International Marine LLC et al v Delta Towing LLC

Filing 477

ORDER AND REASONS ON MOTION. Delta's Motion for Contempt and Sanctions, Record Doc. No. 464, is currently pending before me. Having considered the record, the applicable law and the written submissions of counsel, IT IS ORDERED that the motion is GRANTED IN PART AND DENIED IN PART for the reasons set forth herein. Signed by Magistrate Judge Joseph C. Wilkinson, Jr on 4/16/2015. (tbl) [NEF: Hon. Eldon Fallon]

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
INTERNATIONAL MARINE, L.L.C. ET AL.

CIVIL ACTION

VERSUS

NO. 10-44

FDT, LLC, f/k/a DELTA TOWING, L.L.C.

SECTION “L” (2)

ORDER AND REASONS ON MOTION
This a maritime contract case in which the court has entered a judgment in favor
of FDT, L.L.C., f/k/a Delta Towing, L.L.C. (“Delta”), against affiliated corporate entities,
International Marine, L.L.C., and International Offshore Services, L.L.C. (jointly
“International”), in the principal amount of $8.25 million. The total amount due to Delta
from the two judgment creditors rises to about $12 million when previously awarded
interest, attorney’s fees and costs are added. International has failed to pay the judgment.
Delta has commenced judgment enforcement efforts, including a judgment debtor
examination and document discovery pursuant to the court’s order. Record Doc.
No. 390. Delta’s Motion for Contempt and Sanctions, Record Doc. No. 464, for
International’s alleged failure to comply with that order is currently pending before me.
Plaintiff filed a timely opposition memorandum. Record Doc. No. 468. Defendant was
granted leave to file a reply. Record Doc. Nos. 470, 471, 472.
Although its title refers exclusively to contempt and sanctions, Delta’s motion also
seeks other relief in the form of additional discovery in aid of judgment execution,
including production of additional materials responsive to the order, compelled

deposition testimony from additional witnesses and an award of attorney’s fees and costs,
payable by both the judgment debtors and their lawyers.
Having considered the record, the applicable law and the written submissions of
counsel, IT IS ORDERED that the motion is GRANTED IN PART AND DENIED IN
PART for the following reasons.
Fed. R. Civ. P. 69(a) provides that “[t]he procedure on [judgment] execution – and
in proceedings supplementary to and in aid of judgment or execution – must accord with
the procedure of the state where the court is located . . . . In aid of the judgment or
execution, the judgment creditor or a successor in interest whose interest appears of
record may obtain discovery from any person – including the judgment debtor – as
provided in these [federal] rules [of civil procedure] or of the state where the court is
located.” (Emphasis added).
The judgment debtor examination is a judgment enforcement procedure authorized
by La. Code Civ. P. arts. 2451-2456. Specifically, “[i]n aid of execution the judgment
creditor may examine the judgment debtor, his books, papers, or documents, upon any
matter relating to his property . . . . [T]he judgment creditor may also examine any
person upon any matter relating to the judgment debtor’s property . . . .” La. Code Civ.
P. art. 2451 (emphasis added). As Delta did in this case, “[o]n ex parte written motion
of the judgment creditor, personally or through his attorney, the court shall order the
judgment debtor to appear in court for examination at a time fixed by the court, . . . and
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to produce any books, papers, and other documents relating to the judgment debtor’s
property described in the motion.” Id. art. 2453. In addition, “[c]ourt costs in connection
with the examination shall be taxed against the judgment debtor . . . . If . . . the judgment
debtor refuses to appear for the examination or to produce his books, papers, or other
documents when ordered to do so, or if he refuses to answer any question held pertinent
by the court, the judgment debtor may be punished for contempt.” Id. arts. 2455, 2456
(emphasis added).
As the leading commentators on federal procedure have outlined, in federal
judgment enforcement proceedings like those in this case,
[a] judgment creditor may obtain discovery from any person, including the
judgment debtor, in aid of the judgment or execution. . . . The judgment
creditor is allowed discovery to find out about assets on which execution
can issue or about assets that have been fraudulently transferred or are
otherwise beyond the reach of execution. . . . As the Supreme Court has
said [in Republic of Argentina v. NML Capital, Ltd., 134 S. Ct. 2250, 2254
(2014)], “[t]he rules governing discovery are quite perimissive [sic].”
A judgment creditor may use the discovery devices provided in Civil Rules
26 to 37 or may obtain discovery in the manner provided by the practice of
the state in which the district court is held. The scope of examination is
very broad, as it must be if the procedure is to be of any value. Ordinarily
third persons can be examined only about the assets of the judgment debtor
. . . although probing questioning is allowed with regard to third parties
with close ties to the judgment debtor.
12 C. Wright, A. Miller, M. Kane, R. Marcus & A. Steinman, Federal Practice and
Procedure § 3014, text accompanying nn. 1-8 (and cases cited therein) (2d ed. 1997), on
Westlaw at FPP § 3014 (updated Sept. 2014) (emphasis added) (hereinafter “Wright &
Miller”).

In federal judgement enforcement proceedings, “as is customary, the
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examination is made pursuant to [Federal] Civil Rules 26 to 37 rather than state
practice.” Id., text accompanying n.20 (and cases cited therein).
As to contempt, the United States Court of Appeals for the Fifth Circuit has stated that
[f]ederal courts have the inherent power to punish for contempt. Roadway
Express, Inc. v. Piper, 447 U.S. 752, 764 (1980). The availability of that
power promotes “the due and orderly administration of justice” and safeguards
the court’s authority. Id. (quoting Cooke v. United States, 267 U.S. 517, 539
(1925)). “Because inherent powers are shielded from direct democratic
controls,” [however,] the Supreme Court instructs that “they must be exercised
with restraint and discretion.” Id. Rather than stemming from a “broad
reservoir,” they are “implied power[s,] squeezed from the need to make the
court function.” Crowe v. Smith, 151 F.3d 217, 226 (5th Cir. 1998).
Hornbeck Offshore Servs., L.L.C. v. Salazar, 713 F.3d 787, 792 (5th Cir. 2013) (emphasis
added).

The movant in a civil contempt proceeding bears the burden of
establishing by clear and convincing evidence that: (1) a court order was
in effect; (2) the order required certain conduct by the respondent; and
(3) the respondent failed to comply with the court order. In the contempt
context, “clear and convincing evidence” is that ‘weight of proof which
produces in the mind of the trier of fact a firm belief or conviction as to
truth of the allegations sought to be established, evidence so clear, direct,
weighty and convincing as to enable [the] fact finder to come to a clear
conviction, without hesitancy, of the truth of the precise facts of the case.”
Moawad v. Childs, 253 F.3d 700, 2001 WL 498491, at *1 (5th Cir. Apr. 9, 2001)
(quoting Travelhost, Inc. v. Blandford, 68 F.3d 958, 961 (5th Cir. 1995)); accord
Hornbeck Offshore Servs., L.L.C. v. Salazar, 701 F.3d 810, 815 (5th Cir. 2012); Am.
Serv. Mktg. Corp. v. Bushnell, No. 09-3097, 2009 WL 1870887, at *2 (E.D. La. June 25,
2009) (Engelhardt, J.).

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Applying the foregoing standards, the motion is denied insofar as it seeks either
a contempt citation or monetary sanctions at this time. The draconian sanction of a
contempt citation is not currently warranted where, as here, the judgment debtors have
not exhibited stubborn resistance to the court’s authority and orders or intentional refusal
either to answer examination questions or produce requested materials. Although
International’s response to the court’s order was deficient as outlined below, I attribute
– at least at this time – those deficiencies to the judgment debtors’ present operational
state, including the lack of any direct employees or administrative staff and apparently
depleted resources, coupled with their chief executive officer’s relatively recent
assignment to that position and less than fully conscientious effort, rather than to
intentional defiance of the court’s order.

The judgment debtors have produced

voluminous business records and their current chief executive officer, Danny J. Frich, for
two days of testimony responsive to Delta’s judgment enforcement efforts, all of which
I consider sufficient to avoid imposition of a contempt citation at this time.
The request for sanctions in the form of an award of attorney’s fees and costs is
denied because such an award would be duplicative of amounts Delta is already entitled
to receive. In his findings and conclusions making the substantive award in Delta’s favor,
Judge Fallon has already held, “Under the terms of the parent company guarantee,
International Offshore’s liability includes Delta’s costs and expenses, including
attorneys’ fees, in seeking to enforce International Marine’s obligations.” Record Doc.
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No. 336 at p. 22 n.1. In addition, Louisiana law applicable through the provisions of Fed.
R. Civ. P. 69(a)(1) provides that “[c]ourt costs in connection with the [judgment debtor]
examination shall be taxed against the judgment debtor.” La. Code Civ. P. art. 2455.
Unlike Fed. R. Civ. P. 37(b)(2)(C), neither La. Code Civ. P. articles 2455 and 2456 nor
the contractual provision upon which the court’s judgment based its award of attorney’s
fees and costs provide for such an award against the debtors’ counsel. Attorney’s fees
and taxable court costs known through the date of application have already been assessed
as part of the court’s judgment. Delta may move to amend the judgment in particular
amounts of attorney’s fees and taxable costs as appropriate.
On the other hand, the motion is granted insofar as it requests an order compelling
further compliance with the court’s order in the form of additional testimony and
production in aid of Delta’s judgment enforcement effort. The motion papers, especially
the lengthy two-volume transcript of the judgment debtor examination, Record Doc. Nos.
464-2 and 464-3, establish clear deficiencies in the response of the judgment debtors to
the court’s order, both insofar as the order required testimony and the production of
responsive materials.
For example, although International’s current chief executive officer was an
appropriate person to designate to appear on its behalf, at least as a start to the judgment
enforcement and related discovery process, his testimony was replete with examples of
woefully insufficient efforts to locate and provide materials responsive to the production
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order and lack of knowledge of pertinent information. These deficiencies may be
attributable, at least in part, to the broad scope of the testimony and production order and
the fact that Frich’s real employer is Platinum Equity Advisors (“Platinum”); that he
became International’s chief executive officer only about nine months ago; and that
International now appears to have been reduced to a shell that “doesn’t have any
employees” and whose “assets have been sold.” Record Doc. No. 464-2 at pp. 9, 11, 22;
Record Doc. No. 464-3 at pp. 15-16.
Frich’s testimony is replete with “I don’t know,” “I’m not sure” and similar
answers establishing lack of knowledge as to questions that were not only pertinent to
the kind of broad-sweeping examination that the sources cited above hold is appropriate
to judgment enforcement proceedings, but also to simple ministerial matters like the
location and method of storing documents and electronically stored communications and
information and the efforts that were made to track down responsive materials. See, e.g.,
Record Doc. No. 464-2 at pp. 14-16, 24, 27, 30, 35, 40, 41, 65-66, 69, 73, 75, 93, 102-03,
123, 127-28, 133, 134, 137-38, 143, 146, 148, 153, 155-57 (“Q. You didn’t make any
effort to go into that storage facility and look through those boxes? A. No.”), 179, 180;
Record Doc. No. 464-3 at pp. 26, 51-53, 63-65, 67, 70-71, 73-74 (“Q. Did you look for
any written agreements between International, Platinum Equity Advisors regarding an
agreement to any advisory fee amounts per year, or per month, other than what is stated
here as the max amount? A. I did not.”), 75, 86, 104, 109, 113, 121, 124-25, 143-44,
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147-48, 150-51, 163 (“A. There were documents related to different topics at IOS. Q: I
am talking about E-mails. A. There were E-mails, different topics of IOS. Q. But you
all didn’t produce any of those? A. No.”),165-66, 188, 200-02, 214-15.
Frich’s testimony and the materials produced to date have justifiably fueled
Delta’s suspicions that the judgment debtors and their corporate affiliates, successors and
individual officers and employees functioning in dual and intertwining capacities for
related entities have engaged in corporate and financial web-spinning, which warrants
both pursuit of the remedies currently being sought in state court, Record Doc. No.
468-1, and further judgment enforcement discovery proceedings in this case.
For example, Frich himself is actually employed and paid by Platinum and is “not
compensated as CEO of [International],” a position he apparently occupies because
Platinum directs and pays him to do so. Record Doc. No. 464-2 at pp. 9, 77. Frich
testified that some pertinent documents responsive to the court’s order had to be
“requested through the accounting people at Platinum Equity Advisors,” apparently
because those materials were in the actual possession of Platinum, not International.
Record Doc. No. 464-2 at pp. 43-44. Frich identified Ferry Holding Corp. (“Ferry”) as
International’s majority owner; appeared to concede that Ferry is the parent of Platinum;
and confirmed that individuals who are or were employed by or members or principals
of Platinum, Ferry and International have held positions or offices in all three affiliated
entities. Record Doc. No. 464-3 at pp. 19, 22, 43-44. Frich testified that Eva Kalawski,
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is all of the following: general counsel of Platinum; the person to whom International’s
counsel of record report about this case; most knowledgeable about the corporate
structure and personnel of International’s related affiliates, Record Doc. No. 464-2 at pp.
16-19, 73-74; “sole manager” of International; the person with whom Frich consulted
about International’s judgment debtor examination; a “Platinum Manager” who has
executed documents as executive vice president, general counsel and secretary of
Platinum; and the person who also agreed to and signed on behalf of Ferry a “payoff
letter” sent to Ferry by Mary Ann Sigler, who was acting for International. Record Doc.
No. 464-3 at pp. 12, 31-32, 38, 43-49, 58, 77, 153.
Frich identified Mary Ann Sigler as both a vice president of International and the
chief financial officer of Platinum who also signed a purchase agreement on behalf of
Ferry that resulted in her becoming an officer of International. Id. at pp. 77-78, 85-86,
92, 119-20. He identified Stephen Zollo as both a vice president of International and “a
principal at Platinum Equity Advisors.” Record Doc. No. 464-3 at p. 59-60, 78. When
asked “[w]ho affiliated with International might have more information or knowledge
about” Ferry having been put on notice of Delta’s claims against International in this
case, Frich testified, “Possibly Eva Kalawski.” Id. at p. 130.
Given this record, I find that Kalawski, Siglar and Zollo are “third parties with
close ties to the judgment debtor” as to whom “probing questioning” should be allowed.
Wright & Miller, text accompanying n.8 (and cases cited therein). Thus, the motion is
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granted in part insofar as it seeks an order compelling further compliance with the court’s
order as follows:
IT IS ORDERED that International, through its chief executive officer Danny J.
Frich must, no later than June 12, 2015:
(1) Provide counsel for Delta with full and complete written answers, sworn under
oath by himself individually and on behalf of International, in the manner required by
Fed. R. Civ. P. 33(b), to each and every question he was asked during both days of the
judgment debtor examination to which he responded “I don’t know,” “I’m not sure”
and/or similar expressions of lack of knowledge. If Frich has no personal knowledge
responsive to such questions, he must conduct whatever research of records or interviews
of persons with knowledge necessary to obtain and provide answers. Each and every
written answer must also clearly identify (a) by name, address, employer and title all
persons from whom information responsive to that question has been obtained, and/or
(b) by date, title, author(s) and recipient(s) all documents or electronically stored or
generated data or communications from which responsive information has been obtained.
(2)(A) Conduct a complete search for and inspection of all hard document storage
depositories, computers, servers and other electronic devices or storage facilities that
might contain or store hard documents and/or electronically stored information, data,
communications or other materials, including specifically but not limited to emails,
responsive to the court’s judgment debtor examination order; (B) provide counsel for
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Delta with a sworn affidavit fully describing his search efforts and/or the efforts of any
person he directs to assist him and listing all such places by specific location address and
type of storage facility; and (C) produce to Delta’s counsel in a reasonably useable form
or forms all additional located materials responsive to the court’s production order but
not previously produced, organized and labeled to correspond to the numbered categories
in the production order.
(3) Provide Delta’s counsel with available dates on which International must
produce Eva Kalawski, Mary Ann Siglar and Stephen Zollo to be deposed, at a location
in the Eastern District of Louisiana to be mutually agreed upon by counsel and at
International’s expense, on all matters relevant to judgment enforcement. These
depositions must be scheduled and conducted on dates no earlier than 30 days after the
production of additional materials ordered above and no later than August 21, 2015.
The motion is denied insofar as it seeks an order compelling additional testimony
from other persons or entities in furtherance of completion of the court-ordered judgment
debtor examination and associated production of materials at this time. If Delta
determines that it requires additional discovery in aid of its judgment enforcement
efforts, it is encouraged to do so using the tools available through Fed. R. Civ. P. 26

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through 37 and 45, rather than through further use of the Louisiana judgment debtor
examination articles.

16th
New Orleans, Louisiana, this __________ day of April, 2015.

JOSEPH C. WILKINSON, JR.
UNITED STATES MAGISTRATE JUDGE

CLERK TO NOTIFY:
HON. ELDON FALLON

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