Armstrong v. Guccione

• Decision Date: 27 November 2006
• Docket Number: Docket No. 05-0280-PR(CON).,Docket No. 04-5448-PR(L).
• Citation: 470 F.3d 89
• Parties: Martin A. ARMSTRONG, Petitioner-Appellant, v. Joseph R. GUCCIONE, United States Marshal for the Southern District of New York, and Marvin D. Morrison, Warden, Metropolitan Correctional Center, Respondents-Appellees, Alan M. Cohen, Intervenor Receiver-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

470 F.3d 89

Martin A. ARMSTRONG, Petitioner-Appellant, v. Joseph R. GUCCIONE, United States Marshal for the Southern District of New York, and Marvin D. Morrison, Warden, Metropolitan Correctional Center, Respondents-Appellees Alan M. Cohen, Intervenor Receiver-Appellee.

Docket No. 04-5448-PR(L).

Docket No. 05-0280-PR(CON).

United States Court of Appeals, Second Circuit.

Argued: January 24, 2006.

Decided: November 27, 2006.

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Thomas V. Sjoblom (Benjamin R. Ogletree, on the brief), Chadbourne & Parke, LLP, Washington, D.C., for Petitioner-Appellant.

Alexander H. Southwell, Assistant United States Attorney (David N. Kelley, United States Attorney for the Southern District of New York, Karl Metzner, Assistant United States Attorney, on the brief), New York, New York, for Respondents-Appellees.

Martin Glenn (Tancred V. Schiavoni and John J. Kim, on the brief), O'Melveny & Myers, LLP, New York, New York, for Intervenor Receiver-Appellee.

Before: WALKER, LEVAL and SOTOMAYOR, Circuit Judges.

Judge SOTOMAYOR concurs in a separate opinion.

JOHN M. WALKER, JR., Circuit Judge.

It has been said that a civil contemnor who is incarcerated to compel compliance with a court order holds the key to his prison cell: Where defiance leads to the contemnor's incarceration, compliance is his salvation. In this case, petitioner-appellant Martin A. Armstrong principally argues that the key to his freedom comes at the cost of his Fifth Amendment right against compelled self-incrimination.

Armstrong, a corporate officer, refuses to fully comply with valid turnover orders, under which he has been compelled to return to a court-appointed receiver corporate records and assets totaling approximately $16 million. The United States District Court for the Southern District of New York (Richard Owen, Judge) held Armstrong in civil contempt based on his noncompliance and ordered his detention at the Metropolitan Correctional Center. Despite numerous hearings, at which the district court permitted Armstrong to either produce the missing records and assets or demonstrate that he is incapable of doing so, Armstrong continued to defy the court's directives and persisted in his assertion that, under the Fifth Amendment, he cannot be compelled to return corporate property. Armstrong eventually filed this application for a writ for habeas corpus, in which he raises numerous constitutional and statutory challenges to his confinement. He also moved for bail pending the resolution of this application. The district court issued two orders—the first denying Armstrong's bail motion and the second denying his application for habeas relief, Armstrong v. Guccione, 351 F.Supp.2d 167 (S.D.N.Y.2004)—both of which Armstrong now appeals.

The appeal presents several novel questions relating to a district court's inherent power, including whether, on the facts of this case, Congress intended to displace the district court's authority to order coercive civil confinement. We must now decide: (1) whether Armstrong's Fifth Amendment right against compelled self-incrimination protects him from being compelled by court order to produce corporate records and assets, which he holds as a custodian for the corporation; (2) whether Armstrong's detention for civil contempt violates (a) the Non-Detention Act, 18 U.S.C. § 4001(a), (b) the Recalcitrant Witness Statute, 28 U.S.C. § 1826, or (c) the Due Process Clause of the Fifth Amendment; and (3) whether the district court abused its discretion when it denied Armstrong's motion for bail pending the resolution of his habeas petition. Because we answer all of these questions in the negative, we affirm the orders of the district court.

BACKGROUND

On September 13, 1999, Armstrong was arrested on a complaint charging him with securities fraud. The complaint alleged that Armstrong had persuaded Japanese investors to entrust approximately $3 billion to various companies controlled by him—most prominently, Princeton Economics International, Ltd. and Princeton Global Management, Ltd. (the "Princeton companies"). The investments were made on the understanding that Armstrong would invest in United States securities on behalf of the Japanese investors while hedging against any exchange-rate risk inherent in the conversion between yen and dollars. Instead, Armstrong engaged in risky and speculative trading and, as a result, lost nearly $1 billion. To hide the losses, Armstrong schemed with officers of Republic New York Securities Corporation to create fraudulent account statements and account-value confirmations that were presented to the Japanese investors. Over time, the investment program turned into a massive pyramid (Ponzi) scheme, in which Armstrong used the cash flow generated by new-investor money to pay off old investors and mask the massive investment losses.

Armstrong was charged in a twenty-four-count indictment with conspiracy to commit securities fraud, commodities fraud, and wire fraud in violation of 18 U.S.C. § 371; securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. 240.10b-5, and 18 U.S.C. § 2; and wire fraud in violation of 18 U.S.C. §§ 1341 and 2. In 2004, a superseding indictment was returned against Armstrong that expanded the scope of the previously charged conspiracy and added a count for money laundering in violation of 18 U.S.C. §§ 1957(a) and 2.

On the same day that Armstrong was arrested, September 13, 1999, the Securities and Exchange Commission ("SEC") and the Commodity Futures Trading Commission ("CFTC") instituted civil proceedings against Armstrong and the Princeton companies. SEC v. Princeton Econ. Int'l, Ltd., No. 99 Civ. 9667 (S.D.N.Y.); CFTC v. Princeton Global Mgmt., Ltd., No. 99 Civ. 9669 (S.D.N.Y.). The SEC and the CFTC immediately moved for a temporary restraining order, through which they sought to restrain Armstrong from further violating the securities laws, freeze the Princeton companies' assets, appoint a receiver to collect these assets on behalf of the companies, and require that "Armstrong and the Corporate Defendants and their officers, directors, agents, servants, employees, and attorneys-in-fact" turn over to the court-appointed receiver all corporate books, records, and "assets of the Corporate Defendants [that the defendants had] in their current possession, custody or control." The district court (Lewis A. Kaplan Judge) granted the motions. On October 14, 1999, the district court (Richard Owen, Judge) granted the SEC's, the CFTC's, and the court-appointed receiver's motions for a preliminary injunction, which substantially continued the temporary restraining order.

Pursuant to the district court's orders, the court-appointed receiver, Alan M. Cohen, demanded that Armstrong return misappropriated corporate records and assets, including several corporate computers and approximately $16 million worth of rare coins, gold bullion bars and coins, and various antiquities. Armstrong refused to produce the misappropriated items or answer any questions concerning their whereabouts, asserting that forcing him to turn over corporate records and assets would violate his Fifth Amendment right against compelled self-incrimination.

On December 15, 1999, the receiver moved for an order holding Armstrong in contempt for refusing to give up the corporate records and assets still in his possession. The district court held a hearing on the receiver's motion on January 7, 2000. At the hearing, the receiver produced evidence in the form of declarations, invoices, shipping documents, bank records, and wire-transfer authorization letters that established that Armstrong had purchased the computers, coins, gold, and antiquities with corporate funds, and that these items were delivered to Armstrong. Armstrong did not offer any evidence in response; instead, he reiterated through counsel his argument that compliance with the court's orders would violate his Fifth Amendment right against compelled self-incrimination. At the conclusion of the hearing, the district court ruled that the Fifth Amendment did not bar the compelled production of the corporate records and assets. The district court also found, based on the evidence, that Armstrong had taken possession of, and continued to control, the corporate records and assets sought by the receiver. The district court directed Armstrong to produce the missing property. Because Armstrong's counsel represented that his client would "comply and turn over whatever he has in his possession," however, the district court held open the contempt proceedings and ordered production by January 14, 2000.

During the ensuing week, Armstrong produced approximately $1.1 million in rare coins, one computer with its hard drive conspicuously removed, three other computers, eight boxes of documents, and various antiquities, including six busts. Armstrong failed to produce a black Compaq computer, the missing computer hard drive, 102 gold bars, 699 gold bullion coins, a bust of Julius Caesar, and the remaining rare coins valued at $12.9 million. All told, Armstrong failed to return approximately $15 million in corporate assets.

On January 14, 2000, when the district court resumed proceedings, the receiver renewed his contempt motion and called several witnesses, who testified as to the missing records and assets. A forensic computer expert testified that (1) one of the four returned computers had its hard drive removed, (2) on the morning before another computer was turned over to the receiver, more than 500 files had been erased from its hard drive, and (3) on the same day that a third computer was turned over, software was installed enabling the deletion of computer files and the computer's internal clock was reset in an effort to mask the destruction of files. A second witness, a coin dealer who sold many of the missing coins to Armstrong, testified that Armstrong had produced only $1.1...