Odyssey Reinsurance Company v. Nagby ( 2019 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 Case No.: 3:16-cv-3038-BTM-WVG ODYSSEY REINSURANCE 12 COMPANY, a Connecticut ORDER DENYING MOTION TO 13 corporation, VACATE ARREST WARRANT 14 Plaintiff, 15 v. [ECF No. 329] 16 RICHARD KEITH NAGBY, et al., 17 Defendants. 18 19 Before the Court is Defendant Diane Dostalik’s (f/k/a Diane Nagby) 20 (“Defendant”) motion to vacate the arrest warrant for failure to purge her civil 21 contempt issued by this Court on July 15, 2019 (ECF No. 300) (the “Arrest 22 Warrant”). (ECF No. 329.) Plaintiff initiated this action “seeking recovery of funds 23 to which it claims an interest as a creditor, funds allegedly fraudulently transferred 24 from Pacific Broker’s Insurance Services (‘PBIS’) to Defendant . . . and her former 25 husband.” (ECF No. 329-1, at 5 (citations omitted); see also id. at 6 (“The 26 complaint alleges $2,500,000 was fraudulently transferred from PBIS to 27 [Defendant].” (citations omitted)); see generally, ECF No. 24 (Plaintiff’s operative 28 second amended complaint).) On October 4, 2017, the Court entered a 1 preliminary injunction (the “Preliminary Injunction”) that, inter alia, prohibited 2 Defendant from “[t]ransferring, assigning, disposing, of or commingling any funds 3 or property received in connection with the sale of PBIS to AmTrust” and required 4 her to “deposit in the registry of the Court . . . all funds already received in 5 connection with the sale of PBIS to AmTrust” as well as any funds subsequently 6 received by Defendant from AmTrust or its agents. (ECF No. 69, at 2-3.) On 7 August 8, 2018, the Court entered a temporary restraining order (the “TRO”) that, 8 inter alia, prohibited Defendant from disbursing or transferring any funds from any 9 account established at Caye International Bank or proceeds from any investment 10 related to Rich Uncles, LLC or cryptocurrency. (See ECF No. 172, at 2.) The TRO 11 further required that Defendant provide Plaintiff’s counsel with documents and 12 information relating to her interactions with Caye International Bank, Rich Uncles, 13 LLC, and cryptocurrency within thirty (30) days of the entry of the TRO. (Id. at 3.) 14 When Defendant failed to timely oppose Plaintiff’s October 5, 2018 ex parte 15 application for an order to show cause why Defendant should not be held in 16 contempt for, inter alia, violations of the Preliminary Injunction and TRO (ECF Nos. 17 182, 185), the Court set an evidentiary hearing and ordered Defendant to show 18 cause why she should not be held in contempt. (ECF No. 199.) 19 After a multiple-day evidentiary hearing, the Court issued an Order filed June 20 27, 2019 (the “Contempt Order”) in which it held Defendant in contempt for 21 violating the Preliminary Injunction by: (i) failing to deposit into the Court’s registry 22 $176,263.13 in PBIS sales proceeds in her possession on October 11, 2017; (ii) 23 commingling and transferring PBIS sales proceeds between October 2017 and 24 September 2018; and (iii) failing to deposit into the Court’s registry $551,750 in 25 PBIS sales proceeds in her possession on July 25, 2019. (ECF No. 287, at 8-28.) 26 The Court also held Defendant in contempt for violating the TRO by: (i) transferring 27 and disbursing funds from Caye International Bank and proceeds from Rich 28 Uncles, LLC in August and September 2018; and (ii) failing to provide documents 1 and information related to Caye International Bank, Rich Uncles, LLC, and 2 cryptocurrency accounts and investments. (Id.) Further, the Court granted Plaintiff 3 the attorney’s fees it incurred in connection with Defendant’s contemptuous 4 conduct and held that to purge her contempt, Defendant must deposit the sums of 5 $136,333.17 and $551,750 into the Court‘s registry and provide Plaintiff with “any 6 documents or substantive information, documented or undocumented, regarding 7 the disposition of and access to any income, accounts, investments, or proceeds 8 relating to Caye International Bank, Rich Uncles, LLC, and cryptocurrency.” (Id. 9 at 27-28.) The Court gave Defendant “fourteen days from the entry of th[e] Order 10 to purge the contempt, or she [would] be committed to the custody of the U.S. 11 Marshal” and further ordered the parties to “appear before the Court on July 15, 12 2019 at 3 pm for a status conference as to any purging of the contempt.” (Id. at 13 27-28, 30.) The Court stated that, “[i]n the absence of purging of the contempt, 14 [Defendant] shall then and there surrender to the U.S. Marshal to be confined until 15 she purges her contempt.” (Id. at 30.) On July 15, 2019, Defendant failed to 16 appear and the Arrest Warrant was issued as a coercive civil contempt sanction 17 for Defendant’s failure to timely purge her contempt or appear before the Court at 18 the status conference. (See ECF Nos. 300, 305.) 19 After the entry of the Contempt Order but before the issuance of the Arrest 20 Warrant, the Court granted summary judgment against Defendant on July 2, 2019 21 as to Plaintiff’s fourth cause of action, namely constructive fraud in violation of 22 California’s Uniform Fraudulent Transfer Act (the “UFTA”), in the amount of 23 $2,500,000. (ECF No. 289 (the “Summary Judgment Order”).) On August 30, 24 2019, the Court entered final judgment in favor of Plaintiff against Defendant 25 pursuant to Plaintiff’s acceptance of an offer of judgment made by Defendant under 26 Federal Rule of Civil Procedure 68 on or about August 5, 2019. (ECF No. 325 (the 27 “Judgment”); see also ECF No. 316 (notice of acceptance of offer of judgment); 28 ECF No. 319 (proposed judgment on acceptance of offer of judgment).) The 1 Judgment provides, inter alia, that: 2 1. The payment of $2,500,000.00 from [PBIS] to [Defendant] (the “Avoided Distribution”) is avoided under the [UFTA]. 3 4 2. Plaintiff . . . shall recover from Defendant . . . damages under the [UFTA] in the total amount of $3,208,150.68 (consisting of 5 the total of $2,500,00.00 plus $708,150.68 in pre-judgment interest at 6 the rate of seven percent per cent per annum (7%) calculated from August 4, 2015). 7 8 3. Consistent with the [Preliminary Injunction] ([ECF] No. 69) and [the Contempt Order] ([ECF] No. 287) . . . : 9 10 3.1 [Defendant], individually and in any other capacity, her agents, trusts, assigns, and all those acting [on] her behalf, 11 including Green Tree Funding, LLC, are permanently enjoined 12 and restrained from directly or indirectly transferring, assigning, disposing of or commingling any of the Avoided Distribution, or 13 funds or property representing the proceeds of the Avoided 14 Distribution; . . . 15 3.3 [Defendant] shall deposit into the registry of this 16 Court all funds representing the proceeds of the Avoided Distribution, where they shall be held pending a determination by 17 the Court as to what extent, if any, they should be applied to 18 satisfaction of this Judgment. 19 (ECF No. 325, at 2-3.) Notably, unlike the provision requiring Defendant to deposit 20 proceeds from the avoided distribution into the Court’s registry, the Judgment does 21 not include a provision requiring compliance with the Contempt Order’s 22 requirements that Defendant provide Plaintiff with “any documents or substantive 23 information, documented or undocumented, regarding the disposition of and 24 access to any income, accounts, investments, or proceeds relating to Caye 25 International Bank, Rich Uncles, LLC, and cryptocurrency.” (Compare ECF No. 26 287; with ECF No. 325.) 27 To date, Defendant has evaded arrest and her present whereabouts and 28 contact information are unknown even to her own counsel. (See ECF No. 334-2, 1 ¶ 8 (“Despite multiple efforts, including phone calls and emails – which were the 2 primary means by which I [i.e., Defendant’s counsel] communicated with 3 [Defendant] – I have received no communications from [Defendant] since July 14, 4 2019. I do not know her current whereabouts, nor have I received any information 5 which would facilitate communication with her or lead me to her whereabouts.”).) 6 Further, Defendant has failed to deposit into the Court’s registry any and all PBIS 7 sales proceeds (i.e., the Avoided Distribution) as required by the Preliminary 8 Injunction, Contempt Order, and Judgment. 9 Nevertheless, Defendant seeks the vacatur of the Arrest Warrant.1 (ECF No. 10 329.) According to Defendant, the Preliminary Injunction and Contempt Order “all 11 relate to or are derived from . . . Plaintiff’s claim [that Defendant] fraudulently 12 received $2,500,000 from PBIS.” (ECF No. 329-1, at 14.) Further, “[b]ecause the 13 Court entered judgment as to the fraudulent transfer of $2,500,000, the underlying 14 contempt proceeding, temporary restraining orders, preliminary injunctions, orders 15 16 17 1 Defendant does not argue that any remedial or compensatory civil contempt sanctions issued in connection with the Preliminary Injunction or Contempt Order, 18 including Plaintiff’s attorney’s fee award entered against her in connection with the 19 Contempt Order, should be vacated, nor does the Court feel compelled to do so. See Reliance Ins. Co. v. Mast Const. Co., 84 F.3d 372, 376 (10th Cir. 1996) 20 (“Generally speaking, a person who violates an injunction or temporary restraining 21 order during its pendency is subject to a compensatory civil contempt judgment, even if the injunction or restraining order later terminates due to passage of time 22 or mootness.”); Klett v. Pim, 965 F.2d 587, 590 (8th Cir. 1992) (“If the underlying 23 injunction abates for a reason that does not go to the jurisdiction of the issuing court, . . . a compensatory civil contempt may still be brought.”) Indeed, the 24 Judgment itself implicitly recognizes the continuing validity of the Contempt Order’s 25 grant of Plaintiff’s attorney’s fees. (See ECF No. 325, ¶ 4 (“Except as otherwise ordered by the Court on [Plaintiff’s] motion for attorney fees filed July 11, 2019, 26 each party shall bear their own attorney fees.”).) Notably, Plaintiff’s motion for 27 attorney’s fees seeks to quantify its fee award under the Contempt Order. (See ECF No. 295; see also ECF No. 287, at 28 (granting Plaintiff fourteen days to file 28 1 to show cause, contempt order, and sanctions order related to the fraudulently 2 transferred funds are all now expired.” (Id. at 15.) Thus, Defendant argues, “the 3 Contempt Order upon which the [A]rrest [W]arrant was issued is no longer valid” 4 and the Arrest Warrant should be vacated. (Id.) As support for her conclusions, 5 Defendant argues that “[a]lthough a preliminary injunction is usually not subject to 6 a fixed time limitation, it is ipso facto dissolved by a dismissal of the complaint or 7 by entry of a final decree in the case.” (ECF No. 329-1, at 11 (quotations, 8 alterations, and emphasis omitted) (citing U.S. Philips Corp. v. KBC Bank N.V., 9 590 F.3d 1091, 1093-94 (9th Cir. 2010); and Fundicao Tupy S.A. v. United States, 10 841 F.2d 1101, 1103 (Fed. Cir. 1988)). Defendant further argues “the [C]ourt 11 cannot enforce a ‘coercive’ civil contempt if the underlying injunction is no longer 12 in effect for whatever reason.” (ECF No. 329-1, at 13 (citing Shell Offshore Inc. v. 13 Greenpeace, Inc., 815 F.3d 623, 630 (9th Cir. 2016); Scott & Fetzer Co. v. Dile, 14 643 F.2d 670, 675 (9th Cir. 1981); and Klett v. Pim, 965 F.2d 587, 590 (8th Cir. 15 1992)); see also id. at 14 (“[T]he term of punishment for civil contempt cannot 16 extend beyond the trial proceedings since at the termination of the trial the 17 contemnor's actions can no longer be purged.” (emphasis omitted) (quoting United 18 States v. Powers, 629 F.2d 619, 627 (9th Cir. 1980)).) 19 As an initial matter, Plaintiff argues that Defendant should be “barred” from 20 seeking the vacatur of the Arrest Warrant “until she surrenders and is taken into 21 custody” because she is presently a “fugitive from justice disentitle[d] . . . to call 22 upon the resources of the Court.” (See ECF No. 332, at 10-11.) Yet each and 23 every case cited by Plaintiff in support of such argument, known as the 24 “disentitlement doctrine,” was based upon an individual that was a fugitive from 25 criminal prosecution. See Molinaro v. New Jersey, 396 U.S. 365 (1970) (declining 26 to adjudicate appeal from state court criminal conviction by defendant who had 27 failed to surrender to state authorities after revocation of bail); United States v. 28 $129,374 in U.S. Currency, 769 F.2d 583, 584 (9th Cir. 1985) (affirming denial of 1 motion to intervene in a civil forfeiture proceeding by the successor in interest to a 2 defendant that failed to appear for sentencing in criminal prosecution that was the 3 genesis of the civil forfeiture proceeding); United States v. One Parcel of Real 4 Prop., Described as Lot 156 & S. Three Feet of Lot 157, Valley View Estates, a 5 Subdivision, in City of Grandview, Jackson Cty., Mo., 982 F.2d 526 (8th Cir. 1992) 6 (affirming dismissal of claims of ownership in civil in rem forfeiture proceeding 7 where claimant was the subject of an outstanding arrest warrant for criminal 8 prosecution that was the genesis of the forfeiture proceeding). The parties have 9 not cited, nor has the Court been able to find, precedent prohibiting a civil contempt 10 fugitive from seeking the vacatur of a sanction imposed as a result of such civil 11 contempt. Because the disentitlement doctrine is not jurisdictional in nature and 12 Defendant’s arguments fail on their merits, the Court need not reach the issue. 13 See United States v. Van Cauwenberghe, 934 F.2d 1048, 1054 (9th Cir. 1991) 14 (“The disentitlement doctrine . . . is not one of jurisdictional dimensions, but rather 15 one based on equitable considerations.” (citing United States v. Sharpe, 470 U.S. 16 675, 681 n.2 (1985); and Molinaro, 396 U.S. at 366)); see also $129,374 in U.S. 17 Currency, 769 F.2d at 587 (“[A]n individual who [is] flouting legal process has no 18 entitlement to engage the court's resources to adjudicate his claims in an action 19 related to his prior criminal conviction.” (emphasis added) (citing Conforte v. 20 Comm'r, 692 F.2d 587, 589 (9th Cir. 1982)). 21 Because relevant portions of the Preliminary Injunction of which Defendant 22 was found to be in contempt have been merged with and renewed via their 23 incorporation into the Judgment, Defendant’s arguments as to the termination of 24 the civil contempt sanctions are inapposite. (See ECF No. 69, at 2-3; ECF No. 25 287, at 26; ECF No. 325, at 2-3; see also; ECF No. 329-1, at 9 (“[Defendant] 26 agreed to judgment as to the fraudulent transfer, interest since the fraudulent 27 transfer, . . . and a permanent injunction requiring turnover of funds derived from 28 her receipt of PBIS funds.”).) Defendant’s argument that “the Court cannot find the 1 [Preliminary Injunction] part and parcel of” the Judgment (ECF No. 329-1, at 11), 2 is belied by the explicit terms of the Judgment to which she agreed.2 (See ECF 3 No. 325, at 2 (“Consistent with the [Preliminary Injunction] ([ECF] No. 69) and [the 4 Contempt Order] ([ECF] No. 287) . . . .” (emphasis added)).) Defendant has put 5 forth no precedent for the proposition that a coercive civil sanction that results from 6 a party’s contempt of a preliminary injunction automatically dissolves or otherwise 7 extinguishes upon the entry of final judgment where the material terms of such 8 preliminary injunction are incorporated into a permanent injunction that is part of 9 the relevant final judgment. Thus, while the Court agrees that the requirements of 10 the Contempt Order that were not incorporated into the Judgment, namely the 11 requirement that Defendant provide Plaintiff with documents and information 12 “income, accounts, investments, or proceeds relating to Caye International Bank, 13 Rich Uncles, LLC, and cryptocurrency,” dissolved upon the entry of the Judgment,3 14 the Court disagrees that the requirements of the Contempt Order that were 15 incorporated into the Judgment, namely the requirement that Defendant deposit 16 the proceeds of the avoided transfers into the Court’s registry, similarly dissolved. 17 (See ECF No. 287, at 27-28; ECF No. 325.) 18 The cases relied upon by Defendant as the crux of her arguments are all 19 20 21 2 Because Defendant drafted and approved the form and substance of the Judgment via the offer of judgment procedures of Federal Rule of Civil Procedure 22 68, any argument that she did not have notice of or an opportunity to be heard as 23 to the merger and renewal of the relevant terms of the Preliminary Injunction into the Judgment’s permanent injunction are meritless. (Compare ECF No. 316, at 3- 24 5 (Defendant’s offer of judgment); with ECF No. 325 (the Judgment).) 25 3 Plaintiff may still seek such documents and information, however, via post- judgment discovery as set forth in Federal Rule of Civil Procedure 69. See Fed. 26 R. Civ. P. 69(a)(2) (“In aid of the judgment or execution, the judgment creditor or 27 a successor in interest whose interest appears of record may obtain discovery from any person—including the judgment debtor—as provided in these rules or by the 28 1 distinguishable. See Shell Offshore, 815 F.3d at 630-31 (coercive contempt 2 sanction was mooted where “preliminary injunction ha[d] expired and w[ould] not 3 be renewed” in final judgment); U.S. Philips, 590 F.3d 1091, 1092-95 (court’s order 4 modifying preliminary injunction was void ab initio where it was entered after grant 5 of default judgment that “did not . . . incorporate the terms of the TRO or preliminary 6 injunction . . . [and] did not impose an ongoing asset freeze” on the defendants); 7 Scott & Fetzler Co., 643 F.2d at 674-75 (contempt judgment vacated where 8 underlying injunction was invalidated due to trial court’s abuse of discretion in 9 original grant of injunction); Powers, 629 F.2d at 622-29 (9th Cir. 1980) (finding of 10 contempt for witness’s refusal to testify in criminal trial and resulting criminal 11 contempt sanction of 90 days imprisonment upheld on appeal); Klett, 965 F.2d at 12 590 (district court lacked subject matter jurisdiction over contempt claims because 13 it did not issue the underlying injunction); Fundicao Tupy, 841 F.2d at 1102-03 14 (interlocutory appeal of denial of preliminary injunction mooted where underlying 15 court’s intervening final decision dismissed appellant’s complaint without grant of 16 permanent injunction). Moreover, Defendant ignores the Court’s power to hold a 17 disobedient party in contempt for its failure to perform any specific act required by 18 a judgment. See Fed. R. Civ. P. 70(e); Shillitani v. United States, 384 U.S. 364, 19 370 (1966) (“There can be no question that courts have inherent power to enforce 20 compliance with their lawful orders through civil contempt.” (citations omitted)); see 21 also United States v. Swift & Co., 286 U.S. 106, 115 (1932) (“We reject the 22 argument . . . that a decree entered upon consent is to be treated as a contract 23 and not as a judicial act.”). Finally, Defendant has made no showing that she has 24 purged her contempt as required by the surviving provisions of the Contempt Order 25 or that the necessity for the coercive sanction of imprisonment has otherwise 26 ended. Nor has she demonstrated a defect in the underlying injunction or 27 contempt proceedings or an inability to comply with the surviving provisions of the 28 Contempt Order incorporated into the Judgment. 1 Based upon the foregoing, Defendant’s motion to vacate the Arrest Warrant 2 ||(ECF No. 329) is DENIED. The Court reminds Defendant that she “carries the 3 || keys of [her] prison in [her] own pocket” and “can end the sentence and discharge 4 ||h[er]self at any moment by doing what [s]he ha[s] previously refused to do.” 5 || Gompers v. Buck's Stove & Range Co., 221 U.S. 418, 442 (1911) (quotations 6 || omitted). 7 Finally, the Court observes that, despite six months having elapsed since the 8 ||entry of the Contempt Order, Defendant has failed to purge her contempt of the 9 ||surviving provisions of the Contempt Order incorporated into the Judgment. 10 ||Further, given the nature of her prior contemptuous conduct, there is a significant 11 ||likelinood that Defendant has dissipated the proceeds of the avoided transaction 12 ||(and continues to do so) that she has been ordered to pay into this Court’s registry. 13 || Moreover, Defendant continues to disregard this Court’s requirement that she turn 14 ||herself over to the United States Marshals Service until such time as she purges 15 ||her contempt. Accordingly, the Court will refer this matter to the United States 16 || Attorney’s Office for the Southern District of California to determine in its discretion 17 ||whether Defendant should be prosecuted for criminal contempt. See Fed. R. Crim. 18 ||P. 42; 18 U.S.C. §§ 402, 3691. The Clerk is directed to serve a copy of this order, 19 ||as well as the Preliminary Injunction, Contempt Order, and Judgement (ECF Nos. 20 287, 325), upon the Chief of the Criminal Division of the United States 21 || Attorney's Office. 22 IT IS SO ORDERED. 23 ||Dated: December 30, 2019 24 Cony Td. Miehoars 25 Honor ble Barry Ted Moskawitz United States District Judge 26 27 28