Free Response to Order to Show Cause - District Court of Colorado - Colorado

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 1 of 9

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-cv-0275-JLK DOMINICK PAOLONI, et al., Plaintiffs, vs. DONALD I. GOLDSTEIN, et al., Defendants. and NBSA, LLC, et al., Relief Defendants. ______________________________________________________________________________ MARK WOLOK'S RESPONSE TO ORDER TO SHOW CAUSE ______________________________________________________________________________ Defendant Mark Wolok respectfully submits this Response to the Court's Order to Show Cause. For the reasons set forth below, and as will be explained more fully to the Court at the October 3 hearing, Mr. Wolok should not be held in contempt of the Court's March 2, 2001 Preliminary Injunction. 1. On September 1, 2006, Plaintiffs filed a Motion for Order to Show Cause,

claiming that Mr. Wolok had violated the Preliminary Injunction entered by the Court on March 2, 2001. The Court issued an Order to Show Cause and set a hearing for October 3, 2006. 2. Mr. Wolok intends to appear before the Court, in person, on October 3. He

submits this brief in advance of the hearing to demonstrate why he is not, and should not be held, in contempt of the Court's March 2, 2001 Preliminary Injunction.

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 2 of 9

Applicable Legal Standard. 3. A party moving for civil contempt has the burden of proving, by clear and

convincing evidence, that: (1) a valid court order existed; (2) the alleged contemnor had knowledge of the order; and (3) the alleged contemnor disobeyed the order. Reliance Ins. Co. v. Mast Constr. Co., 159 F.3d 1311, 1315 (10th Cir. 1998) ("Reliance II").1 See also FTC v. Kuykendall, 371 F.3d 745, 756-57 (10th Cir. 2004) (en banc). If the civil contempt movant seeks damages, he must prove them by a preponderance of the evidence. Reliance II, 159 F.3d at 1318. 4. Federal Rule of Civil Procedure 65(d) governs the enforceability of a preliminary

injunction. See, e.g., id. at 1315-16. Pertinent to this case, Rule 65(d) requires two things. First is actual notice. "A party or nonparty who has not received `actual notice' of an injunction or restraining order will not be bound by its terms." 13 Moore's Federal Practice, § 65.61[3] (Matthew Bender 3d ed.). Second, the Rule requires preliminary injunctions to be reasonably clear and unambiguous in describing the enjoined conduct. Reliance II, 159 F.3d at 1315-16. 5. "The specificity provisions of Rule 65(d) are no mere technical requirements.

The Rule was designed to prevent uncertainty and confusion on the part of those faced with injunctive orders, and to avoid the possible founding of a contempt citation on a decree too vague to be understood." Id. at 1316 (citation omitted). See generally Int'l Longshoremen's Ass'n v. Phil. Marine Trade Ass'n, 389 U.S. 64, 74-76 (1967) (discussing Rule 65(d) and the

1

The Court's issuance of an order to show cause does not shift the burden of proof. See, e.g., Sealed Appellant 1 v. Sealed Appellee 1, 211 F.3d 252, 255 (5th Cir. 2000) ("[W]e have repeatedly held that show cause orders do not in fact shift the burden [of proof]."); Cook v. Am. S.S. Co., 134 F.3d 771, 776 (6th Cir. 1998) (similar).

2

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 3 of 9

need for specificity in injunctions to avoid unfair contempt citations). Unlike some circuits, the Tenth Circuit strictly construes Rule 65(d)'s specificity requirements. Consumers Gas & Oil, Inc. v. Farmland Indus., Inc., 84 F.3d 367, 371 (10th Cir. 1996). 6. Where an alleged contemnor raises the defense that the order is vague or

ambiguous, the party alleging contempt must prove that the order "was clear and unambiguous." Reliance Ins. Co. v. Mast Constr. Co., 84 F.3d 372, 377 (10th Cir. 1996) ("Reliance I") (citation omitted). "Any ambiguities or omissions in the order will be construed in favor of [the alleged contemnor]." Id. Mr. Wolok Is Not In Contempt Of The Court's March 2, 2001 Preliminary Injunction. 7. Plaintiffs' allegations of contempt concern the transfer and encumbrance of two

properties, one at 5395 Putnam Drive, West Bloomfield, Michigan (the "Michigan Property"), and the other at 1550 Drexel Avenue, Unit 105, Miami Beach, Florida (the "Florida Property"). Mot. ¶ 3. The Michigan Property 8. Plaintiffs admit that Mr. Wolok transferred the Michigan property before the

Court entered the Preliminary Injunction, and indeed, before Plaintiffs filed this lawsuit. Id. ¶ 8. 9. Plaintiffs also admit that this transfer was accomplished by a quitclaim deed. Id.;

see also id. at Ex. I. It is black letter law that a quitclaim deed transfers any and all rights a person may have in a parcel of property. See, e.g., Ziegler v. Simmons, 91 N.W.2d 819, 822 (Mich. 1958) ("It is settled law in Michigan that a quitclaim deed, absent clear proof to the contrary, transfers any and all interest in the lands that the grantor may have, whatever its nature.").

3

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 4 of 9

10.

Therefore, there can be no reasonable dispute that (a) Mr. Wolok transferred the

property when no "valid court order existed," Reliance II, 159 F.3d at 1315; and (b) the transfer terminated any and all rights or interest Mr. Wolok had in the property. Contrary to Plaintiffs' creative arguments,2 there should be no reasonable dispute that Mr. Wolok did not violate the Court's March 2, 2001 Preliminary Injunction with respect to the Michigan Property. The Florida Property 11. Plaintiffs correctly state that Mr. Wolok transferred the Florida Property on

March 23, 2001, after the Court entered the Preliminary Injunction. Mot. ¶ 5. Mr. Wolok cannot be found in contempt, however, because he had no actual knowledge of the Preliminary Injunction at that time. 12. At the time the Preliminary Injunction was entered, Mr. Wolok had not been

served.3 He had not yet retained attorneys to represent him in this case. Mr. Wolok did not appear in the case until he filed his answer on June 1, 2001. See doc. # 76. 13. Although copies of the Preliminary Injunction were mailed to the law firms that

Mr. Wolok later retained to represent him in this case, Mr. Wolok was not informed of the Preliminary Injunction until much later, after they had been retained by him to represent him in this case. Mr. Wolok will be prepared to testify or respond to the Court's questions on this point at the October 3 hearing.

2

Plaintiffs argue that Mr. Wolok's conveyance of the Michigan Property amounted to a fraudulent transfer. Mr. Wolok disputes that contention but because it is irrelevant to Plaintiffs' Motion, it is not addressed in this Response.
3

A review of the docket shows no proof of service on Mr. Wolok.

4

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 5 of 9

14.

Without "actual notice" of the Preliminary Injunction, it cannot be enforced

against Mr. Wolok. Fed. R. Civ. P. 65(d). Similarly, if Mr. Wolok had no "knowledge of the order," he cannot be held in contempt for violating it. Reliance II, 159 F.3d at 1318. Because Plaintiffs cannot prove either of these elements, Mr. Wolok should not be held in contempt. Alternatively, Even If Mr. Wolok Unintentionally Violated The Preliminary Injunction, He Should Not Be Held In Contempt Because The Order Is Ambiguous. 15. Even if under Plaintiffs' interpretation of the Preliminary Injunction, Mr. Wolok

violated its terms, he should not be held in contempt because the order is reasonably susceptible of other interpretations, under which Mr. Wolok did not violate it. In short, the Preliminary Injunction ­ which was a proposed order submitted by Plaintiffs ­ is not sufficiently clear and unambiguous to support a finding of contempt against Mr. Wolok under Rule 65(d). 16. The Preliminary Injunction broadly prohibits Mr. Wolok from transferring or

otherwise dissipating his assets, with the exception that he is allowed to "expend the amount of $5,000 for ordinary and necessary living expenses." Order ¶ 1.A. Mr. Wolok contends ­ and does not believe Plaintiffs will contest ­ that this was intended to read "$5,000 per month" and that the words "per month" were inadvertently omitted from the proposed order.4 17. That being so, Plaintiffs have not demonstrated that Mr. Wolok ­ either as a

matter of violating the order or in proving their damages for any such violation ­ has dissipated his assets to an extent greater than $5,000 per month through all the transfers and encumbrances they allege. The Preliminary Injunction has been entered for over 5 1/2 years (66 months).
4

Indeed, if this were not so, Mr. Wolok would have the additional defense of inability to comply with the Court's order because there can be little doubt that he could not have lived on $5,000 since March 2001. See Reliance II, 159 F.3d at 1317 (recognizing that it is a defense to contempt if alleged contemnor is incapable of complying with court's order).

5

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 6 of 9

Under a reasonable interpretation of the order, that would allow Mr. Wolok to expend up to $330,000 of his funds. Plaintiffs allege that Mr. Wolok has expended only $262,499. Mot. ¶ 12. 18. Because Mr. Wolok complied with a reasonable, good faith interpretation of the

Preliminary Injunction, he should not be found in contempt. Put another way, the Preliminary Injunction is not sufficiently clear and unambiguous to support the contempt finding against Mr. Wolok that Plaintiffs request. See Reliance I, 84 F.3d at 373-74, 376 (Temporary restraining order that enjoined transfer of funds "other than in the normal course of business" was "not sufficiently definite and specific to support a civil contempt judgment" under Rule 65(d).); see also Atiyeh v. Capps, 449 U.S. 1312, 1316-18 (Rehnquist, Circuit Justice 1981) (Injunction requiring prison officials to alleviate overcrowding by "accomplish[ing] a further reduction of `at least 250' by March 31, 1981" did not comply with Rule 65(d) specificity requirement.). See generally Imageware, Inc. v. U.S. West Comms., 219 F.3d 793, 797 (8th Cir. 2000) ("No one should be held in contempt for violating an ambiguous order . . . . A contempt should be clear and certain."). Additional Reasons Why Mr. Wolok Should Not Be Held In Contempt. 19. Even if the Court determines that Mr. Wolok violated its order, Mr. Wolok did

not do so willfully, and he did not do so for the purpose of hiding or shielding his assets from Plaintiffs,5 and he certainly did not do so to flout the authority of the Court. 20. The Court has wide discretion as to whether it finds Mr. Wolok in contempt or

not. See, e.g., Consumers Gas & Oil, 84 F.3d 370. Civil contempt is a drastic remedy that
5

Mr. Wolok recently offered that both he and his wife would sit for prejudgment asset depositions, and would waive any attorney-client privileges associated with the transfer of the Michigan and Florida Properties. Plaintiffs refused this offer. 6

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 7 of 9

should be employed only if no other means are available to vindicate the authority of the Court. NLRB v. Shurtenda Steaks, Inc., 424 F.2d 192, 194 (10th Cir. 1970) ("Civil contempt is an appropriate remedy for the enforcement of a judicial decree, but it is a severe one which should be used only when necessary to sustain the authority of the court."). 21. Mr. Wolok is essentially insolvent. He has unsatisfied judgments and liens

against him amounting to hundreds of thousands of dollars, including for federal and state taxes, child support and maintenance, and for various commercial and business debts. Mr. Wolok is willing to provide the Court with an affidavit or whatever other substantiation it requires to prove his insolvency. Moreover, Mr. Wolok is willing to do whatever he can to restore the status quo before the property transfers Plaintiffs complain of, if the Court deems that necessary. For example, although banks have foreclosed on the Michigan Property, he is willing to have his wife deed the Florida Property back to him. 22. Plaintiffs have failed to carry their burden to prove by clear and convincing

evidence that Mr. Wolok should be held in contempt. For the foregoing reasons and upon the foregoing authorities, Plaintiffs' motion should be denied and the Order to Show Cause discharged.

7

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 8 of 9

October 2, 2006 Respectfully submitted,

s/ Jonathan W. Rauchway Dale R. Harris Jonathan W. Rauchway DAVIS GRAHAM & STUBBS LLP 1550 Seventeenth Street, Suite 500 Denver, Colorado 80202 Telephone: (303) 892-9400 Facsimile: (303) 893-1379 E-mail: [email protected] Attorneys for Defendant Mark Wolok Co-Counsel: Larry K. Griffis, Esq. Jaffe, Raitt, Heuer & Weiss, P.C. 27777 Franklin Road, Suite 2500 Southfield, MI 48034-8214 Telephone: (248) 351-3000 Facsimile: (248) 351-3082

8

Case 1:01-cv-00275-JLK

Document 838

Filed 10/02/2006

Page 9 of 9

CERTIFICATE OF SERVICE I hereby certify that on October 2, 2006, I electronically filed the foregoing MARK WOLOK'S RESPONSE TO ORDER TO SHOW CAUSE with the Clerk of the Court using CM/ECF System, which will send notification of such filing to the following e-mail addresses: [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

and I hereby certify that I have mailed MARK WOLOK'S RESPONSE TO ORDER TO SHOW CAUSE to the following non-CM/ECF participants by depositing same in the United States mail, postage prepaid, addressed to the following on October 2, 2006: Thomas B. Quinn, Esq. White & Steele 950 17th Street, 21st Floor Denver, Colorado 80202-2804 Akerman Senterfitt 350 East Las Olas Boulevard Suite 1600 Ft. Lauderdale, Florida 33301 Robert S. Harrison, Esq. Matthew D. Klakulak, Esq. Robert Harrison & Associates, PLC 240 East Merrill Street Birmingham, Michigan 48009 Gary Hoskie Professional Consultants & Managers, Inc. 1706 Surfside Drive Hutchinson Island, Florida 34949 Mr. Isadore Cohen 1920 East Hallandale Boulevard Suite 626 Hallandale, Florida 33009 Larry K. Griffis, Esq. Jaffe, Raitt, Heuer & Weiss, P.C. 27777 Franklin Road, Suite 2500 Southfield, Michigan 48034-8214

s/ Judy Terranova

9