United States of America v. Soong

Filing 81

ORDER by Judge Edward M. Chen Denying 70 Petitioner's Motion to Reduce Civil Contempt Fines to Judgment, and Dismissing 68 Respondent's Motion for Sanctions to be Determined as Moot.(emcsec, COURT STAFF) (Filed on 6/20/2017)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 Case No. 13-cv-04089-EMC Petitioner, 8 ORDER DENYING PETITIONER’S MOTION TO REDUCE CIVIL CONTEMPT FINES TO JUDGMENT, AND DISMISSING RESPONDENT’S MOTION FOR SANCTIONS TO BE DETERMINED AS MOOT v. 9 10 WEN-BING SOONG, Respondent. 11 12 For the Northern District of California United States District Court Case No. 13-cv-04088-EMC UNITED STATES OF AMERICA, 7 Docket Nos. 68, 70 (C-13-4088) 13 UNITED STATES OF AMERICA, 14 Docket Nos. 65, 67 (C-13-4089) Petitioner, 15 v. 16 HSIN-JUNG SHIRLEY SOONG, 17 Respondent. 18 19 I. 20 INTRODUCTION These cases arise out of a tax dispute involving Respondents Wen-Bing Soong and Hsin- 21 22 Jung Shirley Soong. During the proceedings, the Soongs were held in contempt for failing to 23 produce documents pursuant to an earlier order of this Court. Docket No. 49.1 The Court 24 imposed a charge of $500 per person per day ($1000 per day collectively as a couple) for non- 25 compliance. The Soongs subsequently settled with the IRS, resolving their underlying tax 26 liability. After the settlement, the Soongs filed a motion for entry of a final sanction order, asking 27 1 28 Most documents in this case have been filed in the dockets for both cases against the Soongs, C13-4088 and C-13-4089. Citations to the docket in this Order refer to the docket for C-13-4088. 1 the Court to limit the amount of sanctions owed under the contempt order to “not more than 2 $70,000.” Docket No. 68 (“Soong Motion”). In response, the government filed a motion to 3 reduce civil contempt fines to judgment, asking the Court to require payment of $258,000 for each 4 Respondent, reflecting the total amount of sanctions the government contends accrued while the 5 contempt order was in effect. Docket No. 70 (“Gov‟t Motion”). Following a hearing, the Court 6 directed the parties file supplemental briefs addressing the question whether the Court could 7 impose any sanctions in light of the Ninth Circuit‟s decision in Shell Offshore Inc. v. Greenpeace, 8 Inc., 815 F.3d 623, 626 (9th Cir. 2016). Having reviewed the parties‟ submissions, the Court 9 concludes that Shell Offshore prohibits the Court from collecting sanctions against the Soongs in the circumstances of this case. Accordingly, the Court DENIES the government‟s motion and 11 DISMISSES the Soongs‟ motions as moot. 12 For the Northern District of California United States District Court 10 II. FACTUAL AND PROCEDURAL BACKGROUND 13 On September 4, 2013, the government filed petitions to enforce IRS summonses in each 14 of these cases. Docket No. 1. The summonses sought production of numerous documents from 15 the Soongs. The Court issued an order granting the petitions on March 28, 2014. Docket No. 43. 16 After the Soongs unsuccessfully appealed that order, the government moved for an order finding 17 them in contempt for failing to produce the records sought in the summonses. Docket No. 49. On 18 September 3, 2015, the Court granted the motion. Docket No. 57. Noting that there “is no dispute 19 that the Soongs . . . have not produced any documents since this Court issued its order” granting 20 the IRS petitions to enforce the summonses, the Court found the Soongs in contempt and imposed 21 a fine of $500 per person per day ($1000 per day collectively as a couple) for each day they 22 remained out of compliance with the Court‟s order. Id. at 2. The fines began accruing on 23 September 11, 2015. The Court subsequently denied the Soongs‟ motions to stay the contempt 24 order. Docket No. 59. 25 The parties began settlement discussions following the entry of the contempt order, and 26 finally reached an oral agreement in September 2016. That agreement was reduced to writing in 27 November 2016; the written closing agreement did not address the Soongs‟ liability for sanctions 28 under the contempt order. See Docket No. 74-1 ¶ 11. On February 6, the Soongs tendered 2 1 payment of $1,700,000 to discharge their underlying tax liability. On February 8, 2017, the IRS 2 countersigned Form 906, which had the effect of finalizing the settlement and terminating the 3 proceedings against the Soongs. See Gov‟t Motion at 3. The parties filed the instant motions 4 seeking to resolve the sole outstanding issue of the sanctions owed under the Court‟s contempt 5 order shortly thereafter. III. 6 7 DISCUSSION “A court‟s contempt powers are broadly divided into two categories: civil contempt and 8 criminal contempt.” Shell Offshore, 815 F.3d at 628. “The purpose of civil contempt is coercive 9 or compensatory, whereas the purpose of criminal contempt is punitive.” Koninklijke Philips matters, it is possible for sanctions that were initially imposed for a civil, coercive purpose to 12 For the Northern District of California Elecs. N.V. v. KXD Tech., Inc., 539 F.3d 1039, 1042 (9th Cir. 2008). “Further complicating 11 United States District Court 10 change over time; indeed, civil coercive contempt may eventually evolve into criminal 13 contempt. . . . This is because, in order to categorize the contempt properly, a court must look to 14 the purpose of the contempt at the time it is enforced, rather than at the time it is imposed.” Shell 15 Offshore, 815 F.3d at 629-30. 16 In Shell Offshore, the Ninth Circuit joined with a number of other courts in stating that “the 17 „general rule‟ requires that „[i]f a civil contempt order is coercive in nature . . . it is mooted when 18 the proceeding out of which it arises terminates.‟” Id. at 630 (quoting Ohr ex rel. Nat’l Labor 19 Relations Bd. v. Latino Exp., Inc., 776 F.3d 469, 478–79 (7th Cir. 2015) (alterations in original)). 20 As the court explained, the reason for this rule is that once the underlying proceeding has 21 terminated “there is no longer anything left to coerce. Instead, enforcing the sanctions could only 22 serve to punish the contemnor. . . . Thus, once the underlying injunction has been terminated and 23 the contemnor can no longer purge its contempt through compliance, the contempt becomes 24 criminal.” Id. at 631. Because criminal contempt cannot be imposed without the full panoply of 25 due process protections owed to any criminal defendant, see Int’l Union, United Mine Workers of 26 Am. v. Bagwell, 512 U.S. 821, 827 (1994), “in cases where the underlying proceeding has been 27 rendered moot, the coercive contempt proceeding must be vacated in order to avoid a due-process 28 violation.” Shell Offshore, 815 F.3d at 631. 3 1 Shell Offshore involved a coercive contempt order that had been issued against 2 environmental activists from Greenpeace who suspended themselves from a bridge in an effort to 3 block a Shell Offshore vessel involved in Arctic oil drilling. The district court had previously 4 issued a preliminary injunction prohibiting such actions. Accordingly, after the activists violated 5 the injunction, the court found them in contempt and imposed a coercive sanctions order with “a 6 progressively increasing schedule of fines against Greenpeace: $2,500 for each hour in contempt 7 during the first day; $5,000 per hour during the second day; $7,500 per hour during the third day; 8 and $10,000 per hour thereafter.” Id. at 627. The activists remained out of compliance with the 9 contempt order for seven hours. 10 By the time the Ninth Circuit considered the issue, the preliminary injunction had expired and would not be renewed. Accordingly, the Court held that the district court could not enforce 12 For the Northern District of California United States District Court 11 the sanctions order, because “there is no longer anything left for the district court to coerce 13 Greenpeace to do. Enforcing the fee-schedule monetary sanction would only serve to punish 14 Greenpeace for its past contumacious actions. Accordingly, the pending contempt proceedings 15 must be vacated.” Id. at 631. 16 The present case is precisely analogous. Neither party disputes that the Court‟s contempt 17 order in this case was coercive – it was intended to coerce the Soongs into producing the 18 documents called for the IRS summonses. Similarly, neither party disputes that, when the Soongs 19 paid the amount owed under the settlement and the IRS countersigned Form 960, the underlying 20 dispute that justified the sanctions order was terminated. Under Shell Offshore, the Court‟s 21 continued enforcement of the sanctions order by requiring payment “would only serve to punish 22 [the Soongs] for [their] past contumacious actions,” thus leading to a potential due-process 23 violation. Given this clear authority, the Court concludes that the contempt order against the 24 Soongs must be vacated. 25 The government contends that Shell Offshore is inapplicable in this case because this case 26 does not involve an injunction that had expired or been terminated. See Docket No. 80 (“Gov‟t 27 Supp. Br.”) at 2. But nothing in Shell Offshore suggests that its reasoning is limited to the context 28 of injunctions. To the contrary, the opinion consistently uses broad language, describing its 4 1 holding as a “general rule” and stating that “in cases where the underlying proceeding has been 2 rendered moot, the coercive contempt proceeding must be vacated in order to avoid a due-process 3 violation.” Shell Offshore, 815 F.3d at 631 (emphasis added). government represents that it is the standard practice for courts to require payment of fines 6 accumulated under coercive contempt orders even after the underlying dispute has been resolved. 7 See Gov‟t Supp. Br. at 3. This practice makes sense, because if a court cannot enforce a contempt 8 order after the underlying dispute has been resolved, then the order loses much of its coercive 9 effect. Indeed, the Government is correct that this rule likely creates a perverse incentive for 10 contemnors not to come into compliance with a court order, assuming that a resolution of the 11 underlying dispute through settlement or otherwise is on the horizon. The greater the fines that 12 For the Northern District of California The Court recognizes that this is, in many ways, a counterintuitive result. First, the 5 United States District Court 4 have accumulated, the stronger this disincentive will be. Moreover, as some courts have 13 recognized, this rule creates an inconsistency between the different sanctions available to a court. 14 For instance, as an alternative to fines, a court can coerce compliance with its orders through 15 imprisonment. In such a case, if a contemnor frees himself through compliance “[i]t is clear that, 16 though the imprisoned contemnor is released from jail, he did not escape the consequences of his 17 contempt. He has already „paid,‟ and cannot be given back his days lost in jail; compliance 18 merely ends his jail time.” Occupational Safety & Health Admin. v. All-Feed Processing & 19 Packaging Inc., No. 11-MC-1054, 2012 WL 1029659, at *5 (C.D. Ill. Mar. 26, 2012). If, on the 20 other hand, the Court imposes a fine, and the contemnor ultimately resolves the underlying 21 dispute, then he will have escaped the consequences of his contempt altogether. 22 The Court is mindful of the force of these considerations, but the holding of Shell Offshore 23 is clear. Absent some further clarification from the Ninth Circuit, this Court is bound to follow its 24 directive. Because the underlying dispute in this case has terminated, the Court concludes that it 25 must vacate its prior contempt order. Accordingly, the Court DENIES the government‟s motion 26 to reduce the civil contempt fines to judgment, and DISMISSES the Soongs‟ motions as moot. 27 /// 28 /// 5 1 2 This order disposes of Docket Nos. 68 and 70 in C-13-4088 and Docket Nos. 65 and 67 in C-13-4089. 3 4 IT IS SO ORDERED. 5 6 7 8 Dated: June 20, 2017 ______________________________________ EDWARD M. CHEN United States District Judge 9 10 12 For the Northern District of California United States District Court 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6

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