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UNITED STATES v. HODGE

June 29, 1995

UNITED STATES OF AMERICA
v.
LINDA HODGE, Defendant.



The opinion of the court was delivered by: ALLEN G. SCHWARTZ

 ALLEN G. SCHWARTZ, DISTRICT JUDGE:

 Currently pending before this Court is the motion of defendant Linda Hodge to dismiss the Indictment. For the reasons set forth below, the motion is denied.

 BACKGROUND

 On December 22, 1995, a grand jury sitting in the Southern District of New York returned a one-count Indictment against the defendant which charged her with criminal contempt in violation of Title 18, United States Code, Section 401. (A copy of the Indictment is attached hereto as Exhibit A). The Indictment charges that on or about August 10, 1993, the Securities and Exchange Commission ("SEC") commenced a civil injunctive action to restrain a fraudulent offering of $ 2 million of the securities of Air Tech Industries, Inc. ("Air Tech"). This action was brought against Air Tech and its president, Gary L. DiGirolamo ("DiGirolamo"), and against Hercules Capital, Inc. ("Hercules"), the brokerage firm that offered and sold Air Tech securities to the public, and Craig Medoff ("Medoff"), Hercules' president. (Indictment at 1).

 On or about August 10, 1993, the United States District Court for the Southern District of New York issued an Order (the "Freeze Order") which, among other things, directed that Medoff, DiGirolamo, Hercules, Air Tech, and their employees, servants, officers, and agents hold and retain within their control, and otherwise prevent any withdrawal, transfer, pledge, encumbrance, assignment, dissipation, concealment, and other disposal of the assets, funds, and properties of Air Tech and DiGirolamo. (Indictment at 1; Freeze Order, Exhibit B to the Government's Memorandum of Law, "Gov't Mem."). On that same date, Air Tech and DiGirolamo consented to the entry of a final judgment which continued the Freeze Order pending the District Court's determination of the SEC's claims against Air Tech and DiGirolamo. (Indictment at 2; Final Judgment, Exhibit C to Gov't Mem.).

 As the Indictment alleges, the defendant was an accountant retained by Air Tech and DiGirolamo to audit Air Tech's financial statements included in Air Tech's stock offering materials disseminated to the public, and to act as the custodian for the funds which investors paid to subscribe to the offering. (Indictment at 2; see also the SEC deposition of Linda Hodge, dated August 17, 1993, Exhibit D to Gov't Mem., at 22). Hodge deposited these funds into her Client Funds Account at Chemical Bank in New York City (the "Client Funds Account"). *fn1" (Indictment at 2). This Client Funds Account consisted of a primary account and several subaccounts, one of which was designated the "Air Tech" subaccount. Although a deposit could be made directly into either the primary account or the Air Tech subaccount, funds could only be withdrawn directly from the primary account. Funds from the Air Tech subaccount, therefore, had to be transferred first into the primary account before they could be withdrawn. (See SEC deposition of Linda Hodge, dated March 17, 1993, Exhibit F to Gov't Mem., at 83, 86, and 89-90).

 On or about August 12, 1993, the SEC served a copy of the Freeze Order upon the defendant. (Indictment at 2; certification of service, Exhibit G to Gov't Mem.). The Indictment alleges that the defendant withdrew approximately $ 13,000 of the Air Tech investors' funds from her Client Funds Account while the Freeze Order was still in effect. (Indictment at 2).

 The defendant now moves to dismiss the Indictment on the ground that the District Court's August 10, 1993 Order was vague, unclear, ambiguous, and insufficiently specific. For the reasons set forth below, the motion is denied.

 DISCUSSION

 In the recent decision United States v. Bruce Cutler, 58 F.3d 825, 834, 1995 U.S. App. LEXIS 15549 (2d Cir. 1995), the Court of Appeals for the Second Circuit reiterated the standard that the Government must meet in order to obtain a conviction for criminal contempt.

 Accordingly, the defendant is correct in her contention that "no one may be held in contempt for violating a court order unless the order is clear and specific and leaves no uncertainty in the minds of those to whom it is addressed." Hess v. New Jersey Transit Rail Operations, Inc., 846 F.2d 114, 116 (2d Cir. 1988) (citing International Longshoremen's Ass'n v. Philadelphia Marine Trade Ass'n, 389 U.S. 64, 76, 19 L. Ed. 2d 236, 88 S. Ct. 201 (1967)); see also, United States v. Charmer Indus., Inc., 722 F.2d 1073, 1079 (2d Cir. 1983) (a defendant cannot be held in contempt absent a "definite and specific" order of which he had notice). This does not mean, however, that where an injunction gives fair warning of the act that it forbids, it can be avoided on merely technical grounds. United States v. Christie Industries, Inc., 465 F.2d 1002, 1007 (3d Cir. 1972). Indeed, in a criminal contempt case involving a court order,

 
the court should consider the entire background behind the order -- including the conduct that the order was meant to enjoin or secure, the interests that it was trying to protect, the manner in which it was trying to protect them, and any past violations and warnings -- in determining whether the order is sufficiently specific and in ...

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