644 F.

2d 313

Fed. Sec. L. Rep. P 97,892

SECURITIES AND EXCHANGE COMMISSION, Appellee,
v.
Sheldon MOSS, Individually and d/b/a Television Marketing;
Correlated Equities Corporation, Appellants,
and
National Executive Planners, Inc., Dan King Brainard, Roy
Heybrock, William H. Cain, Richard O. White, Barry
Eugene Weed, Defendants.
No. 79-1813.

United States Court of Appeals,

Fourth Circuit.
Submitted Nov. 4, 1980.
Decided March 10, 1981.

Joel A. Haber, Chicago, Ill. (Floyd Babbitt and Eric Lieberman, Chatz,
Sugarman, Abrams, Haber & Fagel, Chicago, Ill., on brief), for
defendants-appellants.
Michael K. Wolensky, Associate Gen. Counsel, Washington, D. C. (John
P. Sweeney, Asst. Gen. Counsel, Chicago, Ill., Harlan W. Penn,
Washington, D. C., attorney, on brief), for appellee.
Before INGRAHAM * , Senior Circuit Judge, and HALL and ERVIN,
Circuit Judges.
K. K. HALL, Circuit Judge:

Sheldon S. Moss appeals from an order of the district court holding him in civil
contempt and committing him to the custody of the U. S. Marshal for failing to
comply with an order entered on a consent judgment of permanent injunction
and other relief entered by the same court on January 22, 1979. We affirm the
district court's contempt and commitment order.

The consent judgment in issue arose from a complaint brought by the Securities
and Exchange Commission (SEC) in civil enforcement proceedings against
Moss and others. The SEC alleged, inter alia, that Moss, individually and doing
business as Correlated Equities Corporation, and others had violated the
antifraud and registration provisions of the federal securities laws.1 Moss,
through counsel, consented to the entry of a preliminary injunction. On January
22, 1979, again through counsel, Moss consented to the entry of a permanent
injunction. An order was entered by the district court upon the parties' consent
and signature. The consent order required Moss to deposit.$4.5 million in the
court registry and prohibited him from disposing of his assets without prior
court approval, except in limited circumstances.2 The consent order further
provided that:

3
Correlated
Equities and Sheldon Moss ... deposit and remit the above described
monies by February 28, 1979, or file with the plaintiff, Securities and Exchange
Commission a detailed schedule of the monthly receipt and disbursement of all
monies, funds, and properties for each of them and all persons or corporations
controlled directly or indirectly, by them by the 10th day of the month following the
month covered by said schedule of receipts and disbursements until said sum is paid,
the first schedule covering January and February, 1979, to be filed by March 10,
1979.
4

Moss filed monthly reports for January, February and March in compliance
with the consent judgment. On April 30, 1979, the SEC petitioned the district
court for an adjudication in civil contempt against Moss for failing to deposit
the.$4.5 million in the court registry. On June 26, 1979, a contempt hearing
was held during which the district court questioned the parties extensively
regarding the intent of the consent judgment. At this time Moss argued the
consent judgment provided him with alternate means of compliance, to wit: the
deposit of.$4.5 million or the timely filing of reports on receipts and
disbursements. The district court denied the SEC's petition for contempt but
rejected Moss' argument. By order filed July 13, 1979, it found:

a5 meeting of the minds of all the parties occurred on January 22, 1979, the date the
agreement was signed and filed, and it is concluded that the intent of the parties was
that the defendants Correlated Equities Corporation and Sheldon Moss pay into the
Clerk of the Court $4,500,000.00 in negotiable U. S. Government Securities "within
a reasonable time" from the date on which the consent decree and injunction was
entered.
6

The district court further found that the reasonable time for compliance had
expired and it ordered Moss to deposit the money and file the required reports

by August 1, 1979. This deadline was later amended to September 1, 1979.

7

On August 21, 1979, in connection with a related matter, the reports for April,
May and June of 1979 were delivered. These reports disclosed that Moss had
sold a condominium apartment and some shares of bank stock without the
court's approval. Nine days later the SEC filed another petition to hold Moss in
civil contempt for selling these assets without court approval and for claiming
excessive living expenses. At the contempt hearing Moss claimed he had sold
these assets to support his family and to pay counsel fees. Following this
hearing, but before the court issued its order, Moss filed an affidavit stating that
he was unemployed and that he had virtually no assets.

On September 20, 1979, the district court issued an order holding Moss in civil
contempt and ordering his commitment until he purged himself by paying
the.$4.5 million. Moss filed another affidavit stating his poverty. The district
court stayed its commitment order pending this appeal. On May 8, 1979,
following the entry of a guilty plea to 16 counts of mail fraud, Moss was
sentenced to 8 years in prison.

On appeal Moss argues there was no basis for holding him in civil contempt
because he did not violate the consent order. Moss renews his argument that the
January 22, 1979, order provided for alternate means of compliance. We, too,
find this argument unpersuasive. If Moss' position were to be accepted, he
could forever avoid the payment of the.$4.5 million by filing timely reports.
Furthermore, it is clear that Moss violated that portion of the consent judgment
which prohibited the sale of assets without court approval except in limited
circumstances. Moss was only permitted to use his personal funds for the
payment of living expenses and counsel fees. The sale of assets without court
approval was restricted to sales for the purpose of funding repayment or
repaying Television Marketing's indebtedness. The sale of assets for other
purposes required prior court approval which Moss did not request or receive.

10

Moss also contends the district court improperly modified the consent
judgment and order by inferring the parties meant to require payment within a
reasonable time. The district court acted well within its powers in determining
the parties' intent when they entered into the consent judgment. U. S. v. ITT
Continental Baking Co., 420 U.S. 223, 95 S.Ct. 926, 43 L.Ed.2d 148 (1975).
The district court's determination that there was a meeting of minds and that a
reasonable time for compliance was intended was a permissible exercise of its
"inherent power to supervise and aid the implementation of settlement
agreements in pending litigation." Wood v. Virginia Hauling Co., 528 F.2d 423
(4th Cir. 1975).

11

Moss' final contention is that since he does not have the present financial ability
to comply with the consent order, the commitment will serve no remedial
purpose. The district court heard testimony and evaluated the evidence
presented to show Moss' inability to comply with the consent order. It did not
credit much of Moss' testimony, especially in light of the government's
allegations that Moss was attempting to evade the judgment. We find no abuse
of discretion by the district court. When Moss completes his present criminal
sentence, he may then present whatever new evidence is available to
demonstrate his inability to comply with the consent order.

12

AFFIRMED.
ERVIN, Circuit Judge, dissenting:

13

Although I agree with the majority that Moss violated the consent order, his
inability to comply is, in my opinion, a complete defense. I, therefore,
respectfully dissent from the majority's affirmance of the district court's
contempt order.

14

The Supreme Court has long recognized, as this court fails to do today, that the
purpose of civil contempt is coercive rather than punitive, and that one who
simply cannot comply with an order cannot be held in contempt for failing to
do so. See McNeil v. Director, Patuxent Institution, 407 U.S. 245, 251, 92 S.Ct.
2083, 2087, 32 L.Ed.2d 719 (1972) ("Civil contempt is coercive in nature, and
consequently there is no justification for confining on a civil contempt theory a
person who lacks the present ability to comply."); United States v. Bryan, 339
U.S. 323, 330, 70 S.Ct. 724, 730, 94 L.Ed. 884 (1950) ("Ordinarily, one
charged with contempt of court for failure to comply with a court order makes a
complete defense by proving that he is unable to comply."); see also D. Dobbs,
Remedies 103-05 (1973).

15

Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476 (1948), is particularly
instructive in this case, for in Maggio the Supreme Court refused to allow a
contempt citation to stand when compliance with a court order was impossible.
Maggio, as president and manager of a bankrupt corporation, had been held in
contempt for failure to comply with a turnover order, despite evidence showing
that he did not have possession of the goods and hence could not comply with
the order. In vacating the Second Circuit's affirmance of the district court's
finding of contempt, the Court said:

The nature and derivation of the remedy make clear that it is appropriate only when
16

the evidence satisfactorily establishes the existence of the property or its proceeds,
and possession thereof by the defendant at the time of the proceeding.... Conduct
which has put property beyond the limited reach of the turnover proceeding may be
a crime, or, if it violates an order of the referee, a criminal contempt, but no such
acts, however reprehensible, warrant issuance of an order which creates a duty
impossible of performance, so that punishment can follow.
333 U.S. at 64, 68 S.Ct. at 405.
17
18

Impressed by the Second Circuit's admission of Maggio's inability to comply, 1

the Court felt it unnecessary to inquire whether that finding was justified by the
evidence in the record.2

19

Moss' contempt citation remains in effect, and hence his imprisonment

continues, until he purges himself by paying four and a half million dollars into
the district court's registry; this is the total payment contemplated by the
consent order. The record in this case reflects not only that the state of Moss'
finances left him in no position to pay such a vast sum, but also that the district
court was fully aware of that circumstance. Moss swore that he was
unemployed, that his receiver controlled all of his assets, that he had little
money and few personal belongings, and that he was dependent on his children
for support. Financial records attached to Moss' affidavit showed that his
liabilities far outweighed his assets at the time of the contempt adjudication.

20

The district court was aware that Moss could not comply with an order to repay
such a large sum of money, as evidenced by its comment at the first contempt
hearing:

21 obvious that he doesn't have the money to pay these people back or it is
(I)t's
apparent to me, and I am sure that some of the people who have invested in this, it is
apparent to them that they are going to lose in this situation.
Transcript at 34.
22
23

The court's remark indicates that it knew it was, in effect, requiring Moss to do
the impossible in order to purge himself of contempt. In addition, the court
recognized that the law allows such inability to comply to be a defense to
contempt:

24 in a civil matter to order that amount of money paid back without more
Well,
assurance than I had that it would be paid back put the court in a rather bad position.
People not familiar with the law do not understand why the court cannot just in this

civil case incarcerate someone eternally for failing to do that (to pay). Well, you
know as a lawyer that in a civil case, I can't do that. You know as I know, that if
somebody ordered to pay that money comes in and shows that he or she is without
funds and is without property, that you have to (sic) got to turn them loose.
Transcript at 249-50.
25
26

The court, then, appears to have simply attached no significance to Moss'

affidavit, even though nothing else in the record indicates that Moss did have
the financial ability to comply with the order.3 In my opinion, the district
court's action raises the specter of the debtor's prison this country long ago
outlawed.

27

I would reverse.

Joe MacDonald Ingraham, Senior Circuit Judge, Fifth Circuit, Houston, Texas,
sitting by designation

The complaint alleged violations of 15 U.S.C. 77e(a) and (c), 15 U.S.C.

77q(a), and 15 U.S.C. 78j(b)

The consent judgment provided that:

"the defendants are permitted to use their personal funds for reasonable and
necessary living, secretarial, utility, travel, counsel fees, accountants (sic) fees,
rent expenses ..." (emphasis added).
Correlated Equities Corporation and Moss, individually, and d/b/a Television
Marketing were further permitted to pledge, hypothecate, sell, assign, transfer
or otherwise dispose of any assets for the purpose of funding the repayment or
repaying the indebtedness of Television Marketing.

The Second Circuit had said, "Although we know that Maggio cannot comply
with the order, we must keep a straight face and pretend that he can, and must
thus affirm orders which first direct Maggio 'to do an impossibility, and then
punish him for refusal to perform it.' " See 333 U.S. at 59, 68 S.Ct. at 403

The Court did point out, however, that Maggio tendered evidence of his
earnings for the pertinent period, of his unemployment during part of that time
due to failing health, and of his family obligations and manner of living during
the intervening period. He also swore that he had no real or personal property
which could be used to satisfy the trustee's demands and repeated his denial of

possession
3

Interestingly enough and despite its earlier recognition that "it's obvious that
(Moss) doesn't have the money to pay these people back or it is apparent to
me," Transcript at 34, the district court nonetheless noted:
I am sure what this (affidavit) says is that he doesn't have any funds. Well, I'm
not going to be convinced at this time.
Transcript at 252.