Ex Parte Chambers

898 S.W.2d 257, 1995 WL 141419

• Court: Texas Supreme Court
• Decided: June 15, 1995
• Docket: 94-0495
• Status: Published

Opinions

HIGHTOWER, Justice,

delivered the opinion of the Court,

in which PHILLIPS, Chief Justice, and HECHT, CORNYN, GAMMAGE, SPECTOR and OWEN, Justices, join.

In this case we must decide whether a judgment of contempt was properly rendered against a corporate officer, director and shareholder for his personal failure to cause the corporation to pay a contempt fine previously adjudged against it. Although we find that the order was sufficiently specific to give rise to a personal duty on Chambers’ part to obey it, we grant his petition for writ of habeas corpus because we find that he has conclusively proven that the corporation was unable to comply with the order.

In early 1992, Franklin Delano Chambers was an employee of International Business Exchange Corporation (hereinafter “IBEC”), a corporation whose business consisted primarily of bringing together buyers and sellers of businesses through listings, mail outs and advertising. In connection with his employment, Chambers entered into an agreement in which he promised not to use IBEC’s marketing tools and trade secrets in competition with IBEC. In April 1992, Chambers founded International Business Search, Inc. (hereinafter “IBS”). IBS employed Chambers and several other former IBEC employees to provide essentially the same business listing services which they had offered as employees of IBEC. Chambers, along with Donna Nicholls and Allan Millen, made up IBS’s initial board of directors; however, Nicholls and Millen were removed from the board only two months after IBS was formed. This left Chambers as the sole officer, director and 100% stockholder.

In mid 1992, believing that IBS and Chambers were unlawfully competing with it in violation of the nondisclosure and noncompet-ition agreements, IBEC sued IBS, Chambers, and the other former IBEC employees. Among the remedies sought by IBEC and granted by the trial court was an injunction to restrain the defendants from using or disclosing IBEC’s trade secrets and confidential information. The injunctions granted by the trial court were subsequently and repeatedly violated.

On February 2, 1993, IBS and the individual defendants were found to be in contempt of court for violating the injunctions through customer contacts which occurred in July and August of 1992. Fines were ordered and were paid. During March of 1993, Chambers proceeded to shut down IBS and open a sole proprietorship called Investor Brokerage Service (hereinafter “IBS II”). The assets of IBS were transferred to IBS II, which used the same location, the same phone number, and engaged in the same business as IBS. On June 24, 1993, the defendants were again found to be in violation of the trial court’s injunctions stemming from customer contacts in September, November and December of 1992. On this occasion, however, only IBS was held in contempt. For these multiple acts of contempt, IBS, of which Chambers was the sole officer, director and shareholder, was ordered to pay a $3000 fine within seven days.

One hundred fifteen days later, the fine from the second contempt judgment against IBS remained unpaid and Chambers was ordered to show cause why he should not be held in contempt for the failure of IBS to pay the fine. At the show cause hearing, Chambers contended that IBS was unable to pay the fine. Chambers and IBS were both found to be in contempt of court. Chambers, individually, was ordered to pay a total fine of $6000 and was sentenced to jail for a period of 7 days and for so long thereafter as the $6000 fine remained unpaid.

Chambers sought a writ of habeas corpus from the Third Court of Appeals, which writ was ultimately denied by that court. — S.W.2d -. We initially granted Chambers’ release on bond while his application was pending, and we now grant the writ of habeas corpus because Chambers has established the corporation was unable to pay the court ordered fine.

I.

We must first decide whether Chambers, a corporate officer and director, can be held in contempt of court when the violated order is directed only to the corporation. Contempt of court is broadly defined as disobedience to or disrespect of a court by acting in opposition to its authority. Ex parte Norton, 144 Tex. 445, 191 S.W.2d 713, 714 (1946). See also William W. Kilgarlin & Scott A. Ozmun, Contempt of Court in Texas — What You Shouldn’t Say to the Judge, 38 Baylor L.Rev. 291, 292 (1986). Within this definition, there are two basic types of contempt: direct contempt and constructive contempt. Direct contempt is that type of disobedience or disrespect which occurs within the presence of the court, while constructive contempt occurs outside the court’s presence. Ex Parte Gordon, 584 S.W.2d 686, 688 (Tex.1979). The contempt alleged in this case, violation of a written court order, outside the presence of the court, is constructive contempt. A criminal contempt conviction for disobedience to a court order requires proof beyond a reasonable doubt of: (1) a reasonably specific order; (2) a violation of the order; and (3) the willful intent to violate the order. See In the Matter of Hipp, Inc., 5 F.3d 109, 112 (5th Cir.1993) (citing Cooper v. Texaco, Inc., 961 F.2d 71, 72 n. 3 (5th Cir. 1992); United States v. Burstyn, 878 F.2d 1322 (11th Cir.1989)).¹ In reviewing the record, we are without jurisdiction to weigh the proof and determine whether it preponderates for or against the relator; rather, we determine only if the judgment is void because, for example, the relator has been confined without a hearing or with no evidence of contempt to support his confinement. Ex parte Barnett, 600 S.W.2d 252 (Tex.1980); Ex parte Helms, 152 Tex. 480, 259 S.W.2d 184 (1953). See also Ex parte Howell, 843 S.W.2d 241, 245 (Tex.App. — Houston [1st Dist.] 1992, orig. proceeding).

A.

We first consider whether the order Chambers is accused of violating is sufficiently specific to support a judgment of contempt. The order which Chambers is charged with violating is an order directing IBS to pay a $3000 fine, but it does not designate any particular person to carry out its terms. In order to support a judgment of contempt, Texas law requires that the underlying decree set forth the terms of compliance in clear, specific and unambiguous terms so that the person charged "with obeying the decree will readily know exactly what duties and obligations are imposed upon him. Ex parte MacCallum, 807 S.W.2d 729, 730 (Tex.1991); Ex parte Hodges, 625 S.W.2d 304, 306 (Tex.1981); Ex parte Slavin, 412 S.W.2d 43, 44 (Tex.1967). Chambers argues that nonpayment by the corporation cannot result in his own contempt because the court did not clearly and unambiguously order him to pay the fine. We disagree.

A court order is insufficient to support a judgment of contempt only if its interpretation requires inferences or conclusions about which reasonable persons might differ. MacCallum, 807 S.W.2d at 730. Only the existence of reasonable alternative constructions will prevent enforcement of the order. See, e.g., Ex parte Cranford, 684 S.W.2d 124 (Tex.App. — Houston [14th Dist.] 1984, orig. proceeding) (holding an obligor in contempt who knew with certainty he was to pay one of two amounts of child support but ignored the order altogether). The order need not be full of superfluous terms and specifications adequate to counter any flight of fancy a contemnor may imagine in order to declare it vague. Ex parte Johns, 807 S.W.2d 768, 774 (Tex.App. — Dallas, 1991).

There is no question in this case which corporation was responsible for paying the court ordered fine. Further, there is no ambiguity concerning the amount of the fine ordered or when it was due. The only issue is whether it was reasonable to conclude that IBS was required to pay the fine, but that it would do so without human intervention. The absurdity of the question provides its own answer.

Although a corporation is a legally distinct and cognizable entity, it is only able to act through its agents. San Antonio Bar Ass’n v. Guardian Abstract & Title Co., 156 Tex. 7, 291 S.W.2d 697, 699 (1956). Since a corporation is capable of violating a court order only if its agents act or refrain from acting, it follows that an order directed at a corporation is binding on agents authorized to act on its behalf, whether specifically named in the order or not. See, e.g., Wilson v. United States, 221 U.S. 361, 31 S.Ct. 538, 55 L.Ed. 771 (1911) (order directed at corporation only but president held in contempt); United States v. Laurins, 857 F.2d 529 (9th Cir.1988), cert. denied, 492 U.S. 906, 109 S.Ct. 3215, 106 L.Ed.2d 565 (1989) (order directed at corporation and vice-president but managing director held in contempt). See also Charles R.P. Keating, Fletcher Cyclopedia of Corporations § 5073 (Perm. ed. 1986). There can be no doubt that a command to the corporation is in effect a command to those who are officially responsible for the conduct of its affairs. Wilson, 221 U.S. at 376, 31 S.Ct. at 542-43. Were this not true, entities could delegate their disobedience to physical actors who, since they would be beyond judicial power, would have no reason to recognize or obey it.²

Simply because a corporation has failed to comply with a court order, it does not necessarily follow that all corporate agents or officers are in contempt because of their agent status. There must be evidence in the record that the corporate agent charged with contempt was somehow personally connected with defying the authority of the court or disobeying its lawful decrees. See, e.g., Deramus v. Thornton, 160 Tex. 494, 333 S.W.2d 824 (1960). We have previously refused to uphold a judgment of contempt against a corporate president because of the absence of any evidence that the president had either encouraged or participated in the violations of injunctions carried out by other employees. Id. at 828-30. However, when an agent of the corporation, having knowledge of an order directed at the corporation, participates in or encourages the violation of that order, that agent may be individually held in contempt of court.³

The record indicates that Chambers was IBS’s only officer, its only director, and indeed, its only shareholder. It is also undisputed that Chambers was present when the trial court ordered IBS to pay the initial contempt fine. Since Chambers was the only person capable of compelling IBS to pay the court ordered fine, it is clear that IBS’s disobedience is due to Chambers’ personal refusal to act. Thus, since the order to IBS is binding on Chambers, and since the trial court heard evidence that Chambers personally participated in its violation with notice of the order, the judgment of contempt is not void on these grounds.

B.

We now consider whether Chambers willfully violated the court’s order. Chambers argues that there is no evidence that he violated the court’s order knowingly and intentionally. Although at times not clearly enunciated in Texas case law, the requirement of willful disobedience is a necessary consequence of the accumulated contempt jurisprudence. As explained above, to support a judgment of contempt, the underlying order must be clear and unambiguous. Mac-Callum, 807 S.W.2d at 730. In addition, one must have knowledge or notice of an order which one is charged with violating before a judgment of contempt will obtain. See, e.g., Ex parte Conway, 419 S.W.2d 827, 828 (Tex. 1967). Noncompliance with an unambiguous order of which one has notice will ordinarily raise an inference that the noncompliance was willful.

It is uncontested in this case that Chambers was present when the trial court ordered IBS to pay the contempt fine. It is also clear that Chambers and Chambers alone is responsible for IBS’ disobedience. Although Chambers argues that he did not willfully violate the order because he acted on the advice of his attorney, this argument is unavailing. While reliance upon the advice of counsel may be considered in mitigation of contempt, it does not constitute a defense. Edrington v. Pridham, 65 Tex. 612, 617 (1886). See also S.E.C. v. First Financial Group, Inc., 659 F.2d 660 (5th Cir.1981).

The analysis above does not end our inquiry concerning Chamber’s alleged willfulness. The involuntary inability to comply with an order is a valid defense to criminal contempt, for one’s noncompliance cannot have been willful if the failure to comply was involuntary. See Ex parte Rohleder, 424 S.W.2d 891, 892 (Tex.1967); Ex parte Kollenborn, 154 Tex. 223, 276 S.W.2d 251, 253-54 (1955). Although the inability to comply defense technically rebuts the willfulness element of contempt liability, the relator bears the burden of proving his inability to comply. See, e.g., Kollenbom, 276 S.W.2d at 254. Again, we do not weigh the evidence, but only determine if there is no evidence to legitimize the relator’s confinement. Ex parte Barnett, 600 S.W.2d 262 (Tex.1980); Ex parte Helms, 152 Tex. 480, 259 S.W.2d 184 (1958). See also Ex parte Howell, 843 S.W.2d 241, 245 (Tex.App. — Houston [1st Dist.] 1992, orig. proceeding). Thus, the issue in habeas corpus review is whether the relator has conclusively established that IBS was involuntarily unable to pay. Chambers argues that he has conclusively established this defense, and we agree.

It is undisputed that IBS did not have sufficient assets to pay the fine at any point subsequent to the date on which the fine was ordered. In point of fact, IBS had ceased doing business altogether. IBS could not have paid the fine even if Chambers had acted.

One month after the first series of fines, IBS ceased doing business and Chambers continued providing the same services in the form of a sole proprietorship, IBS II. The assets of IBS were transferred to IBS II, which took up residence in the same office space and used the same telephone number as IBS. IBEC points to this evidence and argues that Chambers has not conclusively proven IBS was involuntarily unable to pay the fine, but that IBS’s inability to pay was purposefully achieved. We must disagree.

The shifting of assets from IBS to IBS II occurred prior to the imposition of the court-ordered fine. A contemnor cannot be held in constructive contempt of court for actions taken prior to the time that the court’s order is reduced to writing. See Ex Parte Price, 741 S.W.2d 366 (Tex.1987). Chambers had no duty to preserve IBS assets for the payment of fines to be ordered in the future; therefore, his actions, taken alone, prior to the issuance of the fine, do not raise any inference that he was seeking to avoid the contempt powers of the trial court.

IBEC further argues that the assets of IBS II ought to be included in determining whether IBS, which it considers to be Chambers’ alter ego, was capable of paying the fine when ordered. We need not determine whether Chambers’ personal assets ought to be included in determining IBS’s ability to comply because this was not the basis of the motion for contempt below. IBEC, in its motion for contempt, sought only to hold Chambers accountable for his own failure to make IBS act. Nowhere did IBEC allege that IBS was Chambers’ alter ego. Full and unambiguous notice of the accusation of contempt must be served on the alleged contemnor. Ex Parte Adell, 769 S.W.2d 521 (Tex.1989). We cannot justify Chambers’ imprisonment on a basis which is not alleged in the respondent’s sworn motion for contempt, but rather is raised for the first time when Chambers seeks his freedom through writ of habeas corpus.

The dissent makes much of the fact that the only reason IBS lacked sufficient assets to pay its fine is because, before the fine issued, Chambers transferred them out of the corporation and into his own pocket. The effect of this position is to require IBS to stay in business solely to pay fines which hypothetically would be levied in the future. We believe that meaningful review of the “inability to comply” defense is more readily accomplished by limiting the contemnor’s burden to proving that the corporation lacked sufficient assets (or access to assets) to pay the fine at all times after the fine was entered. If the opposition wishes to prove that pre-fine transfers were fraudulent or that the corporate form was being used as a sham to perpetrate a fraud, it should be their burden to so allege and so prove.

Since we find that Chambers has established IBS’s inability to comply defense, it is unnecessary to address his remaining points. We therefore grant Chambers’ petition for writ of habeas corpus and order that he be discharged from custody.

1 . The federal authority cited more clearly sets out the elements of proof for a criminal contempt case than some of our state jurisprudence; however, as will be demonstrated in the following paragraphs, the requirements under Texas law are functionally the same.

2 . Similar concerns are present in the aider and abettor context. A court's order has no power at all if it may be flaunted by a proxy acting in contempt of the court’s authority. Therefore:

[A] decree of injunction not only binds the parties defendant but also those identified with them in interest, in “privity” with them, represented by them or subject to their control. In essence ... defendants may not nullify a decree by carrying out prohibited acts through aiders and abettors, although they were not parties to the original proceeding.

Waffenschmidt v. Mackay, 763 F.2d 711 (5th Cir. 1985), cert. denied, 474 U.S. 1056, 106 S.Ct. 794, 88 L.Ed.2d 771 (1986) (quoting Regal Knitwear Co. v. Nat’l Labor Relations Board, 324 U.S. 9, 14, 65 S.Ct. 478, 481, 89 L.Ed. 661 (1945)).

3 . See, e.g., State ex rel. Grimsley v. West Lake Development, Inc., 71 N.C.App. 779, 323 S.E.2d 448 (1984), review denied, 313 N.C. 514, 329 S.E.2d 401 (1985) (upholding contempt judgment against general manager where court order concerning sedimentation and erosion control was directed solely at the corporation and it was stipulated that the general manager had notice of the order and was responsible for sedimentation and erosion control); Department of Revenue v. Carpet Warehouse, Inc., 296 Or. 400, 676 P.2d 299 (1984) (upholding contempt judgment against corporate president for failure of corporation to file tax return as ordered). See also 10A Charles R.P. Keating, Fletcher Cyclopedia of the law of Private Corporations § 5073 (Perm, ed. 1986).