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Earthgrains Baking Companies, Inc. v. Sycamore Family Bakery Inc.

United States District Court, D. Utah, Central Division

November 2, 2018

EARTHGRAINS BAKING COMPANIES, INC., Plaintiff,
v.
SYCAMORE FAMILY BAKERY INC., and LELAND SYCAMORE, Defendant.

          MEMORANDUM DECISION AND ORDER

          DALE A. KIMBALL UNITED STATES DISTRICT JUDGE

         This matter is before the court on EarthGrains's Renewed Motion for Contempt Sanctions. On October 23, 2018, the court held a hearing on these matters. At the hearing, Plaintiff was represented by Charles A. Burke and Nicholas Frandsen, Defendants Leland Sycamore and Sycamore Family Bakery were represented by Sean N. Egan, and Jeri Sycamore and Sycamore Family, LLC were represented by Andrew G. Deiss. After carefully considering the parties arguments and the law and facts relevant to the pending motion, the court issues the following Memorandum Decision and Order.

         BACKGROUND

         EarthGrains contends that the Sycamore family is evading payment of EarthGrains' judgment and failing to comply with this court's Charging Order. In April 2012, a jury awarded EarthGrains $2, 333, 129 in damages. The court enhanced the damages to $4, 674, 950, awarded Earthgrains $1, 091, 336.40 in attorney fees and costs, and prejudgment interest at 2.18%. The total amount of the verdict is now over $6 million, and six years later, EarthGrains has not recovered anything on the Judgment.

         The Sycamore Family LLC holds virtually all of the Sycamore family's assets. Leland Sycamore owns 48% of the LLC, his wife Jeri Sycamore owns 48%, and each of their four children own 1%. Leland Sycamore attempted to transfer his ownership in the LLC to his wife. But, in a separate action, Judge Nuffer ruled that it was a fraudulent transfer.

         On March 6, 2014, EarthGrains sought and this court granted a Charging Order. The Charging Order provides that the LLC is to pay Leland's portion of any proceeds or distributions to EarthGrains directly until EarthGrains's Judgment is satisfied. EarthGrains served a copy of the Charging Order on Jeri Sycamore, as a member-manager of the LLC, on March 13, 2014. On March 10, 2012, EarthGrains also obtained a charging order with identical provisions against Leland Sycamore's interest in Mary Rae Sycamore LLC, another Sycamore family limited liability company that holds assets.

         The LLC operating agreement requires all LLC distributions to be distributed to the owners based on their percentage ownership. Despite distributions to Jeri Sycamore since the Charging Order went into effect, the LLC has never made a payment to EarthGrains. Accordingly, in December 2014, EarthGrains filed a motion for contempt sanctions. At the time, the information presented to the court demonstrated a violation of the Charging Order. Because the Sycamores were not forthcoming with the financial information as required by the Charging Order, the court allowed EarthGrains to engage in additional discovery to demonstrate the amount of the Sycamores' violations. The court did not deny the motion without prejudice because of a failure to demonstrate contempt. The only reason the court denied the motion without prejudice was because the motion would need to be renewed after the discovery was conducted and the extent of the contempt was documented.

         EarthGrains conducted discovery but did not file a renewed contempt motion because Leland Sycamore filed a second appeal that was unsuccessful and EarthGrains' successor, Bimbo Bakeries, became engaged in another lawsuit against Leland Sycamore and others for subsequent trade secret and trade dress infringement. That lawsuit resulted in another jury verdict against Leland Sycamore and another permanent injunction. In that case, there are pending motions for attorney fees and a motion for judgment as a matter of law or for new trial.

         EarthGrains renews its motion for contempt sanctions in this case, asking the court to hold Leland Sycamore, Jeri Sycamore, and Sycamore Family LLC in contempt of court for noncompliance with the Charging Order. EarthGrains also asks to be paid the equivalent of all distributions that have been made to Jeri Sycamore since the issuance of the Charging Order and that a receiver be appointed who can liquidate Leland Sycamore's interest in the LLC and pay the value obtained to satisfaction of EarthGrains' judgment.

         ANALYSIS

         Federal district courts have the “power to punish by fine or imprisonment, or both, at its discretion, such contempt of its authority . . . as . . . [disobedience or resistance to its lawful writ, process, order, rule, decree, or command.” 15 U.S.C. § 401. It is well-settled law that a “district court has broad discretion in using its contempt power to require adherence to court orders.” Consumers Gas & Oil, Inc. v. Farmland Indus., 84 F.3d 367, 370 (10th Cir. 1996).

         In order to hold a party in civil contempt, a court must find clear and convincing evidence that “(1) the order at issue was valid and enjoined conduct in reasonable detail; (2) the enjoined party had actual knowledge of the order through personal service or otherwise and was subject to it; and (3) the enjoined party disobeyed the order.” Clear One Communications, Inc. v. Chiang, 670 F.Supp.2d 1248, 1281-82 (D. Utah 2009). “In civil contempt proceedings, disobedience of the order need not be willful. Rather, ‘a [d]istrict court is justified in adjudging a person to be in civil contempt for failure to be reasonably diligent and energetic in attempting to accomplish what was ordered.'” ClearOne, 670 F.Supp.2d at 1282.

         In this case, under this court's Charging Order, EarthGrains is entitled to all distributions that should be made to Leland Sycamore in accordance with his ownership interests in the LLC. The LLC's Operating Agreement requires distributions to be made to all members in proportion to their ownership interest. The LLC's failure to make proportional distributions can only be seen as an effort to block EarthGrains from receiving LLC funds due under the court's Charging Order. Leland Sycamore, Jeri Sycamore, and the Sycamore Family LLC are all well aware of the requirement under the Charging Order.

         The court's Charging Order is clear, and the LLC's failure to pay EarthGrains funds due to Leland Sycamore violates the Charging Order. The Sycamores ignore the vast majority of the evidence EarthGrains submits and contest only a few evidentiary citations on relatively minor matters given the breadth of the Sycamores' obstruction over a period of many years. The Sycamore Family LLC has made substantial distributions to Jeri Sycamore without making the requisite payments to EarthGrains in proportion to Leland Sycamore's membership interests in the LLC. These distributions run into the hundreds of thousands. In addition, Jeri Sycamore and members of her family use LLC assets without compensation to the LLC, such as allowing family members to live rent free in LLC homes and condominiums.[1] Even if these practices are not currently ongoing, they have occurred and the practice effectively gives family members de facto distributions. This conduct also shows the Sycamores' lack of adherence to corporate structure and duties.

         The Sycamores argue that the information EarthGrains relies on is outdated. However, the Charging Order requires the LLC to provide EarthGrains with financial information. EarthGrains does not have updated information because the Sycamores have failed to comply with the Charging Order's requirements. The Sycamores claim that there is no urgency to EarthGrains' request, but the Sycamores have had a constant and continuous duty to comply with the court's order. The only parties to benefit from EarthGrains' delay in moving forward with its contempt motion is the Sycamores. EarthGrains' delay does not provide the Sycamores with a basis for ignoring the Charging Order. A party is charged with complying with an order from that date it is entered, not just when the opposing party chooses to move for contempt for noncompliance. EarthGrains has a right to collect on its judgment, and the Sycamores are required to comply with this court's orders.

         The Sycamores also suggest that there is need for another round of discovery into the operations of the LLC and compliance with the Charging Order. However, there is no reason for the court and the parties to engage in endless rounds of discovery when the Sycamores simply need to ...


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