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Contempt Of Court Or Just Plain Stupidity.

By Randall K. Edwards - Email Editor

Date: July 20, 2006

In over 20 years of trying cases, I've only been threatened with contempt of court once, and I probably had it coming.

I was in the middle of a well-publicized case with political implications in Reno a few years ago. A reporter from the local newspaper was in the courtroom when I put my client on the stand. After my masterful direct examination, the opposing lawyer's first question to her was: "What did you and Mr. Edwards discuss about this case this morning before you walked in here today."

I jumped up and hollered out an objection on the obvious ground of attorney-client privilege. I was shocked when the judge (who was a political enemy of my then-employer) stared at me and said, "Actually, I'd be interested in the answer to that question myself. I'm going to order the witness to answer."

I stared back in disbelief. "Your Honor," I stammered, "uh . I'm ordering her not to answer."

The judge turned a brighter shade of pink as he looked at me impassively, and then said to my client, "Answer the question."

I turned a shade of angry red and snapped, "Don't answer."

The judge, now a light shade of purple, raised his voice as he said, "Mr. Edwards, just who do you think is in charge of this court?"

"The last time I checked, Your Honor," I replied sarcastically, "the law was in charge of this court, and I believe you're in violation of the law."

"Mr. Edwards," the judge bellowed, "are you trying to show contempt for this court?"

This is the wrong answer:

"No, Your Honor," I shouted back, "right now I'm trying my best to hide my contempt for this court."

The judge simply stared at me and, before bringing the gavel down, simply said, "I'm going to give Mr. Edwards five minutes to either reconsider his position in this case or to get his toothbrush." He stormed from the bench, now a dark shade of purple.

The final outcome of the case wasn't anywhere near as exciting as you might hope. I didn't spend the night in jail as a political prisoner defending the sacred attorney-client privilege. The judge, who, during the break, had no doubt thought through the implications of the next day's headline, "Attorney jailed for protecting client's sacred legal rights," sauntered back to the bench 10 minutes later and calmly said, "I've thought a lot about this case. Mr. Edwards' case is dismissed with prejudice. Next case."

I thought a lot about this experience recently when I was asked by a client whether I could guarantee that a court would never hold him in contempt of court for refusing to repatriate money that he had placed into an offshore trust.

My answer was a resounding "no." I can never guarantee what any court will do, especially if the client acts like an idiot. I did counsel the client, however, that with a little bit of smart planning and some good common sense, the chances that the client will ever be in the position of being threatened with a contempt citation are almost nil.

There are a few reported cases out there in which someone placed their money into an offshore trust, retained control over the money, but then tried to convince a court that they really couldn't repatriate the money into the U.S. in the face of a claim by the government. (I don't know why, but the vast majority of these cases seem to arise from tax claims or other actions by a governmental agency.) These actions are often accompanied by an attitude, expressed to the court, that "Hey, I stuck my money offshore and you can't get it, even though I really do owe it to the government [or, in a few cases, the long-suffering and deserving claimant]. Nyah, nyah, nyah." Unsurprisingly, the courts have said in return, "It may be true that I don't have the power to get your money out of your offshore trust, but I have the power to put you in jail for contempt of court until the money shows up here."

So, in light of this judicial power, is anyone safe from a citation for contempt of court?

The answer to that question gets down to the question of whether a judge believes that a defendant is trying to jack the system, cheat his creditors, poke his thumb in the eye of the judicial system and manipulate justice. This inquiry is, by definition, very fact-specific, and has much more to do with the defendant's attitude and willingness to act in good faith toward a court than it does with some magic formula to keep out of trouble.

Any Asset Protection Plan, in order to work in any meaningful way, requires the maker of the plan also to be rational. It hardly makes sense for a scumbag to think that he can jack the system -- any system -- and get away with it, skating away unscathed. It defies common sense. The point of any Asset Protection Plan should not be to defy common sense. To the contrary, it should be in absolute congruity with common sense and justifiable and explicable purposes. I would venture to say that it is no failure of Asset Protection when an irresponsible and arrogant dork gets slapped by a judge.

For example, in a case that my friend Jay Adkisson posted on the Asset Protection Corporation website, the court observed this with regard to the debtor:

"In addition, the court has already had an opportunity to assess the credibility of Barrie Peterson during the three-day hearing on relief from the automatic stay. To put the matter charitably, truth is not the brightest star in Mr. Peterson's constellation, and the court would not be inclined to give any credence to Mr. Peterson's denials that he supplied the funds to purchase the judgment."

This is definitely NOT what you want a federal (or, for that matter, state) court to be saying about you. Perhaps the only thing as bad is to have the same court say this about your best witness, based solely on a review of his deposition testimony (meaning that the court didn't even listen to the witness testify, but concluded that he's a liar from a written transcript of earlier testimony):

"Nor, it might be added, does the deposition testimony of Scott Peterson assist J.P. Development's position. The younger Mr. Peterson's testimony as to the source of the funds used to purchase the judgment is an astonishing mass of evasion. It is not often that a trier of fact can make a credibility determination based on a cold transcript, but in this particular case there can be no doubt, based on the deposition transcript, that the younger Mr. Peterson had no intention of giving straight answers to straight questions or of supplying relevant information concerning the transaction."

Now, if you've got a court using the term "astonishing mass of evasion" about you and your witnesses, you've got to know that there's NO set of facts that are going to keep you out of trouble, no matter what kind of fancy-schmancy structure you have put together - Asset Protection Trust, limited partnership, limited liability company, corporation, captive insurance company, whatever. To the contrary, if the court figures that you're simply trying to jerk around the creditors that you knew about when you put together your plan and that you have no other purpose behind your machinations, the courts will figure out a way to jump over your sophisticated structure (no matter how elegantly put together and no matter how well-pleaded on your part) and nail you -- and rightly so.

Well, what does this mean in terms of contempt law? I believe that if you are able to show to the court that indeed you truly do not have the ability to comply with a repatriation order (and you can bear your burden "clearly, plainly and unmistakably" of showing inability to comply - a burden that devolves on the debtor under these circumstances), you'll survive. Can that be guaranteed? No, of course not. There are no guarantees in this world, and certainly no guarantees in court. I personally don't believe that there exists such a thing as an "ironclad" or "bulletproof" Asset Protection tool that works all the time, every time, just as I don't believe that there is a single tool in my shed that will work all the time, every time (although I must admit that my Swiss army knife does a pretty good job at about 90% of the tasks I use it for). The judicial system is pretty good at protecting one's rights and property, if not abused. Nonetheless, the only guarantee that you can never be hauled in front of a justifiably angry judge and put in a bad spot is to live in another country. Nothing - no tool - can guarantee you the ability to abuse the system and get away with it.

That having been said, there are cases in which judges have respected proof from a debtor that he simply doesn't have the ability to comply with a repatriation order and thus shouldn't be held in contempt. These cases aren't the ones that are going to make headlines. They do exist, however.

In this regard, I would cite an article by Barry Engel (asset protection attorney from Denver), published in the ABA Asset Protection Strategies Series (Vol. 1, published in 2002), entitled "Asset Protection Planning and Contempt of Court." In it, at page 363, he quotes the transcript of a 1995 lower court contempt proceeding in which a client of his firm was threatened with contempt regarding a Trust settled by that client. The transcript reads as follows:

"I've reviewed the law regarding contempt and the standards that are required for me to hold Mr. [X] in contempt. That standard is clear and convincing proof, which means something more than preponderance of the evidence but something less than absolute certainly."

"One thing I've learned a long time ago as a judge, you never order something you can't enforce. And if we order him to pay a million dollars, I have to be assured that's a reasonable order. As a matter of fact, contempt law says that one should not issue orders that cannot be complied with. It's a violation of due process to issue orders that the respondent cannot comply with."

"I'd look pretty silly if I entered orders that couldn't be enforced."

"There's case law to the effect that if we issue a compliance order that the respondent does not have the ability to comply with, that's punishment and violation of due process.

"By putting him in prison, that doesn't compel compliance, because he does not have the ability, apparently, to comply."

Now, granted, this isn't precedential law that Mr. Engel is citing, (in fact, he doesn't actually give a case citation, but bases it on his own copy of the transcript), nor is it necessarily dispositive of all civil contempt issues. Nonetheless, it is indicative that a court will respect a properly-asserted and credible "impossibility defense" in a debtor-creditor situation involving a trust. There is no doubt that the person asserting impossibility has a high burden to carry the day. Nonetheless, it is obviously possible to meet that burden.

I think that it is worth pointing out that even in the most egregious cases in which offshore Asset Protection Trust grantors were jailed, the courts STILL couldn't break the trusts and force repatriation of the assets -- the most they could do was to jail the idiots who were jacking the system. The assets remained safely out of the United States. Now, I think that anyone under the circumstances of the most egregious cases out there who is willing to go to jail to keep his precious assets is as much an idiot as anyone who is willing to give the finger to a judge, but the point is that the tool itself works, even if the outcome for the user of the tool is bad. It's sort of like using a blowtorch to weld your half-full gas tank ... the tool might work, but it may have an unfortunate tendency to blow up in your face if you're not smart about how you use it.

So, the moral to this long story is this: Don't be stupid. If you put together a good Asset Protection Plan when the creditor waters are calm and you don't act like a jackass, you won't have to worry about contempt of court. If you don't, a contempt citation may be the least of your worries.

Randall K. Edwards is licensed to practice law in Utah, Nevada, Arizona and California. His practice focuses on business, asset protection and estate planning and selected litigation.

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