Monday, May 30, 2011 1:27:14 PM
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
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E-SMART TECHNOLOGIES, INC., a
Nevada Corporation, and IVI
SMART TECHNOLOGIES INC., a
Delaware Corporation,
Plaintiffs,
v.
WAYNE DRIZIN, MICHAEL GARDINER,
ELECTRONIC PLASTICS CORPORATION,
and A CARD COMPANY,
Defendants.
_______________________________/
NO. CIV. 3:06-05528 MHP
MEMORANDUM AND ORDER RE: CIVIL
CONTEMPT
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Plaintiffs e-Smart Technologies, Inc. (“e-Smart”) and
IVI Smart Technologies Inc.1 initiated this action in 2006
against defendants Wayne Drizin, Michael Gardiner, Electronic
1 Although IVI Smart Technologies Inc. is affiliated with
e-Smart and did not have independent representatives at the
settlement conference, the Order to Show Cause giving rise to the
civil contempt hearing was limited to e-Smart and its
representatives, thus the court’s decision is limited to e-Smart.
Plastics Corporation, and A Card Company, alleging that
defendants stole trade secrets in plaintiffs’ biometric smart
cards.2 In the fifth settlement conference held in this matter,
a smart card Gardiner brought to the settlement conference
disappeared, resulting in civil contempt charges against e-Smart
and four of its representatives.
I. Factual and Procedural Background
The settlement conference at issue was held on August
12, 2010, before Magistrate Judge Zimmerman and lasted the entire
day. The attendees at the settlement conference included Mary
Grace (e-Smart’s Chief Executive Officer), Tamio Saito (e-Smart’s
Chief Technology Officer), Marcello Soliven (e-Smart’s Director
of Wireless Research and Development), Ananth Krishnan (research
engineer for e-Smart) (referred to collectively as “e-Smart
representatives”), Christopher Lilly (plaintiffs’ counsel),
Drizin, Gardiner, and Magistrate Judge Zimmerman’s student
extern. When the settlement conference began, the attendees were
seated around the conference table in Magistrate Judge
Zimmerman’s library. Upon concluding that a joint session would
not be productive, Magistrate Judge Zimmerman broke the parties
up, bringing Gardiner and Drizin into his personal chambers and
having plaintiffs’ counsel and representatives remain in the
library.
2 Put simply, the biometric smart cards at issue in this
dispute are credit-card-sized cards used for identification
purposes that have the capability of reading and confirming the
user’s fingerprint. Although plaintiffs and other companies have
allegedly been producing these cards for quite some time, not a
single card has been sold in the United States, according to
Drizin.
When Gardiner and Drizin were alone with Magistrate
Judge Zimmerman in his chambers, Gardiner produced a biometric
smart card that had a picture of George Washington on it and was
manufactured by Fidelica, a company that is not involved in this
lawsuit. According to Gardiner, the Fidelica card was a
significant piece of evidence because it contained the very trade
secrets that defendants had allegedly stolen from plaintiffs and
thus provided evidence that e-Smart’s card did not contain trade
secrets. Magistrate Judge Zimmerman took the Fidelica card to e-
Smart’s representatives in the library, explained defendants’
position about the card’s value in the settlement process, and
showed the representatives the card. Grace and Saito examined
the card, and the last time Magistrate Judge Zimmerman saw the
card, it was in Saito’s hand. At the end of the settlement
conference, Gardiner indicated that the card had not been
returned to him, at which time he accompanied Magistrate Judge
Zimmerman to the library and Magistrate Judge Zimmerman
instructed everyone present to search their personal effects for
the card.
Magistrate Judge Zimmerman attempted to have a marshal
come search the attendees for the card; however, the United
States Marshal’s Office persuaded him not to conduct a search
because the female marshal who would need to search Grace had
left for the day and could take about one hour to return.
Magistrate Judge Zimmerman thus concluded the conference and
requested the parties to search for the card again that evening.
The following day, Magistrate Judge Zimmerman issued a sealed
order requiring the e-Smart representatives to make every effort
to locate the card and allowing them to return it anonymously to
the court by August 20, 2010. (Docket No. 324.)
When the Fidelica card was not returned by August 20,
2010, Magistrate Judge Zimmerman certified his version of the
facts pursuant to 28 U.S.C. § 636(e) to Judge Patel as
constituting civil contempt, stating that he “has reason to
believe e-Smart, through one or more of its representatives,
still has the missing card, or disposed of it, to prevent it from
being used as evidence by defendants.” (Docket No. 328.) Judge
Patel subsequently issued an Order to Show Cause against e-Smart
and its representatives, requiring them to “show cause why you
should not be adjudged guilty of criminal and/or liable for civil
contempt and this action be dismissed with prejudice.” (Docket
No. 329.) E-Smart responded to the Order to Show Cause and
included declarations by its representatives denying that they
took the Fidelica card and giving their version of the events
leading up to the disappearance of the card. After the United
States Attorney’s Office declined to initiate criminal contempt
charges, Judge Patel appointed Stephen E. Taylor and Jonathan A.
Patchen of the Taylor & Company Law Offices, LLP, to prosecute
the civil contempt charges.
Because Magistrate Judge Zimmerman would serve as a key
witness in the civil contempt hearing, the undersigned, a judge
from outside of the district, was assigned to preside over the
contempt hearing. After conducting a four-day evidentiary
hearing, the court finds e-Smart in civil contempt. This
Memorandum constitutes the court’s findings of fact and
conclusions of law.
II. Discussion
A court’s power of contempt is regarded as an
“inherent” power that is “necessary to the exercise of all
others.” Int’l Union, United Mine Workers of Am. v. Bagwell, 512
U.S. 821, 831 (1994). “A district court has the power to adjudge
in civil contempt any person who [] disobeys a specific and
definite order of the court.” Gifford v. Heckler, 741 F.2d 263,
265 (9th Cir. 1984). “Intent is not an issue in civil contempt
proceedings. The sole question is whether a party complied with
the district court’s order.” Donovan v. Mazzola, 716 F.2d 1226,
1240 (9th Cir. 1983) (internal citations omitted).
“Judicial sanctions in civil contempt proceedings may,
in a proper case, be employed for either or both of two purposes;
to coerce the defendant into compliance with the court’s order,
and to compensate the complainant for losses sustained.” United
States v. United Mine Workers of Am., 330 U.S. 258, 303-04
(1947); accord United States v. Bright, 596 F.3d 683, 695-96 (9th
Cir. 2010) (“Civil contempt is characterized by the court’s
desire to compel obedience to a court order or to compensate the
contemnor’s adversary for the injuries which result from the
noncompliance.” (quoting Falstaff Brewing Corp. v. Miller Brewing
Co., 702 F.2d 770, 778 (9th Cir. 1983))) (internal quotation
marks omitted).
“The standard for finding a party in civil contempt is
well settled: The moving party has the burden of showing by clear
and convincing evidence that the contemnors violated a specific
and definite order of the court.” In re Bennett, 298 F.3d 1059,
1069 (9th Cir. 2002). The clear and convincing evidence standard
requires the moving party to “place in the ultimate factfinder an
abiding conviction that the truth of its factual contentions are
‘highly probable.’” Colorado v. New Mexico, 467 U.S. 310, 316
(1984). Factual contentions are highly probable if the evidence
offered in support of them “instantly tilt[s] the evidentiary
scales in the affirmative when weighed against the evidence [the
non-moving party] offered in opposition.” Id.
A. Determining Who Took the Fidelica Card
Based on the evidence presented at the hearing, the
court finds, by clear and convincing evidence, that the Fidelica
card was taken by one of the e-Smart representatives at the
conference because only they had the opportunity to take the
card. Further, of the e-Smart representatives, the court is
convinced Mary Grace took the card based on her lack of credible
and consistent testimony about the events that day and the
evidence revealing her motive to take it.3
Magistrate Judge Zimmerman credibly testified4 that,
after Gardiner produced the e-Smart card in his chambers, he went
to the library without Gardiner or Drizin to show the e-Smart
representatives the Fidelica card. After giving the card to the
e-Smart representatives, Magistrate Judge Zimmerman testified
that he last saw the card in Saito’s hand and the e-Smart
3 As credibility was a central issue at the hearing, the
character of the e-Smart representatives, Gardiner, and Drizin
was relevant and considered by the court. The court did not,
however, consider or rely on any of the exhibits defendants
submitted after Grace’s testimony, which are filed as Docket
Numbers 368 to 374.
4 The court finds Magistrate Judge Zimmerman’s testimony
credible on all material issues and accepts his testimony as the
most accurate account of the relevant events.
representatives testified that the card was placed on the library
table when they finished examining it. Thus, it is undisputed
that the card remained in the library after Magistrate Judge
Zimmerman showed it to the e-Smart representatives. Although
there is conflicting testimony about when and for how long
Gardiner and Drizin returned to the library during the remainder
of the settlement discussions, all of the parties agree that
every time Gardiner and Drizin returned to the library, they were
accompanied by Magistrate Judge Zimmerman. The e-Smart
representatives were thus the only individuals left in the
library alone with the card and therefore the only individuals
who had the opportunity to take the card outside the presence of
Magistrate Judge Zimmerman.
E-Smart has attempted to suggest that, even though only
its representatives had access to the card in the library,
Gardiner and Drizin snuck into the library to take the card after
the e-Smart representatives left for lunch. In their
declarations and at the hearing, the e-Smart representatives
state that the Fidelica card was on the conference table in the
library when they left for lunch and gone when they returned from
lunch. Significantly, however, this explanation was never
mentioned to Magistrate Judge Zimmerman when everyone was looking
for the card at the close of the settlement conference and was
raised for the first time in the declarations. Magistrate Judge
Zimmerman’s judicial assistant also credibly testified that she
escorted Gardiner and Drizin out of chambers during the lunch
break, which would have precluded them from sneaking into the
library to take the Fidelica card.
E-Smart has also tried to suggest that, based primarily
on their prior felony convictions, Gardiner’s and Drizin’s
character makes it just as likely that they took the card. While
the court did not find Drizin to be a credible witness and finds
him, like Grace, to display the typical characteristics of a conartist,
none of the evidence creates a plausible scenario under
which Drizin had the motive or opportunity to take the Fidelica
card.
As for Gardiner, not only did he lack the opportunity
to take the Fidelica card, but the court finds it is even less
plausible that he would take the very card he brought to the
settlement conference in the hopes of getting plaintiffs in
trouble. Although Gardiner has been convicted of a felony, the
court does not believe his prior misconduct paints him to be of
as bad character as e-Smart suggests. While he was convicted for
fraud, his sentence included only a $10,000.00 fine and three
years probation and he cooperated with the government. The court
has the impression that Gardiner tends to be gullible to
fraudulent schemes, and the court therefore is inclined to
believe that he was himself a victim as well as a perpetrator in
that case.
The only other individuals who had access to the
library were Magistrate Judge Zimmerman’s staff, which included
his judicial assistant and a student extern who accompanied him
for part of the settlement conference. The record is devoid of
any evidence suggesting even a remote possibility that these
individuals took the e-Smart card.
Accordingly, the e-Smart representatives were the only
individuals with the opportunity to take the card and, of the e-
Smart representatives, the evidence persuades the court that
Grace was the one who took the card. In contrast to Magistrate
Judge Zimmerman’s credible testimony about what occurred when he
originally introduced the card, Grace’s testimony about the
events was amorphous and appeared to develop as she testified.
For example, when questioned about the technology on the Fidelica
card, Grace capriciously interjected that she actually asked
Magistrate Judge Zimmerman to hold onto the card:
I said, why in the world would he [(Gardiner)]--in fact,
I said to the Judge, I said, “Judge would you hold this
card? Would you hold this card with the special master
in the court, so” . . . “we can prove this is stolen, our
stolen technology. Not just on the ID Smart cards, but
now on the Fidelica cards that they had the audacity to
bring into court.”
(Apr. 20, 2011, Tr. 59:2-9.) Not only was this answer--along
with a majority of Grace’s testimony--non-responsive to the
actual question, Grace’s testimony that she asked Magistrate
Judge Zimmerman to hold onto the Fidelica card was not
corroborated by any other witness and was absent from her
original declaration filed in response to Judge Patel’s Order to
Show Cause.
Grace also testified that, when the Fidelica card was
presented, Gardiner indicated that he knew the technology on it
5 Magistrate Judge Zimmerman’s testimony about contacting
the Marshal’s Office indicates his law clerk was in chambers
later that day. Nothing in the testimony suggests--nor can this
court surmise--any reason why the law clerk, or any other court
employee, would have taken the card.
was stolen from e-Smart and that he had previously prepared an
affidavit to that effect. Similar to her new testimony about
asking Magistrate Judge Zimmerman to hold onto the card, any
suggestion that Gardiner had prepared such an affidavit is absent
from any of the e-Smart representatives’ declarations. Although
Grace testified that some of the testimony missing from her
declaration was in her notes and that e-Smart’s attorney failed
to include it, she neither produced her notes nor denied that she
reviewed her declaration before signing it. As this declaration
was prepared in response to the Order to Show Cause, the
importance of her account of what happened was clear. The
absence of such significant testimony from her declaration and
her addition of it for the first time at the hearing leaves the
court firmly convinced that Grace is developing an ever-changing
story to cover up for her misconduct in taking the Fidelica card.
With respect to her motive to take the card, the court
finds it highly probable that Grace was simply taking back what
she, in her way of perceiving things, believed belonged to e-
Smart. Magistrate Judge Zimmerman testified that when he
initially presented the card to the e-Smart representatives,
Grace “sort of did a -- like, a double-take, you know,” giving
him the impression that she thought defendants had “found
something.” (Apr. 7, 2011, Tr. 57:2-4.) Grace also testified
that the Fidelica card had e-Smart’s “stolen technology,” (Apr.
20, 2011, Tr. 49:9), and told Magistrate Judge Zimmerman that
Fidelica “was another company that has stolen our trade secrets.”
(Apr. 7, 2011, Tr. 57:9-10.) Grace further testified that she
believed the Fidelica card Gardiner produced at the settlement
conference “was stolen from us, from e-Smart, and brought into
the conference.” (Apr. 20, 2011, Tr. 66:4-7.) Grace’s reaction
to the card and purported belief that it was stolen from e-Smart
and contained e-Smart’s stolen technology, along with her
demeanor throughout her testimony and obvious animosity toward
Gardiner and Drizin,6 convinces the court that Grace felt
justified in simply taking back what she asserted belonged to her
company.
Grace’s testimony and demeanor also persuade the court
that she has skated through her various ventures as a flim-flam
6 Throughout her testimony, Grace constantly tried to
slip in negative comments about Gardiner and Drizin, making her
disdain for them anything but discreet. The following is one
example:
[MR. PATCHEN]: My question is: If the Fidelica card was
not using the trade secrets of e-Smart, then you would
have no objection to Mr. Gardiner producing a card that
was like Fidelica.
A: I can’t answer that question. Because, like Mr.
Satio explained, I’m not qualified to answer what card
has what on it.
I would have to ask experts if this card in any way
-- it has been derived from our technology, has been --
these are all ex-employees. These people -- have you
ever seen their entire background?
Q: My question for you, Ms. Grace --
A: Okay. Their entire background that we’re -- it
includes owning a brothel by -- there was a book written
last year called “The Man who Took America to War” that
said he --
THE COURT: Don’t get into it --
THE WITNESS: -- laundered money for the Mafia, and he
--
MR. PATCHEN: Your honor, move to strike.
THE WITNESS: I mean, these people are -- he’s
defrauded so many of our investors and shareholders that
we can bring in here that he would --
THE COURT: Wait, don’t --
THE WITNESS: He would guarantee them he would give
them triple their money back. And then -- . . . .
(Apr. 20, 2011, Tr. 62:10-23.)
artist who fabricates information in an attempt to extort a
profit. For example, when asked why e-Smart had not filed its
required “10-K” Securities and Exchange Commission filings since
2007, Grace first evaded the question and, when the court
repeated the question, she could not give a consistent or clear
answer:
Well, we filed it -- we have not filed it, on the advice
of counsel. And, we will be preparing it. But, we are
looking at different reorganization -- I mean,
restructuring of the company. And on advice of counsel,
we will do it. We have -- you know, we have informed our
attorneys. I -- I act on advice of counsel, but -- and,
it will be. I mean, we are in the process of trying to
get the 10-Ks filed.
(Id. at 92-93:5.) Grace also repeatedly evaded questions by
resorting to an explanation that e-Smart has six hundred
shareholders and her utmost concern is for those shareholders.
The court was unpersuaded, however, that e-Smart is anything more
than a sham company or that Grace’s concern for its shareholders
extends beyond the financial gain they bring her.
Based on her demeanor testifying and conduct during the
settlement process of this case, the court is also convinced that
Grace views the judicial process as a mere tool to conduct
business rather than an avenue to resolve disputes. Magistrate
Judge Zimmerman, who spent more hours attempting to settle this
case than in any other case, testified that he was under the
impression that Grace was not negotiating in good faith during
the settlement process. When discussing a separate case against
Gardiner and Drizin with a colleague, Grace’s comment about her
strategy also reflects her use of litigation as an improper
business tool: “I believe if we can put the pressure of a second
lawsuit on both Gardiner and Drizin, that we can resolve both
suits exponentially [sic].” (Defs.’ Ex. Y.)
The testimony of the other e-Smart representatives does
not create any reason to doubt that Grace took the card. The
court did not find Soliven to be a credible witness and does not
believe his testimony that Gardiner and Drizin left belongings
close to the card and, after the e-Smart representatives returned
from lunch, that the card and belongings on the table were gone.
Krishnan did not appear to have an independent recollection of
the details of what occurred that day and appeared to simply
agree with the general story advanced by his colleagues. Lastly,
based on his defensive and argumentative demeanor throughout his
testimony, the court finds it highly probable that, even though
he did not take the Fidelica card, Saito would not disclose the
fact that Grace took it if he was privy to that information.
Accordingly, when contrasted to the lack of any
plausible scenario under which another individual took the
Fidelica card, the evidence establishing that Grace had the
opportunity and motive to take the card, along with her lack of
credibility as witness, convinces the court that it is highly
probable that Grace took the Fidelica card on August 12, 2010.
B. Determining Whether Civil Contempt Occured
Having found that Grace took the Fidelica card, the
next question is whether the Special Prosecutor proved, by clear
and convincing evidence, that her conduct “violated a specific
and definite order of the court.” In re Bennett, 298 F.3d at
1069. Relying on United States v. McGainey, 37 F.3d 682 (D.C.
Cir. 1992), the Special Prosecutor argues that e-Smart can be
held in civil contempt if Grace obstructed the administration of
justice even if her conduct did not violate a specific court
order.
In McGainey, the appellate court upheld McGainey’s
conviction for criminal contempt after he made a threatening
gesture in the galley of a courtroom during a criminal trial.
Id. at 685-86. His conviction for criminal contempt, however,
was based on 18 U.S.C. § 401(1), which empowers the court to hold
an individual in criminal contempt for “[m]isbehavior . . . in
its presence or so near thereto as to obstruct the administration
of justice.” 18 U.S.C. § 401(1); see also McGainey, 37 F.3d at
684 (identifying the elements of criminal contempt as
“misbehavior of a person, in or near to the presence of the
court, which obstructs the administration of justice, and which
is committed with the required degree of criminal intent”). For
a criminal contempt conviction under § 401, courts have held that
“[w]illfulness is an essential element.” United States v.
Laurins, 857 F.2d 529, 534 (9th Cir. 1988).
At first blush, McGainey appears easily distinguishable
as it dealt with criminal, not civil, contempt and § 401 governs
criminal, not civil, contempt. The Ninth Circuit, however, has
repeatedly stated that § 401, although appearing in the criminal
code, applies equally to civil contempt. See United States v.
Powers, 629 F.2d 619, 624 (9th Cir. 1980) (“Title 18 U.S.C. §§
401 and 402 provide federal courts statutory authority to punish
contemptuous actions. Section 401 applies to both criminal and
civil contempt and contains no limitation on the power of the
district court to impose fine or imprisonment for a violation.”);
United States v. Miller, 588 F.2d 1256, 1262 (9th Cir. 1978)
(same); cf. Britton v. Co-op Banking Grp., 916 F.2d 1405, 1409
n.4 (9th Cir. 1990) (noting that a district court may impose
civil contempt pursuant to 18 U.S.C. § 401(3), which provides for
criminal contempt for “[d]isobedience or resistance to [the
court’s] lawful writ, process, order, rule, decree, or
command”).7
Despite indicating that § 401 provides authority for
civil and criminal contempt, the Ninth Circuit has never held
that obstruction of justice, without the violation of a specific
court order, is sufficient to give rise to civil contempt. If
the issue were to be properly raised before the Ninth Circuit,
this court doubts that the Ninth Circuit would continue to rely
on § 401 for civil contempt. Limiting application of § 401 to
criminal contempt and relying on caselaw for the standards
governing the court’s inherent civil contempt power is also
consistent with the Supreme Court’s criminal and civil contempt
decisions. See, e.g., Hutto v. Finney, 437 U.S. 678, 690-91
(1978) (citing § 401 as authority for criminal contempt and a
7 Presumably, if § 401 could be relied on for civil
contempt, the caselaw requiring the requisite level of intent for
criminal contempt under § 401 would not apply to civil contempt.
See McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949)
(“Civil as distinguished from criminal contempt is a sanction to
enforce compliance with an order of the court or to compensate
for losses or damages sustained by reason of noncompliance.
Since the purpose is remedial, it matters not with what intent
the defendant did the prohibited act.”); Perry v. O’Donnell, 759
F.2d 702, 705 (9th Cir. 1985) (“Although willfulness is a
necessary element of criminal contempt, we find it significant
that civil contempt may be established even though the failure to
comply with the court order was unintentional.”); United States
v. Asay, 614 F.2d 655, 661 (9th Cir. 1980) (“Willfulness is not
an element of civil contempt.”).
prior Supreme Court decision as authority for civil contempt);
Bagwell, 512 U.S. 821 (omitting any reference to § 401 in its
lengthy discussion of civil contempt).
Relying on subsection 401(1) to find civil contempt
absent a court order would also conflict with the unequivocal and
long-standing precedent requiring disobedience of a court order
for civil contempt. See Gifford, 741 F.2d at 265; In re Bennett,
298 F.3d at 1069; see also Labor/Comty. Strategy Ctr. v. L.A.
Cnty. Metro. Transp. Auth., 564 F.3d 1115, 1123 (9th Cir. 2009)
(“For issuance of a contempt order against MTA to be proper, BRU
must establish (1) that [the contemnor] violated the court order,
(2) beyond substantial compliance, (3) not based on a good faith
and reasonable interpretation of the order, (4) by clear and
convincing evidence.”) (internal quotation marks omitted); Gates
v. Shinn, 98 F.3d 463, 472 (9th Cir. 1996) (“Civil contempt is
appropriate only when a party fails to comply with a court order
that is both specific and definite.”) (internal quotation marks
omitted).
Not only does the precedent in this circuit state that
civil contempt cannot occur absent disobedience of an order from
the court, none of the parties cited and this court was unable to
find a single Ninth Circuit case in which a party has been
adjudged in civil contempt absent a court order. In an effort to
be thorough, this court conducted a Westlaw search for every
published Ninth Circuit decision that used the term “civil
contempt.” The search revealed 298 cases and the court’s review
of each of those cases confirmed that the Ninth Circuit has never
addressed, in a published opinion, a district court’s
adjudication of civil contempt absent disobedience of a court
order giving rise to the contempt.8
Accordingly, in light of the clear precedent in this
circuit and the absence of a single Ninth Circuit decision in
which a contemnor was found in civil contempt absent disobedience
of a court order, the court concludes that an individual can be
found in civil contempt only for violation of a specific and
definite court order, not for the obstruction of justice in the
absence of a court order.
Because e-Smart cannot be held in civil contempt absent
one of its representative’s disobedience of a specific and
definite order of the court, the court must determine whether
Grace’s conduct violated a court order. None of the parties
contend that Magistrate Judge Zimmerman issued an order
prohibiting taking the card, and thus Grace’s theft of the card
did not constitute civil contempt. When the Fidelica card was
initially missing at the close of the settlement conference,
Magistrate Judge Zimmerman instructed the parties to “conduct a
really good search” because he “want[ed] the card found.” (Apr.
7, 2011, Tr. 67:6-10.) Although it was clear that Magistrate
Judge Zimmerman wanted the missing card returned immediately, his
instructions to the e-Smart representatives did not clearly
8 The brevity of four per curiam decisions prevents the
court from determining whether an order gave rise to the civil
contempts at issue in the appeals, but nothing suggests that
orders were not issued in each of the cases. See Hughes v.
Sharp, 476 F.2d 975 (9th Cir. 1973); Olsen v. United States, 446
F.2d 912 (9th Cir. 1971); Matter of Bowden, 444 F.2d 546 (9th
Cir. 1971); Bd. of Governors of the Fed. Reserve Sys. v.
Transamerica Corp. & Bank of Am., Nat’l Trust & Sav. Ass’n, 184
F.2d 326 (9th Cir. 1950).
constitute an order from the court. Most tellingly, Magistrate
Judge Zimmerman used the verb “jawbone” to describe his efforts
to have the card returned, which included telling the e-Smart
representatives that searches would be performed. See
Dictionary.com, http://dictionary.reference.com/browse/jawbone
(defining the informal use of jawbone as “to attempt to influence
or pressure by persuasion rather than by the exertion of force or
one’s authority, as in urging voluntary compliance with economic
guidelines”) (last accessed May 12, 2011). Because Magistrate
Judge Zimmerman did not clearly order the card returned the day
of the settlement conference, Grace’s refusal to return the card
at the settlement conference cannot amount to civil contempt.
On the day after the settlement conference, however,
Magistrate Judge Zimmerman issued a clear, unequivocal, and
specific order to the e-Smart representatives. The sealed Order
stated:
IT IS HEREBY ORDERED that everyone who participated in
yesterday’s settlement conference shall make every effort
to locate the missing smart card (with a picture of
George Washington on it) and return it to the Court. It
may be returned anonymously by sending it to [chambers].
. . . Counsel for plaintiff is ORDERED to serve a copy of
this Order on every one of plaintiff’s representatives
and to file a declaration of service. If the card is not
returned by August 20, 2010, I will turn the matter over
to the FBI to investigate or certify the facts to Judge
Patel to determine if there has been spoliation of
evidence.
(Docket No. 324.) Grace does not deny receiving notice of this
order and, other than denying that she originally stole the
Fidelica card, Grace does not defend on the grounds that she
could not comply with Magistrate Judge Zimmerman’s Order.9
Accordingly, after stealing the e-Smart card during the
settlement conference, Grace was in contempt of court when she
failed to return it by August 20, 2010, in violation of the
August 13, 2010, Order.
C. Determination of the Appropriate Remedy
As the adjudication of civil contempt concludes the
need for Magistrate Judge Zimmerman to serve as a witness to the
events at the settlement conference on August 12, 2010, the
conflict resulting from Judge Patel or another judge in the
Northern District presiding over the civil contempt hearing no
longer exists. Accordingly, the court will defer to Judge Patel
to determine whether the appropriate remedy is dismissal with
prejudice, as suggested in the Order to Show Cause, or some
lesser sanction, such as one of the alternatives the Special
Prosecutor suggested in his memorandum of April 20, 2011. (See
9 It could be hypothesized that Grace was unable to
return the card because she had destroyed or discarded it. See
generally United States v. Rylander, 460 U.S. 752, 757 (1983)
(“In a civil contempt proceeding . . . , a defendant may assert a
present inability to comply with the order in question. . . . It
is settled, however, that in raising this defense, the defendant
has a burden of production.”). But see Falstaff Brewing Corp. v.
Miller Brewing Co., 702 F.2d 770, 782 n.7 (9th Cir. 1983) (“This
court, in dicta, has asserted that self-induced inability [to
comply] is not a defense to a charge of compensatory civil
contempt.”) (citing United States v. Asay, 614 F.2d 655, 660 (9th
Cir. 1980)). Even assuming inability to comply could serve as a
defense in this case, none of the evidence before the court
suggests that Grace would have discarded or destroyed the card
before Magistrate Judge Zimmerman issued his Order. To the
contrary, the court finds it highly probable that, after
successfully stealing what she believed belonged to her, Grace
would have held on to the card. Moreover, even if Grace
discarded the card, the Order--issued less than twenty-four hours
after she could have discarded it--unequivocally ordered her to
“make every effort to locate the missing card.” (Docket No.
324.)
Docket No. 363 (suggesting that appropriate remedies could be
ordering “reimbursement of Defendants[’] costs associated with
retaining and preparing [an] expert” to testify about the
technology on the Fidelica card, “a preclusion order, a shift of
the burdens of production and/or persuasion, or an order
requiring payment for Defendants’ costs to locate and subpoena
production of a replacement Fidelica card”).)
NOW, THEREFORE plaintiff e-Smart Technologies, Inc., is
hereby adjudged in civil contempt of the court’s Order of August
13, 2010. (Docket No. 324.) This matter is hereby referred back
to Judge Patel for all further proceedings, including
determination of the appropriate remedy to enforce this Order.
IT IS SO ORDERED.
DATED: May 18, 2011
NORTHERN DISTRICT OF CALIFORNIA
----oo0oo----
E-SMART TECHNOLOGIES, INC., a
Nevada Corporation, and IVI
SMART TECHNOLOGIES INC., a
Delaware Corporation,
Plaintiffs,
v.
WAYNE DRIZIN, MICHAEL GARDINER,
ELECTRONIC PLASTICS CORPORATION,
and A CARD COMPANY,
Defendants.
_______________________________/
NO. CIV. 3:06-05528 MHP
MEMORANDUM AND ORDER RE: CIVIL
CONTEMPT
----oo0oo----
Plaintiffs e-Smart Technologies, Inc. (“e-Smart”) and
IVI Smart Technologies Inc.1 initiated this action in 2006
against defendants Wayne Drizin, Michael Gardiner, Electronic
1 Although IVI Smart Technologies Inc. is affiliated with
e-Smart and did not have independent representatives at the
settlement conference, the Order to Show Cause giving rise to the
civil contempt hearing was limited to e-Smart and its
representatives, thus the court’s decision is limited to e-Smart.
Plastics Corporation, and A Card Company, alleging that
defendants stole trade secrets in plaintiffs’ biometric smart
cards.2 In the fifth settlement conference held in this matter,
a smart card Gardiner brought to the settlement conference
disappeared, resulting in civil contempt charges against e-Smart
and four of its representatives.
I. Factual and Procedural Background
The settlement conference at issue was held on August
12, 2010, before Magistrate Judge Zimmerman and lasted the entire
day. The attendees at the settlement conference included Mary
Grace (e-Smart’s Chief Executive Officer), Tamio Saito (e-Smart’s
Chief Technology Officer), Marcello Soliven (e-Smart’s Director
of Wireless Research and Development), Ananth Krishnan (research
engineer for e-Smart) (referred to collectively as “e-Smart
representatives”), Christopher Lilly (plaintiffs’ counsel),
Drizin, Gardiner, and Magistrate Judge Zimmerman’s student
extern. When the settlement conference began, the attendees were
seated around the conference table in Magistrate Judge
Zimmerman’s library. Upon concluding that a joint session would
not be productive, Magistrate Judge Zimmerman broke the parties
up, bringing Gardiner and Drizin into his personal chambers and
having plaintiffs’ counsel and representatives remain in the
library.
2 Put simply, the biometric smart cards at issue in this
dispute are credit-card-sized cards used for identification
purposes that have the capability of reading and confirming the
user’s fingerprint. Although plaintiffs and other companies have
allegedly been producing these cards for quite some time, not a
single card has been sold in the United States, according to
Drizin.
When Gardiner and Drizin were alone with Magistrate
Judge Zimmerman in his chambers, Gardiner produced a biometric
smart card that had a picture of George Washington on it and was
manufactured by Fidelica, a company that is not involved in this
lawsuit. According to Gardiner, the Fidelica card was a
significant piece of evidence because it contained the very trade
secrets that defendants had allegedly stolen from plaintiffs and
thus provided evidence that e-Smart’s card did not contain trade
secrets. Magistrate Judge Zimmerman took the Fidelica card to e-
Smart’s representatives in the library, explained defendants’
position about the card’s value in the settlement process, and
showed the representatives the card. Grace and Saito examined
the card, and the last time Magistrate Judge Zimmerman saw the
card, it was in Saito’s hand. At the end of the settlement
conference, Gardiner indicated that the card had not been
returned to him, at which time he accompanied Magistrate Judge
Zimmerman to the library and Magistrate Judge Zimmerman
instructed everyone present to search their personal effects for
the card.
Magistrate Judge Zimmerman attempted to have a marshal
come search the attendees for the card; however, the United
States Marshal’s Office persuaded him not to conduct a search
because the female marshal who would need to search Grace had
left for the day and could take about one hour to return.
Magistrate Judge Zimmerman thus concluded the conference and
requested the parties to search for the card again that evening.
The following day, Magistrate Judge Zimmerman issued a sealed
order requiring the e-Smart representatives to make every effort
to locate the card and allowing them to return it anonymously to
the court by August 20, 2010. (Docket No. 324.)
When the Fidelica card was not returned by August 20,
2010, Magistrate Judge Zimmerman certified his version of the
facts pursuant to 28 U.S.C. § 636(e) to Judge Patel as
constituting civil contempt, stating that he “has reason to
believe e-Smart, through one or more of its representatives,
still has the missing card, or disposed of it, to prevent it from
being used as evidence by defendants.” (Docket No. 328.) Judge
Patel subsequently issued an Order to Show Cause against e-Smart
and its representatives, requiring them to “show cause why you
should not be adjudged guilty of criminal and/or liable for civil
contempt and this action be dismissed with prejudice.” (Docket
No. 329.) E-Smart responded to the Order to Show Cause and
included declarations by its representatives denying that they
took the Fidelica card and giving their version of the events
leading up to the disappearance of the card. After the United
States Attorney’s Office declined to initiate criminal contempt
charges, Judge Patel appointed Stephen E. Taylor and Jonathan A.
Patchen of the Taylor & Company Law Offices, LLP, to prosecute
the civil contempt charges.
Because Magistrate Judge Zimmerman would serve as a key
witness in the civil contempt hearing, the undersigned, a judge
from outside of the district, was assigned to preside over the
contempt hearing. After conducting a four-day evidentiary
hearing, the court finds e-Smart in civil contempt. This
Memorandum constitutes the court’s findings of fact and
conclusions of law.
II. Discussion
A court’s power of contempt is regarded as an
“inherent” power that is “necessary to the exercise of all
others.” Int’l Union, United Mine Workers of Am. v. Bagwell, 512
U.S. 821, 831 (1994). “A district court has the power to adjudge
in civil contempt any person who [] disobeys a specific and
definite order of the court.” Gifford v. Heckler, 741 F.2d 263,
265 (9th Cir. 1984). “Intent is not an issue in civil contempt
proceedings. The sole question is whether a party complied with
the district court’s order.” Donovan v. Mazzola, 716 F.2d 1226,
1240 (9th Cir. 1983) (internal citations omitted).
“Judicial sanctions in civil contempt proceedings may,
in a proper case, be employed for either or both of two purposes;
to coerce the defendant into compliance with the court’s order,
and to compensate the complainant for losses sustained.” United
States v. United Mine Workers of Am., 330 U.S. 258, 303-04
(1947); accord United States v. Bright, 596 F.3d 683, 695-96 (9th
Cir. 2010) (“Civil contempt is characterized by the court’s
desire to compel obedience to a court order or to compensate the
contemnor’s adversary for the injuries which result from the
noncompliance.” (quoting Falstaff Brewing Corp. v. Miller Brewing
Co., 702 F.2d 770, 778 (9th Cir. 1983))) (internal quotation
marks omitted).
“The standard for finding a party in civil contempt is
well settled: The moving party has the burden of showing by clear
and convincing evidence that the contemnors violated a specific
and definite order of the court.” In re Bennett, 298 F.3d 1059,
1069 (9th Cir. 2002). The clear and convincing evidence standard
requires the moving party to “place in the ultimate factfinder an
abiding conviction that the truth of its factual contentions are
‘highly probable.’” Colorado v. New Mexico, 467 U.S. 310, 316
(1984). Factual contentions are highly probable if the evidence
offered in support of them “instantly tilt[s] the evidentiary
scales in the affirmative when weighed against the evidence [the
non-moving party] offered in opposition.” Id.
A. Determining Who Took the Fidelica Card
Based on the evidence presented at the hearing, the
court finds, by clear and convincing evidence, that the Fidelica
card was taken by one of the e-Smart representatives at the
conference because only they had the opportunity to take the
card. Further, of the e-Smart representatives, the court is
convinced Mary Grace took the card based on her lack of credible
and consistent testimony about the events that day and the
evidence revealing her motive to take it.3
Magistrate Judge Zimmerman credibly testified4 that,
after Gardiner produced the e-Smart card in his chambers, he went
to the library without Gardiner or Drizin to show the e-Smart
representatives the Fidelica card. After giving the card to the
e-Smart representatives, Magistrate Judge Zimmerman testified
that he last saw the card in Saito’s hand and the e-Smart
3 As credibility was a central issue at the hearing, the
character of the e-Smart representatives, Gardiner, and Drizin
was relevant and considered by the court. The court did not,
however, consider or rely on any of the exhibits defendants
submitted after Grace’s testimony, which are filed as Docket
Numbers 368 to 374.
4 The court finds Magistrate Judge Zimmerman’s testimony
credible on all material issues and accepts his testimony as the
most accurate account of the relevant events.
representatives testified that the card was placed on the library
table when they finished examining it. Thus, it is undisputed
that the card remained in the library after Magistrate Judge
Zimmerman showed it to the e-Smart representatives. Although
there is conflicting testimony about when and for how long
Gardiner and Drizin returned to the library during the remainder
of the settlement discussions, all of the parties agree that
every time Gardiner and Drizin returned to the library, they were
accompanied by Magistrate Judge Zimmerman. The e-Smart
representatives were thus the only individuals left in the
library alone with the card and therefore the only individuals
who had the opportunity to take the card outside the presence of
Magistrate Judge Zimmerman.
E-Smart has attempted to suggest that, even though only
its representatives had access to the card in the library,
Gardiner and Drizin snuck into the library to take the card after
the e-Smart representatives left for lunch. In their
declarations and at the hearing, the e-Smart representatives
state that the Fidelica card was on the conference table in the
library when they left for lunch and gone when they returned from
lunch. Significantly, however, this explanation was never
mentioned to Magistrate Judge Zimmerman when everyone was looking
for the card at the close of the settlement conference and was
raised for the first time in the declarations. Magistrate Judge
Zimmerman’s judicial assistant also credibly testified that she
escorted Gardiner and Drizin out of chambers during the lunch
break, which would have precluded them from sneaking into the
library to take the Fidelica card.
E-Smart has also tried to suggest that, based primarily
on their prior felony convictions, Gardiner’s and Drizin’s
character makes it just as likely that they took the card. While
the court did not find Drizin to be a credible witness and finds
him, like Grace, to display the typical characteristics of a conartist,
none of the evidence creates a plausible scenario under
which Drizin had the motive or opportunity to take the Fidelica
card.
As for Gardiner, not only did he lack the opportunity
to take the Fidelica card, but the court finds it is even less
plausible that he would take the very card he brought to the
settlement conference in the hopes of getting plaintiffs in
trouble. Although Gardiner has been convicted of a felony, the
court does not believe his prior misconduct paints him to be of
as bad character as e-Smart suggests. While he was convicted for
fraud, his sentence included only a $10,000.00 fine and three
years probation and he cooperated with the government. The court
has the impression that Gardiner tends to be gullible to
fraudulent schemes, and the court therefore is inclined to
believe that he was himself a victim as well as a perpetrator in
that case.
The only other individuals who had access to the
library were Magistrate Judge Zimmerman’s staff, which included
his judicial assistant and a student extern who accompanied him
for part of the settlement conference. The record is devoid of
any evidence suggesting even a remote possibility that these
individuals took the e-Smart card.
Accordingly, the e-Smart representatives were the only
individuals with the opportunity to take the card and, of the e-
Smart representatives, the evidence persuades the court that
Grace was the one who took the card. In contrast to Magistrate
Judge Zimmerman’s credible testimony about what occurred when he
originally introduced the card, Grace’s testimony about the
events was amorphous and appeared to develop as she testified.
For example, when questioned about the technology on the Fidelica
card, Grace capriciously interjected that she actually asked
Magistrate Judge Zimmerman to hold onto the card:
I said, why in the world would he [(Gardiner)]--in fact,
I said to the Judge, I said, “Judge would you hold this
card? Would you hold this card with the special master
in the court, so” . . . “we can prove this is stolen, our
stolen technology. Not just on the ID Smart cards, but
now on the Fidelica cards that they had the audacity to
bring into court.”
(Apr. 20, 2011, Tr. 59:2-9.) Not only was this answer--along
with a majority of Grace’s testimony--non-responsive to the
actual question, Grace’s testimony that she asked Magistrate
Judge Zimmerman to hold onto the Fidelica card was not
corroborated by any other witness and was absent from her
original declaration filed in response to Judge Patel’s Order to
Show Cause.
Grace also testified that, when the Fidelica card was
presented, Gardiner indicated that he knew the technology on it
5 Magistrate Judge Zimmerman’s testimony about contacting
the Marshal’s Office indicates his law clerk was in chambers
later that day. Nothing in the testimony suggests--nor can this
court surmise--any reason why the law clerk, or any other court
employee, would have taken the card.
was stolen from e-Smart and that he had previously prepared an
affidavit to that effect. Similar to her new testimony about
asking Magistrate Judge Zimmerman to hold onto the card, any
suggestion that Gardiner had prepared such an affidavit is absent
from any of the e-Smart representatives’ declarations. Although
Grace testified that some of the testimony missing from her
declaration was in her notes and that e-Smart’s attorney failed
to include it, she neither produced her notes nor denied that she
reviewed her declaration before signing it. As this declaration
was prepared in response to the Order to Show Cause, the
importance of her account of what happened was clear. The
absence of such significant testimony from her declaration and
her addition of it for the first time at the hearing leaves the
court firmly convinced that Grace is developing an ever-changing
story to cover up for her misconduct in taking the Fidelica card.
With respect to her motive to take the card, the court
finds it highly probable that Grace was simply taking back what
she, in her way of perceiving things, believed belonged to e-
Smart. Magistrate Judge Zimmerman testified that when he
initially presented the card to the e-Smart representatives,
Grace “sort of did a -- like, a double-take, you know,” giving
him the impression that she thought defendants had “found
something.” (Apr. 7, 2011, Tr. 57:2-4.) Grace also testified
that the Fidelica card had e-Smart’s “stolen technology,” (Apr.
20, 2011, Tr. 49:9), and told Magistrate Judge Zimmerman that
Fidelica “was another company that has stolen our trade secrets.”
(Apr. 7, 2011, Tr. 57:9-10.) Grace further testified that she
believed the Fidelica card Gardiner produced at the settlement
conference “was stolen from us, from e-Smart, and brought into
the conference.” (Apr. 20, 2011, Tr. 66:4-7.) Grace’s reaction
to the card and purported belief that it was stolen from e-Smart
and contained e-Smart’s stolen technology, along with her
demeanor throughout her testimony and obvious animosity toward
Gardiner and Drizin,6 convinces the court that Grace felt
justified in simply taking back what she asserted belonged to her
company.
Grace’s testimony and demeanor also persuade the court
that she has skated through her various ventures as a flim-flam
6 Throughout her testimony, Grace constantly tried to
slip in negative comments about Gardiner and Drizin, making her
disdain for them anything but discreet. The following is one
example:
[MR. PATCHEN]: My question is: If the Fidelica card was
not using the trade secrets of e-Smart, then you would
have no objection to Mr. Gardiner producing a card that
was like Fidelica.
A: I can’t answer that question. Because, like Mr.
Satio explained, I’m not qualified to answer what card
has what on it.
I would have to ask experts if this card in any way
-- it has been derived from our technology, has been --
these are all ex-employees. These people -- have you
ever seen their entire background?
Q: My question for you, Ms. Grace --
A: Okay. Their entire background that we’re -- it
includes owning a brothel by -- there was a book written
last year called “The Man who Took America to War” that
said he --
THE COURT: Don’t get into it --
THE WITNESS: -- laundered money for the Mafia, and he
--
MR. PATCHEN: Your honor, move to strike.
THE WITNESS: I mean, these people are -- he’s
defrauded so many of our investors and shareholders that
we can bring in here that he would --
THE COURT: Wait, don’t --
THE WITNESS: He would guarantee them he would give
them triple their money back. And then -- . . . .
(Apr. 20, 2011, Tr. 62:10-23.)
artist who fabricates information in an attempt to extort a
profit. For example, when asked why e-Smart had not filed its
required “10-K” Securities and Exchange Commission filings since
2007, Grace first evaded the question and, when the court
repeated the question, she could not give a consistent or clear
answer:
Well, we filed it -- we have not filed it, on the advice
of counsel. And, we will be preparing it. But, we are
looking at different reorganization -- I mean,
restructuring of the company. And on advice of counsel,
we will do it. We have -- you know, we have informed our
attorneys. I -- I act on advice of counsel, but -- and,
it will be. I mean, we are in the process of trying to
get the 10-Ks filed.
(Id. at 92-93:5.) Grace also repeatedly evaded questions by
resorting to an explanation that e-Smart has six hundred
shareholders and her utmost concern is for those shareholders.
The court was unpersuaded, however, that e-Smart is anything more
than a sham company or that Grace’s concern for its shareholders
extends beyond the financial gain they bring her.
Based on her demeanor testifying and conduct during the
settlement process of this case, the court is also convinced that
Grace views the judicial process as a mere tool to conduct
business rather than an avenue to resolve disputes. Magistrate
Judge Zimmerman, who spent more hours attempting to settle this
case than in any other case, testified that he was under the
impression that Grace was not negotiating in good faith during
the settlement process. When discussing a separate case against
Gardiner and Drizin with a colleague, Grace’s comment about her
strategy also reflects her use of litigation as an improper
business tool: “I believe if we can put the pressure of a second
lawsuit on both Gardiner and Drizin, that we can resolve both
suits exponentially [sic].” (Defs.’ Ex. Y.)
The testimony of the other e-Smart representatives does
not create any reason to doubt that Grace took the card. The
court did not find Soliven to be a credible witness and does not
believe his testimony that Gardiner and Drizin left belongings
close to the card and, after the e-Smart representatives returned
from lunch, that the card and belongings on the table were gone.
Krishnan did not appear to have an independent recollection of
the details of what occurred that day and appeared to simply
agree with the general story advanced by his colleagues. Lastly,
based on his defensive and argumentative demeanor throughout his
testimony, the court finds it highly probable that, even though
he did not take the Fidelica card, Saito would not disclose the
fact that Grace took it if he was privy to that information.
Accordingly, when contrasted to the lack of any
plausible scenario under which another individual took the
Fidelica card, the evidence establishing that Grace had the
opportunity and motive to take the card, along with her lack of
credibility as witness, convinces the court that it is highly
probable that Grace took the Fidelica card on August 12, 2010.
B. Determining Whether Civil Contempt Occured
Having found that Grace took the Fidelica card, the
next question is whether the Special Prosecutor proved, by clear
and convincing evidence, that her conduct “violated a specific
and definite order of the court.” In re Bennett, 298 F.3d at
1069. Relying on United States v. McGainey, 37 F.3d 682 (D.C.
Cir. 1992), the Special Prosecutor argues that e-Smart can be
held in civil contempt if Grace obstructed the administration of
justice even if her conduct did not violate a specific court
order.
In McGainey, the appellate court upheld McGainey’s
conviction for criminal contempt after he made a threatening
gesture in the galley of a courtroom during a criminal trial.
Id. at 685-86. His conviction for criminal contempt, however,
was based on 18 U.S.C. § 401(1), which empowers the court to hold
an individual in criminal contempt for “[m]isbehavior . . . in
its presence or so near thereto as to obstruct the administration
of justice.” 18 U.S.C. § 401(1); see also McGainey, 37 F.3d at
684 (identifying the elements of criminal contempt as
“misbehavior of a person, in or near to the presence of the
court, which obstructs the administration of justice, and which
is committed with the required degree of criminal intent”). For
a criminal contempt conviction under § 401, courts have held that
“[w]illfulness is an essential element.” United States v.
Laurins, 857 F.2d 529, 534 (9th Cir. 1988).
At first blush, McGainey appears easily distinguishable
as it dealt with criminal, not civil, contempt and § 401 governs
criminal, not civil, contempt. The Ninth Circuit, however, has
repeatedly stated that § 401, although appearing in the criminal
code, applies equally to civil contempt. See United States v.
Powers, 629 F.2d 619, 624 (9th Cir. 1980) (“Title 18 U.S.C. §§
401 and 402 provide federal courts statutory authority to punish
contemptuous actions. Section 401 applies to both criminal and
civil contempt and contains no limitation on the power of the
district court to impose fine or imprisonment for a violation.”);
United States v. Miller, 588 F.2d 1256, 1262 (9th Cir. 1978)
(same); cf. Britton v. Co-op Banking Grp., 916 F.2d 1405, 1409
n.4 (9th Cir. 1990) (noting that a district court may impose
civil contempt pursuant to 18 U.S.C. § 401(3), which provides for
criminal contempt for “[d]isobedience or resistance to [the
court’s] lawful writ, process, order, rule, decree, or
command”).7
Despite indicating that § 401 provides authority for
civil and criminal contempt, the Ninth Circuit has never held
that obstruction of justice, without the violation of a specific
court order, is sufficient to give rise to civil contempt. If
the issue were to be properly raised before the Ninth Circuit,
this court doubts that the Ninth Circuit would continue to rely
on § 401 for civil contempt. Limiting application of § 401 to
criminal contempt and relying on caselaw for the standards
governing the court’s inherent civil contempt power is also
consistent with the Supreme Court’s criminal and civil contempt
decisions. See, e.g., Hutto v. Finney, 437 U.S. 678, 690-91
(1978) (citing § 401 as authority for criminal contempt and a
7 Presumably, if § 401 could be relied on for civil
contempt, the caselaw requiring the requisite level of intent for
criminal contempt under § 401 would not apply to civil contempt.
See McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949)
(“Civil as distinguished from criminal contempt is a sanction to
enforce compliance with an order of the court or to compensate
for losses or damages sustained by reason of noncompliance.
Since the purpose is remedial, it matters not with what intent
the defendant did the prohibited act.”); Perry v. O’Donnell, 759
F.2d 702, 705 (9th Cir. 1985) (“Although willfulness is a
necessary element of criminal contempt, we find it significant
that civil contempt may be established even though the failure to
comply with the court order was unintentional.”); United States
v. Asay, 614 F.2d 655, 661 (9th Cir. 1980) (“Willfulness is not
an element of civil contempt.”).
prior Supreme Court decision as authority for civil contempt);
Bagwell, 512 U.S. 821 (omitting any reference to § 401 in its
lengthy discussion of civil contempt).
Relying on subsection 401(1) to find civil contempt
absent a court order would also conflict with the unequivocal and
long-standing precedent requiring disobedience of a court order
for civil contempt. See Gifford, 741 F.2d at 265; In re Bennett,
298 F.3d at 1069; see also Labor/Comty. Strategy Ctr. v. L.A.
Cnty. Metro. Transp. Auth., 564 F.3d 1115, 1123 (9th Cir. 2009)
(“For issuance of a contempt order against MTA to be proper, BRU
must establish (1) that [the contemnor] violated the court order,
(2) beyond substantial compliance, (3) not based on a good faith
and reasonable interpretation of the order, (4) by clear and
convincing evidence.”) (internal quotation marks omitted); Gates
v. Shinn, 98 F.3d 463, 472 (9th Cir. 1996) (“Civil contempt is
appropriate only when a party fails to comply with a court order
that is both specific and definite.”) (internal quotation marks
omitted).
Not only does the precedent in this circuit state that
civil contempt cannot occur absent disobedience of an order from
the court, none of the parties cited and this court was unable to
find a single Ninth Circuit case in which a party has been
adjudged in civil contempt absent a court order. In an effort to
be thorough, this court conducted a Westlaw search for every
published Ninth Circuit decision that used the term “civil
contempt.” The search revealed 298 cases and the court’s review
of each of those cases confirmed that the Ninth Circuit has never
addressed, in a published opinion, a district court’s
adjudication of civil contempt absent disobedience of a court
order giving rise to the contempt.8
Accordingly, in light of the clear precedent in this
circuit and the absence of a single Ninth Circuit decision in
which a contemnor was found in civil contempt absent disobedience
of a court order, the court concludes that an individual can be
found in civil contempt only for violation of a specific and
definite court order, not for the obstruction of justice in the
absence of a court order.
Because e-Smart cannot be held in civil contempt absent
one of its representative’s disobedience of a specific and
definite order of the court, the court must determine whether
Grace’s conduct violated a court order. None of the parties
contend that Magistrate Judge Zimmerman issued an order
prohibiting taking the card, and thus Grace’s theft of the card
did not constitute civil contempt. When the Fidelica card was
initially missing at the close of the settlement conference,
Magistrate Judge Zimmerman instructed the parties to “conduct a
really good search” because he “want[ed] the card found.” (Apr.
7, 2011, Tr. 67:6-10.) Although it was clear that Magistrate
Judge Zimmerman wanted the missing card returned immediately, his
instructions to the e-Smart representatives did not clearly
8 The brevity of four per curiam decisions prevents the
court from determining whether an order gave rise to the civil
contempts at issue in the appeals, but nothing suggests that
orders were not issued in each of the cases. See Hughes v.
Sharp, 476 F.2d 975 (9th Cir. 1973); Olsen v. United States, 446
F.2d 912 (9th Cir. 1971); Matter of Bowden, 444 F.2d 546 (9th
Cir. 1971); Bd. of Governors of the Fed. Reserve Sys. v.
Transamerica Corp. & Bank of Am., Nat’l Trust & Sav. Ass’n, 184
F.2d 326 (9th Cir. 1950).
constitute an order from the court. Most tellingly, Magistrate
Judge Zimmerman used the verb “jawbone” to describe his efforts
to have the card returned, which included telling the e-Smart
representatives that searches would be performed. See
Dictionary.com, http://dictionary.reference.com/browse/jawbone
(defining the informal use of jawbone as “to attempt to influence
or pressure by persuasion rather than by the exertion of force or
one’s authority, as in urging voluntary compliance with economic
guidelines”) (last accessed May 12, 2011). Because Magistrate
Judge Zimmerman did not clearly order the card returned the day
of the settlement conference, Grace’s refusal to return the card
at the settlement conference cannot amount to civil contempt.
On the day after the settlement conference, however,
Magistrate Judge Zimmerman issued a clear, unequivocal, and
specific order to the e-Smart representatives. The sealed Order
stated:
IT IS HEREBY ORDERED that everyone who participated in
yesterday’s settlement conference shall make every effort
to locate the missing smart card (with a picture of
George Washington on it) and return it to the Court. It
may be returned anonymously by sending it to [chambers].
. . . Counsel for plaintiff is ORDERED to serve a copy of
this Order on every one of plaintiff’s representatives
and to file a declaration of service. If the card is not
returned by August 20, 2010, I will turn the matter over
to the FBI to investigate or certify the facts to Judge
Patel to determine if there has been spoliation of
evidence.
(Docket No. 324.) Grace does not deny receiving notice of this
order and, other than denying that she originally stole the
Fidelica card, Grace does not defend on the grounds that she
could not comply with Magistrate Judge Zimmerman’s Order.9
Accordingly, after stealing the e-Smart card during the
settlement conference, Grace was in contempt of court when she
failed to return it by August 20, 2010, in violation of the
August 13, 2010, Order.
C. Determination of the Appropriate Remedy
As the adjudication of civil contempt concludes the
need for Magistrate Judge Zimmerman to serve as a witness to the
events at the settlement conference on August 12, 2010, the
conflict resulting from Judge Patel or another judge in the
Northern District presiding over the civil contempt hearing no
longer exists. Accordingly, the court will defer to Judge Patel
to determine whether the appropriate remedy is dismissal with
prejudice, as suggested in the Order to Show Cause, or some
lesser sanction, such as one of the alternatives the Special
Prosecutor suggested in his memorandum of April 20, 2011. (See
9 It could be hypothesized that Grace was unable to
return the card because she had destroyed or discarded it. See
generally United States v. Rylander, 460 U.S. 752, 757 (1983)
(“In a civil contempt proceeding . . . , a defendant may assert a
present inability to comply with the order in question. . . . It
is settled, however, that in raising this defense, the defendant
has a burden of production.”). But see Falstaff Brewing Corp. v.
Miller Brewing Co., 702 F.2d 770, 782 n.7 (9th Cir. 1983) (“This
court, in dicta, has asserted that self-induced inability [to
comply] is not a defense to a charge of compensatory civil
contempt.”) (citing United States v. Asay, 614 F.2d 655, 660 (9th
Cir. 1980)). Even assuming inability to comply could serve as a
defense in this case, none of the evidence before the court
suggests that Grace would have discarded or destroyed the card
before Magistrate Judge Zimmerman issued his Order. To the
contrary, the court finds it highly probable that, after
successfully stealing what she believed belonged to her, Grace
would have held on to the card. Moreover, even if Grace
discarded the card, the Order--issued less than twenty-four hours
after she could have discarded it--unequivocally ordered her to
“make every effort to locate the missing card.” (Docket No.
324.)
Docket No. 363 (suggesting that appropriate remedies could be
ordering “reimbursement of Defendants[’] costs associated with
retaining and preparing [an] expert” to testify about the
technology on the Fidelica card, “a preclusion order, a shift of
the burdens of production and/or persuasion, or an order
requiring payment for Defendants’ costs to locate and subpoena
production of a replacement Fidelica card”).)
NOW, THEREFORE plaintiff e-Smart Technologies, Inc., is
hereby adjudged in civil contempt of the court’s Order of August
13, 2010. (Docket No. 324.) This matter is hereby referred back
to Judge Patel for all further proceedings, including
determination of the appropriate remedy to enforce this Order.
IT IS SO ORDERED.
DATED: May 18, 2011
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