In re Tagnetics Inc.
| Decision Date | 11 February 2020 |
| Docket Number | Case No. 19-30822 |
| Parties | In re: TAGNETICS INC. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio |
This matter is before the court on the Motion to Hold Tagnetics in Indirect Contempt (doc. 145) (the "Motion"), filed by petitioning creditors Jonathan Hager, Ronald E. Earley and Kenneth W. Kayser (the "Petitioning Creditors"). For the reasons explained below, the court finds Tagnetics, Inc. ("Tagnetics") in civil contempt of this court's Order Granting in Part Tagnetics' Motion to Enforce Settlement Agreement (Doc. 101) and Ordering Other Matters entered on October 25, 2019 (doc. 119) (the "Settlement Enforcement Order").
As a remedy for Tagnetics' contempt, the court is ordering that Tagnetics pay, in addition to the federal judgment rate of interest on all amounts owed to the Petitioning Creditors under the Settlement Enforcement Order which have already become due, an additional 5% per annum, simple interest, compounded monthly, (the "additional interest") on all sums which previously became due the Petitioning Creditors under the Settlement Enforcement Order, and on all future sums which become due to the Petitioning Creditors to the extent that those sums are not paid as due under the Settlement Enforcement Order. The purpose of that additional interest on sums that have become due and or become past-due in the future is to coerce Tagnetics' compliance with the Settlement Enforcement Order. However: 1) Tagnetics shall have 30 days from the date of the entry of the separate order to be entered to pay all sums currently due to the Petitioning Creditors under the Settlement Enforcement Order, with interest pursuant to 28 U.S.C. § 1961 commencing three business days following the date of entry of the Settlement Enforcement Order; 2) The additional 5% interest shall only commence to accrue 31 days from the date of the entry of this order; and 3) While all sums due under the Settlement Enforcement Order shall collect interest at the federal judgment rate of interest provided by 28 U.S.C. § 1961 from the time they first become due until those sums are paid, the additional 5% interest shall not accumulate during the pendency of any stay pending appeal ordered by a court of competent jurisdiction.
Through the Settlement Enforcement Order, the court granted, in part, Tagnetics' motion to enforce a settlement reached between it, as the putative Chapter 7 debtor in this case, and the Petitioning Creditors who filed an involuntary bankruptcy petition against Tagnetics.1 The integral terms of the Settlement Enforcement Order are as follows:
Settlement Enforcement Order at 2. Tagnetics has appealed the Settlement Enforcement Order to the United States District Court for the Southern District of Ohio (the "District Court"), stating one issue on appeal: "The Bankruptcy Court erred when it held that the parties' settlement agreement did not include a release of Tagnetics' affiliates, subsidiaries, parent corporation, officers, and directors." Tagnetics sought a stay pending appeal from this court, which the court denied through an order entered on November 15, 2019 (doc.138).3 The Petitioning Creditors filed the Motion on November 22, 2019 and the court held a telephonic hearing on the Motion on January 28, 2020 (doc. 156 & 161).
The Petitioning Creditors assert through the Motion that Tagnetics is in contempt of the Settlement Enforcement Order in failing to pay them the sums of money due to them under the Settlement Enforcement Order, particularly the payments which were due to them within three business days after the entry of the Settlement Enforcement Order ($30,000 to each of the Petitioning Creditors).4 Tagnetics asserts that it is not in contempt because it has appealed the Settlement Enforcement Order to the United States District Court for the Southern District of Ohio (the "District Court"). However, the Petitioning Creditors note that Tagnetics has not obtained a stay pending appeal and they argue that, absent obtaining a stay pending appeal, Tagnetics must comply with the terms of the Settlement Enforcement Order even though Tagnetics appealed the Settlement Enforcement Order. As a remedy for Tagnetics' alleged contempt, the Petitioning Creditors request the court to add interest on to the sums they are due under settlement agreement and to order that the payments due under the settlement agreement be expedited.
"The purpose of contempt proceedings is to uphold the power of the court, and also to secure to suitors therein the rights by it awarded." Bessette v. W. B. Conkey Co., 194 U.S. 324, 327 (1904). The contempt power is an inherent power which the federal courts "must have and exercise in protecting the due and orderly administration of justice and in maintaining the authority and dignity of the court[.]" Roadway Express v. Piper, 447 U.S. 752, 764 (1980) (citation omitted). "Civil contempt is the power of the court to impose sanctions to coerce compliance with its orders." United States v. Tenn., 925 F. Supp. 1292, 1301 (W.D. Tenn. 1995) (citing Hicks v. Feiock, 485 U.S. 624, 632 (1988)); Shillitani v. United States, 384 U.S. 364, 370 (1966); Gompers v. Buck's Stove & Range Co., 221 U.S. 418, 442 (1988)).
Contempt may be categorized as either "criminal contempt" or "civil contempt." The difference between civil contempt and criminal contempt in large part lies in the purpose of the remedy imposed by the court. A finding of criminal contempt is generally remedied through a sanction ordered by the court intended to penalize or punish the contemnor. The remedy for civil contempt, on the other hand, is intended to either compensate the aggrieved party for its damages or losses incurred as a result of the contemnor's violation of the court's order or to coerce the contemnor's compliance with the order. Ahmed v. Reiss Steamship Co. (In re Jaques), 761 F.2d 302, 305 (6th Cir. 1985) (citations omitted). Thus, as described by the Supreme Court: It is not the fact of punishment but rather its character and purpose, that often serve to distinguish between the two classes of cases. If it is for civil contempt the punishment is remedial, and for the benefit of the complainant. But if it is for criminal contempt the sentence is punitive, to vindicate the authority of the court. It is true that punishment by imprisonment may be remedial, as well as punitive, and many civil contempt proceedings have resulted not only in the imposition of a fine, payable to the complainant, but also in committing the defendant to prison. But imprisonment for civil contempt is ordered where the defendant has refused to do an affirmative act required by the provisions of an order which, either in form or substance, was mandatory in its character. Imprisonment in such cases is not inflicted as a punishment, but is intended to be remedial by coercing the defendant to do what he had refused to do. The decree in such cases is that the defendant stand committed unless and until he performs the affirmative act required by the court's order.
In order for a court to hold a person in contempt, the court must find by clear and convincing evidence that the person "violated a definite and specific order of the court requiring him to perform or refrain from performing a particular act or acts with knowledge of the court's order." Elec. Workers Pension Trust Fund of Local Union #58 v. Gary's Elec. Serv. Co., 340 F.3d 373, 379 (6th Cir. 2003) (quoting NLRB v. Cincinnati Bronze, Inc., 829 F.2d 585, 591 (6th Cir. 1987) (citation omitted)); In re Franks, 363 B.R. 839, 843 (Bankr. N.D. Ohio 2006) (similar). Corporations may be held in civil contempt. See McComb v. Jacksonville Paper Co., 336 U.S. 187 (1949); NLRB v. Aquabrom, Div. of Great Lakes Chemical Corp., 855 F.2d 1174, 1186 (6th Cir. 1988). Bankruptcy courts have the authority to find persons in civil contempt. In re Franks, 363 B.R. 839, 842 (Bankr. N.D. Ohio 2006); Elder-Beerman Stores Corp. v. Thomasville Furniture Indus. (In re Elder-Beerman Stores Corp.), 197 B.R. 629, 632 (Bankr. S.D. Ohio 1996).
As the Sixth Circuit has emphasized, "[c]ontempt is serious" and "courts must exercise the contempt sanction with caution and use '[t]he least possible power adequate to the end proposed.'" Gascho v. Global...
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