0:22-cv-62185

S.D. Fla.

Oct 1, 2024

IN RE: APPLICATION OF LM PROPERTY DEVELOPMENT LIMITED AND MIRKO KOVATS PURSUANT TO 28 U.S.C. § 1782 TO CONDUCT DISCOVERY FOR USE IN FOREIGN PROCEEDINGS.

CASE NO. 22-CV-62185-AHS/AOV

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

October 1, 2024

ALICIA O. VALLE, UNITED STATES MAGISTRATE JUDGE

REPORT AND RECOMMENDATION TO DISTRICT JUDGE FOR ADDITIONAL CONTEMPT SANCTIONS

THIS CAUSE is before the Court upon Petitioners LM Property Development Limited and Mirko Kovats’ (“Petitioners“) Motion for Additional Contempt Remedies and Discovery Sanctions against Respondent Azul Destinations, LLC (“Respondent“). (ECF No. 38) (the “Motion“). United States District Judge Raag Singhal has referred the matter to the undersigned for appropriate disposition. See (ECF No. 7). Accordingly, having reviewed the Motion, and being otherwise duly advised in the matter, the undersigned recommends that the Motion be GRANTED IN PART AND DENIED IN PART for the reasons set forth below. More specifically, the undersigned recommends that: (i) Respondent continue to be held in civil contempt; (ii) Respondent’s daily fine for noncompliance be increased; and (iii) Petitioners be awarded reasonable attorneys’ fees and costs incurred in connection with the Motion.

I. BACKGROUND

The factual and early procedural history of this case have been summarized in the undersigned’s prior Report and Recommendation. See (ECF No. 35 at 1-2). This case stems from a series of legal proceedings in the Bahamas involving Petitioners, the Government of the Bahamas, and other third-parties concerning Petitioners’ attempts to purchase certain Bahamian real estate. See generally (ECF No. 1). In this regard, Petitioners filed an Ex Parte Application for Judicial Assistance to obtain evidence for use in a foreign proceeding pursuant to 28 U.S.C. § 1782 (the “Application“), seeking leave to serve subpoenas on multiple third-parties, including Respondent, for documents and deposition testimony for use in the Bahamian proceedings. Id. In January 2023, the undersigned granted the Application, finding that Petitioners met the requirements of 28 U.S.C. § 1782. See generally (ECF No. 10).

Accordingly, in January 2023, Petitioners served a subpoena on Respondent, but Respondent failed to respond. See (ECF No. 19 at 1). Petitioners then filed a Motion for Order to Show Cause or, in the alternative, to compel Respondent’s compliance with the subpoena (the “Initial Motion“). See generally id. When Respondent failed to respond to the Initial Motion, the undersigned issued an Order to Show Cause why the Initial Motion should not be granted by default. (ECF No. 20) (the “March 2023 Order“). Following Respondent’s failure to respond to the March 2023 Order, the undersigned granted the Initial Motion in part by default and directed Respondent to produce all documents responsive to the previously served subpoena within 14 days. (ECF No. 23) (the “April 2023 Order“). The April 2023 Order warned Respondent that failure to comply with the Court’s Order may result in sanctions (including possible contempt for failure to obey Court orders). See (ECF No. 23). Petitioners served the April 2023 Order on Respondent and filed a Notice of Compliance regarding the same. (ECF No. 24).

Petitioners again received no response from Respondent. Petitioners notified the Court of Respondent’s failure to comply with the Court’s April 2023 Order. See (ECF Nos. 25, 26) (Petitioners’ May and July 2023 Status Reports). Thus, in July 2023, Petitioners renewed their motion, seeking sanctions for Respondent’s continued noncompliance with the subpoena and with the Court’s Orders. See (ECF No. 28) (the “Renewed Motion“). In January 2024, the undersigned issued a Report and Recommendation to the District Judge recommending that Petitioners’ Renewed Motion be granted. (ECF No. 35). Thereafter, the District Judge adopted the undersigned’s Report and Recommendation, found Respondent to be in civil contempt, and imposed a $100 daily fine until Respondent complied with the subpoena and Court Orders. (ECF No. 37) (the “Order of Contempt“). To date, however, Respondent has not complied with any of the Court’s Orders. (ECF Nos. 23, 35, 37). The instant Motion for Additional Contempt Remedies and Discovery Sanctions followed. (ECF No. 38). To date, Respondent has accrued approximately $20,000 in fines.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 45(g) authorizes a court to “hold in contempt a person, who having been served, fails without adequate excuse to obey [a] subpoena or an order related to it.” In addition, “[c]ourts [] have the inherent power to enforce compliance with their lawful orders through civil contempt.” Whatley v. World Fuel Servs. Corp., No. 20-MC-20993, 2020 WL 4818924, at *2 (S.D. Fla. Aug. 19, 2020) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991)). “Civil contempt therefore provides courts with a sanction to enforce compliance with [a subpoena or] an order of the court or to compensate a complainant for losses or damages sustained by reason of noncompliance.” Id.; see F.T.C. v. Leshin, 719 F.3d 1227, 1231 (11th Cir. 2013) (quoting Loc. 28 of Sheet Metal Workers’ Int’l Ass’n v. E.E.O.C., 478 U.S. 421, 443 (1986)) (“[S]anctions in civil contempt proceedings may be employed for either or both of two purposes: to coerce the defendant into compliance with the court’s order, and to compensate the complainant for losses sustained.“). Civil contempt sanctions may include, among other things, a coercive daily fine, a compensatory fine, attorney’s fees and expenses, and coercive incarceration. See Citronelle-Mobile Gathering, Inc. v. Watkins, 943 F.2d 1297, 1304 (11th Cir. 1991).

A finding of civil contempt must be supported by clear and convincing evidence. S.E.C. v. Pension Fund of Am., L.C., 396 F. App’x 577, 580 (11th Cir. 2010). The clear and convincing evidence must establish that: (i) an order was violated; (ii) the allegedly violated order was valid and lawful; (iii) the order was clear and unambiguous; and (iv) the alleged violator had the ability to comply with the order. Id. Conversely, a party seeking to avoid contempt “must show that he or she either did not violate the court order as alleged or that she was ‘excused’ from complying with such order.” Van De Velde NV v. Felder, No. 15-CV-24096, 2017 WL 8895345, at *2 (S.D. Fla. May 25, 2017) (citing Mercer v. Mitchell, 908 F.2d 763, 768 (11th Cir. 1990)). A party may only be excused from compliance where it shows that “despite all reasonable efforts to comply with the court’s order, compliance was impossible.” Brother v. BFP Invs., Ltd., No. 03-CV-60129, 2010 WL 2978077, at *2 (S.D. Fla. June 1, 2010).

III. DISCUSSION

Both the undersigned and the District Judge have previously found Respondent in civil contempt. (ECF Nos. 35, 37). That ruling remains unchanged. Thus, the only issue for the Court’s determination is whether additional sanctions are necessary to procure Respondent’s compliance. Petitioners argue that additional sanctions are needed, and should include: (i) the appointment of a receiver (or a similar order freezing Respondent’s assets); (ii) allowing discovery into Respondent’s assets to satisfy the Order of Contempt; (iii) attorney’s fees, costs and expenses in connection with the Motion; and (iv) a daily fine of $1,000 (subject to doubling that amount each month after the first month). (ECF Nos. 38 at 1, 38-1 at 4-8). Each request is addressed below.

A. Respondent’s Daily Fine Should be Increased

Petitioners request that Respondent’s fine be increased from $100 to $1,000 per day, with the fine amount doubling each month after the first month of noncompliance. (ECF No. 38-1 at 1, 8). Although the undersigned agrees that the current $100 daily fine should be increased, in the undersigned’s discretion, a $1,000 per day fine is excessive, considering that Respondent is a third party who does not appear to be a participant in the underlying Bahamian litigation. Accordingly, the undersigned recommends that the $100 fine be increased to $500 for each day of noncompliance. See United States v. United Mine Workers of Am., 330 U.S. 258, 304 (1947) (noting that the purpose of a civil contempt fine is to obtain compliance, and in the exercise of its discretion, the court must “consider the character and magnitude of the harm threatened by continued contumacy,” as well as the probable effectiveness of any suggested sanction in bringing about the desired result).

B. The Court Should Not Appoint a Receiver or Freeze Respondent’s Assets

Petitioners also request that the Court appoint a receiver, or freeze Respondent’s assets, to ensure “that Petitioners have some guarantee of compensation for [Respondent’s] contemptuous conduct.” (ECF No. 38 at 1); see also (ECF No. 38-1 at 5) (arguing that “receivership (or similar freezing order) is needed to ensure compliance with the Court’s order“). Petitioner’s request for a receiver or order freezing Respondent’s assets should be denied.

Receivership “is ‘an extraordinary equitable remedy,’” appropriate only when there is no adequate remedy at law. CCUR Aviation Fin., LLC v. S. Aviation, Inc., No. 21-CV-60462, 2021 WL 796000, at *2 (S.D. Fla. Mar. 2, 2021) (quoting United States v. Bradley, 644 F.3d 1213, 1310 (11th Cir. 2011)). Accordingly, a receiver “should be employed with the utmost caution and is justified only where there is a clear necessity to protect a party’s interest in property, legal and less drastic equitable remedies are inadequate, and the benefits of receivership outweigh the burdens on the affected parties.” Id. (citation omitted). In determining whether to appoint a receiver, the Court considers several factors, including: (i) whether fraudulent activity has or will occur; (ii) the validity of the claim; (iii) the danger that property will be lost or diminished in value; (iv) inadequacy of legal remedies; (vi) the availability of a less severe equitable remedy; and (vii) the probability that a receiver may do more harm than good. Calliope Cap. Corp. v. Earthfirst Techs., Inc., No. 808-CV-219-T-17TBM, 2008 WL 1995077, at *7 (M.D. Fla. May 6, 2008). Here, Petitioners have failed to provide any legal basis for granting the extraordinary relief requested. In addition, Petitioners have not shown fraudulent conduct or an imminent threat of the depletion of assets by Respondent.

C. Discovery of Respondent’s Assets Should be Denied

Petitioners next argue that they should be entitled to take discovery (i.e., issue additional subpoenas) to locate Respondent’s assets “to enforce the Court’s contempt order” under Rules 54(a) and 69 of the Federal Rules of Civil Procedure. See (ECF Nos. 38, 38-1 at 8).

Federal Rule of Civil Procedure 69 permits judgment creditors to obtain discovery from any person, including the judgment debtor, in aid of the judgment or execution. Fed. R. Civ. P. 69(a)(2). Indeed, judgment creditors are afforded broad rights to discover any assets the debtor has or might have recently transferred that could be subject to levy or execution to satisfy the judgment. See id.; Wachovia Bank v. Tien, No. 04-CV-20834, 2015 WL 13240005, at *1 (S.D. Fla. Sept. 23, 2015).

Here, while the Court has entered the Order of Contempt (ECF No. 37), no final judgment has been entered.¹ See Fed. R. Civ. P. 54(a) (“‘Judgment’ as used in these rules includes a decree and any order from which an appeal lies.“). Where, as here, contempt may be cured by compliance, the finding of contempt is not appealable. S.E.C. v. Kirkland, 533 F.3d 1323, 1325 (11th Cir. 2008) (“An order that imposes a fine or penalty for contempt that must be obeyed within a certain period and may not be avoided by some other form of compliance is immediately appealable, but an order of contempt that imposes a fine or penalty that the party in contempt can avoid by complying with the earlier order is interlocutory and not appealable.“). Accordingly, discovery in aid of execution is premature, and Petitioners’ request for assets discovery to enforce the Order of Contempt should be denied.

D. Petitioners Should be Awarded Attorney’s Fees and Costs

Finally, Petitioners request an award of attorneys’ fees and costs as additional sanctions for Respondent’s failure to respond to the subpoena and this Court’s Orders. See (ECF No. 38-1 at 6-8). The undersigned finds such relief to be proper.

Courts may award attorney’s fees and costs to the aggrieved party as a civil contempt sanction. See Sizzler Family Steak Houses v. Western Sizzlin Steak House, Inc., 793 F.2d 1529, 1534 (11th Cir. 1986) (noting that an award of attorney fees to the injured party in a civil contempt case is within the district court’s discretion); Oppedisano v. Nichols, No. 22-MC-61509, 2022 WL 16964154 (S.D. Fla. Oct. 28, 2022), report and recommendation adopted, No. 22-MC-61509, 2022 WL 16961433 (S.D. Fla. Nov. 16, 2022) (recommending award of attorney’s fees and expenses as a sanction for respondent’s failure to comply with an order); Belize Telecom Ltd. v. Gov’t of Belize, No. 05-20470, 2005 WL 7858276, *8 (S.D. Fla. Apr. 13, 2005) (awarding reasonable attorneys’ fees and expenses caused by defendant’s contempt). This principle applies equally in the context of a § 1782 action. See, e.g., Sergeeva v. Tripleton Int’l Ltd., 834 F.3d 1194, 1197-98 (11th Cir. 2016).

Here, given Petitioners’ prolonged efforts to compel Respondent’s compliance with a properly issued subpoena, the undersigned finds an award of attorneys’ fees and costs is appropriate. See (ECF Nos. 19, 28, 38). In this regard, the Court is free to use its own knowledge and experience to determine a reasonable fee for Petitioners’ efforts. See Norman v. Hous. Auth. of City of Montgomery, 836 F.2d 1292, 1299 (11th Cir. 1988) (finding that a court may use its knowledge and experience concerning reasonable and proper legal fees); see also Paxton v. Great American, Ins. Co., No. 08-81431-CIV, 2009 WL 5064054, *8 (S.D. Fla. Dec. 16, 2009) (ordering payment of expenses incurred in connection with discovery motions where party failed to properly comply with discovery demands). Under these circumstances, the undersigned finds that an award of $2,000, in addition to the accumulating contempt daily fines, is a reasonable amount to defray the fees and expenses incurred by Petitioners in their effort to obtain Respondent’s compliance with the subpoena. Accordingly, the request in the Motion for attorneys’ fees and costs should be GRANTED, and Respondent should pay $2,000 to Petitioners.

III. RECOMMENDATION

For the reasons set forth above, the undersigned respectfully RECOMMENDS that Petitioners’ Motion be GRANTED IN PART AND DENIED IN PART. Specifically, the undersigned recommends that the District Judge enter an Order: (i) increasing Respondent’s daily contempt fine from $100 to $500 until Respondent purges itself of contempt; and (ii) awarding Petitioners $2,000 in attorneys’ fees and costs in connection with their efforts to compel compliance. All other relief in the Motion should be denied.

Within 14 days after being served with a copy of this Report and Recommendation, any party may serve and file written objections to any of the above findings and recommendations as provided by the Local Rules for this District. See 28 U.S.C. § 636(b)(1); S.D. Fla. Mag. R. 4(b). Failure to timely object waives the right to challenge on appeal the District Court’s order based on unobjected-to factual and legal conclusions contained in this Report and Recommendation. See 11th Cir. R. 3-1 (2023); Thomas v. Arn, 474 U.S. 140, 149 (1985).

Additionally, within two days from the date of this Report and Recommendation, Petitioners shall serve a copy of the same on Respondent by certified First Class Mail and file a Notice of Compliance confirming service.

DONE AND ORDERED in Chambers at Fort Lauderdale, Florida, on October 1, 2024.

ALICIA O. VALLE

UNITED STATES MAGISTRATE JUDGE

cc: U.S. District Judge Raag Singhal
All Counsel of Record

Notes

Petitioners cite to , aff‘d, , to argue that this Court’s Order of Contempt is an appealable judgment. See (ECF No. 38-2 at 8). In that case, the court entered initial and expanded contempt orders following a plaintiff’s failure to comply with a previously-issued return of funds order. . Plaintiff sought review and the Second Circuit dismissed the appeal, in part, for lack of jurisdiction because the expanded contempt order was not a final order against plaintiff. The trial court later found the expanded contempt order was a money judgment, noting that “the reason the Second Circuit dismissed [plaintiff]’s appeal of the [e]xpanded [c]ontempt [o]rder is no longer applicable as [plaintiff] has voluntarily dismissed the action.” . Those circumstances are not present. Thus, the Order of Contempt is not a final and appealable judgment subject to Rule 69.