1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 THE ARMAND HAMMER Case No. 2:23-cv-01215-FLA (SKx)

FOUNDATION, INC.,

12

ORDER FINDING DEFENDANT

Plaintiff, 13 HAMMER INTERNATIONAL v. FOUNDATION TO BE IN 14

CONTEMPT [DKT. 49]

15

HAMMER INTERNATIONAL

16 FOUNDATION, Date: July 14, 2023 Defendant. Time: 1:30 p.m. 17 Courtroom: 6B 18

19 20 ORDER 21 For the reasons stated herein, the court finds and adjudges Defendant Hammer 22 International Foundation (“Defendant” or “HIF”) to be in contempt of the court’s 23 March 20, 2023 Order (Dkt. 34). Plaintiff Armand Hammer Foundation, Inc. 24 (“Plaintiff” or “AHF”) shall file a declaration within fourteen (14) days of this Order, 25 identifying with specificity the attorney’s fees and costs Plaintiff reasonably incurred 26 as a result of HIF’s April 17, 2023 e-mails to Morgan Stanley Smith Barney LLC 27 (“Morgan Stanley”) regarding AHF Account 1317. HIF shall have seven (7) days to 28 file a response to AHF’s declaration. 1 BACKGROUND 2 On March 20, 2023, the court entered a preliminary injunction restraining HIF 3 from transferring, moving, encumbering, or disposing of any asset or property that 4 was actually or purportedly moved, sold, or transferred from Plaintiff AHF to 5 Defendant HIF on or after January 1, 2022 (the “March 20, 2023 Order”). Dkt. 34 at 6 1. The court further enjoined Defendant from interfering with Plaintiff’s access to its 7 financial accounts with Morgan Stanley and ordered that Plaintiff shall have full 8 access to such accounts for purposes of maintaining its operations and paying its 9 employees and contractors (including its attorneys). Id. at 1–2. 10 On April 20, 2023, Plaintiff filed an Ex Parte Application for Contempt and to 11 Enjoin State Court Proceedings (“Ex Parte Application”). Dkt. 43. On April 28, 12 2023, the court granted in part and denied in part the Ex Parte Application and 13 enjoined Defendant from seeking, in the action styled Hammer International 14 Foundation v. Morgan Stanley Smith Barney, LLC et al., Case No. CACE-22017-682 15 in the 17th Judicial Circuit for Broward County, Florida (the “Morgan Stanley 16 Action”) or any other state court proceeding, injunctive relief related to Plaintiff’s 17 access to its accounts with Morgan Stanley. Dkt. 49 at 6.1 The court further ordered 18 Defendant to show cause (“OSC”) why it should not be held in contempt of the 19 court’s March 20, 2023 Order (Dkt. 34), based on HIF’s continued interference with 20 AHF’s access to its accounts with Morgan Stanley. Dkt. 49 at 6. Plaintiff AHF filed 21 a memorandum in support of its request for sanctions. Dkt. 52 (“AHF Mem.”). 22 Defendant HIF filed a response opposing Plaintiff’s request. Dkt. 54 (“HIF Resp.”). 23 The OSC came to hearing on July 14, 2023. Dkt. 84. 24 / / / 25 / / / 26 27 1 In granting the Ex Parte Application, the court noted that its April 28, 2023 Order did not extend to Defendant’s request for a preliminary injunction related to financial 28 accounts in HIF’s name. Dkt. 49 at 6. 1 DISCUSSION 2 I. Legal Standard 3 It is well-established that “courts have inherent power to enforce compliance 4 with their lawful orders through civil contempt.” Shillitani v. United States, 384 U.S. 5 364, 370 (1966); see Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991). Punishment 6 for civil contempt is usually considered to be remedial and is designed to enforce 7 compliance with a court order. United States v. Powers, 629 F.2d 619, 627 (9th Cir. 8 1980). 9 An order holding a party in contempt is appropriate “[i]f a person disobeys a 10 specific and definite court order” by failing to take “all the reasonable steps within his 11 power to [ensure] compliance with the court’s order.” In re Crystal Palace Gambling 12 Hall, Inc., 817 F.2d 1361, 1365 (9th Cir. 1987) (citing Shuffler v. Heritage Bank, 720 13 F.2d 1141, 1146 (9th Cir. 1983)) (quotation marks and brackets omitted). In the Ninth 14 Circuit, a party alleging that another person should be held in civil contempt must 15 establish by clear and convincing evidence that the alleged contemnor (1) “violated 16 the court order,” (2) “beyond substantial compliance,” (3) “not based on a good faith 17 and reasonable interpretation of the order.” Lab./Cmty. Strategy Ctr. v. L.A. Cnty. 18 Metro. Transp. Auth., 564 F.3d 1115, 1123 (9th Cir. 2009) (quotations omitted). 19 Once a prima facie showing of civil contempt is made, the burden shifts to the 20 alleged contemnor to “produce evidence explaining his noncompliance.” United 21 States v. Ayres, 166 F.3d 991, 994 (9th Cir. 1999) (quotations omitted). While the 22 inability to comply with a court order may be a defense to contempt, the party 23 asserting that defense must show “categorically and in detail” why compliance is 24 impossible. FTC v. Affordable Media, LLC, 179 F.3d 1228, 1240-41 (9th Cir. 1999). 25 It is well-established that a party petitioning for an adjudication that another party is in 26 civil contempt does not have the burden of showing that the other party has the 27 capacity to comply with the court’s order. E.g., NLRB v. Trans Ocean Export 28 Packing, Inc., 473 F.2d 612, 616 (9th Cir. 1973). 1 Civil contempt is generally viewed under an objective standard, and “a party’s 2 subjective belief that she was complying with an order ordinarily will not insulate her 3 from civil contempt if that belief was objectively unreasonable.” Taggart v. Lorenzen, 4 139 S. Ct. 1795, 1802 (2019). As the purpose of civil contempt is remedial, 5 willfulness is not a necessary element for civil contempt. Perry v. O’Donnell, 759 6 F.2d 702, 705 (9th Cir. 1985) (citing, e.g., McComb v. Jacksonville Paper Co., 336 7 U.S. 189, 191 (1949)). Ordinarily, “[i]t does not matter what the intent of the [party] 8 was when [it] violated the court’s order.” In re Crystal Palace, 817 F.2d at 1365 9 (citing McComb, 336 U.S. at 191). 10 Nevertheless, courts may consider a noncompliant party’s subjective intent in 11 making a contempt determination, as “civil contempt sanctions may be warranted 12 when a party acts in bad faith,” and “a party’s good faith, even where it does not bar 13 civil contempt, may help to determine an appropriate sanction.” Taggart, 139 S. Ct. at 14 1802 (citations omitted); see also Stone v. City & County of San Francisco, 968 F.2d 15 850, 856-57 (9th Cir. 1992) (In determining whether a party performed “all reasonable 16 steps within their power to [ensure] compliance,” courts have considered factors 17 including “the [party’s] history of noncompliance” and “the failure to comply despite 18 the pendency of the contempt motion.”), cert. denied, 506 U.S. 1081 (1993). “[A] 19 party’s record of continuing and persistent violations and persistent contumacy 20 justifie[s] placing the burden of any uncertainty in the decree … on [the] shoulders of 21 the party who violated the order.” Taggart, 139 S. Ct. at 1802 (quotations omitted). 22 II. Whether HIF Should Be Held in Civil Contempt 23 The March 20, 2023 Order enjoined Defendant HIF from interfering with 24 Plaintiff’s access to its financial accounts with Morgan Stanley and ordered that 25 Plaintiff shall have full access to such accounts for purposes of maintaining its 26 operations and paying its employees and contractors (including its attorneys). Dkt. 34 27 at 1–2. 28 / / / 1 AHF presents evidence HIF sent Morgan Stanley an e-mail on April 17, 2023, 2 at 5:30 p.m., in connection with HIF’s lawsuit against Morgan Stanley in the Morgan 3 Stanley Action, which stated: 4 As a follow up to our call and emails of this morning, we are 5 concerned about the disposition of the Accounts at issue in this case, while Morgan Stanley seeks to delay resolution of our pending 6 Injunction Motion. 7 Please immediately confirm that the Accounts – including HIF Account 1254 and AHF Account 1317 – are being preserved by 8 Morgan Stanley, and have not been (and will not be) dissipated 9 pending hearing on the Injunction Motion. 10 Dkt. 43-9 (emphasis added).2 11 Morgan Stanley responded at 5:57 p.m., that same day, stating in relevant part: 12 “I do not understand how AHF’s account is a subject of the instant action when they 13 are not a party, at least not yet.” Dkt. 43-11, Ex. B at 1–2. 14 HIF wrote back to Morgan Stanley at 6:05 p.m., stating: 15 As you know, the allegations in our Amended Complaint address AHF Account 1317. This email exchange is not to debate the merits 16 of the claims, but just to obtain confirmation that Morgan 17 [Stanley] has preserved the accounts at issue (including AHF Account 1317) and that those accounts (including AHF Account 18 1317) have not (and will not be) dissipated pending a 19 determination of our injunction motion. 20 Id., Ex. B at 1 (emphasis added). 21 Kaplan admits he was aware of the court’s March 20, 2023 Order when he sent 22 the April 17, 2023 e-mails to Morgan Stanley. Dkt. 54-9 (Kaplan Decl.) ¶ 6. These e- 23 mails did not substantially comply with the March 20, 2023 Order, based on a good 24 25 2 HIF argues the April 17, 2023 e-mails constitute inadmissible hearsay. HIF Resp. at 12. The e-mails, however, constitute statements by a party-opponent. See Fed. R. 26 Evid. 801(d)(2)(C). HIF further objects that AHF has not established foundation or 27 authentication for these e-mails. HIF Resp. at 12. HIF’s counsel, Kevin Kaplan (“Kaplan”), however, attests he wrote the e-mails in question. Dkt. 54-9 (Kaplan 28 Decl.) ¶ 5. Accordingly, HIF’s objections are OVERRULED. 1 faith and reasonable interpretation of that order. This evidence is sufficient to 2 establish by clear and convincing evidence that HIF violated the March 20, 2023 3 Order by interfering with AHF’s access to its financial accounts with Morgan Stanley. 4 See Lab./Cmty. Strategy Ctr., 564 F.3d at 1123. 5 Defendant contends its April 17, 2023 e-mails to Morgan Stanley constituted an 6 informal inquiry for purposes of ascertaining damages only and that “Kaplan emailed 7 Snyder due to his understandable concern ‘about the disposition of the Accounts at 8 issue,’ in an attempt to ensure that AHF was complying with the Court’s order to 9 maintain the status quo.” HIF Resp. at 13 (italics in original).3 The court disagrees. 10 The April 17, 2023 e-mails request Morgan Stanley “confirm … AHF Account 11 1317 – [was] being preserved by Morgan Stanley, and ha[d] not been (and 12 [would] not be) dissipated pending hearing on the Injunction Motion” in the Morgan 13 Stanley Action. Dkt. 43-9 (emphasis added); see also Dkt. 43-11, Ex. B at 1. The 14 April 17, 2023 e-mails do not request information regarding the amount of money 15 held in AHF Account 1317 or discuss damages. See id. Instead, when Morgan 16 3 HIF contends AHF violated the court’s preliminary injunction by moving to 17 intervene in the Morgan Stanley Action. HIF Resp. at 13. AHF, in turn, argues HIF 18 further violated the court’s preliminary injunction by amending its complaint in HIF’s lawsuit against AHF in Broward County, Florida, to seek a declaration that the 19 transfers of AHF’s “real and personal property … were valid” and that HIF is “the 20 proper owner of” AHF’s assets. AHF Mem. at 9–10; Dkt. 67 (“AHF Reply”) at 4. 21 The parties’ arguments lack merit. The court’s March 20, 2023 Order does not, and cannot reasonably be interpreted to, prevent the parties from asserting claims or 22 counterclaims in the pending state court actions between the parties and only prevents 23 the parties from seeking or obtaining a contradictory preliminary injunction (1) for possession, custody, and control of property currently held or in the possession, 24 custody, and control of the other party, and (2) to prevent the other party from 25 accessing financial accounts in its name, pending the final adjudication of the parties’ claims on their merits. See Dkt. 34, 49. This court did not hold it has exclusive 26 jurisdiction over the parties’ dispute. To the contrary, the April 28, 2023 Order stated 27 that the court’s preliminary injunction was not intended to prevent other courts, including the court overseeing the Morgan Stanley Action, from proceeding or issuing 28 non-conflicting rulings. Dkt. 49 at 5 n. 3. 1 Stanley questioned HIF’s request to preserve AHF account 1317, Kaplan repeated his 2 demand and emphasized that “[the] email exchange [was] not to debate the merits of 3 the claims, but just to obtain confirmation that Morgan [Stanley] ha[d] preserved 4 the accounts at issue (including AHF Account 1317) and that those accounts 5 (including AHF Account 1317) ha[d] not (and [would] not be) dissipated pending a 6 determination of [HIF’s] injunction motion.” Dkt. 43-11, Ex. B at 1 (emphasis 7 added). A reasonable person reading the April 17, 2023 e-mails would objectively 8 conclude HIF was attempting to ensure Morgan Stanley did not release funds from 9 “AHF Account 1317” to Plaintiff, pending the hearing on HIF’s motion for an 10 injunction in the Morgan Stanley Action—not to ascertain its potential damages 11 against Morgan Stanley – despite this court’s March 20, 2023 Order. 12 HIF’s stated subjective belief that it was attempting only to inquire informally 13 about the status of AHF’s account for purposes of ascertaining its damages against 14 Morgan Stanley is neither credible nor sufficient to insulate Defendant from a finding 15 of contempt, as such intention is not expressed anywhere within HIF’s e-mails to 16 Morgan Stanley. Notably, Kaplan does not state in his declaration that he misspoke in 17 conveying HIF’s intentions to Morgan Stanley, see Dkt. 54-9 (Kaplan Decl.), nor does 18 Defendant present any evidence HIF wrote a clarifying follow-up e-mail to Morgan 19 Stanley or Plaintiff to correct any misunderstanding after AHF contacted HIF to 20 demand it comply with this court’s March 20, 2023 Order.4 See AHF Mem. at 6. 21 HIF’s unexpressed subjective intent to obtain information is insufficient to 22 demonstrate that the April 17, 2023 e-mails did not constitute a direct and bad faith 23

24 4 HIF asserts it filed an Amendment by Interlineation in the Morgan Stanley Action, 25 on May 3, 2023, to clarify that HIF was not seeking injunctive relief regarding AHF Account 1317. HIF Resp. at 10. HIF’s decision, on May 3, 2023, to limit the scope 26 of its request for injunctive relief in the Morgan Stanley Action is insufficient to 27 demonstrate that the April 17, 2023 e-mails were not intended to interfere with AHF’s access to its accounts with Morgan Stanley in direct contravention of the March 20, 28 2023 Order. | | violation of this court’s order to HIF not to interfere with AHF’s access to its financial 2 || accounts with Morgan Stanley (Dkt. 34 at 1-2). See Taggart, 139 S. Ct. at 1802. The 3 | court, therefore, finds HIF to be in contempt of the March 20, 2023 Order (Dkt. 34 at 4} 1-2). 5 CONCLUSION 6 For the aforementioned reasons, the court FINDS and ADJUDGES Defendant 7 | HIF to be in contempt of the court’s March 20, 2023 Order (Dkt. 34 at 1-2), based on 8 | the April 17, 2023 e-mails. Plaintiffs request for a contempt finding on other grounds 9 | is DENIED. 10 AHF shall file a declaration within fourteen (14) days of this Order, identifying 11 | with specificity the attorney’s fees and costs Plaintiff reasonably incurred as a result 12 | of HIF’s April 17, 2023 e-mails to Morgan Stanley regarding AHF Account 1317, 13 | with supporting evidence. Plaintiff may also include in this tabulation the legal 14 | services performed in connection with the Ex Parte Application and hearing on 15 | Plaintiff's request for a contempt finding; however, such tabulation must exclude 16 | reasonably the legal services performed on matters for which the court does not award 17 | contempt sanctions. HIF shall have seven (7) days to file a response to AHF’s 18 | declaration. The court will disregard without discussion any attempt by either party to 19 | reargue the scope of the court’s contempt ruling. 20 The court reminds the parties to comply with all orders and rules of this court. 21 | Further violations may result in the imposition of increasingly severe sanctions. 22 23 IT IS SO ORDERED. 24 25 | Dated: September 11, 2023 26 S ar FERNANDO'L. AENLLE-ROCHA 28 United States District Judge