United States ex rel. Securities & Exchange Commission v. Carter

907 F.2d 484, 1990 U.S. App. LEXIS 12146
CourtCourt of Appeals for the Fifth Circuit
DecidedJuly 18, 1990
DocketNo. 89-1547
StatusPublished
Cited by2 cases

This text of 907 F.2d 484 (United States ex rel. Securities & Exchange Commission v. Carter) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States ex rel. Securities & Exchange Commission v. Carter, 907 F.2d 484, 1990 U.S. App. LEXIS 12146 (5th Cir. 1990).

Opinion

JERRE S. WILLIAMS, Circuit Judge:

George Carter, Walter Mooney, and Douglas Litchfield were convicted of criminal contempt of court under 18 U.S.C. § 401(3). They appeal, claiming that the injunctions they did not obey were ambigú[485]*485ous and that their violations of the injunctions were not willful. We do not reach these claims, because we reverse on a critical issue that we raise sua sponte. We hold that the district court erred in appointing as special prosecutors in the contempt action the Securities and Exchange Commission attorneys. Not only was the SEC the named plaintiff in the original action, its attorneys in that action served as the special prosecutors representing the SEC pursuant to the court appointment.

I.

On February 23, 1988, the SEC filed a civil action for injunctive relief in federal district court in Dallas against seven individual and four corporate defendants. The defendants included Orex, Inc., Chemex, Inc., and appellant Litchfield. The SEC alleged that the defendants violated anti-fraud and registration provisions of the federal securities laws by selling unregistered securities in the form of investment contracts for interests in purported gold-bearing ore. After a hearing, the district court granted the SEC’s request for preliminary injunctive relief. The court appointed a receiver for Orex on March 23, 1988, and for Chemex on April 8, 1988. The receivership orders enjoined “all persons ... from in any way disturbing the possessions of the Receiver and from prosecuting any actions which involve the Receiver or which affect the property of [the defendant corporations] except in this Court.” The district court authorized the receiver to sell Orex’ and Chemex’ assets. The sale was scheduled to be confirmed by the court on November 10, 1988.

Near the end of October, 1988, appellant Mooney, a former employee to whom Orex owed approximately $2000 in back wages, contacted appellant Carter, a Nevada attorney, to inquire about forcing Orex into bankruptcy. Carter told Mooney that involuntary bankruptcy proceedings could be filed only if several creditors whose claims totalled more than $5000 were recruited to join in the bankruptcy petition. Mooney then contacted Orex creditors to obtain information about Orex’ outstanding debts. Litchfield also was involved in the efforts to force Orex and Chemex into bankruptcy. Among other actions, Litchfield provided the federal tax I.D. numbers for the corporations to the group that was preparing to file the involuntary bankruptcy petitions. Litchfield also referred Fred Jurash, a Che-mex creditor, to Carter.

On November 9, 1988, Carter prepared involuntary bankruptcy petitions for Orex and Chemex. Jurash verified the Chemex petition. Mooney verified the Orex petition. At approximately 4:00 p.m. on November 9, Carter filed the petitions in the United States Bankruptcy Court for the District of Nevada, Las Vegas Division. It is undisputed that appellants each had read the Dallas court’s injunctions before these petitions were filed. On the morning of November 10, 1988, Carter called the Dallas court to notify it of the bankruptcy filings and of the bankruptcy court’s stay orders. The district court, however, disregarded the stays and confirmed the sale of the Orex and Chemex assets.

On November 14, 1988, the SEC filed a motion in the district court seeking to have Carter and the creditors named in the bankruptcy petitions held in civil contempt of court for violating the court’s receivership injunctions. The district court issued orders directing the creditors and Carter to appear and to show cause why they should not be held in contempt. After a civil contempt hearing, the court ruled that the bankruptcy filings in Nevada were “void” and that civil contempt penalties against Carter and the creditors “would be of no real effect.”

On December 22, 1988, the district court appointed the SEC to serve as special prosecutor to investigate this episode and to recommend the institution of criminal contempt proceedings, if any such proceedings were appropriate. On February 10, 1989, the SEC attorneys who originally had filed the civil suit and who now were serving as the special prosecutors on behalf of the SEC recommended that the district court charge appellants with criminal contempt. The district court notified appellants that they were accused of willfully violating and [486]*486aiding and abetting violations of the court’s receivership injunction orders. Appellants were tried without a jury with the SEC attorneys serving as prosecutors. At the conclusion of the trial, the district court entered judgments finding each appellant guilty of criminal contempt pursuant to 18 U.S.C. § 401(3). On August 3, 1989, the court sentenced Mooney to six months, Carter to five months, and Litchfield to four months in prison.

II.

The genesis of our holding in this case is the Supreme Court’s decision in Young v. United States ex rel Vuitton et Fils S.A., 481 U.S. 787, 107 S.Ct. 2124, 95 L.Ed.2d 740 (1987). In 1978, Louis Vuitton, S.A., a French leather goods manufacturer, sued Sol Klayminc and others alleging that the defendants were manufacturing imitation Vuitton goods in violation of Vuitton’s valid trademark. Klayminc and the others settled with Vuitton. In the settlement, Klay-minc consented to the entry of a permanent injunction prohibiting him thereafter from manufacturing or selling fake Vuitton goods. In 1983, Vuitton and other manufacturers began an undercover “sting” operation in which Klayminc re-surfaced as a fake Vuitton products manufacturer. Vuitton’s attorneys then requested that the district court appoint them as special counsel to prosecute a criminal contempt action for violation of the injunction. The court did so. Klayminc eventually was convicted by a jury of criminal contempt of court.

Klayminc appealed, arguing that the appointment of Vuitton’s attorneys as special prosecutors violated his right to be prosecuted only by an impartial prosecutor. The Supreme Court agreed, holding under the authority of the Court's supervisory power that “counsel for a party that is the beneficiary of a court order may not be appointed as prosecutor in a contempt action alleging a violation of that order. Id. at 2138. The basis for this holding was the Court’s con-elusion that an attorney who represented a party’s interest in an underlying civil matter might not be able impartially to discharge his or her duty as a special prosecutor, which is the “dispassionate assessment of the propriety of criminal charges for affronts to the judiciary.” Id. at 2136.1

Young, however, does not precisely control the present case. In Young, the special prosecutors’ competing interest stemmed from their representation of Vuitton, a purely private entity. In the present case, the competing interest stemmed from the special prosecutors’ concurrent representation of a government agency — the SEC. Nonetheless, Young guides our review of the district court’s appointment of SEC attorneys to serve as special prosecutors. Specifically, we look to the lesson of Young, which is that courts should not appoint special prosecutors who have an extraneous interest in the case that may create “the appearance

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
907 F.2d 484, 1990 U.S. App. LEXIS 12146, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-ex-rel-securities-exchange-commission-v-carter-ca5-1990.