SEC v. Bilzerian

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
PAUL A. BILZERIAN, et al.
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v. ) Civil Acti0n N0. 89-1854 (RCL)
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Defendants )
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MEMORANDUM OPINION
I. INTRODUCTION
This matter now comes before the Court on Eamest Haire’s ("Haire") Motion [1058] for
Sanctions for Puma and Bilzerian’s Failure to Comply with the Court’s May ll, 2009, and
August l2, 2009 Orders.‘ Also before the Court are the motions of movants Haire [998, 999]
and Geoffrey Todd Hodges ("Hodges") [1001] for an order holding Haircut LLLP ("Haircut"),
David E. Hammer ("Harnmer"), the Puma Foundation ("Puma"), Paul A. Bilzerian ("Bilzerian"),
and Terri L. Steffen ("Steffen") in civil contempt for failure to comply with the Court’s July 19,
2001 Order [416] ("injunction" or "2001 order"). As set forth below, the Court will grant the
motion [1058] for sanctions and will deny the motion [998] for an order holding Haircut in
contempt. In addition, the Court will grant motions [999, l00l] for an order holding Hammer,
Puma, Bilzerian, and Steffen in civil contempt.
‘ Haire’s filing is titled "Haire’s Notice of Failure to Comply with Purgation Orders and
Request for Sanctions." Because Haire requests the Court to impose additional sanctions against
Bilzerian, Hammer, and Puma, the Court construes Haire’s filing as a motion for sanctions.
II. BACKGROUND
A detailed background of this case, which was originally brought by the Securities and
Exchange Commission ("SEC") against Bilzerian in 1989, is contained in the Court’s May ll,
2009, Memorandum Opinion [987], SEC v.Bilzerian, 613 F. Supp. 2d 66, 68-69 (D.D.C. 2009).
The facts relevant to the issues now before the Court are as follows.
On July 19, 2001 , this Court enjoined Bilzerian from commencing proceedings in any
court without this Court’s permission. (Order [416] at 2 (July 19, 200l).) Specifically, the
injunction provides that
Paul A. Bilzerian, his agents, servants, employees and attorneys, and those
persons in active concert or participation with them, who received actual notice of
this Order by personal service or otherwise, are prohibited from filing or causing
the filing of any complain, proceeding or motion in the United States Bankruptcy
Court for the Middle District of Florida, or from commencing or otherwise
causing the commencement of any proceedings in any court, other than in this
Court or in the appeals of this Court’s Orders to the United States Court of
Appeals for the District of Columbia, without prior application to and approval of
this Court.
On May ll, 2009, this Court found Bilzerian, Hammer, and Puma in civil contempt for
violation of the 2001 order by commencing and prosecuting the following lawsuits: Bilzerian v.
Haire, Case No. 08-09149 in the Thirteenth Circuit, Hillsborough County, Florida; Bilzerian’s
counterclaim and cross claims in Caligula v. Nat’l Gola’ Exchange, Case No. 07-cv-0l7763 in
the Thirteenth Circuit, Hillsborough County, Florida; Bilzerian’s miscellaneous action against
Ernest B. Haire, Case No. 08-mc-102 in the Bankruptcy Court for the Middle District of Florida;z
and Bilzerian’s commencement of Puma Foundation et al. v. Haire, Case No. 06-0098l6 in the
2 In the May ll, 2009 Order, the Court incorrectly stated the case number for Bilzerian’s
miscellaneous action against Haire as Case No. 08-mc-212. The Court corrected this error in its
August l2, 2009 Order and changed the case number to 08-mc-l02.
2
Thirteenth Circuit Court in Hillsborough County, Florida. (Order [986] at 1-2 (May ll, 2009).)
The Court ordered Bilzerian and Puma to purge their contempt by dismissing the cases
above and ordered Hammer to purge his contempt "by ceasing his representation of Bilzerian in
any capacity in any litigation matters and withdrawing as counsel, if listed as counsel of record,
in any of the above cases." (Id. at 1-3.) Bilzerian, Hammer, and Puma were required to purge
their contempt within ten days. (Id. at 2-3.)
The parties filed numerous motions as a result of the May ll, 2009 Order. In ruling upon
those motions, the Court vacated its order holding Hamrner in civil contempt for participation in
Caligula v. Nat ’l Gola’ Exchange, and stated that Hammer could continue to represent Caligula.
(Order [1054] at 2 (Aug. l2, 2009).) Furthermore, the Court denied Bilzerian’s and Puma’s
motions for a stay pending appeal. (Id. at l, 3.) Finally, the Court ordered Bilzerian to file notice
within ten days stating that he complied with the May ll, 2009 Order by dismissing all suits
subject to that order. (Ia’. at l.)
ln a separate order [1055] issued on August l2, 2009 ("show cause order"), the Court,
inter alia, granted Haire’s [998, 999] and Hodges’s [l00l] motions to show cause. The Court
ordered Haircut to show cause as to why it should not be held in civil contempt for violation of
this Court’s July 19, 2001 Order by pursuing Haircut Partners, LLP v. Bicoastal Holding Co. ,
Case No. 09-cv-799 in the United States District Court for the Middle District of Florida. (Aug.
12, 2009 Order [l055] at l.) The Court further ordered Bilzerian, Steffen, Hammer, and Puma to
show cause as to why the Court should not hold them in civil contempt for violation of the
Court’s 2001 order by pursuing the following lawsuits: Bilzerian v. Hodges et al., Case No. 09-
ap-93 -ALP in the United States Bankruptcy Court for the Middle District of Florida; Stejjfen v.
Hodges et al. , Case No. 09-ap-93-ALP in the United States Bankruptcy Court for the Middle
District of Florida; Bilzerian v. Haire, Case No. 09-ap-93-ALP in the United States Bankruptcy
Court for the Middle District of Florida; Steffen v. Kline et al, Case No. 09-l0864CA27 in the
Eleventh Circuit Court in Dade County, Florida; and Puma Foundation v. H0dges et al., Case
No. 09-CA-021 80 in the Circuit Court in and for Hillsborough County, Florida. (Id. at 2.)
Bilzerian, Puma, and Hammer appealed this Court’s May 1 1, 2009 and August l2, 2009
Orders [986, 1054]. Bilzerian and Puma moved the Court of Appeals to stay this matter pending
appeal. The Court of Appeals denied their motions. Despite the fact that their motions to stay
were denied by this Court and the Court of Appeals, Bilzerian and Puma have failed to comply
with the Court’s May ll, 2009 and August l2, 2009 Orders. Hammer notified the Court on May
26, 2009 that he complied with the Court’s orders. (Hammer Aff. [993].)
The parties have now responded to the Court’s show cause order [l055]. In addition,
Haire moves this Court to impose additional sanctions on Bilzerian and Puma because they have
failed to comply with Court’s May ll, 2009 and August l2, 2009 Orders [986, 1054].3
III. LEGAL STANDARD
All courts possess an inherent power to punish parties. Broderick v. Donaldson, 437 F.3d
1226, 1234 (D.C. Cir. 2006). This power "is essential to [the Court’s] ability to enforce
judgments and orders." Bilzerian, 613 F. Supp. 2d at 70 (citing Broderick, 437 F.3d at 1234).
Courts hold individuals in civil contempt "to compel compliance with an order of the court . . .
3 In his rnotion, Haire seeks to impose sanctions against Harr1rner, in addition to Bilzerian
and Puma. Hammer, however, certified to this Court that he complied with the Court’s orders on
May 26, 2009. (Hamrner Aff. [993].) Moreover, in his reply, Haire narrows his request to
impose sanctions only against Bilzerian and Puma. As a result, the Court construes Haire’s
motion for sanctions as applying only to Bilzerian and Puma.
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[or] ‘compensate[] the complainant for losses sustained."’ Cobell v. Norton, 334 F.3d 1128, 1145
(D.C. Cir. 2003) (quoting Int’l Um`on, United Mine Workers v. Bagwell, 512 U.S. 821, 829
(1994)). The Court will hold an individual in civil contempt only if the putative contemnor has
violated an order that is clear and unambiguous, and the complainant proves the violation by
clear and convincing evidence. Broderick, 437 F.3d at 1234. "In the context of civil contempt,
the clear and convincing standard requires a quantum of proof adequate to demonstrate a
‘reasonable certainty’ that a violation occurred." Levin v. Tiber Holdz`ng Corp., 277 F.3d 243,
250 (2d Cir. 2002).
Moreover, the Court may hold non-parties in civil contempt if they are successors in
interest to a party bound by an order or if they are "aiders and abettors" to a violation of an order
by which a party is bound. See Regal Km'twear Co. v. NL.R.B., 324 U.S. 9, 13-14 (1943).
Indeed, Rule 65(d) of the Federal Rules of Civil Procedure explicitly states that an order granting
an injunction binds the parties, the parties’ officers, agents, servants, employees, and attomeys,
and other persons who are in active concert or participation with the parties’ or their agents,
provided that they have actual notice of the order.
IV. ANALYSIS
Haire has moved for sanctions against Bilzerian and Puma for failure to comply with the
Court’s May ll, 2009, and August l2, 2009, Orders, in which the Court found that Puma and
Bilzerian were in contempt for violating the Court’s 2001 order. Haire has also moved to hold
Haircut in civil contempt for violation of the Court’s 2001 order. Finally, Haire and Hodges both
move to hold Bilzerian, Steffen, Hammer, and Puma in contempt for violation of the 2001 order.
As set forth below, the Court will grant Haire’s motion [1058] for sanctions and hold
Puma and Bilzerian in civil contempt for violation of the Court’s May ll, 2009, and August l2,
2009 Orders. ln addition, the Court will deny Haire’s motion [998] for an order holding Haircut
in civil contempt because Haire failed to prove by clear and convincing evidence that Haircut is
in violation of the Court’s 2001 order. Last, the Court will grant the motions [999, l00l] of
Haire and Hodges to hold Bilzerian, Steffen, Hammer, and Puma in contempt for violation of the
Court’s 2001 order.
A. Sanctions
In response to Haire’s motion for sanctions, Bilzerian and Puma concede that they have
yet to dismiss their cases as required by the Court’s May ll, 2009, and August l2, 2009, Orders
to purge their contempt for violation of the Court’s 2001 order. They argue that they are waiting
to comply with this Court’s orders until the Court of Appeals rules on their motions for stay
pending appeal because if the Court of Appeals grants their motions, they do not have to dismiss
their suits. On October, 15, 2009, the Court of Appeals denied their motions. Puma and
Bilzerian, however, have still not complied with the May ll, 2009, and August l2, 2009 Orders.
Accordingly, Haire’s motion [1058] is GRANTED.
The Court sanctions Puma and Bilzerian by holding them in civil contempt for their
failure to comply with this Court’s May 11, 2009 Order, which found Puma and Bilzerian in
contempt for their violation of the 2001 order. Puma and Bilzerian are therefore ordered to
dismiss the following cases within ten days of this date: Bilzerian v. Haire, Case No. 08-9149 in
the Thirteenth Circuit, Hillsborough County, Florida; Bilzerian’s counterclaims and cross claims
in Calz'gula v. Nat ’l Gold Exchange, Case No. 07-17763 in the Thirteenth Circuit, Hillsborough
County, Florida; and Puma Foundation, et al. v. Haire, Case No. 06-9816 in the Thirteenth
Circuit Court in Hillsborough County, Florida. In addition, they must notify this Court within
ten days of this date of their compliance with this order. If they fail to comply with this order,
they will be subject to additional sanctions to coerce compliance.
Haire also seeks attomey’s fees. This request is denied. Haire is not entitled to attorney’s
fees because he is proceeding in this action pro se.
B. Haircut
In its response to the Court’s August l2, 2009 Show Cause Order, Haircut argues that it is
not subject to the Court’s July 19, 2001 Order because it is not Bilzerian, his agent, servant,
employee, or attomey, or anyone in active concert or participation with them. The Court
reluctantly agrees.
Haire has failed to prove by clear and convincing evidence that Haircut violated the
Court’s July 19, 2001 Order by appealing the dismissal of its involuntary bankruptcy petition
against Bicoastal Holding Company, Haircut Partners, LLLP v. Bicoastal Holding Co. , Civ. No.
8:09-799. Haircut is a partnership formed by Dan Bilzerian, Caligula Corporation, and Hammer
that was formed to collect debts from Bicoastal Holding Company. Indeed, the fact that Haircut
was formed by Bilzerian’s son, his son’s corporation, and his former attorney raises the Court’s
suspicion that Haircut is in active concert or participation with Bilzerian. Haire, however, has
not provided any evidence for the Court to determine with reasonable certainty that Haircut’s
appeal is to aid and abet Bilzerian in violation of this Court’s order. See Regal Knz'twear Co.,
324 U.S. at 13-14. Accordingly, Haire’s motion [998] to hold Haircut in civil contempt is
DENIED.
C. Bilzerian, Steffen, Hammer, and Puma
Bilzerian, Steffen, Hammer, and Puma have responded to the Court’s August l2, 2009
show cause order with nearly identical responses as to why the Court should not find them in
contempt for violation of the Court’s 2001 order. They each argue that this Court should
discharge its show cause order because Haire and Hodges do not have standing to enforce the
July 19, 2001 Order; Puma, Steffen, and Hammer are not subject to the July 19, 2001 Order; and
the July 19, 2001 Order does not apply to the cases identified above. In the event that the Court
does not summarily discharge its show cause order, Bilzerian, Steffen, Hammer, and Puma argue
that they are entitled to discovery and an evidentiary hearing. ln the alternative, they each move
for the Court’s permission for the above cases to proceed. Bilzerian and Steffen also renew their
motions for appointment of counsel.
The parties made these same arguments to the Court previously. The Court rejected these
arguments then, and the Court rejects them now.
First, the argument that the show cause order should be discharged because Haire and
Hodges lack standing is without merit. As Haire and Hodges point out, this argument rests on
the faulty assumption "that the sole judicial role in this proceeding is as a neutral arbiter of a
dispute between private parties." In re Martin-Trigona, 737 F.2d 1254, 1261 (2d Cir. l984).
Court have made clear that "[t]hat assumption is incorrect." Id. "Federal Courts have both the
inherent power and the constitutional obligation to protect their jurisdiction from conduct which
impairs their ability to carry out Article III functions." Ia'. Indeed, this power includes the
Court’s ability to enforce its injunctions. Thus, when Haire and Hodges placed the Court on
notice that Bilzerian was in violation of the injunction-both directly and with the help of
Steffen, Hammer, and Puma~the Court exercised its own authority, not that of Haire and
Hodges, by issuing the show cause order to enforce its injunction. The exercise of this power
was entirely appropriate, and the argument that Haire and Hodges lack standing is without merit.
Accordingly, the Court will not discharge the show cause order.
Second, the Court rejects the argument that the show cause order should be discharged
because Puma, Steffen, and Hammer are not subject to the 2001 order. The 2001 order is clear.
lt prohibits Bilzerian, his agents, servants, employees and attorneys, and those persons in active
concert or participation with them from commencing proceedings in any other court other than
this Court, or in the appeals of this Court’s Order to the United States Court of Appeals for the
District of Columbia, without prior approval from this Court. (Order [416] at 2.)
Haire and Hodges have demonstrated that the Puma, Steffen, and Hammer are acting as
Bilzerian’s agents, servants, employees and attorneys, and those persons in active concert or
participation with them. Puma’s and Steffen’s lawsuits stem directly from the Puma and Jack
Rabbit lawsuits which this Court found violated its July 19, 2001 Order,“ and Hammer is counsel
in both the Puma and Steffen lawsuits. (Hodges’ Mot. [1001] at 5; Haire’s Mot. [999] at 8.) See
also Bilzerian, 613 F. Supp. 2d at 74 (discussing the Puma and Jack Rabbit lawsuits).
Accordingly, Puma, Steffen, and Hammer are subject to the 2001 order.
Third, Bilzerian, Steffen, Puma, and Hammer argue that the 2001 order does not apply to
the following cases because these cases have nothing to do with the receivership estate:
Bilzerian v. Hodges et al. , Case No. 09-ap-93-ALP in the United States Bankruptcy Court for the
" Although the Jack Rabbit lawsuit violated the July 19, 2001 Order, the Court found that
the civil contempt proceeding was moot because the case had been dismissed as a result of
Bilzerian’s and Hammer’s conduct. Bilzerian, 613 F. Supp. 2d at 74.
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Middle District of Florida; Steffen v. Hodges et al., Case No. 09-ap-93-ALP in the United States
Bankruptcy Court for the Middle District of Florida; Bilzerian v. Haire, Case No. 09-ap-93-ALP
in the United States Bankruptcy Court for the Middle District of Florida; Steffen v. Klz`ne et al,
Case No. 09-l0864CA27 in the Eleventh Circuit Court in Dade County, Florida; and Puma
Foundation v. Hodges et al. , Case No. 09-CA-02l80 in the Circuit Court in and for Hillsborough
County, Florida. Their argument fails.
As this Court stated in its May ll, 2009 Memorandum, the 2001 order “requires Bilzerian
to request permission before commencing any proceeding in any court, whether related to the
receivership or not." Bilzerian, 613 F. Supp. 2d at 75. The requirement to request permission
before commencing any proceeding in any court, whether related to the receivership or not, also
applies to Bilzerian’s "agents, servants, employees, and attomeys, and those persons in active
concert or participation with them." (Order [416] at 2.) Here, Bilzerian and his agents, servants,
employees, and attorneys, and those persons in active concert or participation with them_i.e. ,
Steffen, Puma, and Hammer-failed to request this Court’s permission before commencing the
cases listed above. As a result, Bilzerian, Steffen, Puma, and Hammer violated the July 19, 2001
Order. Moreover, Bilzerian, Steffen, Puma, and Hammer "have not provided any proof’ that
their lawsuits are "lirnited to the claims that were specifically retained in the consent agreement
with the receiver." Bilzerian, 613 F. Supp. 2d at 75. Without such proof, the Court "cannot
adequately evaluate . . . whether the claims are overbroad . . . in an effort to accumulate assets
and shield them from the receiver." Id. Accordingly, the 2001 order applies to the cases listed
above, and the Court will not discharge the show cause order.
Fourth, the Court rejects the requests of Bilzerian, Steffen, Hammer, and Puma to
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conduct discovery and have an evidentiary hearing. Their responses to the show cause order fail
to convince the Court that discovery is necessary. Indeed, the fact that lawsuits were filed in
violation of the injunction is clear. Similarly, an evidentiary hearing is unnecessary in civil
contempt proceedings. All that is required in civil contempt proceedings is that the accused party
has notice and an opportunity to be heard. Int'l Union, United Mine Workers of Am. v. Bagwell,
512 U.S. 821, 826 (1994). Here, Bilzerian, Steffen, Hammer, and Puma were all given notice
and an opportunity to be heard. Accordingly, the Court denies the requests for discovery and an
evidentiary hearing.
Fifth, the Court denies Bilzerian’s, Steffen’s, Hammer’s, and Puma’s belated motions for
permission to continue their lawsuits. Even if their lawsuits have merit, their "claims would
belong to the receiver," not to them.
Finally, the Court denies Bilzerian’s and Steffen’s renewed motions for appointment of
counsel. ln a civil contempt proceeding, a party is entitled to counsel if the party faces the
possibility of incarceration and if the party is indigent. See e.g. , United States v. Bobart Travel
Agency, Inc., 699 F.2d 618, 620 (2d Cir. 1983). Here, Bilzerian and Steffen do not at this
moment face incarceration and have failed to show that they are indigent. Accordingly, the Court
denies their motions for appointment of counsel.
Having rejected the arguments raised by Bilzerian, Steffen, Hammer, and Puma, the
Court will GRANT the motions [999, l00l] of Haire and Hodges. The Court finds that
Bilzerian, Steffen, Hammer, and Puma are in civil contempt of this Court’s July 19, 2001 Order
by commencing the following lawsuits: Bilzerian v. Hodges et al., Case No. 09-ap-93-ALP in
the United States Bankruptcy Court for the Middle District of Florida; StejYen v. Hodges et al. ,
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Case No. 09-ap-93-ALP in the United States Bankruptcy Court for the Middle District of Florida;
Bilzerian v. Haire, Case No. 09-ap-93-ALP in the United States Bankruptcy Court for the Middle
District of Florida; and Puma Foundation v. Hodges et al., Case No. 09-CA-02l80 in the Circuit
Court in and for Hillsborough County, Florida. They are ordered to dismiss the cases listed
above within ten days of this date. Furthermore, Hammer is ordered withdraw his representation
of Steffen and Puma within ten days of this date. Last, the contempt proceeding against Steffen
for her commencement of Stejj'en v. Kline, Case No. 09-10864CA27 in the Eleventh Circuit
Court in Dade County, Florida, is moot because she voluntarily dismissed the lawsuit.$
V. CONCLUSION
For the reasons set forth above, the Court will GRANT Haire’s motion [1058] for
sanctions; GRANT Haire’s and Hodges’ motions [999, l00l] for an order to hold Bilzerian,
Steffen, Hammer, and Puma in civil contempt; and DENY Haire’s motion [998] for an order
holding Haircut in civil contempt. A separate Order shall issue this date.
Failure to comply with the Order issued this date will result in additional proceedings,
upon application of movants Haire and/or Hodges, to see what additional steps must be taken to
ensure compliance. This may include incarceration of the contemnors.
No stay cf the Order issued this date will be granted.
7//‘*)[¢0 gx
DATE RotfCE C."EAMBERTH
CHIEF JUDGE
5 Although the contempt proceeding against Steffen for her commencement of Steffen v.
Kline is moot because she voluntarily dismissed the case, the commencement of Stejj‘en v. Kline
was a violation of the Court’s 2001 order as discussed above.
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