The First Circuit ruled that a federal appellate court may not invoke the fugitive disentitlement doctrine to dismiss an appeal in federal court by a defendant in flagrant contempt of state court directives.
In Degen v. U.S., 517 U.S. 820, 824 (1996), the Supreme Court gave federal courts the discretion to dismiss an appeal without hearing the merits “if the party seeking relief is a fugitive while the matter is pending.” But there are limits, as Circuit Judge O. Rogeriee Thompson described in her November 15 opinion.
Judge Thompson ruled that one court may not use “the fugitive dismissal power to protect another court’s judgments or proceedings, or to sanction contempt for orders other than the judgment on review.”
Judge Thompson’s engaging opinion describes an egregious pattern of contempt by a defendant-debtor who went into hiding to avoid enforcement of state court judgments and orders.
The state of Massachusetts had a lien on a man’s home to recoup almost $200,000 in benefits he had received during his lifetime. After the man’s death, the home was virtually the only asset in his probate estate, but it may have been worth less than the lien. The state moved in the probate court to sell the house in payment of the lien.
Enter the defendant with a scheme to defraud the state. He persuaded the decedent’s heir to deed him the house for almost no consideration. He then rented the home, taking in more than $50,000 in rent over several years while he was ignoring state court orders for him to turn over title to the home along with the rent he had collected.
According to Judge Thompson, the defendant had been held in contempt at least seven times by the state court and ignored directives to appear in court. The state court issued several warrants for his arrest, but he was not to be found.
The day before a hearing where he likely would have been sentenced to a 30-day jail term, the defendant filed a bankruptcy petition and listed the house as his asset, although the state court had already ruled that it was not.
Believing it was entitled to enforce police and regulatory powers under Section 362(b)(4), the state proceeded with the hearing. The debtor appeared and argued that the state court action was halted by the automatic stay. The state court disagreed about the applicability of the automatic stay and put him in jail for a day. To spring himself from the lockup, the debtor paid $5,400 in partial satisfaction of judgments.
The debtor disappeared again, was held in contempt twice more, and was saddled with additional monetary sanctions.
In bankruptcy court, the state sought a modification of the automatic stay to proceed in state court. The debtor responded with a motion to hold the state in contempt of the automatic stay. The bankruptcy court denied the motion for contempt and ruled that the state court proceedings were exempt from the automatic stay under Section 362(b)(4).
The district court dismissed the debtor’s appeal under the fugitive disentitlement doctrine. Judge Thompson reversed and remanded.
Judge Thompson explained that the doctrine derives from a federal court’s inherent power to protect its proceedings and judgments. As a severe sanction, she quoted Degen to say it must be imposed with “restraint.” Id. at 823.
The debtor proffered three reasons why the doctrine did not apply to him. As a matter of fact, Judge Thompson rejected the first, saying that he was indeed hiding from arrest, thus making him a fugitive.
Second, the debtor contended that the doctrine only applies when a fugitive is evading criminal prosecution. Judge Thompson disagreed, saying her circuit had applied the rule to the evasion of civil proceedings.
The debtor hit the jackpot on his third argument: He was a fugitive from a state court judgment, not from an order of the bankruptcy court or the district court.
Judge Thompson said that “several courts have rejected the use of dismissal to sanction litigants for dodging another court’s orders when the snub didn’t impact the case on appeal.” She said that the doctrine is not designed “to protect another court’s judgments or proceedings, or to sanction contempt for orders other than the judgment on review.”
Applying the law to the facts of the case, Judge Thompson said that the debtor’s defiance of the state court orders did not delay the appeal in district court, nor did it undermine the district court’s proceedings.
Furthermore, Judge Thompson said the debtor was raising “fair” arguments on appeal regarding the applicability of the police power exception to the automatic stay. She said that several “judges in our circuit agree with him.”
Although Judge Thompson was constrained to reverse and remand for the district court to consider the merits of the appeal, she said that “none of this excuses [the debtor’s] misconduct, which has a long, harmful history.”
Judge Thompson listed several forms of relief the bankruptcy court might grant to the state if the district court were to rule that the police power exemption did not apply. She mentioned the bankruptcy court’s ability to modify the stay or dismiss the debtor’s bankruptcy case. She did not mention the possibility of annulling the automatic stay, an attractive remedy to impose on a debtor with unclean hands and a history of disobeying court orders.
The First Circuit ruled that a federal appellate court may not invoke the fugitive disentitlement doctrine to dismiss an appeal in federal court by a defendant in flagrant contempt of state court directives.
In Degen v. U.S., 517 U.S. 820, 824 (1996), the Supreme Court gave federal courts the discretion to dismiss an appeal without hearing the merits “if the party seeking relief is a fugitive while the matter is pending.” But there are limits, as Circuit Judge O. Rogeriee Thompson described in her November 15 opinion.
Judge Thompson ruled that one court may not use “the fugitive dismissal power to protect another court’s judgments or proceedings, or to sanction contempt for orders other than the judgment on review.”
Judge Thompson’s engaging opinion describes an egregious pattern of contempt by a defendant-debtor who went into hiding to avoid enforcement of state court judgments and orders.
The state of Massachusetts had a lien on a man’s home to recoup almost $200,000 in benefits he had received during his lifetime. After the man’s death, the home was virtually the only asset in his probate estate, but it may have been worth less than the lien. The state moved in the probate court to sell the house in payment of the lien.