[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JANUARY 23, 2002
No. 00-14481 THOMAS K. KAHN
CLERK
D.C. Docket Nos. 99-02678-CIV-ASG
and 99-14687-BKC-AJ
IN RE:
STEPHAN JAY LAWRENCE,
Debtor.
STEPHAN JAY LAWRENCE,
Plaintiff-Appellant,
versus
ALAN L. GOLDBERG, Trustee, duly authorized and
acting Chapter 7 Trustee for the bankruptcy estate of
Stephan Jay Lawrence,
Defendant-Appellee.
STEPHEN JAY LAWRENCE,
Plaintiff-Appellant,
versus
ALAN L. GOLDBERG,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Florida
(January 23, 2002)
Before EDMONDSON, DUBINA and POLITZ*, Circuit Judges.
POLITZ, Circuit Judge:
Stephen Lawrence appeals the bankruptcy court’s order adjudging him in
contempt and ordering his imprisonment until the contempt is purged. For the
reasons assigned, we affirm.
BACKGROUND
In January 1991, Lawrence settled an offshore Trust, with an estimated value
of $7 million dollars. According to the Trust, Lawrence had the sole power to
appoint Trustees. Two months later, an arbitration judgment was issued against
him in the amount of $20.4 million dollars. Over time, several amendments were
made to the Trust. In February 1991, a spendthrift provision was added. In
January 1993, the Trust was amended so that settlor’s powers could not be
executed under duress or coercion and his life interest would terminate in the event
of his bankruptcy. In March 1995, an amendment was added declaring Lawrence
*
Honorable Henry A. Politz, U. S. Circuit Judge for the Fifth Circuit, sitting by
designation.
2
to be an “excluded person” under the Trust, thus proscribing his ever becoming a
beneficiary of the Trust. Finally, in 1999, the Trustees issued a “Declaration of
Intent” stating that the excluded person status was irrevocable.1
In June 1997, Lawrence filed a voluntary petition in bankruptcy. The
Bankruptcy Trustee objected to the debtor’s discharge. During that proceeding, a
discovery dispute arose over the sufficiency of Lawrence’s answers to
interrogatories. After a hearing, the court issued a default judgment deeming the
facts alleged in the Trustee’s complaint established, found that the rights and
obligations of the Trust were governed by Florida law, not the law of Mauritius,
which is the law chosen by the Trust documents, and found that the Trust was
property of the estate. That order is now final.
In July 1999, the Bankruptcy Trustee sought an order directing Lawrence to
turn over the assets of the Trust. The order was granted and the court set a
September status conference to determine Lawrence’s compliance therewith. At
that conference the court found that Lawrence had control over the Trust, through
his retained powers to remove and appoint Trustees and to add and exclude
beneficiaries, and it rejected Lawrence’s impossibility defense. It then held
1
We agree with the district court that this 1999 Declaration is to be given no effect herein.
It was done in violation of 11 U.S.C. § 362(a)(3) and the stay order entered by the district court.
3
Lawrence in contempt for failing to turn over the Trust assets. On September 8,
1999, the court issued its contempt order. Lawrence declined to comply and on
October 5, 1999, the bankruptcy court ordered his incarceration pending
compliance. On July 31, 2000, the district court affirmed both the Turn Over
Order and the contempt orders. Lawrence timely appealed.
Lawrence remains incarcerated at this time. According to the terms of the
contempt order, he is fined $10,000 per day until he purges his contempt.
Lawrence claims that on September 13, 1999, he executed a document naming
Goldberg as Trustee of the Trust and advised the previous Trustees of this action.
He insists that this is the limit of his power to turn over the assets of the Trust to
the bankruptcy Trustee.
ANALYSIS
A Bankruptcy Court has the power to imprison a debtor for contempt of
court when the debtor fails to comply with a Turn Over Order.2 Once a proper
showing of a violation of the order has been made, “the burden of production then
shifts to the alleged contemnor, who may defend his failure on the grounds that he
was unable to comply. . . . In order to succeed on the inability defense, the alleged
contemnor must go beyond a mere assertion of inability and establish that he has
2
In Re Hardy, 97 F.3d 1384 (11th Cir. 1996).
4
made in good faith all reasonable efforts to meet the terms of the court order he is
seeking to avoid.”3 On appeal, the district court’s finding that the contemnor has
not met his burden of proof in presenting his impossibility defense is a factual
determination subject to review under the clearly erroneous rule.4 The courts a
quo determined that Lawrence’s testimony was not credible and that the Trust
documents did not preclude his exercise of control over the Trust. Accordingly,
both the bankruptcy court and the district court found that Lawrence failed to
support his proffered impossibility defense.
In a similar case, Federal Trade Commission v. Affordable Media, LLC,5 the
Ninth Circuit held that the district court did not err in finding that the contemnors’
compliance was not impossible because they remained in control of an offshore
Trust. In that case the contemnors, the Andersons, created a Trust in the Cook
Islands which contained a duress clause providing that in the event of duress the
Andersons would be terminated as co-trustees and, accordingly, control over the
Trust assets would appear to be exclusively in the hands of a foreign Trustee.
After the Andersons were ordered to repatriate the Trust assets to the United States,
3
Commodity Futures Trading Comm’n v. Wellington Precious Metals, 950 F.2d 1525,
1529 (11th Cir. 1992) (citations omitted).
4
Id.
5
179 F.3d 1228 (9th Cir. 1999).
5
they, as protectors of the Trust, sent a notice to the foreign Trustee ordering it to
repatriate the funds based on the court order. The Trustee then removed the
Andersons from their positions as co-trustees and refused to comply with the order
to repatriate, basing the decision on the duress provision of the Trust.
The Andersons claimed that compliance with the court’s order would be
impossible because they no longer had control over the Trust. Our appellate
colleagues found that the “protector’s” powers over an offshore Trust were
significant when given “affirmative” powers such as the power to appoint a new
Trustee. The Andersons’ recognized this power and attempted to resign as the
protectors. The appellate court found this to be compelling evidence
demonstrating their ability to control the Trust. The court held that the “asset
protection Trust” was designed to frustrate the power of the courts to enforce
judgments, and found that there was “little else that a district court judge can do
besides exercise its contempt powers to coerce people like the Andersons into
removing the obstacles they placed in the way of a court.”6 The court also
pointedly observed that, “While it is possible that a rational person would send
millions of dollars overseas and retain absolutely no control over the assets, we
6
Id. at 1243.
6
share the district court’s skepticism.”7
In Commodity Futures Trading Commission v. Wellington Precious Metals,
Inc, we examined the impossibility defense and held that the contemnor did not
present evidence sufficient to establish same. The contemnor claimed that the
court’s $2.8 million figure was inaccurate, asserting that he only made $1.4 million
from his illegal activities, and he produced documents stating that the money was
no longer in his possession. He maintained that he had used the money for
payment of various unsecured loans. We voiced a skepticism that the contemnor, a
sophisticated businessman, took no steps to secure the loans and made no
meaningful attempts to collect on debts due him. We stated that, “Even more
important, however, is the fact that the district court found [contemnor’s]
explanations unworthy of belief.”8 Accordingly, we held that the district court did
not err in finding a failure of proof of the asserted defense.
In the instant action, the bankruptcy court determined that the Trust was part
of the estate. That order is final and is not subject to collateral attack in this
appeal.9 Upon the issuance of that judgment, Lawrence came under a continuing
7
Id. at 1241.
8
Commodity Futures Trading Comm’n, 950 F.2d at 1530.
9
Maggio v. Zeitz, 333 U.S. 56 (1948).
7
statutory duty to turn the Trust res over to the Trustee.10 Lawrence contends that
the Turn Over Order should be reversed because there was no evidence presented
at the hearing on the turn over motion. This argument is without merit. The
bankruptcy court properly took notice of and considered the evidence placed into
the record in the underlying bankruptcy litigation.11 The district court did not err in
relying on this underlying action in its determination that the Turn Over Order at
issue was appropriate.
The district court found that:
The primary support for the finding that appellant had the present
ability to comply with the Turn Over Order is found in the Trust
Indenture itself. The Trust Indenture establishes that the appellant had
the power and authority to exercise substantial control over the Trust
at the time of the Turn Over Order.
The district court recognized that the Deed of Appointment for the Trust
specifically reserves to the Settlor (Lawrence) the right to appoint future Trustees.
This power was not affected by the subsequent Declaration that Lawrence was an
excluded person under the Trust. In addition, the 1995 Declaration that Lawrence
was an excluded person did not state whether that exclusion was revocable or
10
11 U.S.C. § 521(4).
11
State of Florida, Board of Trustees of the Internal Improvement Trust Fund v. Charley
Toppino & Sons, Inc., 514 F.2d 700 (5th Cir. 1975).
8
irrevocable.12 The discretion of the Trustees is absolute and unfettered, thus
leaving them with the ability to later revoke their decision to make Lawrence an
excluded person and reinstate him as a beneficiary. We agree with the district
court that, “The import of these clauses and provisions, when read together, is that
the appellant, as settlor and prospective beneficiary, retained de facto control over
the Trust through his ability to appoint Trustees who could in their absolute
discretion reinstate the appellant as a beneficiary and assign the entire proceeds to
him.”
We also find that the district court did not clearly err when it determined that
the 1993 Duress Amendment is void as to current and future creditors under
Florida law where the settlor creates a Trust for his own benefit and inserts a
spendthrift clause.13 The bankruptcy court and the district court both concluded
that Lawrence clearly established this Trust for his own benefit and to shelter these
assets from an anticipated adverse arbitration judgment. Further, this provision
was specifically designed to prevent permanent revocation of the settlor’s powers.
Rather, it leaves to the settlor and the Trustees the discretion to determine when an
12
The 1999 Declaration of Intent declaring the status of Lawrence as an excluded person
to be irrevocable was, as the district court noted, “nothing more than a smoke screen meant to
obfuscate the issues and hide Lawrence’s latent control over the Trust.”
13
Fehlhaber v. Fehlhaber, 850 F.2d 1453, 1455 (11th Cir. 1988).
9
event of duress has occurred. The sole purpose of this provision appears to be an
aid to the settlor to evade contempt while merely feigning compliance with the
court’s order. We agree with our colleagues in the Ninth Circuit, and with the
district court herein, that validation of such a provision would contravene public
policy proscribing a debtor from shielding money placed in a Trust for his or her
own benefit and to the prejudice of legitimate creditors. We cannot say that the
district court’s determination that Lawrence had the ability to comply with the
Turn Over Order was clearly erroneous. Absent such a finding, the Turn Over
Order may not be deemed inappropriate.
It is undisputed that Lawrence failed to comply with the Turn Over Order.
Once it has been shown that a violation of the order has occurred, the burden shifts
to the contemnor to demonstrate an impossibility of compliance. As stated above,
the record does not support a conclusion that the district court clearly erred in
finding that Lawrence has the requisite ability to control the distribution of the
Trust.
Lawrence claims that he has done all that he has the power to do by
attempting to appoint the Bankruptcy Trustee as the new Trustee. He insists that
the fact that this attempt was met with silence (presumably due to the duress
provision) is beyond his control. This contention is not persuasive for several
10
reasons. In order to prevail on an impossibility defense, Lawrence must
demonstrate that he has made “in good faith all reasonable efforts” to meet the
terms of the court order he is attempting to avoid.14 We agree with the district
court that Lawrence’s last minute appointment of Goldberg as Trustee does not
meet the requirement of “all reasonable efforts,” nor do any of Lawrence’s actions
appear to have been made in “good faith.” He had to be aware that his attempted
appointment would be ignored by the Trustees under the duress clause. Further,
the district court found that his testimony that he retained no control over the Trust
and that he had not maintained communication with the Trustees lacked credibility.
There is no support in the record before us to warrant a rejection of that credibility
determination.
Even if we were to find that Lawrence had set forth sufficient evidence of
impossibility, we must agree with the trial court that Lawrence’s claimed defense is
invalid because the asserted impossibility was self-created. We previously have
held that, “where the person charged with contempt is responsible for the inability
to comply, impossibility is not a defense to the contempt proceedings.”15
Lawrence insists that his impossibility is distinguishable from other cases finding
14
United States v. Roberts, 858 F.2d 698, 701 (11th Cir. 1988).
15
Pesaplastic, C.A. v. Cincinnati Milacron Co., 799 F.2d 1510, 1521 (11th Cir. 1986).
11
that self-created impossibility is not a defense because his actions, if any, creating
the impossibility occurred prior to the instant action. This contention clearly lacks
merit. We agree with the district court that Lawrence created this Trust in an
obvious attempt to shelter his funds from an expected adverse arbitration award. In
addition, at the time Lawrence became an excluded person under the Trust he
retained the ability to appoint a new Trustee who would have the power to revoke
the excluded person status at any time. We, perforce, must conclude that the
district court did not err in holding that Lawrence failed to establish his defense of
impossibility.
As we affirm the challenged orders, we are constrained to remind the district
and bankruptcy courts that civil contempt sanctions are intended to coerce
compliance with a court order.16 In Wellington we acknowledged that, “[W]hen
civil contempt sanctions lose their coercive effect, they become punitive and
violate the contemnor’s due process rights.”17 The district court must make an
individual determination in each case whether there is a realistic possibility that the
contemnor will comply with the order. We are mindful that, “although
16
Commodity Futures Trading Comm’n v. Wellington Precious Metals, Inc., 950 F.2d
1525, 1530 (11th Cir. 1992).
17
Id.
12
incarceration for civil contempt may continue indefinitely, it cannot last forever.”18
Lawrence has not specifically requested the district court to review whether
his continued incarceration has lost its coercive effect. This issue, however, should
be considered under the context of his claim of impossibility. If the bankruptcy
judge determines that, although Lawrence has the ability to turn over the Trust res,
he will steadfastly refuse to do so, the judge will be obligated to release Lawrence
because the subject incarceration would no longer serve the civil purpose of
coercion.
For the reasons assigned, the judgment appealed is AFFIRMED. We
instruct the bankruptcy court to reconsider Lawrence’s incarceration at reasonable
intervals in order to assure that the contempt sanction continues to serve, and is
limited to, its stated purpose of coercion.
18
United States v. O.C. Jenkins, 760 F.2d 736, 740 (7th Cir. 1985) (Contemnor in that
case was imprisoned for 15 months at the time of that opinion. The court stated: “If after many
months, or perhaps even several years, the district judge becomes convinced that, although Thom
is able to pay he will steadfastly refuse to yield to the coercion of incarceration, the judge would
be obligated to release Thom since incarceration would no longer serve the purpose of the civil
contempt order—coercing payment.” The court then ordered the district court to reconsider his
incarceration at “reasonable intervals.”).
13