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United States v. Ayer

decided: January 25, 1989.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
FREDERICK B. AYER; RITA K. AYER; RITZ ASSOCIATES, INC.; FBA, INC.; UNIVERSAL AIRCRAFT CORPORATION; GEORGE ROWLAND; DONALD WHITNEY; AND EMPIRE OF AMERICA SAVINGS BANK, DEFENDANTS, FREDERICK B. AYER, APPELLANT



Appeal from civil contempt order entered in the United States District Court for the Southern District of New York (Owen, J.) directing appellant to serve fifteen-day term of confinement to compel future compliance with injunction restricting transfer of assets. Vacated and remanded.

Lumbard, Winter and Miner, Circuit Judges.

Author: Miner

MINER, Circuit Judge:

Appellant Frederick B. Ayer (Ayer II) appeals from an order of the United States District Court for the Southern District of New York (Owen, J.) holding him in civil contempt and directing him to serve a fifteen-day term of confinement. Ayer II contends that the order is criminal rather than civil because it lacks conditions by which he could purge himself of the contempt, and that he should have been afforded the substantive and procedural safeguards that attend a finding of criminal contempt. He also challenges as vague and ambiguous the preliminary injunction he was alleged to have violated. Because we agree that the sanction imposed improperly was designated as a penalty for civil contempt, we vacate the order of the district court and remand for further proceedings.

BACKGROUND

Ayer II is a son of Frederick B. Ayer (Ayer I), who is a defendant in the underlying action and against whom the government obtained a judgment on January 21, 1987 in the amount of $939,903.54 for unpaid taxes. That judgment remains unpaid.

After the date of judgment, Ayer I maintained a high standard of living. He accomplished this by secreting assets through "alter ego" corporations, some of whose checking accounts he used as his own. Through such manipulations, both money and assets were transferred to members of Ayer I's family. These transfers tended to defeat the government's efforts to satisfy the judgment.

On March 17, 1987, the district court issued a temporary restraining order enjoining most transfers of assets by, to or for the benefit of Ayer I. After a March 27, 1987 hearing, which Ayer II attended, the district court on April 7, 1987 issued the preliminary injunction out of which this contempt arises. The injunction prohibits

[Ayer I], his agents, servants and employees, and all those acting in concert with him, including but not limited to employees and shareholders of Universal Aircraft Corporation, Aerospace Trading Corporation, FBA Aircraft SA, and FBA Inc., . . . from transferring any sum of money or thing of value for the benefit of [Ayer I], Donna Ellwanger [his girlfriend and mother of his other son], any children of [Ayer I], or any spouse or former spouse of [Ayer I]; and . . . from transferring any sum of money or thing or [sic] value in payment of the obligations of [Ayer I].

However, it does permit Ayer I "to expend funds for daily living expenses, for which he shall account to the United States Attorney for the Southern District of New York." This order applied to Ayer II and restricted him from transferring assets, because he was the president and an employee and shareholder of FBA, Inc. ("FBA"), and the president and controlling shareholder of Universal Aircraft Corporation and FBA Aircraft SA.

Presumably to circumvent the order, Ayer II began siphoning money from FBA, in the form of loans, to pay his father's debts. From April 10, 1987 through September 21, 1987, Ayer II and the Ayer entities extinguished over $100,000 of Ayer I's obligations. Large portions of these payments went to Ayer I's first and second wives, and to the mortgage and maintenance charges on family members' homes. In addition, Ayer II paid approximately $15,000 to cover debts incurred by his father for travel, reading materials, entertainment, expenditures at the Harvard Club and maintenance on Ayer I's Florida residence.

As a result of these actions, the court, at a September 4, 1987 hearing, adjudged Ayer I in contempt and ordered him to submit a weekly account of his daily living expenses. In an Opinion and Order dated July 5, 1988, the district court found "clear and convincing proof of Ayer [I's] and Ayer II's deliberate violation of the April 7, 1987 order, the father acting directly and the son 'in concert with' him." The order therefore held Ayer I and Ayer II "in civil contempt" under 18 U.S.C. section 401(3) (1982). "Given the extensive history of transfers and loans from one corporate entity to another to defeat payment of obligations," the district court concluded "that a monetary sanction would be ineffective in bringing about their future compliance with this Court order." To "compel such future compliance" with its order, the court ordered each Ayer to serve a term of civil confinement of fifteen days in the Metropolitan Correctional Center.

Ayer II served six days of this sentence, but was released pursuant to a stay granted by the district Court pending this expedited appeal. Ayer I failed to report for confinement; he currently is a fugitive and is not a party to this appeal.

Ayer II contends that the contempt order is criminal, not civil, because it contains no conditions through which he can purge himself of the contempt. The government argues that a purge mechanism is neither necessary nor possible for a civil contempt where the underlying order is to "refrain" from certain action. Ayer II maintains further ...


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