David Levine, Receiver-Appellee, Securities Exchange Commission v. Comcoa Ltd., A/K/A Comcoa Ltd., Thomas W. Berger, J.B. Grossman, Law Practice, Movant-Appellant, Sun-Sentinel Company, Mobitel Services Corp., a Delaware Corporation

Citations: 70 F.3d 1191; 33 Fed. R. Serv. 3d 859; 1995 U.S. App. LEXIS 33492Docket: 95-4391

Court: Court of Appeals for the Eleventh Circuit; November 30, 1995; Federal Appellate Court

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J.B. Grossman, P.A. appealed a contempt ruling by the United States District Court for the Southern District of Florida, which found Grossman in violation of a court order for transferring approximately $92,000 from the trust account of his client, Comcoa Ltd., to his law firm's operating account. This transfer occurred after a series of legal actions initiated by the Securities and Exchange Commission (SEC) against Comcoa, including a temporary restraining order (TRO) that froze the company's assets. 

Comcoa had retained Grossman as counsel prior to January 1994, during which a significant retainer was placed into a trust account. Following the SEC's inquiry into Comcoa's business activities, a court issued a TRO on May 6, 1994, freezing assets and appointing a receiver. During a hearing on May 16-17, the district court extended the TRO, explicitly including the asset freeze, until a ruling on substantive motions. 

On June 6, Grossman, believing the TRO had expired after initially being misinformed about the issuance of a preliminary injunction, transferred the retainer funds into his operating account. Shortly thereafter, the court issued a preliminary injunction retroactively effective to June 3, 1994, which denied Grossman's motion for asset release. In August 1994, the SEC filed a motion for contempt against Grossman for this transfer, leading to the district court's contempt ruling, which Grossman is now appealing.

Rule 65 of the Federal Rules of Civil Procedure limits a Temporary Restraining Order (TRO) to a maximum of 10 days, extendable to 20 days only with the restrained party's consent. In this case, Grossman did not consent to an extension. The Supreme Court's ruling in Sampson v. Murray establishes that if a TRO is extended beyond the permissible duration, it should be regarded as a preliminary injunction, particularly if an adversary hearing has occurred and the extension is contested. Given that there was notice, a full hearing, and a clear decision to extend the TRO indefinitely, it was likely that Grossman's client, Comcoa, was under a preliminary injunction. Even if the TRO had not been classified as such earlier, it became one once the district court orally extended it beyond the allowed timeframe.

Grossman’s failure to treat the extended TRO as an erroneously granted preliminary injunction and his decision not to appeal was deemed inappropriate, leading to a contempt determination by the district court. The court affirmed the contempt order against Grossman for violating the judge's directive. A concurring opinion expressed concern about the handling of the case by all parties involved, particularly noting that the petitioner for the TRO failed to act timely to extend it, which contributed to the situation. The opinion emphasized that an ex parte TRO is a serious measure that should be utilized with caution, adhering strictly to the time limitations set forth in Rule 65(b).

Rule 65(b) of the Federal Rules of Civil Procedure establishes clear guidelines for temporary restraining orders (TROs), emphasizing that such orders automatically expire within 10 days unless extended. The Supreme Court's decision in *Granny Goose Foods, Inc. v. Brotherhood of Teamsters* clarified that if a hearing on a preliminary injunction occurs after a TRO is issued, the court must issue a preliminary injunction with explicit findings of fact and conclusions of law rather than merely continuing the TRO. The Court ruled that the union did not violate any order when it resumed striking because the TRO had expired due to the district court's failure to follow proper procedures. The decision also highlighted the necessity for fair notice regarding the injunction's terms to prevent contempt penalties, asserting that parties should not be left uncertain about the injunction's duration. If a court intends to replace a TRO with a preliminary injunction, it must do so explicitly; absent such clarity, the TRO is assumed to have lapsed under Rule 65(b). The interpretation that a TRO can continue beyond its limit without consent is contrary to the requirements of Rule 65.

The excerpt addresses the legal implications of violating an indefinitely-extended temporary restraining order (TRO) and the subsequent contempt determination against Grossman for disregarding a district court order he believed was invalid. It highlights that no prior case has upheld contempt for violating such an order. The opinion suggests it was unreasonable for Grossman to assume the TRO had expired, relying on the precedent set by Sampson v. Murray, where a district court's extension of a TRO was treated as a preliminary injunction due to the lack of a valid basis for the extension.

The discussion references a case from the D.C. Circuit, National Mediation Bd. v. Air Line Pilots Association, where extending a TRO beyond the statutory limit was deemed equivalent to granting a preliminary injunction, thus allowing for appellate jurisdiction. However, the court found the extended order invalid as it lacked the required findings of fact and conclusions of law, leading to a remand for dissolution of the order.

Justice Marshall's dissent in Sampson emphasized the need to avoid giving district courts unlimited authority over parties through unappealable indefinitely extended TROs. He argued that even if appealable, it should be solely to declare such orders invalid for not adhering to procedural requirements. Ultimately, the excerpt critiques the Supreme Court's handling of the case, suggesting that the equities involved were not adequately addressed before a determination was made.

Justice Rehnquist, in Sampson, rejected the notion that a district court's failure to comply with procedural rules could shield an indefinite injunctive order from appellate review. Despite the District Court's noncompliance with Federal Rule of Civil Procedure 52(a), the Supreme Court maintained the ability to review the case based on the record and evidence supporting injunctive relief. The Court concluded that an indefinite temporary restraining order (TRO) effectively becomes a valid preliminary injunction for appeal purposes. 

However, this raises concerns regarding the clarity of emergency order durations that restrict property use, undermining protections intended by Rule 65(b). The Second Circuit emphasized that the authority to issue TROs is tightly regulated due to their potential for severe consequences, particularly regarding time limitations on their effectiveness. 

The discussion also suggests that the precedent set in Sampson is potentially overruled by Granny Goose, particularly as the restraint in Sampson was deemed unlawful, leading to implications that might be considered dicta. Nevertheless, the author of the opinion acknowledges the necessity to adhere to Supreme Court precedent, ultimately affirming the contempt ruling for violating an extended TRO, despite uncertainties regarding this conclusion.

The case involves appellant Law Practice of J.B. Grossman, P.A., represented by attorney J.B. Grossman, who did not contest his opportunity to argue against the issuance of a preliminary injunction at the relevant hearing. The court found that an order restraining the transfer of Comcoa's assets extended to a trust account, a determination not disputed by Grossman, who also did not claim ignorance of the court's order prohibiting such conduct.

Confusion exists regarding the timeline of events on June 6 and 7 involving Grossman’s actions. The district court determined that Grossman filed a motion for release of funds after he had already transferred the money. Grossman’s initial brief claims he transferred the funds on June 6 and filed the motion the following day, while his reply brief states both actions occurred on June 6, with the motion filed later that day. The docket indicates the motion was filed on June 7. It is undisputed that Grossman transferred the funds unilaterally without court approval.

The parties dispute whether to exclude weekends and holidays when calculating the initial 10-day period and a 20-day extension for a temporary restraining order (TRO). This dispute is largely irrelevant since, even under the exclusion approach, the TRO would expire at 9:25 AM on June 6. The district court's written preliminary injunction order was not issued until June 7, and thus, the TRO would have expired unless consent was provided. Under a calendar-day calculation, the hearing’s continuation into the second day would constitute a for-cause extension of the initial period.

In cases without notice or hearing, a TRO that continues beyond the Rule 65 limit expires on its own, as established in *Granny Goose v. Brotherhood of Teamsters*. However, this case differs materially because a hearing on a preliminary injunction was held, allowing for appellate review, unlike in *Granny Goose*. The ruling establishes that a TRO extended after a hearing is treated as a preliminary injunction for appeal purposes.

Two primary concerns about TROs are noted: restrained parties may lack hearing opportunities and clarity on prohibited conduct, and they may not have access to appellate review. The court’s decision respects these concerns, as Grossman had the chance to contest the injunction with clear notice of the prohibited actions.

While the case is decided under Rule 65, it clarifies that district courts have broad authority to issue binding orders to lawyers, who must obey them. Grossman’s actions, disobeying direct court instructions for personal financial gain, reflect serious misconduct. This situation extends beyond typical contempt cases where a lawyer faces repercussions for a client’s actions, as Grossman acted directly against the court's instructions. Thus, the court may possess greater authority to discipline attorneys than what is outlined in Rule 65 or the Federal Rules of Civil Procedure.

Comcoa's potential restraint on its funds and Mr. Grossman's status as an officer of the court are noted, although the district court's decision means these issues are not being addressed. An electronic search revealed over 11,500 cases involving the SEC and temporary restraining orders (TROs), suggesting SEC counsel is experienced in extending TROs, though not all cases are comparable. The district court found that Grossman consented to the TRO's extension, whereas the majority opinion accepts his claim of non-consent without dispute. If he had consented, the TRO would be an unappealable interlocutory order per Fernandez-Roque v. Smith. The author argues that denying Grossman's entitlement under Granny Goose and Rule 65(b), which restricts TRO extensions beyond twenty days without consent, is unjust. Grossman attempted to retrieve funds after twenty days, but the Receiver miscalculated the expiration. Following various inquiries confirming no preliminary injunction was issued, Grossman transferred client funds as permitted by Rule 65(b). The record indicates compliance with the rule. Historically, sanctions for violating an indefinitely-extended TRO have not been affirmed, and previous cases dismissed appeals when TROs expired under Rule 65(b). However, distinctions have been made in cases like Pan American World Airways, where indefinite extensions led to appealable preliminary injunctions. Ultimately, the Court found the TRO was unlawfully granted as the petitioner did not demonstrate the required irreparable harm, leading to a reversal of the appellate decision that upheld the TRO.

Civil contempt can only be upheld if the disobeyed order was valid and lawful, as established in Smith v. Sullivan. The court has determined that an indefinitely extended temporary restraining order (TRO) can be considered a valid preliminary injunction. To validate the injunction, it must be assessed on its merits, specifically whether the applicant demonstrated irreparable harm and inadequate legal remedies. Grossman does not contest the injunction's merits but argues that the TRO became void after statutory time limits expired. Consequently, the court's examination is confined to the validity of the disobeyed order. This method simplifies the process for district judges by allowing them to rely on the passage of time to transition a TRO into a preliminary injunction without the need for extensive fact-finding or legal conclusions.