Jones, Paul v. Stenger, Phillip ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 06-3320 & 07-1590
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellee,
and
PHILLIP S. STENGER, Receiver,
Intervenor-Appellee,
v.
CHARLES R. HOMA, et al.,
Defendants,
APPEALS OF:
PAUL JONES, DAVID POLLOCK
and CARIBBEAN VENTURES
INTERNATIONAL, INC.,
Non-Party
Respondents-Appellants.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 6895—Ronald A. Guzman, Judge.
____________
ARGUED SEPTEMBER 11, 2007—DECIDED JANUARY 24, 2008
____________
2 Nos. 06-3320 & 07-1590
Before RIPPLE, MANION and WOOD, Circuit Judges.
RIPPLE, Circuit Judge. In the underlying litigation, the
Securities and Exchange Commission (“SEC”) sought, and
was granted, an order freezing the assets of Charles Homa.
In this appeal, Paul Jones and David Pollock, nonparties to
the underlying action, appeal a judgment of contempt
for failing to comply with that freeze order.1 Caribbean
1
We have appellate jurisdiction over this judgment. A
nonparty need not await final judgment in the underlying
litigation before appealing a civil contempt finding. United States
v. Dowell, 257 F.3d 694, 698 (7th Cir. 2001). Monetary judgments
against Mr. Jones and Mr. Pollock have been determined with
the necessary particularity, even though the precise amount of
prejudgment interest and attorneys’ fees has not been deter-
mined. See Shapo v. Engle, 463 F.3d 641, 643 (7th Cir. 2006); see
also Herzog Contracting Corp. v. McGowen Corp., 976 F.2d 1062,
1064 (7th Cir. 1992) (holding that the court had jurisdiction
where interest sum, although not calculated, required only a
mechanical process to determine).
Here, Mr. Pollock and Mr. Jones are both nonparties. The
district court found Mr. Pollock and Mr. Jones in contempt and
ordered them, jointly and severally, to pay to the receiver
$7,216,462.76 plus prejudgment interest. Mr. Pollock and
Mr. Jones were not held jointly and severally liable with those
defendants whose underlying action is not yet complete.
The prejudgment interest is sufficiently determined to permit
this appeal. With regard to $5,000,000 of the judgment, the
amount received by Mr. Jones and Mr. Pollock for the sale of
Banc Caribe, the district court determined that interest began
accruing on December 1, 2001. The interest on the remaining
$2,216,462.76, the amount Mr. Pollock and Mr. Jones transferred
from Mr. Homa’s Sunset Fiancial/EAVH Holdings account at
(continued...)
Nos. 06-3320 & 07-1590 3
Ventures International, Inc. (“CVI2”), another nonparty,
appeals a default judgment imposed as a sanction for
failure to comply with discovery requests and the conse-
quent appointment of Phillip Stenger as receiver over its
assets.2 For the reasons set forth in this opinion, we affirm
1
(...continued)
Banc Caribe, began to accrue on October 21, 1999, the date of the
transfer. The court also noted that the receiver claimed
$157,983.14 in attorneys’ fees and costs, and it ordered the
parties to follow the procedures set forth in the local rules for
the collection of the claimed fees. The “district judge . . . finished
with the case,” and we have jurisdiction. Chase Manhattan
Mortgage Corp. v. Moore, 446 F.3d 725, 726 (7th Cir. 2006).
2
We also have appellate jurisdiction over CVI2’s appeal; with
respect to this entity, the district court’s order was final under
28 U.S.C. § 1291. See Matos v. Richard A. Nellis, Inc., 101 F.3d
1193, 1195 (7th Cir. 1996); see also Philips Med. Sys. Int’l, B.V. v.
Bruetman, 982 F.2d 211, 214 (7th Cir. 1992).
On August 3, 2006, the district court found Mr. Pollock in
contempt of court. It ordered him and Mr. Jones, jointly and
severally, to disgorge in excess of $7.2 million in funds that
they misappropriated in violation of the court’s freeze orders.
The court also enjoined them from dissipating any of their
assets. Additionally, the district court issued a temporary
restraining order against CVI2, an order appointing the receiver
as temporary receiver for the corporation, and an order to
show cause. The district court issued these orders to prevent
Mr. Pollock from dissipating his assets he held in CVI2.
CVI2 then refused to comply with the district court’s dis-
covery orders. The district court considered CVI2’s refusal to
comply with the court’s orders and noted that Mr. Pollock was
the only person authorized to transfer ownership and control of
(continued...)
4 Nos. 06-3320 & 07-1590
the judgment of the district court.
I
BACKGROUND
A.
Between 1995 and 1999, Charles Homa operated an
automobile title lending business called Cash 4 Titles
(“C4T”). Sunset Financial Services, Ltd., was the mar-
keting company for the various C4T entities. The C4T
2
(...continued)
the assets. The district court also noted that Mr. Pollock pur-
posely had avoided the court’s enforcement powers in the past.
Finding that no sanction except default would cure CVI2’s
intentional failure to comply with the court’s discovery orders,
the district court declared CVI2 in default and took the re-
ceiver’s allegations as confessed. The district court specifically
took as admitted that Mr. Pollock was the only shareholder of
CVI2. The district court then concluded by appointing the
receiver of Mr. Homa’s assets as the receiver of CVI2, and by
ordering CVI2 to turn over its assets to the receiver to satisfy
the judgment against Mr. Pollock.
We have jurisdiction to review the district court’s discovery
sanction that defaulted CVI2. See Patterson ex rel. Patterson v.
Coca-Cola Bottling Co. Cairo-Sikeston, Inc., 852 F.2d 280, 283 (7th
Cir. 1988); see also Philips, 982 F.2d at 214. We also have juris-
diction to review the turnover of assets to the receiver. See Matos,
101 F.3d at 1195 (holding that, after Peacock, “a court’s ancillary
jurisdiction is greater in judgment-enforcement actions than in
independent suits based on a judgment”); see also Epperson v.
Entm’t Express, Inc., 242 F.3d 100, 104-06 (2d Cir. 2001); Divane v.
Krull Elec. Co., 194 F.3d 845 (7th Cir. 1999).
Nos. 06-3320 & 07-1590 5
entities actually operated a huge Ponzi scheme: the loss
by innocent investors exceeded $165,000,000.
On October 15, 1999, the SEC filed a civil enforcement
suit (the “SEC Action”) against Mr. Homa; the suit accused
Mr. Homa of civil fraud in violation of United States
securities laws.3 At that time, the United States Depart-
ment of Justice also brought criminal charges against
Mr. Homa for securities laws violations.4
The SEC promptly sought freeze orders for all the C4T
assets. The court granted the motions and issued two freeze
orders. The first was entered on October 15, 1999. That
order initially froze the assets of the defendants in the
SEC Action.5 A second freeze order, issued October 18,
1999, froze any bank account in which any of the defen-
dants had signatory authority or beneficial interest, in-
cluding C4T and Banc Caribe.
3
On May 3, 2002, Mr. Homa consented to a civil judgment
in the SEC Action in the amount of $157,993,830.25, plus
$35,248,523.55 in prejudgment interest.
4
Mr. Homa pleaded guilty to the charges on August 10, 2000,
pursuant to a cooperation agreement.
5
It stated, in relevant part, that defendants Sunset Financial
Services and Charles Richard Homa, “and their officers, agents,
servants, employees, attorneys and those persons in active
concert or participation with Defendants, including but not
limited to . . . Banc Caribe, Ltd., who receive actual notice of the
order, by personal service or otherwise, are prohibited, directly
or indirectly, in transferring, selling, assigning, encumbering,
pledging, dissipating, concealing or otherwise disposing of in
any manner, any funds, assets, or other property belonging
to, or in the possession, custody or control of the Defendants,
wherever located.” Order, Oct. 15, 1999.
6 Nos. 06-3320 & 07-1590
On November 2, 1999, Mr. Stenger was appointed
receiver over the assets of Mr. Homa, Sunset Financial
and other affiliated C4T entities, including the interests
of any individuals or entities that constituted C4T property
in Banc Caribe. The receiver’s general mandate was to
marshal receivership property for distribution to the
injured investors.
B.
Mr. Pollock and Mr. Jones met and became friends in
1978. Mr. Pollock is a citizen of the United States who
maintained a Florida driver’s license until at least Sep-
tember 26, 2004, and who currently resides in St. Lucia,
an independent country within the British Commonwealth.
From 1998 until 2002, Mr. Pollock resided in Dominica,
another island nation in the Caribbean Sea. Mr. Pollock
continuously maintained, through at least January of
2006, an accounting practice with a post office box ad-
dress in Winter Park, Florida.
Paul Morgan Jones is a citizen of the United States who
maintains a Florida driver’s license. From 1998 until 2002,
Mr. Jones also resided in Dominica. Mr. Jones carries
both a United States and a Dominica passport.
In the early 1990s, Mark Ellison invited Mr. Pollock to
Dominica to look at a large tract of land, Point Round, that
Mr. Ellison sought to develop. The development did not
occur. In 1995, Mr. Pollock learned from Reginald
Shillingford, a part owner of Point Round, that Dominica
had enacted new legislation permitting offshore banking
and financial industry development. Mr. Pollock became
interested in financing a bank in Dominica.
Nos. 06-3320 & 07-1590 7
Mr. Pollock first learned of Mr. Homa through his
brother. In March 1998, Mr. Pollock met in Florida with
Mr. Homa and several other potential investors. They
discussed the tract of land in Dominica and the possibility
of starting a bank to assist in the development of the
property.
Mr. Pollock then prepared a written document, the
prospectus,6 to solicit Mr. Homa’s investment in the bank
that he and Mr. Jones hoped to finance in Dominica, Banc
Caribe. The prospectus contemplated a minimum of
500,000 shares at $10 per share for a total of $5,000,000,7 and
reflected an ultimate goal of raising a maximum of
$15,000,000 in equity for the bank. Mr. Pollock again met
with Mr. Homa on April 27, 1998, in Florida. At that
time, Mr. Pollock presented Mr. Homa with the Banc
Caribe prospectus.8 Mr. Homa indicated that he was
interested in the proposal and that he would like to meet
Mr. Jones.
Mr. Pollock, Mr. Jones and Mr. Homa met together in
May 1998. Shortly thereafter, Mr. Homa indicated that
6
The terms of the investment were set out in the offering
circular section of the prospectus. The offering circular specifi-
cally stated that shares of purchase of the common stock of the
bank were to be offered to residents of Florida. That section
also required an investor to complete and submit a “Subscrip-
tion Agreement.”
7
Mr. Pollock believed that a minimum of $5,000,000 was
needed for the Banc Caribe project to succeed.
8
All of Mr. Homa’s future meetings with Mr. Jones and Mr.
Pollock, except the conversation that took place in Dominica
at the bank’s first board of directors meeting in January 1999,
took place in Florida or Georgia.
8 Nos. 06-3320 & 07-1590
he would pursue the Banc Caribe plans with Mr. Pollock
and Mr. Jones, but that he wanted no other partners or
investors in the project. Mr. Pollock and Mr. Jones agreed.
The precise terms of Mr. Homa’s investment in the Banc
Caribe project are uncertain. The parties never signed a
contract or otherwise reduced their agreement to writing.
Moreover, as we shall discuss below, throughout the
venture the parties ignored the terms of other documen-
tation created during the Banc Caribe project. In the dis-
trict court, Mr. Pollock identified at least three possible
sources for determining the terms of the agreement be-
tween himself, Mr. Jones and Mr. Homa: the prospectus,
the investment promissory notes and oral conversations
with Mr. Homa. These three sources are in conflict regard-
ing key terms of the agreement.9
After Mr. Homa indicated his intention to go forward
with Banc Caribe, Mr. Pollock and Mr. Jones worked
quickly to establish an offshore account through which
Mr. Homa could transfer large amounts of C4T money out
of the United States. Mr. Pollock first created Caribbean
Ventures International, Ltd. (“Caribbean Ventures”) as a
holding company for the bank’s equity. The shares of
9
Mr. Pollock, Mr. Jones and Mr. Homa agreed that Mr. Homa
could provide the investment capital in installments. This
represented the first deviation from the terms of the prospectus.
They also agreed that Mr. Homa’s investment was not in-
tended as a loan; no payment of interest or other payment
was contemplated by any of the parties to the venture, and
Mr. Homa was entitled to stock in the bank in exchange for
his investment. However, no subscription agreement, as re-
quired by the terms of the prospectus, ever was drafted or
signed.
Nos. 06-3320 & 07-1590 9
Caribbean Ventures were held by Mr. Shillingford, who
also was a director of Caribbean Ventures. Mr. Pollock and
Mr. Jones filled the remaining director positions in Carib-
bean Ventures.
Mr. Pollock, Mr. Jones and Mr. Homa planned to put
the funds from the offering into Caribbean Ventures and
then have Caribbean Ventures apply for a banking license
in Dominica so that Banc Caribe could become a legal
entity. Then, the funds in Caribbean Ventures would be
transferred to Banc Caribe and shares in the bank would be
issued, possibly pursuant to the terms of the offering in the
prospectus.10 In accordance with this plan, on June 5, 1998,
Mr. Homa, through Sunset Financial, wire transferred
his initial $500,000 investment in Banc Caribe to the
account of Caribbean Ventures at the Commercial Bank of
Dominica. On March 16, 1999, Mr. Homa invested a sec-
ond installment of $500,000 in the same manner.
Mr. Pollock then drafted an investment promissory note
that documented Mr. Homa’s first investment of $500,000
in Banc Caribe.11 He later drafted a second note with
10
The offering circular, however, actually called for all invest-
ments to be held by an escrow agent until such time as the
minimum $5,000,000 capital was aggregated. At that point, the
common stock of the bank was to be issued. The offering cir-
cular specified that the escrow agent would be Banc Caribe.
The initial investments could not be held by Banc Caribe,
however, because the bank could not exist until it was licensed,
and under Dominican law it could not be licensed until a
minimum amount of initial investment money, $1,000,000,
was available.
11
The note stated that Mr. Homa’s initial $500,000 investment
was given in exchange for common shares of Banc Caribe stock
(continued...)
10 Nos. 06-3320 & 07-1590
identical terms for the second investment of $500,000.
These notes served as the second alleged source of the
terms of the agreement between Mr. Pollock, Mr. Jones
and Mr. Homa. Notably, Mr. Homa took no part in the
creation of the notes, never signed them and did not have
possession of them. Mr. Jones also had no knowledge of
the notes; he did not see them until 2004. The true pur-
pose of the notes was to support the bank license applica-
tion and to prove to the regulators in Dominica that Banc
Caribe had met the minimum requirement of $1,000,000
in unrestricted capital.
On June 12, 1998, Mr. Pollock, Mr. Jones and Caribbean
Ventures filed Banc Caribe’s Articles of Incorporation
with the Government of Dominica. On August 18, 1998,
Banc Caribe filed its application with Dominica. When it
applied for its license, Banc Caribe was funded with
$1,000,000, the minimum capital requirement under the
law of Dominica. It opened for business shortly thereafter.
11
(...continued)
issued in the names of Mr. Pollock and Mr. Jones, when Sunset
Financial had provided at least $5,000,000 under the terms of an
“investment agreement” between the parties. The note does not
clarify whether the “investment agreement” it mentioned
referred to the prospectus or some other understanding,
documented or undocumented, between the parties.
The note also said that, in the event of a default on the
investment obligations of Sunset Financial to Caribbean Ven-
tures under the prospectus dated April 27, 1998, the note
would be cancelled. The note’s reference to the prospectus is
confusing because Mr. Pollock prepared the note specifically
because the investment terms in the prospectus were not
going to be followed.
Nos. 06-3320 & 07-1590 11
Mr. Homa, through Sunset Financial, later paid an
additional $2,000,000 to Caribbean Ventures, for a total
investment of $3,000,000 in Banc Caribe. No other invest-
ment promissory notes were prepared to document this
subsequent $2,000,000 investment from Mr. Homa. Banc
Caribe did not receive a capital contribution from any
source other than Mr. Homa. Caribbean Ventures owned
all the stock of Banc Caribe.
Mr. Pollock identified the third source of the agreement
between the parties as a series of conversations with
Mr. Homa. Mr. Pollock was inconsistent in his representa-
tions to the court regarding which of these three sources
of the agreement controlled on any given point, and the
court found him to be entirely without credibility.12
12
Mr. Pollock asserted that he, Mr. Jones and Mr. Homa had
agreed that no one would own Banc Caribe until at least the
minimum amount of capital, presumably $5,000,000, was
invested. Until that minimum was met, Mr. Shillingford,
through Caribbean Ventures, was the holder of Banc Caribe’s
stock. Mr. Pollock also testified that, if the minimum investment
was not met, the notes would be cancelled and Mr. Pollock
and Mr. Jones would be the sole owners of Banc Caribe.
The prospectus, by contrast, called for the return of the
money to investors if the minimum was not achieved. The
prospectus stated that all investor funds would be held in
escrow until the Banc Caribe project had $5,000,000. No escrow
agreement ever was prepared, however. Ultimately, neither
the $5,000,000 minimum nor the $15,000,000 maximum invest-
ment in Banc Caribe ever was reached, but Mr. Pollock and
Mr. Jones nevertheless commenced operations in the bank.
Mr. Pollock and Mr. Jones never explained several funda-
mental aspects of their transaction with Mr. Homa. They did
(continued...)
12 Nos. 06-3320 & 07-1590
Banc Caribe began doing business in September 1998,
subject to the banking laws of Dominica. Mr. Jones served
as its president and secretary, and Mr. Pollock served as
the managing director and chief financial officer. Mr.
Pollock leased approximately 6,000 square feet of space
for the bank, and its doors officially opened in October
1998. In January 1999, Mr. Homa was designated as the
Chairman of the Board of Directors of Banc Caribe.
C.
On October 15, 1999, the SEC brought a civil suit against
Mr. Homa and C4T, the combined Ponzi-scheme entities.
The district court entered the first freeze order against
Mr. Homa and C4T on that day, and a second, clarifying
order on October 18. By that time, Banc Caribe had be-
tween 100 and 150 accounts, and it had expanded to fif-
teen employees.
Sunset Financial, one of Mr. Homa’s corporate entities
that was specifically mentioned in the freeze orders, had
an account at Banc Caribe.13 Sunset Financial’s account
12
(...continued)
not explain why there was no signed subscription agreement
between the parties and no written signed shareholder’s
agreement. They did not describe how bank profits would
be divided if there were no shareholders, or why Mr. Homa
and Mr. Jones never were involved with the notes in any
way. Finally, they did not explain why Mr. Homa did not
possess the notes.
13
In July or August 1999, Sunset Financial’s account name
was changed, at Mr. Homa’s request, to EAVH Holding. All
(continued...)
Nos. 06-3320 & 07-1590 13
held approximately $5,793,000 of the $8,000,000 in total
deposits in Banc Caribe. Mr. Homa also controlled other
entities, however, including Caribbean Air and Caribbean
Realty, that had accounts at Banc Caribe. The total funds
that could be attributed to Mr. Homa, therefore, ac-
counted for more than 90% of the deposits in the bank.
The record suggests that Mr. Pollock and Mr. Jones first
became aware of Mr. Homa’s legal trouble when, on
October 17, 1999, Mr. Pollock saw an article in a Florida
newspaper concerning the SEC action against Mr. Homa.
That article described allegations that Mr. Homa had been
laundering money from an international Ponzi scheme.
Mr. Pollock and Mr. Jones met in Dominica to discuss the
situation and decided to ask Mr. Homa to resign from the
board of directors. They called Mr. Homa on October 17,
and Mr. Homa agreed to resign. Mr. Homa allegedly
did not inform Mr. Pollock of the freeze order at that time.
On October 18, Mr. Pollock and Mr. Jones held an emer-
gency meeting of Banc Caribe’s board of directors and
removed Mr. Homa as a director of the bank.14
On October 18, Banc Caribe also attempted to initiate a
transaction with Dain Rauscher, one of Banc Caribe’s
13
(...continued)
else remained the same. Both names refer to the same ac-
count, established by Mr. Homa at Banc Caribe and holding C4T
funds.
14
The minutes of the meeting indicate that this action actually
occurred on October 17, 1999, but Mr. Pollock described that
entry as a typographical error.
14 Nos. 06-3320 & 07-1590
correspondent banks.15 Dain Rauscher informed Mr.
Pollock that there was a problem with Banc Caribe’s
account. Mr. Pollock learned from Dain Rauscher’s legal
department that the account was locked. Mr. Pollock
knew at that time that the problem stemmed from a
freeze order. At 2:48 p.m. on October 18, Dain Rausher
faxed a copy of the October 15 freeze order to Mr. Pollock
and Mr. Jones.
Sometime after receipt of the order, Mr. Jones, with the
knowledge and authorization of Mr. Pollock, directed
that Paine Webber wire transfer $1,975,000 out of Banc
Caribe’s Paine Webber correspondent banking account in
the United States to Banc Caribe’s correspondent banking
account at Alpha Credit Bank in Athens, Greece.16 The
funds actually were transferred to the Alpha Credit
Bank on October 20, 1999, and the transfer likely was
ordered on that day. The transfer lacked any business
reason; it was initiated solely to circumvent the freeze
order.
Sometime thereafter, Mr. Pollock retained an attorney for
Banc Caribe. Banc Caribe began negotiating with the SEC
on October 20, 1999. On October 26, 1999, the SEC and Banc
Caribe entered into a resolution regarding the transfer
of certain assets and the repatriation of others held in
15
A correspondent bank is an intermediary bank that a pri-
mary bank uses to facilitate currency transactions in the coun-
try in which the intermediary bank is located.
16
Mr. Pollock and Mr. Jones had the freeze order in their
possession before they expected the transfer to be complete.
Mr. Jones testified that he made a conscious decision, based
on his interpretation of the freeze order, that the funds could
be transferred.
Nos. 06-3320 & 07-1590 15
Banc Caribe for the benefit of C4T entities. This accom-
modation ensured that Banc Caribe had the liquidity that
Mr. Pollock believed it needed to function.
Sometime between October 20 and 26, 1999, Caribbean
Ventures determined that Mr. Homa, because of his legal
difficulties, would be unable to invest the full amount
that Mr. Pollock testified Mr. Homa had agreed to con-
tribute. Therefore, Caribbean Ventures determined that
Mr. Homa was in default and cancelled the notes. Mr.
Pollock and Mr. Jones were the sole officers of Caribbean
Ventures, but Mr. Jones did not take part in cancelling the
notes. Additionally, Mr. Pollock did not tell Mr. Homa,
Sunset Financial or anyone else that Mr. Homa was in
default or that the notes had been cancelled. Neither
Mr. Pollock nor Mr. Jones ever informed the SEC of Mr.
Homa’s rights under the agreement, the existence of any
agreement or that Caribbean Ventures unilaterally had
determined to “cancel” the notes. Mr. Pollock and Mr.
Jones also failed to inform the district court, SEC or any
other authority that they had voided unilaterally Mr.
Homa’s right to bank ownership and to the money he had
invested in the bank.17 Through these actions, Mr. Pollock
and Mr. Jones effectively transferred to themselves all
the value represented by Mr. Homa’s $3,000,000 invest-
17
Mr. Pollock, Mr. Jones and Banc Caribe negotiated with the
SEC regarding their compliance with the terms of the freeze
order. The district court found that their failure to inform the
SEC of the cancellation was not an oversight or a passive fail-
ure to come forward with information. It found that their
determination not to inform the SEC of Mr. Homa’s assets in
the bank was a conscious and deliberate decision to hide
Mr. Homa’s claim to equity in the bank.
16 Nos. 06-3320 & 07-1590
ment in Banc Caribe. This transfer occurred after Mr.
Pollock and Mr. Jones had actual notice of the freeze
orders.
Mr. Pollock also closed Mr. Homa’s Sunset Financial
account. Between October 19 and 21, 1999, before clos-
ing the account, Mr. Pollock invoked Banc Caribe’s right
to set-off against Sunset Financial’s account. He offset
$2,216,462.76 from Mr. Homa’s Sunset Financial account
over the course of four withdrawals.18 No one contacted
the SEC or the district court before making the withdraw-
als. These set-offs occurred after Mr. Pollock and Mr. Jones
received actual notice of the freeze orders, and the money
was taken from the account of Sunset Financial, an account
over which Mr. Homa had signatory authority.
One of the set-offs from Sunset Financial’s account
related to a home that Mr. Homa had arranged to purchase
through Banc Caribe.19 Banc Caribe declared Mr. Homa to
18
One withdrawal, $703,595.89, occurred on October 19. Three
others occurred on October 21, for $564,880.00, $851,386.87
and $96,600.00.
19
The purchase and lease of this home for Mr. Homa serves as
an example of the true function of Banc Caribe. Mr. Pollock,
Mr. Jones and Mr. Homa arranged for an entity called Carib-
bean Realty, a subsidiary of Caribbean Ventures, to purchase
a property in Orlando with money fronted, purportedly, by
Banc Caribe. At least $500,000 of the purchase money, how-
ever, came directly from Sunset Financial’s account at Banc
Caribe. Caribbean Realty then leased the property to Mr. Homa,
who in turn debited Sunset Financial’s account at the bank
for the lease payments, which Caribbean Realty then used to
pay Banc Caribe for the purchase money mortgage loan.
(continued...)
Nos. 06-3320 & 07-1590 17
be in default on the home’s lease, even though no pay-
ments had been missed. The bank asserted that an ac-
celerated lease payment of $851,000 was immediately
due, and it removed the money from Sunset Financial’s
account.20 Banc Caribe had no rights under the lease,
however, which was purportedly between Mr. Homa
and Caribbean Realty. Mr. Pollock did not accelerate
Caribbean Realty’s lease payments; instead, he went
directly to Mr. Homa’s money in the Sunset Financial
account. In all, Sunset Financial paid at least $1,351,000 for
the purchase of a home to which neither Sunset Financial
nor Mr. Homa ever obtained legal title. The home was then
sold and the proceeds went to companies with which
Mr. Pollock had entered into an employment agreement.
None of the benefit accrued to Mr. Homa or to Banc Caribe.
D.
Caribbean Ventures sold its stock interest in Banc Caribe
through two transactions, one with Witherspoon Finan-
cial in July 2000 and the other with Aristocrat Trust in
19
(...continued)
Mr. Homa was supposed to receive some credit for his pay-
ments for a home that would end up in the name of Caribbean
Realty, but they apparently planned to establish the actual
terms at a later date.
20
Mr. Jones also demanded and received from Mr. Homa an
additional $14,000 in rent in December 1999. Mr. Jones as-
serted that the lease had been terminated, and thus, Mr. Homa’s
tenant in the house was a holdover tenant who owed rent.
Mr. Jones accepted the check from Mr. Homa well after the
freeze orders were in place.
18 Nos. 06-3320 & 07-1590
December 2000. Witherspoon Financial paid $2,000,000
for a 40% interest in Banc Caribe. Although Mr. Jones
went to great lengths to hide his benefit from the sale, he
kept the $1,000,000 from that first sale for himself by
diverting it through a shell corporation, Morgan Global
Capital,21 created for that purpose. Aristocrat Trust paid
$3,000,000 for the remaining interest in Banc Caribe. After
the sale of Banc Caribe was complete, another $1,500,000
was diverted through Morgan Global Capital for Mr. Jones.
The total consideration for the sale of Banc Caribe was
$5,000,000.
Mr. Pollock’s benefit from the sale remained in Caribbean
Ventures. Mr. Pollock was the sole employee of Caribbean
Ventures. His employment commenced in January or
February of 2003 and continued through the summer of
2005. He later sued Caribbean Ventures for $1,500,000,
the value of his employment contract with that company.
Mr. Pollock also sued Banc Caribe for the value of his
employment contract with it and for $700,000, the value of
an airplane lease on which Banc Caribe had defaulted.22
Additionally, Mr. Pollock received more than $750,000 in
loans from Caribbean Ventures for the purchase of his
home and other items, which he never repaid. Caribbean
Ventures also distributed $250,000 to Mr. Pollock, Mr.
Jones and Mr. Shillingford for the purchase and improve-
ment of land in Dominica.
21
The “Morgan” in Morgan Global Capital is the Morgan in
Mr. Jones’ middle name.
22
The airplane was only worth $300,000. It was owned by
Carribean Air, one of Mr. Homa’s companies in which Mr.
Pollock held an interest.
Nos. 06-3320 & 07-1590 19
These transactions reinvested the proceeds of Mr.
Homa’s criminal enterprises into shell entities. The end
result was that Mr. Pollock and Mr. Jones ended up with a
significant amount of money from the Ponzi scheme
proceeds by means of leases, loans and employment
contracts that were nothing more than window dressing.
E.
On May 1, 2003, at the request of the receiver, the dis-
trict court entered an order to show cause why Mr.
Pollock and Mr. Jones should not be held in contempt for
their actions taken in violation of the freeze order. On June
3, 2003, the court froze Bank Caribe’s assets with a prelimi-
nary injunction against any transfers. On March 31, 2004,
it issued an opinion and order in which it determined that
it had jurisdiction over the bank, Mr. Pollock and Mr.
Jones. This show cause order was later amended on
March 16, 2005.
Between February 1 and 3, 2006, the district court held an
evidentiary hearing on the amended Rule to Show Cause
as to why Mr. Pollock and Mr. Jones should not be held
in contempt for violating the freeze orders. On August 3,
2006, the court found Mr. Pollock and Mr. Jones in civil
contempt and ordered that they jointly and severally
disgorge approximately $7,216,462.76, plus prejudgment
interest and costs. The court further ordered Mr. Pollock
and Mr. Jones to appear personally before the court on
August 31, 2006, and to provide the court with a
specific plan and timetable for the payment of the money.
The court specified that willful failure to comply with the
order would result in the issuance of body attach-
ment orders.
20 Nos. 06-3320 & 07-1590
In that order, the district court found by clear and
convincing evidence that Mr. Pollock and Mr. Jones, by
their direct and indirect actions, had violated the freeze
orders and engaged in three contemptuous acts. First,
they had transferred $1,975,000 from Banc Caribe’s Paine
Webber account to the Alpha Credit Bank in Athens,
Greece. Second, Mr. Pollock and Mr. Jones had cancelled
Mr. Homa’s notes and ownership in Banc Caribe, then
misappropriated the funds from the sale of Banc Caribe
for their own use. Finally, they had set-off $2,216,462.76 in
Mr. Homa’s Sunset Financial account at Banc Caribe. The
district court ordered Mr. Pollock and Mr. Jones to return
to the receiver the funds lost in the second two transfers.
Specifically, the court ordered Mr. Pollock and Mr. Jones
to disgorge the $5 million from the sale of Mr. Homa’s
interest in Banc Caribe and the $2,216,462.76 they had set-
off from Mr. Homa’s Sunset Financial account. The money
from the first transfer to Alpha Credit was recovered by
the receiver from another source.
The district court found that Banc Caribe and the C4T
entities did not maintain any formality or distinction
between the assets that belonged to one or the other
because the bank was a mere pretense. The court found
Banc Caribe to be only a convenient structure within
which to hold Ponzi scheme money for the benefit of Mr.
Homa, Mr. Pollock and Mr. Jones.23 Therefore, the court
23
The district court noted that the bank’s nature was shown
by the fact that the bank was “owned” by Mr. Shillingford,
essentially no one but a straw man, yet none of the parties
involved were bothered by that arrangement. It was also dem-
onstrated by the fact that Banc Caribe made no distinction
(continued...)
Nos. 06-3320 & 07-1590 21
determined that Mr. Pollock and Mr. Jones had violated
the freeze orders by acting in concert with an enjoined per-
son to dissipate protected assets, even if neither Mr.
Homa nor a C4T entity had direct signatory authority
over the accounts that transferred funds.
Finally, the district court determined that, even assuming
the existence of a legitimate banking relationship between
Sunset Financial and Banc Caribe, the money in Banc
Caribe’s Paine Webber account was an asset of Sunset
Fiancial, and therefore directly was subject to the freeze
order. Mr. Jones admitted that the $2 million transferred
from the Paine Webber account was being held by Banc
Caribe for the benefit of Sunset Financial. Mr. Pollock and
Mr. Jones were aware of these facts, and that Sunset
Financial’s funds were subject to a freeze order, when they
transferred $1,975,000 of that money from the Paine
Webber investment account to Alpha Credit Bank in
Athens, Greece.
On August 31, 2006, Mr. Jones appeared as ordered by
the court, but he did not offer a plan to purge his con-
tempt. Mr. Jones therefore was confined to the Bureau of
Prisons to encourage his compliance with the award. He
was released on October 3, 2006, pursuant to an agreed or-
der. As of March 5, 2007, Mr. Jones had paid $612,953.83
to the receiver.
On August 28, 2006, Mr. Pollock timely filed his notice
of appeal of the finding of contempt. Mr. Pollock did not
appear at the August 31 hearing, and the district court
23
(...continued)
between Mr. Homa’s money and its own money, as shown by
the transaction involving the lease of Mr. Homa’s Florida home.
22 Nos. 06-3320 & 07-1590
issued a body attachment order against him. On Septem-
ber 7, 2006, the district court renewed the body attach-
ment order against Mr. Pollock, again directing the United
States Marshal to arrest him and bring him before the
court.
On October 17, 2006, the receiver began to pursue Mr.
Pollock’s assets. The court had learned from Mr. Jones
that Mr. Pollock had used his portion of the proceeds
from the sale of Banc Caribe to purchase a home in
St. Lucia and three luxury yachts. The yachts were traced
to CVI2, a closely-held Delaware corporation that had
been incorporated in 2000 and that was owned exclu-
sively by Mr. Pollock. The receiver filed a motion for a
temporary restraining order against CVI2 and sought to
be appointed temporary receiver of CVI2 in order to
liquidate its assets.
On October 24, CVI2 appeared through counsel and
admitted that Mr. Pollock was part owner of CVI2 but
contended that Kelly Pollock, Mr. Pollock’s wife, was
the controlling shareholder. CVI2 agreed to produce
Kelly Pollock for a deposition on October 31 and further
agreed that it would attempt to produce Mr. Pollock. On
October 30, however, CVI2 sought permission to conduct
the deposition from St. Lucia, rather than in Chicago. The
court denied the request, and CVI2 refused to produce
any witnesses for deposition. In response, the receiver
moved for sanctions against CVI2 on October 31, 2006. The
district court denied CVI2’s motion to dismiss for lack
of jurisdiction on November 6, 2006.
On November 14, 2006, the court authorized the issu-
ance of subpoenas duces tecum to Mr. Pollock and Kelly
Pollock so that the receiver could explore their interests
in CVI2 and the company’s source of funding. The infor-
Nos. 06-3320 & 07-1590 23
mation was necessary to determine the receiver’s motion,
which alleged that CVI2’s assets were subject to seizure
to satisfy the contempt judgment against Mr. Pollock. The
court specifically notified CVI2, Mr. Pollock and Kelly
Pollock that failure to comply with the court’s order
could result in the court defaulting CVI2. The subpoenas
issued on November 15, and depositions for Mr. Pollock
and Kelly Pollock were scheduled for November 29, 2006.
Process was effectuated by fax and mail, and a process
server attempted personal service at the Pollock’s home
on November 17, 20, 24, 28 and 29.
CVI2 failed to produce any witness, and neither of the
Pollocks appeared for deposition. The court determined
that the Pollocks’ depositions were essential to the prepara-
tion of the receiver’s case because the Pollocks were the
only persons with access to and control over CVI2’s
corporate records. On December 14, 2006, the receiver
moved for an order of default against CVI2, a turnover
of assets, injunctive relief and for his appointment as
CVI2’s receiver.
On March 5, 2007, the district court determined that it
had no lesser means of curing the Pollocks’ willful refusal
to comply with the court’s orders than by defaulting CVI2.
It did so, and took as confessed the allegations in the
receiver’s motion for the turnover of CVI2’s assets. The
court ordered CVI2 to turn over all of its assets to the
receiver.
CVI2 timely filed its notice of appeal on March 15, 2007.
On March 19, 2007, CVI2’s appeal was consolidated
with the appeals of Mr. Jones and Mr. Pollock.
24 Nos. 06-3320 & 07-1590
II
DISCUSSION
A.
We review de novo questions of in personam jurisdic-
tion. Cent. States, Se. and Sw. Areas Pension Fund v. Phencorp
Reins. Co., 440 F.3d 870, 875 (7th Cir. 2006). The district
court took the view that it had personal jurisdiction
over Mr. Jones and Mr. Pollock because, although they
were nonparties who reside outside the territorial juris-
diction of the United States, they were American citizens
who knowingly had violated the court’s freeze order and
“actively aid[ed] and abet[ted] a party in violating that
order.” Waffenschmidt v. MacKay, 763 F.2d 711, 714 (5th
Cir. 1985). The district court was correct.
In Waffenschmidt, our colleagues of the United States
Court of Appeals for the Fifth Circuit articulated suc-
cinctly the basic principles of law that must govern our
assessment:
Nonparties who reside outside the territorial jurisdic-
tion of a district court may be subject to that court’s
jurisdiction if, with actual notice of the court’s order,
they actively aid and abet a party in violating that
order. This is so despite the absence of other con-
tacts with the forum.
Id. This summary embodies several points of independent
importance. We shall examine each briefly.
First, a court possesses the independent authority to
enforce its own injunctive decrees. Id. at 716. In this respect,
Rule 65(d), which governs the contents and scope of
injunctions, must be regarded as a codification rather
than a limitation on a federal court’s inherent power to
Nos. 06-3320 & 07-1590 25
protect its ability to render a binding judgment. Berry v.
Midtown Serv. Corp., 104 F.2d 107, 110 (2d Cir. 1939).
Second, the injunctive mandate of a federal court runs
nationwide, and the issuing court has the authority to
deal with defiance of its order regardless of where that
defiance occurs. Waffenschmidt, 763 F.2d at 716. Indeed,
the court whose order was defied must enforce the injunc-
tion through the contempt power because contempt is, in
essence, an affront to the court that issues the order. Id. As
the Supreme Court put it in In re Debs:
[T]he power of a court to make an order carries with
it the equal power to punish for a disobedience of
that order, and the inquiry as to the question of dis-
obedience has been, from time immemorial, the
special function of the court. And this is no technical
rule. In order that a court may compel obedience to its
orders, it must have the right to inquire whether there
has been any disobedience thereof. To submit the
question of disobedience to another tribunal, be it a
jury or another court, would operate to deprive the
proceeding of half its efficiency. . . . [E]very court,
at least of the superior kind, in which great con-
fidence is placed, must be the sole judge, in the last
resort, of contempts arising therein.
158 U.S. 564, 594-95 (1895), abrogated in the criminal contempt
context as recognized by United States v. Dixon, 509 U.S. 688(1993).
Third, an injunction binds not only the parties to the
injunction but also nonparties who act with the named
party. Commenting on Rule 65(d), the Supreme Court has
noted that the Rule
26 Nos. 06-3320 & 07-1590
is derived from the commonlaw doctrine that a decree
of injunction not only binds the parties defendant
but also those identified with them in interest, in
“privity” with them, represented by them or subject
to their control. In essence . . . defendants may not
nullify a decree by carrying out prohibited acts through
aiders and abettors, although they were not parties
to the original proceeding.
Regal Knitwear Co. v. NLRB, 324 U.S. 9, 14 (1945). In Stotler
v. Able, 870 F.2d 1158, 1164 (7th Cir. 1989), we specifically
noted the vitality of this rule and its implementation
through Rule 71. Indeed, if courts did not have the power
to punish those who cooperate with those named in an
injunction, the named parties could easily thwart the
injunction by operating through others.
In Stotler, we held that “ordinarily a court may find a
nonparty in contempt if that person has ‘actual knowl-
edge’ of the court order and ‘either abets the [party named
in the court order] or is legally identified with him.’ ” 870
F.2d at 1164 (addition in original). There, the district
court declined to hold the nonparty in contempt because
it dismissed the case without specifying “any course of
action to be undertaken by any person.” Id. Even so, the
court indicated that where “obedience to an order may be
lawfully enforced against a person who is not a party,
that person is liable to the same process for enforcing
obedience to the order as if a party.” Id.Applying the rule in Stotler here, a person who know-
ingly circumvents a freeze order is subject to a show
cause order and contempt and thereby submits to the
jurisdiction of the court for contempt proceedings, as held
in Waffenschmidt. 763 F.2d at 714; Fed. R. Civ. P. 65.
“Nonparties who reside outside the territorial jurisdic-
Nos. 06-3320 & 07-1590 27
tion of a district court may be subject to that court’s
jurisdiction if, with actual notice of the court’s order,
they actively aid and abet a party in violating that order.
This is so despite the absence of other contacts with the
forum.” Id. Jurisdiction over persons who knowingly vio-
late a court’s injunctive order, even those without any other
contact with the forum, is “necessary to the proper en-
forcement and supervision of a court’s injunctive author-
ity and offends no precept of due process.” Id. at 716.
This rule is simply an application of two basic prin-
ciples that govern the application of in personam juris-
diction in the United States. It has been long-established
that, when an individual undertakes activity designed
to have a purpose and effect in the forum, the forum may
exercise personal jurisdiction over that person with re-
spect to those activities. See Calder v. Jones, 465 U.S. 783,
788-89 (1984); World-Wide Volkswagen Corp. v. Woodson,
444 U.S. 286 (1980); Int’l Shoe Co. v. Washington, 326 U.S.
310 (1945); see also Burger King Corp. v. Rudzewicz, 471 U.S.
462 (1985). See generally Restatement of Foreign Relations
Law § 421; Restatement (Second) of Conflicts of Law. There
can be no doubt that Mr. Jones and Mr. Pollock undertook
activities outside the United States that were designed
to have the purpose and effect within the United States
of frustrating the district court’s freeze order. More impor-
tant, as citizens of the United States, Mr. Jones and
Mr. Pollock were required, once they had adequate no-
tice, to obey the order of a United States court directed
at them and their activities. See Blackmer v. United States,
284 U.S. 421, 438 (1932).
The district court determined that Mr. Jones and Mr.
Pollock had acted in concert with Mr. Homa, the defend-
ant in the underlying action. It further determined that
28 Nos. 06-3320 & 07-1590
these individuals had actual knowledge of the court’s
order. These findings are supported by the record. Waffen-
schmidt, 763 F.2d at 717. Indeed, contrary to the defendants’
assertion, this is not a case in which the district court
relied on sparse background information. Rather, the
district court drew its conclusions from extensive hear-
ings. It determined that Mr. Jones and Mr. Pollock had
been contumacious and untruthful. Those findings are
supported by the record.
Mr. Pollock and Mr. Jones knowingly acted in concert
with Mr. Homa to violate the court’s order. Therefore, they
subjected themselves to a show cause order and the
subsequent contempt proceedings. See id.; Fed. R. Civ. P.
65. The district court properly determined that it had
personal jurisdiction over Mr. Pollock and Mr. Jones.24
24
The district court also determined that it had personal
jurisdiction over Mr. Pollock and Mr. Jones because the Securi-
ties and Exchange Act, 15 U.S.C. §§ 77v(a) and 78aa, authorizes
worldwide service of process on defendants, limited only by
due process. Because we hold today that nonparties who
reside outside the territorial jurisdiction of a district court
may be subject to that court’s jurisdiction if, with actual notice
of the court’s order, they actively aid and abet a party in
violating that order, we need not decide whether the Securi-
ties and Exchange Act authorizes worldwide service of process.
Similarly, we decline the receiver’s request that we dismiss
Mr. Pollock’s appeal under the fugitive disentitlement doctrine.
There is no reason to invoke the fugitive disentitlement doctrine
to dismiss Mr. Pollock’s appeal because we must consider on
appeal the substantially identical issues presented by Mr. Jones.
This case therefore does not provide an occasion on which
to decide the contours of this doctrine.
Nos. 06-3320 & 07-1590 29
B.
Having determined that the district court correctly held
that it had in personam jurisdiction over Mr. Pollock and
Mr. Jones, we next address whether the district court
correctly determined that the receiver had proved con-
tempt by clear and convincing evidence.
We review the district court’s civil contempt order for
abuse of discretion. Feltner v. Title Search Co., 283 F.3d
838, 841 (7th Cir. 2002). The receiver had the burden of
showing contempt by clear and convincing evidence.
United States v. Dowell, 257 F.3d 694, 699 (7th Cir. 2001).
1. The Transfer of Funds from America to Greece
The record supports the district court’s finding that
Mr. Jones and Mr. Pollock knew of the freeze order before
transferring funds from Banc Caribe’s account at Paine
Webber to a correspondent account in Alpha Credit
Bank in Athens, Greece. Mr. Jones and Mr. Pollock do not
dispute that they had some awareness of the freeze order
before the transfer in question because they had been
unable to transfer Banc Caribe funds from another source,
Dain Rauscher. Mr. Pollock had spoken with the legal
department there about the trouble with Banc Caribe’s
account. He admitted that he had learned about the
freeze order from this conversation with Dain Rauscher.
Additionally, Greg Gibbs of Dain Rauscher’s legal depart-
ment also faxed the freeze order to Mr. Pollock. Banc
Caribe’s transfer to Alpha Credit did not go through until
several days after Mr. Pollock and Mr. Jones admit that
they had received the freeze order by fax. That interval
would have provided them with time to stop the trans-
30 Nos. 06-3320 & 07-1590
fer, if, as they contend, they had authorized the transfer
before learning of the freeze order.
Mr. Jones and Mr. Pollock characterize the transaction as
a mere transfer of bank funds from one Banc Caribe
account to another. They admit, however, there was
no reason for the transfer other than to avoid the freeze
order. Mr. Jones further admits that he did not cancel the
transfer because he did not wish to stop it and because
he made a conscious determination that he believed the
freeze order was ambiguous.
Mr. Pollock and Mr. Jones also contend that the funds
transferred from Paine Webber to Alpha Credit were not
subject to the freeze order because the funds belonged to
Banc Caribe, not one of the C4T defendants. The district
court properly determined, however, that Banc Caribe
did not maintain any formalities between Mr. Homa’s
money and other assets. Therefore, even if Mr. Homa
did not have signatory authority over the account from
which the funds were transferred, Mr. Homa controlled
the funds with the intent to use the bank to launder his
Ponzi scheme proceeds. As described above, moreover,
the money in the Paine Webber account was being held
by Banc Caribe for the benefit of the Sunset Financial
account.
The record establishes this knowing transfer of funds
belonging to Sunset Financial, a defendant in the SEC case.
The district court reasonably found Mr. Pollock and
Mr. Jones in contempt for this transfer.25
25
Ultimately, the district court did not order Mr. Pollock and
Mr. Jones to return the $1,975,000 transferred from Banc Caribe’s
(continued...)
Nos. 06-3320 & 07-1590 31
2. The Cancellation of Mr. Homa’s Interest in Banc
Caribe
The record also amply supports the district court’s
findings that Mr. Jones and Mr. Pollock knew of the freeze
order before they cancelled Mr. Homa’s interest in Banc
Caribe. The district court correctly determined that Mr.
Homa’s rights under whatever agreement he held with
Banc Caribe were an asset. Even if the value of that in-
terest might have been in dispute, the interests of Mr.
Homa in Banc Caribe were specifically within the terms
of the freeze order, and Mr. Jones and Mr. Pollock know-
ingly dissipated, transferred or concealed those assets
after receipt of the freeze order. The district court did not
abuse its discretion in determining that the shares were
an asset of value belonging to Mr. Homa at the time that
the appellants cancelled the notes.
3. The Set-off of Funds from the Sunset Financial
Account
Finally, the record supports the district court’s determi-
nation that Mr. Pollock and Mr. Jones violated the freeze
orders by setting off, for their own benefit, $2,216,462.76
from Mr. Homa’s Sunset Financial account. Shortly after
cancelling Mr. Homa’s interest in Banc Caribe, Mr. Pollock
closed Mr. Homa’s Sunset Financial account. Before closing
the account, however, he invoked the bank’s alleged right
to set-off against the account by withdrawing $703,595.89
25
(...continued)
account at Paine Webber in violation of the freeze orders. The
receiver had already received compensation for that transfer
from Paine Webber.
32 Nos. 06-3320 & 07-1590
on October 19, 1999, and $564,880.00, $96,600.00 and
$851,386.87 on October 21.
Mr. Pollock admitted that he did not contact anyone at
the SEC or the district court before removing the funds
from the Sunset Financial account. Mr. Pollock and Mr.
Jones also admit that the removal of $2,216,462.76 from
Mr. Homa’s account occurred after actual notice of the
freeze orders and involved money that, without dis-
pute, came from an account over which Mr. Homa had
signatory authority. Mr. Pollock and Mr. Jones subse-
quently converted that portion of Sunset Financial’s
assets to their own use.
This knowing set-off against monies in an account over
which Mr. Homa had signatory authority is established
in the record. The freeze orders enjoined the defendants
in the SEC action and those people acting in concert
with them from disposing of the funds in any manner,
directly or indirectly. The district court was on solid
ground in finding Mr. Pollock and Mr. Jones in contempt
for this set-off.
Additionally, the record does not support Mr. Pollock’s
assertion that the freeze orders violated Dominican law.
The district court found, and we agree, that the record does
not establish that any law of Dominica prohibited Banc
Caribe, Mr. Pollock or Mr. Jones from complying with
the freeze order. Mr. Pollock and Mr. Jones suggest gen-
erally that Banc Caribe needed to maintain liquidity to
protect its investors and patrons. They do not, however,
point to any particular amount of liquidity that the bank
was required to maintain, and neither does the record
show that the bank lacked any necessary liquidity at any
point.
Nos. 06-3320 & 07-1590 33
Moreover, the district court’s freeze order simply re-
quired that Mr. Pollock and Mr. Jones not move from the
bank any funds associated with Mr. Homa or C4T. Two of
their contumacious acts, the cancellation of Mr. Homa’s
interest in Banc Caribe and the set-off of Mr. Homa’s
funds in the Sunset Financial account, violated those freeze
orders by removing funds from Banc Caribe for their own
benefit. Compliance with the court’s orders would have
resulted in Mr. Pollock and Mr. Jones leaving the funds
in Banc Caribe, which, in contrast to their actions, presum-
ably would have improved the liquidity of the bank.
C.
We now turn to whether the district court erred in
defaulting CVI2 and in ordering the turnover of its assets.
CVI2 first argues that, because it is not a party, a Rule 37
sanction of default judgment is inappropriate. We cannot
accept this argument. See Textile Banking Co. v. Rentschler,
657 F.2d 844, 846-48 (7th Cir. 1981). It is clear that CVI2,
through its officers, directors and shareholders, inten-
tionally and willfully refused to comply with the district
court’s discovery orders.
The court properly found that, without compliance
with its deposition subpoenas, the receiver was denied
the ability to conduct crucial discovery that went to the
heart of the receiver’s petition for appointment as re-
ceiver of CVI2. The record also supports the district
court’s determination that Mr. Pollock and Mrs. Pollock
are the only persons with complete knowledge of the
crucial facts concerning the ownership and control of CVI2
and the only persons with possession and control of the
corporate records of CVI2. This information was absolutely
34 Nos. 06-3320 & 07-1590
essential to the preparation of the receiver’s case. More-
over, the assertions in the receiver’s amended verified
motion and the documents submitted by the receiver
corroborated the district court’s determination that the
assets of CVI2 are owned by, and in the possession and
control of, Mr. Pollock as the alter ego of CVI2.
Therefore, the district court did not err when it deter-
mined that no lesser sanction than default would cure
CVI2’s failure to comply with the district court’s dis-
covery orders. Neither did the court err when it took as
admitted by CVI2 the allegations in the amended motion
to appoint the receiver of Mr. Homa’s assets as receiver
for CVI2.
We also believe that the district court did not err in its
determination that it could exercise in personam juris-
diction over CVI2. The record supports the district court’s
determination that CVI2 was an alter ego of Mr. Pollock.
The record supports the court’s conclusion that the
entity was essentially no more than a sham structure to
contain the spoils of fraud and that Mrs. Pollock was not
a bona fide controlling shareholder.
Nor is there any question that the situation warranted
the sanctions imposed by the district court. The only
shareholders, Mr. and Mrs. Pollock, repeatedly refused
to comply with the court’s orders to appear, to provide
discovery and to give a deposition. The district court’s
determination that the refusal was willful and that no
lesser sanction would cure their failure to comply with
discovery was solidly supported by the record. The
court specifically found that the Pollocks are the only
persons with the information and materials crucial to
the case against CVI2, and it reasonably concluded that
no method other than in person depositions would suf-
Nos. 06-3320 & 07-1590 35
fice. It also specifically warned CVI2 that repeated failure
to comply with discovery requests would result in default
if it did not produce its officers at the final deposition.
In short, the district court, with record support, properly
made the requisite findings before ordering a default
judgment against CVI2. See In re Thomas Consol. Indus., Inc.,
456 F.3d 719, 724 (7th Cir. 2006) (holding that a finding of
bad faith coupled with a warning about the sanction
justified dismissal as a discovery sanction). The sanction
of default is severe; however, it certainly was not an
abuse of discretion to employ it here. Sun v. Bd. of Trs.,
473 F.3d 799, 811 (7th Cir. 2007).
Conclusion
For the foregoing reasons, the judgment of the district
court is affirmed.
AFFIRMED
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—1-24-08