The Charitable DAF Fund, L.P. v. Highland Capital Management LP

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

THE CHARITABLE DAF FUND LP; §

CLO HOLDCO LTD; MARK §

PATRICK; SBAITI & COMPANY §

PLLC; MAZIN A. SBAITI; §

JONATHAN BRIDGES; and JAMES §

DONDERO, §

§

Appellants, § Civil Action No. 3:21-cv-01974-X

§

v. §

§

HIGHLAND CAPITAL §

MANAGEMENT LP, §

§

Appellee. §

MEMORANDUM OPINION AND ORDER

The Charitable DAF Fund LP, CLO Holdco LTD, Sbaiti & Company PLLC,

Mazin Sbaiti, Jonathan Bridges, Mark Patrick, and James Dondero (collectively

“Contemnors”) appeal the bankruptcy court’s Order Holding Certain Parties and

Their Attorneys in Civil Contempt of Court for Violation of Bankruptcy Court Orders.1

For the reasons explained below, the Court AFFIRMS in part and VACATES in part

the bankruptcy court’s order.

I. Factual Background

Highland Capital Management, LP (“Highland”)—previously headed by James

Dondero—filed for Chapter 11 bankruptcy in October 2019. “[A] nasty breakup

between Highland Capital and . . . James Dondero” ensued, and “[Dondero] and other

1 See Doc. No. 8-1 at 33.

creditors began to frustrate the [bankruptcy] proceedings by objecting to settlements,

appealing orders, seeking writs of mandamus, interfering with Highland Capital’s

management, threatening employees, and canceling trades between Highland

Capital and its clients.”2

Ultimately, Dondero agreed to relinquish some of his positions, and three

individuals—John Dubel, Russell Nelms, and James P. Seery, Jr.—became

independent directors of Highland.3 The bankruptcy court approved that settlement

in January 2020 (the “Governance Order”).4 Later, one of those directors, Seery,

became Highland’s CEO, and the bankruptcy court approved that appointment in

July 2020 (the “Seery Order”).5 Given “Dondero’s continued litigiousness,”6 both

orders (collectively the “gatekeeping orders”) provided that “[n]o entity may

commence or pursue a claim . . . against Mr. Seery relating in any way to his role as

the chief executive officer . . . of the Debtor without the Bankruptcy Court . . .

specifically authorizing such entity to bring such claim.”7 Those orders were not

appealed.8

But those gatekeeping orders failed to deter: Less than a year later, two

entities attempted to sue Seery. Their claims centered on a settlement between

2 In re Highland Capital Mgmt., L.P., No. 21-10449, 2022 WL 4093167, at *2–3 (5th Cir. Sept.

7, 2022).

3 See Doc. No. 8-2 at 127, 39; Doc. No. 8-4 at 33.

4 Doc. No. 8-4 at 33.

5 Doc. No. 8-2 at 164–65.

6 Highland Capital, 2022 WL 4093167, at *3.

7 Doc. No. 8-2 at 165, 127–28.

8 Highland Capital, 2022 WL 4093167, at *2.

Highland and one of its creditors, HarbourVest. When Seery requested the

bankruptcy court’s approval of that settlement, Dondero, two trusts of which he is a

beneficiary, and CLO Holdco, Ltd. (“CLO Holdco”) objected—but to no avail. The

bankruptcy court approved the settlement. Believing that “filing [a] motion with the

bankruptcy court would have been . . . futile,” Dondero took a different tack.9

Dondero had founded the Charitable DAF Fund LP (“DAF”) and historically

acted as its informal investment advisor. Mark Patrick had become DAF’s managing

member on March 24, 2021. Although Patrick initially had “no reason to believe that

Mr. Seery had done anything wrong with respect to the HarbourVest transaction,”

Dondero quickly “told [him] that an investment opportunity was essentially

usurped.”10 Patrick thus “engaged [Sbaiti & Company PLLC] to launch an

investigation” and asked “Dondero to work with the Sbaiti firm with respect to their

investigation of the underlying facts.”11

Following that investigation, DAF and CLO Holdco—which DAF owns and

controls—sued Highland in this Court, alleging that Highland fraudulently withheld

information when it settled with HarbourVest. That lawsuit centered on “Mr. Seery’s

allegedly deceitful conduct” and “mention[ed] Mr. Seery 50 times.”12 The complaint

named Seery as a “[p]otential party,” and it provided his citizenship and domicile.13

9 Doc. No. 38 at 13.

10 Doc. No. 8-45 at 179.

11 Id. at 178.

12 Doc. No. 8-1 at 58–59. DAF and CLO Holdco agree that “the action [was] based on Seery’s

misrepresentations, omissions, and other breaches of duty committed in his role as HCM’s CEO.” Doc.

No. 8-7 at 117.

13 Doc. No. 8-7 at 48.

Unsurprisingly, then, DAF and CLO Holdco quickly moved for leave to amend their

complaint to add Seery as a defendant (the “Seery Motion”).14 The movants

highlighted the bankruptcy court’s gatekeeping orders but requested leave to add

Seery as a defendant anyhow. This Court denied that motion the following day on

the ground that the defendants had not yet been served.

Back in the bankruptcy court, Highland moved for an order requiring DAF,

CLO Holdco, and those that authorized the Seery Motion to show cause why they

should not be held in contempt for violating the gatekeeping orders. The bankruptcy

court granted that motion, adding Dondero to the list of individuals and entities that

had to show cause. After holding a hearing on Highland’s motion, the bankruptcy

court found Contemnors in contempt for violating its gatekeeping orders. The court

imposed $239,655 in sanctions to compensate Highland for its attorneys’ fees and

$100,000 in sanctions for each unsuccessful appeal of its contempt order.

Contemnors now appeal.

II. Legal Standards

District courts have jurisdiction to hear appeals from final judgments of

bankruptcy courts.15 This Court reviews a bankruptcy court’s sanctions for abuse of

discretion, reviewing the court’s findings of fact for clear error and its conclusions of

14 Doc. No. 8-7 at 115.

15 28 U.S.C. § 158(a)(1).

law de novo.16 A finding of fact is clearly erroneous when “the reviewing court is left

with the definite and firm conviction that a mistake has been committed.”17

III. Analysis

Contemnors assert that the bankruptcy court (A) erroneously found them in

contempt, (B) unlawfully issued the gatekeeping orders, (C) punitively sanctioned

them, (D) erroneously sanctioned Dondero, and (E) violated the Constitution in

myriad ways. Each argument is meritless.

A. Contempt Finding

Contemnors claim that the bankruptcy court erred in finding them in contempt

for violating its gatekeeping orders. “[T]he movant in a civil contempt proceeding

bears the burden of establishing by clear and convincing evidence: (1) that a court

order was in effect; (2) that the order required certain conduct by the respondent; and

(3) that the respondent failed to comply with the court’s order.”18

The bankruptcy court found each element by clear and convincing evidence. In

particular, the bankruptcy court had previously ordered that “[n]o entity may

commence or pursue a claim . . . against Mr. Seery.”19 Contemnors failed to comply

with this order and “pursu[ed] litigation” against Seery because they filed a motion

16 In re Pratt, 524 F.3d 580, 584 (5th Cir. 2008) (cleaned up).

17 In re Am. Dev. Intern. Corp., 188 B.R. 925, 933 (N.D. Tex. 1995) (cleaned up).

18 Tex. v. Dep’t of Labor, 929 F.3d 205, 213 n.11 (5th Cir. 2019) (cleaned up).

19 Doc. No. 8-2 at 165.

requesting leave to add Seery as a defendant to a lawsuit that already centered on

“Mr. Seery’s allegedly deceitful conduct.”20 Contemnors raise five objections.

First, they contend that the term pursue in the gatekeeping orders refers only

to legal activities that occur after a claim has already been filed. They cite

dictionaries defining pursue as to “prosecute or sue” or to “carry it out or follow it.”21

But Contemnors’ definitions appear absent in most dictionaries.22 Instead, most

dictionaries define pursue as “seeking”23 or “trying”24 to obtain a desired end.

Contemnors counter that expanding pursue beyond “prosecute” begets a

slippery slope such that even “legal research . . . [or] conferring with a client” could

count.25 Not so. To pursue a claim, a party must “try” or “seek” to bring that claim.

Requesting leave to amend differs from legal research or client communications

20 Doc. No. 8-1 at 58–59.

21 Doc. No. 19 at 28 (cleaned up). Contemnors also cite the Court’s distinction in Cohens v.

Virginia, 19 U.S. (6 Wheat.) 264, 408 (1821), between commence and prosecute: “[T]o commence a suit,

is to demand something by the institution of process in a Court of justice, and to prosecute the suit, is,

according to the common acceptation of language, to continue that demand.”

22 See Hepp v. Facebook, 14 F.4th 204, 212 (3d Cir. 2021) (recognizing that “[a] comparative

weighing of dictionaries is often necessary,” by which a court checks multiple dictionaries (quoting

Antonin Scalia & Bryan A. Garner, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 417 (2012))).

23 Pursue, BLACK’S LAW DICTIONARY (11th ed. 2019) (“[T]o seek.” (emphasis added)); Pursue,

MERRIAM-WEBSTER DICTIONARY, https://www.merriam-webster.com/dictionary/pursue (last visited

Sept. 26, 2022) (“[T]o find or employ measures to obtain or accomplish : seek.” (emphasis added)).

24 Pursue, BLACK’S LAW DICTIONARY (11th ed. 2019) (“To try persistently to gain or attain . . . .”

(emphasis added)); Pursue, MACMILLAN DICTIONARY,

https://www.macmillandictionary.com/us/dictionary/american/pursue (last visited Sept. 26, 2022)

(“[T]o try to achieve something.” (emphasis added)); Pursue, OXFORD LEARNER’S DICTIONARY,

https://www.oxfordlearnersdictionaries.com/us/definition/english/pursue?q=pursue (last visited Sept.

26, 2022) (“[T]o do something or try to achieve something . . . .” (emphasis added)); Pursue, CAMBRIDGE

DICTIONARY, https://dictionary.cambridge.org/us/dictionary/english/pursue (last visited Sept. 26, 2022)

(“[T]ry to do.” (emphasis added)).

25 Doc. No. 19 at 29.

because “a party who moves to amend usually does intend to amend.”26 In fact, in

this Court, Contemnors would have had no choice: They attached the proposed

amended complaint, and, as the local rules make clear, “[i]f leave [to amend] is

granted . . . the clerk will file a copy of the amended pleading.”27 In short, by

requesting leave to amend, Contemnors tried to—and, in fact, took every action

necessary on their part to—bring a claim against Seery.

Contemnors next aver that the gatekeeping orders’ requirement that litigants

seek the bankruptcy court’s authorization to bring claims “confirms that a motion for

leave to amend cannot itself be deemed to ‘commence or pursue a claim.’”28 But

Contemnors shoot themselves in the foot: “The expression of one thing implies the

exclusion of others,” so the gatekeeping orders’ reference to an allowed method of

pursuing a claim implies that other methods—like petitioning a district court—are

prohibited.29

Second, Contemnors contend that they, in fact, complied with the gatekeeping

orders by asking this Court for authorization because bankruptcy courts “constitute

a unit of the district court.”30 But the Fifth Circuit has already “reject[ed] the . . .

26 Blanks v. Lockheed Martin Corp., No. 4:05CV137LN, 2006 WL 1139941, at *2 (S.D. Miss.

Apr. 25, 2006).

27 N.D. TEX. CIV. R. 15.1(b); see, e.g., Electronic Order Granting Motion for Leave to File,

Christman v. Walmart Inc, No. 3:21-cv-03055-X (N.D. Tex. Sept. 20, 2022), ECF No. 20 (Starr, J.)

(“Unless the [Amended Complaint] has already been filed, clerk to enter the document as of the date

of this order.”).

28 Doc. No. 19 at 30.

29 In re Benjamin, 932 F.3d 293, 298 (5th Cir. 2019) (quoting Scalia & Garner, supra note 22,

at 107).

30 Doc. No. 19 at 31 (quoting 28 U.S.C. § 151).

argument” that a party may bypass bankruptcy gatekeeping orders “by filing suit in

the district court with supervisory authority over the bankruptcy court.”31

Third, Contemnors claim they lacked “clear notice” that their request to the

district court violated the gatekeeping orders because that is not a “plain or exclusive

reading of those orders.”32 It’s true that only a “definite and specific order” that

proscribes the performance of “a particular act” can form the foundation of a contempt

finding.33 But the underlying order need not “anticipate every action to be taken in

response to it[],”34 because bankruptcy courts are “entitled to a degree of flexibility in

vindicating [their] authority against actions that . . . violate the reasonably

understood terms of the order.”35

The gatekeeping orders were definite and specific: They proscribed the pursuit

of claims against Seery sans bankruptcy-court approval. Accordingly, the bankruptcy

court did not need to delineate every activity that could constitute pursuit of a claim

against Seery. And it certainly did not need to explain that filing a proposed

complaint—which this Court could automatically docket—constituted pursuit of a

claim. Although Contemnors cite cases where the sanctioned conduct was unrelated

31 Villegas v. Schmidt, 788 F.3d 156, 159 (5th Cir. 2015). Although Contemnors claim that

Villegas “was careful to limit its holding,” they only cite limiting language from a section that did not

deal with the argument that bankruptcy courts are merely units of the district court. Doc. No. 19 at

31 n.5. When it actually addressed Contemnors’ argument, the Fifth Circuit was clear that it

“maintained the distinction between the bankruptcy court and the district court.” Villegas, 788 F.3d

at 159.

32 Doc. No. 19 at 32.

33 In re Skyport Glob. Commc’ns, Inc., 661 F. App’x 835, 840 (5th Cir. 2016) (cleaned up).

34 Am. Airlines, Inc. v. Allied Pilots Ass’n, 228 F.3d 574, 578 (5th Cir. 2000).

35 Hornbeck Offshore Servs., L.L.C. v. Salazar, 713 F.3d 787, 792 (5th Cir. 2013).

to the underlying order, they fail to find any precedent where an underlying order

was fatally indefinite merely on account of a contemnor’s definitional quibble.36

Fourth, Contemnors Sbaiti and Bridges assert deficient notice because they

“entered the case after” the gatekeeping orders were already in existence.37 But the

record belies Contemnors’ cry of ignorance. Acknowledging that Contemnors Sbaiti

and Bridges were “new to the case,” Highland’s counsel—prior to the Seery Motion—

made them “aware of the . . . Bankruptcy Court orders that prohibit Mr. Seery . . .

from being sued without first obtaining authority from the Bankruptcy Court.”38 Lest

doubt remain, Highland’s counsel clarified that Contemnors would “violate such

Orders by filing [their] motion in the District Court.”39 Sbaiti and Bridges had notice.

Fifth, Contemnors contend that their “good faith” and “forthright[ness]”

counsel against a contempt finding.40 And Contemnors Sbaiti and Bridges claim they

lacked notice that the Seery Order would prohibit the conduct of those “who acted

with complete candor towards this Court.”41 But candor is inapposite. The

36 See In re Baum, 606 F.2d 592, 593 (5th Cir. 1979) (reversing sanctions for attorney’s taking

deposition, when the bankruptcy court previously ordered that the deposition notice was vacated but

“did not explicitly direct that the deposition not take place”); In re Gravel, 6 F.4th 503, 513 (2d Cir.

2021) (concluding that a bankruptcy court’s order did not provide notice where it prohibited challenges

to a debtor’s status “in any other proceeding,” and the sanctioned conduct occurred outside of court),

cert. denied sub nom. Sensenich v. PHH Mortgage Corp., 142 S. Ct. 2829 (2022).

37 Doc. No. 19 at 34.

38 Doc. No. 8-7 at 93.

39 Id. at 92.

40 Doc. No. 19 at 35.

41 Id. at 34.

gatekeeping orders didn’t proscribe deceitful conduct—they prohibited pursuit of

claims against Seery. Forthright disregard of a court order is no defense.42

Similarly, Contemners assert that the Seery Motion was “harmless[]” because

this Court denied it “before Highland expended any time responding.”43 But the time

entries of Highland’s counsel tell another story. Highland spent thousands of dollars

preparing to fight the Seery Motion before this Court denied it.44 With no indication

Contemnors would abandon their ambitions to sue Seery, Highland did not need to

wait to suffer more harm.

The bankruptcy court did not err in finding Contemnors in contempt for

violating its gatekeeping orders.

B. Gatekeeping Orders

Contemnors challenge the gatekeeping orders themselves, claiming that

bankruptcy courts may not shield the actions of a company’s CEO. They also assert

42 Cf. Taggart v. Lorenzen, 139 S. Ct. 1795, 1802 (2019) (“[A] party’s subjective belief that she

was complying with an order ordinarily will not insulate her from civil contempt if that belief was

objectively unreasonable.”).

43 Doc. No. 19 at 35.

44 Doc. No. 8-45 at 21–23 (recognizing that Highland’s lawyers billed myriad hours discussing

“DAF lawyers[’] correspondence to add CEO to DAF lawsuit, and how to respond,” reviewing “e-mails

. . . re[garding] DAF intention to name Seery as a defendant,” “telephone conferenc[ing] . . . re: DAF

intention to name Seery as a defendant,” “[r]eview[ing] . . . DAF motion for leave to amend and add

CEO,” reviewing “correspondence with Board” regarding the motion, and “conferenc[ing] . . . regarding

DAF motion to amend and response,” to name a few).

that gatekeeping orders cannot shield “debtors in possession . . . with respect to any

of their acts or transactions in carrying on business connected with such property.”45

Highland asserts that this Court cannot consider Contemnors’ collateral

challenge of the gatekeeping orders. A “collateral attack on an [order] during

contempt proceedings is prohibited if earlier review of the [order] was available.”46

In fact, when asked to review the Governance and Seery Orders, the Fifth Circuit

recently concluded that it lacked “jurisdiction to consider collateral attacks on final

bankruptcy orders.”47 This Court agrees that it lacks jurisdiction to consider

Contemnors’ collateral attack. Like the Fifth Circuit, this Court declines to “roll back

the protections” of the gatekeeping orders.48 Contemnors provide three responses.

First, Contemnors claim that the bar against collateral attacks applies only

when the contemnor “previous[ly]” challenged the order and then, during contempt

proceedings, asked the court to “reopen” the issue.49 That’s wrong. Both the Fifth

45 Doc. No. 19 at 40 (quoting 28 U.S.C. § 959(a)).

46 W. Water Mgmt., Inc. v. Brown, 40 F.3d 105, 108 (5th Cir. 1994); accord Reich v. Crockett,

No. 95-50159, 1995 WL 581875, at *2 (5th Cir. 1995) (per curiam) (“The collateral attack of an

injunction in a contempt proceeding is prohibited where the injunction was subject to earlier review.”);

G. & C. Merriam Co. v. Webster Dictionary Co., Inc., 639 F.2d 29, 34 (1st Cir. 1980) (“Ordinarily the

validity and terms of an injunction are not reviewable in contempt proceedings.”); cf. Maggio v. Zeitz,

333 U.S. 56, 68 (1948) (“[T]he turnover proceeding is a separate one and, when completed and

terminated in a final order, it becomes res judicata and not subject to collateral attack in

the contempt proceedings.”).

47 Highland Capital, 2022 WL 4093167, at *12 n.15.

48 Id.

49 Doc. No. 38 at 11 (cleaned up); see also Brown, 40 F.3d at 108 (declining to allow litigants to

“reopen consideration of [an] issue” after their “previous attack” on an injunction).

Circuit50 and other courts51 have declined to hear collateral challenges to orders even

when the litigants had not previously challenged those orders. And, in considering

the gatekeeping orders, the Fifth Circuit did not require a previous challenge to

solidify “the orders’ ongoing res judicata effects and our lack of jurisdiction to review

those orders.”52

Second, Contemnors assert that “the Seery Order was not even a ‘final’

appealable order because the bankruptcy court retained jurisdiction.”53 The Fifth

Circuit disagreed, describing the gatekeeping orders as “final.”54

Third, Contemnors aver that they lacked “notice of the Seery Order when it

was issued” and thus could not “have filed a timely appeal even if they wanted to.”55

It’s true that collateral attacks are barred only where the party—or “those in privity

with them”—had “a fair chance to challenge” the orders.56 But that doesn’t help

Contemnors. Dondero affirmatively agreed to the Governance Order,57 and both

Dondero and CLO Holdco were served with the Seery Order.58 Further, DAF is in

50 Crockett, 1995 WL 581875, at *1–2 (declining to allow a collateral attack when a party

previously “consent[ed]” to an injunction, but it was “subject to direct review by this court”).

51 John Zink Co. v. Zink, 241 F.3d 1256, 1260 (10th Cir. 2001) (“This issue should have been

raised in an appeal from the 1987 proceeding and defendants are barred from raising the issue now.”

(emphasis added)); G. & C. Merriam, 639 F.2d at 34 (finding that an injunction was “not reviewable

in contempt proceedings” even when the contemnor “failed effectively to exercise its right of appeal”).

52 Highland Capital, 2022 WL 4093167, at *12 n.15.

53 Doc. No. 38 at 15 (cleaned up).

54 Highland Capital, 2022 WL 4093167, at *12 n.15.

55 Doc. No. 38 at 15.

56 In re Linn Energy, L.L.C., 927 F.3d 862, 867 (5th Cir. 2019) (cleaned up).

57 Doc. No. 8-4 at 32.

58 Doc. No. 8-28 at 88.

privity with CLO Holdco because it controls and owns 100% of CLO Holdco.59 Patrick

is in privity with DAF and CLO Holdco because he is DAF’s managing member, and

his predecessor was “the only human being authorized to act on behalf of CLO Holdco

and [] DAF.”60 Likewise, the Sbaiti firm and its lawyers are in privity with DAF

because they represent DAF. Thus, Contemnors had a fair chance to challenge the

gatekeeping orders or are in privity with an entity that did.61

C. Punitive Sanctions

Contemnors first assert that the bankruptcy court’s $100,000-per-appeal

sanction was excessive and punitive.62 Highland agrees that this Court should vacate

that award. Because the parties are in accord, the Court vacates the bankruptcy

court’s $100,000-per-appeal sanction without prejudice.63

Contemnors also assert that the bankruptcy court’s $239,655 sanction was

“criminal, rather than civil.”64 “[B]ankruptcy courts do not have

inherent criminal contempt powers”—they can only issue civil contempt sanctions.65

59 Doc. No. 8-41 at 84–85.

60 Doc. No. 8-41 at 84–85; see also Doc. No. 19 at 34–35.

61 Contemnors also analogize to as-applied challenges, claiming that parties may “challenge

regulations as applied to them, despite the limitations period for facial challenges having expired.”

Doc. No. 19 at 33. Whatever the merits of that analogy, it does not allow this Court to ignore Fifth

Circuit precedent barring collateral attacks during contempt proceedings.

62 Doc. No. 8-1 at 41 (“[T]he court will add on a sanction of $100,000 for each level of rehearing,

appeal, or petition for [certiorari] that the Alleged Contemnors may choose to take with regard to this

Order, to the extent any such motions for rehearing, appeals, or petitions for certiorari are not

successful.”).

63 Because the Court vacates that award based on the parties’ agreement, it need not reach

Contemnors’ arguments that that award is punitive, unconstitutional, or outside the bankruptcy

court’s authority.

64 Doc. No. 19 at 44.

65 In re Hipp, Inc., 895 F.2d 1503, 1511 (5th Cir. 1990).

To determine whether a sanction is criminal or civil, courts examine the “primary

purpose” of the sanction.66 If the primary purpose is “to punish the contemnor and

vindicate the authority of the court,” then the sanction is criminal; but if the primary

purpose is “to coerce the contemnor into compliance with a court order, or to

compensate another party for the contemnor’s violation,” then the order is civil.67

The bankruptcy court recognized that it could only order sanctions necessary

to “coerce obedience” or “compensate the Debtor,” deciding that “compensatory

damages are more appropriate.”68 Thus, the court reviewed “invoices of the fees

incurred by [Highland’s] counsel relating to this matter,” finding that fees totaling

$187,795 were “reasonable and necessary fees incurred in having to respond . . . to

the contemptuous conduct.”69 In addition, the court recognized that three attorneys

participated in the contempt hearing, multiplied their hourly rates times the length

of the hearing, and thus imposed $11,860 in additional costs. After that, the court

made some assumptions. For instance, the court recognized an additional $22,271.14

that Highland’s counsel “incurred during this time period” and reduced that number

to $10,000, “assum[ing]” that that lower amount related to the contempt hearing.70

The court also “assume[d] the [Unsecured Creditors Committee] incurred $20,000 in

fees monitoring this matter,” evidenced by the fact that the Committee’s lawyer

66 Lamar Fin. Corp. v. Adams, 918 F.2d 564, 566 (5th Cir. 1990).

67 Id.

68 Doc. No. 8-1 at 60.

69 Id.

70 Id. at 61.

attended the contempt hearing.71 Lastly, the court assumed that Highland’s local

counsel “incurred $10,000 in fees.”72 Contemnors lodge five objections to that award.

First, Contemnors aver that the bankruptcy court “repeatedly emphasized”

that it imposed sanctions to punish Contemnors—not to compensate Highland.73

Oddly enough—considering the alleged “repeated emphasis”—Contemnors can’t

come up with a solitary quote supporting that assertion. That’s because the

bankruptcy court expressly designed its award to “compensate the Debtor”74—not to

mete out punishment—and based its sanctions entirely on its calculation of

Highland’s attorneys’ fees.75

Second, Contemnors contend that the sanction is excessive and that the

bankruptcy court “largely pulled numbers out of thin air” in making assumptions

about which fees might relate to the contempt motion.76 But “[t]he essential goal in

shifting fees . . . is to do rough justice.”77 This Court need not demand “auditing

perfection” of the bankruptcy court, and it must give “substantial deference” to the

“court’s overall sense of a suit.”78 Although the bankruptcy court did make multiple

71 Id.

72 Id.

73 Doc. No. 19 at 45.

74 Doc. No. 8-1 at 60.

75 See Ravago Americas L.L.C. v. Vinmar Int’l Ltd., 832 F. App’x 249, 255 (5th Cir. 2020) (per

curiam) (“[F]or a sanction to be compensatory, it must be measured in some degree by the pecuniary

injury caused by the act of disobedience.” (cleaned up)).

76 Doc. No. 19 at 49.

77 Roussell v. Brinker Intern., Inc., 441 F. App’x 222, 233 (5th Cir. 2011) (per curiam) (cleaned

up).

78 Id. (cleaned up).

assumptions, Contemnors do not quibble with any particular assumption. Absent

any argument that the bankruptcy court botched a particular calculation, this Court

cannot conclude that the bankruptcy court erred.79

Third, Contemnors assert that the bankruptcy court erred in awarding

Highland fees associated with the contempt motion because “litigants are expected to

pay the fees for the litigation tactics they employ.”80 Not so. The Fifth Circuit has

affirmed sanctions that “reimburse [the opposing litigant] for its reasonable attorney

fees related to the hearing on the motion for contempt.”81 In awarding compensatory

civil sanctions, bankruptcy courts do not err in awarding a sanction that “restores the

79 See Skyport Glob., 661 F. App’x at 841–42 (finding no error where “the bankruptcy court

carefully calculated the fees and awarded far less than was requested”).

80 Doc. No. 19 at 47.

81 Ravago, 832 F. App’x at 253, 261; accord Skyport Glob., 661 F. App’x at 841 (“Almost without

exception it is within the discretion of the trial court to include, as an element of damages assessed

against the defendant found guilty of civil contempt, the attorneys’ fees incurred in the investigation

and prosecution of the contempt proceedings.” (cleaned up)). Although Contemnors make an argument

“borrowing . . . from tort law,” they fail to explain how this Court could abandon binding Fifth Circuit

authority in favor of a tort-law theory. Doc. No. 19 at 48.

. . . parties to where they were before they incurred attorneys’ fees in an attempt to

ensure compliance with the injunction.”82

Fourth, Contemnors aver that civil sanctions must be “conditional” in that they

“may be lifted if the contemnor changes course.”83 And they cite the Supreme Court’s

statement that “a flat, unconditional fine totaling even as little as $50 announced

after a finding of contempt is criminal if the contemnor has no subsequent

opportunity to . . . avoid the fine through compliance.”84 Because the $239,655

sanction was not conditional, they contend it constituted a criminal sanction.

But Contemnors strip the Supreme Court’s statement from its salient context.

The Supreme Court really said that civil sanctions can either (1) “coerce[] the

defendant into compliance” or (2) “compensate[] the complainant.”85 “Where a fine is

not compensatory, it is civil only if the contemnor is afforded an opportunity to

purge” and “avoid the fine through compliance.”86 In other words, the conditional

nature of a sanction matters only if the sanction is meant to “coerce[] the defendant

82 Skyport Glob., 661 F. App’x at 841. Contemnors also assert that Highland might have paid

more attorneys’ fees if Contemnors had properly requested the bankruptcy court’s permission to sue

Seery, and they cite Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1187 (2017) (cleaned up),

for the proposition that a “complainant in a contempt action may recover only the portion of his fees

that he would not have paid but for the misconduct.” Doc. No. 19 at 47 (cleaned up). But Contemnors

misconstrue Goodyear. In reality, Goodyear made clear that courts must “determine whether a given

legal fee—say, for taking a deposition or drafting a motion—would or would not have been incurred in

the absence of the sanctioned conduct.” Goodyear, 137 S. Ct. at 1187. The bankruptcy court properly

constrained its compensatory award to fees incurred during the contempt hearing, which would not

have occurred in the absence of the sanctioned conduct.

83 Doc. No. 19 at 45.

84 Doc. No. 38 at 18 (quoting Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821,

829 (1994)).

85 Bagwell, 512 U.S. at 829 (cleaned up).

86 Id. (emphasis added).

into compliance”—not where it compensates the injured party.87 Thus, when the

bankruptcy court expressly designed its award to “compensate the Debtor,” it did not

need to craft a conditional sanction.88

The bankruptcy court did not err in imposing the $239,655 sanction.

D. Dondero

Arguing separately, Dondero asserts that the bankruptcy court erred in

holding him in contempt. At the outset, the parties dispute the appropriate standard

of review.89 This Court reviews the bankruptcy court’s sanction of Dondero for abuse

of discretion.90 Thus, to the extent Dondero challenges the bankruptcy court’s factual

findings about him, this Court reviews those findings for clear error.91 To the extent

he challenges the court’s legal conclusions concerning the scope of its gatekeeping

orders, this Court reviews that issue de novo.92

The bankruptcy court made three factual findings concerning Dondero. It

concluded that “Dondero sparked this fire,” meaning that he had “the idea of bringing

the District Court Action to essentially re-visit the HarbourVest Settlement and to

find a way to challenge Mr. Seery’s and the Debtor’s conduct.”93 Next, the court

87 Bagwell, 512 U.S. at 829 (emphasis added).

88 Doc. No. 8-1 at 60.

89 Compare Doc. No. 33 at 40 (arguing that this issue involves “factual matter” that this Court

reviews for “clear error”), with Doc. No. 37 at 6 n.2 (arguing that this issue involves a “question of law

that is reviewed de novo”).

90 Pratt, 524 F.3d at 584 (cleaned up).

91 Id.

92 Id.

93 Doc. No. 8-1 at 53.

concluded that “Dondero encouraged Mr. Patrick to do something wrong.”94 Finally,

it concluded that Patrick “basically abdicated responsibility to Mr. Dondero with

regard to dealing with Sbaiti and executing the litigation strategy.”95 Dondero lodges

four objections.

First, Dondero asserts that “[t]hese findings are not supported by the record”96

and that he “had no involvement with the Seery Motion.”97 Instead, he claims that

he provided the Sbaiti Firm and Patrick “factual information only.”98 This Court

reviews the bankruptcy court’s factual conclusions for clear error, which occurs only

if, “on the entire evidence, the court is left with the definite and firm conviction that

a mistake has been committed.”99

Ample evidence supports the bankruptcy court’s factual findings. Dondero

has had a significant role in DAF for over a decade. DAF’s assets come in part from

Dondero and his “family trusts.”100 Dondero “was DAF’s managing member until

2012,” and he remains “DAF’s informal investment advisor.”101 After Dondero

stepped down as managing member, that role went to Grant Scott, “Dondero’s long-

94 Id.

95 Id.

96 Doc. No. 17 at 37.

97 Id. at 29.

98 Doc. No. 37 at 12.

99 In re Dennis, 330 F.3d 696, 701 (5th Cir. 2003) (cleaned up).

100 Doc. No. 8-1 at 34.

101 Id.

time friend, college housemate, and best man at his wedding.”102 Scott ultimately

resigned due to “disagreements with . . . Dondero.”103

Patrick replaced Scott as “DAF’s general manager on March 24, 2021”—19

days before the Seery Motion.104 Patrick initially had “no reason to believe that Mr.

Seery had done anything wrong with respect to the HarbourVest transaction.”105

Only once “Dondero told [him] that an investment opportunity was essentially

usurped”106 did Patrick “engage[] the Sbaiti firm to launch an investigation” and ask

“Mr. Dondero to work with the Sbaiti firm with respect to their investigation of the

underlying facts.”107 After that, Dondero “communicated directly with the Sbaiti

firm”—Patrick did not.108 Dondero “saw versions of the complaint before it was filed”

and had “conversations with attorneys” about the complaint pre-filing.109 That

complaint focused on “Seery’s allegedly deceitful conduct” and “mention[ed] Mr. Seery

50 times.”110 Further, when listing the parties, the complaint listed each party named

102 Id. at 34–35.

103 Id.

104 Id. at 35.

105 Doc. No. 8-45 at 179.

106 Id.

107 Id. at 178.

108 Id. at 180.

109 Doc. No. 8-30 at 145–46.

110 Doc. No. 8-1 at 58–59.

in the caption along with “[p]otential party James P. Seery, Jr.,” providing his

citizenship and domicile.111

Further, although Dondero averred that he did not direct the Sbaiti firm to

add Seery to the complaint, Dondero also contradicted himself, first claiming that he

did not know that “the Sbaiti firm intended to file a motion for leave to amend their

complaint to add Mr. Seery,”112 but then agreeing during the hearing that he

“[p]robably” was “aware that that motion was going to be filed prior to the time that

it actually was filed.”113 He also testified to conversations about the Seery Motion,

noting that it involved a “very complicated legal preservation” issue.114

Based on all that evidence, the Court is not left with a definite and firm

conviction that the bankruptcy court erred. After being stymied in the bankruptcy

court, Dondero manufactured the exigency for the lawsuit that challenged Seery’s

conduct. Dondero’s claim that he “did not suggest that Mr. Seery should be added as

a defendant”115 is not credible. Dondero gave Patrick the idea of challenging Seery’s

conduct, and he worked with the Sbaiti firm to bring that idea to fruition in the

complaint—a complaint that clearly contemplated adding Seery to the lawsuit.

Likewise, his plea that he “had no involvement with the Seery Motion”116 is not

111 Doc. No. 8-7 at 48.

112 Doc. No. 8-30 at 153.

113 Doc. No. 8-46 at 83. Although Dondero asserts that “no evidence demonstrates that he

knew about . . . the . . . Seery Motion before it was filed,” his testimony that he “probably” knew about

the Seery Motion provides at least some evidence of his knowledge. Doc. No. 37 at 14.

114 Doc. No. 8-46 at 83.

115 Doc. No. 17 at 38.

116 Id. at 22.

credible. Dondero himself testified to the contents of attorney communications

concerning the Seery Motion, eventually admitting that he “probably” had knowledge

of the Motion before it was filed. In short, the bankruptcy court did not err, after

considering the “totality of the evidence,” in finding that Dondero had “the idea of”

suing to “challenge Mr. Seery’s . . . conduct,” that he “encouraged Mr. Patrick to do

something wrong,” and that Patrick “abdicated responsibility to Mr. Dondero with

regard to . . . executing the litigation strategy.”117

Second, Dondero repeatedly asserts that the “only way” the bankruptcy court

could have found him in contempt is if the court found him to be “an ‘authorizing

person’ for [] DAF or CLO Holdco.”118 Because Patrick was DAF’s managing member,

Dondero asserts that only Patrick could have been an “authorizing person” who could

be held in contempt. Tellingly, Dondero provides no citation for his claim that only

“authorizing persons” can be liable for contempt. Although he cites a Texas Supreme

Court case holding that corporate agents are “not necessarily” liable for a

corporation’s contemptuous conduct, that case held that an agent could be liable if

there was “evidence in the record that the corporate agent . . . was somehow

personally connected with defying the authority of the court.”119 And here, evidence

117 Doc. No. 8-1 at 53.

118 Doc. No. 17 at 29; see also id. at 37 (arguing “that was the only way Mr. Dondero could

have been held in contempt” (emphasis added)).

119 Ex parte Chambers, 898 S.W.2d 257, 261 (Tex. 1995).

abounds that Dondero was personally connected with violating the gatekeeping

orders.120

Third, Dondero asserts that the bankruptcy court erred in holding him in

contempt “sua sponte.”121 Highland’s initial contempt motion did not name Dondero,

and Dondero contends that “a civil contempt sanction may [not] be imposed without

a request of a party.”122 That’s wrong. “[B]ankruptcy courts may sua sponte, take

any action necessary or appropriate to enforce or implement court orders or rules, or

to prevent an abuse of process,” including issuing “civil contempt orders.”123 For

instance, courts may “sua sponte order[]” individuals to “show cause why they should

not . . . be sanctioned and held in contempt.”124

Fourth, Dondero complains that he did not have “prior notice” that he could be

held in contempt because the bankruptcy court’s show cause order did “not include[]

120 Contemnors also cite agency law and argue that the bankruptcy court found that Dondero

was not an agent of DAF or CLO Holdco for purposes of attorney-client privilege. But that misses the

point. As Highland rightly argues, “[i]t does not matter whether Dondero was acting as an agent of

DAF or CLO Holdco; what matters is whether he acted to violate two Bankruptcy Court Orders that

explicitly restrained his own personal conduct.” Doc. No. 33 at 42.

121 Doc. No. 17 at 42.

122 Id. at 43 (quoting United States v. Russotti, 746 F.2d 945, 949 (2d Cir. 1984)). At the outset,

Dondero’s cases are inapposite. One of his cases questioned a court’s civil-contempt authority to issue

a sanction when the purportedly aggrieved party declined to “submit[] any papers in this Court”

opposing the contemnors actions. Russotti, 746 F.2d at 949. Another case determined which parties

may institute civil contempt proceedings. MacNeil v. United States, 236 F.2d 149, 153 (1st Cir. 1956)

(“[C]ivil contempt proceedings may be instituted only by the parties primarily in interest.”). Neither

of those issues is relevant here because Highland, the proper party, requested sanctions.

123 In re Cleveland Imaging & Surgical Hosp., L.L.C., 26 F.4th 285, 294 & n.14 (5th Cir. 2022)

(cleaned up); see also Lamar, 918 F.2d at 566 (“Acting sua sponte . . . the district court ordered the

Adamses to appear before it . . . and to show cause why they should not be held in contempt.”).

124 Hill v. Hunt, No. 3:07-CV-2020-O, 2010 WL 11537888, at *1 (N.D. Tex. Feb. 6, 2010) (Solis,

J.); see also Netsphere, Inc. v. Baron, No. 3:09-CV-0988-F, 2011 WL 13130079, at *3 (N.D. Tex. Dec.

13, 2011) (Furgeson, J.) (“If ICANN fails to comply with the Court’s orders, then the Court will

proceed sua sponte to hold a hearing to determine if ICANN is in contempt and should be subjected to

fines and sanctions.”).

[him] in the definition of Violators.”125 Although the show cause order didn’t define

“violators,” it required DAF, CLO Holdco, and “Dondero [to] appear in-person before

this Court and show cause why an order should not be granted . . . finding and holding

each of the Violators in contempt of court.”126 The only reasonable interpretation is

that “violators” denoted the aforementioned individuals and entities summoned to

court to defend their conduct.

Dondero disagrees, averring there is nothing “in the record suggesting that the

Order should be read” to include him as a violator.127 Au contraire. Dondero himself

admitted to the bankruptcy court his understanding that he had been “named by the

Court as an alleged or implied violator.”128 Thus, as Highland rightly argues,

“Dondero’s feigned surprise . . . is an unpersuasive attempt to rewrite history.”129

The Court cannot find that the bankruptcy court erred in sanctioning Dondero.

125 Doc. No. 17 at 46–47. He also claims that this dearth of notice constituted a due process

violation. Id. at 49. This Court rejects that argument because Dondero did have notice and an

opportunity to be heard.

126 Doc. No. 8-8 at 138 (emphasis omitted).

127 Doc. No. 37 at 17.

128 Doc. No. 8-8 at 171. To borrow Contemnors’ turn of phrase, Dondero’s counsel “repeatedly

emphasized” that the court had named Dondero as a violator. See Doc. No. 8-45 at 159–60

(acknowledging that Dondero was “an alleged violator”); Doc. No. 8-46 at 150 (acknowledging that

Dondero and his counsel appeared because Dondero “was named . . . within the order as an alleged

violator”). Dondero contends that he didn’t acknowledge that he was named as a violator because he

was only making the argument that he was not “a control or authorizing person.” Doc. No. 8-8 at 171;

see also Doc. No. 37 at 19. But his argument that he was not properly before the court does not

undermine his acknowledgment that he had been named by the court as a violator.

129 Doc. No. 33 at 44. Dondero’s citation to Skinner v. White, 505 F.2d 685, 690 (5th Cir. 1974),

hurts his case. The court there recognized that an order “to show cause . . . called upon [the named

person] to answer simply for the act and conduct specified.” Id. at 690–91 (cleaned up). Thus, Skinner

suggests that an order to show cause provides the named individual notice that it could be held in

contempt for the specified conduct.

E. Constitutional Objections

Contemnors lodge a bevy of constitutional objections, which this Court reviews

de novo.130 They ask the Court to recognize these “troubling constitutional issues,”

practice constitutional avoidance, and bypass these “constitutionally turbulent

waters.”131 Finding no constitutional turbulence, this Court declines.

a. Due Process

Contemnors raise five due process issues.

First, Contemnors contend that the bankruptcy court violated due process by

failing to provide notice of “the scope of potential sanctions for . . . a minor supposed

infraction.”132 Sanction decisions “must comport with due process.”133 “[D]ue process

demands . . . that the sanctioned party be afforded notice . . . .”134 The bankruptcy

court’s show cause order provided each of the named parties notice of their alleged

violations and notice that the court might impose an award equal to Highland’s

“actual expenses incurred in bringing this Motion.”135 Contemnors cite no authority

130 Jarkesy v. SEC, 34 F.4th 446, 451 (5th Cir. 2022).

131 Doc. No. 19 at 64–65.

132 Id. at 53.

133 Spiller v. Ella Smithers Geriatric Ctr., 919 F.2d 339, 346 (5th Cir. 1990) (cleaned up).

134 Meyers v. Textron Fin. Corp., 609 F. App’x 775, 778 (5th Cir. 2015) (cleaned up).

135 Doc. No. 8-8 at 138–39.

holding that notice must include a dollar range of any possible sanctions. Their notice

argument is meritless.136

Second, Contemnors ask this Court to apply the rule of lenity. The rule of

lenity “says that . . . criminal statutes will be construed favorably to criminal

defendants.”137 As this Court has already found, the bankruptcy court did not impose

criminal sanctions. The rule of lenity is inapplicable.

Third, Contemnors claim that the bankruptcy court prejudged their case when

it referred to Contemnors as “violators” in its show cause order. It’s true that “a fair

tribunal is a basic requirement of due process.”138 But Contemnors fail to show that

the court prejudged the case. The show cause order adopted the term “violators” from

Highland’s contempt motion.139 In total, the order referred to Contemnors as

“violators” three times. Contemnors cite no precedent where any similar isolated

references deprived a contemnor of due process. Absent such an argument, this Court

cannot conclude that the bankruptcy court’s isolated use of “violators” deprived

Contemnors of due process.

Fourth, Contemnors claim the bankruptcy court prejudged the case by

“shift[ing] the burden” to Contemnors to show cause why they should not be held in

136 Contemnors contend that the presence of “notice and due process during the contempt

proceedings . . . . does not cure the bankruptcy court’s failure to provide clear notice before the motion

for leave was filed regarding the breadth of the Seery Order.” Doc. No. 38 at 28. This Court already

concluded Contemnors had notice of the scope of the Seery Order. See Part III.A. To the extent they

regurgitate that argument as a due-process argument, it is likewise meritless.

137 Cass R. Sunstein, Nondelegation Canons, 67 U. Chi. L. Rev. 315, 332 (2000) (emphases

added).

138 In re Murchison, 349 U.S. 133, 136 (1955).

139 Doc. No. 8-4 at 183.

contempt.140 But show cause orders do not improperly shift the burden to the alleged

contemnor.141 This Court rejected a similar argument where the bankruptcy court

made clear that it was applying a “clear and convincing evidence” burden of proof.142

Because the bankruptcy court made clear that it was applying a “clear and convincing

evidence” burden of proof, this Court cannot conclude that the bankruptcy court

improperly shifted the burden to Contemnors.143

Fifth, Contemnors assert that the bankruptcy court prejudged the case by

allowing evidence of Dondero’s actions, even though he was not a litigant in the

HarbourVest suit. But one of the primary purposes of the gatekeeping orders was to

shield Seery from “Dondero’s continued litigiousness.”144 Further, Contemnors filed

the Seery Motion shortly after Dondero and CLO Holdco objected concerning the

same transaction in the bankruptcy court. The court did not need to ignore the

context of this litigation, and it was entitled to question whether Dondero might be

140 Doc. No. 19 at 54.

141 Am. Airlines, 228 F.3d at 581–84 (recognizing “the district court’s Show Cause Order” and

still recognizing that the “movant in a civil contempt proceeding bears the burden” (cleaned up)).

142 In re LATCL&F, Inc., No. 398-35100-HCA, 2001 WL 984912, at *3 (N.D. Tex. Aug. 14, 2001)

(Buchmeyer, C.J.).

143 Doc. No. 8-1 at 58.

144 Highland Capital, 2022 WL 4093167, at *3.

involved with the Seery Motion. The bankruptcy court did not prejudge the suit by

allowing evidence concerning Dondero.

The Court cannot conclude that the bankruptcy court violated due process.

b. Appointments Clause

Contemnors next argue that “construing Judge Jernigan’s authority as

expansive and subject to deference runs headlong into caselaw concerning the

Appointments Clause.”145 Specifically, Contemnors apply four factors enumerated in

Morrison v. Olson, 487 U.S. 654 (1988), contending that bankruptcy judges are

principal offers.

The Appointments Clause says that the President “shall nominate, and by and

with the Advice and Consent of the Senate, shall appoint . . . Officers of the United

States”—known as principal officers.146 The so-called Excepting Clause says that

“Congress may by Law vest the Appointment of [] inferior Officers . . . in the Courts

of Law.”147 Bankruptcy judges are “appointed by the court of appeals of the United

States.”148 Consequently, if bankruptcy judges are principal officers, then an

Appointments Clause issue arises, given the dearth of presidential appointment or

145 Doc. No. 19 at 59.

146 U.S. Const. art. II, § 2, cl. 2.

147 Id.

148 28 U.S.C. § 152(a)(1).

senatorial advice and consent. Thus, this issue hinges on whether bankruptcy judges

are principal or inferior officers.

Edmond v. United States, 520 U.S. 651, 658–66 (1997)—a case conspicuously

absent from Contemnors’ copious briefing—considered whether judges of the Coast

Guard Court of Criminal Appeals were principal or inferior officers. Edmond held

that “‘inferior officers’ are officers whose work is directed and supervised at some level

by others who were appointed by Presidential nomination with the advice and

consent of the Senate.”149 The Coast Guard judges qualified as inferior because both

the Judge Advocate General and the Court of Appeals for the Armed Forces (the

“CAAF”) had power to review their judgments.150 Even though the CAAF’s review

was limited to determining whether there was “some competent evidence in the

record to establish each element,” the Court concluded that this “limitation upon

review does not . . . render the [Coast Guard] judges . . . principal officers” because

they could only render a final decision if “permitted to do so by other Executive

officers.”151

Edmond’s reasoning suggests that bankruptcy judges are inferior officers. For

instance, bankruptcy judges’ work is “subject to appellate review, first by the district

courts and then by the courts of appeals.”152 Although Contemnors are correct that

this Court, on certain issues, provides deference to the bankruptcy court, that

149 Edmond, 520 U.S. at 663.

150 Id. at 664.

151 Id. at 664–65.

152 Tuan Samahon, Are Bankruptcy Judges Unconstitutional? An Appointments Clause

Challenge, 60 Hastings L.J. 233, 288 (2008).

deference in no way rivals the CAAF’s deference approved in Edmond. As

Contemnors’ leading source on the issue candidly concedes, “bankruptcy judges

ultimately ‘have no power to render a final decision . . . unless permitted to do so’ by

superior judicial officers.”153 Thus, it’s not shocking that the only courts to consider

the issue have rejected similar Appointments Clause challenges.154

Contemnors’ contrary argument rests entirely on Morrison v. Olson. But

“Edmond . . . essentially displaced the faulty Appointments Clause analysis of

Morrison.”155 And Edmond itself acknowledged that the Coast Guard judges would

have satisfied multiple Morrison factors—yet it failed to follow those factors.156

Further, the Fifth Circuit cites Edmond as the defining test for Appointments Clause

issues—not Morrison.157

Contemnors provide no justification for their reliance on Morrison over

Edmond. Absent such an argument, this Court cannot conclude that bankruptcy

judges are unconstitutionally appointed.

153 Id. (quoting Edmond, 520 U.S. at 665).

154 In re Khan, No. 10-46901-ESS, 2014 WL 10474969, at *54 (E.D.N.Y. Dec. 24, 2014)

(“Defendant has not shown that Article II and the Appointments Clause prevent this Court from

hearing and determining this adversary proceeding.”); see also In re Khan, 706 F. App’x 22, 22–23 (2d

Cir. 2017) (rejecting the argument that “bankruptcy judges are not appointed in accordance with the

Appointments Clause of the United States Constitution”). Contemnors assert that “much water has

passed under the Appointments Clause bridge since” those cases. Doc. No. 38 at 30. But they fail to

identify said “water.”

155 Steven G. Calabresi, The Structural Constitution and the Countermajoritarian Difficulty,

22 Harv. J.L. & Pub. Pol’y 3, 5 (1998) (emphases added).

156 Edmond, 520 U.S. at 661 (concluding that the Coast Guard judges are “not ‘limited in

tenure,’ as that phrase was used in Morrison . . . . Nor are military judges ‘limited in jurisdiction’”).

157 See Burgess v. FDIC, 871 F.3d 297, 303 (5th Cir. 2017) (“As the Supreme Court stated

in Edmond, inferior Officers’ work is often directed and supervised . . . by a superior.” (cleaned up)).

c. Other Constitutional Issues

Contemnors claim that the sanctions violate the Eighth Amendment’s

prohibition on excessive fines. But “a fine assessed for civil contempt does not

implicate the Excessive Fines Clause.”158 And this Court has already determined

that the bankruptcy court’s sanctions were civil—not criminal.

Next, Contemnors assert that the gatekeeping orders constitute a judicial

taking. Their paltry argument on this point spans three sentences, culminating in

their admission that their on-point case held that “Takings Clause claims for

compensation are unavailable against a bankruptcy judge.”159 Without more,

Contemnors have failed to make out a judicial-takings argument.

Lastly, Contemnors assert that “the power exercised by bankruptcy courts . . .

raise[s] serious separation of powers concerns” because “the gatekeeping orders

purport to oust the authority of this Court to hear cases between private parties in

the first instance, imposing an initial non-judicial bite at the apple.”160 Once again,

158 In re Grand Jury Proc., 280 F.3d 1103, 1110 (7th Cir. 2002); accord United States v. City of

Yonkers, 856 F.2d 444, 459 (2d Cir. 1988) (“Even if the Excessive Fines Clause should be determined

to apply to punitive damages, it does not apply to civil contempt sanctions imposed to obtain

compliance with court orders.”), rev’d sub nom. on other grounds Spallone v. United States, 493 U.S.

265 (1990); Spallone v. United States, 487 U.S. 1251, 1257 (1988) (Marshall, J., concurring in the denial

of stay) (“[T]he Cruel and Unusual Punishments Clause does not apply to civil contempt sanctions.

This is not surprising since the Cruel and Unusual Punishments Clause, like the Excessive Fines

Clause, applies to punishments for past conduct, while civil contempt sanctions are designed to secure

future compliance with judicial decrees.” (cleaned up)).

159 Doc. No. 19 at 64 (cleaned up).

160 Doc. No. 19 at 58.

this Court “lack[s] jurisdiction to consider [Contemnors’] collateral attacks” on the

gatekeeping orders.161

IV. Conclusion

For the foregoing reasons, the judgment of the bankruptcy court is

AFFIRMED in part and VACATED in part. The Court AFFIRMS the bankruptcy

court’s judgment as to the $239,655 sanction and VACATES the judgment as to the

$100,000-per-appeal sanction without prejudice.

IT ISSO ORDERED this 28th day of September, 2022.

UNITED STATES DISTRICT JUDGE

161 Highland Capital, 2022 WL 4093167, at *12 n.15.

32