Opposition Brief — Weiss v. Commodity Futures Trading Commission

}$ Supreme Court, U.S.

BRlmED

No. 91-1866 4 SUE 23 WR

*OEmOE OR THE CLERK

Jun the Supreme Court of the Cuited States

OCTOBER TERM, 1992

DANIEL WEISS, PETITIONER

v.

COMMODITY FUTURES TRADING COMMISSION AND THE

STATE OF FLORIDA

ON PETITION FOR A WRIT OF CERTIORARI

10 THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE

COMMODITY FUTURES TRADING COMMISSION

IN OPPOSITION

KENNETH W. STARR

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 514-2217

JOANNE T. MEDERO

General Counsel

JAY L. WITKIN

Deputy General Counsel

VicTOR L. REID

Attorney

Commodity Futures Trading Commission

Washington, D.C. 20581

QUESTION PRESENTED

Whether. the courts below erred in finding that peti-

tioner’s imprisonment for civil contempt had not lost its

coercive effect after petitioner’s first three months of

imprisonment.

(1)

TABLE OF CONTENTS

Page

ia ie silarsea ch acadan ener ravenGane aitasisebicesastanavisoncs 1

as os Va da uakbaabadmbanwaieuedens l

ear aa asco eekgwanhaneisbanabonhs 2

gins Splss ey essences alaccaeabetnbatenedoeoasenexank 5

eee rh ee os aiianneabosscoceuni 4)

TABLE OF AUTHORITIES

Cases:

Commodity Futures Trading Comm’n v. Wellington Pre-

cious Metals, Inc., 950 F.2d 1525 (11th Cir. 1992) ......... 5

Goodman v. Lukens Steel Co., 482 U.S. 656 (1987) ........... 6

Grand Jury Investigation (Braun), In re, 600 F.2d 420

a acl deka caovaususuaaceians 8

Grand Jury Proceedings (Howald), In re, 877 F.2d 849

I a schawenaures 7

Lambert v. Montana, 545 F.2d 87 (9th Cir. 1976) .....000.... 7,8

Maggio v. Zeitz, 333 U.S. 56 (1948) oo. eeeceeeeeeeeeees 7, 8,9

McNeil v. Director, Patuxent Institution, 407 U.S. 245

NURIA sat cade lslehtcuiuc i Sasheuveukacccieavabannsvusesaeiobaenensiucaens x

Simkin v. United States, 715 F.2d 34 (2d Cir. 1983) ........ 4,7

United States ex rel. Thom v. Jenkins, 760 F.2d 736 (7th

ran ruddcnd etc bene cus ausoncisirbuieeeincktiekirceneadsbivianassavan 8

Statutes and rule:

Commodity Exchange Act, 7 U.S.C. 1 et seq.:

MN a scn cesenacssanhisscdesséansaknowenenndanssannds 2

NE PRET, MEARE oc. ccxcavnavscssoasenssvowsavsceensasnsass 2

SP Se eeerceeeenes Se iN AE RO 9

I Ss acalakeaubmsonseansdunceas 6

I dads aha esi ccusnedswsecessasdbrianshanaiabvadeoniiscrasetocess 6

(111)

In the Supreme Court of the Chuted States

OCTOBER TERM, 1992

No. 91-1866

DANIEL WEISS, PETITIONER

v.

COMMODITY FUTURES TRADING COMMISSION AND THE

STATE OF FLORIDA

ON PETITION FOR A WRIT OE CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE

COMMODITY FUTURES TRADING COMMISSION

IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-

A16) is reported at 950 F.2d 1525. The opinions and

orders of the district court (Pet. App. B1-B7; C.A.

Rec. 41-55) are not reported.

JURISDICTION

The judgment of the court of appeals was entered on

January 14, 1992. A petition for rehearing was denied

on February 20, 1992. The petition for a writ of

certiorari was filed on May 18, 1992. The jurisdiction

of this Court is invoked under 28 U.S.C. 1254(1).

(1)

2

STATEMENT

1. Petitioner, together with another individual and

various corporations controlled by them—Wellington

Precious Metals, Inc., Wellington International, Inc.,

and LD. Weiss & Associates, Inc. (collectively Welling-

ton)—conducted a_ so-called “Deposit Program”

scheme pursuant to which they offered to the general

public the opportunity to purchase specific amounts of

precious metal (usually silver) at a price fixed when

the contract was executed. Approximately 2,100 to

2,200 customers entered into these contracts; most, if

not all, received little or no return on their invest-

ments. Gov’t C.A. Br. 6. The Deposit Program was,

in essence, a fraudulent “boiler room” operation, and

petitioner siphoned off large sums of money from

Wellington before the fraudulent scheme was uncov-

ered. Pet. App. Al-A3.

On November 14, 1985, respondents brought suit

against petitioner and others in the United States

District Court for the Southern District of Florida,

alleging that the defendants were engaging in the

offer and sale of illegal off-exchange futures contracts

in violation of Section 4(a) of the Commodity Ex-

change Act, 7 U.S.C. 6(a), and were defrauding the

public in violation of Section 4b(A) of the Act, 7 U.S.C.

6b(A). Violations of Florida securities laws were also

alleged. The complaint sought, inter alia, injunctive

relief, a freeze of the defendants’ assets, appointment

of a receiver, and equitable relief in the form of

disgorgement, rescission, and restitution. Gov’t C.A.

Br. 5-6.

2. On July 15, 1988, the district court ruled in favor

of respondents. The court found that the Deposit

Program contracts were illegal futures contracts in

violation of Section 4(a) of the Act, and that petitioner

and the other defendants had violated Section 4b(A) of

the Act in connection with, the offering of Deposit

Program contracts by conveying unrealistic profit

predictions to customers, portraying the contracts as

nearly risk free, and overstating Wellington's years

in business. Petitioner was found culpable both in his

individual capacity and as a principal of Wellington.

Gov't C.A. Br. 6-7.

On October 21, 1988, the district court entered a

final judgment which imposed a permanent injunction

upon petitioner and the other defendants and ordered

ancillary equitable relief, including appointment of a

permanent receiver. Additionally, the court ordered

petitioner to disgorge not less than $2,883,107 to the

receiver within ten days. Pet. App. A2-A3; C.A. Ree.

18-24. Petitioner took no appeal from those rulings.

Pet. App. A3.

3. Petitioner failed to satisfy the disgorgement or-

der, and respondents asked that he be held in con-

tempt. Pet. App. A3-A4. At the contempt hearing,

petitioner conceded that he had failed to comply with

the disgorgement order, but argued that his failure

should be excused on the basis of financial inability.

Id. at A4.

To support his claim that he no longer possessed

any funds taken from Wellington (or any assets

purchased with Wellington funds), petitioner testified

that he had invested large sums in businesses that

failed, loaned money that was not repaid, and pur-

chased assets that he no longer owned. All told,

however, petitioner’s testimony accounted for only

$1,347,000, less than half of the total amount ordered

to be disgorged. Pet. App. A4-A8. The district court

rejected petitioner’s testimony, finding him in civil

contempt for failure to comply with the disgorgement

order. The court ordered him to pay over to the

receiver five percent of the amount due under the

4

final judgment, or $144,155.35. Id. at A8&; C.A. Ree. 48-

51, 58-55. When petitioner failed to comply with that

order, he was incarcerated on April 24, 1990. Pet.

App. A9.

4. On June 11, 1990, petitioner filed a motion in the

district court to terminate the contempt order. On

July 20, 1990, approximately three months after peti-

tioner was incarcerated, the court denied that motion.

Pet. App. B1-B7. The court explained that petition-

er’s failure to comply with the disgorgement order

after spending some time in prison did not necessarily

prove that he would not comply in the future. Instead,

the court found that “it is far more plausible under

the circumstances of this case that [petitioner’s]

refusal to pay means simply that [petitioner] deems

the detriments of incarceration outweighed by the

concomitant benefits of holding onto his ill-gotten

Wellington monies.” Jd. at B5. The court further

stated that, “as the days slip by, [petitioner] will re-

assess the foregoing cost-benefit balance and deter-

mine that it would be in his best interests to come

forward with the money and end his incarceration.”

Ibid. Accordingly, the court concluded that “the

coercive sanction might yet produce its intended

result.” Jd. at B5-B6 (quoting Simkin v. United

States, 715 F.2d 34, 387 (2d Cir. 1983)).'

| Petitioner has continued to pursue termination of the

contempt order in proceedings beyond the scope of the orders

for which review is sought in this Court. On August 20, 1991,

he filed a second motion to terminate the order of civil con-

tempt. The district court denied that motion on October 23,

1991. Petitioner then filed a notice of appeal of that order on

November 19, 1991; that appeal is now pending before the

Eleventh Circuit. Moreover, on January 10, 1992, petitioner

renewed his August 1991 motion to terminate contempt with

the district court. That motion was denied on July 6, 1992.

5

5. The court of appeals affirmed. Pet. App. Al-A16.

The court upheld the district court’s determination

that the civil contempt order had not lost its coercive

effect, agreeing that “[p]Jrison time, in and of itself,

will not satisfy [petitioner’s] burden of proving that

there exists no ‘realistic possibility’ that he can

comply with the court’s contempt order.” Jd. at Al4.

Acknowledging that “each passing month of incarcer-

ation may strengthen [petitioner’s] claim of inabil-

ity,” the court concluded that “many months or per-

haps even several years may pass before it becomes

necessary to conclude that incarceration will no

longer serve the purpose of the civil contempt order.”

Id. at Al4-A15. Accordingly, the court held that the

district court had not abused its discretion in issuing

its July 1990 order refusing to terminate petitioner’s

commitment for civil contempt.?

ARGUMENT

1. Petitioner principally contends (Pet. 12-22) that

his continued commitment for contempt from April

1990 until the present* has ceased to be coercive and

has instead become punitive in violation of his due

process rights. To the extent petitioner complains of

his confinement past July 1990, however, that issue is

not properly before this Court. The court of appeals’

* The court also rejected petitioner’s contentions that ’-

should have been permitted to relitigate the amount of mo

he actually received from Wellington and that the distsi'

court erred in holding him in contempt despite his purpe

inability to comply with the order. Commodity Futures @r.

ing Comm’n v. Wellington Precious Metals, Inc., 950 F.2d 1525,

1528-1530 (11th Cir. 1992). Petitioner has not sought review of

those rulings in this Court.

8 Petitioner is also serving a concurrent state criminal

sentence. Pet. 11. .

6

decision embraces only the district court’s March 14,

1990, order of civil contempt and its July 20, 1990,

order denying petitioner’s motion to terminate con-

tempt, a period encompassing only the first three

months of petitioner’s incarceration.

Accordingly, the only question properly presented

in this petition is whether the court of appeals cor-

rectly affirmed the district court’s July 1990 finding

that petitioner’s imprisonment for civil contempt had

not lost its coercive effect after three months. The

court of appeals’ ruling on that question was clearly

correct. The district court applied the proper legal

standards and found as a matter of fact that further

confinement was likely to “ ‘produce its intended re-

sult.” Pet. App. B6. That factual finding, which was

upheld by the court of appeals, does not merit further

review. Goodman v. Lukens Steel Co., 482 U.S. 656,

665 (1987).

2. Petitioner contends (Pet. 17-18), however, that

the district court failed to make the requisite

“individualized determination” that petitioner will

comply with the disgorgement order if sanctions are

continued. That assertion is without merit.

When confronted with a motion to terminate con-

tempt, the trial court must make a “conscientious ef-

fort to determine whether there remains a realistic

possibility that continued confinement might cause

' Still pending before the court of appeals is petitioner's

appeal of the district court’s subsequent order of October 23,

1991, denying petitioner’s second motion to terminate con-

tempt. Petitioner has not asked this Court to grant a writ of

certiorari before judgment in that case, and in any event no

showing has been made that the case “is of such imperative

public importance as to justify deviation from normal appellate

practice and to require immediate settlement in this Court.”

Sup. Ct. R. 11; see 28 U.S.C. 2101(e).

earned

7

the contemnor” to comply with the court’s order.

Simkin v. United States, 715 F.2d 34, 37 (2d Cir.

1983); see also Maggio v. Zeitz, 333 U.S. 56, 76 (1948).

The contemnor, however, has the burden of showing

that no such realistic possibility exists. Simkin v.

United States, 715 F.2d at 37; see also Lambert v.

Montana, 545 F.2d 87, 91 (9th Cir. 1976). If, after re-

view of all the relevant evidence, the court is satisfied

that the incarceration might yet produce compliance

with the order, the confinement may continue.

Simkin, 715 F.2d at 37. In this regard, a trial court

has “virtually unreviewable discretion both as to the

procedure [it] will use to reach [its] conclusion, and as

to the merits of [its] conclusion.” Jd. at 38; see also Jn

re Grand Jury Proceedings (Howald), 877 F.2d 849,

850 (11th Cir. 1989).

The district court’s July 1990 order clearly mani-

fested the requisite “conscientious effort.” At the

time of the court’s ruling, petitioner had been incar-

cerated for only three months. The district court had

recently heard and then adjudged as incredible peti-

tioner’s testimony in the contempt hearing. In those

circumstances, it was well within the court’s discre-

tion to conclude that petitioner’s refusal to discharge

his obligations meant that petitioner, at least for the

moment, deemed the detriments of incarceration to be

outweighed by the benefits of holding onto his ill-

gotten gains. Similarly, it was reasonable for the

court to predict that petitioner might still reassess

his cost-benefit analysis at a later date and decide

that it would be in his best interest to come forward

with the money in order to end his incarceration.

Pet. App. B5. The district court’s fact-bound deter-

mination that continued incarceration was appropri-

ate in the particular circumstances of this case does

not merit review.

8 ‘

5. Finally, petitioner asserts (Pet. 22, 30) that this

Court should resolve a “continued disagreement

among the Circuits” as to “what factors need to be

considered in deciding what to do about the fact that a

period of imprisonment has thus far failed to induce

compliance.” Petitioner does not point to any actual

disagreement among the circuits on that issue, how-

ever, and in reality there is no conflict concerning the

proper application of this Court’s decisions in Maggio

v. Zeitz, supra, and McNeil v. Director, Patuxent In-

stitution, 407 U.S. 245 (1972).°

Petitioner’s fundamental contention appears to be

that periods of confinement longer than some arbi-

trary benchmark should be “carefully scrutinized.”

Pet. 26. Petitioner cites no authority for that con-

tention, nor does he explain what form the desired

serutiny should take. In any event, this Court’s deci-

sions already require judicial scrutiny of civil

contempt orders in order to ensure compliance with

due process standards. As this Court stated in Mag-

gio, the contemnor cannot “be held in jail forever if he

does not comply.” 333 U.S. at 76; see also United

States ex rel. Thom v. Jenkins, 760 F.2d 736, 740 (7th

Cir. 1985) (“although inearceration for civil contempt

» Petitioner errs in suggesting (Pet. ix) that the decision

below is somehow inconsistent with Lambert v. Montana, 545

2d 87 (9th Cir. 1976), and In re Grand Jury Investigation

(Braun), 600 F.2d 420 (8d Cir. 1979). Those cases stand merely

for the proposition that “if and when it becomes manifest that

continued imprisonment will not result in compliance, the

confinement then becomes punitive in character and the con-

temnor must be released.” Jn re Grand Jury Investigation, 600

F.2d at 425 n.14; see Lambert v. Montana, 545 F.2d at 90-91.

That proposition was acknowledged and accepted by the courts

below; petitioner simply failed to make the requisite showing

that his confinement had become punitive. There is no conflict.

9

may continue indefinitely, it cannot last forever”).

Review of a contemnor’s incarceration at reasonable

intervals or when requested by either party insures

that the contemnor will not endure in ‘arceration

when it no longer serves its coercive purpose. Jbid.

Petitioner is already receiving such regular review

at reasonable intervals by the district court. See note

I, supra. Aecordingly, no further review is war-

ranted.®

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted,

KENNETH W. STARR

Solicitor General

JOANNE T. MEDERO

General Counsel

JAY L. WITKIN

Deputy General Counsel

Victor L. REID

Attorney

Commodity Futures Trading Commission

JULY 1992

® Petitioner further argues (Pet. 24) that had he been sen-

tenced under the federal contempt statute, 18 U.S.C. 402, he

would have been freed after six months. That argument fails

to recognize the fundamental difference between civil and

criminal contempt. The purpose of civil contempt is to coerce

obedience to lawful orders, while criminal contempt is designed

solely to punish acts of disrespect and vindicate the court’s

authority. Maggio, 333 U.S. at 67-68. A civil contemnor may

purge himself of contempt and obtain release from jail by

complying with the court’s order; he “carrlies] the key of his

prison in his own pocket.” Jd. at 68. A criminal contemnor

lacks such control over his imprisonment.

enema