused by contemptuous actions. Id.Also, attorney’s fees may be awarded in contempt proceed-
ings at the court’s discretion. CFTC v. Premex, Inc., 655
F.2d 779, 785 (7th Cir. 1981).
The provision that Wang is accused of violating is as
follows:
2
The cases cited by Wang and 1Source in support of their argu-
ment that this court lacks jurisdiction under 28 U.S.C. § 1291differ from this situation because those cases had issues still pend-
ing in the trial courts. See SEC v. Van Waeyenberghe, 284 F.3d 812,
815 (7th Cir. 2002) (finding a turnover order not final because it
determined only who held the money while litigation proceeded);
United States v. Torres, 142 F.3d 962, 970 (7th Cir. 1998) (finding
a contempt order not final because the amount of fees awarded
was yet to be determined by the trial court).
6 No. 04-1418
Plaintiff is entitled to possession of the Collateral and
John Wang, as agent for the Defendant, shall deliver, or
cause to be delivered, all of the Collateral, free and
clear of any liens, claims or encumbrances, to the
Plaintiff on or before February 12, 2003, or such other
date as the Parties expressly agree to in writing.
(R. at 39.) Wang himself does not dispute that he did not
deliver (or cause to be delivered) the collateral to Tranzact.
He argues instead that this provision is not enforceable
through a contempt proceeding because it is nothing more
than a contract provision, albeit incorporated in a court
order. It is true that a settlement agreement may not be
enforceable through a contempt proceeding when its terms
are not expressly set forth in a court order, D. Patrick, Inc.
v. Ford Motor Co., 8 F.3d 455, 461 (7th Cir. 1993), but this
is not such a case. The language at issue here is not simply
incorporated by reference into the court’s order, but speci-
fically set forth in the order itself. It is clear, unambiguous,
and perfectly amenable to being enforced through a con-
tempt proceeding.
As noted, Wang did not deliver the collateral. After several
attempts to pick up the equipment through its own agent,
Tranzact filed its contempt motion. The motion sought
compensation for the fair value of the collateral disposed of
by Wang (including the equipment given to the storage
company to pay storage fees), attorney’s fees incurred in
prosecuting the motion, a decision on who was responsible
for still-outstanding storage costs, and an order compelling
Wang to turn over any remaining collateral. Only after the
filing of this contempt motion did Wang reveal the locations
of the various pieces of computer equipment making up the
collateral—still not complying literally with his obligations
under the order. Based on this plain failure to fulfill his
court-ordered obligations—to which he had agreed rather
than going to trial—it would have been proper to hold Wang
in contempt.
No. 04-1418 7
Instead, Magistrate Judge Bobrick dismissed the con-
tempt motion as moot and did not rule on Tranzact’s other
requests for relief, including the issue of storage costs and
compensation for the collateral disposed of by Wang. This
failure to resolve disputed questions of fact was an abuse of
discretion. Due process requires a district court to resolve
relevant factual disputes—allowing discovery and holding
an evidentiary hearing if necessary—in a civil contempt
proceeding. D. Patrick, 8 F.3d at 459; In re Grand Jury
Proceedings Empanelled May 1988, 894 F.2d 881, 882-83
(7th Cir. 1989). The due process rights belong to both the
alleged contemnor and the complainant; as we stated in
Rockwell Graphic Systems,
[t]here is no reason to suppose that this due process
protection accrues only to the benefit of those alleged to
be in contempt. A party who seeks enforcement of an
injunction through the medium of civil contempt is
likewise entitled to the resolution of genuine issues of
material fact that bear upon the allegations by which it
seeks to support a finding of contempt.
91 F.3d at 920; see also United States v. City of Northlake,
942 F.2d 1164, 1170 (7th Cir. 1991) (reversing denial of con-
tempt motion and holding that complainant was entitled to
discovery as to whether defendant was in contempt). Here,
the court was obliged to rule on which party had responsi-
bility for storage costs and to resolve the issue of the col-
lateral disposed of by Wang.
The magistrate judge based his dismissal on Tranzact’s
purported failure to mitigate its damages, saying that “[i]f
[Tranzact] wanted the equipment, [it] could have paid the
storage fees right then and there. . . . They would have been
a lot less than they are now, and we wouldn’t have this
controversy.” (Jan. 21 Hr’g Tr. at 21.) Because Tranzact did
not have a duty to mitigate, we find this basis for dismissal
to be erroneous as a matter of law. According to the agreed
8 No. 04-1418
judgment order, Wang was obligated to deliver the collat-
eral free and clear of any liens, claims, or encumbrances.
Requiring Tranzact to pay storage fees on Higgins’s first
attempt to collect the collateral (which Higgins has sworn
was on February 15, the day after the order was entered,
but Wang in unsworn statements says was at some later
point in time) or forfeit a contempt motion would be to
reward Wang’s failure to comply with the plain language of
the order.
Finally, we turn to the issue of attorney’s fees. As men-
tioned above, it is within the trial court’s discretion to award
fees upon a finding of civil contempt. Premex, 655 F.2d at
785. There is some indication in the record that the magis-
trate judge did not believe he could assess Wang personally
with attorney fees. (Jan. 12 Hr’g Tr. at 9.) This is not the
case; it is well established that an individual officially
responsible for a corporation’s compliance with a court order,
as Wang was in this case, may be punished for contempt if
he fails to act appropriately. See Connolly v. J.T. Ventures,
851 F.2d 930, 935 (7th Cir. 1988). On remand, if Wang is
found in contempt, the magistrate should award attorney’s
fees and costs against Wang as he sees fit.
III. Conclusion
Civil contempt sanctions are designed for the dual
purposes of compelling compliance with a court order and
compensating the complainant for losses caused by con-
temptuous actions. There is evidence in the record that
Wang did not comply with the clear and unambiguous
terms of a court order; civil contempt is a proper means of
compelling compliance with that order and compensating
Tranzact for any noncompliance. The magistrate abused his
discretion in dismissing Tranzact’s contempt motion with-
out ruling on disputed issues of fact and on the erroneous
grounds that Tranzact had breached a duty to mitigate its
No. 04-1418 9
damages. We REVERSE the dismissal and REMAND the case
to the district court. The district court on remand is directed
to resolve these issues and award costs and attorney’s fees
as appropriate.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—5-4-05