UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
_____________________
No. 96-30146 _____________________
In The Matter Of: JAMES A. NORRIS, JR.,
Debtor.
JAMES A. NORRIS, JR.,
Appellant,
versus
DON H. JOHNSON; ALLAN L. PLACKE; BILLY R. VINING,
Appellees.
_________________________________________________________________
Appeal from the United States District Court for the Western District of Louisiana (95-CV-1774, 95-CV-1791, 95-CV-1792, 95-CV-1857) _________________________________________________________________ April 11, 1997 Before HIGGINBOTHAM, DAVIS, and BARKSDALE, Circuit Judges.
PER CURIAM:1
This is a most unusual case, to say the least, arising in part
out of the claimed destruction by James A. Norris, Jr., debtor in
an involuntary bankruptcy proceeding under Chapter 7, of
approximately $500,000 in currency. He appeals the order for
relief; an order requiring him to turnover the currency he claims
1 Pursuant to Local Rule 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4. he destroyed; an order denying his motion for stay and for
appointment of expert witnesses; and an order holding him in civil
contempt for failing to comply with the turnover order. It
appears, however, that Norris was released recently from
incarceration. We AFFIRM.
I.
Norris formerly served as District Attorney for Ouachita and
Morehouse Parishes in Louisiana and was a member of the law firm of
Norris, Johnson & Placke. In re Norris, 183 B.R. 437, 440 (Bankr.
W.D. La. 1995). In mid-June 1989, believing that his partners were
using partnership funds for personal purposes, and without prior
notification to them, Norris withdrew from the firm and, using
approximately $526,000 of the partnership’s funds on deposit in
various accounts at banks in Ouachita Parish, paid off loans to the
partnership, extinguishing all of its long-term debt, and paid to
himself one-third of the remaining funds. He also paid himself
$10,000 for law books that he had brought into the partnership.
Shortly thereafter, Johnson, Placke, and the law firm filed suit
against Norris in state court, seeking an accounting, restoration
of funds paid on partnership debts, and damages. Id. at 440.
In January 1994, Norris and his wife borrowed approximately
$150,000 from a commercial lender and mortgaged their home, which
previously had been unencumbered. Id. at 441. And, during that
January and February, Norris mortgaged other property to secure
- 2 - loans of $300,000 from his mother and $60,000 from his cousin. Id.
According to Norris, the purpose of the loans was for renovation of
his home and to have funds available to post a cash bond if the
state court action was decided adversely. Id. at 442. Norris
deposited the loan proceeds into a bank account but later withdrew
them, converted them into currency ($100 bills), and placed them in
a safe deposit box. Id. Norris maintained that he spent $5,000 to
$10,000 of the money on living expenses. Id.
Following a trial, the state court entered judgment against
Norris in September 1994 for approximately $526,000, plus interest,
less a credit of approximately $144,000, representing Norris’
interest in the firm. In addition, the state court awarded the
firm approximately $58,000, awarded $30,000 each to Johnson and
Placke, and assessed Norris for costs and expert witness fees.
Norris filed a devolutive appeal, but did not suspensively appeal
the judgment; accordingly, it became final for purposes of
execution. Id. at 440.
After the state court judgment was rendered, Norris prepaid 12
or 13 monthly payments on his home mortgage (approximately
$18,000), with the next payment not due until approximately a year
later -- October 1995. Id. at 444. Also in October 1994, Norris
borrowed another $40,000 from his mother and another $40,000 from
his cousin, and paid $60,000 to the Internal Revenue Service, as
well as taxes owed to the State of Louisiana. Id. He also
- 3 - purchased an automobile for his wife to replace her damaged
vehicle, and had extensive renovations performed on his residence.
Id.
At a state court judgment debtor examination in December 1994,
when asked about the currency in the safe deposit box, Norris
testified that he had “spent” it. And, when asked what the cash
was spent on, he testified that he could “[g]o back and look at
records” and provide more detail on “exactly what I’ve done with
what monies”. Id.
In January 1995, Johnson, Placke and the law firm initiated
involuntary bankruptcy proceedings against Norris. That April, the
trustee filed a motion for turnover of the $490,000 to $500,000 in
currency formerly in the safe deposit box.
At a deposition that May, Norris testified that he used the
term “spent” at the December 1994 judgment debtor examination to
convey that the money was “gone”, “burned”. Id. According to
Norris, after learning of the state court judgment, he went to the
bank and removed the currency from the safe deposit box, placed it
in his briefcase, and took it home; later that weekend, he
saturated the currency with gasoline and burned it in a trash
barrel outside his home. Id. at 442-43.
Following a trial in May 1995 on the involuntary petition and
the turnover motion, the bankruptcy court entered an order for
relief and granted the motion. In re Norris, 183 B.R. at 437. And
- 4 - that June, the trustee moved for sanctions and to hold Norris in
civil contempt for failing to comply with the turnover order. A
week before the scheduled 21 July hearing, Norris sought a stay of
all proceedings until the state court litigation appeals were
exhausted. In re Norris, 192 B.R. 863, 866 (Bankr. W.D. La. 1995).
And, prior to the taking of evidence at the hearing, Norris filed
another motion, seeking a jury trial; appointment of counsel;
appointment of experts to analyze the barrel in which the currency
allegedly was burned; to dismiss the contempt proceedings as
violative of his grant of immunity, for failure to comply with
F.R.B.P. 9020, and because of a conflict of interest on the part of
the trustee; and a continuance for lack of sufficient time to
prepare. Id.
On 21 July, the bankruptcy court conducted a hearing on the
contempt motion and Norris’ motions; Norris appeared without
counsel. The bankruptcy court entered an order denying Norris’
motion for stay and for appointment of experts. Id. at 876. The
portion of the order dealing with the trustee’s contempt motion and
Norris’ motion for a jury trial, for appointment of counsel, and
for dismissal was styled as a report and recommendation to the
district court. Id. Norris objected to the report and
recommendation, and appealed the order concerning relief and
turnover. The district court affirmed the bankruptcy court’s
- 5 - relief and turnover orders and accepted its recommendation
regarding contempt and the denial of other relief sought by Norris.
Following oral argument in this court, and by order dated 19
March 1997, the district court ordered that Norris be released
immediately, based upon the United States deciding to pursue
criminal proceedings against him. The order provided that the
release was so that Norris “can assist his counsel in the criminal
charges against him.”
II.
Norris challenges the entry of the order for relief on grounds
that the debts owed to the petitioning creditors were subject to a
bona fide dispute, and that the petitioning creditors failed to
prove that he was not generally paying his debts as they became
due. He contests the turnover order, claiming that the bankruptcy
court finding that he did not burn the currency is clearly
erroneous. Finally, he challenges the contempt order on numerous
grounds, including denial of counsel, of expert witness fees, and
of a jury trial; the bankruptcy court’s lack of contempt power;
failure to comply with the notice requirements of F.R.B.P. 9020;
and an alleged conflict of interest on the part of the trustee.
A.
Involuntary bankruptcy proceedings are governed by 11 U.S.C.
§ 303. If the debtor has 12 or more creditors, the petition must
be filed by
- 6 - three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute, or an indenture trustee representing such a holder, if such claims aggregate at least $10,000 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims.
11 U.S.C. § 303(b)(1). If the debtor has fewer than 12 creditors,
excluding employees, insiders, and transferees of voidable
transfers, the petition may be brought by “one or more of such
holders that hold in the aggregate at least $10,000 of such
claims”. 11 U.S.C. § 303(b)(2).
If the petition for involuntary relief is contested, the
Bankruptcy Code provides, in pertinent part, that the bankruptcy
court
shall order relief against the debtor ... only if
(1) the debtor is generally not paying such debtor’s debts as such debts become due unless such debts are the subject of a bona fide dispute ....
11 U.S.C. § 303(h)(1).
We review the bankruptcy court’s findings of fact under the
clearly erroneous standard, and its conclusions of law de novo.
F.R.B.P. 8013; Subway Equip. Leasing Corp. v. Sims (Matter of
Sims), 994 F.2d 210, 217 (5th Cir. 1993), cert. denied, 510 U.S.
1049 (1994).
1.
- 7 - The bankruptcy court required the petitioning creditors to
satisfy the requirements of § 303 (debtor generally not paying
debts as they become due and debts not subject to bona fide
dispute) by a preponderance of the evidence. In re Norris, 183
B.R. at 449. Citing Grogan v. Garner, 498 U.S. 279 (1991), Norris
contends that the clear and convincing standard should have been
used.
In Grogan, the Court stated that, “[b]ecause the
preponderance-of-the-evidence standard results in a roughly equal
allocation of the risk of error between litigants, we presume that
this standard is applicable in civil actions between private
litigants unless particularly important individual interests or
rights are at stake.” Id. at 286 (internal quotation marks and
citations omitted). The Court concluded that the preponderance of
the evidence standard applied to proof of 11 U.S.C. § 523's
discharge exceptions (including the fraud exception), stating that
it was unpersuaded that a debtor had an interest in discharge
sufficient to require a heightened standard of proof or that the
clear and convincing standard was necessary to effectuate the
“fresh start” policy of the Bankruptcy Code. Id.
Although it is true that involuntary bankruptcy has been
described as an “extreme” remedy, e.g., In re Cates, 62 B.R. 179,
180 (Bankr. S.D. Tex. 1986), we do not consider the severity of the
remedy to warrant the imposition of a clear and convincing standard
- 8 - of proof for satisfaction of the requirements of § 303. A debtor
may recover costs, attorney’s fees, and damages against petitioning
creditors if an involuntary case is dismissed and the petition was
filed in bad faith, see 11 U.S.C. § 303(i). Accordingly, there is
no need to create an exception to the general preponderance
standard.
2.
Norris stipulated that each of the petitioning creditors held
a claim of at least $5,000 more than the value of any lien on
property of the debtor securing such claim, thus satisfying §
303(b)(1)’s requirement that the aggregate unsecured claims of the
petitioning creditors exceed $10,000. In re Norris, 183 B.R. at
450. And, he does not challenge the bankruptcy court’s ruling that
the creditors’ claims were not contingent as to liability, as
required by § 303(b)(1). Id. at 451. He contends, however, that
the debts of the petitioning creditors were subject to bona fide
disputes, which disqualified them as petitioning creditors pursuant
to § 303(b)(1), and precluded their debts from being considered in
determining whether he was generally not paying his debts as they
became due, pursuant to § 303(h)(1). Norris maintains also that
the bankruptcy court erred by excluding expert testimony regarding
the existence of a bona fide dispute and by holding that a debt
based on an executory judgment is not subject to a bona fide
dispute.
- 9 - a.
Norris contends that, even though his debts to the petitioning
creditors were based on a judgment entered by the state trial
court, those debts were subject to bona fide disputes. In Matter
of Sims, our court adopted an objective standard for making this
determination. “Under that objective standard, the bankruptcy
court must determine whether there is an objective basis for either
a factual or a legal dispute as to the validity of the debt.” 994
F.2d at 220 (quoting In re Rimell, 946 F.2d 1363, 1365 (8th Cir.
1991), cert. denied, 504 U.S. 941 (1992)). We also adopted the
Eighth Circuit’s methodology for applying the standard:
The petitioning creditor must establish a prima facie case that no bona fide dispute exists. Once this is done, the burden shifts to the debtor to present evidence demonstrating that a bona fide dispute does exist. Because the standard is objective, neither the debtor’s subjective intent nor his subjective belief is sufficient to meet this burden. The court’s objective is to ascertain whether a dispute that is bona fide exists; the court is not to actually resolve the dispute. This does not mean that the bankruptcy court is totally prohibited from addressing the legal merits of the alleged dispute; indeed, the bankruptcy court may be required to conduct a limited analysis of the legal issues in order to ascertain whether an objective legal basis for the dispute exists. Finally, because the determination as to whether a dispute is bona fide will often depend ... upon an assessment of witnesses’ credibilities and other factual considerations, the bankruptcy court’s determination in this regard is a factual finding that may be overturned on appeal only if it is clearly erroneous.
- 10 - Id. (brackets omitted; quoting Rimell, 946 F.2d at 1365).
The bankruptcy court reviewed the cases dealing with claims
based on final judgments, and decided to join the overwhelming
majority of other courts that have found that such claims are not
subject to a bona fide dispute. In re Norris, 183 B.R. at 453-54.
See, e.g., In re Everett, 178 B.R. 132, 140 (Bankr. N.D. Ohio 1994)
(unappealed, unstayed final judgments not subject to bona fide
dispute); In re Smith, 123 B.R. 423, 425 (Bankr. M.D. Fla. 1990)
(claim based on judgment not subject of bona fide dispute), aff’d,
129 B.R. 262 (M.D. Fla. 1991); In re Raymark Industries, Inc., 99
B.R. 298, 300 (Bankr. E.D. Pa. 1989) (unstayed judgment not subject
to bona fide dispute); In re Drexler, 56 B.R. 960, 967 (Bankr.
S.D.N.Y. 1986) (claim based upon unstayed judgment as to which an
appeal has been taken by debtor is not the subject of a bona fide
dispute).
Norris relies on In re Prisuta, 121 B.R. 474 (Bankr. W.D. Pa.
1990). Although the Prisuta court recognized that In re Drexler
was the leading case on the issue, it distinguished Drexler and
created an exception because, “[t]o hold otherwise would, in
certain instances, enable creditors to use the threat of
involuntary bankruptcy as a weapon to coerce a debtor to satisfy a
judgment even when substantial questions may remain concerning the
liability of the debtor.” Prisuta, 121 B.R at 476. But, in
Prisuta, the claims were based on a default judgment and a
- 11 - confession of judgment; and, unlike here, no evidentiary hearings
were held prior to entry of the judgments. Id. at 475, 476.
In sum, we hold that the unstayed final judgment against
Norris was not subject to a bona fide dispute for purposes of 11
U.S.C. § 303(b)(1) and 303(h)(1). To hold otherwise would require
the bankruptcy court to review the state court judgment in order to
predict Norris’ chance of success on appeal (which would be
particularly troubling in that a state court judgment is at issue),
and would undermine the objective standard adopted in Sims. (We
note that, although the existence of a bona fide dispute must be
determined as of the date the petition was filed, cf. Matter of
Sims, 994 F.2d at 222 (determination of whether debtor generally
not paying debts as they become due must be made as of date of
filing of petition), the state court judgment against Norris was
affirmed by the Louisiana Court of Appeal, and the Louisiana
Supreme Court denied Norris’ writ application. Johnson & Placke v.
Norris, 666 So. 2d 1098 (La. 1996).)
b.
Norris contends that the bankruptcy court erred by refusing to
admit into evidence the depositions of two expert witnesses who
opined that the state court judgment would be reversed or
substantially modified on appeal because of errors of law. Because
the bankruptcy court was not required to predict Norris’ chance of
success on appeal, expert testimony on that subject was irrelevant.
- 12 - 3.
Norris maintains that the bankruptcy court erred by holding
that he was not generally paying his debts as they became due. In
support, he asserted that the only unpaid debts as of the
involuntary petition filing were those of the petitioning
creditors, which he claims erroneously were subject to a bona fide
dispute. Restated, the petitioning creditors’ debts can be
considered under § 303(h)(1) in making the “generally not paying”
determination.
The Bankruptcy Code does not define the term “generally not
paying”, thus leaving the scope and meaning of that term to the
courts. See 2 COLLIER ON BANKRUPTCY ¶ 303.14[1][b], at 303-78 (15th
ed. rev. 1996). The determination of whether a debtor is generally
paying his debts must be made as of the date the petition is filed.
Matter of Sims, 994 F.2d at 222. Accordingly, post-petition
payments of debts that were due as of the filing date may not be
considered; nor do we consider debts which have not then become
due.
In In re All Media Properties, Inc., 5 B.R. 126 (Bankr. S.D.
Tex. 1980), aff’d, 646 F.2d 193 (5th Cir. 1981), one of the first
cases to interpret the Code’s provisions for involuntary
proceedings, the bankruptcy court stated that the court should
consider “both the amount of the debt not being paid and the number
of creditors not being paid” in determining whether a debtor’s
- 13 - failure to pay is “general”. 5 B.R. at 142. The court stated
further that
generally not paying debts includes regularly missing a significant number of payments to creditors or regularly missing payments which are significant in amount in relation to the size of the debtor’s operation. Where the debtor has few creditors the number which will be significant will be fewer than where the debtor has a large number of creditors. Also, the amount of the debts not being paid is important. If the amounts of missed payments are not substantial in comparison to the magnitude of the debtor’s operation, involuntary relief would be improper.
5 B.R. at 143.
COLLIER ON BANKRUPTCY describes the “generally not paying”
standard as calling for “a broad definition rather than a
mechanical test.” 2 COLLIER ON BANKRUPTCY, ¶ 303.14[1], at 303-78
(15th ed. rev. 1996). Numerous factors have been considered by
courts in determining whether a debtor is paying his debts as they
become due, including: whether the debtor is conducting his
financial affairs in a manner inconsistent with good faith and
outside the ordinary course of business; the debtor’s overall
payment activity and payment practices; the amount of the debtor’s
debts compared to the amount of the debtor’s yearly income; and the
fact that insiders deferred payment on account of loans payable to
them. See 2 COLLIER ON BANKRUPTCY ¶ 303.14[1][b], at 303-80, 303-81
(15th ed. rev. 1996), and cases cited therein.
- 14 - At the trial on the involuntary petition, Norris testified
that his only significant creditors as of the filing date were (1)
the petitioning creditors; (2) his mother; (3) his cousin; and (4)
the mortgage company. Pursuant to a joint pretrial stipulation,
Norris had ongoing recurring bills related to his law practice and
household obligations.
Norris testified that, on the filing date, he had not repaid
any principal to his cousin, and that he had paid his mother
$6,600, but was unsure whether she applied it to principal or
interest. He had previously stipulated, however, that he had paid
only interest on the claims of his mother and his cousin, and had
paid nothing on those debts during the six months preceding the
date of the stipulation. Norris testified that, as of the earlier
filing date, he owed his mother $340,000; his cousin, $100,000; and
the mortgage company, $125,000 or $130,000. In October 1994,
Norris prepaid his note to the mortgage company for 12 or 13
months. He also paid some State taxes and paid $60,000 to the
Internal Revenue Service. He paid his office rent six months in
advance and overpaid utility and doctor bills. He had paid nothing
on the $840,000 aggregate debt to the petitioning creditors.
Norris testified that, on the date the petition was filed, he
was current on all of his debts, including those involved in
running his household and law office. He testified further that
the only debts he had not paid were those owed to the petitioning
creditors.
- 15 - The bankruptcy court found that Norris was not paying his
debts as they became due at the time the petition was filed. It
stated:
Norris was in total default on his obligations to the three petitioning creditors. He has also failed to pay his mother, his cousin, the Clerk of Court, numerous other recurrent creditors, and most likely the IRS. His stealthy handling of his financial affairs is nothing more than a facade to create the artificial “illusion” of a debtor paying his debts. Norris’ own actions have converted his once debt-free portfolio into a mountain of debt, thus leaving these creditors no other alternative but to turn to ... this Court.
In re Norris, 183 B.R. at 459.
Norris contends that many of the bankruptcy court’s findings
are clearly erroneous. He asserts that the debts to his mother and
cousin were based on demand notes, and that those debts were not
due because no payment demands had been made; that he owed nothing
to the clerk of the state court, because the judgment for court
costs was in favor of Johnson & Placke; and that there was no
evidence of any debt to the IRS and that, because he paid the IRS
over $60,000 in October 1994, it probably owed him money. He
challenges also the bankruptcy court’s findings regarding four
small debts that he claims were not due at the time of the filing
of the petition.
Even assuming arguendo that Norris is correct regarding the
debts mentioned in the preceding paragraph, we nevertheless agree
with the bankruptcy court that, on the date the petition was filed,
- 16 - Norris was not generally paying his debts as they became due. “The
term `generally’ was not defined [in the Bankruptcy Code] in order
to avoid the result suggested by [a] mechanical test ... and to
give the bankruptcy courts enough leeway to be able to deal with
the variety of situations that will arise.” All Media, 5 B.R. at
143.
Pursuant to our assumption that the only debts Norris was not
paying as they became due were those owed to the petitioning
creditors, the bankruptcy court was entitled to consider the size
of those debts ($840,000 in the aggregate) as compared to the size
of the other significant debts on which we have assumed Norris was
current (approximately $570,000, $440,000 of which was owed to
relatives). Id. The court also was entitled to consider Norris’
overall handling of his financial affairs, including the facts that
(1) other than the debts owed the petitioning creditors, the
largest debts owed by Norris were to his mother and cousin; (2)
Norris incurred the obligations to his mother, cousin, and the
mortgage company after the entry of the petitioning creditors’
judgment against him and, in doing so, encumbered previously
unencumbered property; and (3) Norris was current on his mortgage
payments and other recurring obligations only because he had
prepaid or overpaid them. See In re Norris, 183 B.R. at 457-58.2
2 Norris asserts erroneously that the bankruptcy court applied the so-called “special circumstances exceptions” to the “almost per se rule” that a single creditor involved in a two-party
- 17 - B.
The Bankruptcy Code provides that, subject to certain
exceptions not applicable here, “an entity ... in possession,
custody, or control, during the case, of property that the trustee
may use, sell, or lease ... shall deliver to the trustee, and
account for, such property or the value of such property, unless
such property is of inconsequential value or benefit to the
estate.” 11 U.S.C. § 542. The bankruptcy court found that Norris
had not been truthful about having burned approximately $500,000,
that he was still in possession and control of the currency, and
that it was property of the estate which could benefit Norris’
creditors. In re Norris, 183 B.R. at 463. Therefore, it ordered
Norris to turn over the currency to the trustee immediately. Id.
Norris contends that the bankruptcy court erred by failing to apply
the appropriate standard of proof, and that its finding that he
was still in possession of the currency is clearly erroneous.
Norris asserts that the bankruptcy court should have required
the trustee to prove by clear and convincing evidence the
requirements for entry of a turnover order. The bankruptcy court’s
opinion does not specify the standard utilized. Norris equates
dispute with the debtor is ineligible for involuntary relief. Instead, the bankruptcy court stated that Norris’ reliance on the “single creditor” rule was misplaced, because it had already determined that “Norris has unquestionably failed to pay more than one debt.” In re Norris, 183 B.R. at 460.
- 18 - this with the preponderance standard being applied and maintains
that it placed the burden of proof on him, rather than on the
trustee.
It is well-settled that, in turnover proceedings, the trustee
must prove by clear and convincing evidence both that the property
at issue is property of the bankruptcy estate and that it is in the
possession of the party proceeded against. E.g., Maggio v. Zeitz
(In re Luma Camera Service, Inc.), 333 U.S. 56, 64(1948); Republic
Nat’l Bank of Houston v. Sheinfeld (Matter of Goodson Steel Corp.),
488 F.2d 776, 778 (5th Cir. 1974); Amdura Nat’l Distribution Co. v.
Amdura Corp. (In re Amdura Corp.), 167 B.R. 640, 643 (D. Colo.
1994), aff’d, 75 F.3d 1447 (10th Cir. 1996). The bankruptcy
court’s omission of a reference to this well-known standard in its
very thorough opinion does not support Norris’ speculation that the
court applied an incorrect standard.
We also reject Norris’ contention that the bankruptcy court
clearly erred by finding that he was in possession of the allegedly
burned currency. To repeat the well-known standard, a factual
finding is clearly erroneous “when although there is evidence to
support it, the reviewing court on the entire evidence is left with
the definite and firm conviction that a mistake has been
committed.” Anderson v. City of Bessemer City, N.C., 470 U.S. 564,
573 (1985) (citation omitted). “If the district court's account of
- 19 - the evidence is plausible in light of the record viewed in its
entirety, the court of appeals may not reverse it even though
convinced that had it been sitting as the trier of fact, it would
have weighed the evidence differently. Where there are two
permissible views of the evidence, the factfinder's choice between
them cannot be clearly erroneous.” Id. at 573-74.
Norris admitted that he possessed $490,000 to $500,000 in $100
bills, but claimed that he had destroyed all of it by burning it in
a trash barrel outside his home. The bankruptcy court, which had
the opportunity to judge Norris’ credibility after observing his
testimony about the alleged incineration, gave an extremely
detailed and comprehensive explanation for why it found Norris’
bizarre tale unbelievable, and “unquestionably conclude[d] that
Norris fabricated this all-encompassing and indeed phenomenal
story.” See In re Norris, 183 B.R. at 460-62. We cannot say that
this factual finding is clearly erroneous.
C.
As noted, it appears that Norris was released recently. Our
only record of this is the district court’s 19 March 1997 order.
Accordingly, although it may well be that the contempt issues are
moot, we will address them.
Norris challenges the contempt order and the order denying his
motions for other relief (stay, appointed counsel, appointment of
experts, jury trial, etc.) on numerous grounds. He contends that
- 20 - the bankruptcy court erred by refusing to appoint counsel, because
his indigence was caused by the bankruptcy court’s refusal to rule
on whether he was entitled to his claimed exemptions, and he was
denied effective pro se representation because he was not competent
in bankruptcy law and, while incarcerated, was denied access to
materials necessary to prepare an appeal brief; that his due
process right to present the defense of present inability to comply
with the turnover order was violated by the bankruptcy court’s
refusal to appoint and pay experts to analyze the garbage barrel in
which he allegedly burned the currency; that the bankruptcy court
erred by denying him a jury trial; that the bankruptcy court has no
contempt power; that the contempt should be treated as criminal
rather than civil because deprivation of his liberty was at stake;
that the trustee had a conflict of interest and was therefore
disqualified from being the movant in a contempt proceeding; and
that the notice requirements of F.R.B.P. 9020 were violated because
notice of the alleged contempt was given by the trustee.
“A party seeking civil contempt bears the initial burden of
proving by clear and convincing evidence that the alleged contemnor
has violated an outstanding court order.” Commodity Futures
Trading Comm’n v. Wellington Precious Metals, Inc., 950 F.2d 1525,
1529 (11th Cir.), cert. denied, 506 U.S. 819 (1992). “Once a prima
facie showing of a violation has been made, the burden of
production shifts to the alleged contemnor, who may defend his
- 21 - failure on the grounds that he was unable to comply.” Id. If the
alleged contemnor makes a sufficient showing, the party seeking
contempt has the burden of proving ability to comply. Id.
Norris appeared at the contempt hearing without counsel, and
requested that the court appoint him counsel. The bankruptcy court
held that he was not entitled to appointed counsel because, as of
the date of the hearing, he was represented by an experienced
bankruptcy attorney who had not sought to withdraw. In re Norris,
192 B.R. 875. Needless to say, the bankruptcy court did not abuse
its discretion.
The bankruptcy court cited In re Fitzgerald, 167 B.R. 689
(Bankr. N.D. Ga. 1994), for the proposition that an indigent debtor
may have a right to appointed counsel if he may be deprived of his
physical liberty if he loses, but it rejected Norris’ claim of
indigence because Norris’ schedules reflected that he had adequate
exempt assets with which to pay counsel. In re Norris, 192 B.R. at
875. Norris’ contention that the bankruptcy court caused his
indigence by refusing to rule on his claimed exemptions is without
merit, because he did not seek such a ruling until months after the
contempt hearing.
Norris’ contention that he was denied effective pro se
representation is also without merit. His asserted incompetence in
bankruptcy law at the time of the contempt hearing is unavailing
- 22 - because, as stated, his retained counsel had not withdrawn as of
that date. And, there is no evidence in the record to support
Norris’ contention that he was denied access to legal materials
while incarcerated.
The bankruptcy court characterized Norris’ request for
appointment of additional expert witnesses for further examination
of the alleged burn barrel as “nothing more than a late motion for
reconsideration” of its finding, in the turnover order, that Norris
had not incinerated the currency. We agree. In a contempt
proceeding, it is inappropriate for a court to reconsider the legal
or factual basis of the order claimed to have been disobeyed. See
Maggio v. Zeitz, 333 U.S. at 69 (1948) (“It would be a disservice
to the law if we were to depart from the long-standing rule that a
contempt proceeding does not open to reconsideration the legal or
factual basis of the order alleged to have been disobeyed and thus
become a retrial of the original controversy.”); CFTC v.
Wellington, 950 F.2d at 1528 (“The court will not reconsider the
legal or factual basis of the order alleged to have been
disobeyed.”). Accordingly, the bankruptcy court did not err by
refusing to appoint expert witnesses, and the district court did
not err by refusing to conduct a de novo review of the factual
basis for the turnover order when it reviewed the contempt order.
3.
- 23 - There is no right to a jury trial in civil contempt cases.
See United States v. Rylander, 714 F.2d 996, 998, 1004 (9th Cir.
1983), cert. denied, 467 U.S. 1209 (1984); Hemmerle v. Bakst (In
re Sun-Island Realty), 177 B.R. 391, 396 (S.D. Fla. 1994); see also
Shillitani v. United States, 384 U.S. 364 (1966) (citations
omitted) (“The conditional nature of the imprisonment--based
entirely upon the contemnor’s continued defiance--justifies holding
civil contempt proceedings absent the safeguards of indictment and
jury, ... provided that the usual due process requirements are
met.”).
4.
Norris contends that the bankruptcy court had no power to
issue a civil contempt order. In the alternative, he asserts that,
in light of the serious consequences of long-term imprisonment, the
civil contempt at issue should be treated as criminal contempt.
The bankruptcy court did not hold that it had such contempt
power. Instead, as noted, it made a report and recommendation
pursuant to F.R.B.P. 9020(c), and the district court adopted it, in
accordance with F.R.B.P. 9033.
Rule 9020(c) provides that an order of contempt
shall be effective 10 days after service of the order and shall have the same force and effect as an order of contempt entered by the district court unless, within the 10 day period, the entity named therein serves and files objections prepared in the manner
- 24 - provided in Rule 9033(b). If timely objections are filed, the order shall be reviewed as provided in Rule 9033.
F.R.B.P. 9020(c). Rule 9033 provides, inter alia, that in non-core
proceedings heard pursuant to 28 U.S.C. § 157(c)(1), the bankruptcy
judge shall file proposed findings of fact and conclusions of law,
to be served by the clerk on all parties; within 10 days after
being served, a party “may serve and file with the clerk written
objections which identify the specific proposed findings or
conclusions objected to and state the grounds” therefor; and the
district court “shall make a de novo review upon the record or,
after additional evidence, of any portion of the bankruptcy judge’s
findings of fact or conclusions of law to which specific written
objection has been made”. F.R.B.P. 9033.
Although the bankruptcy court expressed doubt about the
applicability of Rule 9033, based on its conclusion that the
contempt proceeding was a core proceeding because it arose in the
context of a turnover proceeding, which is also a core matter, it
nevertheless decided, in light of the unsettled jurisprudence, to
submit the contempt issues to the district court in the form of a
report and recommendation for review pursuant to Rule 9033. In re
Norris, 192 B.R. at 876. The bankruptcy court thus acted much as
a magistrate judge would have on a matter assigned for a report and
recommendation pursuant to 28 U.S.C. § 636. Although that
procedure may have been unnecessary, it clearly was authorized by
- 25 - F.R.B.P. 9020. (In any event, our court recently held that
bankruptcy courts have power to conduct civil contempt proceedings
and to issue orders in accordance with the outcome of those
proceedings. Placid Refining Co. v. Terrebonne Fuel & Lube, ___
F.3d ___, 1997 WL 109400 (Fifth Cir. Mar. 27, 1997).)
We reject Norris’ claim that the contempt order should be
treated as criminal. Criminal contempt is “intended to vindicate
the authority of the court.” Griffith v. Oles (Matter of Hipp),
895 F.2d 1503, 1515 (5th Cir. 1990). On the other hand, the
purpose of civil contempt is either to compensate the party in
whose favor the breached order was issued, or to coerce compliance
with the order. Id. The contempt order is intended to coerce
compliance with the turnover order; it provided for incarceration
only if Norris did not purge himself of the contempt by complying
with the turnover order within 10 days of the entry of the contempt
order.
5.
Norris’ reliance on Hipp, for the proposition that the trustee
had a conflict of interest and, therefore, could not prosecute the
contempt charges, is misplaced. Hipp involved a criminal contempt
proceeding; our court’s holding that the trustee had a conflict of
interest was based on the distinction between criminal contempt
proceedings, which are a separate and independent proceeding
- 26 - between the public and the defendant, and not part of the case in
which the violated order was issued, and civil contempt
proceedings, which are between the original parties, and are
instituted and tried as part of the main case. Matter of Hipp, 895
F.2d at 1509.
6.
Norris charges that the contempt order is invalid because the
trustee, who gave notice of the contempt charges, is not listed
among those authorized to give such notice in F.R.B.P. 9020(b).
Rule 9020(b) provides that, for contempt not committed in the
presence of the bankruptcy judge, notice of the charges “may be
given on the court’s own initiative or on application of the United
States attorney or by an attorney appointed by the court for that
purpose.” F.R.B.P. 9020(b).
Even assuming arguendo that Rule 9020(b) was violated, Norris
was not prejudiced. He received written notice of the charges and
the time and place of the hearing, and he had a reasonable time to
prepare his defense.
7.
Finally, Norris claims that the contempt order has subjected
him to cruel, unusual, and excessive punishment. He maintains
that, because he cannot comply with the turnover order, he has, in
effect, been sentenced to life imprisonment.
- 27 - We do not retreat from our holding that the bankruptcy court
did not clearly err by finding that Norris fabricated his testimony
regarding the incineration of the currency. Nonetheless, had he
not been already released, we would have REMANDED the case to the
district court for consideration of whether Norris’ continued
incarceration served the purpose of the civil contempt order. See
CFTC v. Wellington, 950 F.2d at 1531 (“[w]hile each passing month
of incarceration may strengthen [the contemnor’s] claim of
inability, ... many months or perhaps even several years may pass
before it becomes necessary to conclude that incarceration will no
longer serve the purpose of the civil contempt order.”); Simkin v.
United States, 715 F.2d 34, 37 (2d Cir. 1983) (“As long as the
judge is satisfied that the coercive sanction might yet produce its
intended result, the confinement may continue. But if the judge is
persuaded ... that the contempt power has ceased to have a coercive
effect, the civil contempt remedy should be ended.”); cf. United
States ex rel. Thom v. Jenkins, 760 F.2d 736, 740 (7th Cir. 1985)
(“it can be assumed that at a certain point any man will come to
value his liberty more than [the amount of money the contempt order
requires him to pay] and the pride lost in admitting that he has
lied”).
Such remand would have been consistent with the contempt
order, which provides that Norris “may otherwise purge himself of
the contempt as determined by further orders of [the bankruptcy
- 28 - court] or of the United States District Court.” In re Norris, 192
B.R. at 877.
III.
For the foregoing reasons, the judgment is
AFFIRMED.
- 29 -