Jth Tax, Inc. v. Lee

Decision Date07 December 2007
Docket NumberAction No. 2:06cv486.
CourtU.S. District Court — Eastern District of Virginia
PartiesJTH TAX, INC. d/b/a Liberty Tax, Plaintiff, v. Ronald LEE, Defendant.

Carl J. Khalil, Esquire, Christopher D. Davis, Esquire, Vanessa M. Szajnoga, Esquire, Virginia Beach, VA, for Plaintiff.

Ronald Lee, pro se.

MEMORANDUM ORDER OF CONTEMPT

REBECCA BEACH SMITH, District Judge.

This matter comes before the court on plaintiff JTH Tax, Inc.'s ("JTH") motion to hold Ronald Lee ("Lee") in civil contempt and JTH's motion to hold Terri Lee in civil contempt. For the reasons set forth below, plaintiff's motions are GRANTED.

I. Factual and Procedural History

The court adopts the recitation of the factual and procedural history already set forth in its Opinion and Final Order granting plaintiff's motion for summary judgment. See JTH Tax, Inc. v. Lee, 514 F.Supp.2d 818 (E.D.Va.2007) (the "September 21 Order"). In sum, on August 29, 2006, JTH brought suit in this court against former franchisee Lee alleging, trademark infringement and breach of contract based on the termination of the franchise relationship between the parties. On September 21, 2007, this court entered an Opinion and Final Order granting in part and denying in part JTH's motion for summary judgment. The court awarded summary judgment to the plaintiff, awarded plaintiff a permanent injunction, and, following a hearing, awarded damages in the amount of $133,957.56.

On September 28, 2007, the court issued a Supplemental Final Order (the "September 28 Order") clarifying the terms of the permanent injunction. In its September 28 Order, the court ordered Lee, within seven (7) days, to comply with the terms of the permanent injunction that were set forth in the order. Lee was, at that time, obligated to comply with the post-termination obligations in the franchise agreements. These obligations, in pertinent part, include the obligation to return several telephone numbers to JTH, to return all copies of customer lists to JTH, and to abide by his post-termination obligations not to compete with JTH and not to solicit former JTH customers. See Sept. 28 Order at 1-2.

On October 10, 2007, JTH filed the instant motion to hold Lee in contempt, alleging that Lee has failed to comply with the terms of the court's September 28 Order. Specifically, JTH alleges Lee has violated the court's order as follows: (1) Lee has failed to transfer the phone numbers he used as a JTH franchisee back to JTH; (2) Lee has refused to return all customer files to JTH; and (3) Lee continues to operate, with his wife, Terri Lee, U.S. Tax Service, a business that prepares tax returns in competition with JTH and in violation of Lee's non-compete obligation. Lee filed a response on October 22, 2007, arguing that (1) he does not have the authority to transfer the telephone numbers back to JTH; and (2) he cannot return all customer files to JTH without exposing himself to civil liability. Lee did not respond to JTH's allegation that he is continuing to violate the terms of the noncompete agreement. On October 29, 2007, JTH filed a rebuttal brief. On November 2, 2007, Lee filed the Second Declaration of Ronald Lee.

On October 29, 2007, JTH filed a motion to hold Terri Lee in civil contempt. On November 16, 2007, Terri Lee responded to the motion, and JTH replied on November 23, 2007. These matters are now ripe for review.

II. Analysis
A. Standard of Review

At the outset, the court notes that 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) (quoting Buffington v. Balt. County, 913 F.2d 113, 133 (4th Cir.1990)). A court may impose sanctions for civil contempt "`to coerce obedience to a court order or to compensate the complainant for losses sustained as a result of the contumacy.'" Cromer v. Kraft Foods N. Am., Inc., 390 F.3d 812, 821 (4th Cir.2004) (quoting In re General Motors Corp., 61 F.3d 256, 258 (4th Cir.1995)). A finding of civil contempt must be established by clear and convincing evidence. Id. (internal citations omitted). The court need not make a finding that defendant's actions were willful in order to find him in contempt of court. McComb v. Jacksonville Paper Co., 336 U.S. 187, 191, 69 S.Ct. 497, 93 L.Ed. 599 (1949) ("[I]t matters not with what intent the defendant did the prohibited act.").

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 (Lee) had actual or constructive knowledge; (2) a showing that the decree was in the movant's (JTH's) favor; (3) a showing that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge of such violations; and (4) a showing that movant suffered harm as a result. Ashcraft v. Conoco, Inc., 218 F,3d 288, 301 (4th Cir.2000) (quoting Colonial Williamsburg Found. v. Kittinger Co., 792 F.Supp. 1397, 1405-1406 (E.D.Va.1992), aff'd 38 F.3d 133 (4th Cir.1994)).

B. Civil Contempt Motion as to Ronald Lee

As noted by JTH, Lee's response makes clear that only the third factor of the four Ashcraft factors is in dispute between the parties. Lee does not claim that the September 28 Order is not final and valid, and he did not appeal the court's decision to the Fourth Circuit. Lee also clearly had knowledge of the decree; the Clerk mailed a copy of both decrees to Lee upon issuance. In addition, JTH mailed a copy of both the September 21 Order and the September 28 Order to Lee. Lee does not contend that he lacked knowledge or receipt of the court's orders at issue. The decree was in the movant's favor as the court granted JTH the requested relief, including a permanent injunction against Lee. In issuing the permanent injunction to JTH in the September 21 Order, the court found that "Lee's continuing breach of the non-compete covenant and his continued solicitation of former JTH customers constitutes irreparable injury. `[S]uch a continued breach presents Plaintiff with the high likelihood of permanent loss of former and potential customers.'" Sept. 21 Order, 514 F.Supp.2d at 825 (citing JTH Tax, Inc. v. Donofrio, No. 2:06cv47 2006 WL 2796841, at *5 (E.D.Va. Sept. 26, 2006)). By any continued breach of the non-compete covenant, the harm to JTH clearly remains. Thus, the only disputed issue for the court to decide is whether Lee knowingly continues to breach the court's orders.

JTH has shown by clear and convincing evidence that Lee has violated the terms of the September 28 Order. Lee has failed to comply with the court's order in that Lee has not released certain phone numbers that he used as a JTH franchisee that he was obligated to release to JTH upon termination of his franchise agreement. See Sept. 28 Order at 1. JTH has attempted to request the telephone numbers and has been unable to do so. See Third Holloman decl. Oct. 29, 2007; Fourth Holloman decl. Nov. 23, 2007. JTH was told by the telephone company that it could not pick up the phone numbers because they had not been released by the prior owner. Id. On November 2, 2007, Lee filed a declaration in which he submitted to the court evidence that he gave up the numbers in question in May and June, 2006. See Second Lee decl. Nov. 2, 2007. He then admits, however, that his wife picked up two of the phone numbers for her use in operating U.S. Tax Service.1 Because the court previously has found that Lee is operating U.S. Tax Service in conjunction with his wife, he has a continuing obligation to release these numbers. To the extent that the phone numbers are being used by either Ronald or Terri Lee, they must take appropriate steps to release these numbers to the phone company and should notify JTH once they have done so. Conversely, JTH has an obligation to request the numbers within a reasonable time of their release by the Lees.

Next, Lee has refused to comply fully with the court's order that he return all files to JTH. Since the original contempt motion was filed, JTH has informed the court that Lee has now substantially complied with this obligation by turning over the majority of the files. See Cragg decl. Nov. 23, 2007. JTH alleges, and Lee has not disputed, however, that Lee still retains electronic copies of the 2005 customer files. To the extent that he retains any files that contain information related to his customers when he was a JTH franchisee, Lee has an obligation to turn over these files to JTH.

Finally, JTH alleges that Lee, along with his wife, Terri Lee, continues to operate U.S. Tax Service in violation of his post-termination obligation not to compete with JTH and in violation of the September 28 Order. Lee does not dispute this fact. JTH has provided evidence in the form of a declaration from Rob Mensing, a private investigator, that U.S. Tax Service is still operating at the former JTH location in Iowa. See Second Mensing decl. Oct. 29, 2007. Accordingly, JTH has proven by clear and convincing evidence that Lee is in violation of the court's order of September 28 and in violation of his noncompete obligations.

The court FINDS Ronald Lee in civil contempt of its September 28 Order and hereby ORDERS him to comply with all provisions of the September 28 Order immediately. Upon a finding of contempt, the court may enter sanctions in the form of a fine. The fine can be either compensatory or coercive. United States v. United Mine Workers, 330 U.S. 258, 303-04, 67 S.Ct. 677, 91 L.Ed. 884 (1947). The court has broad...

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