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American Fletcher Mortgage Co. v. Bass

decided: September 14, 1982.

AMERICAN FLETCHER MORTGAGE COMPANY, INC., PLAINTIFF-APPELLEE,
v.
DENNIS L. BASS, DEFENDANT-APPELLANT



Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 77 C 206 -- William E. Steckler, Judge.

Posner, Circuit Judge, Davis,*fn* Associate Judge, and Coffey, Circuit Judge.

Author: Coffey

COFFEY, Circuit Judge.

This is a review of an order of the United States District Court for the Southern District of Indiana finding the appellant Bass in civil contempt for failing to comply with the district court's order to turn certain assets over to the clerk of the court. On appeal, Bass argues that the order finding him in contempt was in error as it was physically impossible for him to comply with the district court's order since the assets covered by the order previously had been pledged and delivered to his attorneys and a business associate, both of whom had refused his demands to return the property. Bass further argues that his constitutional right of due process of law was violated when the district court found him in contempt of court without proper notice or a full hearing. AFFIRMED.

The defendant-appellant in this action is Dennis Bass, president, shareholder and the sole director of American Investment Properties, Inc. ("AIP"), a Chicago real estate development firm. Bass was held in civil contempt of court in proceedings instituted by the plaintiff-appellee American Fletcher Mortgage Company, Inc., in its efforts to satisfy a judgment against Bass, before the district court of the Southern District of Indiana, Indianapolis Division. The judgment was secured in an action brought by American Fletcher to collect sums of money which had been loaned to Naredel of Texas, Inc.*fn1 and personally guaranteed by Bass.

The trial began on April 21, 1980. On April 25, in the midst of trial, Bass entered into three pledge agreements, without the consent of the court, whose ultimate result was to encumber essentially all of Bass's assets and put them beyond the reach of American Fletcher:

(1) Bass pledged collateral to his attorneys, Cox, Castle & Nicholson, of Los Angeles, purportedly in consideration of unpaid legal fees incurred by Bass over a period of time. Anthony Barash and Jerry Hill, members of the law firm of Cox, Castle & Nicholson then assigned its interest in the pledged assets to Barash & Hill. Thus, the pledge agreement between Bass and his attorneys will hereinafter be referred to as the Barash & Hill pledge agreement;

(2) Bass executed a pledge agreement with William Kurtz, who was Bass's close business associate and an employee of AIP, Bass's wholly-owned corporation. The pledge agreement with Kurtz was allegedly made as security for Kurtz's equity interest in certain properties developed by AIP; and

(3) Bass likewise pledged other assets to Norman Lausch, another AIP employee, purportedly to guarantee payments owed Lausch under his AIP employment contract.*fn2

The trial proceeded and on May 2, 1980 the jury returned a verdict against Naredel of Texas, Inc. for over one million dollars. The jury's verdict absolved Bass of any liability on the guaranty. However, the trial court did grant American Fletcher's motion for judgment notwithstanding the verdict and held Bass jointly and severally liable on the debt.*fn3

At this time, the difficult and arduous task of satisfying American Fletcher's judgment against Bass began. As part of these efforts, the district court held several supplemental hearings, and at a hearing in May of 1981, American Fletcher first became aware of Bass's three pledge agreements entered into during the trial without the court's knowledge or consent. On November 6, 1981, the district court issued an order finding the pledge agreements to be

"presumptively fraudulent conveyances as to the plaintiff American Fletcher Mortgage Company, Inc. and are hereby declared void and invalid as to American Fletcher Mortgage Company, Inc., subject to the right of the defendants to petition this Court, within thirty (30) days hereof, requesting a full evidentiary hearing in order to present evidence rebutting the finding that said conveyances were fraudulent as to the plaintiff, American Fletcher Mortgage Company, Inc."

The order also provided that:

" AND FURTHER, that said above described property covered by said presumptively fraudulent pledge agreements be delivered by the defendant Bass to the Clerk of the United States District Court for the Southern District of Indiana within ten days [of November 6, 1981]."

Bass subsequently made several half-hearted, unsuccessful attempts to comply with the court's order. In a letter to Barash & Hill dated November 12, 1981, Bass demanded that Barash & Hill return the pledged property in order that he might comply with the court order of November 6. Barash & Hill advised Bass, in a letter dated November 13, 1981, of their refusal to return the collateral.*fn4 It is interesting to note that Catherine Steel, an attorney with Barash & Hill, drafted both Bass's letter of demand and Barash & Hill's letter of refusal to return the collateral.

Bass also sent a letter to Kurtz demanding that Kurtz turn over the assets pledged to him. Kurtz refused this demand, and Bass made no other demand of Kurtz to return the assets. Shortly thereafter in January of 1982, Kurtz transferred these same assets to a new pledgeholder in Los Angeles with Bass's written consent, even though Bass, under the terms of the pledge agreement, could have blocked the transfer.

Since Bass failed to comply with the order of November 6, 1981, the district court on December 18, 1981 issued an order of execution and commanded the United States Marshal to execute upon and take possession of Bass's property held by Kurtz and Barash & Hill under the pledge agreements. The Marshal was unable to execute the order as all the pledged assets were at this time outside the jurisdiction of the court.

On January 24, 1982, Bass, acting as sole director and sole shareholder of AIP, caused the corporation to issue 3,200 new shares of AIP stock to a new shareholder, with AIP retaining the right to repurchase the newly issued shares. This transferred voting control of AIP from Bass to the new shareholder; consequently, even if American Fletcher had succeeded in recovering the 800 shares of ...


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