Previously published in Bankruptcy Law News, Vol. XXIV, No.28.
Courts possess inherent authority to regulate conduct in their courtrooms and to enforce their orders. All litigants who are unsuccessful in civil litigation are disappointed. Fortunately, after they have exhausted their remedies, virtually all of them recognize the binding nature of the adverse ruling and move on. But not everyone is so sanguine and accepting. Certain litigants refuse to accept the court’s ruling, and indeed, will objectively and affirmatively refuse to abide by such decrees.
Without enforcement of its orders, any court’s role in American jurisprudence is diminished. This article addresses contempt of court in a bankruptcy context, the nature of civil contempt of court, and when that contempt becomes criminal. The parties responsible for contempt and contemptuous behavior by legal entities will also be examined.
The sources of authority for contempt in the bankruptcy context are the order to debtor and section 521 of the Bankruptcy Code defining the debtor’s duties. There is also the inherent authority of the Court to its enforce lawful orders and section 105(a) of the Bankruptcy Code also gives a bankruptcy judge the power to find parties in contempt of court.1 In addition, Rule 9020 of the Federal Rules of Bankruptcy Procedure provides that Rule 9014 (contested matters) governs a motion for an order of contempt made by the United State Trustee or a party in interest. Finally, section 403 of the U.S. criminal code, Title 18 (“Power of court”) provides that a “[c]ourt of the United States shall have the power to punish by fine or imprisonment, or both, at is discretion, such contempt of its authority, and none other as . . . [d]isobedience or resistance to its lawful writ, process, order, rule, decree, or command” and requires that a court of the United States issue a reasonably specific order that is willfully violated by a party.2
Regrettably, bankruptcy courts are forced on occasion to address recalcitrant parties and compel compliance with their orders. When a litigant (or intermeddling third party) refuses to abide by and obey a bankruptcy court’s orders, litigation seeking to enforce those orders may become necessary.
When a party engages in contempt of court, the end result will be a finding of civil contempt with associated penalties and decrees as to what needs to be done to purge that contempt. That journey begins with a somewhat benign rule to show cause, and if not resolved at that stage, will develop into contempt findings, daily sanctions, civil incarceration, and at the height of contempt, incarceration for criminal contempt.
The elements of civil contempt are a valid order that is specific as to its decree and command with demonstrated non-compliance by the contemnor that causes harm to the complaining party. “The appropriate remedy for civil contempt is within the court’s broad discretion” and is, therefore, reversible if that discretion has been abused,3 and “[w]illfulness is not an element of civil contempt.”4 “The absence of willfulness does not relieve from civil contempt. Civil as distinguished from criminal contempt is a sanction to enforce compliance with an order of the court or to compensate for losses or damages sustained by reason of noncompliance … [citations omitted]. Since the purpose is remedial, it matters not with what intent the defendant did the prohibited act.”5
The purpose of civil contempt sanctions is to compensate the complainant for losses and expenses incurred and coerce contemnor into compliance.6 Sanctions for civil contempt must be designed to coerce compliance with court orders.
Some courts have held that imprisonment may be a civil contempt sanction where the person holds the keys to the prison cell and incarceration is the only option to obtain compliance.7 “[O]nce a civil contemnor complies with the underlying order, he is purged of the contempt and is free.”8 The “Supreme Court has noted [that] a contempt assessment ‘is … remedial [and thus civil] when the defendant can avoid paying the fine simply by performing the affirmative act required by the court’s order.’”9
As to any question concerning due process, the issue typically centers on what is the process that is due? “[A] civil contempt proceeding only requires “rudimentary” due process, i.e., “notice and an opportunity to present a defense . . . .”10
When an individual person is found guilty of civil contempt and ordered to jail or found in criminal contempt, that person will be the one incarcerated. But what happens when a legal entity is in contempt of court?
“A command to the corporation is in effect a command to those who are officially responsible for the conduct of its affairs. If they, apprised of the writ directed to the corporation, prevent compliance or fail to take appropriate action within their power for the performance of the corporate duty, they, no less than the corporation itself, are guilty of disobedience, and may be punished for contempt.”11 An “order directed at a corporation is binding on agents authorized to act on its behalf, whether specifically named in the order or not.”12 Once apprised of an order directed to the corporation, if an agent responsible for the conduct of corporate affairs prevents compliance or fails to take appropriate action within his power and in fulfillment of his corporate duty, the agent, no less than the corporation itself, is guilty of disobedience and may be punished for contempt. “There must be evidence in the record that the corporate agent charged with contempt was somehow personally connected with defying the authority of the court or disobeying its lawful decrees.”13 The contemnor bears the burden of proof on proving his inability to comply with the court order because the contemnor “carr[ies] the keys of [his] prison in [his] own pocket,” because he will be released upon obedience of the order.14
If the person in contempt of court is not a party to the action, that non-party can nonetheless be found in contempt of court. For non-parties, a finding of civil contempt has three elements: the contemnor must be in privity with the named party, must have knowledge of the court’s prior order; and that contemnor must act affirmatively to cause or facilitate the violation of that order.15 Enforcement of criminal contempt against non-parties implicates due process and 6th Amendment issues and requires a clear and convincing evidence of: “(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) . . . that the decree was in the movant’s “favor”; (3) . . . that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) . . . that [the] movant suffered harm as a result.”16
Civil contempt proceedings are not criminal in nature and there is no 6th Amendment right to counsel.17 There is no absolute right to counsel in civil contempt proceedings because there is no jeopardy of incarceration.18 But when does civil contempt finding become criminal? “The critical feature that determines whether the remedy is civil or criminal in nature is not when or whether the contemnor is physically required to set foot in a jail, but whether the contemnor can avoid the sentence imposed on him, or purge himself of it, by complying with the terms of the original order.”19
“Civil Contempt differs from criminal contempt in that it seeks to ‘coerc[e] the defendant to do’ what a court had previously ordered him to do.”20 Continued contemptuous behavior can expand to criminal in nature when the civil contempt sanctions are issued to vindicate the authority of the court and not conditioned on compliance or tailored to compensate the complaining party.
“The distinction between civil and criminal contempt is particularly important because ‘[c]riminal contempt is a crime in every fundamental respect.’”21 “[A]n order of punitive sanctions necessarily implicates the contemnor’s criminal due process rights and the added protections offered under the Constitution.”22 In those circumstances where the contempt becomes criminal in nature, a public defender may be appointed and the contemnor’s 7th Amendment right to a jury is implicated.
Fines contained in contempt orders can cause the civil contempt orders to be viewed as criminal. “Where a fine is compensatory, it is civil only if the contemnor is afforded an opportunity to purge.”23 If civil contempt fines are not conditioned upon compliance or tailored to compensate the complaining party but rather issued to vindicate the authority of the court and to punish the contemnor “punitive[e] civil contempt sanctions will be held to be criminal.”24
Contempt proceedings concern the administration of the estate and are core proceedings as set forth in 28 U.S.C. § 157(b)(2). “Civil contempt proceedings arising out of core matters are themselves core matters.”25 Bankruptcy courts have subject matter jurisdiction and the authority to enter final orders and not just reports and recommendations.26 While the Bankruptcy Court has the power to issue civil contempt orders, in the post-Stern v. Marshall era, the Bankruptcy Court lacks the ability to hold a party in criminal contempt. In that instance, the Bankruptcy Court will prepare a Report and Recommendation to the District Court that contains findings of fact and conclusions of law under Rule 9033 setting forth the nature of the criminal contempt. Upon receipt of that Report and Recommendation, the District Court will initiate a criminal proceeding styled as United States of America v. Contemnor.
In the unfortunate event that a person refuses to abide by a lawful final order, it will become necessary to compel compliance by way of further litigation. Most issues regarding contempt can be resolved by the issuance of a rule to show cause against the contemnor who, appearing before a bankruptcy judge will usually comply with the order and the matter will end. In the event that the rule to show cause is defied and the person continues in contempt, the Bankruptcy Court has the power to issue civil contempt orders, pursue incarceration for civil contempt, and if necessary, refer the matter to the District Court for criminal contempt.
Endnotes
1. “The Fourth Circuit has seen ‘no reason to read into [Section
105] anything other than its plain meaning that a court of
bankruptcy has authority to issue any order necessary or appropriate
to carry out the provisions of the bankruptcy code,’ including
contempt orders.” In re Nat’l Heritage Foundation., Inc., 510 B.R.
526, 541 (E.D. Va. 2014), aff’d sub nom. Miller v. Nat’l Heritage
Found., Inc., 599 F. App’x 107 (4th Cir. 2015).
2. See 18 U.S.C. § 401(3).
3. In re Nat’l Heritage Foundation, 510 B.R. at 541.
4. In re Gen. Motors Corp. 61 F.3d 256, 258 (4th Cir. 1995).
5. McComb v. Jacksonville Paper Co., 336 U.S. 187, 191, 69 S.Ct.
497, 499, 93 L. Ed. 599 (1949); In re Walters, 868 F.2d 665, 668
(4th Cir. 1989).
6. Id.
7. See In re Duggan, 133 B.R. 671 (Bankr. D. Mass. 1991) (debtor
incarcerated until property turned over to the Trustee); In re 1990’s
Caterers Ltd., 531 B.R. 309 (Bankr. E.D.N.Y. 2015) (creditor’s
failure to turn over sale proceeds warranted incarceration until
civil contempt purged); In re Tate, 521 B.R. 427 (Bankr. S.D. Ga.
2014) (debtor ordered incarcerated until certain funds turned over
to trustee).
8. Turner v. Rogers, 564 U.S. 431, 442, 131 S. Ct. 2507, 2516,
180 L. Ed. 2d 452 (2011).
9. In re Grand Jury Subpoena (T-112), 597 F.3d 189, 194 (4th Cir.
2010).
10. In re Moroun, 295 Mich. App. 312, 331–32, 814 N.W.2d
319, 330 (2012); see also Int’l Union, United Mine Workers of
America v. Bagwell, 512 U.S. 821, 831, 114 S.Ct. 2552, 129 L. Ed.
2d 642 (1994) (“Because civil contempt sanctions are viewed as
nonpunitive and avoidable, fewer procedural protections for such
sanctions have been required.”).
11. Ex parte Chambers, 898 S.W. 2d. 257, 260 (Tex. 1995).
12. See, e.g., Wilson v. United States, 221 U.S. 361, 31 S.Ct. 538,
55 L. Ed. 771 (1911).” Ex parte Chambers, 898 S.W. 2d. 257, 260
(Tex. 1995).
13. Glanz v. Mendelson, 34 Va. App. 141, 151, 538 S.E.2d 348, 353
(2000), citing to Ex parte Chambers, 898 S.W. 2d. 257, 261 (Tex.
1995).
14. Shilltani v. United States, 384 U.S. 364, 368, 86 S.Ct. 1531,
1534, 16 L. Ed. 2d. 622 (1966).
15. See In re World Parts, LLC, 291 B.R. 248, 254 (Bank. W.D.N.Y.
2003).
16. Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000).
17. Cromer v. Kraft Foods N. Am Inc., 390 F.3d 812, 821 (4th Cir.
2004).
18. See Turner v. Rogers, 564 U.S. 431, 131 S. Ct. 2507, 180 L. Ed.
2d 452 (2011).
19. Hicks ex rel. Feiock v. Feiock, 485 U.S. 624, 635 n.7, 108 S. Ct.
1423, 1431, 99 L. Ed. 2d 721 (1988).
20. Turner v. Rogers, 564 U.S. 431, 441, 131 S. Ct. 2507, 2516,
180 L. Ed. 2d 452 (2011).
21. In re Tate, 521 B.R. 427, 440 (Bankr. S.D.Ga. 2014).
22. Id.
23. Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S.
821, 114 S. Ct. 2552, 2554, 129 L. Ed. 2d 642 (1994).
24. In re Nat’l Heritage Found., Inc., 510 B.R. 526, 552 (E.D. Va.
2014), aff’d sub nom. Miller v. Nat’l Heritage Found., Inc., 599 F.
App’x 107 (4th Cir. 2015).
25. In re Skinner, 917 F.2d. 444, 448 (10th Cir. 1990).
26. Id.