SEC v. Comcoa Ltd.

PUBLISH

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

_____________________________________

No. 95-4391
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D. C. Docket No. 94-8256-CIV-SH

DAVID LEVINE,
Receiver-Appellee,

SECURITIES EXCHANGE COMMISSION,

Plaintiff-Appellee,

versus

COMCOA LTD., a/k/a Comcoa Ltd., THOMAS W.
BERGER,

Defendants,

J. B. GROSSMAN, Law Practice,

Movant-Appellant,

SUN-SENTINEL COMPANY, MOBITEL SERVICES CORP.,
a Delaware Corporation, et al.,

Claimants.

______________________________________

Appeal from the United States District Court
for the Southern District of Florida
_______________________________________
(December 1, 1995)

Before EDMONDSON, Circuit Judge, and HILL, Senior Circuit Judge,
and MILLS*, District Judge.

____________

* Honorable Richard Mills, U.S. District Judge for the Central
District of Illinois, sitting by designation.
EDMONDSON, Circuit Judge:

Law Practice of J.B. Grossman, P.A., appeals the district

court's finding of contempt for its transfer of funds from the

trust account of its client, Comcoa Ltd. ("Comcoa"), to the law

firm's operating account in violation of a court order. We affirm.

Before January 1994, Comcoa retained J.B. Grossman as

counsel.1 In mid-January 1994, Grossman told Comcoa to establish

a large retainer fee to assure Grossman's availability in the event

of an asset-freezing action. This retainer was placed in a trust

account maintained by Grossman on behalf of Comcoa. Before April

1994, the Division of Enforcement of the Securities and Exchange

Commission ("Division") began an informal inquiry into the business

activities of Comcoa.

On 5 May 1994, the Division filed an ex parte Motion for Order
to Show Cause Why a Preliminary Injunction Should Not Be Granted,

Temporary Restraining Order ("TRO"), Order Freezing Assets, Order

Appointing Receiver, Order for an Accounting, Order Prohibiting

Destruction of Documents and an Order Expediting Discovery. On 6
May 1994, at 9:25 AM, a United States District Judge entered an

order, among other things, granting a TRO and freezing Comcoa's

assets, appointing a Receiver, and notifying the parties of a

1
While it is appellant Law Practice of J.B. Grossman, P.A.
which was held in contempt below, the law firm's sole involvement
in this case was through the actions of J.B. Grossman, a lawyer.
As such, this opinion will describe the behavior in this case as
being that of Mr. Grossman rather than that of the law firm.

2
hearing on 16 May to consider a preliminary injunction.2

On 11 May Comcoa filed, among other things, an Emergency

Motion to Vacate the TRO, a Motion to Dismiss for Lack of Subject

Matter Jurisdiction and a Motion for Preliminary Hearing on

Defendants' Motion to Dismiss.

On 16 and 17 May the district court did hold a preliminary

injunction hearing and also heard Defendants on their Motion to

Dismiss for Lack of Subject Matter Jurisdiction. Grossman was

attorney of record for Comcoa at this hearing. Over the two days,

the district judge heard argument from counsel and received

testimony from seven witnesses; the hearing was completed.3 At the
end of the hearing on 17 May, the district court told both parties

that it was extending the 6 May order until the court ruled on the

substantive motions by Defendants. The district court said the

order would be extended in all respects and specifically said the

order included the asset freeze. The district court then asked if

either party had anything further or any questions. Grossman

replied, "No, sir."
On 6 June 1994, Grossman called the district court to find out

if an order had been issued. At first, Grossman was told a

preliminary injunction had been issued; but later the district

court's assistant said a preliminary injunction had not been

2
The May 6 order stated that the hearing on May 16 was to
show cause "why a Preliminary Injunction ... should not be granted
...."
3
Mr. Grossman makes no contention that he was unable at this
hearing to set forth fully the reasons for which he and Comcoa
believed no preliminary injunction should issue.

3
issued. Grossman considered the court's order to have expired. And

he, on 6 June, transferred from Comcoa's trust account about

$92,000 of the retainer funds into his law firm's operating

account.4 About this same time, he filed for Comcoa an Emergency

Motion for Release of Assets, based on the expiration of the TRO.5

Also on 7 June, the district court entered an Order of Preliminary

Injunction nunc pro tunc to June 3, 1994; and, the district court

denied Defendants' Emergency Motion.

In August 1994, the Division filed a Motion for an Order to

Show Cause to hold Grossman in contempt for violating the district

court orders when he transferred the retainer funds. The district

court entered an order holding Grossman in contempt of court for

his transferring of the funds into his own account. He now appeals

this ruling.

Rule 65 of the Federal Rules of Civil Procedure says that a

4
The order stated that Comcoa and their "attorneys ... are
[] restrained from, directly or indirectly, transferring ... any
assets or property owned by, controlled by, or in the possession of
[Comcoa]". In the contempt proceeding the court below concluded
that the asset freeze extended to the trust account, and this
determination is not in dispute. Never does Grossman contend that
he was unaware that the order of the court, if still in force,
prohibited this conduct.
5
Some confusion exists on the precise sequence of events on
June 6 and 7. The district court appears to have found that
Grossman first filed the motion for release of funds and then --
before the motion could be decided -- transferred the money.
Grossman's initial brief says that he transferred the funds on 6
June and filed the motion for release of assets the next day. His
reply brief says that the motion was filed 6 June, the same day
that he transferred the funds, but later in the day. And, the
docket sheet indicates the motion was not filed until 7 June. In
any event, what is undisputed is that Grossman's transfer of funds
was a unilateral act done without the approval of any court.

4
TRO can last only 10 days, unless extended, and cannot be extended

beyond 20 days without the consent of the restrained party.6

Grossman says that he never consented to an extension; and for the

sake of our discussion, we accept that he did not consent.

The Supreme Court has said a TRO that is continued beyond the

time permissible under Rule 65 should be treated as a preliminary

injunction. See Sampson v. Murray 94 S.Ct. 937, 951 (1974)

(stating "[w]here an adversary hearing has been held, and the

court's basis for issuing the order strongly challenged,

classification of the potentially unlimited order as a temporary

restraining order seems particularly unjustified"). This

treatment is especially appropriate where, as in this case, there

has been notice to the parties, a full hearing on a preliminary

injunction, and then a stated and clear decision from the bench to

extend the terms of the restraining order indefinitely, that is,

until the court notified the parties otherwise.7

6
The parties argue whether the initial 10 days and the 20 day
extension should be calculated by excluding weekends and holidays.
This argument is largely irrelevant because even if we take the
calculation which excludes weekends and holidays, the TRO would
expire at 9:25 AM on June 6. And, because the district court did
not enter the written preliminary injunction order until June 7
(although it was entered nunc pro tunc to June 3), the TRO would
have expired unless consent were given. We do note that even under
the calendar day approach, continuing the hearing into the second
day constituted a for- cause extension of the initial 10 day
period.
7
We accept that, where there has been no notice to the
parties and no hearing on the various factors involved in
considering a preliminary injunction, a TRO continued past the Rule
65 limit falls of its own weight. See Granny Goose v. Brotherhood
of Teamsters & Auto Truck Drivers, 94 S.Ct. 1113 (1974); Hudson v.
Barr, 3 F.3d 970 (10th Cir. 1993). In Granny Goose, the district
court "did not indicate that it was undertaking a hearing on a

5
 Very likely, Grossman's client, Comcoa along with its agents

and attorneys, was under a preliminary injunction once the judge

spoke at the end of the hearing; but we need not go that far. If

the TRO had not become a preliminary injunction before, it became

a preliminary injunction when the TRO, as orally extended by the

district court, went beyond the time permissible under Rule 65.

Thus, the proper course of conduct for Grossman was to treat the

TRO as an erroneously granted preliminary injunction and to

appeal.8 See Clements Wire & Mfg. Co. v. NLRB, 589 F.2d 894, 896

(5th Cir. 1979).

We believe the instances when lawyers can be told by the

district court in no uncertain terms not to do "X" and, yet, the

lawyer can go on to do "X" with impunity are (and ought to be) few

preliminary injunction." Granny Goose, 94 S.Ct. at 1125. And,
neither party made an attempt to present its position on whether a
preliminary injunction should issue. Id.

8
That a hearing on a preliminary injunction had been held
and that appellate review was, therefore, available under Sampson,
makes this case materially different from Granny Goose. Even in Pan
American World Airways, Inc. v. Flight Engineers' Int'l Assn., 306
F.2d 840, 842 (2d Cir. 1962), the Second Circuit treated a TRO
extended following the commencement of a hearing on the merits as
a preliminary injunction for purposes of appeal. No good reason
exists to limit this rule to one of appellate jurisdiction only: a
preliminary injunction is a preliminary injunction.
Two concerns about TROs are reflected in the case law and in
Rule 65. First, restrained parties often have no opportunity for
a hearing and may not know precisely what conduct is prohibited.
Second, a restrained party may not obtain appellate review of a
TRO.
Our holding respects both these concerns; Grossman and
Grossman's client had the opportunity to contest the preliminary
injunction (and had precise notice of the enjoined conduct) and
also could have obtained appellate review of the injunction.

6
and far between, especially where the appellate courts -- as in

this case -- are open to the lawyer to settle the matter in an

orderly way, but the lawyer pursues no appeal. In these

circumstances, for Grossman just to disregard the district court's

clear order, based on his personal belief that it was invalid, was

not merely bold; it was bad. We conclude his conduct warrants a

determination of contempt.9 The district court was within its

discretion to hold Grossman in contempt of court for violating its

order.

The order of contempt against the Law Practice of J.B.

Grossman, P.A., is AFFIRMED.

9
Although we decide this case under Rule 65, we do not
decide that all of the district courts' powers to give binding
orders to a lawyer and all of a lawyer's legal duties to obey the
orders of a court with subject-matter jurisdiction over the
controversy in which the lawyer appears as counsel of record flow
from the Federal Rules of Civil Procedure only.
We are heartsick when we observe that Mr. Grossman, an
officer of the United States' Courts, acted personally and directly
in disobeying the straightforward instruction of a United States
District Judge and did so just for money, his fee.
This case is not one in which a lawyer's client acted, and
because the lawyer did not stop his client, the lawyer is facing
contempt. Mr. Grossman, himself, acted contrary to plain
instructions given to him when he was face-to-face with the court.
In such circumstances, the power of district courts to discipline
their officers may possibly be considerably broader-based than that
granted by Rule 65 or even the Federal Rules of Civil Procedure
generally. Put differently, whether or not the client Comcoa was
still validly restrained about its funds, perhaps Mr. Grossman, as
an officer of the court, remained under a valid restraint. But
given the way this controversy was decided by the district court
and has been briefed and argued to us, we will pass over the
question of Mr. Grossman's professional responsibilities and of the
district court's inherent powers to supervise and to discipline its
subordinate officers.

7