[Editor's Note: Lawyer F. Lee Bailey turned himself in to U.S. marshals in Tallahassee March 6 to begin serving a six-month jail term after a judge held him in contempt of court. Bailey failed to obey an order to turn over $2.3 million obtained from convicted drug smuggler Claude Duboc.
Bailey contends that money from the drug dealer was for legal fees and expenses, and that he has made a good faith effort to come up with the funds. Prosecutors say that the money belongs to the government as part of the forfeiture Duboc agreed to in a plea bargain.
Bailey says Duboc paid him in stock -- which was worth about $6 million when he received it -- and is now valued at $27 million. His lawyer, Roger Zuckerman, said that Bailey has deposited $700,000 with the court and is trying to obtain a letter of credit to cover the balance.
Here is Bailey's Feb. 29 emergency motion to avoid jail.]
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff,
vs.
CLAUDE DUBOC,
Defendant.
F. LEE BAILEY,
Respondent.
EMERGENCY MOTION FOR STAY PENDING APPEAL AND INCORPORATED MEMORANDUM IN SUPPORT THEREOF
CERTIFICATE OF INTERESTED PERSONS
AND CORPORATE DISCLOSURE STATEMENT
The following are the interested parties listed pursuant to Eleventh Circuit Rule 26.1-1:
F. Lee Bailey, Esq., Respondent/Appellant
Claude Duboc, Defendant in United States v. Duboc, Crim. No. GCR 94-01009 MMP
Mark LeBow, Esq., and Coudert Brothers,
Counsel for Duboc
David L. McGee, First Assistant United States Attorney for the Northern District of Florida
P. Michael Patterson, United States Attorney for the Northern District of Florida
Maurice M. Paul, Chief Judge, United States District Court for the Northern District of Florida
Henry J. Uscinski, Esq., and Coudert Brothers, Counsel for Duboc Roger E. Zuckerman, Esq., and Zuckerman, Spaeder, Goldstein, Taylor, & Kolker, Counsel for Respondent/Appellant Bailey
MOTION
F. Lee Bailey submits this emergency motion for stay pending appeal and incorporated memorandum in support, pursuant to Eleventh Circuit Rules 27-1 and 8-1, and the corresponding Federal Rules of Appellate Procedure, Rules 8 and 27.
Absent the issuance of a stay, F. Lee Bailey will be incarcerated at 10:00 a.m. on March 1, 1996, for civil contempt.
Respondent requests that this matter be heard on an emergency basis. Respondent's counsel is preparing this motion on Wednesday evening, February 28, 1996, in anticipation of a district court denial of both Bailey's Motion Not to Execute on Order of Incarceration and to Provide Additional Time for Compliance ("Motion Not to Execute"), and Bailey's Motion for Stay Pending Appeal. Counsel for Mr. Bailey is physically delivering this motion to this Court and is available thereafter to appear, if necessary, to address any questions this Court may have.
The following pleadings and orders are attached hereto pursuant to Eleventh Circuit Rules 8-1 and 27-1, and the corresponding Federal Rules of Appellate Procedure:
Exhibit 1 Order of Civil Contempt, signed on February 3 and entered on the docket February 7, 1996
Exhibit 2 Transcript of Proceedings of February 2 and 3, 1996
Exhibit 3 Order, January 25, 1996
Exhibit 4 Bailey's Motion to Amend Judgment Pursuant to Rule 59 or for Relief from Judgment Pursuant to Rule 60, filed February 19, 1996
Exhibit 5 Order of February 21, 1996, denying Bailey's Motion to Reconsider and Motion to Amend Judgment Pursuant to Rule 59 or for Relief from Judgment Pursuant to Rule 60
Exhibit 6 Bailey's Motion Not to Execute on Order of Incarceration and to Provide Additional Time for Compliance, and accompanying Affidavit of Michael R. Smith, filed February 27, 1996
Exhibit 7 Order of February 29, 1996, denying Bailey's Motion Not to Execute on Order of Incarceration and to Provide Additional Time for Compliance
Exhibit 8 Transcript of Oral Order of February 29, 1996, denying Bailey's Motion for Stay Pending Appeal
MEMORANDUM IN SUPPORT OF MOTION
I. Introduction
The District Court has ordered F. Lee Bailey to be incarcerated tomorrow, Friday, March 1, 1996, because he has not paid approximately $3.0 million. The District Court imposed the incarceration in the exercise of its civil contempt power, but the order is illegal. It was entered without the essential elements of due process; indeed, there never has been a show-cause order. Moreover, the order is impermissibly punitive, not coercive. The unrebutted evidence is (a) that Mr. Bailey has approximately $50,000 cash, (b) that the remainder of his assets consist of illiquid real estate, boats and airplanes, and (c) that Mr. Bailey has offered to pledge or hand over all of his assets to the court immediately.
The government argued that it is not sufficient for Mr. Bailey to give the court all he has (and there is no dispute that he has offered and will do this immediately). Instead, without evidence of any kind -- not a single witness or document -- the government argued, and the district court accepted, that millions of dollars might be forthcoming in some unspecified way if Mr. Bailey's "feet are held to the fire" by incarceration. In the face of a pledge or transfer to the Court of Mr. Bailey's entire financial statement, which consists of about $50,000 cash and illiquid assets, incarceration as a tool to coerce payment of $3.0 million is illogical, crude and unfair. It constitutes, in truth, a decision to remand Mr. Bailey to debtors' prison to punish him for perceived misconduct, not to coerce payment of money.
We show here that all of this has occurred almost immediately after the government claimed a right to stock it transferred to Mr. Bailey, and well before any trial of the merits issues. In essence, there is a pre-judgment attachment to secure the government's claim. Mr. Bailey can do no more than pledge or transfer to the Court all that he has. In fairness, it is overwhelmingly sufficient. In the law of civil contempt, anything else would illegally punitive.
We stand ready to pursue the appeal of the civil contempt order on any expedited basis the Court should order. We will appear immediately if the Court wishes argument on this motion. Pending appeal, and certainly pending decision on this motion, we urge that the district court's order of incarceration be stayed.
II. Summary of Facts and Proceedings Below Mr. Bailey's Representation of Claude Duboc
Mr. Claude Duboc, Mr. Bailey's client, was indicted for various drug trafficking offenses by the United States. Following his extradition to the United States in early 1994, Duboc contacted Los Angeles attorney Robert Shapiro to represent him. (Tr. 197 - 98, 215.)<<Note 1 - References to the transcript (Tr.) refers to the transcript of proceedings held in the District Court on February 2 and 3, attached hereto as Exhibit 2.>> Shapiro contacted Bailey and the two undertook to represent Duboc, with Bailey acting as lead counsel. Bailey had numerous meetings with the prosecutors and case agents in April 1994. (Tr. 208, 242-43.) Bailey determined that a guilty plea and cooperation with the government would be in Duboc's best interests given the nature of the case and the possibility of life imprisonment. (Tr. 222, 224, 237. ) The plea would involve the turnover of a vast array of assets held by Duboc outside of the United States. (Tr. 224-25, 240. ) Some were probably forfeitable. Others would have been difficult to repatriate, either because they were located in foreign jurisdictions unwilling to allow the transfer of the asset to the United States, (Tr. 244), or because it could not reasonably be shown that the foreign asset was purchased with the proceeds of illegal drug transactions in the United States. (Tr. 238-29. ) During debriefings in April, Bailey and Duboc provided a list of all of Duboc's assets. (Tr. 148, 165-66.)
Among Duboc's overseas assets were two yachts and two very expensive homes (total value as much as $50 million) and other illiquid assets held by Duboc in France. (Tr. 265, 316.) As part of the plea discussions in April of 1994, it was agreed that these assets would be forfeited. (Tr. 318- 19.) Forfeiture of such assets, however, was complicated because of their location in France and their illiquid nature. (Tr. 244.) It was agreed among the government, Bailey and Duboc that Bailey would undertake to maintain, market and sell the properties so that the proceeds could be repatriated to the United States. (Tr. 265.) Apparently, the government was concerned that it would not be able to obtain the proceeds from the property without using Mr. Bailey, there being no treaty between France and the United States allowing for the transfer of French property allegedly purchased with the proceeds of illegal drug transactions.
Major expense would be involved in the upkeep of the assets, particularly the homes. Taxes, staff costs, some repairs, and related expenses were required to be borne by Bailey for whatever period the homes were to be kept until they could successfully be marketed. (Tr. 209-11.) Marketing and transaction costs and other related expenses would also be involved.
In discussions on April 26, 1994, the government sought a vehicle by which Bailey (and perhaps other counsel) would be reimbursed for the expected substantial costs of upkeep for these massive and valuable properties. (Tr. 315, 321, 370-71, 374.)
In addition, the government and Bailey sought a vehicle that would cover Bailey's legal fees and those of co-counsel. (Tr. 22728, 320, 370-71). All of the parties contemplated that the order of magnitude of the legal fees substantially exceeded a million dollars (Tr. 227-28, 241, 269, 277, 340), although the government declined to "authorize" any particular fee (Tr. 370). It was also understood that expenses, as well, would be substantial. (Tr. 26566, 315, 321, 370-71, 374.)
The Agreement of April 26, 1994
Bailey, Assistant United States Attorney Gregory Miller and a case agent had discussions on April 26, 1994, about dedicating an asset that might be made available to serve both as the source of legal fees and the funding for the expenses incurred in connection with the properties. (Tr. 319-20, 370-71.) There were discussions about a substantial cash account held by Duboc. (Tr. 373, 398.) Thereafter, the government suggested 602,000 shares of Biochem Pharma, Inc. stock, held by Duboc in an account in his name at UBS, a Luxembourg brokerage. (Tr. 278, 294, 300.) The shares may well have been purchased in Canada with Canadian funds and there apparently was doubt at the time about their actual forfeitability.
The Biochem shares were selling in the range of $9 to $10. (Tr. 292.) Duboc, however, believed that there was a significant chance that the shares might appreciate. (Tr. 248, 292, 314-15.)
Bailey agreed to take the shares as the source of the payment of his and other counsel's legal fees and expenses. (Tr. 248, 300, 338.) He was warned by Miller of the risk involved due to the possibility the price of the stock would in fact decline. (Tr. 248-49, 324-25.) Miller testified that in his mind, if the shares had gone down (which he viewed as unlikely), there would be no other source to which Bailey could look for his legal fees and expense reimbursements, and the government would not permit other assets to be used that for purpose. (Tr. 324-26, 338-41, 373.) Thus, if the value of the stock declined, Bailey might have gotten no fee and been reimbursed no expenses. (Tr. 339-340.)
Within a few hours of having settled on the Biochem shares as the funding source for all of the legal fees and all of the expenses incurred in connection with the properties, Miller and case agent Carl Lilley prepared stock transfer documents for Duboc to execute authorizing the transfer of the shares from the UBS account in Luxembourg to an account that Bailey had at Credit Suisse in Switzerland. (Tr. 255-56.) The document was executed by Duboc transferring to Bailey 602,000 Biochem Pharma shares in fee simple and without limitation on April 26, 1994. (Tr. 255-56.) The shares arrived in Bailey's account on or about May 9, 1994. (Tr. 250.)
The Absence of Writings
Excluding the stock transfer document, no representative of the government prepared any writing concerning the agreement with Bailey pursuant to which the shares were given him. (Tr. 260, 35859.) There is no written agreement with Bailey regarding the shares, no internal memorandum prepared by any Assistant United States Attorney, no statement on the record of any court proceeding, no documentation with the Department of Justice or the Asset Forfeiture Division pursuant to any Attorney Fee Forfeiture Guideline. (Tr. 264, 296, 336-37, 376.) (There may be a memorandum prepared by United States Attorney Patterson two days after the plea in late May 1994 for an official at the Department of Justice. The government has declined to produce that memorandum or describe it, and it is unclear whether it articulates the April agreement with Bailey in any detail or significant specificity.) In addition, as it seems the transfer to Bailey occurred on the day the government first conceived it, (Tr. 255.), it does not appear that any Department of Justice official was consulted regarding the transfer.
The Differing Understandings
It is now clear that the oral discussions concerning the Biochem stock yielded distinctly different impressions of what was agreed and intended. Bailey understood that the government had agreed to transfer to him in fee simple for counsels' legal fees, and for expenses in connection with the properties, stock which the government determined to be nonforfeitable and hence available for use as legal fees. (Tr. 246, 284, 287, 306-07.) He understood that he was being given full right, title and interest in the stock (Tr. 256, 258), and that the shares were his to invest, protect, or use as he saw fit, since he bore the risk that their loss in value would diminish his capacity to look to the shares for fees or expenses. (Tr. 268-69, 295, 296.) As a consequence, he had the right to act as he saw fit to protect himself. (Tr. 249.) He believed that he was entitled to the upside gain since he bore the risk. (Tr. 52, 250-52, 270, 295, 297, 305.)
He conceived the understanding with the government as one in which he had an obligation to ultimately return to the government a sum certain, computed as the value of the shares on the day he received them, less what the Court ultimately approved for his legal fees and expenses. (Tr. 249.) Assuming that the shares were worth $6 million on the date of receipt, May 9, 1994, he had an obligation eventually to return to the government in dollars that amount less legal fees and expenses that were approved. (Tr. 25051, 268, 296, 298.) While he viewed himself as obliged ultimately to obtain that approval, he did not believe that he was required to obtain approval for every disbursement for expenses or fees in advance of their distribution to him, but rather in connection with a final accounting. (Tr. 253, 269, 276.) As a consequence, he made distributions without court approval to himself both for expenses incurred and time invested in the matter. (Tr. 76, 83, 267-69. )
The shares did not diminish in value during 1994. In 1995 they began to appreciate substantially. Bailey took a fraction of this appreciation, in addition to his fees, on the understanding that he owned the shares outright and that title had been transferred to him for good or ill. (Tr. 271. )
The government viewed the arrangement differently. Assistant United States Attorney Miller's conception was that the government had simply "parked" the shares with Bailey. The idea was that Bailey would hold the shares, allowing the government effectively to "speculate" that their value would increase. This would give the government the benefit of any increased value in the shares and avoid depressing their value by unloading 602,000 shares at one time in to the market. (Tr. 314-15, 318, 342. ) The government would retain its ultimate ownership of the shares and its remainder interest in the shares as forfeitable property by this parking mechanism. (Tr. 319, 342. ) The government would delay the filing of a forfeiture claim until the French properties were sold, legal fees paid to counsel, and other expenses retired. (Tr. 318-19, 34950. ) The remaining shares, having appreciated presumably, would then be forfeited. (Tr. 328-29. ) Throughout the period in which Bailey held the shares, he was not to hold them as his in fee but instead would simply hold them "in trust," though no trust instrument was ever prepared. (Tr. 318-319, 322, 355-56, 378. )
The Colloquy in Chambers
Duboc pled guilty on May 17, 1994, represented by Bailey and co-counsel. The written plea agreement prepared by the government does not contain any reference to the arrangement with Bailey. The plea agreement does not reference the 602,000 Biochem shares directly or indirectly. There is no list of forfeitable assets appended to the plea agreement nor is there any textual basis upon which to conclude that the 602,000 Biochem shares were intended to be subject to forfeiture. Duboc appeared and entered his plea in open court. There is no reference in the record of that proceeding to the understanding that the government had negotiated with Bailey regarding legal fees.
The only reference to the Biochem transaction occurred during a brief colloquy in chambers before Chief Judge Paul prior to the plea proceeding on the morning of May 17, 1994. (Tr. 375. ) The chambers conference was not transcribed. All parties agree that the judge was told that counsel's fees would be subject to court approval. (Tr. 262, 321, 334, 378. ) Bailey and the government differ as to when court approval was required. (Tr. 253, 269, 276, 320-22. ) The nuances of the understanding as regards who held title to the shares, who bore the risk of their loss, who bore the benefit of their gain, or a half dozen other contingencies associated with the understanding were apparently not addressed.
The Government's Conduct from May of 1994 through Early January 1996
From the time of the plea until early January 1996, the government can point to nothing it said or did that is consistent with its present claim that it believed it had, beyond its claim for the original $6 million dollars less fees and expenses, a remainder interest in the potentially increased value of the Biochem shares. No prosecutor or case agent ever followed the price of the shares, (Tr. 383-85.), even though the value of the shares could easily be obtained since the stock price is reported daily in the NASDAQ listings in the newspaper (Tr. 384, 3875-88, 390, 393.) No prosecutor or case agent was aware that the shares appreciated substantially in 1995. (Tr. 383, 385-88.) No inquiry was made of Bailey or any other counsel regarding the value of the shares. (Tr. 383-84.) No effort was made to capture the increasing value of the shares by liquidating portions of them as the price rose, although the value in 1995 began vastly to exceed the original $6 million. (Tr. 384-85.) The government could offer no explanation, either, why if it believed itself the ultimate owner of the shares, it allowed them to be deposited in the first instance in a Swiss bank account, vastly complicating repatriation, instead of a U.S. bank or brokerage account. (Tr. 359-60, 363.)
At no time through all of 1994 and 1995 did the government seek an order of forfeiture or file a civil forfeiture complaint as to the Biochem shares, (Tr. 364-66.), although it did so with respect to other of Duboc's assets. And, as noted, it never produced any writing, memorandum, court pleading, record representation, or any other reasonably reliable memorialization of its purported continuing ownership in the shares. (Tr. 364, 367, 392.) Simply put, up until January 11, 1996, the government acted as if it had given the shares to Bailey, caring no further about them and allowing the risk of loss or risk of gain to be Bailey's. (Tr. 389.)
On or about January 11, 1996, Duboc sought to terminate Bailey's services and substitute new counsel. At the hearing on his motion to substitute counsel, Duboc's new attorneys advised that the value of the Biochem shares had risen from approximately $10 to something in the range of $40 a share. It is at this point that the government first learned of the increase in value. Only thereafter did the government begin to assert in the district court its entitlement to the remainder interest in the Biochem shares on grounds that the shares were "forfeitable" and that Bailey was simply a "trustee".
The Order to Appear on February 2, 1996
On January 22, 1996, the government filed an Emergency Motion to Surrender Property (Doc. 67) in which it claimed the shares were forfeitable. The motion sought a court order requiring Bailey to immediately place the remaining Biochem shares in the court's repository and deliver to the court an accounting of his handling of the stock.
The court acted upon the government's Emergency Motion to Surrender Property by ordering (Doc. 68) on Thursday, January 25, 1996, that Bailey appear in court the next week "to answer, in person, the Government's Motion," and to bring with him the Biochem stock or any assets into which it may have been converted, plus a full accounting, with documentation, of "all assets he received from Claude Duboc, directly or indirectly, and all disbursements made, including the purpose for such disbursement," as well as "all bank records * * * pertaining to all assets, or proceeds from the sale/mortgage/pledge/ hypothecation thereof, received by him, directly or indirectly, as attorney or agent for Claude Duboc." Under the Order, the date for Bailey to appear was Thursday, February 1, but on January 26, the court reset the hearing for Friday, February 2.
On January 25, upon receipt of the court's order of that date, Bailey contacted counsel to represent him with respect to the order and his appearance the next week. Bailey met with counsel on Saturday, January 27. Counsel had four business days thereafter to prepare for Bailey's response on February 2.
Before court was called to session on the morning of February 2, Bailey filed a motion to continue the hearing to permit sufficient time to prepare; a motion to permit him to take discovery; a motion to vacate the order requiring the turnover of stocks and assets on the grounds that the order was one to effect a seizure ancillary to a forfeiture and must be conducted in accordance with the statutorily required procedures; motions to recuse the judge and to disqualify government counsel, the First Assistant United States Attorney for the district, on the grounds that they both were material witnesses to undocumented discussions concerning the terms of the oral agreement between Bailey and the government; and a demand for a jury trial. All of the motions were summarily denied.
The February 2-3 Hearing
Prior to the commencement of the February 2-3 hearing, there was never any motion for contempt filed by the government and no show cause order issued by the court. Indeed, the court's order fixing the hearing date required not that Bailey appear to defend a contempt proceeding, but rather "to answer, in person," the government's "Emergency Motion to Surrender Property" and to produce shares of stock, plus pertinent records and accountings.
The government's Emergency Motion was not a contempt motion and does not even mention the word. <<Note 2 - The government wrote a letter to Bailey, dated January 29, indicating an intention to "seek" contempt sanctions if Bailey were not to comply with the court's order, i.e., to "answer in person" the allegations of the emergency motion and to produce the stock and documentation. The letter does not suggest that Bailey must show cause why he should not be held in contempt. Moreover, the court, which was copied with the letter, dispelled any notion that such correspondence would be the functional equivalent of a motion. Rather, the court emphasized it had not and would not read letters from either side. "THE COURT:* * * Any time you want to talk to the Court, you file a motion. MR. ZUCKERMAN: Is that same rule apply to the government? THE COURT: Absolutely. I haven't read -I don't have any motion or any letter from the government that I've read in this case. I don't intend to, and I don't want either side favoring me with a copy of a letter between lawyers." (Tr. 28.)>> Indeed, it is apparent from counsel's comments during the first stages of the proceedings on February 2, that he believed the hearing would cover, at most, the government's contentions in its Emergency Motion to Surrender Property and the status of efforts to comply with the production and documentation requirements of the January 25 order.<<Note 3 - Counsel argued that it would be unfair to force Bailey to present his case on the "merits" -- that is, the meaning and provisions of an undocumented oral agreement -- on only one week's notice and without discovery or access to witnesses. (Tr. 35-36.) A hearing on the merits was, therefore, postponed until a future time. As of the date of this motion. there has been no merits hearing.>> (Tr. 2, 6, 27, 38.)
The government did raise the issue of contempt at the hearing, stating that if the hearing indicated Bailey was not in full compliance with the provisions of the court's orders "it is the government's intention to request that he be held in contempt of court, civil contempt." (Tr. 23, 39.) It cited as due notice the January 29 letter to Bailey -- a letter that the court refused to read precisely because it was not a proper motion. The court, however, did not endorse the government's suggestion to treat the proceedings as a contempt hearing and, instead, called Bailey to take the stand without once indicating that contempt was to be an issue at this hearing. In fact, prior to the commencement of testimony, the court had never, either before the hearing or during it, written or spoken the words "contempt" or "show cause".
The taking of testimony proceeded to the end of the day. Bailey testified until the lunch break. (Tr. 43-100.) After lunch, the government pressed the notion that the hearing was really one on the issue of contempt and sanctions for contempt. (Tr. 110-114.) Again, the court did not endorse this view of the proceedings, but does appear to have begun gravitating toward that position, commenting, for example, "Well, I think what I'm interested in today is where are the assets, what happened to the assets, why the information has or has not been produced here in open court." (Tr. 112.)
The government then called Edward Shohat and Robert Shapiro, both of whom had been co-counsel with Bailey on the Duboc defense. Their testimony consumed the remainder of the day on Friday. After that, and as the court was adjourning for the evening at 5:44 p.m., the court for the first -- and only -- time uttered the words "show cause," finally making it clear that the hearing had become a hearing on contempt: "We are going to recess until the morning, and we're going to determine only the question to show cause." (Tr. 231.) Thus, at close of business on a Friday night in Ocala, Florida, without access to records, witnesses or legal research, Bailey and his counsel were told that the hearing had been transformed into a hearing to show cause why Bailey should not be held in contempt.
The hearing resumed at 9 o'clock on Saturday morning and continued until shortly past 2:00 p.m. Mr. Bailey was called as his only witness, no other witnesses being unavailable under the circumstances. (See Tr. 307, 424.) Bailey's testimony was directed to the facts surrounding the agreement by which Bailey was to receive and hold the Biochem stock. The government called as rebuttal witness Assistant United States Attorney Gregory Miller. He testified at length about the government's understandings and assumptions about the agreement, the absence of documentation of it, and various meetings and conversations, including an unrecorded conference in Judge Paul's chambers (Tr. 321, 334, 375-79), in which terms of the agreement were discussed.
In his closing argument, Bailey's counsel recounted efforts made to comply with the Court's prior directive, including the involvement of an accounting firm to produce the accounting demanded by the court. (Tr. 412-13.) Counsel frankly stated that the process of compliance, while underway, was not completed. It had not been possible in the time available to extract the shares from Switzerland, to identify or produce assets that may have been purchased with proceeds from the sale or encumbrance of the stock, or to obtain all the records. (Tr. 412-20.) Moreover, Bailey had been legitimately unavailable to give full-time effort to the cause due to his obligations to a client facing trial in the United States District Court for the Southern District of New York in a life-count murder case. (Tr. 413, 415, 418.)
Counsel, however, repeatedly stated Bailey's willingness and intention to undertake diligently to achieve compliance. (Tr. 414 ("He will undertake any task reasonably put to him to get the shares back." "[H]e has expressed * * * his willingness to abide by the Court order."), 415 ("I place on the record that Mr. Bailey will and I will undertake whatever steps we are directed to undertake * * *."), 416 ("And I represent to the Court now * * * that he will provide Your Honor with the electronic banking data that constitutes the records * * *."), 417 ("[H]e is willing to do whatever is needed to repatriate the shares from Switzerland;" "[H]e is willing to provide books and records"), 428 ("So, I just * * * say to the Court, Mr. Bailey will provide compliance; I will provide compliance.").) In light of these representations, counsel pointed out, "it's a little extreme to say that his willingness to produce the required material, as expressed to the Court now, is so willfully disobedient that it requires the sanction of contempt, much less incarceration." (Tr. 418.)
Despite Mr. Bailey's willingness to comply, the court issued its order of contempt.
The Court's Order of Civil Contempt
The Court's Order of Civil Contempt finds Mr. Bailey in contempt for his failure to produce the documents and accountings previously ordered or to show his legal inability to do so. For such contempt, it orders him "sentenced to the Custody of the Attorney General for a period of six months", such sentence to commence on March 1, 1996, should he fail to purge himself of contempt. In order to purge himself of contempt, Mr. Bailey is not only ordered to produce the documents and accountings by February 29, but ordered to "produce the stocks themself". Further, to purge himself of contempt and avoid incarceration, Mr. Bailey is ordered by February 29 to "repay the approximately $3,000,000 that he has withdrawn from the Swiss account for his own personal expenses and attorneys fees".
Bailey's Efforts to Comply
Immediately after the Court's February 3 Order, Mr. Bailey and his counsel continued their efforts to produce a complete accounting of Mr. Bailey's expenditures since April, 1993, and to collect all documents relating to the stock and the expenditures of proceeds derived therefrom. They also commenced efforts to have the Biochem stock transferred from Credit Suisse and to raise in excess of $3 million. While those efforts are set forth in the affidavit of Michael R. Smith, Esq., which is included as part of Exhibit 6 attached hereto, they may be summarized as follows:
A. Document Production
On February 14, 1996, Mr. Bailey's counsel produced to the Court and the government thousands of pages of documents, including (a) the HUD-1 closing statement on the purchase of the home owned jointly by Mr. Bailey and his wife; (b) invoices and related documents showing expenditures by Mr. Bailey in connection with the properties the government asked him to maintain in France by using the Credit Suisse account; (c) all check registers, monthly statements and canceled checks from April 1994 through December 1995 for Mr. Bailey's money market account, for Mr. Bailey's personal account, for Mr. Bailey's law office account, and for the other subaccounts to which funds may have been transferred from the money market account and through the personal account; (d) the Credit Suisse statements then available in the United States; and (e) redacted records from Bailey, Fishman, Ferrin & Freeman showing Mr. Bailey's deposits into that law firm.
On February 21, 1996, Mr. Bailey's counsel produced to the government all records in the possession of Mr. Bailey's Swiss counsel regarding the relevant Credit Suisse account, including monthly statements and backup documents showing sales, wire transfers, and pay orders.
On February 23, 1996, Mr. Bailey's counsel produced two notebooks of records documenting expenditures incurred by Mr. Duboc and Mr. Bailey as well as an additional notebook containing miscellaneous documents reflecting expenditures incurred during the Duboc representation.
After being notified by the government on February 23 that it sought additional documents, additional records were produced on February 27. Mr. Bailey and his counsel have indicated his willingness to provide all records that can be located responsive to the government's requests.
B. The Accounting
Mr. Bailey retained the services of Kenneth Barker, a C.P.A. with the accounting firm of Arthur Andersen, to perform an accounting. Mr. Barker has produced to the Court and the government a comprehensive accounting which traces funds from Mr. Bailey's Credit Suisse account to their ultimate disposition for any amounts in excess of $5000.
C. The Return of the Stock from Switzerland
In addition, Mr. Bailey sought through his Swiss counsel, Charles Poncet, to cause Credit Suisse to transfer the Biochem Pharma shares to the Court. Again, those efforts are set forth at some length in the affidavit of Michael R. Smith. (See Exhibit 6.) These efforts included, through motions to the Court, to approve an account to which the stock could be transferred and arranging with Paine Webber for such an account in the United States. They also included dealing with a freeze order placed on the Credit Suisse account by Mr. Duboc's lawyers and a freeze order placed upon the account by Swiss prosecutors.
Despite the obstacles presented by language, distance, time zones, freeze orders, obscure banking laws and regulations, as of February 27, 164,00 shares of Biochem Pharma stock have been released by Credit Suisse for transfer. These shares have an approximate present value of $7 million.
The approximate remaining 240,000 shares, however, are subject to a $2.3 million lien of Credit Suisse. That $2.3 million lien was imposed on the shares prior to January, 1996, for withdrawals made by Mr. Bailey from the account in 1994 and 1995. While Mr. Bailey and his attorneys have sought authorization from the government and the Court to authorize Credit Suisse to sell some shares in order to discharge the lien and to transfer the remainder to the Paine Webber account, the United States has objected and the Court has not approved such action. While this would have produced a transfer of stock valued at approximately $15 million, no further stock will be transferred by Credit Suisse unless and until they are authorized to discharge their lien.
D. Depositing Approximately $3 million Into the Court Registry
As set forth again in the affidavit of Michael R. Smith, Mr. Bailey has made all reasonable efforts to raise money not only to deposit with the Court, but to pay off the Credit Suisse lien. The vast bulk of Mr. Bailey's net worth consists of the value of boats and aircraft owned by a Subchapter S corporation which he wholly owns. These assets have equity of somewhat over $2 million. Based upon his net worth, Mr. Bailey has repeatedly sought to borrow money from banks and other conventional lenders, to no avail. He has contacted numerous individuals with the aim of obtaining personal loans secured by his assets, also to no avail to date. While he has made inquiries regarding sale of-the assets, given their nature, they will take time to sell, at least for anything close to their real value. Given the failure of all possible avenues to realize money from his present assets sufficient to purge himself of contempt, Mr. Bailey has offered to provide the Court with the titles to these and other assets, as well as to take any steps the Court requires. He simply does not have the money and has not, despite all reasonable efforts, been able to raise the money by financing based essentially on boats and airplanes as collateral.
Hearing of February 27-28
On February 23, Mr. Bailey requested by motion that the Court hold a status conference and hearing. On Monday, February 26, Mr. Bailey filed his Motion Not to Execute on Order of Incarceration and to Provide Additional Time For Compliance, attached hereto as Exhibit 6. The hearings on this motion commenced on Tuesday, February 27 were continued all day February 28.
Unfortunately, there is no transcript of the hearings at this time. Indeed, given the emergency nature of this motion, there will be no transcript for this Court's consideration prior to the end of business on March 1, the time scheduled for Mr. Bailey to report for his imprisonment. However, because of the importance of the evidence taken at these hearings, we describe them below.
Four witnesses testified to Mr. Bailey's compliance with the Court's order of civil contempt and to explain his need for an additional 21 days to raise the millions of dollars ordered to be placed in the court registry. They were Michael R. Smith, his attorney, Kenneth Barker, the Arthur Andersen accountant, Philip Vitello, a lawyer and international businessman who is an expert in the liquidation of assets, and Mr. Bailey.
Mr. Smith testified at length to the matters set forth in his affidavit regarding Bailey's document production and other matters. As he established, no documents in Mr. Bailey's possession, custody, or control that are either within the scope of the Court's order or the government's request have been intentionally withheld. Rather, every potentially relevant piece of paper, over ten thousand pages, have been produced. While the government at the hearing pointed to a handful of peripheral documents not yet produced that are mentioned in the records already produced, there can be no dispute based upon Mr. Smith's testimony that Mr. Bailey has made every reasonable effort to comply with the document production requirements of the Court's Order of Civil Contempt.
Mr. Smith also testified regarding the efforts made to transfer the Biochem Pharma shares from Credit Suisse. These included the efforts in a short period to overcome the hurdles imposed by the Duboc freeze order, the freeze order obtained by the Swiss prosecutor, and the pre-existing Credit Suisse lien. To date, Mr. Bailey has succeeded in obtaining the transfer of 164,000 shares. Mr. Smith also testified about the Credit Suisse lien and how the transfer of the remaining shares is contingent on the release of the lien. The release of the lien is, of course, only a matter of money; if Mr. Bailey could pay off the lien, the Swiss would release the remaining 400,000 shares.
Mr. Barker submitted his detailed accounting and testified at length regarding the expenditures made by Mr. Bailey for 1994, 1995 and the first month of 1996. In effect, he expanded on the brief accounting he had performed prior to the hearings of February 2 and 3. The accounting was both massive and detailed. Indeed, the government did not seek to attack or discredit the accounting in any fashion. Rather, the government appeared at the hearings to be completely satisfied with the accounting presented.
Mr. Vitello testified to the impossibility of liquidating Mr. Bailey's primary assets in the time available under the Court's order and further testified to the orderly procedures that would be necessary to properly liquidate the properties. He also testified to the virtual impossibility of obtaining financing in the time frame set forth by the Court's order. Mr. Vitello's testimony was not challenged in any meaningful manner.
Mr. Bailey also testified at length. Most critically. he testified that he would pledge turn over to the Court. or otherwise alienate every asset he had accumulated over his lifetime including his home. to comply with the Court's order.
The government's position, presented through its witness, Assistant United States Attorney Miller, and through its cross examination of Bailey, was that Bailey deserved to be punished. According to the government, Bailey deserved to be incarcerated not because he had failed to prove that he had taken all reasonable steps to comply with the contempt order, but because he had written checks for personal expenses and legal fees prior to February 3, the date the Court signed the contempt order. Apparently, these expenditures violated a freeze order entered by the court in January, of which both Mr. Bailey and his counsel Mr. Smith testified they were unaware. In other words, the government's position at the hearings was that Mr. Bailey had failed to comply with a court order other than the contempt order and, therefore, could and should be incarcerated for this newly alleged violation.
On February 29, 1996, the District Court entered its order denying Mr. Bailey's request for a 21-day extension. The Order, attached hereto, requires incarceration to begin at 5:00 p.m. on February 29, 1996, but that has been orally modified to 10:00 a.m. On tomorrow, March 1, 1996. The Order, on the last day of possible compliance, announces new monetary obligations, reducing the obligation to pay $5.3 million to an obligation to pay $2.3 million to Credit Suisse to release shares and to pay $700,000 to the court. The court has held that incarceration is required to compel the production of any documents that remain outstanding, although none were specified. Finally, the court suggested that the earlier 6-month prison sentence actually is subject to purge at any time. The court gave Mr. Bailey less than twenty-four hours to comply with this reconstruction of the earlier order. Notably, half of the order contains criticism of Mr. Bailey's conduct before the civil contempt order signed January 3, 1996, and compliance with the civil contempt order, such that the order is infused with the feel of affront and punishment, not a proper evaluation of compliance and coercion.
The Denial of the Motion to Stay Pending Appeal by the District Court
Mr. Bailey moved in the district court for a stay pending appeal on Wednesday, February 28, 1996. On Thursday, February 29, 1996, the district court denied the motion. A transcript reflecting the order, delivered orally, is attached.
ARGUMENT
Standard for Granting a Stay
A motion for stay pending appeal requires consideration of four factors:
1) the movant is likely to prevail on the merits of the appeal;
2) absent a stay the movant will suffer irreparable damage;
3) the adverse party will not suffer substantial harm from issuance of the stay; and
4) granting the stay will cause no harm to the public interest.
See In re Grand Jury Proceedings (Cohen), 975 F.2d 1488, 1492 (llth Cir. 1992); Garcia-Mir v. Meese, 781 F.2d 1450, 1453 (llth Cir. 1986); Ruiz v. Estelle, 650 F.2d 555, 565 (5th Cir. Unit A 1981) (binding precedent in the Eleventh Circuit), cert. denied, 460 U.S. 1042 (1983); Dillard v. City of Greensboro, 870 F. Supp. 1031, 1033 (M.D. Ala. 1994); Int'l Blvd of Boilermakers v. Local Lodge, 667 F. Supp. 870, 873 (M.D. Ga. 1987).
The degree of likelihood of success on the merits that must be shown varies depending on how heavily the balance of equities favors the movant. Thus the motion may be granted upon a showing of "a substantial case on the merits" when "the balance of the equities [identified in factors 2, 3, and 4] weighs heavily in favor of granting the stay." United States v. Hamilton, 963 F.2d 322, 323 (11th Cir. 1992); Garcia-Mir, 781 F.2d at 1453; Ruiz, 650 F.2d at 565; In'tl Bhd of Boilermakers, 667 F. Supp. at 870.
Where the other three factors favor interim relief, the court may grant a stay "if the movant has made a substantial case on the merits". Ruiz, 650 F.2d at 565 (quoting Washington Metropolitan Area Transit Comm'n v. Holiday Tours. Inc., 559 F.2d 891, 843 (D.C. Cir. 1977)). "The court is not required to find that ultimate success by the movant is a mathematical probability, and indeed, * * * may grant a stay even though its own approach may be contrary to movant's view of the merits. n 1a- (quoting Holiday Tours).
Thus, an order maintaining the status quo is appropriate when a serious legal question is presented and the other equities favor granting the stay. Id.
A. Bailey Is Likely To Succeed on the Merits of His Appeal.
Bailey has today (February 29, 1996) filed a Notice of Appeal with the clerk of the district court. This notice appeals from the February 7 Order of Civil Contempt; the February 21 denial of Bailey's Motion to Reconsider and Motion to Amend Judgment Pursuant to Rule 59 or for Relief from Judgment Pursuant to Rule 60; and the February 28 denial of Bailey's Motion Not to Execute on Order of Incarceration and to Provide Additional Time for Compliance. The appeal will raise the following substantial issues.
1. Bailey Has Demonstrated Present
Inability To Comply
"Present inability to comply" is a defense to contempt. CFTC v. Wellington Precious Metals. Inc., 950 F.2d 1525, 1529 (11th Cir. 1992). The alleged contemnor must demonstrate that he has made 'in good faith all reasonable efforts' to meet the terms of the court order he is seeking to avoid." Id. If sufficient showing is made, "[T]he burden shifts back to the initiating party * * *. The party seeking to show contempt, then, has the burden of proving ability to comply." Id. at 1529. "The party seeking the contempt citation retains the ultimate burden of proof." I:- (quoting In re Battaglia, 653 F.2d 419, 423 (9th Cir. 1981)).
Even under the constraints of the February 2-3 proceeding that preceded the contempt citation, Bailey made a substantial showing that inability was very much an issue. As to the production of stock, it was then established that Credit Suisse had a lien on it that prevented its transfer. As to the production of other assets obtained with proceeds of the stock, the creation of a full accounting, and the production of all related documentation, Bailey and counsel demonstrated that there simply had not been enough time to accomplish compliance. This could hardly have been surprising since the order to produce the stock, the other assets, and the documentation had only been in existence a total of five business days. Under these circumstances, the burden should have been on the government to prove ability to comply.
The showing made by Bailey of his present inability to comply became even more starkly compelling during the hearing of February 27-28, at which Bailey sought in vain for relief from the imminent sentence of incarceration.
Bailey produced a report and full accounting of all of his expenditures for the last two and a half years. The report and accounting were performed by Arthur Andersen & Company. The partner in charge, Kenneth Baker, testified at the hearing at length. The government did not contend that this accounting was less than sufficient.
Bailey produced approximately 10,000 pages of documents and records, including bank records, American Express accounts, mortgage related documents and much more. He and one of his attorneys testified as to the extraordinary efforts that had been made to produce this documentation to the government in several waves of production in the preceding weeks. When the government midstream sent a detailed letter to Bailey's counsel listing a staggering array of records it wanted, the response was a redoubling of effort and further production to meet the government's specifications. By the time of the hearing, the government was able to point to only a small handful of additional documentation it thought should be produced, most of which had never been mentioned before by them or even thought of by Bailey. Bailey responded by promising to produce them in full, most of which has already been accomplished.
As to the Biochem stock, Bailey demonstrated that he had succeeded, through exceptional determination, in persuading Credit Suisse to release 164,000 shares worth some seven million dollars. Credit Suisse refused to release the rest held under its lien.
The lien secures a $2.3 million credit. Bailey repeatedly sought agreement from the government to permit him to direct Credit Suisse to sell $2.3 million worth of shares so that all the remaining shares could be returned (about 16 million dollars worth). See Bailey's Memorandum In Support of Motion to Execute at p. 26 through 30. See Exhibit 6.
Bailey presented proof that his cash accounts total about $50,000, not many millions. His net worth is represented by boats and planes held by a Subchapter S corporation. He testified, and he presented testimony from a financing expert he engaged to help him seek a way of packaging all his assets to raise cash of that magnitude, about efforts made to obtain such funds. The expert testified that it was simply impossible in the span of at most twenty business days to put together such a complicated financing transaction or to realize substantial proceeds from a fire sale.
No other means of compliance being available, Bailey told the court, in an act of utter compliance, that he was willing immediately to pledge or turn over to the court all his assets, every item of value he has accumulated in his lifetime.
There being copious evidence of unstinting compliance efforts, actual compliance on all requirements it was possible to meet, detailed and unrebutted testimony from Bailey and a financing expert establishing present inability to raise the sum of $3.0 million, and Bailey's offer of his entire net worth in pledge to the court, a dispassionate tribunal reviewing this record cannot uphold the contempt finding in this case.
2. The Imposition of the Contempt Citation in this. Case Did Not Comport With the Requirements of Due Process
The imposition of the initial contempt citation in this case did not comport with the requirements of due process. Summary contempt is available only to "address contumacious conduct which is committed fully within the presence of the court. n United States v. KS & W Offshore Engineering. Inc., 932 F.2d 906, 909 (11th Cir. 1991). Such conduct, for example, disruptive behavior in the courtroom, is denoted "direct contempt" and is considered amenable to summary adjudication "to maintain order in the courtroom and the integrity of the trial process." International Union. UMW v. Bagwell, U.S. , , 114 S. Ct. 2552, 2559-60 (1994); see KS & W Offshore, 932 F.2d at 909 ("such summary powers are essential for the maintenance of control within the courtroom"). It is only in these circumstances that summary proceedings "have been tolerated." Maxwell, 114 S. Ct. at 2560.
Other contempts, including the failure to produce items or documents in court, are treated as "indirect" contempts that can be sanctioned only upon the provision of adequate notice and opportunity to defend. See, Bagwell, 114 S. Ct. at 2560 ("summary adjudication of indirect contempt is prohibited"); FDIC v. LeGrand, 43 F.3d 163, 166 (5th Cir. 1996) (failure to produce tax returns in court sanctioned after motion for contempt, show cause order and contempt hearing); Citronelle-Mobile Gathering Inc. v. Watkins, 943 F.2d 1297, 1300-1301 (lath Cir. 1991) (failure to return assets to court's jurisdiction sanctioned after motion for contempt, show cause order and contempt hearing).
The procedural requirements appurtenant to the imposition of civil contempt sanctions for indirect contempts have been elaborated by the Eleventh Circuit in Mercy v. Mitchell, 908 F.2d 763 (llth Cir. 1990). "Although a district court has a certain amount of discretion in fashioning civil contempt sanctions and the procedure by which those sanctions are imposed, the court must stay within the bounds of due process." 908 F.2d at 766.
"[D]ue process requires, with very few exceptions, that the defendant (1) be informed, through a show-cause order, of his purportedly contumacious conduct, and (2) be given a hearing at which he can be represented by counsel, call witnesses, and testify in order to show cause why he should not be held in contempt." Id. at 767.
The due process framework contemplates an orderly adjudication in several stages:
a) There is first "a court order that requires the defendant to act in some defined manner." Mercer, 908 F.2d at 768. The defendant must have actual knowledge of the order and the order must be sufficiently specific to be enforceable. Hazen v. Reagan, 16 F.3d 921, 924 (8th Cir. 1994).
b) "The defendant then acts, or refuses to act, in violation of the order." Mercer, 908 F.2d at 768.
c) The plaintiff then "requests the court to order the defendant to show cause why he should not be held in contempt and sanctioned until he complies." Mercer, 908 F.2d at 768. Typically, this is accomplished by a motion served upon the defendant. See id. at 767 n.7. The motion serves as first notice that contempt is in issue.
d) "If the court finds that the conduct as alleged would violate the prior order, it enters an order requiring the defendant to show cause why he should not be held in contempt and conducts a hearing on the matter." Mercer 908 F.2d at 768. The showcause order is a "required element of civil contempt proceedings." Id. at 767 n.5. The court must enter a show-cause order and conduct a hearing "whether or not it is requested to do so by defendant." Id. at 767 n.7.
e) "At the hearing, the defendant is allowed to show either that he did not violate the court order or that he was excused from complying. Mercer, 908 F.2d at 768. The court must allow the defendant an opportunity to request modification of the order based on circumstances that would make strict enforcement of the order unjust. Id. at 768, 769.
f) If the court "concludes that the order should not be modified and that the defendant did not comply with the order, then the court may hold him in contempt and impose sanctions designed to ensure compliance." Mercer, 908 F.2d at 768.
The proceedings in this case bear no resemblance to the typical procedure described by the Eleventh Circuit, and there is no reason whatsoever that they could not have been conducted in conformity with the normal procedural framework.
There was no show-cause order. Absence of this "required elements alone mandates reversal. Mercer 908 F.2d at 768, 769 (notice and hearing are required elements of due process; contempt order vacated where court did not enter a show-cause order or conduct a hearing); see Citronelle-Mobile Gathering. Inc., 943 F.2d at 1034 (due process requires that the court inform the alleged contemnor of the contemptuous conduct and provide a hearing).
There was no notice, by motion or court order, that the February 2 hearing would in fact be a contempt hearing. Neither Bailey nor defense counsel could have perceived, prior to going to Ocala and finding themselves in the midst of it, that Bailey was to be on trial, then and there, for contempt.
When the Court finally, on Friday night, uttered the words "show cause", there was practically speaking no opportunity to mount a meaningful defense by Saturday morning. Nor was there any reason that the Court could not have issued a real show-cause order at that time setting the contempt hearing for a reasonable time in the future. See Armstrong v. Manzo, 380 U.S. 545, 552 (1965) (to satisfy due process, hearing must be at meaningful time and in meaningful manner).
Nor was Bailey given a reasonable opportunity to establish grounds to request a modification of the order. Having had just five days business notice of the hearing, having counsel for only a brief period of time, and being completely preoccupied with the defense of a life-count murder case in New York, Bailey was not in a position to present a meaningful defense. Potential witnesses on compliance issues, on matters regarding the Swiss shares and the obstacles to their transfer, and on the complications of producing an accounting could not be called. Not knowing prior to the hearing of its true nature, neither Bailey nor counsel could have perceived the need for such proof to defend against a contempt. Clearly, a measured contempt proceeding with an order to show cause and a proper hearing in conformance with the requirements of Mercer would have allowed Bailey the opportunity to make a meaningful presentation to the Court which reasonably would have materially affected the court's findings, the content of its order, and its decision whether to issue a contempt citation at all.
3. It Was Error to Require Bailey to "Repay" Funds in Order to Purge Contempt and Error to Include Other Purge Conditions Not Tied to the Specified Act of Contempt
The February contempt order contained two purge clauses, both of which are invalid. One of them imposes a wholly new undertaking -- the "repayment" of $3 million. The other, requiring the production of stock, fails to tie the purge obligation strictly to the purview of the contempt delineated in the order. (On February 29, 1996, the Court modified these to require a $2.3 million payment to Credit Suisse and a $700,000 payment to the court.)
The fundamental premise in a contempt proceeding is that there is an outstanding, prior order for the defendant to do some act, and the outstanding order has been violated. See CFTC v. Wellington Previous Metals. Inc., 950 F.2d 1525, 1528 (llth Cir. 1992) (must be shown that defendant "violated an outstanding court order"), cert. denied, 113 S. Ct. 66. Coercive sanctions may be applied to cause the defendant "to conform to the terms required in the order." International Union. UMW v. Bagwell, U.S. , 114 S. Ct. 2552, 2557 (1994). The whole purpose is to compel obedience with the court's outstanding order.
The obvious corollary to these basic concepts of contempt is that a person cannot be held in contempt for failing to do something that he was not in fact required to do by the outstanding order, nor, logically, can the conditions to purge exceed the requisites of the original order. See Armstrong v. Executive Office of the President, 1 F.3d 1274, 1289 (D.C. Cir. 1993) (reversing contempt judgment against agencies based in part on their failure to promulgate new regulations where outstanding court order did not contain direct order for them to do so).
In this case, the court has imposed a new and additional affirmative duty, one that was not an element of any prior outstanding order. The court has obligated Bailey to raise and Repay" $3 million, an entirely new requirement.
At the February 2-3 hearing, Bailey testified that the Biochem stock, worth at the time of its transfer to him about $6 million, had appreciated to approximately $24 million, and that some $3 million of proceeds from it had been taken into his bank account in Florida and spent in accordance with his understanding of his rights to it under his agreement with the government. The liquidated shares obviously could not be returned to the court as contemplated by the outstanding January 25 order.
Apprised of these facts at the hearing, the court simply appended a new affirmative requirement that Bailey now raise and "repay" $3 million in cash. In the court's February 29, 1996 order, the $3.0 million is structured so that $2.3 million is paid to Credit Suisse and $700,000 to the court, the overall payment obligation reduced thereby from $5.3 million to $3.0 million. This requirement appeared for the first time in the Order of Civil Contempt, read from the bench at the close of the hearing on Saturday, February 3. As there was no pre-existing order requiring Bailey to "repay" spent funds, the purge clause, which imposes an obligation to raise $3 million in less than four weeks, is not directed at effectuating compliance with the terms of any outstanding order. It is not a valid purge clause precisely because it exceeds the bounds of any outstanding order.
Beyond that, the obligation to deposit $3 million with the Court is in reality a new substantive order, requiring Bailey to undertake a new task. Then, if he fails in that task, he is automatically subject to incarceration by operation of the final paragraph of the Order -- with no order to show cause, no hearing, no opportunity to defend, no due process whatsoever. The provision is plainly unconstitutional and cannot be enforced. See Mercer v. Mitchell, 908 F.2d 763, 769-70 (llth Cir. 1990) (sanctions imposed without due process must be vacated).
The contempt order also directs that Mr. Bailey may purge himself of contempt by producing "the stocks themselves" by February 29. This clause is defective for a different reason. The Order of Civil Contempt specifically circumscribes the finding of contempt, limiting it to the failure to produce "documents and accountings":
It is clear, and the court so finds, that Mr. Bailey has not demonstrated any good reason as to why he did not produce the requested documents and accountings as ordered, nor has he shown a good faith effort to comply therewith. Having failed to either produce the documents, shown his legal inability to do so, or demonstrate a good faith effort at compliance, Mr. Bailey is sentenced to the custody of the Attorney General for a period of six months. * * *
(Order at 4.) Bailey was not cited for contempt for failing to return the Biochem stock.
4. The Sanction Imposed Must Be Vacated Because It Is Criminal. Not Civil. in Nature The district court originally sentenced Mr. Bailey for a determinate six-month sentence. On February 29, 1996, it suggested that the earlier order may not mean what it says and may permit purging at any time.
For a contempt sanction to be categorized as civil it must remain conditional and subject to cure at all times. Imprisonment for a fixed term thus is civil in nature only where the defendant can obtain early release at any point in the term through compliance. International Union. UMW v. Bagwell, _ U.S. 114 S. Ct. 2552, 2558 (citing Shillitani v. United States, 384 U.S. 364, 370 n.6 (1966)). Because the defendant remains always able to obtain his release, he "thus 'carries the keys of his prison in his own pocket'." Bagwell, 114 S. Ct. at 2558 (quoting Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 442 (1911)). On the other hand a fixed sentence of imprisonment is criminal if the defendant "cannot avoid or abbreviate the confinement through later compliance." Bagwell, 114 S. Ct. at 2558.
While the sanction in this case has some civil characteristics in that Bailey has the ability to purge during the period the sentence is suspended, i.e., until February 29, it thereafter may be criminal in that an unconditional six-month sentence begins. When a contempt order contains both a criminal and a civil dimension, it must be classified as a criminal contempt order for purposes of review. Bagwell, 114 S. Ct. at 2561; FDIC v. LeGrand, 43 F.3d 163, 168 (5th Cir. 1995). (By order of February 29, 1996, the district court suggested that the determinate six-month sentence is actually subject to purge, although that does not appear on the face of the earlier order.)
"Criminal contempt sanctions are entitled to full criminal process." Bagwell, 114 S. Ct. at 2560. "Criminal penalties may not be imposed on someone who has not been afforded the protections that the Constitution requires of such criminal proceedings." I:at 2556 (quoting Hicks v. Feiock, 485 U.S. 624, 632 (1988)). These protections include notice of charges in the form of a show cause order specifically stating that the hearing will be a criminal contempt proceeding, LeGrand, 43 F.3d at 169; Lamar Financial Corp. v. Adams, 918 F.2d 564, 567 (5th Cir. 1990); assistance of counsel, Bagwell, 114 S. Ct. at 2557; a hearing and opportunity to present a defense, id.; proof beyond a reasonable doubt, i:.; United States v. Maynard, 933 F.2d 918, 920 (llth Cir. 1990); jury trial if imprisonment over six months could be involved, Bagwell, 114 S. Ct. at 2557, an impartial decisionmaker, LeGrand, 43 F.3d at 169 n.6, and proof of criminal mens rea, Maynard, 918 F.2d at 920; Taberer v. Armstrong World Industries, Inc., 954 F.2d 888, 908 (3d Cir. 1992); Krasnow v. Navarro, 909 F.2d 451, 452-53 (llth Cir. 1990).
When a criminal contempt sanction is imposed without full criminal process, the sanction must be vacated, even if the sentence is never in fact executed. LeGrand, 43 F.2d at 169-70.
5. The Court Erred in Failing to Recuse Itself
The court could not properly sit as factfinder in this contempt proceeding and was required to recuse itself. Section 455(b) of Title 28 sets forth a series of circumstances in which a federal judge must be disqualified. This section "delineates specific circumstances where recusal is mandated". Liteky v. United States, 114 S. Ct. 1147, 1163 (1994)(Kennedy, J. concurring). A judge is under a self- enforcing obligation to recuse himself whenever proper grounds exist, and the statute requires judges to resolve any doubts they may have in favor of disqualification. United States v. Kelly, 888 F.2d 732,744 (llth Cir. 1989). Among the circumstances requiring disqualification are when a judge has "personal knowledge of disputed evidentiary facts concerning the proceeding" and when he is "likely to be a material witness in the proceeding". 28 U.S.C. 455(b)(1) and (b)(5)(iv). Because judges normally recuse themselves whenever they may be required to be a witness at an evidentiary hearing, there are few appellate court decisions dealing with these circumstances. See, e.g:, United States v. Crowell, 359 F. Supp. 489, 490 n.6 (M.D. Fla. 1973) (original trial judge recused himself because he might be a witness at an evidentiary hearing).
This case had the extraordinary feature of a material, off the record discussion involving the judge, about a central issue in dispute, the nature of the agreement between Bailey and the government. That conversation was a critical evidentiary element and the judge was a party, and witness, to it. Bailey brought the matter to the court's attention through a disqualification motion filed on the morning of February 2, prior to the hearing in which that very discussion would be in issue. In spite of the unambiguous dictates of the controlling law, the judge denied the motion without statement of reasons.
It was clear error for the court to adjudicate a matter in which it was a material witness to off the record events in dispute at the hearing.
6. Bailey Was Improperly Denied the Right to a Trial by Jury
Bailey was entitled to a jury trial as provided in 21 U.S.C. 882(b). Subchapter I ("Control and Enforcements, 21 U.S.C. 801-904) of Chapter 13 ("Drug Abuse Prevention and Control") of Title 21 of the United States Code contains a grant of jurisdiction for injunctive enforcement of the provisions of that Subchapter:
Jurisdiction
(a) The district courts of the United States and all courts exercising general jurisdiction in the territories and possessions of the United States shall have jurisdiction in proceedings in accordance with the Federal Rules of Civil Procedure to enjoin violations of this chapter.
21 U.S.C. 853(e)(1).
Amongst the forms of injunction available under this grant of jurisdiction are "restraining order[s] or injunction[s] to preserve the availability of property described in [Section 853(a)] for forfeitures 21 U.S.C. 853 (3)(1). The property at issue in this case, the Biochem stock, or other assets into which it was converted, is alleged to be forfeitable because it constitutes or derives from drug trafficking proceedings. As such it would be property forfeitable under Section 853(a)(1).
The express foundation for the government's January 22, 1996 "Emergency Motion to Surrender Property" is that the stock is "forfeitable property that Claude Duboc "obtained as a result of involvement in illegal drug trafficking activities and transferred to Bailey. That was, as well, the position pressed by the government at the February 2-3, 1996 hearing. (E.g;, Tr. at 32-33.)
The court's January 25 order in response to the government's motion to surrender property required Bailey to return the stock, or other assets, to the court. This order was quite plainly a mandatory restraint or injunction intended "to preserve the availability of property * * * for forfeitures as contemplated by 21 U.S.C. 853(e)(1).
Bailey filed prior to the hearing a motion and demand for a jury trial. Counsel at the outset of the hearing pointed out that the proceeding appeared to be a proceeding ancillary to a forfeiture and reiterated the demand for a jury. (Tr. at 34, 36.) The court did not grant a jury trial and ultimately imposed a contempt citation based, inter alia, on Bailey's failure to turn over the allegedly forfeitable property.
Section 882(b) of Title 21 specifically provides that contempt proceedings for violation of injunctive orders issued pursuant to the grant of jurisdiction in Section 882(a) carry with them the right to a jury:
Jury Trial
(b) In case of an alleged violation of an injunction or restraining order issued under this section, trial shall, upon demand of the accused, be by a jury in accordance with the Federal Rules of Civil Procedure.
21 U.S.C. 882(b).
Because Bailey was denied the right to trial by jury, the contempt order must be vacated.
B. Bailey Will Be Irreparably Harmed If No Stay is Granted "An injury is irreparable 'if it cannot be undone through monetary remedies.' Dillard v. City of Greensboro, 870 F. Supp. 1031 (M.D. Ala. 1994) (quoting Cate v. Oldham, 707 F.2d 1176, 1189 (llth Cir. 1983)).
Respondent is subject to incarceration if the order is executed. Incarceration, whether for six months, six weeks, six days, or six hours, is unquestionably a profound and irreparable injury. Indeed as the Eleventh Circuit has held, "[t]here is, perhaps, no injury more substantial and less reparable than improper denial of the right to liberty." Garcia-Mir, 781 F.2d at 1455.
C. There Will Be No Substantial Harm to the Government if a Stay is Granted
As regards the issuance of a stay in this case, the purpose of which would be merely to maintain the status quo pending appeal, the government's sole material interest is the preservation of the assets to which it makes claim. Where there is no imminent threat of dissipation of the disputed assets, the government is in no way prejudiced by a stay.
There is no dispute that Bailey did, as he understood he had the right to do under his agreement with the government, use some proceeds from the Biochem stock account in 1994 and 1995, before the government's contrary position was asserted. There is also no dispute that since the parameters of the controversy have come into focus, Bailey has endeavored diligently to replace spent funds and has accomplished the return of some of the shares. Indeed, these efforts have yielded the return of $7 million worth of shares -- more than the value of what Bailey received in the first place. The rest of the shares remain safely in the custody of Credit Suisse. Moreover, Bailey has offered to pledge or transfer to the court every asset he owns. There being no threat that the stock or any other assets will be dissipated during the pendency of this appeal, there is no substantial harm to the government in the grant of the stay.
Further, it must be noted that incarceration in the present circumstances has no real continuing coercive effect. Bailey has already done as much as he could do in the time permitted to restore the corpus of stock and monies to the possession of the court, and he and counsel have repeatedly represented that continuing efforts will be made to maximize compliance. He has offered all his worldly assets. Under these circumstances, imprisonment would be punitive, not coercive, and hence improper in a civil contempt case, and would only serve to impede further efforts at compliance.
D. No Harm to the Public Interest
Where the government is a party, the public interest often coincides, at least in part, with the government's interests. The public also has an interest in the safety of the assets, and in an appropriate case, in the coercive function of a contempt sanction. But as shown, in this case the interest in preservation is secure and the coercive purpose of incarceration is absent. Indeed, incarceration would likely only inhibit compliance.
There are also individual third-party interests involved here. Bailey is a criminal defense lawyer whose clients, many of whom face the most serious of criminal charges, rely on him to attend to their interests. Incarcerating Bailey would only harm these uninvolved third parties. Since incarceration here would serve no legitimate function, the interest of these uninvolved third parties in Bailey's liberty during the pendency of this appeal should weigh prominently in the consideration of the motion for stay.
The public interest will be best served by an orderly, and if necessary, expedited resolution of the contempt issue on this appeal, and then of the important underlying issues. The public has a strong interest in fair and comprehensive judicial scrutiny of the actions of those who serve it in the agencies of law enforcement. Here there are significant issues of government conduct that figure heavily in the mix when considering whether Bailey should be immediately subject to the opprobrium and deprivation of liberty presently threatened.
The government's position is that it parked with Bailey property that was forfeitable as the proceeds of illegal narcotics activity, from which Bailey would be paid legal fees.
If this is true, the government failed to conform its conduct to Supreme Court directives in Caplin & Drysdale v. United States, and United States v. Monsanto, 491 U.S. 617 (1989). Those cases proscribe the use of forfeitable funds for payment of legal fees. The "relation back" doctrine makes the assets obtained with unlawfully derived proceeds government property at the time they are unlawfully obtained. Thereafter, such forfeitable property cannot be used for payment of legal fees.
In an effort to deal with a variety of circumstances surrounding the complexities of this doctrine, the Department of Justice has set forth policy and guidelines in an extensive policy and guideline statement. See generally, 9- 111.100, et sea. These policy statement and guidelines, which were in effect in April of 1994, require such things as approval by the Assistant Attorney General, Criminal Division, before any asset transfer to an attorney as a fee for legal services may be forfeited (9-111.300); similar approval in the event civil forfeiture proceedings are directed at an asset transfer to an attorney for legal fees (9-111.300); the approval of the Assistant Attorney General, Criminal Division, for any "formal or informal, written, or oral agreements made regarding the exemption of an asset transfer to an attorney as fees for legal services from forfeiture (9-111.300). The guidelines specifically require careful review by the Department of Justice for these kinds of agreements (9-111.400). They require "written notice" of the government's intention to seek forfeiture of an asset made available to an attorney for payment of legal fees (9111.530). They require senior Departmental approval before attorney fee records are subpoenaed or otherwise sought by the government (9-111.620). Most significantly, the guidelines in 9-111.700 make clear that, when the government provides an asset for payment of legal fees, of necessity that decision carries with it a finding that "reasonable grounds to believe that the particular asset is not subject to forfeiture exist.
The government, therefore, cannot as a matter of Supreme Court doctrine and its own regulations make available forfeitable assets for payment of legal fees. Its decision to make available an asset for payment of legal fees ineluctably carries a finding that the asset is not subject to forfeiture, not to be forfeitable, and is otherwise free of any future claim. For the government to act otherwise would be a breach of Caplin & Drysdale and Monsanto, a violation of its internal guidelines, and a violation of common sense and logic.
Put simply, the government's "understanding" of the agreement here is an understanding profoundly at odds with Supreme Court doctrine and its own guidelines. One need only read Guideline 9-111.700 to see that the government cannot "park" forfeitable assets with an attorney for interim use as payment for his legal fees and thereafter for subsequent forfeiture. The transfer to an attorney, particularly if undertaken in fee simple, without written limitation, and without conduct thereafter evincing any ownership of a remainder interest in the property, profoundly disentitles the government from the claim it is now making.
CONCLUSION
For the foregoing reasons, this Court should issue a stay of the contempt judgment pending respondent's appeal.
