Victor Stanley, Inc. v. Creative Pipe, Inc. et al

Filing 747

MEMORANDUM AND ORDER Re: Sanctions/Contempt. Signed by Judge Marvin J. Garbis on 8/14/2017. (bmhs, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
VICTOR STANLEY, INC.
Plaintiff
vs.
CREATIVE PIPE, INC., et al.
Defendants
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CIVIL ACTION NO. MJG-06-2662

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MEMORANDUM AND ORDER RE: SANCTIONS/CONTEMPT

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The Court has before it the Certification of Civil Contempt
[ECF No. 733] issued by Magistrate Judge Sullivan and the
materials submitted relating thereto.
The Court has held a hearing, heard evidence and had the
benefit of the arguments of counsel. The Court has made its
factual findings set forth herein based on its evaluation of the
evidence and the reasonable inferences drawn therefrom.

I.

BACKGROUND
Plaintiff Victor Stanley Inc. (“VSI”) has, since 1962, been

manufacturing and selling site furnishings1 with a reputation for
producing high quality merchandize.

Beginning in or about 2004,

Defendant Mark Pappas (“Pappas”) and his company, Defendant
1

Including such as litter receptacles, benches, tables,
chairs, ash urns, planters, tree guards, seats, bike racks, and
bollards made from steel, cast ductile iron, wood, and recycled
plastic.

Creative Pipe, Inc. (“CPI”) competed with VSI, producing and
selling similar (sometimes identical) products under the trade
name “Fuvista.”2

In 2006, VSI filed the instant law suit,

asserting various claims against Pappas and CPI that were
ultimately “boiled down” to claims based upon copyright
infringement, unfair competition, false advertising, and design
patent infringement.
In the course of litigating the instant case, Defendants
Pappas and CPI engaged in a massive degree of spoliation of
evidence detailed in Victor Stanley, Inc. v. Creative Pipe,
Inc., 269 F.R.D. 497 (D. Md. 2010).

As stated therein:

Through four years of discovery, during
which Defendant Mark Pappas, President of
Defendant CPI, had actual knowledge of his
duty to preserve relevant information,
Defendants delayed their electronically
stored information (“ESI”) production;
deleted, destroyed, and otherwise failed to
preserve evidence; and repeatedly
misrepresented the completeness of their
discovery production to opposing counsel and
the Court.
Id. at 499-500.
In the Memorandum, Order and Recommendation [ECF No. 377),
then-Magistrate Judge Grimm recommended that Defendants be
ordered to pay monetary sanctions equivalent to attorneys’ fees
and costs caused by Defendants’ spoliation.
2

By the Order Re:

A name selected by Pappas as standing for “f--- you Victor
Stanley.”

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Sanctions Motion [ECF No. 381], the Court adopted the decision,
awarding VSI attorneys’ fees and costs in an amount to be
determined and a default judgment as to liability on the
copyright infringement claim.

In the Memorandum and Order

issued January 24, 2011 [ECF No. 448], then-Magistrate Judge
Grimm determined the total due for fees and costs to be
$1,049,850.04. On June 24, 2011, the said Memorandum and Order
was adopted as the decision of the Court. Memorandum and Order
Re: Sanction Award, ECF No. 476.
On February 24, 2011, the Court completed a six-day bench
trial on Plaintiff’s claims.

On September 30, 2011, the Court

issued the Memorandum of Decision [ECF No. 480], awarding VSI
damages totaling $2,454,931.10 with judgment interest and costs.
The Amended and Final Judgment Order [ECF No. 488] was issued
November 4, 2011.

On December 30, 2013, the Court issued the

Order Re: Attorney Fees [ECF No. 665] awarding VSI $748,334.72
of legal fees and expenses to be paid by Defendants Pappas and
VSI that were included in the Supplemental Judgment Order [ECF
No. 666].

Hence, the total of damages, costs, legal fees, and

sanctions to which Defendants have been held liable to VSI is in
excess of $4,000,000.00.
Defendants did not proceed in good faith in regard to their
obligations to VSI.

They failed to make the required payments,

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or any payments at all, and proceeded to take actions to
obstruct the ability of VSI to effect collection of the judgment
obligations.

Their actions led to the issuance of a warrant to

arrest Pappas [ECF No. 521] from which Pappas fled to Belize.
Pappas was arrested in Belize by Belizean police and was
returned to the United States on August 6, 2012. He was then
taken into custody in Houston, Texas by the United States
Marshal and brought to the District of Maryland to show cause
why he and CPI should not be held in contempt for failure to
comply with Court Orders.
On August 17, 2012, Pappas was released from custody by
this Court subject to conditions that included a schedule for
Defendants to make certain payments.
Pappas With Conditions [ECF No. 563].

Order Releasing Mark T.
Defendants Pappas and CPI

did not comply with the conditions and, on December 19, 2013,
were held liable for a further award of attorneys’ fees by
virtue of their actions to avoid payment to VSI of the sanctions
award.

See Order Re: Attorney Fees Related to Violations of

Sanctions [ECF No. 664].
The underlying motions upon which the currently-alleged
contempt is based relate to discovery and payment obligations.
These are:

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(1)

The February 8, 2012 Order [ECF No. 538] issued by
then-Magistrate Judge Grimm3 requiring Defendants to
produce “all responsive documents in their possession,
custody or control” in connection with VSI’s First
Request for Production of Documents to CPI, and to
“answer all interrogatories completely and not
evasively,”

(2)

The November 20, 2014 Order [ECF No. 686] issued by
Magistrate Judge Sullivan requiring Defendants to
produce “full and complete answers to all of the
interrogatories propounded in [VSI’s] Third Request
for Production of Documents,” and

(3)

The April 20, 2016 Order [ECF No. 722] of Magistrate
Judge Sullivan requiring Plaintiffs to pay Plaintiff
$1,281,315.91 by May 23, 2016.

Because Defendants had not complied with the first two of
these Orders, on February 23, 2015, VSI filed a Motion for
Sanctions and Finding of Contempt for Failure to Comply With the
Court’s Orders of February 8, 2012 and November 20, 2014 [ECF
No. 687].
On April 20, 2016, Magistrate Judge Sullivan issued his
Memorandum Opinion [ECF No. 721] regarding Defendants’ failure
to comply and the harm caused to VSI as a result of the
compliance failures.

Magistrate Judge Sullivan held that

Defendants had failed to comply with the Orders at issue in
several respects and found that monetary sanctions of
$1,232.993.97, and an award of costs of $48,321.94, was
appropriate.

Memorandum Opinion [ECF No. 721] at 27.

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The

Now, a United States District Judge in the District of
Maryland

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Magistrate Judge required the total of $1,281,315.91 to be paid
by May 23, 2016 and certified as paid by a status report filed
by May 31, 2016. Id. at 28.

The Magistrate Judge stated: “If

the parties report that Defendants have failed to make the
required payment in full, the Court will certify this fact to
the district judge in this case for a civil contempt inquiry
pursuant to 28 U.S.C. § 636(e)(6)(B)(iii).”

Id.

In a joint status report filed May 23, 2016 [ECF No. 728],
the parties stated that the payments had not been paid and that
the Defendants intended to appeal the Order imposing the payment
obligation [ECF No. 721].

Defendants did not, however, file an

appeal from the Order of April 20, 2016.
On May 24, 2016, VSI filed Plaintiff’s Request For
Certification [ECF No. 729] requesting the Magistrate Judge to
certify to the district judge that the Defendants had committed
various acts that constitute civil contempt.

See 28 U.S.C. §

636(e)(6)(B)(iii).
On July 11, 2016, Magistrate Judge Sullivan issued the
Certification of Civil Contempt [ECF No. 733], stating:
the undersigned finds that civil contempt
proceedings are warranted, and respectfully
recommends that Defendants be directed to
appear on a date certain before the
Honorable Marvin J. Garbis, Senior United
States District Judge, to show cause why
they should not be found in contempt of
Court for failing to comply with this

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Court’s orders of February 8, 2012, November
20, 2014, and April 20, 2016.
Id. at 3.
On December 20, 2016, the district court issued the Show
Cause Order [ECF No. 736] stating:
The Court finds, based upon to [sic]
the Certification of Civil Contempt [ECF No.
733], that contempt proceedings are
warranted. Therefore, Defendants shall show
cause why they should not be found in
contempt of Court for failing to comply with
this Court’s Orders of February 8, 2012
[discovery] and November 20, 2014
[discovery], and April 20, 2016 [payment].
Id. at 1.
The Show Cause Hearing was held on January 17, 2017, at
which Pappas appeared, represented by counsel, and testified.
Defendant CPI did not appear, but Pappas’ counsel represented
that the corporation no longer existed.

II.

Tr.4 2.

DISCUSSION
A contempt proceeding may be civil and/or criminal in

nature.

United States v. Darwin Constr. Co., 873 F.2d 750, 753-

54 (4th Cir. 1989).

Civil contempt is used to address

continuing disobedience and to coerce obedience.

Id.

Criminal

contempt is used to punish the past disobedience of a court
4

Tr. is used herein to refer to the transcript of the
morning session of the show cause hearing held January 17, 2017
[ECF No. 746].

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order.

Id.

The instant proceeding pertains to a finding of

civil contempt.

However, the Defendants’ pattern of disregard

and noncompliance with the Court’s Orders is of considerable
concern.

Defendants must be aware that continued contemptuous

conduct could lead to criminal contempt proceedings.
The instant contempt proceeding is based upon Defendants’
noncompliance with their discovery obligations imposed by the
Orders of February 8, 2012 and November 20, 2014, and their
payment obligation imposed by the Order of April 20, 2016.

The

Court finds that the evidence of record clearly and convincingly
establishes Defendants’ failure to comply with the Orders at
issue and make it appropriate for the Court to utilize its
contempt powers to compel compliance.
As noted, the underlying Orders at issue established for
Defendants certain discovery obligations [ECF Nos. 538 & 686]
and the obligation to pay $1,281,315.91 to Plaintiff by May 23,
2016 [ECF No. 722].
In order for a party to be held in civil contempt, four
elements must be established by clear and convincing evidence:
(1) the existence of a valid decree of which
the alleged contemnor had actual or
constructive knowledge; (2) that the decree
was in the movant’s “favor”; (3) that the
alleged contemnor by its conduct violated
the terms of the decree, and had knowledge
(at least constructive knowledge) of such

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violations; and (4) that [the] movant
suffered harm as a result.
In re Grand Jury Subpoena (T-112), 597 F.3d 189, 202 (4th Cir.
2010)(quoting Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th
Cir. 2000)(citation omitted)).

These elements have been clearly

and convincingly established by the evidence of record.
The underlying Orders at issue - Documents 538, 686, and
722 - were issued by Magistrate Judges and were not subjected to
review by the district judge by Defendants.

Defendants do not

deny that they had knowledge of the Orders.
Defendants deny that they failed to comply with certain of
the discovery obligations imposed and have produced some
evidence to dispute Magistrate Judge Sullivan’s findings of
noncompliance.

Defendants do not deny that they failed to make

any payment but contend that they were, and are, unable to make
any payment at all.5

A.

Discovery Obligations

As to the discovery obligations, Defendants contend that to
find that there was noncompliance with the Orders, the Court
5

THE COURT: You want -- your evidence is going
to be, one, in terms of there should have been zero sanctions;
and, secondly, your position is neither CPI nor your client can
pay anything. Okay.
MR. SELBA: Yes, Your Honor.
Tr. 20.

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must make a de novo redetermination of Magistrate Judge
Sullivan’s findings and determinations.

That is, in lieu of the

type of review that would have been conducted had there been a
proper and timely objection or appeal made to the district
court, in the instant contempt context, a de novo proceeding is
necessary.
contention.
one.

Defendants do not present authority supporting their
Nor does the Court find the proposition a sound

The Court has, nevertheless, undertaken a review of

Magistrate Judge Sullivan’s discovery-related findings as if
there had been a valid timely objection made by Defendants.
Moreover, since Defendants took advantage of the Court’s grant
of the ability to present evidence regarding the discovery
failures, the Court has considered that evidence as it would in
a de novo proceeding.
The Court finds – by review of Magistrate Judge Sullivan’s
findings and independently based upon the evidence of record that Defendants have not complied fully with their discovery
obligations and have acted knowingly in this regard with the
purpose of evading VSI’s attempts to gather information enabling
it to effect collection.
Defendants have “rearranged” CPI’s business operations so
as to render it not practically feasible for VSI to proceed with
collection objectives.

For example, CPI provided its

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significant ongoing business assets, including the residual
benefits of continuity flowing from past sales, to Pappas’ wife
without documentation or compensation.

This was done by having

Pappas’ wife form a corporation with the name “SCH”6 that
proceeded to function essentially as did CPI with regard to
CPI’s body of former customers.

CPI’s records thus appeared to

show transactions with the unrelated SCH.

Also, under the new

arrangements, sales that would have been made by CPI were made
by SCH, so that the sales receivables were not on CPI’s records
as of the date of the sale, and only a “commission” was shown as
due to CPI.

The commission appears on CPI’s records as due only

after the sale was consummated, a date too close to the date of
payment by SCH to enable VSI to effect collection of the
“commission” payable to CPI before payment was made.
Pappas presented evidence that it may have been possible
for VSI to have extracted relevant data from what was actually
produced.

The Court does not find successful Pappas’ effort to

effectively shift the blame to VSI for the discovery shortfall.
The Court finds that Pappas could have, and should have,
conducted the CPI business, and reported financial data related

6

The name that was identical to the name of a corporation
owned by a friend, Stephen C. Hair, that had previously done
business with CPI. Tr. 74.

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thereto, in a manner that would have fairly and adequately
informed VSI. Pappas did not do this.
The Court, while agreeing with Magistrate Judge Sullivan
regarding Defendants’ discovery noncompliance, will not, on the
current record, hold Defendants in contempt with respect to the
discovery underlying Orders.

The Court finds that the payment

Order noncompliance is more significant and far more subject to
judicial reformation.

B.

Payment Obligations

There is no doubt that Magistrate Judge Sullivan’s Order
requiring Defendants to make a March 23, 2016 payment of
$1,281,315.91 [ECF No. 722] existed and was not complied with.
Defendants have unjustifiably made no payment at all in
compliance with the said Order.
The Supreme Court has explained, that “[i]n a civil
contempt proceeding . . . , a defendant may assert a present
inability to comply with the order in question.”
v. Rylander, 460 U.S. 752, 757 (1983).

United States

If compliance with an

order is not possible, contempt is inappropriate.

Id.

“It is

settled, however, that in raising this defense, the defendant
has a burden of production.”

Id.

The current state of the

record does not prove clearly and convincingly that Defendants

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are, or were, able to make full payment of their million dollar
plus payment obligation.

However, the Court finds the record to

establish by clear and convincing evidence that Defendants were
able to make, and presently are able to make, at least partial
payment of the obligation.
A district court is given “wide latitude in determining
whether there has been a contemptuous defense of its order.”
Stone v. City and Cty. of San Francisco, 968 F.2d 850, 856 (9th
Cir. 1992) (citation omitted).

The standard for finding

noncompliance with an Order as contempt has been stated as
determining “whether the defendants have performed all
reasonable steps within their power to insure compliance with
the court’s orders.” Id.

That rule is consistent with the views

of the United States Court of Appeals for the Fourth Circuit.
See United States v. Darwin Constr. Co., 873 F.2d 750, 755 (4th
Cir. 1989)(“Substantial compliance is found where all reasonable
steps have been taken to ensure compliance: inadvertent
omissions are excused only if such steps were taken.”(citation
omitted)).
The Court, having considered the evidence – including
particularly the testimony of Defendant Pappas – finds
established by clear and convincing evidence that he (and
Defendant CPI that he controls) have not performed all

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reasonable steps to ensure payment but, rather, have taken – and
continue to take – steps to evade any compliance at all with
their payment obligation.

These steps have included the

arrangement of their affairs, and their inadequate compliance
with discovery obligations, to impede VSI’s efforts to effect
collection of portions of the amount due.

C.

Contempt

As discussed herein, the Court finds that the evidence
clearly and convincingly establishes that Defendants failed to
comply with their obligation to pay VSI pursuant to Magistrate
Judge Sullivan’s Order of April 20, 2016 [ECF No. 722].

They

most certainly did not take all reasonable steps within their
power to ensure at least partial compliance.

They were, and

are, therefore, in contempt and subject to possible sanctions.
In the context of the instant case, the Court may, should, and
shall impose obligations upon Defendants to take specific steps
to purge the nonpayment contempt.
The Court finds it appropriate to require Pappas promptly
to take actions to make such payments to VSI to satisfy the
payment Order as are now possible.

The Court shall, herein,

specify particular actions based on the current record and allow

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Plaintiff to present further evidence and request the Court to
require further specific actions.
Pappas has testified that he is currently receiving
$7,400.00 per month of rent paid by SCH.

That rent may now be

paid directly to a creditor of Pappas, but there is no reason
shown why the payment cannot, and should not, be paid directly
to VSI.
Pappas owns 75% of an entity that owns the property in
Salem, Oregon, as to which the aforesaid rent is paid.

There

appears no valid reason why Pappas should not promptly transfer
this asset – 75% ownership of the entity owning the building –
to VSI.
Pappas owns certain real estate in Belize.7

His testimony

indicates that some Belize properties are owned by him solely,
and some are owned jointly by Pappas and his wife.8

There is no

reason shown why any Pappas ownership interests in Belizean
property cannot, and should not, now be transferred to VSI.
Pappas has testified that he owns certain inventory that
was CPI’s that he refers to as having a value of some $5,000.00
to $15,000.00.9

There is no reason why Pappas should not be

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That he claims may have zero value. Tr. 48.
See Tr. 35-37.
9
THE COURT: What’s this inventory that you own that you’re
being paid for?
8

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required to identify this inventory with specificity so that VSI
can seek an appropriate Order and try to obtain some value from
the property.
In sum, Defendants have failed to adequately demonstrate
the financial inability to comply, at least in part, with the
Court’s payment Order.
insufficient.

Pappas’ claimed inability to pay is

See, e.g., S.E.C. v. Bilzerian, 112 F. Supp. 2d

12, 17 (D.D.C. 2000) (“Bilzerian cannot avoid a finding of
contempt merely by showing that he is unable to pay the entire
$62 million judgment at this time. Inability to comply is only a
complete defense if he cannot pay any of the judgment;
otherwise, he must pay what he can.”); Loftus v. Se.
Pennsylvania Transp. Auth., 8 F. Supp. 2d 464, 469 (E.D. Pa.
1998)(“[U]nless a party is completely unable to comply with the
Court’s Order’s due to poverty, he must comply to the extent
that his finances allow him.”).

PAPPAS: There was inventory of Creative Pipe that was at the
warehouse, most of which has either been disposed of because it
wasn’t selling or else there have been -- there were bicycle
racks, some umbrellas, this sort of thing that when I dissolved
Creative Pipe became my property. And SCH over the past couple
years has sold some of that stuff. And as they sell it, they pay
me personally for it.
THE COURT: So how much is left?
PAPPAS: Oh, I -- probably neighborhood of 5 to 10 thousand
dollars’ worth of product.
Tr. 29-30.

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III. CONCLUSION:
For the reasons set forth herein:
1.

The Court finds proven, by clear and convincing
evidence, that Defendants have failed to comply
with the Magistrate Judge’s April 20, 2016 Order
[ECF No. 722] requiring Defendants to pay
Plaintiff $1,281,315.91 by May 23, 2016, and
holds both Defendants in contempt of Court for
failure to comply with the payment obligation.

2.

Defendants shall promptly commence compliance
with the payment Order by taking the following
actions:
a.

b.

By September 30, 2017, Pappas shall execute
a document, to be presented by VSI, that
effects the transfer to VSI of all of
Pappas’ current ownership interest in the
Salem, Oregon property, and Pappas shall
provide VSI with a reasonable estimate of
the fair market value of the interest
transferred.

c.

3.

By September 30, 2017, and in each month
thereafter, Pappas shall arrange to have VSI
paid the rent of $7,400.00, the amount of
rent for the Salem, Oregon property.

By September 30, 2017, Pappas shall execute
a document, to be presented by VSI, that
effects the transfer to VSI of all of
Pappas’ current ownership of any interests
in Belizian properties, and Pappas shall
provide VSI with a reasonable estimate of
the fair market value of the interests
transferred.

Should Defendants contend that compliance with
this Order would result in a total overpayment of
the $1,281,315.91 due by virtue of the April 20,
2016 Order, it may seek modification of the Order
but shall not delay making any transfers or
payments required herein except as may be
permitted by further Order.

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4.

By September 22, 2017, Plaintiff shall file a
report regarding the status to date of
Defendants’ compliance with this Order.

5.

Should Defendants not fully comply with this
Order, they shall appear in Courtroom 5C of the
United States Courthouse, Baltimore, Maryland on
October 2, 2017 and show cause why the Court
should not issue a warrant requiring the
immediate arrest of Defendant Pappas until
compliance is achieved.

SO ORDERED, on Monday, August 14, 2017.

/s/__________
Marvin J. Garbis
United States District Judge

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