Quilling v. Funding Resource Group

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.

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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.

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 III. CONCLUSION

For the foregoing reasons, the appeal is DISMISSED.

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