MEMORANDUM AND ORDER REGARDING DEFENDANTS' AMENDED MOTION FOR RELIEF FROM CONTEMPT ORDER; DEFENDANTS' MOTION FOR RECUSAL, AND DEFENDANTS' MOTION TO VACATE PRELIMINARY INJUNCTION (Dkt. Nos. 269, 274, 277)
PONSOR, District Judge.
Defendants Biolitec AG ("BAG"), Biomed Technology Holdings Ltd. ("Biomed"), and Wolfgang Neuberger
The complex background underlying this litigation has been detailed in a number of prior decisions. AngioDynamics, Inc. v. Biolitec, Inc., 2011 WL 3157312, *1-2 (D.Mass. July 25, 2011); AngioDynamics, Inc. v. Biolitec AG, 910 F.Supp.2d 346 (D.Mass.2012). The facts supporting the court's civil contempt order and its referral of the case to the United States Attorney for possible initiation of charges for
This phase of the dispute largely centers on the preliminary injunction issued by this court on September 13, 2012. (Dkt. No. 141.) The order enjoined Defendants from "carry[ing] out the proposed `downstream merger' of [BAG] with its Austrian subsidiary." (Id.) The injunction was upheld on reconsideration by this court and, as noted, upon subsequent appeal to the First Circuit. AngioDynamics, Inc. v. Biolitec AG, 910 F.Supp.2d 346 (D.Mass. 2012); AngioDynamics, Inc. v. Biolitec AG, 711 F.3d 248 (1st Cir.2013). On March 15, 2013, Defendants notified the court that, in the teeth of the injunction, they had knowingly and intentionally proceeded with the enjoined merger anyway, and it had been completed. (Dkt. No. 199.)
On April 10, 2013, after a show cause hearing, the court ordered that Plaintiff's request for initiation of possible criminal contempt proceedings against the individual defendant Neuberger be referred to the United States Attorney's Office. The court also found all Defendants in civil contempt and handed down an order designed to coerce Defendants into taking immediate remedial action to bring them into compliance with the preliminary injunction. The court issued an arrest warrant for Defendant Neuberger — who had been invited to attend the show cause hearing to explain his actions but failed to appear — to permit the court to consider appropriate civil sanctions against him personally. In addition, the court established the following schedule of coercive fines intended to compel Defendants to initiate immediate action to return BAG to the status quo as it existed prior to the enjoined merger:
AngioDynamics, Inc. v. Biolitec AG, 946 F.Supp.2d at 214, 2013 WL 1567739, at *6. The court noted that the sanctions would be lifted as soon as the court was satisfied that effective actions had been taken to revoke the forbidden merger and restore the status quo ante. Id. During the hearing, the court also observed that it would immediately consider any plan offered by Defendants to revoke, eliminate, or in any practical way render nugatory, Defendants' action in defying the court's order and proceeding with the merger. In the event that the plan set Defendants on a clear course to erase the barred merger, the court possessed the power to revoke the sanctions. (Dkt. No. 248, Tr. Contempt Hr'g 45:4-11.)
More than four months have now passed since the court's finding of contempt. As will be seen below, Defendants appear to recognize that it would be possible, though cumbersome and somewhat time-consuming (a matter of months), to take action that would effectively reverse the merger. Nevertheless, Defendant Neuberger has not appeared, and no plan has been offered by Defendants even to begin to do this. Instead, Defendants have filed a motion for relief from the contempt order (Dkt.
A. Relief From the Contempt Order.
Defendants ask the court to grant them "relief" from the contempt order — essentially, to revoke the order — pursuant to Fed.R.Civ.P. 59(e), 60(b)(4), and 60(b)(6).
The request under Rule 59(e) may be quickly disposed of. A motion under this rule "must be filed no later than 10 days after the entry of judgment." Fed. R.Civ.P. 59(e). The court entered its civil contempt order on April 10, 2013; Defendants submitted their first motion for relief (later amended) on May 9, 2013 — four weeks after the contempt order was entered and only one day before the fines designed to coerce compliance were to commence. The motion is therefore untimely. In addition, a movant invoking Rule 59(e) must show "manifest errors of law or fact, newly discovered or previously unavailable evidence, manifest injustice, [or] an intervening change in controlling law." Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 7 n. 2 (1st Cir.2005) (quoting 11 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2810.1 (2d ed.1995)). As will be shown in the discussion regarding relief under Rule 60, Defendants could not meet this burden even if their motion under 59(e) was timely.
Pursuant to Rule 60, Defendants ask the court to provide relief for two reasons: (1) the judgment is void under Rule 60(b)(4); and (2) other reasons justify relief, Rule 60(b)(6). It is well established that relief under Rule 60 is "extraordinary" and that "motions invoking that rule should be granted sparingly." Karak v. Bursaw Oil Corp., 288 F.3d 15, 19 (1st Cir.2002).
In an attempt to satisfy this standard, Defendants make three main arguments. First, citing In Re Providence Journal Co., 820 F.2d 1342, 1347 (1st Cir.1986), Defendants argue that the contempt order is "transparently invalid" because Defendants' violation of the preliminary injunction did not harm Plaintiff. Second, Defendants contend that the civil contempt sanctions are improper because it is not possible for BAG to "restore the status quo ante." Finally, Defendants insist that the court must make a determination on German law, as well as this law's potential impact upon Plaintiff's future efforts to enforce an American judgment against a now-Austrian corporation, before an enforcement of the preliminary injunction would be appropriate. The failure to do this, Defendants say, vitiates the finding of contempt and the court's remedial order.
1. Validity of the contempt finding.
The centerpiece of Defendants' position is the "no harm, no foul" argument. Yes, Defendants say, we knowingly violated a clear court order, but since (as Defendants
Suppose an eleven-year-old boy is preparing to throw a snowball at his seven-year-old sister. The parent notices this and warns the boy not to throw the snowball. The boy nods, fully understanding the parent's injunction. As the parent begins to turn away, the boy throws the snowball at his sister anyway. Fortunately, the snowball misses. When the parent points out that there will be consequences for this misbehavior, the child indignantly protests that this would be unfair because his sister was not harmed.
This "no harm" argument might be understandable coming from a child, but in the mouth of an adult litigant, or a supposed officer of the court, it is breathtakingly silly. The criteria in this circuit for issuance of a finding of contempt are straightforward. The court must find that:
Hawkins v. Dept. of Health & Human Servs., 665 F.3d 25, 31 (1st Cir.2012) (internal quotations and citation omitted). As the court has held, there was, and continues to be, clear and convincing undisputed evidence conclusively satisfying each of these requirements. AngioDynamics, Inc. v. Biolitec AG, 946 F.Supp.2d at 211-13, 2013 WL 1567739, at *3-4. Defendants, indeed, have effectively conceded that each and every one of these four criteria have been satisfied in this case. As Defendants' counsel admitted: "We violated the preliminary injunction by completing the merger and it's absolutely clear that the preliminary injunction said do not complete the merger." (Dkt. No. 233, Tr. Apr. 3 Hr'g 24:25-25:1-2.)
Defendants, or at least their counsel, must know that once an explicit court order is knowingly and intentionally defied, and the snowball, so to speak, is nevertheless thrown, the moral and legal stage on which the parties and the court act changes substantially. The drama ceases to be only about the Plaintiff; it now bears as much, or more, on the issue of the court's authority and the integrity of the legal system. Any judge confronting flagrantly contumacious conduct of this sort must either act or take off the robe.
Defendants cite a Fourth Circuit decision that includes language suggesting that in some cases a civil contempt order might include as part of its basis a finding that the "movant suffered harm as a result [of the contumacious conduct]." Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000). This decision is not controlling on
More importantly, this court took care to address the "no harm" argument in its memorandum. AngioDynamics, Inc. v. Biolitec AG, 946 F.Supp.2d at 212-13, 2013 WL 1567739, at *4. The court noted that the First Circuit has demanded that courts look only to the text of an order to determine what is forbidden by it. Goya Foods, Inc. v. Wallack Mgmt. Co., 290 F.3d 63, 76 (1st Cir.2002). The power of contempt makes this careful attention to the actual wording of an order, rather than exploration of its supposed inchoate "purpose," crucial. Courts must narrowly cabin the circumstances in which contempt may be found by anchoring the finding on the words of the order. United States v. Saccoccia, 433 F.3d 19, 28 (1st Cir.2005). Here the text could not have been clearer about what behavior was forbidden.
If Defendants had any doubt as to what actions would violate the order, "[they] could have asked the district court for clarification ..., but they eschewed that course. They chose instead to rely on their own judgment.... In so doing, [they] acted at their peril." Goya Foods, 290 F.3d at 75-76. At argument, Defendants conceded that they deliberately did not confer with Plaintiff's counsel or notify the court before taking the supposedly harmless action of flouting the order. (Dkt. No. 233, Tr. Apr. 3 Hr'g 23-4.) Their reason for doing this was manifest: they knew they were violating the order and did not wish to give Plaintiff or the court notice of their intent. Their contempt was knowing, intentional, and brazen.
But there is more. Although it has no bearing on the principle embedded in this dispute, the court in fact found that Plaintiff would be harmed by any merger and that Plaintiff has been harmed now that the merger has taken place. In granting the original motion for preliminary injunction, and in reconsidering the injunction, the court was required to consider, and did consider, the issue of likely harm to Plaintiff.
During argument in connection with reconsideration of the preliminary injunction before this court, Defendants made very nearly the same argument they are offering here: that the merger of BAG with its Austrian sister corporation would put Plaintiff in no worse a position than it was in before the merger. Plaintiff argued vigorously to the contrary, pointing out that while enforcement of an American judgment in a German court might present Plaintiff with some difficulties, enforcement in Germany was not impossible, whereas all parties conceded that enforcement of an American judgment in Austria would be flatly impossible. The court agreed with Plaintiff's argument.
Some series of symbols in higher mathematics may depict the difference between a proposition that might be true and one that is utterly impossible, but common sense can draw the distinction perfectly well without equations. Plaintiff demonstrated likelihood of harm. This court found this originally and found it on reconsideration, and the Court of Appeals affirmed this finding.
Now that the merger has taken place, the stronger evidence of record confirms that the harm, in fact, has occurred more or less as predicted. In other words, while it does not matter that Plaintiff has been harmed — in light of the principle that valid court orders cannot be flouted without consequences — Plaintiff has, in fact, been seriously harmed. Defendants' argument that certain assets remain in Germany (exactly what these may be is not specified) and that the headquarters of this now-Austrian
It is significant that Defendants' arguments describing some supposed independent justification for the merger, apart from hamstringing Plaintiff, have never added up. Stated differently, any rationale for the merger beyond harming Plaintiff's potential enforcement efforts is a fabrication. Indeed, Defendant Neuberger's former associate, Stefan Spaniol, has submitted an affidavit confirming that Neuberger's intent in pushing forward with the merger, conveyed to Spaniol explicitly, was specifically to make enforcement of any judgment against BAG difficult if not impossible. (Dkt. No. 123-1, Second Spaniol Decl. ¶ 3.)
In sum, even if harm to Plaintiff were relevant, which it is not, harm to Plaintiff flowing from the merger, contrary to Defendants' arguments, has been found over and over again.
It is well established that "[f]ederal courts are empowered to issue civil contempt sanctions to `protect the due and orderly administration of justice ... and maintain  the authority and dignity of the court.'" Goya Foods, 290 F.3d at 78 (alterations in original) (quoting Roadway Express, Inc. v. Piper, 447 U.S. 752, 764, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980)). A coercive fine or term of imprisonment is an appropriate civil contempt sanction if it is done to induce "the purging of contemptuous conduct." In re Kave, 760 F.2d 343, 351 (1st Cir.1985). Sanctions are coercive if they are conditional and can be lifted if the contemptuous conduct is cured. Id. Here the sanctions are conditional and may be reconsidered when and if Defendants ever propose a plan for restoring the status quo prior to the merger.
Under these circumstances, Defendants are entitled to no "relief" from the court's order of contempt. No exceptional circumstances exist under Rule 60 justifying reconsideration. The supposed "transparent invalidity" of the court's order, based on the supposed lack of harm to Plaintiff, is nonsense.
2. Impossibility of compliance.
Defendants make four arguments why any remedial action it might take to undo the prohibited merger would be impossible: (1) it is "highly unlikely to be successful"; (2) it would take at least ten months to complete; (3) it would possibly expose the board to breach of fiduciary duty claims under Austrian and German law; and (4) it might be contrary to Austrian law. (Dkt. No. 268, Am. Notice of Impossibility 2.)
None of these arguments holds water. Defendants contend only that remedial steps would be cumbersome, and both their German and Austrian law experts acknowledge that while the process would be lengthy, it would be possible.
The claim of possible breach of fiduciary duty rings particularly hollow. First, Defendant Neuberger owes this duty mostly to himself, since he owns or controls a great majority of the stock in both defendant corporations. Second, it is hard to imagine any breach of fiduciary duty on the part of an officer of a corporation greater than behaving in such a way that a warrant is issued for his arrest for malfeasance and the corporation is exposed to monetary sanctions in the millions of dollars. Re-working the merger is very small potatoes in comparison.
It is significant that at one point Defendants did in fact propose to delay the start of sanctions so Defendants could "propos[e] a plan to [Plaintiff] to start implementing" whatever efforts were necessary to put "the genie" "back into the bottle." (Dkt. No. 248, Tr. Apr. 11 Hr'g, 47:2-8 & 44:20-23; see also AngioDynamics, 946 F.Supp.2d at 214-15, 2013 WL 1567739, at *6 (extending the date from May 1 to May 10 for sanctions to begin, to permit discussions).) No claim of impossibility was offered at that time.
Indeed, Defendants' counsel offered to come back to the court with a specific plan of action to purge the contempt. The court noted that it would not delay the sanctions until a plan was submitted and vetted, but that it would allow Defendants to submit a plan that could be vetted by Plaintiff to ensure that Defendants' actions would result in "effective and substantive compliance." (Dkt. No. 248, Tr. Apr. 11 Hr'g 40:15-22; 45: 4-11.) No such plan has ever been submitted.
Even now, if the court were convinced that a plan submitted by Defendants were effectively aimed at remedying the contempt, a motion to reduce or vacate the sanctions would be considered. (Id. at 46:7-19.) The goal of this court is not to punish Defendants gratuitously; the goal is to obtain compliance with the court's order.
In sum, the argument that any effort to remedy Defendants' violation of the preliminary injunction and purge themselves from contempt would be impossible is not supported by the record and lacks credibility. The "impossibility" argument does not justify "relief" from the contempt order.
3. German law.
The claim that the court must delve into the intricacies of German law to support its finding of contempt requires little discussion. Only two things need be said.
First, despite whatever disagreements may exist among the parties' experts, one thing is clear: the merger has placed Plaintiff in a more difficult position than it would have occupied had the merger never occurred. Moreover, ample evidence exists
Second, no investigation of German law can alter the fact that Defendants knowingly and intentionally flouted the court's order. Once the court found a likelihood of harm and issued an injunction, Defendants were not entitled to ignore the order and then demand a renewed hearing on the issue of harm to avoid contempt.
In sum, the "German law" argument provides no basis for relief from the contempt order under Rule 60.
Accordingly, because none of Defendants' arguments for "relief" from the finding of contempt is remotely persuasive, the motion (Dkt. No. 269) will be denied.
B. Vacating the Preliminary Injunction Based on the First Circuit's Reasoning.
After taking the very action forbidden by the preliminary injunction, Defendants have filed a motion to vacate the preliminary injunction based on the April 1, 2013, decision of the First Circuit affirming the injunction. (Dkt. No. 277.) In its decision, the First Circuit held:
AngioDynamics, 711 F.3d at 252.
In this motion, Defendants argue that the court must vacate the preliminary injunction and conduct proceedings to determine, at this stage, exactly what the actual challenges might be that Plaintiff would confront if it obtained a judgment against Defendants (specifically, against BAG) and attempted to enforce that judgment in Germany against this now-Austrian corporation. The court bears this obligation, Defendants say, because Defendants have provided new evidence on certain issues — for example, the location of some stock certificates — referred to in the First Circuit's decision on appeal.
The short answer to this argument is that, even assuming that the evidence might be pertinent, no sufficient new evidence has been proffered by Defendants to merit any reconsideration. For example, the record still contains no authoritative evidence on where the stock certificates were located at the commencement of this action.
Defendants point to the affidavit of Defendant Neuberger as supposed proof that the stock certificates are located in Germany. However, a reading of the affidavit reveals that all Defendant Neuberger actually states in his deposition is that he "personally recall[s] seeing those original share certificates in Germany ... in November 2000." (Dkt. No. 277-2, Neuberger Aff. ¶ 2.) Neuberger opines that there would be no reason to send the stock certificates to the United States. He also testifies that he saw the certificates in Germany years after the public offering, but he does "not recall the precise year or
Additionally, while Defendants have provided voluminous submissions on the content of German law, nothing definitively refutes Plaintiff's argument that enforcement of an American judgment against a German corporation in Germany is, in the proper circumstances, possible. Even Defendants' attorney conceded that there was "no question" that the judgment Plaintiff obtained in New York in a separate case would not be enforced in Austria, while there was a "very remote" chance of enforcement in Germany. (Dkt. No. 142, Tr. Sept. 17 Hr'g 75: 9-12; 76:6-7.) Moreover, the stronger evidence confirms that attempting to enforce an American judgment in Germany against an Austrian corporation with no significant identified assets in Germany would present Plaintiff with as difficult a challenge as the impossible task it would face in enforcing the judgment in Austria.
In sum, Defendants have offered no new evidence, and no compelling argument, justifying allowance of their motion to vacate the preliminary injunction. For this reason, Defendants' Motion to Vacate Preliminary Injunction Based on the Reasoning of the First Circuit's April 1, 2013 Decision (Dkt. No. 277) will be denied.
Defendants have filed a Motion for Recusal or Disqualification pursuant to 28 U.S.C. § 455(a).
As the First Circuit has recently observed, 28 U.S.C. § 455(a) requires recusal based on "the existence of facts that would prompt a reasonable question in the mind of a well-informed person about the judge's capacity for impartiality in the course of the trial and its preliminaries." In re Bulger, 710 F.3d 42, 46 (1st Cir. 2013). Application of this standard requires care to "prevent parties from too easily obtaining the disqualification of a judge, thereby potentially manipulating the system for strategic reasons, perhaps to obtain a judge more to their liking." Id. at 47 (quoting In re Allied-Signal Inc., 891 F.2d 967, 970 (1st Cir.1989)).
In this legal landscape, a few basic facts are relevant. Apart from this litigation, the undersigned has had no contact with the individual Defendant Neuberger at any time, or any connection of any kind with any of the corporate Defendants, Plaintiff, the witnesses, or anyone connected to this case. Defendants do not suggest otherwise.
Defendants' only asserted basis for recusal is rooted in their unhappiness in the way the court has conducted portions of the hearings and particularly the court's comments following Defendants' defiance of the injunction. It is well established that "the general rule is that remarks a judge makes in the course of ongoing judicial proceedings, remarks that are in the nature of reactions to what the judge has observed, do not warrant disqualification." Charles Gardner Geyh, Fed. Judicial Ctr., Judicial Disqualification: An Analysis of Federal Law 31 (2d ed. 2010). "[Parties are] entitled to an impartial judge; [they are] not entitled to an ingenuous one." Logue v. Dore, 103 F.3d 1040, 1046 (1st Cir.1997).
It is also black-letter law that opinions formed by a judge about the parties before him or her, formed during the course of the litigation can only rarely provide the basis of a motion for recusal.
This limitation on recusal is obvious. A litigant cannot behave badly, then point to the judge's disapproval of its misconduct, even intense and strongly worded disapproval, as a basis to remove him or her.
It is true that the type of deep-seated antagonism that requires recusal can, in extreme circumstances, be evidenced by a judge's oral comments. However, "judicial remarks during the course of a trial that are critical or disapproving of, or even hostile to, counsel, the parties, or their cases, ordinarily do not support a bias or partiality challenge." Id. Remarks that do not establish partiality include "expressions of impatience, dissatisfaction, annoyance, and even anger, that are within the bounds of what imperfect men and women, even after having been confirmed as federal judges, sometimes display. A judge's ordinary efforts at courtroom administration — even a stern and short-tempered judge's ordinary efforts at courtroom administration — remain immune." Id.
When a court is faced with allegations of partiality toward a party, the First Circuit has counseled that the record must be read as a whole instead of focusing on isolated incidents. United States v. Espinal-Almeida, 699 F.3d 588, 607 (1st Cir. 2012). It is certainly true that the brazenness of Defendants' contumacy struck the court as extraordinary, and some of their counsel's arguments to justify this conduct as childish and patently deficient. The court used strong language to express its opinions, but that was all.
Two things about the relations between court and counsel are important to emphasize. First, although the court was impatient with some of counsel's arguments and disgusted by Defendants' misconduct, there was no personal abuse of counsel. No voice was raised; the court used strong words but delivered them dispassionately.
Second, Defendants' attorney acknowledged that the court's frustration was understandable. (Dkt. No. 233, Tr. Apr. 4 Hearing 35:19-22 ("I understand that you are upset about it. Frankly if I was in your shoes, I would be upset about it too.").) He also conceded that the First Circuit likely held a similar opinion of his client's conduct. (Id. 37:13-16 ("I recognize that the First Circuit's decision is a clear indication that it was also very unhappy with the conduct of my client in completing this merger.").)
In the end, the First Circuit has said it best.
There is simply no basis for recusal here.
For the foregoing reasons, Defendants' Amended Motion for Relief from Contempt Order (Dkt. No. 269), Defendants' Motion to Vacate Preliminary Injunction (Dkt. No. 277), and Defendants' Motion for Recusal (Dkt. No. 274) are all hereby DENIED.
It is So Ordered.