I.C.C. v. Holmes Transp., Inc.

• Decision Date: 15 January 1993
• Docket Number: Nos. 90-1208,92-1507,s. 90-1208
• Parties: Fed. Carr. Cas. P 83,804 INTERSTATE COMMERCE COMMISSION, Plaintiff, Appellee, v. HOLMES TRANSPORTATION, INC., Defendant, Appellee. Robert C. Holmes and Dorothy Holmes, Trustees of the Alvin R. Holmes Fund, Robert C. Holmes, Individually, and J. Robert Seder, Intervenors, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 1122

983 F.2d 1122

Fed. Carr. Cas. P 83,804

INTERSTATE COMMERCE COMMISSION, Plaintiff, Appellee, v. HOLMES TRANSPORTATION, INC., Defendant, Appellee.

Robert C. Holmes and Dorothy Holmes, Trustees of the Alvin

R. Holmes Fund, Robert C. Holmes, Individually,

and J. Robert Seder, Intervenors, Appellants.

Nos. 90-1208, 92-1507.

United States Court of Appeals, First Circuit.

Submitted Sept. 3, 1992.

Decided Jan. 15, 1993.

John Woodward, with whom Burton C. Chandler, Seder and Chandler, Worcester, MA, Andrew Z. Schwartz, Michele A. Whitman and Foley, Hoag & Eliot, Boston, MA, were on brief for intervenors, appellants.

Stuart E. Robbins, Boston, MA, for plaintiff, appellee.

Frank J. Weiner, Boston, MA, for defendant, appellee.

Before TORRUELLA, Circuit Judge, BOWNES, Senior Circuit Judge, and CYR, Circuit Judge.

CYR, Circuit Judge.

Robert C. Holmes, individually and as trustee of the Alvin R. Holmes Fund ("Holmes Trust"), and Dorothy Holmes, as trustee of the Holmes Trust (hereinafter, collectively, "Holmes parties"), appeal a district court order directing the disbursement of an escrow fund established to defray certain civil liabilities relating to their sale of Holmes Transportation, Inc. ("HTI"), a corporation wholly owned by the Holmes parties. The Holmes parties are joined on appeal by J. Robert Seder, Esquire, a former escrow agent for the fund. Appellate jurisdiction having been retained, and certain preliminary matters having been resolved on remand, we proceed to the merits and affirm the district court order.

I BACKGROUND

First we describe the somewhat intricate context in which the present litigation developed. The Holmes parties entered into negotiations in 1988 to sell HTI to Route USA Resources, Inc. ("Route USA"), a corporation wholly owned and controlled by Manfred Ruhland. Throughout the negotiations, Seder represented the Holmes parties, and Robert D. Gunderman, Esquire, represented Ruhland and Route USA. Ruhland had assumed control of HTI, and consummation of the sale of HTI to Route USA appeared imminent, when the Interstate Commerce Commission ("ICC") initiated The ICC action threatened to derail the HTI sale, as Ruhland demanded a reduction in the purchase price to offset HTI's contingent liability on the ICC refund claims. In order for the HTI sale to proceed, the Holmes parties agreed to escrow $500,000 of Ruhland's purchase money deposit to defray the ICC refund claims against HTI (the "private escrow agreement"). On September 22, 1988, Seder executed the private escrow agreement as "attorney in fact" for the Holmes parties; Ruhland executed it in behalf of Route USA; Seder and Gunderman executed it as designated escrow agents under the private escrow agreement. With the ICC refunds obstacle apparently resolved, Ruhland abandoned the demand for a reduction in the HTI purchase price, and the Holmes parties' sale of HTI's stock to Route USA was consummated without further incident.

the present action against HTI on July 13, 1988, to recover $501,976 in refunds allegedly due HTI customers for freight overpayments improperly withheld by HTI during the period 1984-1988 ("ICC refunds"). ¹

While the private escrow agreement was being negotiated, HTI proposed a settlement of the ICC refund claims. On December 12, 1988, HTI, represented by Gunderman, consented to the entry of a district court injunctive decree ("consent decree") mandating, in pertinent part, that HTI establish an escrow fund containing at least $502,000 with which all HTI customer overpayments were to be refunded by December 31, 1988. For reasons which remain unclear, neither the ICC nor the district court had yet been apprised of the private escrow agreement previously executed between the Holmes parties and Route USA. Thus, the escrow account arrangements envisioned in the December 12 consent decree varied in considerable detail from the terms of the private escrow agreement between the Holmes parties and Route USA. ² Their function was identical, however: to establish and preserve a fund for defraying the ICC refunds determined to be due HTI's overcharged customers in the present action.

The Holmes parties were not parties to the present action at the time the consent decree was entered. At the insistence of the ICC, however, the consent decree was executed by Seder, who had represented the Holmes parties throughout the HTI negotiations with Ruhland and Route USA. As Gunderman and HTI (but not the ICC) were well aware, of course, Seder and Gunderman were the designated escrow agents under the private escrow fund. No refunds were ever disbursed.

On July 14, 1989, Ruhland sold HTI to Anthony Matarazzo. Matarazzo was notified of the ICC action against HTI, but was informed by Gunderman that the ICC refund claims were "already taken care of" and that a $500,000 escrow account had been set aside to defray the refunds. The Holmes parties had other plans for the escrowed funds. On July 18, 1989, the Holmes parties initiated a declaratory judgment action in Massachusetts Superior Court, to recoup the funds deposited pursuant to the private escrow agreement. Meanwhile, the ICC became aware that the On September 14, 1989, the ICC convened a meeting of persons associated with HTI and with the original lawsuit. At the meeting, the ICC was informed of the Holmes parties' state court lawsuit and was furnished for the first time with copies of the private escrow agreement. Matarazzo, in behalf of HTI, agreed to effect the overdue ICC refunds within 30 days, provided Seder and Gunderman, as escrow agents, would release the escrowed funds. Gunderman agreed. Seder declined, however, contending that (1) the Holmes parties' obligations under the private escrow agreement terminated on March 16, 1989, (2) Seder's signature had not bound the Holmes parties to the consent decree, and (3) the Holmes parties were therefore entitled to recover the funds in escrow.

refunds required under the consent decree had not been disbursed.

On October 13, 1989, the Holmes parties and Seder intervened in the present action, demanding a judicial declaration entitling the Holmes parties to the escrow funds. The ICC countered with a civil contempt citation against Seder, Gunderman, Ruhland, Route USA, HTI, and Matarazzo. The ICC contended, inter alia, that Seder and Gunderman, by their execution of the consent decree, subjected the escrowed funds to the jurisdiction of the district court for disposition in accordance with the terms of the consent decree. The ICC further contended that Gunderman and Seder, as escrow agents, failed to provide prudent supervision relating to HTI's obligation to disburse the escrowed funds in accordance with the terms of the consent decree. A barrage of cross-claims and counterclaims ensued. On December 15, 1989, HTI filed a voluntary chapter 11 petition in the District of New Jersey.

On January 26, 1990, after an evidentiary hearing, the district court issued its findings of fact, and concluded, in pertinent part, that (1) the consent decree and the private escrow agreement were negotiated simultaneously as "synergistic" documents intended to ensure funding of the ICC refunds anticipated under the consent decree; (2) the consent decree was executed by Seder as attorney for the Holmes parties and as a designated escrow agent under the private escrow agreement; and (3) the consent decree was "the only operative document" defining the legal obligations of Seder and Gunderman relating to disbursements from the escrow fund. The district court rejected the Holmes parties' claims to the escrow fund, and held HTI and Seder in civil contempt for refusing to disburse the ICC refunds pursuant to the consent decree. ³ Seder and Gunderman were replaced as escrow agents by Frank Weiner, an HTI attorney, who was directed to disburse the ICC refunds by March 30, 1990. We stayed disbursements pending appeal.

On April 1, 1992, following remand, see ICC v. Holmes Transp., Inc., 931 F.2d 984 (1st Cir.1991), the district court vacated its contempt finding against Seder and Gunderman, ⁴ but reaffirmed its order directing disbursement of the ICC refunds from the escrow fund in accordance with the terms of the consent decree. Appellants now challenge the district court order entered on remand.

II DISCUSSION

As they were not named in the consent decree or in the underlying ICC action The thrust of their argument is that the private escrow agreement and the district court consent decree contemplated separate and unrelated funds from which the ICC refunds would be disbursed: a "private escrow fund," established under the escrow agreement and belonging to the Holmes parties, which lay beyond the jurisdictional reach of the district court; and an "ICC fund," established by the consent decree, which was within the control of the court but imposed legal obligations only on HTI. To the extent that the district court purportedly subjected their privately-created fund to the consent decree, the Holmes parties contend that it lacked jurisdiction and disregarded the express terms of their private escrow agreement. To the extent that the consent decree directed disbursements from the escrow fund identified in the consent decree, the Holmes parties argue that--as nonparties to the underlying action--they were not bound by the terms of the consent decree. See Fed.R.Civ.P. 65(d) (injunction "binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise"); G. & C. Merriam Co. v. Webster Dictionary Co., 639 F.2d 29, 35 (1st Cir.1980) ("[t]o hold a nonparty bound by an injunction it is thus essential to prove either that the nonparty participated in the contumacious act of a party or that the nonparty was subject to the injunction because legally identified with a party")...