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SEC v. MUSELLA

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK


April 7, 1993

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
DOMINICK MUSELLA, et. al., Defendants.

Wood

The opinion of the court was delivered by: KIMBA M. WOOD

OPINION AND ORDER

WOOD, D.J.

 Plaintiff, the Securities and Exchange Commission, ("Commission") moves for an order holding defendant Albert DeAngelis in civil contempt. Magistrate Judge Grubin recommends that I hold defendant DeAngelis in civil contempt and recommends that I require him to meet certain conditions in order to purge his contempt. Mr. DeAngelis objects to Magistrate Judge Grubin's Report and Recommendation ("Report"). On de novo review, I adopt Magistrate Judge Grubin's Report in its entirety for the reasons stated below.

 I. PROCEDURAL BACKGROUND

 Magistrate Judge Grubin's Report relates the facts relevant to this action. I will repeat them here only to the extent necessary.

 This court's Final Judgment and Order entered on September 28, 1989 required Mr. DeAngelis to disgorge profit from trading in securities on inside information. The profit and prejudgment interest totalled $ 615,918.82 and was due thirty days from the date judgment was entered. The Court of Appeals affirmed the Final Judgment and Order, and the United States Supreme Court denied a petition for a writ of certiorari on October 1, 1990.

 Following defendant's failure to comply with the judgment, the Commission moved for a judgment of civil contempt against Mr. DeAngelis on November 16, 1990. After an evidentiary hearing on October 8, 1991, Magistrate Judge Grubin ordered Mr. DeAngelis to make interim payments of $ 1,500.00 per month until further order of the court. The hearing resumed on January 23, 1992 after defendant requested an opportunity to present additional evidence. Magistrate Judge Grubin submitted her Report on October 29, 1992.

 II. DISCUSSION

 Mr. DeAngelis objects to the Report on two grounds. First, he argues that he should not be held in contempt of court because it was impossible for him to comply with the September 28, 1989 order. Second, he argues that even if he is in contempt, the conditions for purging his contempt recommended by Magistrate Judge Grubin are unreasonable.

 A. Civil Contempt of Court

 A court may exercise its inherent power to enforce compliance with a lawful order by holding a party in civil contempt when 1) the order is clear and unambiguous; 2) proof of noncompliance is clear and convincing; and 3) the party has not been reasonably diligent and energetic in attempting to comply with the order. See, e.g., EEOC v. Local 580, Int'l Ass'n of Bridge, Structural & Ornamental Ironworkers, Joint Apprentice-Journeyman Educ. Fund, 925 F.2d 588, 594 (2d Cir. 1991).

 Mr. DeAngelis does not dispute that he has failed to comply with this Court's September 28, 1989 order. However, he argues that it was factually impossible for him to pay the entire amount ordered. Mr. DeAngelis has the burden of coming forward with evidence showing financial inability to comply. United States v. Rylander, 460 U.S. 752, 757, 75 L. Ed. 2d 521, 103 S. Ct. 1548 (1983).

 Mr. DeAngelis objects to Magistrate Judge Grubin's recommendation that Mr. DeAngelis' failure to make periodic payments of smaller amounts to the extent of his financial ability precludes a defense of inability to pay. Although it is true that "a contempt citation cannot be based on a vague and uncertain order," In Re BiCoastal Corporation, 129 Bankr. 283, 285 (M.D. Fla. 1991), the order in this case was clear and unambiguous.

 When an order requires a party to pay a sum certain, a mere showing that the party was unable to pay the entire amount by the date specified is insufficient to avoid a finding of contempt. When a party is absolutely unable to comply due to poverty or insolvency, inability to comply is a complete defense. See Badgley v. Santacroce, 800 F.2d 33, 37 (2d Cir. 1986). Otherwise, the party must pay what he or she can. See Piambino v. Bestline Products, Inc., 645 F. Supp. 1210, 1214 (S.D. Fla. 1986) ("a person subject to court order must comply to the fullest extent possible, regardless of whether such efforts result in compliance in whole or in part").

 Mr. DeAngelis' offer to the Commission to pay $ 50,000 over five years in full satisfaction of the Judgment, which was not accepted, and his compliance with Magistrate Grubin's interim order directing monthly payments of $ 1,500 cannot be characterized as a reasonably diligent and energetic attempt to comply. Mr. DeAngelis is able to pay more, and he may be held in contempt for his failure to do so. Mr. DeAngelis has made no showing that he incapable of making any payment, nor has he paid that portion of the amount that he is able to pay. Furthermore, he has not requested that the Court clarify or modify of the order. See McComb v. Jacksonville Paper Co., 336 U.S. 187, 192, 93 L. Ed. 599, 69 S. Ct. 497 (1949); Powell v. Ward, 643 F.2d 924, 932 (2d. Cir.), cert. denied, 454 U.S. 832, 70 L. Ed. 2d 111, 102 S. Ct. 131 (1981). In short, he has not "in good faith employed the utmost diligence in discharging his . . . responsibilities." Natural Resources Defense Council, Inc. v. Train, 166 U.S. App. D.C. 312, 510 F.2d 692, 713 (D.C. Cir. 1974).

 B. Requirements for Purging Contempt

 Mr. DeAngelis next objects that even if he is in contempt, Magistrate Judge Grubin's recommendations as to how he may purge his contempt are unreasonable. First, he protests that he does not have the means to make a $ 100,000 lump-sum payment. If this is so, Mr. DeAngelis may comply in the alternative by transferring his ownership interest in the motel note.

 Mr. DeAngelis' objection that transfer of the motel note will result in a fifty percent reduction in the income received by him and his wife demonstrates his misunderstanding of this contempt proceeding. He has been ordered by this court to disgorge money that he gained illegally through insider trading in securities. He must pay what he is capable of paying, even if making the payment results in a diminution of his income or his relatively comfortable standard of living. Contrary to Mr. DeAngelis' assertion, the extent to which Mr. DeAngelis' assets and income would be exempt from attachment under New York law does not alter his duty to pay the amount he owes under the order. See Badgley v. Santacroce, 800 F.2d 33, 37-38 (2d Cir. 1986), cert. denied, 479 U.S. 1067, 93 L. Ed. 2d 1003, 107 S. Ct. 955 (1987) (judgment of federal court must be respected even if compliance violates state law).

  As Magistrate Judge Grubin observed, Mr. DeAngelis could raise the required funds by selling or renting the Florida condominium, by selling or using income from DeAngelis Jewelers, or by renting out the second-family apartment that is currently being occupied rent-free by his gainfully employed 22-year old grandson. Noting that his wife has an interest in these assets, Mr. DeAngelis compares the situation to cases in which the contemnor was being used "as a 'hostage' to put pressure on third parties interested in his release from contempt." See United States v. International Brotherhood of Teamsters, 899 F.2d 143, 147 (2d Cir. 1990). This is not such a case. Although Mrs. DeAngelis owns a fifty percent share of the DeAngelis' Queens home and their Florida condominium and is the full owner of the jewelry store, use of these assets is perfectly appropriate when her husband's income fully supports her and when funds from the jewelry store helped to finance Mr. DeAngelis' insider trading.

 Moreover, by reducing his expenses, Mr. DeAngelis would be capable of purging his contempt without a substantial impact on his wife's interest in the two residences and the store. Mr. DeAngelis objects that he would not be capable of making the $ 2,000 monthly payments, even after reducing his discretionary spending. In support of this contention, he attaches to his objections statements of cash receipts and disbursements compiled by John C. Reseska, a certified public accountant. Exhibit C to Mr. Reseska's statements purports to show that with certain reductions in discretionary spending, Mr. DeAngelis would still have a $ 2,211 excess of cash disbursements over receipts if he were reguired to pay $ 2,000 per month to purge his contempt. However, I find that with further reductions in discretionary spending, Mr. DeAngelis would be able to make the payments. The necessary reductions could be achieved immediately without requiring Mrs. DeAngelis to mortgage her interest in her Queens home or to sell DeAngelis Jewelers to her daughter and son-in law.

 For example, by limiting his total auto expenses (including lease and loan payments, insurance, maintenance and gas) to the amount of his auto reimbursement, Mr. DeAngelis could save an additional $ 668 per month. *fn1" By extending payment of his credit card debt over a 48 month period instead of a 12 month period, he could save another $ 788 per month. *fn2" By selling his interest in the vacation condominium or by renting it out for part of the year, he could eliminate his entire share of the expenses related to the residence, which comes to $ 231 per month. *fn3" Finally, he could close the $ 2,211 per month shortfall projected by the accountant by making an additional reduction of $ 524 per month in his combined telephone, clothing, food and entertainment expenses. *fn4" This could be achieved through elimination of the second telephone in the DeAngelis home, deferment of clothing purchases, and reduction in food and entertainment expenses. These reductions could be temporary, because, as Magistrate Judge Grubin noted, additional funds will become available in one to two years as the car loan and mortgage are paid off.

 III. CONCLUSION

 For the foregoing reasons, I find, on de novo review, that Mr. DeAngelis is in contempt of this Court's Final Judgment and Order of September 28, 1989.

 In order to purge his contempt, Mr. DeAngelis is required to do the following: First, within ninety (90) days of the date of this order, he shall pay to the Clerk of Court $ 100,000. In the alternative, he may transfer to the Commission within ten (10) days of the date of this order his entire right to principal and interest on the Motel Montreal mortgage note he owns. Second, he shall pay $ 2,000 to the Clerk of Court at the end of each month commencing on January 31, 1993 and continuing on the last day of each month until further order of the Court. The $ 2,000 payment will also satisfy Magistrate Judge Grubin's October 8, 1991 order to make payments of $ 1,500 per month. Third, he shall be enjoined from disposing of or encumbering in any way his interest in his home without further order of the Court. Fourth, he shall provide a financial statement to the Court every six months, under oath, showing household income and expenses and shall also provide his yearly tax returns.

 SO ORDERED.

 DATED: New York, New York

 April 7, 1993

 Kimba M. Wood

 United States District Judge


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