___________
No. 95-2430
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William Randall Wright, *
Trustee, *
*
Appellee, *
*
v. * Appeal from the United States
* District Court for the
Denitia Nichols, * Western District of Arkansas.
*
Appellant, *
*
Gary Joe Dean; Lucille M. Dean, *
*
Debtors. *
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Submitted: January 9, 1996
Filed: April 10, 1996
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Before RICHARD S. ARNOLD, Chief Judge, BOWMAN, Circuit Judge, and JONES,*
District Judge.
___________
BOWMAN, Circuit Judge.
Denitia Nichols appeals from the order of the District Court1 finding
her in criminal contempt of the Bankruptcy Court.2 We affirm.
*The HONORABLE JOHN B. JONES, United States District
Judge for the District of South Dakota, sitting by
designation.
1
The Honorable Harry F. Barnes, United States District Judge
for the Western District of Arkansas.
2
The Honorable James G. Mixon, United States Bankruptcy
Judge for the Western District of Arkansas.
We do not have before us a full explanation of the relationship among
the players involved in this case, nor do we need one. We do know that the
underlying bankruptcy was a Chapter 7 filing by Gary Joe Dean and Lucille
M. Dean. Among the persons and entities involved are a company known as
Hi-Tech Coatings, Inc., actually found by the Bankruptcy Court to be the
property of the debtors, and Nichols, who at times relevant to this appeal
was serving as Hi-Tech's president. In an adversary proceeding brought by
the Trustee on behalf of the Deans and Hi-Tech, the Bankruptcy Court
entered a temporary restraining order (TRO) against Nichols, among others,
on February 12, 1993. The court ordered that Nichols and Robert J.
Johnson, an attorney (for whom Nichols worked as legal secretary, according
to counsel for the Trustee), be "restrained from removing any funds from
any accounts held in the name of Hi-Tech Coatings, Inc. or for its benefit
and [that Nichols and Johnson] shall immediately cease and desist from any
activity that would cause removal of any funds from the accounts of Hi-Tech
Coatings, Inc. or disposing of any assets of Hi-Tech Coatings, Inc."
Temporary Restraining Order at 1-2. By consent order entered March 23,
1993, the TRO was continued.
On June 24, 1993, William E. Johnson (not to be confused with Robert
J. Johnson), the attorney who had represented Nichols and Robert J. Johnson
in related proceedings in chancery court and also in the Trustee's
adversary proceeding in Bankruptcy Court beginning February 1993 until he
withdrew in April or early May 1993, delivered a check for $6733.13 to
Billy J. Hubbell, who had replaced Johnson in representing Nichols. The
check was made payable to "Hi-Tech Coatings, Inc. & Billy J. Hubbell, their
atty." and was for a refund of unearned advanced fees that had been paid
to Johnson by Hi-Tech. Nichols endorsed the check as president of Hi-Tech
and left it with Hubbell, who deposited it.
When the Trustee discovered what Nichols had done with the Johnson
check, and believing that Nichols was violating the TRO in
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other ways, he asked the Bankruptcy Court to sanction her. On February 10,
1994, a hearing was held on the motion for sanctions, and the Bankruptcy
Court indicated its inclination to find Nichols in criminal contempt,
expressing some frustration at the course of events: "This is exactly the
way she did through all these months and months and months, when she was
looting Mr. Dean's corporation, taking the money that he made, he earned,
and lavishing herself and Mr. [Robert] Johnson with these proceeds of this
fraud." Transcript of Hearing on Motion for Sanctions at 71. On August
18, 1994, the Bankruptcy Court held a show-cause hearing, giving the
parties an opportunity to supplement the record, with Nichols fully aware
that the court was planning to issue an order of criminal contempt unless
she could show cause why it should not do so. No additional testimony was
offered and the Bankruptcy Court found Nichols in criminal contempt. On
May 8, 1995, the District Court held a hearing on Nichols's objections to
the order, taking Hubbell's testimony as a supplement to the record on the
motion for sanctions from the Bankruptcy Court. After de novo review, the
District Court issued an order of contempt against Nichols and accepted the
Bankruptcy Court's recommendation of a sentence of thirty days
incarceration. Nichols appeals.
We review the District Court's decision to enter a contempt order for
abuse of discretion, giving plenary review to conclusions of law and
reviewing factual findings for clear error. See Wycoff v. Hedgepeth, 34
F.3d 614, 616 (8th Cir. 1994) (enunciating abuse of discretion standard in
review of denial of order of civil contempt); see also, e.g., United States
v. Winter, 70 F.3d 655, 659 (1st Cir. 1995), cert. denied, No. 95-8140,
1996 WL 105816 (U.S. Apr. 1, 1996); F.D.I.C. v. LeGrand, 43 F.3d 163, 166
(5th Cir. 1995). Because this is a case of criminal contempt, we will
reverse for abuse of discretion if we do not find that Nichols's behavior
constituted contempt beyond a reasonable doubt. International Union,
United Mine Workers of Am. v. Bagwell, ___ U.S. ___, ___, 114 S. Ct. 2552,
2561 (1994).
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Nichols argues that her endorsement of the check was not a knowing
and willful violation of the TRO, required to sustain the judgment of
criminal contempt, because she was relying on the advice of counsel when
she signed over the check. We shall assume without deciding that reliance
on the advice of counsel is a defense to an act of criminal contempt
(although good faith reliance on such advice would be difficult to show
where, as here, counsel benefits from the contemptuous act). But see
United States v. Di Mauro, 441 F.2d 428, 437 (8th Cir. 1971) (holding that
reliance on advice of counsel is no defense where contemnors refused to
testify in criminal trial despite being given immunity). We need not reach
the legal question, for Nichols's claim that she relied on the advice of
counsel is, to put it charitably, not supported by the record. Contrary
to Nichols's bald assertions in her brief that she relied on the advice of
counsel, neither Nichols nor Hubbell testified that they discussed with
each other whether or not the endorsement by Nichols would violate the TRO.
When asked in the initial hearing before the Bankruptcy Court "what
discussions" Nichols had with Hubbell "concerning what you should do with
this check," Nichols responded:
He brought the check--we were down--he came down to my
office and we talked about it. And because it was the transfer
of that unused portion that was ordered paid to Mr. Johnson by
[Chancery Court] Judge Vittitow, I signed the check to apply it
for his attorney fees, since he was representing me now. Then.
Transcript of Hearing on Motion for Sanctions at 11-12. Nichols never said
that she sought or that Hubbell offered advice on whether negotiating the
check so that Hubbell might deposit it into his own account would violate
the TRO. It would be far too generous an interpretation of the phrase
"talked about" to assume Nichols intended to say that Hubbell gave her
advice about the check and the TRO, upon which she then acted. In any
event, Hubbell's subsequent testimony before the District Court leaves no
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room for such a liberal reading of "talked about." When asked if he had
"any discussions with Denitia Nichols as to whether or not the--her
endorsing the check and turning the funds over to you would violate the
terms of the TRO," Hubbell said:
I don't think--no, I didn't discuss that with her because
I didn't think it did. I mean, my concern was that there might
be a turnover order or an order that was a preferential
transfer which would have to repaid [sic] but never, it just
didn't--I didn't think it violated the Temporary Restraining
Order.
Transcript of Hearing on Order of Criminal Contempt at 9 (the same page to
which Nichols's brief disingenuously refers in claiming that "[c]ounsel
then advised Nichols that she would not be violating the restraining order
if she endorsed the check to attorney Hubbell," Brief of Appellant at 6).
We do not see how it is possible to prevail in a criminal contempt case
with a defense of reliance on the advice of counsel when the party seeking
to avoid being held in contempt neither sought nor received the advice of
counsel on whether the behavior at issue would violate the court order in
question.
More generally, Nichols argues that she did not know, or even
consider, that her endorsement of the check could be a violation of the TRO
and, therefore, that her violation of the order was not willful. In the
context of criminal contempt, willfulness "means a deliberate or intended
violation, as distinguished from an accidental, inadvertent, or negligent
violation of any order," and the necessary intent "may be inferred from the
evidence." Hubbard v. Fleet Mortgage Co., 810 F.2d 778, 781 (8th Cir.
1987) (citations to quoted cases omitted). Our review of the record
convinces us that Nichols's endorsement of the check was an act of criminal
contempt, as it was "a volitional act done by one who knows or should
reasonably be aware that [her] conduct is wrongful." In re Holloway, 995
F.2d 1080, 1082 (D.C. Cir. 1993) (emphasis omitted
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and alteration added) (quoting United States v. Greyhound Corp., 508 F.2d
529, 531-32 (7th Cir. 1974) (citation to quoted case omitted)), cert.
denied, ___ U.S. ___, 114 S. Ct. 1537 (1994).
The Bankruptcy Court did "not credit [Nichols's] explanation . . .
that she didn't understand that this was Hi-Tech's money." Transcript of
Hearing on Motion for Sanctions at 69. Given the undisputed facts in the
record, neither do we. The check was made payable to Hi-Tech, not to
Denitia Nichols. A note on the check indicated it was a "refund"--of funds
originally paid not by Denitia Nichols but by Hi-Tech. As with any
accounts payable, the check was an asset of the company, as anyone in the
position Nichols held reasonably should have known.3 Nichols was president
of the company, and had been operating Hi-Tech for more than four months
under a court order not to remove funds from or to dispose of the assets
of Hi-Tech. We agree with the courts below that, whether or not Nichols
(or Hubbell) considered the endorsement a violation of the TRO, she
reasonably should have known it was.
Moreover, the District Court had other reasons for concluding that
Nichols's behavior was willful. As noted above, the Bankruptcy Court was
on the record as having found a pattern of "looting" of Hi-Tech assets by
Nichols. The analysis of whether
3
At oral argument, Hubbell claimed that Nichols's
endorsement of the check was not a violation of the TRO in the
first instance because the check was not an asset of Hi-Tech. It
is true that the original fee paid to William Johnson arguably
was paid before the TRO was in place, although the hearing
transcript from the Bankruptcy Court indicates that there was an
issue about when the last of the payments was made, and counsel
advised the Court at oral argument that the Trustee in fact had
settled with William E. Johnson to recover at least a portion of
those funds. But the timing of the payments to Johnson does not
change the fact that they were made from a Hi-Tech account, and
thus the "refund" also was of Hi-Tech funds. Moreover,
regardless of when the payments to Johnson were made, the refund
was made after the TRO was entered, and the check was made
payable to Hi-Tech. We reject the argument that the refund check
was not an asset of Hi-Tech.
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Nichols's violation of the TRO was willful "properly encompasses the
contemnor's behavior in related incidents such as disobedience or
resistance to other orders of the court." In re Holloway, 995 F.2d at
1082. Further, Hubbell testified that he and Nichols did discuss the
possibility of a preferential transfer and turnover of the funds, so it
strains credulity to think that it never occurred to either of them that
the endorsement also would violate the TRO.
"The facts cannot possibly be fitted into the pattern of an innocent
stumbling into an unintended transgression." United States v. Prugh, 479
F.2d 611, 612 (8th Cir. 1973) (quoting United States v. Custer Channel Wing
Corp., 376 F.2d 675, 682 (4th Cir.), cert. denied, 389 U.S. 850 (1967)).
Well known to Nichols, the restraining order was issued in the first place
for a reason--her previous contumacious conduct involving the assets of Hi-
Tech. Nichols clearly was on notice that her actions relating to the
assets of Hi-Tech (and a check made out to Hi-Tech, no matter what the
check was for, clearly put Nichols on notice that it was an asset of the
company) would be subject to scrutiny under the terms of the TRO.4 We hold
that the evidence establishes beyond a reasonable doubt that Nichols's
behavior in endorsing the check was neither accidental, inadvertent, nor
negligent, and thus that she willfully violated the TRO. The District
Court did not abuse its discretion in holding her in criminal contempt of
the Bankruptcy Court.
Nichols also contends, in an argument not raised in the District
Court, that the courts below erred in allowing counsel for the Trustee to
"prosecute" Nichols for criminal contempt. An issue
4
We note that, although Nichols makes much of the fact that
Johnson was paid with Hi-Tech funds with the permission of
Chancery Court Judge Vittitow, which permission he gave in a
related state court proceeding, Judge Vittitow himself was
restrained from all further actions in that related proceeding by
the same TRO under which Nichols was restrained.
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not timely raised in the district court ordinarily is forfeited. United
States v. Olano, 507 U.S. 725, ___ , 113 S. Ct. 1770, 1776 (1993). We may
consider the issue, however, if there is plain error affecting the
defendant's substantial rights, that is, plain error shown by the defendant
to be prejudicial, and we should reverse "if the error `seriously affect[s]
the fairness, integrity or public reputation of judicial proceedings.'"
Id. at ___, 113 S. Ct. at 1778, 1779 (quoting United States v. Atkinson,
297 U.S. 157, 160 (1936)). Nichols has not met her burden of showing that
the actions of counsel for the trustee resulted in plain error, much less
that they affected her substantial rights such that reversal is required.
In support of her argument, Nichols relies upon Young v. United
States ex rel. Vuitton et Fils S.A., 481 U.S. 787 (1987), a case that is
easily distinguished. In Young, an injunction was issued prohibiting
certain individuals from manufacturing and distributing imitation Vuitton
products. Subsequently, lawyers for Vuitton asked the district court to
appoint them as special counsel to prosecute the individuals against whom
the injunction was issued for criminal contempt for alleged violations of
the injunction. The court did so. The Supreme Court held "that counsel
for a party that is the beneficiary of a court order may not be appointed
as prosecutor in a contempt action alleging a violation of that order."
Id. at 809. The Trustee here originally sought sanctions against Nichols
for violating the TRO in a civil proceeding, but he did not initiate
proceedings for criminal contempt, that is, neither he nor his attorney
prosecuted Nichols, and no one appointed either of them to prosecute the
criminal contempt. The Bankruptcy Court sua sponte, for reasons related
to Nichols's ongoing contumacious conduct in that court, decided to order
Nichols to show cause why she should not be held in criminal contempt of
its restraining order. Based in part on the record in the civil
proceeding, and without objection to that procedure, the Bankruptcy Court
concluded Nichols was in criminal contempt. To
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this point in the proceedings, it is clear there is no error of any kind
in the procedure employed. Although it is not apparent to us why the
Trustee then defended the contempt order against Nichols's objections in
the District Court and on Nichols's appeal to this Court, it appears from
the record that Nichols acquiesced in that procedure in the District Court
and until she filed her brief in the present appeal. We cannot say that
Nichols has demonstrated, at this late date, plain error that would warrant
reversal.
The judgment of the District Court is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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