Reebok Intern. Ltd. v. McLaughlin

• Decision Date: 27 April 1993
• Docket Number: No. 89-1739-GT (P).,89-1739-GT (P).
• Citation: 827 F. Supp. 622
• Parties: REEBOK INTERNATIONAL LTD. et al., Plaintiffs, v. Byron McLAUGHLIN et al., Defendants.
• Court: U.S. District Court — Southern District of California

827 F. Supp. 622

REEBOK INTERNATIONAL LTD. et al., Plaintiffs, v. Byron McLAUGHLIN et al., Defendants.

No. 89-1739-GT (P).

United States District Court, S.D. California.

April 27, 1993.

Defendant was not a part of this motion.

Neil A. Smith, Limbach & Limbach, San Francisco, CA, Harley I. Lewin, William M. Reid, G. Roxanne Elings, Lewin & Laytin, P.C., New York City, for plaintiffs.

Matthew E. Digby, Marks & Murase, Los Angeles, CA, for Banque Internationale à Luxembourg.

ORDER GRANTING MOTION FOR CONTEMPT UPON RECONSIDERATION

GORDON THOMPSON, Jr., District Judge.

On April 26, 1993, at 10:30 a.m., REEBOK's motion for reconsideration came on for hearing. The hearing was conducted telephonically, and the court stated that it would file this order shortly. The Court has fully considered this matter, including review of the papers filed by the parties, the authorities cited therein, and the arguments presented.

BACKGROUND

On May 26, 1992, REEBOK's motion for contempt came on for hearing. Following the hearing, the court issued a written opinion that held that Banque Internationale à Luxembourg (BIL) was not in contempt. The primary basis for this holding was that BIL had been ordered by a Luxembourg court to release the funds. As a result, BIL's action lacked the necessary voluntariness to warrant a finding of contempt. In addition to all of the above, the earlier order made clear that it was not based on any of the papers that were filed late, but that instead these papers would be considered, if at all, in a motion for reconsideration to be heard on August 24, 1992. Because of various discovery matters, the hearing has been continued on several occasions to its present date of April 26, 1993.

Among the evidence that Reebok did not have at the time of the earlier hearing is the declaration from Brigitte McLaughlin. Additionally, Reebok has now obtained some discovery from BIL, and has submitted some of these documents in support of this motion. The totality of this evidence suggests that BIL assisted McLaughlin in the development and execution of a plan to get McLaughlin's money out of BIL. The plan included the creation of Bawnmore Holdings, Inc., and the transfer of funds within BIL so as to create a safe haven. The plan also included the release of $117,000 prior to the Luxembourg order (a portion of which went to BIL for potential legal fees). The plan finally included obtaining an order from the Luxembourg court, in an attempt to provide BIL with a justification for the release of all funds. BIL did not oppose the action for the release of funds or even inform the Luxembourg court of its reasons for not previously releasing the funds. Although Brigitte claims that Byron told her that he had bribed BIL to get some money out, this allegation has not been considered for purposes of this motion.

In what can only be described as incredible testimony, Jean-Jacques Rommes, the head of the litigation department of BIL, denies each of the allegations, and restates that BIL did nothing more than obey the commands of the Luxembourg court order.

DISCUSSION

A. Preliminary Defenses

Some preliminary matters persist from the earlier hearing. Specifically, three defenses raised by BIL were not addressed at the May 1992 hearing because the ruling was in BIL's favor. These defenses were based on lack of personal jurisdiction and on the consent judgment. Reebok erroneously argues that BIL should not be able to reassert these defenses; these issues, however, were not ruled on at the prior hearing. As a result, BIL may appropriately raise these issues, although, as the following discussion indicates, the review of these issues does not effect the outcome of these proceedings.

BIL also raises for the first time an argument related to good faith actions based on advice of counsel. Unlike the personal jurisdiction and consent judgment issues, the advice of counsel argument is not appropriately raised at this time.

1. Release and/or Res Judicata as a result of settlement

BIL argues that the settlement agreement of May 17, 1992 and the consent judgment entered on October 28, 1991 bar this action under res judicata principles, and in the alternative Reebok has released BIL of any claims it might have against it. Reebok, however, has shown that Byron McLaughlin has materially breached the settlement agreement by failing to pay any portion of the settlement amount. As such, the court will set aside the final judgment entered on October 28, 1991. With the final judgment set aside, the arguments of release and res judicata cannot bar this litigation.

Moreover, res judicata and release are not defenses that BIL may raise in the present situation. Instead, these are defenses that can only be raised by Byron McLaughlin. Byron McLaughlin, however, chose not to raise either of these defenses (thereby waiving them), and was found in contempt by this court at the May hearing based on his non-opposition. As BIL's rights, if any, under the settlement agreement would emanate from Byron McLaughlin's rights, BIL likewise forfeited those rights, and since BIL was not a party to the agreement, BIL has no complaint as a consequence.

2. Personal Jurisdiction¹

Under a traditional analysis, personal jurisdiction, if it exists at all, arises out of specific jurisdiction, as clearly there is no general jurisdiction over BIL. Such an analysis would require application of the traditional International Shoe analysis as it has been developed. Applying such a standard, BIL's contacts with this jurisdiction, assuming all allegations are proven, do warrant the assertion of personal jurisdiction. It does not go unnoticed that BIL purposefully entered into a banking agreement with Byron McLaughlin and then engaged in numerous conversations. Although it would not be appropriate to say that BIL does business in California, or in the United States for that matter, BIL does accept money from citizens of this country and of this state. The essential contact, however, relates to the allegations of assisting McLaughlin in his efforts to release the funds held at BIL. By providing such assistance, BIL engaged in activity outside of California "that would have the foreseeable and intended result of dissipating assets subject to marshalling in that forum." Waffenschmidt v. MacKay, 763 F.2d 711, 723 (5th Cir.1985). In essence, to the extent that minimum contacts are required, personal jurisdiction over a non-party in a case such as this one may found by construing the non-party's act of assisting in the violation of an injunction as a "super-contact."

Under a very similar theory, an alternative analysis has developed in cases of contempt under Rule 65. Separate and apart from the traditional contacts analysis, these cases hold that a court may have personal jurisdiction over a non-party based on the court's inherent authority to enforce its own orders. See Waffenschmidt v. MacKay, 763 F.2d 711, 721 (5th Cir.1985); N.Y. State National Organization for Women v. Terry, 732 F.Supp. 388, 399-400 (S.D.N.Y.1990). Alternatively stated, given BIL's knowledge of this court's Order, BIL must have foreseen litigation in this jurisdiction as a result of a violation of that Order. Such foreseeable litigation does not offend traditional notions of fair play and substantial justice. Waffenschmidt, 763 F.2d at 721. To quote the Southern District of New York: "Respondents' brash assertion that they should be allowed to act in concert with defendants in order to intentionally violate a court order of which they had actual notice, while retaining impunity from the imposition of coercive sanctions fashioned to assure compliance with the order, is as groundless as it is insolent." N.Y. State National Organization for Women v. Terry, 732 F.Supp. 388, 400 n. 5 (S.D.N.Y.1990).

Finally, Lynch v. Rank, 639 F.Supp. 69 (N.D.Cal.1985), is of no assistance to BIL. BIL's belief, even if found to be true, that it was not acting in violation of the restraining order is irrelevant. Lynch did not state the rule that a plaintiff must prove that a non-party had the "motive" to assist in the violation of an injunctive order. Instead, Lynch held that where a non-party was acting completely independently of the party, assertion of jurisdiction over the non-party would be inappropriate. BIL's insistence that it was merely conducting business as usual would not avail it of the exception in Lynch as it would not rise to the level of "independent" conduct described in Lynch. To the contrary, if Reebok's allegations stand up (and they do), BIL did assist Byron McLaughlin in violating this court's order. As a result, BIL is subject to this court's jurisdiction — litigation that it must have foreseen.

3. Advice of Counsel

Reebok properly objects to BIL's assertion of an advice of counsel defense. This defense had not properly been raised earlier and thus is deemed waived.

B. No Review Will Be Made of the Earlier Legal Conclusions

A significant amount of the briefing for reconsideration addressed the legal issues raised in the May 28, 1992 order. Particularly, there was continued debate over the applicability and non-applicability of the "exequatur" procedure. There is no reason, however, to reconsider the earlier analysis of the "exequatur" procedure under the Luxembourg law. Importantly, the issue is irrelevant. Even if the exequatur procedure was not available to Reebok as a means of securing the freezing of the funds at BIL, the fact would still remain that the order of the Luxembourg court would still be in effect, and BIL would still have had an obligation to comply with the order. The discussion of the exequatur in the previous order was not critical to the ultimate holding, but merely added additional support for why respect for the Luxembourg order warranted not finding BIL in contempt. Even without this additional support, and even had Reebok done everything in its power to secure...