Securities & Exchange Commission v. Bilzerian

Citations: 613 F. Supp. 2d 66; 2009 U.S. Dist. LEXIS 40626; 2009 WL 1321320Docket: Civil Action 89-1854 (RCL)

Court: District Court, District of Columbia; May 11, 2009; Federal District Court

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Paul A. Bilzerian and parties acting in concert with him have been found in civil contempt of court for violating a 2001 order that prohibits Bilzerian from initiating any court proceedings without permission from the District Court. The motions for contempt were filed by Ernest B. Haire and National Gold Exchange, Mark Yaffe, and Alan Yaffe. The court determined that Bilzerian, David E. Hammer, and the Puma Foundation plaintiffs—comprising the Puma Foundation, Bicoastal Holding Company, and Overseas Holdings Limited Partnership—are in contempt, but no clear evidence was presented to establish contempt against other parties. 

Bilzerian, previously convicted of securities law violations and sentenced in 1989, had faced multiple court orders stemming from his actions. In 1993, he was enjoined from future securities violations and required to disgorge over $33 million. He consistently evaded compliance with these judgments, leading to contempt findings and the appointment of a receiver in 2000. The 2001 order reinforced restrictions on his ability to file lawsuits without the court's approval, which was upheld by the Court of Appeals in 2003. The recent motions indicate that Bilzerian continues to disregard court mandates, prompting the current contempt ruling.

Haire alleges that several lawsuits violate a prior court order, specifically identifying four cases in the Thirteenth Circuit Court of Hillsborough County, Florida. These include: 1) Bilzerian v. Haire, Case No. 08-09149; 2) Jack Rabbit Limo Service v. Haire, Case No. 06-007700; 3) Puma Foundation et al. v. Haire, Case No. 06-009816; and a deposition-related action in the Middle District of Florida, Case No. 08-mc-212. Additionally, the Movants—National Gold Exchange, Mark Yaffe, and Alan Yaffe—claim that the case Caligula Corporation v. National Gold Exchange Inc. et al., Case No. 07-CA-017763, along with Bilzerian's counterclaims, also breach the court's order. 

The court issued orders to show cause regarding potential contempt against Bilzerian and several associated parties, including Terri L. Steffen and others. After reviewing responses, the court found Bilzerian, David E. Hammer, and the plaintiffs from the Puma Foundation to be in contempt. The authority to punish for contempt is inherent in courts, intended to ensure compliance with orders. Civil contempt aims to coerce compliance or compensate losses, and it requires clear and convincing evidence of a violation of a clear and unambiguous order. Non-parties can also be held in contempt if they are successors or participants in a violation. 

The court determined that Paul Bilzerian is in civil contempt of a 2001 order prohibiting him from initiating any court proceedings, as the movants provided sufficient evidence of his awareness and violation of this order, which has been affirmed by the U.S. Court of Appeals.

Bilzerian's claims that he does not believe the injunction applies to him are unfounded, as they have previously been dismissed by this Court and the Court of Appeals. The court reaffirmed the clarity of the order and confirmed that Bilzerian has violated it by initiating multiple lawsuits, including an original lawsuit, a counterclaim, and a contempt motion. Specifically, he is in contempt for his involvement in the Puma Foundation litigation, despite his claim of merely acting as a runner for another party. Evidence shows Bilzerian actively controlled the litigation, as he signed the civil cover sheet for the Puma lawsuit and communicated with attorneys about its filing. His assertions in defense, including challenges to the service of motions and the standing of intervenors, are rejected. The court highlights that it possesses the authority to initiate orders to show cause and that the intervenors, Yaffe, were allowed to join due to shared legal questions with the main action, which prohibits Bilzerian from commencing legal proceedings without prior court approval.

Bilzerian claims entitlement to court-appointed counsel before facing contempt charges, arguing that prior rulings support this. However, the Court clarifies that appointment is not mandatory without a demonstration of indigency. Bilzerian is neither currently facing incarceration nor has he shown he is indigent, thus he is not entitled to appointed counsel. He also asserts that his claims in the Caligula litigation do not violate a 2001 court order, as they are mandatory counterclaims against a third-party complaint. The Court finds this argument unsupported and clarifies that the order explicitly prohibits him from initiating any court proceedings without permission, with no exceptions for counterclaims. Bilzerian's request to file his claims is denied, as such claims would belong to the receiver rather than to him personally.

Regarding David E. Hammer, the Court finds him in contempt for violating the same order. Hammer acknowledged receiving notice of the order in December 2006 yet acted as Bilzerian's attorney in a separate case and served subpoenas on Haire. His defense, claiming reliance on Bilzerian's interpretation of the order, is deemed unreasonable given Bilzerian's lack of legal credentials and his history of securities fraud. Hammer's assertion that he never represented Bilzerian is questionable, particularly since he signed as Bilzerian's attorney on a subpoena. Regardless, he acted as Bilzerian's process server and was aware of the prohibition against initiating proceedings without court approval. The Court concludes that Hammer was in civil contempt from the moment he engaged in actions on Bilzerian's behalf, despite his knowledge of the order.

Hammer contends that the Court lacks personal jurisdiction over him, but this argument is rejected. Nonparties outside a district court's territorial jurisdiction can be subject to that court's jurisdiction if they have actual notice of the court's order and actively assist a party in violating it, regardless of other contacts with the forum, as established in S.E.C. v. Homa. The federal court's injunctive orders extend nationwide, allowing it to address noncompliance regardless of location. Hammer also requests a hearing, referencing In re Oliver, which pertains to criminal contempt and offers greater procedural protections. In civil contempt cases, however, only notice and an opportunity to be heard are required, which Hammer received.

Additionally, Jack Rabbit Limo Service, Inc. has been found in contempt of the Court's order, but Judge Martha J. Cook dismissed the related suit, noting that Jack Rabbit was associated with Bilzerian and represented by Hammer. Judge Cook characterized Bilzerian and Hammer’s litigation conduct as egregious and unethical, leading to the dismissal of the Jack Rabbit lawsuit. Consequently, the civil contempt proceeding concerning Jack Rabbit is now moot.

Furthermore, Puma Foundation, Bicoastal Holding Company, and Overseas Holdings Limited Partnership, through Bilzerian, are also found in contempt of a 2001 court order. A case filed against Haire by these entities in Florida contradicts their claim that it was not initiated by Bilzerian or his associates, as it was filed in his name. This act violates the 2001 order prohibiting Bilzerian from initiating legal proceedings.

Puma acknowledges that Bilzerian initiated the lawsuit but asserts it was done under Hammer's direction, claiming Bilzerian acted merely as a runner rather than a principal. However, the Court finds Bilzerian's credibility lacking, particularly due to an email he sent before the lawsuit's filing, indicating his involvement. The lawsuit filed by the Puma Foundation, directed by Paul Bilzerian, leads to the conclusion that the plaintiffs, as extensions of Bilzerian, are in contempt of court. While Bilzerian’s civil cover sheet only lists the Puma Foundation, the Court notes that the respondents have not differentiated Bicoastal Holding Company and Overseas Holdings Limited Partnership from the Puma Foundation. All involved parties appear to have acted under Bilzerian's influence, as shown in his email referencing "our understandings" regarding related litigation. 

Bilzerian, Hammer, and the Puma Foundation plaintiffs argue for the continuation of the suit, citing its separation from the receivership estate and a consent agreement acknowledging a $100,000 claim against Haire. However, the Court's injunction mandates that Bilzerian seek permission before commencing any litigation, which he failed to do with the Puma Foundation suit initiated in 2006, thereby violating the injunction. Without evidence that the suit is confined to the claims retained in the consent agreement, the Court cannot assess its scope and potential overreach. Consequently, Bilzerian, Hammer, and the Puma Foundation plaintiffs are ordered to dismiss the suit.

Regarding Caligula Corporation, the movants failed to demonstrate that it violated the 2001 order. Caligula is involved in a lawsuit against National Gold Exchange, Inc., where allegations suggest Bilzerian may have a controlling interest. While Bilzerian claims significant involvement in assisting Caligula with capital raising, the movants have not shown evidence of his direct participation in its litigation. Their claims primarily focus on his involvement prior to the lawsuit's initiation.

Caligula asserts that it initiated the lawsuit independently, without involvement from Bilzerian or his associates. This claim remains unchallenged by evidence, as the movants only contend that Caligula was established by Bilzerian's family to evade a permanent injunction. Documents reveal that Bilzerian’s family members have held key positions within Caligula, raising suspicions of manipulation in the litigation process by Bilzerian, who has previously attempted to conceal assets to avoid a judgment against him for securities fraud. Caligula's attorney, David Hammer, has a history of assisting Bilzerian in contemptuous acts and has faced sanctions in Florida courts. However, mere allegations of Bilzerian's control over Caligula are insufficient for contempt findings; any claims regarding his conduct should be brought in a separate suit, not through contempt proceedings. Consequently, the movants failed to provide clear and convincing evidence to support a contempt ruling against Caligula.

Regarding Terri L. Steffen, there is no substantial evidence to prove her complicity in Bilzerian's alleged violations, and thus the motion to hold her in contempt is denied, rendering her request for counsel moot. Similarly, for Robert Bleakley, the movants did not establish contempt with clear evidence; he only entered the Puma Case after the relevant order and was unaware of it until later. His withdrawal from the case in June 2008 further renders the contempt request moot. Lastly, the court has yet to issue a show cause order for Haircut Partners, although motions have been filed by the bankruptcy trustee and another party seeking such an order.

Judge Paskay of the United States Bankruptcy Court for the Middle District of Florida dismissed Haircut Partners' involuntary petition on March 11, 2009, determining it was filed in bad faith and reflecting Hammer's litigious nature. Consequently, motions by Haire and Menchise became moot. David Hammer sought a declaration that Tracy Hendershot was not violating court orders by initiating divorce proceedings against Haire, but since no motion had been filed for an order to show cause regarding Hendershot, Hammer's request for an advisory opinion was dismissed due to lack of jurisdiction. 

In the conclusion, movants requested that Paul Bilzerian be ordered to dismiss lawsuits filed in violation of court orders and sought monetary sanctions. The court found punitive sanctions inappropriate, as these were civil contempt proceedings, but ordered Bilzerian to dismiss contemptuous filings and to pay costs incurred by movants National Gold Exchange, Mark Yaffe, and Alan Yaffe in the show cause proceedings. The Puma Foundation plaintiffs, also found in contempt, are ordered to dismiss their lawsuit, but Haire is not entitled to attorneys' fees since he represented himself. Bilzerian must dismiss all claims outside of this court or the U.S. Court of Appeals for the District of Columbia Circuit and the Puma Foundation plaintiffs must dismiss their case in Florida. Movants are instructed to file their incurred costs and expenses within 15 days.

SO ORDERED. The excerpt details several legal proceedings involving Bilzerian, Haire, and the Puma Foundation. Notably, it references the case Bilzerian v. Haire in the Thirteenth Circuit, Florida, highlighting various filings including Haire's motion for an order to show cause and Bilzerian's answer to a third-party complaint. The Puma Foundation has filed a two-count lawsuit against Haire, with the court noting confusion over the interchangeable treatment of the respondents involved. Bilzerian's motion to prevent Douglas Menchise from filing lawsuits against him is addressed, affirming his right to defend himself but prohibiting him from filing crossclaims or counterclaims without court permission. The court also clarifies that Haire, representing himself in the proceedings, is not entitled to attorneys' fees. Furthermore, it is noted that the trial court in the Caligula litigation is better positioned to assess Bilzerian's participation, which could impact contempt findings. Haire cannot recover attorneys' fees from Bleakley, who is also a non-attorney acting pro se. Lastly, Judge Paskay remarks on misleading statements made by Hammer regarding the status of show cause proceedings. Proposed orders for costs and monetary sanctions from Haire and Yaffe are also mentioned.