JTH Tax, Inc. v. Noor
| Decision Date | 26 September 2012 |
| Docket Number | ACTION NO. 2:11cv22 |
| Parties | JTH TAX, INC., Plaintiff, v. DANOO NOOR, NAIYANA NOOR, AND MARY ESPOSITO, Defendants. |
| Court | U.S. District Court — Eastern District of Virginia |
This matter comes before the court on the Motion for Order To Show Cause Why Danoo Noor, Naiyana Noor, Mary Esposito, and Fred Olson Should Not Be Held in Civil Contempt, filed by JTH Tax, Inc. ("JTH") on April 27, 2012. Neither the Defendants nor Fred Olson responded to JTH's motion, and the Defendants have failed to appear, answer, or file any other responsive pleadings during the course of this case. On May 24, 2012, Judge Robert G. Doumar1 ordered Danoo Noor, Naiyana Noor, and Mary Esposito to show cause why they should not be held in civil contempt for violating the court's order entered on May 11, 2011 ("May 11, 2011, Order"). (ECF No. 21.) On August 31, 2012, this court held a Show Cause Hearing on the issue of whether the Defendantsare in violation of the May 11, 2011, Order, and took the matter under advisement. For the reasons discussed below, the court FINDS that Danoo Noor, Naiyana Noor, and Mary Esposito are, in part, in violation of the court's May 11, 2011, Order.
The Plaintiff, JTH, is a tax preparation franchisor doing business as Liberty Tax Service. It entered into franchise agreements with Naiyana Noor and Mary Esposito in 2004. JTH terminated the franchise agreements in 2010, for various contractual breaches. In January 2011, the Defendants began operating a competing tax preparation business, Pinnacle Tax Services, in violation of the non-compete covenant in the franchise agreements. The Defendants also failed to return customer data, tax returns, and the Operations Manual, as required by the franchise agreements.
JTH filed a Complaint on January 22, 2011, alleging Breach of Franchise Agreement, Tortious Interference with a Contract, Business Conspiracy, and Civil Conspiracy. It sought damages and a permanent injunction. On March 28, 2011, the Clerk of Court entered default against the Defendants for failure to file an answer. On May 11, 2011, the court granted the Plaintiff default judgment in the amount of $55,066.78, and enjoined the Defendants from conducting operations in contravention of their contractual obligations.
On April 27, 2012, JTH filed a Motion for Order To Show Cause Why the Defendants and Fred Olson (a third-party employee of the Defendants) Should Not Be Held in Civil Contempt for violating the court's May 11, 2011, Order. In its Memorandum in Support of the Motion, JTH alleged that the Defendants are preparing tax returns at Pinnacle Tax Service, soliciting the patronage of former Liberty customers, retaining Liberty customer lists and information, retaining Liberty customer tax returns, files, records, and copies, and retaining the Liberty Operations Manual and all updates, all in violation of the May 11, 2011, Order. Mem. Supp. at 8.
The court held a hearing on that Motion, and on May 25, 2012, issued an order directing Danoo Noor, Naiyana Noor, and Mary Esposito to show cause at a hearing to be held on June 19, 2012.2 Because of Judge Doumar's recusal, the show cause hearing was rescheduled. On August 31, 2012, the court held the Show Cause hearing on the issue of whether the Defendants are in violation of the May 11, 2011, Order. The Defendants did not appear. The court found that proper notice of the Show Cause hearing was given to all Defendants, and took the matter under advisement.
The proceeding at issue is one for civil, rather than criminal contempt. "The basic difference between civil and criminal contempt sanctions is that civil contempt sanctions are intended *to coerce the contemnor into compliance with court orders or to compensate the complainant for losses sustained,' while criminal contempt sanctions are intended *to vindicate the authority of the court by punishing the contemnor and deterring future litigants' misconduct . . . .'" Bradley v. Am. Household, Inc., 378 F.3d 373, 378 (4th Cir. 2004) ) (emphasis added). A finding of civil contempt must be established by clear and convincing evidence, Bradley, 378 F.3d at 378, but the court need not make a finding that the defendant's actions were willful in order to find him in contempt of court, McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949). Before imposing civil contempt sanctions, the court should afford the alleged contemnor notice and the opportunity to be heard. Int' 1 Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 827 (1994); In re Computer Dynamics, Inc., 253 B.R. 693, 699 (E.D. Va. 2000).
To establish civil contempt, JTH must prove the following by clear and convincing evidence:
(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) . . . that the decree was in the movant's 'favor'; (3) . . . that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) . . . that [the] movant suffered harm as a result.
Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000) (quoting Colonial Williamsburg Found, v. The Kittinger Co., 792 F. Supp. 1397, 1405-6 (E.D. Va. 1992), aff'd, 38 F.3d 133, 136 (4th Cir. 1994)).
Upon a finding of contempt, the court may enter sanctions in the form of a fine or imprisonment. Int'l Union, 512 U.S. at 828. The court has broad discretion to fashion an appropriate remedy to coerce compliance with the terms of the permanent injunction. United States v. Darwin Constr. Co., 873 F.2d 750, 756 (4th Cir. 1989) . If the court elects to impose a fine, the fine can be either compensatory or coercive. United States v. United Mine Workers, 330 U.S. 258, 303-04 (1947). A fine is appropriate "to impress upon the defendants the need to take all steps necessary to carry out all facets of the Court's order." Landman v. Royster, 354 F. Supp. 1292, 1301 (E.D. Va. 1973). The court may grant the contemnor a period of time within which he may purge the contempt before beginning to assess a daily fine. See, e.g., SEC v. Dunlap, 253 F.3d 768, 771 (4th Cir.2001); JTH Tax, Inc. v. Lee, 540 F. Supp. 2d 642, 647 (E.D. Va. 2007).
Prior to holding a person in contempt, the court must provide the alleged contemnor notice and opportunity for a hearing. Int'l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 827, (1994); In re Computer Dynamics, Inc., 253 B.R. 693, 699 (E.D. Va. 2000). For the reasons stated from the bench during the August 31, 2012, Show Cause Hearing, the court FOUND that the Defendants received sufficient notice regarding the hearing to comport with due process.
As stated from the bench, JTH has demonstrated that the first and second Ashcraft factors have been met. With regard to the first factor, the Defendants had at least constructive knowledge of the May 11, 2011, Order, because they were personally served at the commencement of this lawsuit, and both the court and JTH mailed a copy of the May 11, 2011, Order to the Defendants at their last known mailing addresses.3 As to the second factor, the decree was unquestionably in JTH's favor: the court granted JTH money damages and the requested equitablerelief, including an injunction against the Defendants. See May 11, 2011, Order.
Additionally, JTH has met its burden with respect to the fourth Ashcraft factor. In issuing its May 11, 2011, Order, the court found that the Defendants' "failure to turn over [customer information, data, and prior tax returns] and operation of a competing tax preparation service utilizing such records is irreparably injurious to Plaintiff." May 11, 2011, Order at 4. By any continued breach of the post-termination agreement, the harm to JTH clearly remains.
Thus, the only issue remaining for the court to decide is whether each of the Defendants knowingly continues to breach the court's orders. JTH has shown by clear and convincing evidence that the Defendants knowingly continue to breach the May 11, 2011, Order in that they have not returned to JTH all customer lists and information, customer tax returns, files, records, and copies, or the Liberty Operations Manual. Decl. Nannette Simons, Sept. 11, 2012, at f 4. Therefore, the third Ashcraft factor is met with respect to the Defendants' retention of files, lists, etc..
However, the Plaintiff has failed to meet its burden with regard to the alleged continued violation of the May 11, 2011, Order's injunction to cease tax preparation services within the Bayonne, New Jersey, and Perth Amboy, New Jersey, territories,and within twenty-five (25) miles of each of those territories for one year and seven months. See May 11, 2011, Order, at 6-7, ffl 1-2. JTH has not demonstrated by clear and convincing evidence that the Defendants are presently engaged in tax preparation services within twenty-five (25) miles of either the Bayonne, New Jersey, territory or the Perth Amboy, New Jersey, territory. At no point has JTH offered evidence of any violations with regard to the Perth Amboy, New Jersey, territory.
The only evidence JTH has offered to prove that the Defendants are still engaged in tax preparation operations in the Bayonne, New Jersey, territory is the September 14, 2012, declaration of Donald DelPrete.4 In that declaration, DelPrete stated that he visited 350 Broadway, Bayonne, New Jersey, on August 6, 2012, and observed that Pinnacle Tax was open for business. Decl. Donald DelPrete, Sept. 14, 2012, at ¶¶ 3-5. He further stated that he visited the office on September 13, 2012, but at that time the office was not open. Id. at ¶¶ 6-7. DelPrete attached to his declaration a photograph of theexterior of the office and a...
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