United States Court of Appeals Fifth Circuit F I L E D REVISED JULY 15, 2005 IN THE UNITED STATES COURT OF APPEALS May 19, 2005
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III Clerk
No. 03-51461
FEDERAL TRADE COMMISSION
Plaintiff - Appellee
v.
ASSAIL, INC; ET AL
Defendants ROBERT M DRASKOVICH Appellant v. ROBB EVANS & ASSOCIATES, LLC Appellee
No. 03-51462
FEDERAL TRADE COMMISSION Plaintiff - Appellee v. ASSAIL, INC; ET AL Defendants DEAN Y KAJIOKA Appellant v. ROBB EVANS & ASSOCIATES, LLC
- 1 - Appellee
- 2 - Appeals from the United States District Court for the Western District of Texas, Waco
Before KING, Chief Judge, and GARZA and BENAVIDES, Circuit Judges.
KING, Chief Judge:
This consolidated appeal concerns the district court’s
refusal to award attorney’s fees to two attorneys whose clients
had their assets frozen as part of a civil case brought by the
Federal Trade Commission. After the district court entered an
asset freeze order, the two clients paid substantial retainers to
their attorneys. In separate orders, the district court ordered
the attorneys to turn all or substantially all the funds over to
the court-appointed receiver. The attorneys now appeal those
orders. We AFFIRM.
I. BACKGROUND
A. Common Factual Background
The events leading to these two appeals can be traced to
January 9, 2003, when Plaintiff-Appellee Federal Trade Commission
(“FTC”) filed a complaint in the United States District Court for
the Western District of Texas. The complaint alleged that a
variety of corporations and individuals, led by Kyle Kimoto and
his primary operating company, Assail Inc. (“Assail”)
(collectively the “defendants”), engaged in a telemarketing
scheme in violation of § 5(a) of the Federal Trade Commission Act - 3 - (“FTCA”), 15 U.S.C. § 45(a), and the FTC’s Telemarketing Sales
Rule, 16 C.F.R. § 310.1-.9.1
At the FTC’s insistence, on the day the complaint was filed,
the court issued an ex parte temporary restraining order barring
the defendants from continuing their scheme and freezing their
assets. The order named certain specific defendants, but it also
made clear that the “provisions of this Order shall be binding
upon the defendants and upon their . . . attorneys . . . and all
other persons or entities in active concert or participation with
[the defendants] who receive actual notice of this Order . . . .”
The court also appointed Appellee Robb Evans & Associates, LLC
(“REA”) as receiver. On February 4, 2003, the district court
issued a preliminary injunction that essentially restated the
terms of the temporary restraining order.
B. Factual and Procedural Background for Robert M. Draskovich
On January 15, 2003, REA took control of Assail’s principal
1 The defendants told consumers that in exchange for an advance fee, they would receive a pre-approved MasterCard credit card. As part of the verification process, the defendants also offered consumers “free trials” of various services without indicating that acceptance of the trials would result in recurring monthly charges to the consumers’ bank accounts. Using information obtained through these misrepresentations, the defendants debited each consumer’s account $175 or more. The consumers never received the benefits they were promised. Rather than receiving a credit card, consumers generally received either an application for a cash-secured debit card or an unusable plastic card with an unauthorized reproduction of the MasterCard logo and meaningless numbers embossed on the card. The defendants also made it extremely difficult for consumers to cancel recurring charges and obtain refunds. - 4 - place of business in St. George, Utah. The next day, Kimoto
retained Appellant Robert M. Draskovich to defend him in the
FTC’s matter and in any potential criminal matters. The day
after that, January 17, Draskovich received a $200,000 retainer.
The funds were wired directly to him by Alliance Solutions, Inc.
(“Alliance”). On January 21, 2003, Draskovich received an
additional $10,000, which was transferred to him from Valdine
Management Co. (“Valdine”). Kimoto assured Draskovich that the
Alliance funds were not “tainted,” i.e., the funds had nothing to
do with the government’s allegations of telemarketing fraud.
On September 22, 2003, Kimoto, Assail, and the FTC entered
into a stipulated judgment which brought the proceedings against
Kimoto and Assail to a close. The court issued a judgment
against Kimoto for $106 million. The judgment was suspended to
the extent that it exceeded the sum generated from the
liquidation of the assets in which Kimoto had an interest. All
funds generated from the liquidation were ordered to be paid as
consumer redress. The stipulated judgment contained a provision
that allowed the defendants’ attorneys to apply for fees from the
receivership estate. On October 2, 2003, Draskovich applied to
the district court to allow him to retain the funds he received
from Alliance and Valdine. This was in spite of the fact that in
April 2003, the FTC had already requested that Draskovich return
the $210,000, arguing that the funds were transferred to him in
violation of the court’s asset freeze order. On October 22,
- 5 - 2003, the FTC and REA filed motions opposing the fee application
and requesting that the district court require Draskovich to turn
over the $210,000 to REA. On November 13, 2003, the court denied
Draskovich’s application and granted the FTC and REA’s counter-
motions requesting repayment of the entire retainer. Draskovich
now appeals from the court’s November 13 order. On appeal, he
argues that: (1) the district court erred in finding that the
fees he received were subject to the initial asset freeze; (2)
the district court’s order violated his client’s Sixth Amendment
right to counsel; and (3) the procedures the district court used
in making its decision violated due process.
C. Factual and Procedural Background for Dean Y. Kajioka
When REA staff took control of Assail on January 15, 2003,
an Assail employee mentioned that Assail was in the process of
installing certain joint equipment with Valdine. Valdine was
located in the same office complex as Assail. This led REA staff
to suspect that even though Valdine was not named in the FTC’s
complaint, it was part of Kimoto’s scheme. REA’s suspicions were
confirmed when it visited Valdine’s offices that same day. REA
found Woody Davidson, Assail’s head of technology, in the process
of installing $100,000 worth of equipment to create a
telemarketing call center, as well as linking Valdine and
Assail’s computer and telephone systems so that they would be
fully integrated. Davidson and other Assail employees indicated
that Valdine’s offices were to become the control center for - 6 - Assail’s telemarketing operations.
Steven Henriksen, Valdine’s president, secretary, treasurer,
sole shareholder, sole employee, and sole bank account signatory,
was quickly informed of REA’s actions by his brother, who was the
Chief Financial Officer of Assail and a defendant in the
underlying action. In the two weeks following REA’s raid,
Henriksen, at the direction of Kimoto, paid out approximately
$500,000 from Valdine’s accounts to secure legal representation
for the various defendants.2 During this general time period,
Henriksen also paid himself approximately $130,000 in bonuses.
On January 20, 2003, Henriksen retained Appellant Dean Y.
Kajioka to represent him and Valdine for an initial retainer of
$60,000. The next day, Henriksen withdrew $10,000 from Valdine’s
account to pay part of Kajioka’s retainer. The day after that,
January 22, Henriksen withdrew another $50,000 to pay the
remainder of the retainer.
On January 23, 2003, Kajioka called REA and objected to
REA’s taking possession and control of Valdine, taking particular
note of the fact that Valdine was not named in any court papers.
REA informed Kajioka that it believed Valdine was an affiliated
entity of Assail, and thus REA would not release Valdine’s
assets. Kajioka’s claim that Valdine was not named in any court
papers was mooted as a result of the court’s preliminary
2 Draskovich’s second payment of $10,000 came from this disbursal. - 7 - injunction on February 4. Unlike the initial temporary
restraining order, Valdine was expressly included within the
scope of the temporary injunction.
On June 2, 2003, REA’s counsel sent a letter to Kajioka
demanding that he return the full retainer to REA because the
funds had been transferred in violation of the court’s asset
freeze order. Kajioka refused REA’s request. This refusal
prompted the FTC and REA to file separate motions on August 21,
2003, requesting the court to issue an order forcing Kajioka and
Henriksen to show cause why they should not be held in contempt.
On September 5, 2003, the court issued such an order.
On October 2, 2003, the district court held a hearing for
Henriksen and Kajioka to show cause why they should not be held
in contempt. Henriksen asserted his Fifth Amendment right as to
all substantive questions. Kajioka refused to testify under
oath, but he did make an unsworn statement in open court. He
acknowledged that he had been retained to represent Henriksen on
January 20, 2003 and had received the $60,000 retainer. He also
stated that he was retained to represent Henriksen in any
potential criminal actions but had also provided representation
in the civil case.
On October 9, 2003, the court issued an order holding
Henriksen in contempt for dissipating Valdine’s assets in
violation of the temporary restraining order and the preliminary
injunction. The court declined to hold Kajioka in contempt. The
- 8 - court found that because no criminal prosecution commenced,
Kajioka could not have earned the entire $60,000 for services
rendered in connection with Henriksen’s potential criminal
liability. The court did allow Kajioka to retain $10,000 for
services rendered and ordered him to return the rest of the funds
to REA or show cause why he should not be held in contempt.
Kajioka filed several memoranda, as well as documentary evidence,
with the court in support of his contention that he should be
allowed to keep the full amount of the retainer. On November 26,
2003, the court issued its final order on the matter. The court
reiterated its earlier determination that Kajioka was allowed to
keep $10,000.3 Kajioka now appeals from the court’s final order,
raising on appeal the identical issues as Draskovich.
II. STANDARD OF REVIEW
This appeal essentially covers two issues: (1) the district
court’s orders concerning assets found to be part of the
receivership estate; and (2) the district court’s award of
attorney’s fees. Both issues are reviewed on an overall abuse of
discretion standard, under which we review underlying factual
findings for clear error and issues of law de novo. See United
States v. Melrose E. Subdivision, 357 F.3d 493, 498 (5th Cir.
3 The court, however, slightly modified the earlier order. At some point, Kajioka took $10,000 from the initial retainer and paid it to Marjorie Guymon, another attorney who did some work on Henriksen’s case. Since Guymon had already turned over her $10,000 to REA, the court determined that Kajioka needed to repay only $40,000. - 9 - 2004) (reviewing under an abuse of discretion standard a request
to amend an asset freeze order in order to pay attorney’s fees).
III. ANALYSIS
A. Appellate Jurisdiction
On April 15, 2004, we sent a briefing notice to the parties
directing them to address the following issue: “Whether the
order(s) from which appeal is taken in this civil case is
appealable based on the termination of the litigation, pursuant
to R. 54(b), Fed. R. App., or the collateral order doctrine, or
whether there exists [sic] some other bases of appellate
jurisdiction. See generally 28 U.S.C. §§ 1291, 1292(a), (b).”
Upon reviewing both the parties’ arguments and the record,
we conclude that we do have jurisdiction to hear these appeals.
The final section of the stipulated order entered into on
September 22, 2003, states: “The parties hereby consent to entry
of the foregoing Order which shall constitute a final judgment
and order in this matter. The parties further stipulate and
agree that the entry of the foregoing order shall constitute a
full, complete, and final settlement of this action.” This order
was entered on September 22, 2003. The order relating to Robert
M. Draskovich was entered on November 13, 2003. The order
relating to Dean Y. Kajioka was entered on November 26, 2003.
Thus, both orders were entered after the underlying litigation
against Kimoto was settled.
With respect to Draskovich, this chronology makes it clear - 10 - that the underlying litigation is final. The same holds true for
Kajioka. Kajioka’s client, Steven Henriksen, never was a
defendant in the underlying action. However, the true ownership
of the funds in his possession, including those he used to pay
Kajioka, was a question to be determined in the underlying
litigation. That question was answered by the stipulated order.
Thus, in both cases the district court entered a final judgment
before Draskovich and Kajioka initiated their respective appeals.
Essentially, the stipulated order terminated the liability phase
of the case. The instant appeals concern REA’s efforts to reduce
Kimoto’s assets to liquid form and distribute those liquid assets
to victims of his fraudulent scheme. Accordingly, this court has
appellate jurisdiction to hear these appeals.
B. The District Court did not Err in Finding that Draskovich and Kajioka Improperly Accepted and Maintained Possession of the Retainers
Draskovich and Kajioka argue that their acceptance of the
retainers was permissible because the funds they accepted were
not subject to the initial asset freeze order. Kajioka claims
that at the time he was paid his retainer, Valdine and Henriksen
had not been mentioned in any court papers. Valdine and
Henriksen were not specifically mentioned until the February 4
preliminary injunction was issued. Until that time, Kajioka
claims there was no way he could have known that Henriksen and
Valdine were subject to the asset freeze order. Kajioka further
- 11 - asserts that in his January 23 call to REA, he was led to believe
that the seizure may have been a mistake. Similarly, Draskovich
claims that when he received the funds from Alliance and Valdine,
they had not been named in any court papers. Thus, in the
appellants’ view, to say that the transfers violated a court
order would be to say that the order was violated before it ever
existed.
The appellants alternatively argue that there was no way for
them to know that the transfers violated the court order. The
appellants argue that their ignorance is a valid excuse because
they had no duty to independently investigate whether the parties
paying their fees were acting in concert with the named parties.
To the extent there was such a duty to inquire, Draskovich argues
that he fulfilled this duty by securing Kimoto’s promise that the
funds with which he was being paid were not tainted.
1. The Appellants’ Fees Were Subject to the Asset Freeze Order
The appellants’ arguments fail to persuade us that the
district court erred. As mentioned above, the initial ex parte
temporary restraining order stated that the terms of the order
covered the named parties as well as “all other persons or
entities in active concert or participation with” the defendants.
The district court’s determination that Alliance, Valdine, and
Henriksen were acting in concert with the named defendants, and
thus were subject to the asset freeze, is a finding of fact that
- 12 - is reviewed for clear error. Cf. Portland Feminist Women’s
Health Ctr. v. Advocates for Life, Inc., 877 F.2d 787, 789-90
(9th Cir. 1989) (holding that the court of appeals could not
review whether the district court’s determination that a
contemptor was acting in concert with a party named in an
injunction was clearly erroneous because the appellant-contemptor
failed to provide the necessary hearing transcripts in the
record).
The record provides substantial evidence supporting the
district court’s determination. REA’s investigation established
that nearly all of the money flowing into and out of Alliance and
Valdine’s bank accounts came from, and was sent to, other Kimoto-
controlled entities. REA found no business justification for any
of these transfers. The incipient joint operation center is also
highly relevant because it shows that Valdine and Assail were
essentially operating as one company. Thus, we affirm the
district court’s finding that the appellants’ fees were paid with
funds subject to the asset freeze order.
2. The Appellants Had a Duty to Inquire As to the Source of Their Fees
The next question, then, is whether an attorney has a duty
to inquire as to the source of his fee when he is put on notice
that his fee may derive from a pool of frozen assets. Although
this court has yet to confront this issue directly, we hold that
for several reasons an attorney does hold such a duty. First, we
- 13 - think that accepting a fee from a pool of assets frozen by a
court order is sufficiently akin to accepting a fee from the
proceeds of criminal activity to make the principle applicable to
the latter situation instructive here. As a general matter of
professional ethics, an attorney “may not accept the fruits of
the crime as a fee, for knowingly accepting the fruits of crime
in return for valuable services is simply a form of aiding and
abetting crime . . . .” 1 GEOFFREY C. HAZARD, JR. & W. WILLIAM HODES,
THE LAW OF LAWYERING § 9.32, at 9-136 (3d ed. Supp. 2005). For this
reason, an attorney must “‘audit’ a client sufficiently so as to
avoid becoming part of a criminal scheme that includes disposing
of ill-gotten gains.” Id. The instant case did not involve
criminal charges, although it bears mentioning that both lawyers
were retained for potential criminal representation. Even though
criminal charges apparently did not materialize, it is clear that
Kimoto committed multiple, egregious violations of the FTCA.
Further, the fees in question were derived from Kimoto’s
fraudulent scheme. Thus, it seems entirely appropriate to apply
to the instant case this general ethical obligation to “audit” a
client before accepting potentially tainted fees.
Additionally, “[t]his court adheres to the well established
doctrine that [a]n attorney, after being admitted to practice,
becomes an officer of the court, exercising a privilege or
franchise. As officers of the court, attorneys owe a duty to the
court that far exceeds that of lay citizens.” Carroll v. Jaques
- 14 - Admiralty Law Firm, P.C., 110 F.3d 290, 294 (5th Cir. 1997)
(internal citations and quotation marks omitted) (second
alteration in original). For us to hold that an attorney has no
duty to investigate the source of his fees in the instant
circumstances would essentially be a statement that an officer of
the court has no duty to investigate whether he himself is
violating a valid court order. We are not willing so to hold.
In rather similar circumstances to the instant case, the
Ninth Circuit followed this officer-of-the-court rationale in
holding that an attorney did have a duty of inquiry. CFTC v. Co
Petro Marketing Group, Inc., 700 F.2d 1279 (9th Cir. 1983). In
Co Petro, the district court appointed a receiver over a firm and
permanently enjoined it from transferring or diverting any of its
resources. The next day, the firm sent a $60,000 check to its
law firm to cover its existing legal bill and to establish a
trust account for future services. The law firm cashed the check
before it received a copy of the district court’s order. The
receiver later petitioned the district court to force the law
firm to return the funds. The district court granted the
petition. On appeal, the Ninth Circuit affirmed the district
court’s order, noting that:
[a]s an officer of the court, appellant was under a duty to inquire as to the exact terms of the district court’s decision [to freeze his client’s assets] before depositing the check. Consequently, we agree with the district court that [the appellant] violated the permanent injunction against transfer of [the frozen] assets when it
- 15 - deposited the check.
Co Petro, 700 F.2d at 1285.
The Sixth Circuit’s decision in McGraw v. Connelly (In re
Bell & Beckwith), 838 F.2d 844 (6th Cir. 1988), provides yet
another rationale for imposing a duty of inquiry on attorneys.
In McGraw, a bankruptcy trustee sought to recover $150,000 of a
bankrupt firm’s assets that were paid to an attorney to represent
the firm’s managing director in a criminal case. At the time the
fee was paid, the firm had been placed into receivership and all
of its assets had been frozen. The attorney acknowledged that
the funds were fraudulently conveyed and that he held them
pursuant to a constructive trust. However, he argued that he
received the funds as a bona fide purchaser for value, and thus
his rights to the funds were superior to the trustee’s. The
Sixth Circuit disagreed with this claim, finding that a party
cannot be a bona fide purchaser where the circumstances
surrounding the conveyance would lead a reasonable person to
doubt the validity of the transfer. Id. at 849. Where such
reasonable doubt exists, the court found that a party has a duty
to make further inquiry. The court summarized its conclusion by
stating that the attorney “was under a duty of inquiry as to the
source of his fee, and this [sic] his inquiry would have clearly
revealed that his fee was derived from fraudulently obtained
assets.” Id.
Finally, the asset forfeiture provisions in the Racketeer
- 16 - Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1963 (2000), and the Continuing Criminal Enterprise Statute
(“CCE”), 21 U.S.C. § 853 (2000), while not applicable here, are
nonetheless instructive. Under both statutes, property
(including money) derived from criminal activity is subject to
forfeiture irrespective of whether the criminal defendant still
possesses the property. 18 U.S.C. § 1963(c) (2000); 21 U.S.C.
§ 853(c) (2000). However, the statutes also provide that a
third-party transferee may defeat forfeiture if “the petitioner
is a bona fide purchaser for value of the right, title, or
interest in the property and was at the time of purchase
reasonably without cause to believe that the property was subject
to forfeiture under this section . . . .” 18 U.S.C.
§ 1963(l)(6)(B) (2000); 21 U.S.C. § 853(n)(6)(B) (2000). Based
on this statutory language, it stands to reason that if an
attorney has been paid with funds tainted under either RICO or
the CCE and wishes to retain them, he must demonstrate that he
conducted an inquiry sufficient to allow him to be “reasonably
without cause to believe that the property was subject to
forfeiture.” In In re Moffitt, Zwerling & Kemler, P.C., 846 F.
Supp. 463 (E.D. Va. 1994), the court took exactly this approach.
In Moffitt, a law firm was retained by a client who was indicted
under the CCE for the sale of narcotics. The client paid the
firm’s $103,800 retainer in cash using primarily $100 bills he
kept stored in a cracker box. Aside from admonishing the client
- 17 - that the law firm could not accept “funny money,” the firm made
no efforts to ascertain the source of the funds. When the
government sought forfeiture of the funds, the firm claimed that
it was protected under § 853(n)(6)(B). The court rejected this
claim, stating:
when confronted with circumstances essentially similar to those at bar attorneys should inform prospective clients that they cannot pay fees with drug proceeds and that such proceeds are subject to forfeiture, even in the attorney’s hands. If the prospective client answers that the money comes from legitimate sources, attorneys should take whatever further steps or ask whatever further questions may be suggested by the circumstances to satisfy themselves that it is objectively reasonable to believe the answer.
Id. at 474. The Fourth Circuit affirmed this approach, stating:
“We can find no fault with the district court’s conclusion.”
United States v. Moffitt, Zwerling & Kemler, P.C., 83 F.3d 660,
665 (4th Cir. 1996).
Based on the above cases and commentary, there is a clear
principle that an attorney is not permitted to be willfully
ignorant of how his representation is funded. While each case is
distinguishable from the instant case in some way, when taken
together, they teach that when an attorney is objectively on
notice that his fees may derive from a pool of frozen assets, he
has a duty to make a good faith inquiry into the source of those
fees. Failure to make such an inquiry in the face of this duty
will result in disgorgement of the funds.
- 18 - 3. The Appellants Did Not Discharge their Duty of Inquiry
The final query is whether the appellants received
sufficient notice to trigger this duty of inquiry and whether
they discharged the duty. The circumstances of Draskovich’s fee
payment should have alerted him that something was awry. He knew
that his client was accused of perpetrating massive telemarketing
fraud, that all of his assets were frozen, and that supposedly
unrelated third parties were paying his fees. These facts should
have raised Draskovich’s suspicions. Indeed, in the context of
RICO and the CCE, the Supreme Court has stated that the mere fact
that an attorney has read the indictment against his client is
enough to put him on notice that his fees are potentially tainted
and to destroy his status as a bona fide purchaser for value.
Caplin & Drysdale v. United States, 491 U.S. 617, 633 n.10 (1989)
(“given the requirement that any assets which the Government
wishes to have forfeited must be specified in the indictment, the
only way a lawyer could be a beneficiary of § 853(n)(6)(B) would
be to fail to read the indictment of his client”) (internal
citations omitted); United States v. Monsanto, 491 U.S. 600, 604
n.3 (1989) (“An attorney seeking a payment of fees from forfeited
assets under § 853(n)(6) would presumably rest his petition on
subsection (B) quoted above, though (for reasons we explain in
Caplin & Drysdale . . .) it is highly doubtful that one who
defends a client in a criminal case that results in forfeiture
could prove that he was without cause to believe that the
- 19 - property was subject to forfeiture.”) (internal citations and
quotation marks omitted). Once on notice, Draskovich needed to
do far more than simply take his client at his word that the fees
were not tainted in order to make a reasonable claim for fees.
Trusting Kimoto’s truthfulness unconditionally was especially
unreasonable considering that he was accused of fraud, an
allegation going directly to his honesty.
Kajioka may not be quite as culpable as Draskovich, which
may account for the district court’s decision to allow Kajioka to
keep some of the fees paid to him. According to Kajioka, his
client initially assured him that REA had made some mistake in
seizing his office. The record suggests that REA apparently did
make a few such mistakes when it initially raided Assail’s
offices, so Kajioka may not have been patently unreasonable in
initially taking his client at his word. However, during
Kajioka’s January 23, 2003 call with REA, he was given
information that put him on notice that REA probably did not
simply knock on the wrong door. This notice triggered a duty of
inquiry, which Kajioka did not discharge. Any claim he may have
for work completed before the January 23 call with REA is
accounted for by the $10,000 the district court awarded him.
Kajioka does not argue that this fee award was inappropriate for
the several day’s worth of services he then provided.
Thus, the district court properly concluded both that
Draskovich and Kajioka improperly accepted their retainers and
- 20 - that they should turn over all (or substantially all, in the case
of Kajioka) the retainers to REA for distribution to the victims
of Kimoto’s fraudulent scheme.
C. The District Court’s Orders did not Violate the Sixth Amendment
Draskovich and Kajioka argue that the district court’s
orders violate their respective clients’ Sixth Amendment rights
because the orders deny the clients representation by counsel of
their choice. In the appellants’ view, this Sixth Amendment
interest must trump the FTC’s interest in obtaining restitution.
The appellants’ Sixth Amendment argument is totally without
merit. The most important reason the argument fails is that this
is a civil case. The Sixth Amendment right to counsel is
inapplicable in civil cases. See Goonsuwan v. Ashcroft, 252 F.3d
383, 385 n.2 (5th Cir. 2001) (“It is well settled that, because
deportation hearings are considered civil in nature, there is no
Sixth Amendment right to counsel.”); Sanchez v. United States
Postal Serv., 785 F.2d 1236, 1237 (5th Cir. 1986) (per curiam)
(“[T]he sixth amendment right to effective assistance of counsel
does not apply to civil proceedings.”).
D. The District Court Afforded Draskovich and Kajioka Due Process
Draskovich and Kajioka claim that their due process rights
were violated because in rendering its decisions, the district
court relied solely on affidavits and self-serving reports from
REA. They claim that where a contemptor asserts genuine issues - 21 - of material fact, it is inappropriate for a court to issue
contempt sanctions without a full, impartial hearing. The
appellants assert that there were several disputed issues of fact
at the relevant district court hearings. They claim that in the
face of these disputed issues, they were provided with only a
summary proceeding in which they did not have the opportunity to
face their accusers, hear the basis of their accusers’
conclusions, cross-examine them, or call witnesses.
As with the appellants’ Sixth Amendment argument, this due
process argument is without merit. The appellants’ attempt to
characterize themselves as contemptors must fail for the simple
reason that they were never held in contempt. This is an appeal
regarding disputes between a receiver and two nonparties to the
underlying case. The court resolved the dispute and backed up
its resolution with the threat of contempt. Every court order is
backed with the implicit threat of contempt if the order is
violated. See United States v. Fidanian, 465 F.2d 755, 757 (5th
Cir. 1972) (“It is settled law that the power to punish for
contempt is an inherent power of the federal courts and that it
includes the power to punish violations of their own orders.”).
In this case, the threat was merely made explicit. Thus, the
contempt issue is simply a red herring.
Although this court has not confronted directly the issue of
what process is due where a receiver and a nonparty both claim
the same property, the Ninth Circuit has stated clearly that in
- 22 - such circumstances “summary proceedings satisfy due process so
long as there is adequate notice and opportunity to be heard.”
Commodities Futures Trading Comm’n v. Topworth Int’l, Ltd., 205
F.3d 1107, 1113 (9th Cir. 2000). It is wrong for the appellants
to claim that they did not have an opportunity to respond to the
claim that they did not rightfully possess the funds in question.
In Kajioka’s case, on October 2, 2003, the court held a hearing
on the issue of whether the funds were transferred in violation
of the asset freeze order. Kajioka was present at the hearing
and refused the offer to cross-examine the witnesses. The fact
that this hearing occurred negates Kajioka’s contention that the
district court relied exclusively on documentary evidence in
reaching its determination. After this hearing, the court also
permitted Kajioka to submit two legal memoranda briefing the
relevant legal issues as well as documentary evidence.
Draskovich also had an opportunity to respond. On October 2 and
30, 2003, Draskovich submitted to the court memoranda and
supporting documentary evidence arguing for his position.
Because the appellants actually did make the effort to respond to
the charges against them, they clearly had notice of the claims.
In Draskovich’s case, the notion that he did not have notice is
particularly fantastic because he took part in negotiating the
stipulated judgment that set out the procedures by which he
petitioned the court to keep his retainer.
IV. CONCLUSION
- 23 - For the foregoing reasons, the orders appealed from are
AFFIRMED.
- 24 -