McGregor v. Chierico

• Citation: 206 F.3d 1378
• Decision Date: 24 March 2000
• Docket Number: 99-13250 and 99-13868,Nos. 98-5290,s. 98-5290
• Parties: (11th Cir. 2000) Stuart J. McGREGOR Receiver-Appellee, United States Federal Trade Commission, Plaintiff-Appellee, v. Teri CHIERICO, Michael Chierico, et al., Defendants-Appellants, William Bethell, et al., Defendants. United States Federal Trade Commission, Plaintiff-Appellee, v. Teri Chierico, Michael Chierico, Defendants-Appellants, American Business Supplies, et al., Defendants. United States Federal Trade Commission, Plaintiff-Appellee, v. Michael Chierico, American Business Supplies, Inc., et al., Defendants-Appellants, Creative Business Consultants, Inc., Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1378

206 F.3d 1378 (11th Cir. 2000)

Stuart J. McGREGOR Receiver-Appellee, United States Federal Trade Commission, Plaintiff-Appellee, v. Teri CHIERICO, Michael Chierico, et al., Defendants-Appellants William Bethell, et al., Defendants.

United States Federal Trade Commission, Plaintiff-Appellee, v. Teri Chierico, Michael Chierico, Defendants-Appellants, American Business Supplies, et al., Defendants.

United States Federal Trade Commission, Plaintiff-Appellee, v. Michael Chierico, American Business Supplies, Inc., et al., Defendants-Appellants, Creative Business Consultants, Inc., Defendant.

Nos. 98-5290, 99-13250 and 99-13868.

United States Court of Appeals Eleventh Circuit.

March 24, 2000.

[Copyrighted Material Omitted] Appeals from the United States District Court for the Southern District of Florida.

Before COX and DUBINA, Circuit Judges, and KRAVITCH, Senior Circuit Judge.

DUBINA, Circuit Judge:

This case arises from the district court's entry of three consecutive civil contempt orders against all or some of the defendants. Originally, the district court held all of the defendants in contempt for violating the terms of a Stipulated Final Judgment which resolved an underlying civil complaint brought by the Federal Trade Commission ("FTC") for violations of the FTC Act, 15 U.S.C. 41 et seq. The subsequent two contempt findings resulted from the two non-corporate defendants' failure to comply with the previous contempt order(s). The defendants challenge all three contempt orders, as well as the assessment of damages for consumer redress. For the reasons discussed below, we affirm in part and vacate and remand in part.

I. BACKGROUND

On June 26, 1996, the FTC initiated an action against Michael Chierico, American Business Supplies, Inc., Interstate Office Systems, Inc., and Nationwide Office Products, Inc. ("the defendants"). The FTC complaint alleged that these defendants engaged in a variety of deceptive acts and practices in connection with their nationwide telemarketing of photocopier toner and other office supplies, in violation of both Section 5 of the FTC Act, 15 U.S.C. 45, and the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. 6101 et seq.

On June 28, 1996, the district court granted the FTC's request for an "Ex Parte Temporary Restraining Order with Asset Freeze, Appointment of Receiver, and Other Equitable Relief" ("TRO"). (R1-20). On the same day the defendants received notice of the TRO, Michael Chierico's wife, Teri Chierico, who was not a named defendant at the time, attempted to withdraw $500,000 from an account held jointly with her husband. This attempted withdrawal violated the asset freeze. As a result, the FTC named Teri Chierico as a defendant in its amended complaint.

On November 13, 1996, the district court entered a Stipulated Final Judgment ("Final Judgment") which resolved the underlying FTC action. Michael Chierico signed the Final Judgment on his own behalf and on behalf of the corporate defendants, and Teri Chierico signed the Final Judgment on her own behalf. The Final Judgment prohibited the defendants, including Teri Chierico, from, inter alia, making misrepresentations designed to trick prospective customers into accepting shipment of, or paying for, office products; from using misrepresentations, threats, or coercion to complete sales; and from shipping and billing for unordered merchandise. Moreover, the Final Judgment ordered the payment of $1 million to redress consumers injured by the fraud. In addition, the Final Judgment required the defendants to obtain a performance bond from a surety company before engaging in future telemarketing.

In January 1997, Michael Chierico and the corporate defendants paid the first bond installment and resumed telemarketing sales. On June 23, 1998, pursuant to a sealed motion by the FTC, the district court entered an Emergency Show Cause Order upon finding good cause to believe the defendants had violated and were likely to further violate the Final Judgment. The Emergency Order froze all of the defendants' assets and appointed a receiver to manage, wind down, and liquidate the corporate defendants.

On June 24, 1998, the defendants received service of the Emergency Order. The district court commenced a three-day evidentiary hearing the next day ("First Contempt Hearing"). At the conclusion of the hearing, the court entered its First Contempt Order which found that all of the defendants had violated the Final Judgment and held them in contempt. In order to "to coerce compliance with the Stipulated Final Judgment and to compensate for injuries resulting from defendants' contumacious conduct," the district court (1) directed forfeiture of the $400,000 bond, (2) conveyed to the FTC all right, title, and interest in all of the defendants' assets previously frozen by the court's Emergency Order, and (3) directed Michael and Teri Chierico ("the Chiericos") to provide the FTC with a certified check in the amount of $2 million to be funded, if necessary, by all realizable equity in the couple's residence. (R4-120). The court's basis for taking substantially all of the Chiericos' property and assets was its finding that the fraudulent telemarketing practices had caused "at least" $7.2 million in consumer injury. The $7.2 million figure represents the corporate defendants' gross receipts from December 18, 1996, to June 23, 1998. Finally, the order enjoined all of the defendants from telemarketing in the future.

In an effort to comply with the First Contempt Order, the Chiericos attempted to raise the $2 million by listing their home for sale and applying through a mortgage lender/broker to refinance their home. Despite these efforts, the Chiericos failed to make the required $2 million payment by July 31, 1998.

On August 5, 1998, the FTC filed another Emergency Show Cause Motion. After conducting an evidentiary hearing, the district court concluded that the Chiericos' failed efforts to sell or refinance their home did not excuse their noncompliance with the First Contempt Order. Therefore, the district court held the Chiericos in contempt ("Second Contempt Order") for their failure to "make all reasonable efforts" to comply with Section II.B.3 of the First Contempt Order, which required payment of $2 million to the FTC.

To ensure payment of the $2 million, the Second Contempt Order required the Chiericos to (1) prepare loan applications for a second mortgage and supply those to the receiver by August 19, 1998, (2) obtain a firm commitment for a loan to be secured by the realizable equity in their home by September 11, 1998, and (3) close a loan secured by their home by September 25, 1998. The court's order provided that, if the Chiericos failed to complete any of the above steps, they would be required to transfer marketable title to their home to the FTC. If they failed to transfer title, the order provided that the Chiericos would be "arrested and taken into custody and incarcerated until such time as they can demonstrate that they have complied with [the] order." (R5-169-3).

On August 21, 1998, the Chiericos filed timely notices of appeal, challenging the district court's First and Second Contempt Orders. Both the district court and this court denied the Chiericos' Motion to Stay the orders pending appeal.

Pursuant to the Second Contempt Order, the Chiericos provided the receiver with an acceptable loan application, but the receiver failed to secure a loan. Therefore, the order directed the Chiericos to convey title to their home to the FTC. On June 25, 1999, the FTC filed a third Show Cause Motion, and the district court conducted an evidentiary hearing on that motion. Despite the receiver's inability to procure a loan against the Chiericos' home, the district court rejected the Chiericos' argument that it was impossible to comply with the Second Contempt Order and concluded that the Chiericos' only means of compliance was to deed their home to the FTC or go to jail. Because signing the deed would have mooted the underlying appeals from the First and Second Contempt Orders, upon advice of counsel, the Chiericos refused to sign the deed.

After the hearing, the district court entered a written order finding the Chiericos in contempt for the third time ("Third Contempt Order") for failing "to close on a loan against the realized equity in the [home] and [failing] to transfer marketable title in the [home] to the Receiver." (2nd Supp.R3-242-2). Accordingly, the district court ordered that "Michael and Teri Chierico shall be committed to the custody of the United States Marshal ... until such time as they purge themselves of contempt by transferring marketable title ... to the Receiver." (2nd Supp.R3-242-2).

Two days after the district court issued its Third Contempt Order, the Chiericos filed timely notices of appeal, as well as an Emergency Motion for Stay Pending Appeal in this court. A panel of this court ¹ construed the Emergency Motion for Stay as a Motion for Release Pending Appeal and granted it, thereby releasing the Chiericos from incarceration. This court consolidated the appeal from the Third Contempt Order with the initial appeal from the First and Second Contempt Orders.

In the present appeal, the defendants challenge the district court's finding that they violated the Final Judgment. They also challenge the district court's finding that their contumacious conduct caused over $7.2 million in "actual damage" to consumers. Accordingly, the Chiericos challenge the district court's order that they forfeit substantially all of their assets to the FTC in order to fund the payment of consumer redress. In addition, the Chiericos assert that the district court's Second and Third Contempt Orders relating to their failure to liquidate the equity in their home should be vacated because the orders violate Florida's constitutional homestead exemption.

II. STANDARD OF REVIEW

This court reviews the...