2 F.3d 1397 (5th Cir. 1993), 93-2283, Natural Gas Pipeline Co. of America v. Energy Gathering, Inc.
|Citation:||2 F.3d 1397|
|Party Name:||NATURAL GAS PIPELINE COMPANY OF AMERICA, et al., Plaintiffs, Natural Gas Pipeline Company of America, Plaintiff-Appellee, v. ENERGY GATHERING, INC., et al., Defendants, John Fox, Movant-Appellant.|
|Case Date:||September 21, 1993|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
Rehearing Denied Oct. 20, 1993.
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Jim Waide, Tupelo, MS, for movant-appellant.
Charles Michael Clark, Dennis M. Dylewski, Calvin, Dylewski, Gibbs, Johnson & Verner, P.C., Houston, TX, for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before GARWOOD, JONES and EMILIO M. GARZA, Circuit Judges.
GARWOOD, Circuit Judge:
Appellant John Fox (Fox) is a Mississippi attorney who has been the longtime associate, legal counsel, and business partner of Navarro Crowson (Crowson), a judgment debtor who owes millions of dollars to appellees, whom he defrauded. Thus far, Crowson has largely foiled his creditors' efforts to recover their judgments by concealing his assets and withholding documents that would reveal their extent and location. When Fox was ordered to turn over all Crowson-related business or financial records, he persistently failed to do so. The district court then ordered Fox to produce his personal tax returns for the last several years. Fox refused and was ultimately held in civil contempt pending compliance. Fox appeals, and we reverse in part and remand.
Facts and Proceedings Below
Until his discharge in 1985, Crowson, a resident of Mississippi, was an employee of appellees Mitchell Energy and Development Corp. (Mitchell Energy), Southwestern Gas Pipeline, Inc. (Southwestern Gas), and Winnie Pipeline Co. (Winnie Pipeline). It is alleged that while so employed Crowson took bribes and kickbacks in connection with the negotiation of oil and gas contracts. Following a grand jury investigation, Crowson was indicted in federal court in Texas. Crowson's counsel in these criminal proceedings was Fox, an attorney and resident of Houston, Mississippi, who had represented and had extensive business dealings with Crowson since at least 1985. Crowson eventually pleaded guilty to several counts of mail fraud.
On September 14, 1988, appellees Texas Industrial Energy Co. (TICO), and South Gulf Energy, Inc. (South Gulf), sued Crowson in the United States District Court for the Southern District of Texas, Houston Division, to recover damages incurred as a result of the kickback scheme. Crowson having filed no answer, on June 21, 1991, appellees moved for a default judgment. On September 17, 1991, Fox entered an appearance in the litigation on behalf of Crowson to oppose the entry of judgment. 1 On September 23, 1991, default judgment was awarded to TICO and South Gulf for approximately $1.28 million. 2
Having obtained their judgment, appellees attempted to discover the extent and location of Crowson's assets. Interrogatories and requests for production of documents were served upon Fox as Crowson's attorney of
record. However, no answers or responsive documents were supplied. On January 15, 1992, the court ordered Crowson to respond to appellees' discovery requests. This order, too, was ignored. Finally, on June 8, 1992, the court held a show cause hearing at which Crowson was judged to be in contempt for failing to comply with post-judgment discovery and was incarcerated.
To gain release from contempt, on June 15, 1992, Crowson signed, and the court approved, an "Agreed Order," in which Crowson pledged to produce all of his financial and business records. 3 The Agreed Order also "authorize[d]" third parties to release such records. Finally, the Agreed Order provided that Crowson would be reincarcerated in the event that he failed to comply with its terms or to cooperate fully with post-judgment discovery. Crowson, however, evidently had no intention of complying with the Agreed Order and quickly began to violate it. The record indicates that sometime after his release, Crowson removed financial records from his accountant's files. In response, TICO and South Gulf applied for an ex parte order requiring the turnover of Crowson's assets and documents. On July 14, 1992, the court ordered Crowson, his agents and attorneys, to turn over all of his assets to the United States Marshal Service. 4 On July 21, 1992, the court held a hearing to determine
whether to revoke Crowson's conditional release from contempt for violating the Agreed Order. At the hearing, the court ordered Crowson to produce all of his financial records and to direct his agents to do the same by August 18, 1992. 5 The court did not, however, have Crowson reincarcerated. Rather than complying with the various court orders requiring him to surrender his assets, Crowson repaired to Mississippi where he filed for bankruptcy and voluntarily committed himself to a mental hospital. Seeing through this ruse, the court ordered that Crowson be reincarcerated.
At the same time that Crowson was engaged in this abuse of the discovery process, appellees were meeting with little more success with Fox. On June 18, 1992, TICO and South Gulf representatives, accompanied by a United States Marshal, had the Agreed Order served upon Fox in his office in Houston, Mississippi. Fox, however, denied being in possession of any of Crowson's requested records and produced nothing. On July 7, 1992, appellees and a marshal returned to Fox's office. Fox again denied being in possession of any documents responsive to the Agreed Order. 6
Subsequently, appellees discovered that Fox was the trustee of a trust, established in 1990 by Crowson, known as the Crowson Children's 1990 Trust (the Children's Trust). On September 14, 1992, the court ordered Fox to turn over all of the trust's assets, all documents related to the trust, and all assets in his possession belonging to Crowson (the Trust Order). 7 Fox responded to this order by filing an adversary proceeding in Crowson's bankruptcy action seeking a declaratory judgment that the Trust Order was null and void. The bankruptcy was subsequently transferred to the court below and dismissed.
On January 21, 1993, the court on its own motion ordered Fox to file a pleading clearly designating his capacity in the instant litigation. On February 5, 1993, Fox responded that he was not a party to the action and that, although he had made a brief appearance on Crowson's behalf in September 1991, he had since been replaced as Crowson's counsel by Bobby Mims, an attorney licensed in Texas. 8 Unconvinced, the district ruled that Fox's response was "inadequate" and that he "remains attorney of record for Navarro Crowson in this action."
On February 8, 1993, appellees filed a motion for sanctions against Fox, who was ordered to appear and show cause why he should not be sanctioned for failing to produce
the Crowson records pursuant to the Agreed Order and for failing to turn over the assets of the Children's Trust pursuant to the Trust Order. The show cause hearing was held on March 15, 1993. At the hearing, appellees sought to expose the implausibility of Fox's earlier assertion that he had no documents responsive to the Agreed Order by informing the court, on the basis of evidence obtained in this case in discovery from other sources, of Fox's extensive business dealings with Crowson. It was revealed, for example, that: the two maintained a joint account at a brokerage firm and had actively traded stocks together as Fox-Crowson Investments; that the two shared an interest in a condominium in Crested Butte, Colorado; and that Crowson had assigned to Fox a natural gas pipeline in Jefferson County, Texas. 9 The court also heard testimony about Fox's activities as Crowson's attorney. Not only had Fox prepared the Children's Trust, but he had been Crowson's lawyer in a divorce settlement within the last few years. 10 The evidence revealed that Fox's roles as attorney and business partner overlapped. For instance, Fox testified that Crowson had assigned him the gas pipeline as compensation for legal services, but that he (Fox) had forgotten about it.
It appears that this showing of Fox's deep involvement with Crowson as the latter's attorney and business partner convinced the court below of several things: that an agency relationship existed between Fox and Crowson; 11 that documents relating to their joint ventures must surely exist; 12 that the disclosure of these documents would aid in the location of Crowson's assets; 13 and, finally, that Fox had purposefully withheld documents from the court. 14 Accordingly, the court ordered Fox to produce every document in his possession relating to Crowson or business he had done with Crowson. The court in this connection also required Fox to produce all of his own personal tax returns and schedules from 1984 to the present. 15 The court commented in this regard:
"Your personal tax returns reflect income from Mr. Crowson, partnerships with Mr. Crowson, and I don't know what else.
"But Mr. Zivley [appellees' counsel] is going to know what else, because your tax returns show the treatment of property given to or received from Mr. Crowson....
"He is going to get your tax returns that show all the deals, so he can satisfy himself that there are not some other things that you don't recall, like this gas contract."
The court ordered that the motion for sanctions against Fox be carried over until April 12, 1993, at which time, if Fox had not complied with the court's order, he would be held in contempt.
Fox sought a stay from this Court. On April 8, 1993, we denied his...
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