AngioDynamics, Inc. v. Biolitec AG et al
Filing
247
Judge Michael A. Ponsor: MEMORANDUM AND ORDER REGARDING PLAINTIFFS EMERGENCY MOTION FOR CONTEMPT granting 205 Motion for Contempt Plaintiffs emergency motion for contempt (Dkt. No. 205) is hereby ALLOWED. The court has issued an arrest warrant for Defendant Wolfgang Neuberger for civil contempt and will refer the matter to the United States Attorneys Office for criminal contempt prosecution. (See attached Order for fines and other information.) (Pelegano, Theresa)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
ANGIODYNAMICS, INC.
Plaintiff
)
)
)
)
v.
) C.A. NO. 09-cv-30181-MAP
)
BIOLITEC AG,
)
WOLFGANG NEUBERGER,
)
BIOLITEC, INC., and
)
BIOMED TECHNOLOGY HOLDINGS, LTD.)
Defendants
)
MEMORANDUM AND ORDER REGARDING
PLAINTIFF’S EMERGENCY MOTION FOR CONTEMPT
(Dkt. No. 205)
April 11, 2013
PONSOR, U.S.D.J.
I. INTRODUCTION
This case originally arose out of a private commercial
dispute between the parties.
Over the last month, however,
the case has turned into a challenge to the very foundation
of the rule of law.
Defendants Wolfgang Neuberger, Biolitec
AG (“BAG”), and Biomed Technology Holdings, Ltd. (“Biomed”)
flagrantly and intentionally violated a preliminary
1
injunction issued by this court.1
Plaintiff brought this
motion for civil contempt in response to Defendants’ notice
to the court that they had completed the action forbidden by
the preliminary injunction.
The court will enter coercive
sanctions to ensure Defendants’ prompt compliance with the
order.
These coercive sanctions will remain in place until
Defendants effectively restore the parties to the status quo
ante.
The court will also refer this case to the United
States Attorney for prosecution for criminal contempt.
II. BACKGROUND
For purposes of this motion, the court has no need to
go into the detailed relationship among the parties and the
substance of the private commercial dispute.
That material
has been extensively outlined in prior decisions.
AngioDynamics, Inc. v. Biolitec, Inc., 2011 WL 3157312, *1-2
(D. Mass. July 25, 2011); AngioDynamics, Inc. v. Biolitec
AG, --- F. Supp. 2d ----, 2012 WL 6569272 (D. Mass. Dec. 14,
2012).
However, a brief background of the events leading up
to the motion at hand is required.
1
Defendant Biolitec, Inc. has filed for Chapter 11
bankruptcy, and the contempt proceedings do not involve this
defendant.
2
In August 2012, Plaintiff became aware that Defendant
BAG planned to complete a merger with its Austrian
subsidiary entity, Biolitec Unternehmensbeteiligungs I AG
(“BUIAG”).
Defendant BAG set a shareholders’ meeting for
August 30, 2012, to vote on the proposed merger of BAG into
BUIAG.
Following the proposed merger, the new entity would
hold all assets and liabilities previously held by BAG, and
shareholders in BAG would have their shares converted into
shares of the new entity.
BAG publicly announced that the
75% ownership share of Defendant CEO Wolfgang Neuberger in
BAG guaranteed that his plan would be approved by a majority
of the shareholders.
Plaintiff filed for a preliminary injunction to prevent
Defendants from completing the merger.
Plaintiff alleged
that the merger would place BAG’s assets out of its reach,
as American judgments are unenforceable in Austria.
On
August 29, 2012, Judge Zobel granted Plaintiff’s Motion for
a TRO and Preliminary Injunction to bar this merger.
injunction restrained Defendants from:
•
“carry[ing] out the proposed ‘downstream
merger’ of Biolitec AG with its Austrian
3
The
subsidiary;
•
“alienat[ing], dispos[ing] of, sell[ing]
dissipat[ing], encumber[ing], or otherwise
transfer[ing] any ownership interest it holds
in any other defendant during the duration of
this Order; and
•
“alienat[ing], dispos[ing] of, sell[ing]
dissipat[ing], encumber[ing], or otherwise
transfer[ing] any interest it may have in any
property during the duration of this Order,
except that this Order shall not preclude the
defendants from taking such actions as are
reasonable and necessary to the ongoing and
continued operation of the business of
Biolitec, Inc., Biolitec AG, and Biomed
Technology Holdings, Ltd. in the ordinary
course of business, including the payment of
reasonable attorneys’ fees for the provision
of legal services; and except that this Order
shall not apply to the reasonable and
necessary personal and living expenses of
4
defendant Wolfgang Neuberger.”
(Dkt. No. 126.)
The injunction further restrained, with
minor exceptions, Defendants’ use of their property pending
a further order of this court.
On September 6, 2012, defense counsel informed the
court that, despite Judge Zobel’s order, Defendant BAG had
proceeded with the shareholders’ meeting and vote. (Dkt. No.
133 ¶ 5.)
Defendants did not inform the minority
shareholders of the TRO. (Dkt. No. 136-1, Sept. 10, 2010
Reynolds Decl. ¶ 11.)
Given Defendant Neuberger’s three-
quarter share in the company, it was not surprising that the
vote in favor of the merger passed by a wide margin.
The convening of the shareholders’ meeting and the vote
in favor of the merger, in the teeth of the preliminary
injunction, raised troubling questions about Defendants’
good faith.
Their argument in opposition to the issuance of
the preliminary injunction was anchored on their contention
that the injunction would bar the meeting and vote, yet they
immediately proceeded with the vote right after the
injunction issued.
Reassured by Defendants that the vote in
favor of the merger did not, technically, effectuate the
5
merger, and that Defendants still intended to hold off on
the merger out of respect for the injunction, this court
concluded that, since the formal merger of BAG into the
Austrian entity had not occurred, no outright violation of
the preliminary injunction had taken place.
On September 13, 2012, after hearing oral argument,
this court reaffirmed the preliminary injunction entered by
Judge Zobel. (Dkt. No. 141.)
Defendants moved for
reconsideration of the preliminary injunction and requested
an evidentiary hearing. (Dkt. No. 144.)
The court declined
the request to reconsider the preliminary injunction and
hold an evidentiary hearing on December 14, 2012, in a
lengthy decision justifying the issuance of the preliminary
injunction.
AngioDynamics, Inc. v. Biolitec AG, --- F.
Supp. 2d ----, 2012 WL 6569272 (D. Mass. Dec. 14, 2012).
Defendants immediately appealed the preliminary
injunction to the First Circuit asking for expedited
resolution and also requesting that the First Circuit modify
the preliminary injunction pending the appeal pursuant to
Fed. R. Civ. P. 8(a)(2).
On February 4, 2013, the First
Circuit denied Defendants’ motion for modification.
6
Defendants then filed in this court an emergency motion to
vacate the order pursuant to Fed. R. Civ. P. 60(b)(2).
(Dkt. No. 190)
That motion was also denied for failure to
raise sufficient new evidence to justify altering the
preliminary injunction. (Dkt. No. 195)
Despite the continued affirmance of the preliminary
injunction by this court and the First Circuit, Defendants
notified this court on March 15, 2013, that:
Biolitec AG’s downstream merger with its Austrian
subsidiary has been completed pursuant to the
direction of Biolitec AG’s Supervisory Board. The
merger was completed [on] March 15, 2013, when the
Commercial Court of Vienna approved registration
of the merger in Austria.
(Dkt. No. 199, Defs.’ Notice of Completion of BAG’s
Downstream Merger 1.)
Unsurprisingly, this concession prompted Plaintiff to
file the current emergency motion for contempt.
On April 1, the First Circuit heard oral arguments on
Defendants’ expedited appeal.
In an unusually prompt turn-
around, the First Circuit upheld the preliminary injunction
on the same day.
Two days later, this court heard oral
arguments on Plaintiff’s motion for contempt.
7
At that
hearing, this court ordered individual Defendant Neuberger
to appear in person at a hearing on April 10 to show cause
why he should not be held in civil or criminal contempt.
In direct defiance of the court’s order to personally
appear, Defendant Neuberger notified the court that he would
not attend the show-cause hearing because he was “afraid
that the Court may grant ADI’s request to incarcerate him
until Biolitec AG relocates its corporate domicile back to
Germany.”
(Dkt. No. 243.)
III. DISCUSSION
A.
Civil Contempt.
Courts have the inherent power to sanction for
contempt.
The contempt power is a potent one.
Int’l
Longshoremen’s Ass’n, Local 1291 v. Philadelphia Marine
Trade Ass’n, 389 U.S. 64, 76 (1967); In re Grand Jury
Investigation, 545 F.3d 21, 25 (1st Cir. 2008).
Because of
its potency, the First Circuit has emphasized prudential
principles to be considered when a court deploys sanctions
for contempt.
In re Grand Jury Investigation, 545 F.3d at
25.
To prove civil contempt, a movant must show with clear
8
and convincing evidence that “(1) the alleged contemnor had
notice of the order, (2) the order was clear and
unambiguous, (3) the alleged contemnor had the ability to
comply with the order, and (4) the alleged contemnor
violated the order.”
Hawkins v. Dept. of Health & Human
Serv., 665 F.3d 25, 31 (1st Cir. 2012) (internal quotations
and citation omitted).
Plaintiff can easily make out each of these elements
with clear and convincing evidence from the record.
First,
Defendants had notice of the order as parties to the case
when Judge Zobel entered the temporary restraining order and
this court reaffirmed the order and issued a preliminary
injunction.
(Dkt. Nos. 126 and 141.)
Second, the order could not have been more clear and
unambiguous.
The first requirement in the order for
preliminary injunction was that “Defendants shall not carry
out the proposed ‘downstream merger’ of Biolitec AG with its
Austrian subsidiary.”
(Dkt. No. 141.)
The court also
repeatedly told Defendants “that the merger should not take
place, and [the court] expect[s] that that order will be
adhered to.”
(Dkt. No. 142, Tr. Mot. Hearing 94.)
9
Third, Defendants repeatedly assured the court that
they could and would comply with the order to not carry out
the proposed downstream merger.
When questioned about the
effect of the shareholder vote, Defendants identified
several additional actions that would have to be taken to
effectuate the merger: (1) the execution of a formal Notice
of Merger by Defendant Neuberger which would then be filed
with the German commercial register (Dkt. No. 144-2,
Gebhardt Decl. ¶ 9); (2) filing an application for
registration of the Planned Merger in an Austrian court
(Dkt. No. 179-1, Trettnak Decl. ¶ 3); (3) filing a
certificate of approval from the German court in the
Austrian court (Dkt. No. 179-1, Trettnak Decl. ¶ 10).
Defendants also asserted that they could withdraw their
application to register the merger from the Austrian court.
(Dkt. No. 179-1, ¶ 4, 9.)
In carrying out the downstream
merger, Defendants had to make conscious decisions to take
each of the steps that they identified to propel the merger
forward in defiance of the injunction.
Finally, the movant must show that Defendants violated
the order.
This prong often requires courts to grapple with
10
evidentiary issues of compliance.
Here the court is
presented with no such difficulties.
Defendants themselves
filed a notice with this court that it completed “Biolitec
AG’s downstream merger with its Austrian subsidiary.”
No. 199, Notice of Merger 1.)
(Dkt.
Defendants also acknowledged
that the text of the order prohibited this action.
(Id.)
Defendants attempt to argue that they have complied
with the preliminary injunction because “completion of the
merger did not violate the stated purpose of [the]
Preliminary Injunction.”
(Dkt. No. 199, Notice of Merger
2.)
Defendants’ attempt to argue compliance by referring to
the general purpose of the injunction while conceding that
they violated the text is a non-argument.
In determining
whether an order is unambiguous enough to justify civil
contempt, the First Circuit has demanded that courts look to
“the four corners of the order [to ascertain] what acts are
forbidden” and the inquiry is limited “to an examination of
that document’s text.”
Goya Foods, 290 F.3d at 76.
The
text of a court order determines its power over parties.
To
allow parties to independently deduce the purpose of a court
11
order and determine what acts would be most in line with the
purpose -- regardless of the text -- would make this court
irrelevant.
“If a party can make himself a judge of the
validity of orders which have been issued, and by his own
act of disobedience set them aside, then are the courts
impotent, and what the Constitution now fittingly calls the
‘judicial power of the United States’ would be a mere
mockery.”
Gompers v. Buck’s Stove & Range Co., 221 U.S.
418, 450 (1911).
Additionally, Defendants’ rationalization of its
contemptuous behavior is an attempt to re-litigate the
finding by this court that Plaintiff would be irreparably
harmed by the merger.
Defendants extensively argue that
Plaintiff has not been harmed by the merger because
Defendants believe that Plaintiff still can enforce a
potential judgment in Germany.
Two district court judges
rejected Defendants’ arguments in entering the TRO and then
preliminary injunction.
This court again rejected these
arguments on motions for reconsideration and modification.
The First Circuit rejected these arguments on motions for
modification and direct appeal.
12
There is no doubt that the
preliminary injunction that constrained the merger was valid
and that Defendants had ample opportunity to present their
objections.
Even if Defendants effectuated the downstream merger in
a good faith effort to allow Plaintiff to enforce a judgment
in Germany that would not absolve them of a finding of civil
contempt.
The First Circuit has made clear that good faith
is not a defense to civil contempt.
Goya Foods, Inc. v.
Wallack Mgmt. Co., 290 F.3d 63, 76 (1st. Cir. 2002).
“An
act does not cease to be a violation of . . . a decree
merely because it may have been done innocently.”
McComb v.
Jacksonville Paper Co., 336 U.S. 187, 191 (1949).
The violation of a court order may be punished simply
as a violation of the text alone -- when a defendant is in
good faith, and even when a plaintiff is not harmed.
But,
it is worth observing here, Plaintiff has argued, and the
court agrees, that Defendants in fact violated this court’s
injunction, now affirmed by the First Circuit, in every way
it could be violated: text, substance, spirit, body, and
soul.
Moreover, as the court found, despite Defendants’
arguments, the effectuation of the merger has likely harmed
13
Plaintiff, and this harm to Plaintiff -- the placement of
Defendants’ assets outside the reach of Plaintiff in the
likely event that Plaintiff recovers judgment -- was
precisely the reason that Defendants went forward with their
contumacious behavior.
In other words, while Defendants’
bad faith may be legally irrelevant, the record strongly
supports the conclusion that bad faith was at the heart of
Defendants’ conduct and motivated their decision
deliberately to defy the court’s order.
The effectuation of the downstream merger by Defendants
BAG, Biomed, and Wolfgang Neuberger -- in the face of
explicit reassurances to this court orally and in writing
that Defendants intended to comply -- constitutes the most
flagrantly offensive violation of a court order that this
court has personally encountered.
There can be no debate
that all four of the prudential criteria that inform a
court’s consideration of a motion for civil contempt have
been satisfied by clear and convincing evidence.
The only
question remaining is what remedy the court can craft to
sanction the civil contempt.
Courts can craft civil contempt sanctions either to
14
coerce compliance with the court’s order or compensate a
movant for losses sustained from the violation of the court
order.
Hawkins, 665 F.3d at 32 (internal quotation and
citation omitted).
Here, the court has a responsibility to
the system of law it upholds to move quickly to craft
sanctions to coerce Defendants to restore the status quo
ante.
“[W]here the purpose [of the sanction] is to make the
defendant comply, the court[] . . . must consider the
character and magnitude of the harm threatened by continued
contumacy, and the probable effectiveness of any suggested
sanction in bringing about the results.”
United States v.
United Mine Workers of America, 330 U.S. 258, 304 (1947).
While Defendants have undoubtedly already taken an action
that was forbidden by the order, the record is clear that
this action can be undone through a determined, good faith
effort.
At the oral arguments, counsel for Defendants
outlined the steps that would have to be taken to restore
the status quo ante.
It may indeed be impossible, as
Defendants’ counsel suggested, technically to “rescind” the
merger at this time.
The court makes no finding on this
15
point, beyond the observation that Defendants’ general
credibility about what it can or cannot do is subject to
doubt.
In any event, Defendants concede that restoring the
status quo ante would in fact not be impossible, but merely
lengthy,2 burdensome, and onerous.3
(Dkt. No. 233, April 3
Hearing Tr. 36.)
“A trial court has wide discretion in its choice of
sanctions.”
Goya Foods, 290 F.3d at 77.
This is
particularly true when the court is attempting to coerce
compliance.
United Mine Workers of America, 330 U.S. at
304; G. & C. Merriam Co. v. Webster Dictionary Co., Inc.,
639 F.2d 29, 41 (1st Cir. 1980).
The court can order
2
In one filing, Defendants contend that “the process
would take at least several months.” (Dkt. No. 241,
Emergency Mot. for Video Link Appearance ¶¶ 2, 3.)
3
The possibility of restoring the status quo ante
makes this case distinguishable from cases where an action
could not be undone. Coercive measures are inappropriate
when the action cannot be undone. See Gompers v. Bucks
Stove & Range Co., 221 U.S. 418, 442 (1911). When an
enjoined protest or boycott takes place, for example, or an
enjoined representation is published, a court could never
effectuate a return to the status quo ante. But in the case
before the court, Defendants concede that it is possible to
restore the status quo ante even though it would be
difficult. When sanctions are tied to “curing the
contumacy,” they are properly considered civil remedies.
See Marquardo, 149 F.3d at 40.
16
incarceration to insure acquiescence to a court’s order.
United States v. Marquardo, 149 F.3d 36, 39 (1st Cir. 1998).
The court can also order a monetary fine.
G. & C. Merriam
Co., 639 F.2d at 41.
The court orders the following coercive sanctions until
Defendants effectively return Biolitec AG to the status quo
ante:
•
An arrest warrant will be issued for the arrest of
Defendant Wolfgang Neuberger.
The court asks the
marshals to do everything possible to ensure that the
warrant is effectuated internationally and Neuberger is
brought to stand before this court;
•
A fine will be assessed to Defendants.
The fine will
increase over time as follows:
•
On May 10, 2013, Defendants will be assessed a
fine of $1 million;
•
On June 1, 2013, Defendants will be assessed a
fine of $2 million;
•
On July 1, 2013, Defendants will be assessed a
fine of $4 million;
•
On August 1, 2013, Defendants will be assessed a
17
fine of $8 million;
•
After August 1, Defendants will be assessed a fine
of $8 million on the first of each month.
Defendants “have the keys [to their] prison in their
own pockets.”
Marquardo, 149 F.3d at 39 (quoting Shillitani
v. United States, 384 U.S. 364, 368 (1966).
The coercive
fines and arrest warrant (or imprisonment, when Defendant
Neuberger is apprehended) will be lifted as soon as the
court is satisfied that the status quo ante has been
restored.
In addition to the sanctions detailed above,
Plaintiff’s counsel may submit a motion with a supporting
affidavit and contemporaneous time records for an award of
attorneys’ fees expended in prosecuting the motion for civil
contempt.
B.
Criminal Contempt.
“[O]nce the subject of an order willfully refuses to
meet the court’s order, criminal contempt has been
committed independently of whether this conduct receives
the additional attention of the court [through civil
contempt].”
Marquardo, 149 F.3d at 40.
18
Defendant Wolfgang
Neuberger has willfully refused to comply with two orders
by this court: (1) the order enjoining the downstream
merger (Dkt. No. 141); and (2) the order to appear
personally to show cause (Dkt. No. 231).
While Defendant
Neuberger offers rationalizations for his noncompliance,
there is no doubt from the record that these actions were
taken willfully.
The court has provided Defendant Neuberger with notice
in open court and an opportunity to show cause pursuant to
Fed. R. Crim. P. 42(a)(1).
The court will now request that
the United States Attorney’s Office prosecute the criminal
contempt.
“[C]riminal contempt proceedings . . . punish
those who willfully flout an order of the court. . . .
[Defendant] made a deliberate decision to refuse a court
order . . ., [he] now must face the consequences of that
decision.”
United States v. Nightingale, 703 F.2d 17, 19
(1st Cir. 1983).
IV. CONCLUSION
For the foregoing reasons, Plaintiff’s emergency motion
for contempt (Dkt. No. 205) is hereby ALLOWED.
The court
has issued an arrest warrant for Defendant Wolfgang
19
Neuberger for civil contempt and will refer the matter to
the United States Attorney’s Office for criminal contempt
prosecution.
The following coercive fines will also be
levied:
•
On May 10, 2013, Defendants will be assessed a
fine of $1 million;
•
On June 1, 2013, Defendants will be assessed a
fine of $2 million;
•
On July 1, 2013, Defendants will be assessed a
fine of $4 million;
•
On August 1, 2013, Defendants will be assessed a
fine of $8 million;
•
After August 1, Defendants will be assessed a fine
of $8 million on the first of each month.
The fines and incarceration for civil contempt will continue
until Defendants effectively restore the status quo existing
prior to the violation of the court’s order.
It is So Ordered.
/s/ Michael A. Ponsor
MICHAEL A. PONSOR
U. S. District Judge
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