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SEC v. KIMMES

August 21, 1990

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
ARNOLD KIMMES, et al., Defendants



The opinion of the court was delivered by: SHADUR

 MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 On August 3, 1989 the Securities and Exchange Commission ("SEC") brought this action against 14 individuals and two corporations, charging a large-scale securities fraud in the marketing and sale of low-priced securities (so-called "penny stocks"). This opinion deals with problems attendant on SEC's claims against Thomas Quinn ("Quinn"), who has been incarcerated throughout the pendency of this litigation at the Maison de'Arret de la Sante in Paris, France. *fn1"

 Almost immediately after suit was brought, SEC sought and obtained -- upon making the proper showing -- a temporary restraining order ("TRO") against Quinn and four other defendants that froze their funds and other assets. Then on August 15, 1989 this Court, as permitted by Fed.R.Civ.P. ("Rule") 65(b), extended the TRO to September 1, 1989 and ordered that the preliminary injunction hearing be held at 9:45 a.m. August 30, 1989. Before that date SEC filed a motion seeking additional preliminary injunctive relief against violations of the anti-fraud, reporting and recordkeeping provisions of the federal securities laws, all as alleged in the Complaint.

 By the time the August 30 date for the preliminary injunction hearing arrived, Quinn was the only defendant who still posed a live issue in terms of further preliminary injunctive relief. As for the other four defendants who had originally been temporarily restrained, by August 30 codefendants Arnold Kimmes and Michael Wright had consented to preliminary injunctive relief without admitting or denying the Complaint's allegations except as to jurisdiction, while both corporate defendants had defaulted so as to give rise to final judgments against them.

 At the time set for the hearing no one appeared on Quinn's behalf, nor were any requests made for a continuation of the hearing. This Court therefore considered everything in the record before it and on September 1, 1989 entered a preliminary injunction order (the "Order") in accordance with Rules 52(a) and 65(d). In part the Order included the following finding based on SEC's representations to that effect:

 
This Court has personal jurisdiction over defendant Quinn and defendant Quinn received proper notice of the preliminary injunctive hearing. *fn2"

 And in addition to its other provisions prohibiting further securities law violations by Quinn, Order para. 9 contained the following injunctive command that now serves as the focus of the current disputes between Quinn and SEC:

 
9. Defendant Quinn, his agents, servants, employees and attorneys and those persons in active concert or participation with any of the foregoing who receive actual notice of this Order by personal service or otherwise, and each of them, are preliminarily restrained and enjoined from directly or indirectly transferring, selling, assigning, pledging, dissipating, concealing, or otherwise disposing of in any manner, any funds, assets or other property, wherever located, belonging to or in the possession, custody or control of defendant Quinn or his immediate family.

 On January 25, 1990 SEC moved for an order to show cause, seeking to hold Quinn in civil contempt for violation of that provision of the Order. SEC pointed to Quinn's having caused the transfer of $ 75,000 about November 15, 1989 -- nearly two months after he had been personally served with a copy of the Order *fn3" -- from a brokerage account in the United States to attorney Philippe Cywan ("Cywan") in the United Kingdom. *fn4" Three months later SEC identified still another transfer of funds that Quinn had assertedly made in contravention of the Order's provisions in early February 1990.

 In the meantime Quinn went on the counterattack, seeking three types of relief:

 
1. his dismissal from the action because of a claimed insufficiency in the service of process;
 
2. a stay of the action as to him; and
 
3. a modification of the Order so that he could obtain funds to pay his lawyers. *fn5"

 All the motions have received extensive briefing, generating a nearly-two-inch-thick pile of paper. *fn6"

 Fortunately a later development has mooted a material part of Quinn's multi-pronged onslaught. Ben-Veniste has now accepted service and has appeared on Quinn's behalf, and on June 27, 1990 Quinn has filed his Answer, so that the fully-briefed dismissal motion need not occupy this Court as an independent matter. Instead this opinion will focus briefly on the stay question and the related proposed modification of the Order, then will devote the principal part of its discussion to the contempt issues. *fn7"

 Stay of the Action

 Quinn urges that the proceedings be stayed as to him because his imprisonment in France disables him from effective participation in the action. In that respect he seeks to don the constitutional mantle of the Due Process Clause.

 That garb is of course available to saint and malefactor alike. Justice Frankfurter has said in another time and place (in his dissent in United States v. Rabinowitz, 339 U.S. 56, 69, 94 L. Ed. 653, 70 S. Ct. 430 (1950)):

 
It is a fair summary of history to say that the safeguards of liberty have frequently been forged in controversies involving not very nice people. *fn8"

 But Quinn's invocation of the Due Process Clause ill suits him under the circumstances here.

 For one thing, it has already been said that Quinn engaged in self-help -- in the very teeth of the flat prohibition contained in the Order -- to divert $ 75,000 to his own use. Once he did that (by means fair or -- as clearly appears to be the case -- foul), it became his choice as to how those funds would be employed. Ben-Veniste's office has tendered a June 27, 1990 affidavit from Cywan, which says that Quinn opted to use that money for what Cywan describes as "safeguarding and preserving Mr. Quinn's assets." Rather than attempting to paraphrase Cywan's affidavit (which should be read for a full understanding of why Quinn's present position is so untenable), this Court attaches it as an appendix to this opinion. What is significant of course is that, once having latched onto the $ 75,000 and having chosen which of his fish he wanted to fry with those funds, Quinn will simply not be heard to bootstrap himself at this point by urging that the government has somehow violated his due process rights by making his defense financially impossible.

 On that score SEC disputes Quinn's entitlement to a due process claim at all where, as here, he is incarcerated under the regular procedures of law (see, e.g., our Court of Appeals' opinions in Jones v. Hamelman, 869 F.2d 1023, 1029-30 (7th Cir. 1989) and Stone v. Morris, 546 F.2d 730, 735-37 (7th Cir. 1976); and cf. McKinney v. Boyle, 447 F.2d 1091, 1094 (9th Cir. 1971)). Relatedly SEC urges that the cases advanced by Ben-Veniste on this issue -- cases purportedly standing for the proposition that due process demands that Quinn be afforded more meaningful contact with his lawyer than he has had -- do not support Quinn's contentions.

 There is a good deal of force to SEC's position on both those propositions. Nor is Quinn persuasive in his contention that he is deprived of due process by the circumstances under which his lawyers have access to confer with him in la Sante Prison. Even apart from the dubious factual predicate for any such argument, *fn9" nothing in the case law that he invokes calls for such a conclusion. *fn10" Having said all that, however, this Court need not resolve this matter based on any perceived lack of entitlement on Quinn's part to the protections of ...


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