Sara Lee Corporation v. Sycamore Family Bakery et al
Filing
446
MEMORANDUM DECISION AND ORDER granting 419 Renewed Motion for Contempt Sanctions; and denying 435 Motion to Appoint Special Master. The court will separately enter an order appointing Wayne Klein as a receiver of the Sycamore Family LLC, and setting forth his authority and responsibilities. EarthGrains is directed to file its supporting documentation for attorney fees in connection with these pending motions within 15 days of the date of this Order. Signed by Judge Dale A. Kimball on 11/2/2018. (eat)
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
EARTHGRAINS BAKING
COMPANIES, INC.,
Plaintiff,
MEMORANDUM DECISION
AND ORDER
vs.
Case No. 2:09CV523DAK
SYCAMORE FAMILY BAKERY INC.,
and LELAND SYCAMORE,
Judge Dale A. Kimball
Defendant.
This matter is before the court on EarthGrains’s Renewed Motion for Contempt
Sanctions. On October 23, 2018, the court held a hearing on these matters. At the hearing,
Plaintiff was represented by Charles A. Burke and Nicholas Frandsen, Defendants Leland
Sycamore and Sycamore Family Bakery were represented by Sean N. Egan, and Jeri Sycamore
and Sycamore Family, LLC were represented by Andrew G. Deiss. After carefully considering
the parties arguments and the law and facts relevant to the pending motion, the court issues the
following Memorandum Decision and Order.
BACKGROUND
EarthGrains contends that the Sycamore family is evading payment of EarthGrains’
judgment and failing to comply with this court’s Charging Order. In April 2012, a jury awarded
EarthGrains $2,333,129 in damages. The court enhanced the damages to $4,674,950, awarded
Earthgrains $1,091,336.40 in attorney fees and costs, and prejudgment interest at 2.18%. The
total amount of the verdict is now over $6 million, and six years later, EarthGrains has not
recovered anything on the Judgment.
The Sycamore Family LLC holds virtually all of the Sycamore family’s assets. Leland
Sycamore owns 48% of the LLC, his wife Jeri Sycamore owns 48%, and each of their four
children own 1%. Leland Sycamore attempted to transfer his ownership in the LLC to his wife.
But, in a separate action, Judge Nuffer ruled that it was a fraudulent transfer.
On March 6, 2014, EarthGrains sought and this court granted a Charging Order. The
Charging Order provides that the LLC is to pay Leland’s portion of any proceeds or distributions
to EarthGrains directly until EarthGrains’s Judgment is satisfied. EarthGrains served a copy of
the Charging Order on Jeri Sycamore, as a member-manager of the LLC, on March 13, 2014. On
March 10, 2012, EarthGrains also obtained a charging order with identical provisions against
Leland Sycamore’s interest in Mary Rae Sycamore LLC, another Sycamore family limited
liability company that holds assets.
The LLC operating agreement requires all LLC distributions to be distributed to the
owners based on their percentage ownership. Despite distributions to Jeri Sycamore since the
Charging Order went into effect, the LLC has never made a payment to EarthGrains.
Accordingly, in December 2014, EarthGrains filed a motion for contempt sanctions. At the time,
the information presented to the court demonstrated a violation of the Charging Order. Because
the Sycamores were not forthcoming with the financial information as required by the Charging
Order, the court allowed EarthGrains to engage in additional discovery to demonstrate the
amount of the Sycamores’ violations. The court did not deny the motion without prejudice
because of a failure to demonstrate contempt. The only reason the court denied the motion
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without prejudice was because the motion would need to be renewed after the discovery was
conducted and the extent of the contempt was documented.
EarthGrains conducted discovery but did not file a renewed contempt motion because
Leland Sycamore filed a second appeal that was unsuccessful and EarthGrains’ successor, Bimbo
Bakeries, became engaged in another lawsuit against Leland Sycamore and others for subsequent
trade secret and trade dress infringement. That lawsuit resulted in another jury verdict against
Leland Sycamore and another permanent injunction. In that case, there are pending motions for
attorney fees and a motion for judgment as a matter of law or for new trial.
EarthGrains renews its motion for contempt sanctions in this case, asking the court to
hold Leland Sycamore, Jeri Sycamore, and Sycamore Family LLC in contempt of court for
noncompliance with the Charging Order. EarthGrains also asks to be paid the equivalent of all
distributions that have been made to Jeri Sycamore since the issuance of the Charging Order and
that a receiver be appointed who can liquidate Leland Sycamore’s interest in the LLC and pay the
value obtained to satisfaction of EarthGrains’ judgment.
ANALYSIS
Federal district courts have the “power to punish by fine or imprisonment, or both, at its
discretion, such contempt of its authority . . . as . . . [disobedience or resistance to its lawful writ,
process, order, rule, decree, or command.” 15 U.S.C. § 401. It is well-settled law that a “district
court has broad discretion in using its contempt power to require adherence to court orders.”
Consumers Gas & Oil, Inc. v. Farmland Indus., 84 F.3d 367, 370 (10th Cir. 1996).
In order to hold a party in civil contempt, a court must find clear and convincing evidence
that “(1) the order at issue was valid and enjoined conduct in reasonable detail; (2) the enjoined
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party had actual knowledge of the order through personal service or otherwise and was subject to
it; and (3) the enjoined party disobeyed the order.” Clear One Communications, Inc. v. Chiang,
670 F. Supp. 2d 1248, 1281-82 (D. Utah 2009). “In civil contempt proceedings, disobedience of
the order need not be willful. Rather, ‘a [d]istrict court is justified in adjudging a person to be in
civil contempt for failure to be reasonably diligent and energetic in attempting to accomplish
what was ordered.’” ClearOne, 670 F. Supp. 2d at 1282.
In this case, under this court’s Charging Order, EarthGrains is entitled to all distributions
that should be made to Leland Sycamore in accordance with his ownership interests in the LLC.
The LLC’s Operating Agreement requires distributions to be made to all members in proportion
to their ownership interest. The LLC’s failure to make proportional distributions can only be
seen as an effort to block EarthGrains from receiving LLC funds due under the court’s Charging
Order. Leland Sycamore, Jeri Sycamore, and the Sycamore Family LLC are all well aware of the
requirement under the Charging Order.
The court’s Charging Order is clear, and the LLC’s failure to pay EarthGrains funds due
to Leland Sycamore violates the Charging Order. The Sycamores ignore the vast majority of the
evidence EarthGrains submits and contest only a few evidentiary citations on relatively minor
matters given the breadth of the Sycamores’ obstruction over a period of many years. The
Sycamore Family LLC has made substantial distributions to Jeri Sycamore without making the
requisite payments to EarthGrains in proportion to Leland Sycamore’s membership interests in
the LLC. These distributions run into the hundreds of thousands. In addition, Jeri Sycamore and
members of her family use LLC assets without compensation to the LLC, such as allowing
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family members to live rent free in LLC homes and condominiums.1 Even if these practices are
not currently ongoing, they have occurred and the practice effectively gives family members de
facto distributions. This conduct also shows the Sycamores’ lack of adherence to corporate
structure and duties.
The Sycamores argue that the information EarthGrains relies on is outdated. However,
the Charging Order requires the LLC to provide EarthGrains with financial information.
EarthGrains does not have updated information because the Sycamores have failed to comply
with the Charging Order’s requirements. The Sycamores claim that there is no urgency to
EarthGrains’ request, but the Sycamores have had a constant and continuous duty to comply with
the court’s order. The only parties to benefit from EarthGrains’ delay in moving forward with its
contempt motion is the Sycamores. EarthGrains’ delay does not provide the Sycamores with a
basis for ignoring the Charging Order. A party is charged with complying with an order from
that date it is entered, not just when the opposing party chooses to move for contempt for
noncompliance. EarthGrains has a right to collect on its judgment, and the Sycamores are
required to comply with this court’s orders.
The Sycamores also suggest that there is need for another round of discovery into the
operations of the LLC and compliance with the Charging Order. However, there is no reason for
the court and the parties to engage in endless rounds of discovery when the Sycamores simply
need to comply with the payment and financial disclosures required in the Charging Order.
1
The LLC argues that Jeri Sycamore lived rent free as the caretaker of an $800,000 home
“while it appreciated.” But her care taking duties do not equal market rent. Therefore, Jeri
Sycamore received a substantial benefit from the LLC that was not given to the other LLC
members. There are significant de facto LLC distributions the Sycamores cannot escape.
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EarthGrains has presented evidence that payments are being made to other members of the LLC
and EarthGrains has not received its proportional distribution. The contempt is clear even if the
exact amount is not. The court cannot and will not overlook the Sycamores’ past and continued
violations of the Charging Order or condone their delay tactics.
The Sycamores attempt to lessen the amount of their contempt by alleging that they have
been putting money for EarthGrains in a separate account. However, nothing in the Charging
Order refers to or provides for a separate account. The Sycamores did not seek permission from
the court to put money in a separate account. The Charging Order clearly requires the Sycamores
to make distributions to EarthGrains. It does not provide for the Sycamores to hold the money
until this court orders them to make payment. Moreover, the Sycamores do not present the court
with financial records demonstrating the propriety of the amounts they are setting aside, financial
records that should have been provided to EarthGrains in compliance with the Charging Order.
The Sycamores do not claim to misunderstand the requirements of the Charging Order.
EarthGrains is entitled to collect on its judgment and this court’s Charging Order already ordered
the Sycamores to make the payments to EarthGrains. Requiring the court to order you to comply
with a prior order before you comply with it is textbook contempt.
The parties dispute whether this court previously made a determination as to whether Jeri
Sycamore’s distributions were actually management fees. However, the court explained in its
last order that there was no basis for the LLC to be paying Jeri Sycamore management fees.
There is no evidence of any management services she provided or her qualifications for
providing such services. Mrs. Sycamore had no contractual arrangement to compensate her for
asset management and there was evidence that she used outside third parties to conduct most of
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the management work for the LLC. On tax returns, the LLC’s accountants have treated the
LLC’s payments to Jeri Sycamore as distributions rather than management fees. Moreover, Jeri
Sycamore treated the LLC accounts as if they were her own personal account and had no regard
for the corporate structure. The evidence before the court demonstrates that she simply took
money from the LLC when she wanted it. That does not comport with a salary for management
duties. After the last hearing, the LLC apparently started paying Jeri Sycamore a set monthly fee.
However, there is still no evidence that she had an agreement with the LLC or that the fees
correlated with the duties she performed. The Sycamores have never demonstrated a basis for
paying Jeri Sycamore for management fees.
The LLC now claims that two of Leland and Jeri Sycamore’s children are managing the
LLC and being paid $12,000 per month for their services. However, the LLC has again failed to
present a management agreement between the LLC and the children or an explanation of what
duties the children are performing to justify the monthly fees the LLC pays to them. The
Sycamores have also failed to demonstrate that they complied with the LLC’s Operating
Agreement to make the change in management.
Since the court’s last order, the Sycamores also claimed that the payments from the LLC
to Jeri Sycamore were not distributions or management fees, but loans. The LLC’s most recent
tax returns show amounts paid to Jeri Sycamore as loans. None of the usual documents that
would accompany a loan exist for any funds paid to Jeri Sycamore. Moreover, Jeri Sycamore is
not making any loan payments to the LLC and she freely admitted that she has no idea if she is
supposed to pay any of the money back to the LLC. In fact, even if the money was a loan, Jeri
Sycamore would be unable to repay the loan without withdrawing money from the LLC to fund
7
the payment. She and Leland Sycamore do not claim to have assets outside the LLC. Moreover,
the characterization of the money as loans appears to help minimize Jeri Sycamore’s reported
income for tax and social security purposes. Despite EarthGrains’ arguments to this effect, the
Sycamores did not present any evidence that the payments are actually loans. Therefore, the
characterization of payments as loans from the LLC to Jeri appears to be yet another way to
circumvent EarthGrains’ rights as a judgment creditor.
The Sycamores also title personal assets, like their home, in the name of the LLC but do
not list them as property of the LLC in accounting and tax records. The LLC does not have basic
accounting procedures and records in place. After the court’s hearing on these pending motions,
Tyler Sycamore submitted a supplemental declaration stating that a $4.5 million home has
always been valued by the LLC at $0. He stated that he has no knowledge of why the home is
valued at $0. And as the new manager of the LLC, he has seen no reason to change the valuation
despite the fact that he knows the county assessor values the home for tax purposes at $2.9
million. Not only is there evidence of a lack of proper financial records, there is evidence of
questionable accounting practices. EarthGrains alleges that an accountant for the LLC fired the
Sycamores as clients because of their failure to adhere to basic accounting practices.
In addition to payments on the final judgment, prior to trial in this case, the court found
Defendants in contempt for resuming their sale of bread under the Sycamore brand and granted
EarthGrains compensatory damages and attorney fees. Although the court imposed those
contempt damages prior to trial, Defendants have never satisfied any of the amounts awarded.
Defendants know that these amounts have been due and owing since before the trial and make no
attempt to explain why there has been no payment. Their complete failure to make any payments
8
under the court’s order constitutes contempt.
Leland Sycamore claims that EarthGrains has failed to establish that he has violated this
court’s orders. The court agrees that contempt sanctions are not warranted simply because a
judgment debtor has not paid a judgment. But, despite his assertions to the contrary, there is
evidence that he is involved in the failure to comply with the court’s orders. Leland currently
claims to have had no involvement in the LLC since the time he set it up. This assertion is belied
by the fact that he made himself a co-manager of the LLC at that same time. Jeri Sycamore
testified that the outside managers preferred to work with Leland on LLC matters. As a comanager of the LLC, Leland Sycamore has the responsibility to make sure that the LLC complies
with the court’s Charging Order. The LLC’s Operating Agreement designates Leland Sycamore
as one of the managers of the LLC. He admitted that he and his wife are listed as co-managers of
the LLC. As such, he has duties to ensure compliance with court orders. The Sycamores have
not provided any evidence demonstrating that an actual change in management has been made or
that the Operating Agreement was complied with in making the change.
In the fraudulent transfer lawsuit, EarthGrains obtained evidence demonstrating that
Leland Sycamore has consistently been active in managing LLC affairs and assets during the
time period that he claims that other family members have had those management functions.
Leland and his family have worked together to make Leland appear to be judgment proof even
though he is a multimillionaire. The family has rearranged its finances to make it appear that
Leland has no possessions and no income. It then rearranged finances to make it appear that Jeri
Sycamore has no income. Yet somehow Leland and Jeri Sycamore live in comfort despite their
lack of income or assets. Leland Sycamore cannot claim that he is not responsible for the LLC’s
9
failure to comply with the court’s Charging Order. Everything being done by the family appears
to be being done with the overriding purpose of advancing Leland’s interests in not paying the
judgment against him.
Based on the above circumstances, the court concludes that there is clear and convincing
evidence that Leland Sycamore, Jeri Sycamore, and the Sycamore Family LLC are in willful
contempt of the court’s Charging Order. Having held a party in civil contempt, the court may
then impose sanctions for the purpose of achieving “either or both of two distinct remedial
purposes: (1) to compel or coerce obedience to a court order . . . ; and (2) to compensate the
contemnor’s adversary for injuries resulting from the contemnor’s noncompliance.” O’Connor v.
Midwest Pipe Fabrications, Inc., 972 F.2d 1204, 1210-11 (10th Cir. 1992). When determining
the proper amount of a coercive sanction, “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 result desired.’” Id. at 1211.
EarthGrains’ actual loss is the amount it would have received had the LLC distributed
corresponding funds to EarthGrains that it made to Jeri Sycamore. Because of the Sycamore’s
failure to comply with the Charging Order’s requirements to turn over relevant financial
information and their disregard for corporate structures or recordkeeping, the exact amount of the
contempt is unknown. Accordingly, EarthGrains requests that the court appoint a receiver to (1)
assume all rights and powers granted to Leland Sycamore as a member-manager of the LLC
under the LLC’s Operating Agreement; (2) conduct an accounting of all the distributions that the
LLC has made to Jeri Sycamore since the court entered the Charging Order; and (3) immediately
transfer that same amount to EarthGrains up to satisfaction of judgment.
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The court recognizes that the appointment of a receiver can be considered a drastic
remedy. Wing v. Horne, 2009 WL 2929389, *3 (D. Utah Sept. 8, 2009). However, the court
agrees with EarthGrains that the Sycamores’ and the LLC’s nebulous finances coupled with the
repeated management changes and procedural maneuvering fits squarely within the
circumstances for appointing a receiver. “The appointment of a receiver in a diversity case is a
procedural matter governed by federal law and federal equitable principles.” World Fuel Servs.
Corp. v. Moorehead, 229 F. Supp. 2d 584, 596 (N.D. Tex. 2002). Rule 66 of the Federal Rules
of Civil Procedure recognizes that the Federal Rules of Civil Procedure govern an action in
which a receiver is appointed and that the administration of the receivership should “accord with
the historical practice in federal courts or with a local rule.” Fed. R. Civ. P. 66. The District of
Utah has no local rules pertaining to receivers. Thus, the court must be guided by federal
common law traditions applicable to receivers.
Factors courts consider in appointing a receiver include: “(1) the validity of the claim of
the party seeking a receiver; (2) the probability that fraudulent conduct has occurred or will occur
to frustrate that claim; (3) imminent danger that property will be concealed, lost, or diminished in
value; (4) inadequacy of legal remedies; (5) lack of a less drastic remedy; and (6) the likelihood
that appointing a receiver will do more harm than good.” Id.
Each of the factors to consider in determining whether to appoint a receiver supports the
appointment of a receiver in this case. Earthgrains has a valid final Judgment and has
documented fraudulent conduct that has occurred to frustrate EarthGrains’ ability to collect on
the Judgment. The Sycamores put almost all their assets into the LCC and have used the LLC to
shield the assets from Leland’s creditors. Leland then attempted to transfer his interest in the
11
LLC and brought a lawsuit to get out of paying the judgment in this case. However, Judge
Nuffer found the transfer to be fraudulent and ineffective.
In addition to that case, the LLC has taken every position possible in this case to keep
from making any payments to EarthGrains. Defendants have not paid anything on the Judgment
or past contempt order and ask the court to believe that Leland Sycamore has no assets and no
income. Corporate structures can provide protection, but the Sycamores appear to be using the
structure to shield all their assets and income from known creditors. The Sycamores previously
claimed that Jeri Sycamore received money from the LLC for “management fees” instead of as
distributions because distributions would have to be made equally to each member based on
proportional ownership. When the court questioned the management fee claims, the Sycamores
switched managers to two of their adult children. Now the Sycamores claim that Jeri Sycamore
is no longer receiving money from the LLC and neither she nor Leland have any access to the
LLC accounts. The Sycamores have not attempted to explain to the court how Leland and Jeri
Sycamore are currently living with all their assets in the LLC, no income, and no access to LLC
accounts. Meanwhile, two of their children are now paid $12,000 per month to oversee LLC
management while the LLC continues to pay outside accountants and other professionals as well.
The change in management appears to be an attempt to take LLC management decisions
away from the person who owes the Judgment. But, despite Leland Sycamore’s lack of
management power or access to LLC accounts or assets, the LLC has still failed to comply with
the court’s Charging Order. Even if the current managers have an interest in complying with the
order in the future, they have made no attempt to comply since supposedly taking over and made
no attempt to amend the LLC’s past mistakes with compliance. When questioned about the
12
propriety of their actions in motions such as the present motion for contempt, the Sycamores
provide no information to the court to explain the circumstances or give any transparency.
Throughout all of this there has been no documentation to support the Sycamores’ claims
regarding LLC management or operations. The LLC’s Operating Agreement spells out a specific
succession plan in the event that Leland and Jeri are unwilling or unable to serve as comanagers–Mary Nicole Sycamore is to serve as sole manager. There is no documentation of
managers resigning or being unanimously voted out. With respect to LLC record keeping, the
Sycamores represent that Jeri Sycamore received $62,690 in management fees from March 2014
to December 2, 2014, but they provide no representations about all of 2015. The sporadic and
random disclosure of information is inconsistent and troubling. In addition, EarthGrains has
demonstrated instances where the LLC has potentially engaged in tax fraud and the LLC has
taken no steps to correct past tax filings. The complete lack of documentation and transparency,
especially with respect to the management of the LLC, supports the appointment of a receiver.
The LLC argues that a receiver is unnecessary because EarthGrains requests a sum certain
to be paid to it and there is no evidence that the LLC does not have the funds to pay that amount.
However, the financial information the LLC provides to the court is contradictory depending on
the issue being discussed. Moreover, the lack of transparency by the LLC makes it impossible
for the court to determine the amount that should be properly distributed to EarthGrains. And,
despite the requirements of the Charging Order, the LLC provides no comprehensive
documentation of the sum certain that is due and owing to EarthGrains. The LLC claims that it
has a separate account with funds intended for distribution to EarthGrains, but the LLC does not
provide documentation regarding the amounts in the account and the amounts do not appear to be
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equal to the amount of distributions made to Jeri Sycamore since the entry of the Charging Order.
Moreover, the amount the Sycamores are willing to pay EarthGrains to avoid a receiver changed
between the briefing of the motion and the hearing on the motion. While the court can appreciate
their desire to avoid a receiver, the fluctuating amounts demonstrate that the LLC is not properly
accounting for its funds and likely has not attempted to determine the exact amount due to
EarthGrains. A receiver can review the LLC’s accounts and determine the amount due, which
the management has been either unable or unwilling to provide to the court. The court concludes
that EarthGrains has met the second factor to consider in appointing a receiver because there is
significant evidence in this case regarding the probability that fraudulent conduct has occurred or
will occur to frustrate EarthGrain’s rightful claim to payment of its Judgment and collection
under the Charging Order.
Next, the risk that the LLC is diminishing or concealing assets that could potentially
satisfy EarthGrains’ judgment is real, continuous, and thus the court considers it imminent. The
LLC has been making distributions without giving any to EarthGrains and without providing
documentation. Moreover, the Sycamores have a history of making de facto distributions to
family members that are not considered distributions. There is a constant danger that the LLC
property will be concealed, lost, or diminished in value. The Sycamores know that their lack of
record-keeping and documentation can allow them to hide what is happening. The loss of value
in the LLC since it was formed shows that there is a continual loss of revenue. Additionally, the
LLC values some properties at nothing. Arguably, if an asset is valued at nothing it allows you
to assert that the value of it is not diminishing. However, if that asset is actually worth $3
million, a valuation of nothing is not only bad practices but potentially fraudulent. One of the
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current managers of the LLC not only does not know why the home is valued at nothing but sees
no reason for changing the valuation. Such representations demonstrate the lack of interest the
LLC has in the value of its property. The Sycamores’ complete lack of respect for the corporate
form and structure requires a receiver. A receiver will bring transparency and consistency to the
LLC’s financial management and enable the Sycamores to comply with the court’s Charging
Order.
The next factor deals with whether legal remedies are inadequate. EarthGRains has had
its Judgment for six years and a Charging Order to assist in the collection of that Judgment for
four years. The fact that the Charging Order has been in place for four years and the Sycamores
have not made a single payment to EarthGrains demonstrates that EarthGrains’ available legal
remedies have been inadequate. At this point in the process, EarthGrains has demonstrated that
the court needs to exercise its equitable powers to appoint a receiver.
As to whether there is a less drastic remedy in this situation, the Sycamores argue that the
court should appoint a special master instead of a receiver. The Sycamores have filed a separate
motion seeking appointment of a special master under Rule 53 of the Federal Rules of Civil
Procedure. Under the rule, a special master can be used in post trial matters. But a special
master can only make or recommend findings of fact based on submissions by the parties. A
special master could oversee additional discovery and fact finding procedures. However, with a
special master, the Sycamores could delay the proceedings even further and put the case in an
endless discovery merry-go-round, a result that the court has already rejected. The court has
already documented that the Sycamores delay tactics and lack of transparency. The Sycamores
simply are not forthcoming with information even when an issue is before the court. A special
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master is an insufficient remedy in a case such as this involving long-standing violations of the
court’s orders. Moreover, a special master in this case would lack the power to conduct critical
tasks. A receiver can become involved in the organization, review the actual accounts and assets,
make an accounting, determine what distributions are due to be made to EarthGrains, and take
action to recover amounts owed to the LLC.
The Sycamores claim that a special master is sufficient because the LLC is currently well
run. But the assertion is not consistent with the evidence presented to the court. The record in
this action as well as the record in the action before Judge Nuffer is replete with LLC
mismanagement. The evidence shows repeated failures to keep LLC and personal financial
transactions separate, a complete lack of record-keeping, knowingly inaccurate tax returns,
mischaracterizations of payments, failures to make required payments, and falsifying or back
dating transaction records. In the face of this evidence, the Sycamores offer the court nothing
more than vague, self-serving claims.
In addition, the current “managers” appear to have been complicit in Leland Sycamore’s
avoidance of the judgment. The current managers claim to have money in an account for
EarthGrains, which is itself a violation of the Charging Order. The money has been due and
owing for years. A Special Master would be too limited in this situation. Only a receiver, with
the authority proposed by EarthGrains, can conduct the proper financial analysis and bring the
LLC into compliance with the Charging Order.
On the final factor, the court finds no evidence to suggest that a receiver will do more
harm than good. The Sycamores assert that a receiver is costly but there is no evidence that the
special master requested by the Sycamores would cost significantly less. Without a receiver, the
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LLC has not paid a penny for over four years. A receiver can make amends and make sure the
Charging Order is complied with going forward.
The Sycamores further claim that the LLC is a Nevada entity and Nevada law limits the
actions this court can take to assure compliance with the court’s prior orders. But the underlying
conduct related to an attempt to defraud EarthGrains as a creditor is not considered the internal
affairs of the LLC and would not be governed by Nevada law. Wasatch Oil & Gas LLC v.
Edward A. Reott, 2011 UT App 152, ¶ 3, 263 P.3d 391, 393 (Utah Ct. App. 2011). Moreover,
federal law and equitable principles govern the appointment of a receiver. World Fuel Servs.
Corp. v. Moorehead, 229 F. Supp. 2d 584, 596 (N.D. Tex. 2002).
Given the above analysis, the court concludes that all the factors to consider in appointing
a receiver support the appointment of a receiver in this case. A special master is not a viable
alternative given the circumstances explained above. Accordingly, the court will grant
EarthGrain’s request for appointment of Wayne Klein as the receiver in this case and enter a
separate order setting forth his authority and responsibilities.
To the extent the receiver’s accounting does not satisfy the judgment, EarthGrains
requests that the court grant the receiver all necessary powers to foreclose the Charging Order
lien against Leland Sycamore’s 48% ownership interest in the LLC. Under Utah Code Ann. §
48-3a-503(3), if a judgment creditor makes a “showing that distributions under a charging order
will not pay a judgment debt within a reasonable time, the court may foreclose the lien and order
the sale of the transferable interest.” In accordance with this statute, the Charging Order in place
in this case provides for the court to order a foreclosure of Leland Sycamore’s membership
interests in the LLC, upon EarthGrains’ request, to the extent the judgment is not fully satisfied
17
by Leland Sycamore’s charged rights and interests in the LLC.
While a foreclosure of Leland Sycamore’s interest in the LLC may be a viable option to
pursue at a later date, the court declines to order the power of foreclosure prior to the receiver’s
accounting and review of the LLC and his efforts to bring the LLC into compliance with the
Charging Order. After the receiver has taken all the necessary steps to bring the LLC into
compliance with the Charging Order, the court would prefer to be involved again prior to
granting the right to foreclose Leland Sycamore’s interest. The parties currently disagree as to
the law applicable to foreclosing Leland Sycamore’s interest. If the Sycamores are correct and
Nevada law is applicable to foreclosing on Leland Sycamore’s interest, the receiver will be able
to obtain information relevant to a reverse piercing of the corporate veil and present it at that later
date.2
Given the court’s finding of contempt, EarthGrains asks the court to impose additional
coercive sanctions and attorney fees in addition to the appointment of the receiver. The court
believes the imposition of the receiver is adequate to ensure that the LLC will not again violate
the court’s Charging Order with respect to proper distributions. Therefore, the court declines to
award coercive sanctions in addition to the outstanding judgment and sanctions award already
due. The court, however, will award EarthGrains some attorney fees given the substantial work
EarthGrains has been required to do to collect on its judgment, most of which should have been
2
Nevada “recognizes ‘reverse piercing’ where a creditor may reach a corporation’s assets
‘to satisfy the debt of a corporate insider based on a showing that the corporate entity is really the
alter ego of the individual.’” LFC Mktg. Grp., Inc. v. Loomis, 8 P.3d 841, 846 (Nev. 2000).
Courts have held that such reverse piercing “is particularly appropriate . . . when the controlling
party uses the controlled entity to hide assets or secretly to conduct business to avoid the preexisting liability of the controlling party.” Id.
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unnecessary. The court grants this award of attorney fees to demonstrate that there are
consequences for the Sycamores’ obstructionist behavior and to discourage any further
gamesmanship by the Sycamores. The court, therefore, will award EarthGrains its attorney fees
in connection with its renewed motion for contempt and the Sycamores’ responsive motion
regarding a special master. Leland Sycamore, Jeri Sycamore, and the Sycamore Family LLC are
jointly and severally liable for the payment of these attorney fees. EarthGrains shall file the
necessary documentation of its fees in connection with the motions at issue within fifteen days of
the date of this Order. The court also notes, for purposes of its coercive effect, that the court will
continue to award attorney fees for any future motions the Sycamores file that appear to be
designed to obstruct or delay the collection of the judgment or any party’s compliance with the
court’s Charging Order or other orders.
Jeri Sycamore and the Sycamore Family LLC’s Motion to Appoint Special Master
The Sycamores ask the court to appoint a special master under Rule 53 of the Federal
Rules of Civil Procedure, which authorizes the court to appoint a special master to address
pretrial and posttrial matters. Fed. R. Civ. P. 53(a)(1)(3). In addition to the authority granted
under Rule 53, the court retains broad equitable powers to appoint a “quasi-judicial officer such
as a receiver, special master, or interim CEO.” Chen v. Stewart, 2004 UT 82, ¶ 39. The court
explained above that a receiver is more appropriate given the circumstances of this case. Given
the court’s decision to appoint a receiver and for the same reasons discussed above, the court
denies the Sycamores’ motion to appoint a special master.
CONCLUSION
Based on the above reasoning, EarthGrains’s Renewed Motion for Contempt Sanctions is
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GRANTED, and Jeri Sycamore and Sycamore Family LLC’s Motion for Special Master is
DENIED. The court will separately enter an order appointing Wayne Klein as a receiver of the
Sycamore Family LLC, and setting forth his authority and responsibilities. EarthGrains is
directed to file its supporting documentation for attorney fees in connection with these pending
motions within 15 days of the date of this Order.
DATED this 2d day of November, 2018.
BY THE COURT:
DALE A. KIMBALL
United States District Judge
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