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Victor Stanley, Inc. v. Creative Pipe, Inc.

United States District Court, D. Maryland

July 3, 2018

VICTOR STANLEY, INC., Plaintiff,
v.
CREATIVE PIPE, INC., et al. Defendants.

          REPORT AND RECOMMENDATION

          Timothy J. Sullivan United States Magistrate Judge

         This Report and Recommendation is submitted in connection with Item 2 of the Court's Procedural Order of October 2, 2017 (ECF No. 758), which directed the undersigned to

conduct any necessary proceedings and provide a Report and Recommendation regarding the request by Plaintiff for the Court to order Pappas to address his payment shortfall by taking specific actions, including making payments from his income, liquidation of assets, and recovery of the various transfers he made to his wife.

(Id. at 2.) A hearing on this referral was held on April 4, 2018. (ECF No. 815.)

         I. Procedural Background

         The Court has previously summarized the lengthy procedural history of this case. (ECF No. 747 at 1-7.) Of import here, on April 20, 2016, the Court ordered Defendant-judgment debtors Mark Pappas (“Pappas”) and Creative Pipe, Inc. (“CPI”) (collectively, “Defendants”) to pay a total of $1, 281, 315.91 in monetary sanctions and costs to Plaintiff-judgment creditor Victor Stanley, Inc. (“VSI”) by May 23, 2016, and certify that such amount had been paid by May 31, 2016 (hereinafter, the “Sanctions Order”). Defendants did not comply with the Sanctions Order. In connection with Defendants' violation of the Sanctions Order, I entered a Certification of Civil Contempt. (ECF No. 733.) The presiding judge issued a Show Cause Order (ECF No. 736) and a Show Cause Hearing was held on January 17, 2017 (ECF No. 737). At the hearing, Defendants “[did] not deny that they failed to make any payment [on the Sanctions Order] but contend[ed] that they were, and are, unable to make any payment at all.” (ECF No. 747 at 9.)

         The Court issued a Memorandum and Order Re: Sanctions/Contempt on August 15, 2017 (ECF No. 747). In that Memorandum, the Court found that Defendants had “not performed all reasonable steps to ensure payment [on the Sanctions Order] but, rather, have taken - and continue to take - steps to evade any compliance at all with their payment obligation.” (Id. at 14.) The Court found Defendants “in contempt and subject to possible sanctions” because of their failure to “take all reasonable steps within their power to ensure at least partial compliance” with the Sanctions Order. (Id.)

         In an effort to force Defendants to comply with and make payment on the Sanctions Order, the Court ordered Pappas to take a number of specific actions, including transferring to VSI the $7, 400.00 monthly rent payments that he received, and transferring to VSI all of his ownership interests in real estate in Salem, Oregon, and in Belize. (Id. at 17-18.)

         After the Court's Memorandum and Order of August 15, 2017, VSI informed the Court that it suspected “that the only net funds from the transfers ordered . . . will be from the sale of the Salem Property.” (ECF No. 751 at 5.) As a result, VSI expected there to be an $800, 000 shortfall in what Defendants owe under the Sanctions Order. (Id.) VSI requested that the Court “order Pappas to address this shortfall by making payments from his considerable income, liquidation of other assets, and recovery of the various fraudulent transfers he made to his wife.” (Id.) The Court looked favorably on VSI's request and referred the matter to me for this Report and Recommendation. (ECF No. 758 at 2.)

         II. Legal Standard

         Courts have broad discretion to fashion an appropriate remedy following a finding of civil contempt. See S.E.C. v. SBM Inv. Certificates, Inc., No. DKC-06-0866, 2012 WL 706999, at *13 (D. Md. Mar. 2, 2012) (citing In re Gen. Motors Corp., 61 F.3d 256, 259 (4th Cir. 1995)). Courts are constrained, however, to “use the least possible power adequate to the end proposed.” Id. “The purpose of any sanction imposed must be wholly remedial and intended to coerce the party's compliance with a court order or to compensate for damage from the contemnor's non-compliance; it cannot be punitive.” Id.[1]

         III. Analysis

         The Court has already found Defendants to be in contempt for their failure to “take all reasonable steps within their power to ensure at least partial compliance” with the Sanctions Order. (ECF No. 747 at 14.) VSI and Defendants each propose different remedies to purge Defendants of their contempt and to coerce compliance with the Sanctions Order and other orders of this Court. VSI requests that Defendants “be ordered to make the following[] transfers/payments to VSI as part of a purge provision to address their ongoing contempt of court:”

1. Pappas, Creative Pipe, Inc. (CPI) and SCH individually and jointly shall transfer and assign all their rights to any and all of the following intellectual property [of] Pappas, CPI or SCH in the form of papers prepared by VSI:
a. all site furnishing patents owned by Pappas, CPI or SCH, including those patents identified by Pappas in his response to the Post Hearing Order of February 28, 2018 (ECF No. 811);
b. all copyrights to the names of the products used by CPI and SCH, including the product names for the products that appeared in either the CPI or SCH on-line catalog; and
c. the right to use the name “Creative Pipe, Inc.” in connection with the sale and marketing of site furnishing products; and
d. the rights to all Product Designs, Names, and Product Designations that were previously supplied and marketed by CPI; and
e. the bank accounts and physical assets of Torcoat, LLC.
2. Pappas and SCH shall provide to VSI copies of all shop drawings for any product covered in paragraph 1 above and shall assign to VSl the exclusive rights to use of any such drawings; 3. Pappas and SCH shall assign to VSI all SCH accounts receivable identified by Pappas in his response to the Post Hearing Order of February 28, 2018 (ECF No. 811) and any accounts receivable that have come in to existence since the date of that response.
4. The Inventory, SCH Banking Account, Air Compressor, Fork Lift, Sand Blasting Booth, Powder Coating Booth, Powder Coating Oven, Packaging Materials, Tools and Equipment, Pallet Racking, and Electronic Equipment identified by Pappas in his response to the Post Hearing Order of February 28, 2018 (ECF No. 811).
5. Pappas shall make an immediate cash payment of $100, 000 to VSI; and 6. Pappas shall allow VSI monthly access to the full books and records of SCH, including the QuickBooks or other electronically stored accounting data actually used by SCH for the conduct of its business.

(See “Plaintiff's Requested Transfers, ” attached to this Report and Recommendation as received by the Court during the hearing held on April 4, 2018.)

         Prior to the hearing, Defendants proposed three options to satisfy the remaining balance due on the Sanctions Order. (ECF No. 805.) By the time of the hearing, only one of these options, a monthly payment to VSI of $10, 000, remained. By VSI's estimation during the hearing, it will take Defendants more than six years to finish paying the Sanctions Order if they are only required to pay $10, 000 per month. For the reasons set forth below, I recommend that the Court adopt VSI's proposed relief and order Defendants to make the transfers and payment immediately.

         A. Defendants' Exhibits

         Although Defendants were represented by counsel during the April 4, 2018, hearing, Pappas failed to appear personally. Through counsel, Defendants submitted 17 exhibits. (See ECF No. 817.) A brief summary of these exhibits is provided below.

         Defendants' Exhibits 1, 2, and 3 are related to an issue that arose when SCH Enterprises, LLC's (“SCH”) financial records were converted from the QuickBooks Online format (as the data was produced by SCH) to the QuickBooks Desktop format (as the data was viewed by VSI).[2] These exhibits were submitted to explain a discrepancy that occurred when financial records were converted between the two QuickBooks formats. However, in light of the agreement of the parties at the hearing, they are not relevant to the Court's present inquiry.

         Defendants' Exhibit 4 is SCH's balance sheet as of March 20, 2018. It lists $51, 410.16 in a Wells Fargo bank account and $123, 813.03 in accounts receivable. The judgment entered against Defendants is not listed on the balance sheet. Defendants' Exhibit 5 is SCH's profit and loss report for the period of January 1, 2018, through March 22, 2018. It indicates a gross profit for the time period of $320, 394.12 and a net income of $88, 974.15. Exhibit 6 is a list of assets owned by Defendants with Pappas's estimate of the value of the assets. The accounts receivable listed in this exhibit is $216, 481.00. Other significant assets listed are SCH's inventory ($39, ...


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