Kenneth Gharib v. Thomas Casey

FILED
NOT FOR PUBLICATION
JUL 28 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: KENNY G ENTERPRISES, LLC, No. 16-55007
Debtor, D.C. No. 8:15-cv-00551-GW
------------------------------
MEMORANDUM*
KENNETH GHARIB,
Appellant,
v.
THOMAS H. CASEY, Chapter 7 Trustee,
Appellee.
In re: KENNY G ENTERPRISES, LLC, No. 16-55008
Debtor, D.C. No. 8:15-cv-00551-GW
------------------------------
THOMAS H. CASEY, Chapter 7 Trustee,
Appellant,
v.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
KENNETH GHARIB,
Appellee.
Appeal from the United States District Court
for the Central District of California
George H. Wu, District Judge, Presiding
Argued and Submitted April 3, 2017
Pasadena, California
Before: WARDLAW and CALLAHAN, Circuit Judges, and KENDALL,**
District Judge.
Kenneth Gharib (“Gharib”) appeals the district court’s decision affirming in
part and vacating in part the bankruptcy court’s order finding him in contempt of
court in the bankruptcy proceedings of Kenny G Enterprises, LLC (“the Debtor”).
The district court affirmed the portion of the bankruptcy court’s contempt order
fining Gharib $1,420,043.70, but vacated the portion of the order imposing $1,000
in daily sanctions. Thomas H. Casey cross-appeals. We have jurisdiction under 28
U.S.C. § 158(d). We affirm in part and reverse in part.
1. The district court properly affirmed the bankruptcy court’s
$1,420,043.70 sanction against Gharib. The bankruptcy court may hold Gharib in
**
The Honorable Virginia M. Kendall, United States District Judge for
the Northern District of Illinois, sitting by designation.
2
civil contempt for failing to comply with his statutory turnover obligations. See 11
U.S.C. § 105(a) (“The court may issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of this title.”). The record
supports the bankruptcy court’s decision to hold Gharib in contempt. The
bankruptcy court found that on August 14, 2013, Dana Douglas, representing the
Debtor, notified Gharib that the Debtor’s bankruptcy case was converted from one
under Chapter 11 to one under Chapter 7. The conversion triggered Gharib’s
obligations under 11 U.S.C. § 542(a) and Central District of California Local
Bankruptcy Rule (“LBR”) 3020-1(b)(5) to turn over to the trustee of the Debtor’s
estate all of the Debtor’s assets that were in Gharib’s possession, which amounted
to $1,420,043.70. Gharib failed to do so. A year and a half later, after extensive
briefing, discovery, and an evidentiary hearing to determine the precise scope of
Gharib’s turnover obligations and to discover where the assets had gone, the
bankruptcy court concluded that “in all likelihood the alleged Iran transaction is
entirely fiction and the Hillsborough proceeds [amounting to $1,420,043.70] (or
what is left of them) are still here and under Gharib’s control.” Based on the
record before us, we cannot conclude that the bankruptcy court’s finding was
clearly erroneous. See Atlanta Corp. v. Allen (In re Allen), 300 F.3d 1055, 1058
(9th Cir. 2002).
3
Because complying with the bankruptcy court’s order will cure his
contempt, Gharib’s contempt is civil, not criminal. See Shillitani v. United States,
384 U.S. 364, 368 (1966) (holding that when an incarcerated contemnor “carr[ies]
the keys of [his] prison in [his] own pockets” (internal quotation marks omitted),
his contempt is civil in nature). Accordingly, the bankruptcy court acted within its
11 U.S.C. § 105(a) civil contempt powers when it sanctioned Gharib in the amount
of $1,420,043.70, and did so again when it ordered Gharib incarcerated for his
continued failure to comply. See Cal. Emp’t Dev. Dep’t v. Taxel (In re Del
Mission Ltd.), 98 F.3d 1147, 1151–52 (9th Cir. 1996) (where an entity failed to
perform its § 542(a) obligations, § 105 authorized the bankruptcy court’s coercive
fines); see also Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821,
828 (1994) (“The paradigmatic coercive, civil contempt sanction . . . involves
confining a contemnor indefinitely until he complies with an affirmative command
such as an order to pay alimony, or to surrender property ordered to be turned over
to a receiver, or to make a conveyance.” (internal quotation marks omitted)).
Therefore, the district court did not err in affirming the bankruptcy court’s
$1,420,043.70 sanction against Gharib, and the bankruptcy court acted within its
civil contempt authority in detaining Gharib for his continued failure to pay the
sanction.
4
2. However, the district court erred by vacating the portion of the
bankruptcy court’s order imposing daily sanctions on Gharib for failure to pay the
contempt fine. The district court reviewed the bankruptcy court’s contempt order
only with reference to the language of § 542, which mandates the turnover of
“property or the value of such property.” 11 U.S.C. § 542(a). From this, the
district court erroneously concluded that the amount of the bankruptcy court’s
sanctions against Gharib had to be cabined to “the value of” the assets Gharib was
required to turn over, or $1,420,043.70 only. But in the face of a § 542 violation
the bankruptcy court may invoke its contempt power under § 105, which allows
the court to “issue any order, process, or judgment that is necessary or appropriate
to carry out the provisions of this title.” 11 U.S.C. § 105(a). See In re Del
Mission, 98 F.3d at 1151–52 (9th Cir. 1996) (noting that § 105(a) provides the
remedy for a § 542(a) violation). As long as the sanctions are coercive in nature
and not punitive, § 105(a) articulates no specific monetary limit on the scope of
contempt sanctions available to the court. To the contrary, the Supreme Court has
noted that “a per diem fine imposed for each day a contemnor fails to comply with
an affirmative court order . . . exert[s] a constant coercive pressure, and once the
jural command is obeyed, the future, indefinite, daily fines are purged.” Int’l
Union, 512 U.S. at 829. Therefore, where per diem fines can be prospectively
5
purged “through full, timely compliance” with the court’s order, then daily fines
“operate[] as a coercive imposition upon the defendant . . . to compel [his]
obedience.” Id. at 830 (internal quotation mark omitted). Because this precisely
describes the nature of the $1,000 daily sanctions the bankruptcy court imposed,
the court acted within its § 105(a) civil contempt authority when it imposed them.
3. Because the monetary sanctions imposed and Gharib’s ensuing
incarceration for noncompliance with those sanctions are properly coercive, they
are not punitive. However, we are mindful that Gharib has remained incarcerated
for civil contempt since May 2015. At some point, due process considerations will
require the bankruptcy court to conclude that Gharib’s continued detention and the
daily $1,000 sanctions have ceased to be coercive and instead have become
punitive. When that occurs, Gharib must be released from custody.
4. In light of our disposition, we decline to reach Gharib’s claim that he
lacked notice of the bankruptcy court’s August 14, 2013 oral temporary restraining
order.
AFFIRMED IN PART; REVERSED IN PART.
6