Part 2: 07/15/2008 Doc 339
III.
The Standard of Review
The Second Circuit standard of review on a motion for civil contempt for allegedly failing to comply with the court’s monetary payment order is: “…a party may be held in civil contempt for failure to comply with an order of the court if the order being enforced is clear and unambiguous, the proof of non-compliance is clear and convincing, and the defendants have not been reasonably diligent and energetic in attempting to accomplish what was ordered.” SEC v. Margolin, 196 U.S. Dist. LEXUS 11299*6 (S.D.N.Y. 1996), citing EEOC v. Local 638, 753 F.2d 1172, 1178 (2nd Cir. 1985); King v. Allied Vision, Ltd., 65 F.3rd 1051, 1058 (2nd Cir. 1995). Upon proper showing, the burden of proof shifts to the defendant who must go forward proving why he has been unable to comply with the court’s judgment. United States v. Rylander, 460 U.S. 752 (1983); SEC v. Princeton Economic International, Ltd., 2001 U.S. Dist. LEXUS 9948*4 (S.D.N.Y. July 18, 2001); SEC v. Credit Bancorp., Ltd., 2000 U.S. Dist. LEXUS 9755,**19-20 (S.D.N.Y. July 12, 2000) (respondent in contempt proceedings bears the burden of producing evidence of inability to comply); Huber v. Marine Midland Bank, 51 F.3rd 5, 8 (2nd Cir. 1995). Complete inability to comply with an order to pay court-imposed monetary sanctions due to poverty or insolvency is a defense to a charge of civil contempt. See generally, Hicks v. Feiock, 485 U.S. 624, 638 n. 9 (1988); United States v. Rylander, 460 U.S. at 757; Badgley v. Santa-Croce, 800 F.2d 33, 36 (2nd Cir. 1986), cert. denied, 479 U.S. 1067 (1987). The core of the Second Circuit’s standard of review is the precisely articulated finding that must be made by the district court in order to avoid an abuse of discretion. Per Huber the precise, articulated finding regarding ability to pay is an essential precondition to a contempt finding. Specifically the Huber court said at 7:
As to the propriety of the contempt citation itself, we focused principally on the district court’s statement that Huber had not provided any documentation for his testimony that he had filed for bankruptcy and on the Court’s emphasis on Huber’s statement that he would refuse to pay the fines as a matter of principle, and we concluded that the court had not made a sufficiently clear finding as to Huber’s ability to pay. Although the district court had stated that ‘Huber has it within his power to terminate the civil contempt by prompt payment of the $1,500.00, fine,’ February 1994 order at 8 (emphasis added), that statement had been made in the course of the court’s discussion of the doctrinal distinction between civil and criminal contempt, and we did not view this as a finding on the factual question of Huber’s ability to pay. The Court had not conclusively rejected his claim of inability, stating instead that the court gave it ‘little, if any’ credence. We concluded that before a party may be imprisoned as a sanction for civil contempt for failure to pay fines, a more explicit finding should be made as to his ability to pay all of some part of the fines. Accordingly, in an order entered on June 8, 1994, we continued our April 5, 1994 order staying execution of the district court’s February, 1994 Order, and we remanded to the district court for further findings.***
In remanding to require the court ‘to make an expressed finding as to Huber’s ability to pay the fines imposed,’ we stated that ‘nothing in the foregoing is intended either (a) to alter the principle that Huber had the burden of establishing his Defense of ability to pay, or (b) to require the district court to believe his testimony.’
IV.
The Current Evidence
The evidence since May 2, 2008 confirms Altomare is completely unable to pay any more; it also confirms Altomare’s financial circumstances to be dire, confronting imminent foreclosures on both the Bocaire residence and the Toscano condominium. The Receiver’s W-2 reporting $1.7 million in total compensation to Altomare from USXP has been spent. He is not liquid. His net worth is negative. He is insolvent and bankrupt due to his (i) financial obligations exceeding the equity in his fixed assets and zero income since his last negotiated paycheck on August 24, 2007 and (ii) inability to pay his regular and recurring monthly obligations as they come due.[13] A more detailed examination supports the foregoing.
[13] He is also unable to incur additional credit. All that can be pledged to the Court has been pledged. He is completely unable to pay more. Other than Mrs. Altomare’s abandoned ownership interests in the Toscano condo, her limited assets and her ownership interest in the jointly owned property cannot be invaded to satisfy Altomare’s obligation to disgorge. Even if her ownership interest could be invaded, the properties are underwater and on the brink of foreclosure. (DX-51).
1. The Bocaire Residence.
Altomare’s current residence, owned in a tenancy-bythe-entirety, is underwater. It is also his homestead. Whether it continues to have a value of approximately $1.1 million in the current real estate market is irrelevant because the market is almost non-existent and Mrs. Altomare has joint ownership interest with rights of survivorship.[14]
[14] The estimated value to which Altomare testified most likely changed due to the continuing deterioration in the South Florida real estate market and the commonly known increase in the nation’s home mortgage crisis. At a minimum the residence has a negative $80,000.00 value, plus or minus.
It remains encumbered by a first and second mortgage. The unpaid principal balance of each has increased to the brink of foreclosure. (DX-51). The first mortgage is up to approximately $1.06 million and the second mortgage is approximately $188,000.00.[15]
[15] American Home Mortgage holds the first mortgage and Wachovia Bank holds the second. (Tr. at 25-26; DX RAA-7; DX-50 at 2145-2148-79.)
Altomare’s second principal asset, as such, is the Toscano condominium, also owned as a tenancy-by-the-entirety but which rights have been abandoned by Mrs. Altomare. However it cannot yield even a de minimus amount of cash.[16] That market is all but dead. (DX-52). At the time of purchase the condominium had an appraised value (market value) of $3.3 million (DX-2; RAA-0080). Currently it has an estimated market value of between $2.5 and $2.8 million (Tr. at 27; DX-52).[17]
[16] See Tr. October 12, 2007 at 37-39.
[17] The current national real estate market remains at least as depressed as it was on February 4, 2008, especially in South Florida. Irrespective, circumstances commonly known confirm Altomare’s estimated market value as he testified: $2.5 to $2.8 million. The condo is actively marketed for sale but without success to date. In its order dated April 18, 2008 the district court recognized and judicially noticed the widespread decline in South Florida property values. Id. at 7.
Irrespective of the exact current market value, encumbering that value are two mortgages and two mechanic’s liens.[18]
[18] Harmony, the electronic equipment vendor, and Benchmark
both filed mechanic’s liens. (DX-50).
The first mortgage, owned by Countrywide, is in default and before its foreclosure committee. (DX-53). The second mortgage, owned by Washington Mutual Bank, F.A., has a current unpaid principal balance of $747,801.16 and additional payments of $31,156.67 past due. (DX-53). Compare with Tr. at 27-28; DX RAA-3; DX RAA-4; DX RAA-5; RAA-0328-0250). Currently, the Countrywide mortgage payments exceed $13,500.00 per month (RAA-0248-0250) and require an additional payment to bring current the escrow for real estate taxes and insurance, if not foreclosed sooner. In essence, the condominium must be sold very soon to avoid foreclosure, an unlikely event given the broker’s documented views. (DX-52).
Altomare’s additional assets are de minimus and subject to controversy. They include (i) his ownership of Class B stock in USXP which, pursuant to the bankruptcy court order, he cannot sell even if it currently could be marketed which it cannot due to the company going extinct; (ii) an asserted percentage ownership interest in the Jackson Family Memorabilia Collection which is in controversial litigation that has been followed somewhat by the Receiver; and (iii) two judgments obtained in favor of USXP in a civil action for fraud and punitive damages resulting in the same lawsuit, one dated July 26, 2001 and the other dated April 22, 2003. Altomare’s assertions of ownership interest in a portion of the judgments and the Jackson Family Memorabilia collection are subject to controversy and contest, the outcome of which is uncertain. In either event, none of these assets provide any current liquidity and currently possess no quality to gain liquidity by any fixed deadline.
Against the foregoing assets, as such, are very substantial liabilities, many of which demanded extremely high monthly payments in order to maintain and to prevent creditor collection action or foreclosure, all of which is either on-going or about to commence. The first mortgage on the Bocaire, Boca Raton residence requires approximately $4,600.00 per month; the second mortgage requires approximately $1,500.00 per month. The first mortgage monthly payment on the condominium was increased to approximately $12,700.00 and required extraordinary negotiations with the mortgagee in order to defer foreclosure by the February 4, 2008 hearing. (Tr. at 31-32). That circumstance has deteriorated since the hearing.
The second mortgage on the condominium requires an approximate $4,500.00 monthly payment. Both of these also are 3 to 4 months in arrears and on the brink of foreclosure. (DX-53-54). Non-mortgage payments on the Bocaire residence approximate $2,000.00 per month and on the condominium $3,500.00 per month. These are 3 to 4 months in arrears. The average monthly electric bill at the residence is $500.00 and $300.00 at the condominium. The average monthly water charge at the residence is $100.00 per month and combined miscellaneous expenses approximate $400.00 to $500.00 monthly. These are likewise in arrears. In addition, cable and telephone service are maintained at the condominium to help facilitate its sale at an approximate expenses of $200.00 per month. (Tr. February 4, 2008 at 33-34).
Altomare maintains a $5 million life insurance policy in which there is an accumulated value of $174,823.22 at a yet unreached maturity date. (Tr. at 36-27; DX-12; RAA-0446, 0447 and 0048.)[19] Altomare has pledged that cash surrender value towards satisfying the monetary sanctions judgment. Altomare also is subject to personally covering more than $140,000.00 of credit card debt subject to high interest rates used for USXP purposes but personally guaranteed by him. Tr. February 4, 2008 at 37-38; DX-56 composite).
[19] The accumulated value in the life insurance (DX-12) will be subject to some form of maturity date subject to the life insurance contract between American General Life Insurance Company and Mr. Altomare, at which point some currently unknown portion of it can be liquidated.
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07/15/2008 339 RESPONSE in Opposition re: 191 MOTION for Sanctions and Entry of Contempt against Universal Express, Altomare and Gunderson. Response to Plaintiff's Second Submission on Issue of Contempt and Second Motion for Relief from Contempt. Document filed by Richard A. Altomare. (Tifford, Arthur) (Entered: 07/15/2008) |
