Levine v. Comcoa Ltd.

• Decision Date: 01 December 1995
• Docket Number: No. 95-4391,95-4391
• Citation: 70 F.3d 1191
• Parties: , 33 Fed.R.Serv.3d 859 David LEVINE, Receiver-Appellee, Securities Exchange Commission, Plaintiff-Appellee, v. COMCOA LTD., a/k/a Comcoa Ltd., Thomas W. Berger, Defendants, J.B. Grossman, Law Practice, Movant-Appellant, Sun-Sentinel Company, Mobitel Services Corp., a Delaware Corporation, et al., Claimants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1191

70 F.3d 1191

64 USLW 2372, 33 Fed.R.Serv.3d 859

David LEVINE, Receiver-Appellee Securities Exchange Commission, Plaintiff-Appellee, v. COMCOA LTD., a/k/a Comcoa Ltd., Thomas W. Berger, Defendants J.B. Grossman, Law Practice, Movant-Appellant Sun-Sentinel Company, Mobitel Services Corp., a Delaware Corporation, et al., Claimants.

No. 95-4391.

United States Court of Appeals, Eleventh Circuit.

Dec. 1, 1995.

Howard A. Tescher, Ft. Lauderdale, FL, for appellant.

Steven E. Siff, Miami, FL, Laura S. Pruitt and Richard M. Humes, Office of General Counsel, U.S. Securities & Exchange Commission, Washington, DC, for appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before EDMONDSON, Circuit Judge, HILL, Senior Circuit Judge, and MILLS ^*, District Judge.

EDMONDSON, Circuit Judge:

Law Practice of J.B. Grossman, P.A., appeals the district court's finding of contempt for its transfer of funds from the trust account of its client, Comcoa Ltd. ("Comcoa"), to the law firm's operating account in violation of a court order. We affirm.

Before January 1994, Comcoa retained J.B. Grossman as counsel. ¹ In mid-January 1994, Grossman told Comcoa to establish a large retainer fee to assure Grossman's availability in the event of an asset-freezing action. This retainer was placed in a trust account maintained by Grossman on behalf of Comcoa. Before April 1994, the Division of Enforcement of the Securities and Exchange Commission ("Division") began an informal inquiry into the business activities of Comcoa.

On 5 May 1994, the Division filed an ex parte Motion for Order to Show Cause Why a Preliminary Injunction Should Not Be Granted, Temporary Restraining Order ("TRO"), Order Freezing Assets, Order Appointing Receiver, Order for an Accounting, Order Prohibiting Destruction of Documents and an Order Expediting Discovery. On 6 May 1994, at 9:25 AM, a United States District Judge entered an order, among other things, granting a TRO and freezing Comcoa's assets, appointing a Receiver, and notifying the parties of a hearing on 16 May to consider a preliminary injunction. ²

On 11 May Comcoa filed, among other things, an Emergency Motion to Vacate the TRO, a Motion to Dismiss for Lack of Subject Matter Jurisdiction and a Motion for Preliminary Hearing on Defendants' Motion to Dismiss.

On 16 and 17 May the district court did hold a preliminary injunction hearing and also heard Defendants on their Motion to Dismiss for Lack of Subject Matter Jurisdiction. Grossman was attorney of record for Comcoa at this hearing. Over the two days, the district judge heard argument from counsel and received testimony from seven witnesses; the hearing was completed. ³ At the end of the hearing on 17 May, the district court told both parties that it was extending the 6 May order until the court ruled on the substantive motions by Defendants. The district court said the order would be extended in all respects and specifically said the order included the asset freeze. The district court then asked if either party had anything further or any questions. Grossman replied, "No, sir."

On 6 June 1994, Grossman called the district court to find out if an order had been issued. At first, Grossman was told a preliminary injunction had been issued; but later the district court's assistant said a preliminary injunction had not been issued. Grossman considered the court's order to have expired. And he, on 6 June, transferred from Comcoa's trust account about $92,000 of the retainer funds into his law firm's operating account. ⁴ About this same time, he filed for Comcoa an Emergency Motion for Release of Assets, based on the expiration of the TRO. ⁵ Also on 7 June, the district court entered an Order of Preliminary Injunction nunc pro tunc to June 3, 1994; and, the district court denied Defendants' Emergency Motion.

In August 1994, the Division filed a Motion for an Order to Show Cause to hold Grossman in contempt for violating the district court orders when he transferred the retainer funds. The district court entered an order holding Grossman in contempt of court for his transferring of the funds into his own account. He now appeals this ruling.

Rule 65 of the Federal Rules of Civil Procedure says that a TRO can last only 10 days, unless extended, and cannot be extended beyond 20 days without the consent of the restrained party. ⁶ Grossman says that he never consented to an extension; and for the sake of our discussion, we accept that he did not consent.

The Supreme Court has said a TRO that is continued beyond the time permissible under Rule 65 should be treated as a preliminary injunction. See Sampson v. Murray, 415 U.S. 61, 87, 94 S.Ct. 937, 951, 39 L.Ed.2d 166 (1974) (stating "[w]here an adversary hearing has been held, and the court's basis for issuing the order strongly challenged, classification of the potentially unlimited order as a temporary restraining order seems particularly unjustified"). This treatment is especially appropriate where, as in this case, there has been notice to the parties, a full hearing on a preliminary injunction, and then a stated and clear decision from the bench to extend the terms of the restraining order indefinitely, that is, until the court notified the parties otherwise. ⁷

Very likely, Grossman's client, Comcoa along with its agents and attorneys, was under a preliminary injunction once the judge spoke at the end of the hearing; but we need not go that far. If the TRO had not become a preliminary injunction before, it became a preliminary injunction when the TRO, as orally extended by the district court, went beyond the time permissible under Rule 65. Thus, the proper course of conduct for Grossman was to treat the TRO as an erroneously granted preliminary injunction and to appeal. ⁸ See Clements Wire & Mfg. Co. v. NLRB, 589 F.2d 894, 896 (5th Cir.1979).

We believe the instances when lawyers can be told by the district court in no uncertain terms not to do "X" and, yet, the lawyer can go on to do "X" with impunity are (and ought to be) few and far between, especially where the appellate courts--as in this case--are open to the lawyer to settle the matter in an orderly way, but the lawyer pursues no appeal. In these circumstances, for Grossman just to disregard the district court's clear order, based on his personal belief that it was invalid, was not merely bold; it was bad. We conclude his conduct warrants a determination of contempt. ⁹ The district court was within its discretion to hold Grossman in contempt of court for violating its order.

The order of contempt against the Law Practice of J.B. Grossman, P.A., is AFFIRMED.

HILL, Senior Circuit Judge, concurring, dubitante:

The court today affirms contempt sanctions against a lawyer for doing what he knew the judge had ordered him not to do. I am not attracted to this lawyer's conduct. The problem arose, however, because the party who petitioned for and obtained the TRO stood silent while the order inadvertently expired without counselling the court of the requirements for its extension. One would expect more from the agency appearing here. It has obtained temporary restraint before. ¹ I am not pleased with the performance of any of our cast of characters.

An ex parte temporary restraining order is an extreme remedy to be used only with the utmost caution. Rule 65(b) of the Federal Rules of Civil Procedure imposes strict restrictions on its scope and specific time constraints for its duration:

Every temporary restraining order granted without notice ... shall expire by its terms within such time after entry, not to exceed 10 days, as the court fixes, unless within the time so fixed the order, for good cause shown, is extended for a like period or unless the party against whom the order is directed consents that it may be extended for a longer period. ²

Fed.R.Civ.P. 65(b).

The importance of these restrictions was emphasized by the Supreme Court in Granny Goose Foods, Inc. v. Brotherhood of Teamsters & Auto Truck Drivers, Local No. 70, 415 U.S. 423, 94 S.Ct. 1113, 39 L.Ed.2d 435 (1974). In Granny Goose, a state court issued a temporary restraining order to enjoin the local union from striking. Two days later, the case was removed to federal court. The union moved to dissolve the restraining order. After a hearing, the court denied the union's motion. The union went on strike some months later. The district court held the union in contempt for violating the TRO. The Ninth Circuit reversed, and the Supreme Court affirmed the appellate court.

The Court held that the union violated no order when it resumed its strike because no order was in effect at that time. The Court rejected the employer's argument that the district court's hearing on the union's motion to dissolve the restraining order was a hearing on a preliminary injunction, or that its order denying the motion should be construed as a grant of a preliminary injunction. Regardless of the district court's intent in the hearing, the TRO did not survive the expiration of the Rule 65(b) time limits because the district court did not follow the appropriate procedure. The Supreme Court held:

Where a hearing on a preliminary injunction has been held after issuance of a temporary restraining order, and where the District Court decides to grant the preliminary injunction, the appropriate procedure is not simply to continue in effect the temporary restraining order, but rather to issue a preliminary injunction, accompanied by the necessary findings of fact and conclusions of law.

415 U.S. at 443, 94 S.Ct. at 1126 (emphasis added); see also Hudson v. Barr, 3 F.3d 970, 975 (6th Cir.1993) (indefinite continuation of TRO held improper; government's consent to TRO, pending hearing on motion for preliminary injunction, ended on day hearing was supposed to occur); Fed.R.Civ.P. 52(a) ("... and in granting or refusing interlocutory injunctions the court shall...