IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 99-10824
_____________________
MICHAEL J QUILLING
Appellee
SECURITIES AND EXCHANGE COMMISSION
Plaintiff - Appellee
v.
FUNDING RESOURCE GROUP, also known as FRG TRUST; ET AL
Defendants
BENJAMIN DAVID GILLILAND
Defendant - Appellant
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
September 6, 2000
Before KING, Chief Judge, PARKER, Circuit Judge, and KAZEN,
District Judge.*
PER CURIAM:
Appellant B. David Gilliland appeals from the district
court’s orders finding him in contempt of court, and denying his
emergency motion to vacate and emergency motion to stay the
*
Chief Judge of the Southern District of Texas, sitting by
designation.
contempt order. Because we conclude that the contempt order does
not constitute a final order for the purposes of 28 U.S.C.
§ 1291 and that we therefore lack jurisdiction to review it, we
dismiss the appeal.
I. FACTUAL AND PROCEDURAL BACKGROUND
The contempt order appealed from here arises out of a civil
enforcement action brought by Plaintiff-Appellee the Securities
and Exchange Commission (the “SEC”) against a number of
individuals and entities who allegedly engaged in a fraudulent
scheme for selling unregistered securities (the “defendants”).
This scheme took the form of a Ponzi or pyramid scheme in which
the defendants allegedly sold nonexistent “prime bank” securities
to investors, and used the proceeds of those sales to reimburse
themselves for personal expenses and to pay earlier investors.
The SEC sought, inter alia, to disgorge the approximately
$14 million in proceeds of the allegedly illegal sales of
unregistered securities. These funds were traced not only to the
defendants, but also to Hammersmith Trust, LLC, Hammersmith
Trust, Ltd., and Appellant B. David Gilliland, among others.1 As
a result, the SEC requested that the assets of the defendants,
1
The SEC also alleged that Howe Financial Trust, Treds
Financial Trust, Mary Ann Bauce, Bridgeport Alliance, LLC,
Landfair Custodial Services, Inc., Microfund, LLC, American
Pacific Bank & Trust, Inc., Eurofund Investment Inc., and Melody
Rose received wrongfully-obtained funds from defendants.
2
Gilliland, Hammersmith Trust, LLC, and Hammersmith Trust, Ltd. be
frozen; that the defendants, Gilliland, Hammersmith Trust, LLC,
and Hammersmith Trust, Ltd. submit an accounting of all their
assets and funds received from investors and from one another;
and that a receiver be appointed.
On January 21, 1999 and on March 11, 1999, the district
court entered orders freezing the assets of Gilliland,
Hammersmith Trust, LLC, and Hammersmith Trust, Ltd.2 and
appointing Appellee Michael J. Quilling (“Quilling” or the
“receiver”) as temporary receiver for and over those assets (the
“freeze orders”). The parties affected by the freeze orders
filed motions for relief, and Quilling filed a motion to hold
Gilliland in contempt. On March 22, 1999, the district court
held a hearing at which the parties informed the court that they
had reached a compromise agreement. On March 26, 1999, the
district court signed an order modifying and abating the freeze
orders (the “agreed order”). The agreed order provided that (1)
the receiver was to receive payments totaling $2,745,000.00 by
three p.m. on April 19, 1999; (2) “[p]ending performance by all
parties to this order . . . all proceedings, motions, discovery
2
Quilling was also named as receiver over the assets of
American Pacific Bank & Trust, Inc., Microfund, LLC, Landfair
Custodial Services, Inc., Bridgeport Alliance, LLC, Economic
Development Corporation, Concorde International Holding Corp.,
Eurofund Investments, Inc., Continental Management Group, Inc.,
Primary Services, Inc., Seven Dials Aviation Corp., William H.
West, David M. Bishara, Melody Rose, Kenneth B. Cobb, and Raymond
J. Hanson.
3
and activity in this case shall be abated, as it affects the
Receiver, the SEC, and the Affected Parties;” and (3) the freeze
orders were modified and abated, and the assets frozen pursuant
to those orders were released and unfrozen.3 Gilliland,
Hammersmith Trust, LLC, and Hammersmith Trust, Ltd. were
responsible for making the payments specified by the agreed order
on behalf of the affected parties.
Gilliland, Hammersmith Trust, LLC, and Hammersmith Trust,
Ltd. timely made payments in the amount of $1,050,000.00 to the
receiver. However, the remaining payment of $1,695,000.00 was
not made by the date specified in the agreed order. On April 21,
1999, Quilling brought a motion requesting an order to show cause
why Gilliland should not be held in contempt. The SEC also filed
a contempt motion on the same day.
On May 17, 1999, the district court held a show cause
hearing. Gilliland appeared on his own behalf, and as the agent
for Hammersmith Trust, LLC and Hammersmith Trust, Ltd. On May
24, 1999, the district court issued an order finding Gilliland in
contempt of court (“May 24 contempt order”). In its order, the
district court noted that Gilliland had stated at the show cause
hearing that he could pay the remaining sums to the receiver and
3
The agreed order specified, however, that the freeze
orders were not abated with regard to Seven Dials Aviation Corp.,
an airplane designated for sale in an order entered on March 22,
1999, and an account containing $1,395,000.00 to be identified as
payment to Quilling in his capacity as receiver.
4
purge himself of contempt within 45 days. The court consequently
gave Gilliland until July 2, 1999 to purge himself of contempt by
paying $1,695,000.00 into the receiver’s bank account. The order
provided that, if the payment were not made by three p.m. on that
date, the United States marshal would take Gilliland into custody
until the payment was made.
On July 2, 1999, Gilliland filed an emergency motion to
vacate and an emergency motion to stay the contempt order. On
July 14, 1999, the SEC filed an emergency motion to freeze
assets, to reinstate the receiver, and to conduct expedited
discovery. The district court granted the stay order, and set an
omnibus hearing for July 22, 1999.4 Gilliland was the primary
witness at the hearing, which lasted almost a full day. At the
conclusion of the hearing, the district court made oral findings
that Gilliland was not credible, and that “Gilliland’s inability
to pay was not involuntarily created.”
The district court reiterated these findings in an order
filed on July 23, 1999 (“July 23 contempt order”). The July 23
contempt order denied the emergency motion to vacate and the
emergency motion to stay, and vacated its previous order granting
a stay. The order directed the United States marshal to take
Gilliland, individually and as agent for Hammersmith Trust, LLC
4
The hearing also addressed a joint motion by the SEC and
the receiver to amend the order finding Gilliland in contempt of
court, and two additional show cause motions.
5
and Hammersmith Trust, Ltd., into custody, and provided that
Gilliland be held until “this Court determines that the remaining
$1,695,000.00 ordered to be paid to the Receiver . . . has in
fact been paid to the Receiver.” Gilliland timely appeals.5
II. DISCUSSION
Gilliland presents several arguments in support of his
contention that the district court erred in finding him in
contempt. However, we do not address the merits of these
arguments because we conclude that we lack jurisdiction over his
appeal.6
The general rule in this circuit is that civil contempt
orders are not appealable final orders for the purposes of 28
U.S.C. § 1291. See Lamar Financial Corp. v. Adams, 918 F.2d 564,
566 (5th Cir. 1990) (citations omitted). An exception to this
rule exists “[w]hen a civil contempt motion is not part of
continuing litigation, . . . because no underlying case awaits
final resolution.” In re Grand Jury Subpoena for Attorney
5
Gilliland’s notice of appeal addresses the May 24 order,
the denial of the motion to vacate, and the denial of the motion
to stay. This court initially granted a stay of the district
court’s contempt order pending appeal. See Quilling v.
Gilliland, No. 99-10824 (5th Cir. July 23, 1999) (granting motion
for stay). On July 23, 1999, however, the district court signed
an order staying the contempt order. As a result, this court
vacated its prior order. See Quilling v. Gilliland, No. 99-10824
(5th Cir. July 26, 1999) (denying motion for stay as moot).
6
The SEC’s motion to dismiss the appeal, in which Quilling
joined, was carried with the case.
6
Representing Criminal Defendant Reyes-Requena, 926 F.2d 1423,
1429 (5th Cir. 1991) (citing Sanders v. Monsanto, 574 F.2d 198,
199 (5th Cir. 1978)).
Gilliland argues that we have jurisdiction to hear his
appeal because (1) the nature of the contempt sanction is
criminal, rather than civil; (2) the contempt sanction was
imposed to enforce a consent judgment; and (3) the contempt
proceedings are final because they are separate and distinct from
the underlying SEC enforcement action. We address these
arguments seriatim.
First, we agree with the SEC that the sanctions at issue are
properly characterized as civil contempt sanctions. This court
has defined a civil contempt sanction as one whose purpose “is to
coerce the contemnor into compliance with a court order, or to
compensate another party for the contemnor’s violation.” See
Lamar, 918 F.2d at 566 (citations omitted). Here, the May 24 and
July 23 contempt orders clearly state that Gilliland is only to
be imprisoned until the remaining payment to the receiver is
made. Even though the district court stated at the July 22
hearing that it was “going to punish [Gilliland] for contempt,” a
reviewing court must examine the character of the relief itself,
rather than rely upon the stated purpose of the contempt
sanction. See International Union, Mine Workers of Am. v.
Bagwell, 512 U.S. 821, 828 (1994) (citations omitted). Our
examination thereof convinces us that the sanction imposed on
7
Gilliland falls within “[t]he paradigmatic coercive, civil
contempt sanction . . . [that] involves confining a contemnor
indefinitely until he complies with an affirmative command . . .
.” Id. (citations omitted).
Gilliland, however, contends that his purported inability to
comply with the July 23 order renders the sanction punitive,
rather than coercive. Since punishment is the purpose of
criminal contempt, he argues, the sanction is criminal and is
therefore subject to immediate appellate review. In making this
argument, he relies on the Ninth Circuit’s decision in Falstaff
Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, 782 (9th Cir.
1983). We note that there appears to be a conflict, even within
the Ninth Circuit, as to this rule. See United States v. Asay,
614 F.2d 655, 659 (9th Cir. 1980) (“Because Asay may have been
unable to comply with the summonses and order at the time the
contempt judgment was issued does not mean the fine was for
criminal contempt.”). We also observe that this circuit has
never held that the inability to comply with an order converts a
civil sanction to a criminal one. We need not reach that
question ourselves because it is apparent from the July 23
contempt order that the district court was not convinced that
Gilliland was unable to pay the remaining $1,695,000.00. The
district court specifically found “B. David Gilliland not to be
credible.” Because Gilliland testified in order to establish
that he was unable to pay the receiver, and because a contemnor
8
must prove his inability to comply with a court order with
credible evidence, see United States v. Sorrells, 877 F.2d 346,
349-50 & n.4 (5th Cir. 1989), we have no difficulty in construing
the district court’s finding to mean that Gilliland had not
proved that inability. We have reviewed the record, and there is
ample evidence to support that finding. The district court’s
additional finding that Gilliland’s “alleged inability to pay was
not involuntarily created” merely presented an alternative
rationale for denying Gilliland’s motions. As we are not
persuaded by Gilliland’s first argument, we proceed to the
second.
Although Gilliland correctly states that a contempt order
entered to enforce a final judgment is itself a final and
appealable order, there was no final judgment in the instant
case. An examination of the plain language of the agreed order
reveals that it does not purport to be a final judgment. Rather,
the bulk of the agreed order is devoted to enumerating the
conditions upon which such a judgment depended. As the district
court noted, the parties had agreed “that the Court modify and
abate the Freeze Orders, pending the performance of the
compromise, and that contingent on the parties [sic] performance
of the compromise, that the Court enter an order of partial
dismissal at a later date” (emphasis added). The agreed order
specifically provides that the abatement of “all proceedings,
motions, discovery, and activity in this case . . . as it affects
9
the Receiver, the SEC, and [the parties affected by the freeze
orders]” is contingent upon the performance of the terms of the
order by all parties. Thus, the agreed order contemplates that
final judgment with regard to Gilliland, Hammersmith Trust, LLC,
Hammersmith Trust, Ltd. and the other individuals and entities
referenced in the agreed order be entered only once the parties
had paid $2,475,000.00 to the receiver. As evidenced by the
contempt proceedings at issue, this condition has not been
fulfilled. Furthermore, the district court’s docket sheet does
not reflect that a final judgment with regard to the parties
enumerated in the agreed order was ever entered. As a result, we
conclude that Gilliland’s second argument likewise misses the
mark. Cf. Zucker v. Maxicare Health Plans, Inc., 14 F.3d 477,
481 (9th Cir. 1994)(“Therefore, the Judgment by its own terms is
neither final nor enforceable absent some modification of the
Judgment or other action by the district court indicating that
the Judgment is final notwithstanding the non-fulfillment of its
terms.”).
Finally, we turn to Gilliland’s contention that the contempt
order is final because it is “not entwined with the underlying
case.” The rationale underlying this exception to the general
rule against reviewing civil contempt orders is that “[c]ontempt
motions that are not part and parcel of a continuing litigation .
. . are final and subject to review because with respect to the
contempt issue, no further district court action occurs.” See
10
Sanders, 574 F.2d at 199 (emphasis added). Here, to the
contrary, we note that on July 22, 1999, the district court
entered an order freezing the assets of Gilliland, Hammersmith
Trust, LLC,7 and Hammersmith Trust, Ltd., among others, and
enjoined those parties from “destroying, removing, mutilating,
altering, concealing and/or disposing of, in any manner, any
books and records pending further order of this Court.” The
order also appointed Quilling as receiver over those parties’
assets, authorized expedited discovery, and required Gilliland,
the Hammersmith Trust entities, and the other named individuals
and entities to make an interim accounting within ten days of the
entry of the order. This order clearly constituted further court
action relating to the contempt order. Moreover, the court will
need to supervise the proceedings instituted by the order and
issue additional orders in order to terminate them at the
appropriate time. As far as we can discern, there is no end in
sight for the contempt proceedings -- or, for that matter, for
Gilliland’s and the Hammersmith Trust entities’ involvement in
the underlying SEC enforcement action. As a result, we conclude
that the contempt order is not final and that we therefore lack
jurisdiction to review Gilliland’s claims. We dismiss the appeal
for lack of jurisdiction.
7
The district court’s order addressed both the Hammersmith
Trust, LLC entity incorporated in Tennessee, and the Hammersmith
Trust, LLC entity incorporated in the West Indies.
11
III. CONCLUSION
For the foregoing reasons, the appeal is DISMISSED.
12