Summary
recognizing that "[t]he essential elements of criminal contempt include: a clear and reasonably specific court order, knowledge or notice of the order, and willful disobedience of the order"
Summary of this case from Equal Emp't Opportunity Comm'n v. Midwest Health Inc.Opinion
No. 01-20077-01-KHV
October 18, 2001
MEMORANDUM AND ORDER
The government charges Dennis W. Vaughan, III with criminal contempt under 18 U.S.C. § 401(3). This matter comes before the Court onDefendant's Motion To Dismiss (Doc. #16) filed August 30, 2001. Defendant urges the court to dismiss the indictment because (1) it fails to allege facts sufficient to support willfulness, and (2) the underlying consent order is not clear and reasonably specific. For reasons stated below, the Court overrules defendant's motion.
Section 401 provides that "[a] court of the United States shall have power to punish by fine or imprisonment, at its discretion, such contempt of its authority, and none other, as . . . [d]isobedience or resistance to its lawful writ, process, order, rule, decree, or command." 18 U.S.C. § 401(3).
Legal Standards
The Court reviews the sufficiency of the indictment based solely on the allegations made on its face, and the Court assumes that such allegations are true. See United States v. Sampson, 371 U.S. 75, 78-79 (1962). In doing so, the Court cannot consider evidence outside the indictment. See United States v. Hall, 20 F.3d 1084, 1087 (10th Cir. 1994). An indictment is sufficient if it (1) contains the essential elements of the offense charged, (2) sufficiently notifies defendant of what he must be prepared to defend against, and (3) enables defendant to plead a judgment under the indictment as a bar to any subsequent prosecution for the same offense. See United States v. Kilpatrick, 821 F.2d 1456, 1461 (10th Cir. 1987) (citing Russell v. United States, 369 U.S. 749, 763-64 (1962) and United States v. Salazar, 720 F.2d 1482, 1486 (10th Cir. 1983)).
The test is not whether the indictment could have been made more definite and certain. Rather, before a conviction, the indictment standing alone must contain the elements of the offense intended to be charged and must be sufficient to apprise the accused of the nature of the offense so that he may adequately prepare a defense. And, after a conviction, the entire record of the case must be sufficient so as to enable the accused to subsequently avail himself of the plea of former jeopardy if the need to do so should ever arise.Id. (citing Clay v. United States, 326 F.2d 196, 198 (10th Cir. 1963) and 1 C. Wright, Federal Practice and Procedure § 125 at 364-65 (2d ed. 1982)).
Rule 42(b), Fed.R.Civ.P., governs criminal contempt. The rule requires that defendant receive notice of criminal contempt proceedings which states (1) the time and place of hearing, allowing a reasonable time for the preparation of a defense, and (2) the essential facts which constitute the criminal contempt charged and describing it as such. A formal indictment is not necessary. See Yates v. United States, 316 F.2d 718, 723 (10th Cir. 1963) (criminal contempt proceedings summary in nature and technical pleadings not required). Nevertheless, the Tenth Circuit has evaluated the Rule 42(b) notice requirements under the same standards which apply to determine the sufficiency of an indictment. See id. at 724.
Facts
The indictment alleges the following facts, which the Court assumes to be true for purposes of this ruling.
On July 25, 1997, the Federal Trade Commission ("FTC") filed a civil action against defendant in the United States District Court for the District of Kansas. See Indictment (Doc. #1) filed June 28, 2001 at 1, ¶ 1. The FTC alleged that defendant and others had conducted the businesses of Parade of Toys, Inc. ("Parade") or Wonderful World of Toys, Inc. ("Wonderful") in a manner which violated Section 5(a)(1) of the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 45(a) and the FTC's trade regulations set forth in 16 C.F.R. Part 436. See id. Specifically, the FTC alleged that defendant made false and misleading representations in the advertising, offering, sale and other promotion of display rack business ventures to the public. See id. at 1-2, ¶ 2. The FTC sought to enjoin defendant from continuing to promote business ventures in an unfair and deceptive manner. See id.
The regulations set forth in 16 C.F.R. § 436.1 are referred to as the franchise rule. They require a franchisor to provide prospective franchisees with a complete and accurate disclosure statement which contains twenty categories of information including information about the seller of the franchise, the terms and conditions of the proposed business relationship and the names, addresses and telephone numbers of a cross-section of prior franchise purchasers. See 16 C.F.R. § 436.1(a)(1)(20). In addition, a franchisor must disclose the material basis for any earnings or profit representations, the number and percentage of prior purchasers known to have earned the claimed amount and a warning that the earnings claim is only an estimate. See 16 C.F.R. § 436.2(b)-(e).
As a result of the civil lawsuit, defendant consented to judgment and a permanent injunction which was filed January 7, 1998. See id. at 2, ¶ 3; see also Consent Judgment And Order Containing Permanent Injunction Re: Defendants Wonderful World Of Toys, Inc. And Dennis W. Vaughan ("Consent Order") attached as Exhibit 3 to Government's Response And Memorandum Of Law In Opposition To Defendant's Motion To Dismiss ("Government's Response") (Doc. #19) filed September 13, 2001. The order provides the following ban on the sale of a franchise or business venture:
IT IS HEREBY ORDERED that defendants Wonderful World of Toys, Inc. a corporation, and Dennis W. Vaughan, individually and as an officer or director of [Wonderful], whether acting directly or through any business entity, corporation, subsidiary, division or other device, are hereby permanently enjoined and restrained from
A. Advertising, promoting, offering for sale or selling any franchise or business venture; or
B. Encouraging, advising, or assisting any other person or firm to advertise, promote, offer for sale or sell any franchise or business venture.Indictment at 2-3, ¶ 4; Consent Order at 3. The consent order further requires that "for seven (7) years after [entry of the order], defendant Dennis W. Vaughan shall notify [the FTC] whenever he changes or discontinues his then-current business or employment." Indictment at 3, ¶ 5; Consent Order at 3.
The consent order defines "business venture" as "any written or oral arrangement, however denominated, whether or not covered by the Franchise Rule, which consists of the payment of any consideration for:
a. the right or means to offer, sell or distribute goods or services (whether or not identified by a trademark, service mark, trade name, advertising or other commercial symbol); and
b. more than nominal assistance to any person or entity in connection with or incident to the establishment, maintenance, or operation of a new business or the entry of an existing business into a new line or type of business."Consent Order at 2.
From January 1999 until February 2000, defendant violated the consent order by selling Government Careers Center ("GCC") business ventures to the public. See Indictment at 3, ¶ 6.
During that period of time, classified ads were placed in various newspapers, seeking consumers who would open GCCs in their cities. Consumers who responded to these ads were directed to defendant. . . . [who] told consumers that GCCs were extremely lucrative ventures. The defendant employed oral misrepresentations and so-called "prospectuses" to promote the business ventures to consumers. He orally misrepresented, among other things, the number of GCC business ventures that previously had failed. The written "prospectuses" claimed that the profit potential of such ventures was extremely high, and that the consumers would receive elaborate support in the start-up of their businesses. [Defendant also referred] potential purchasers to an individual who agreed to misrepresent the success of his GCC business venture, located in the Washington, D.C., area.Id. at 3-4, ¶ 7. Defendant sold GCC business ventures to consumers in several cities, who paid for the exclusive rights to offer, sell and distribute so-called "Government Career Publications" and services in a particular city. See id. at 4, ¶ 8. In doing do, defendant furnished consumers with in-person training and videotapes on how to establish, maintain and operate their new businesses to look like government offices and mislead the public to believe that they would receive government employment if they were accepted by and paid $390 to GCC. See id. at 4, ¶ 9.
Defendant also twice violated the consent order by changing employment without notifying the FTC. See id. at 6-7, ¶¶ 13, 17, 18.
Indictment
Count I asserts that from January 1999 to February 2000 defendant "knowingly and willfully violated [the consent order] . . . by promoting, offering for sale and selling Government Careers Center business ventures on behalf of GCC, Inc., to the public . . . and by assisting other persons and firms in the promotion, offering for sale and sale of such business ventures. . . ." See Indictment at 8.
Count 2 asserts that defendant knowingly and wilfully violated the consent order in July 1999 when he failed to inform the FTC that he became employed by Government Careers Center of Greater Philadelphia, L.L.C. ("GCCGP"). See id. at 9.
Count 3 asserts that from September 1999 to October 1999 defendant "knowingly and willfully violated [the Consent Order] . . . by promoting, offering for sale and selling a Government Careers Center of Greater Harrisburg business venture on behalf of [GCCGP to certain consumers] and by assisting other persons and firms in the promotion, offering for sale and sale of such business venture. . . ." See id. at 10.
Count 4 asserts that defendant knowingly and wilfully violated the consent order in March 2000 when he failed to inform the FTC that he discontinued his business and employment with GCCGP and became employed by and began operating the business of United States Careers Center. See id. at 11.
Analysis
The essential elements of criminal contempt include: (1) a clear and reasonably specific court order, (2) knowledge or notice of the order, and (3) willful disobedience of the order. See United States v. Voss, 82 F.3d 1521, 1525 (10th Cir. 1996); Yates, 316 F.2d at 723.
I. Allegations of Willfulness
Defendant asserts that Counts 2 and 4, which charge failure to notify the FTC of job changes, are insufficient because they do not allege facts regarding defendant's state of mind. Specifically, defendant argues that the government must set forth facts tending to show that defendant specifically intended to violate the injunction when he failed to inform the FTC of his new jobs. Defendant acknowledges that it is ordinarily acceptable for the government to plead willfulness in a conclusory fashion; defendant asserts that this is not an ordinary case, however, because the underlying activity which constitutes the crime — failing to notify the FTC of a job change — is not itself a criminal act.
Defendant argues that this case is analogous to Ratzlaf v. United States, 510 U.S. 135 (1994), where the Supreme Court found that in order to convict a defendant under the anti-structuring law (which prohibits attempts to avoid bank reporting requirements regarding cash transactions over $10,000), the government must prove that defendant acted with knowledge that his conduct was unlawful, and not that defendant acted with intent to avoid the reporting requirements. The Court is not persuaded by this argument. Ratzlaf dealt with the sufficiency of the evidence and did not address whether the allegations in the indictment were adequate. Moreover, Ratzlaf decided whether the government must show that individuals charged with violating the anti-structuring law knew that their conduct was unlawful under criminal statutes — i.e., whether they knew that the criminal statutes existed. This case, on the other hand, involves a direct court order, signed by defendant, which specifically requires defendant to notify the FTC of any job change. Under these circumstances, defendant is hard-pressed to claim that he did not know or should not have known that his conduct was unlawful. See, e.g.,United States v. Themy-Kotronakis, 140 F.3d 858, 864 (10th Cir. 1998) (in context of criminal contempt, willfulness defined as "volitional act done by one who knows or should reasonably be aware that his conduct is wrongful") (quotation omitted) (evaluating sufficiency of evidence).
Ratzlaf is based upon a strict reading of the statutory language in 31 U.S.C. § 5322(a) 5324. See id. at 140-43. The Court emphasized that its decision was particular to the plain meaning of the statute then before it and stated that it did not "dishonor the venerable principle that ignorance of the law generally is no defense to a criminal charge." Id. at 149. After Ratzlaf, Congress amended the statute so that willfulness is no longer an element of a structuring offense. See Riegle Community Development Regulatory Improvement Act of 1994, Pub.L. No. 103-325, § 411, 108 Stat. 2160, 2253 (1994) (codified as amended at 31 U.S.C. § 5322(a), 5324(c)).
Several cases support the proposition that general allegations of willfulness are sufficient. See In re Grand Jury Subpoenas, 906 F.2d 1485, 1497 (10th Cir. 1990) (application for civil contempt which alleged that defendants intentionally disobeyed court order sufficiently outlined essential facts of contempt charge in compliance with Rule 42(b));Yates, 316 F.2d at 724 (order to show cause why defendant should not be held in contempt for "willfully and contemptuously" disregarding court order sufficient to inform defendant of charges against him); United States v. Walker, 137 F.3d 1217, 1219 n. 1 (10th Cir. 1998) (indictment stating defendant "willfully" transported kidnaped victim in interstate commerce sufficient); United States v. Sternman, 415 F.2d 1165, 1168 (6th Cir. 1969) (indictment alleging defendant "unlawfully, willfully and knowingly" disobeyed court order legally sufficient).
Defendant agrees that it is ordinarily acceptable to plead willfulness in a conclusory fashion. In this case, it is the existence of the prior court order which makes defendant's otherwise lawful conduct unlawful. The indictment alleges that defendant knew of that order, and that he willfully disobeyed it. These allegations are sufficient to notify defendant what he must be prepared to defend against.
II. Counts 1 and 3 — Clear And Specific Order
Defendant also argues that the consent order is not sufficiently clear and specific to support criminal contempt charges. In order to hold defendant guilty of criminal contempt, the order must be sufficiently specific to put defendant on notice that his conduct is unlawful. See Voss, 82 F.3d at 1525. The Tenth Circuit has stated:
It is, of course, well-accepted that an injunction must be worded in such specific terms and with such detail as to put the party enjoined on notice of precisely what he is called upon to do or refrain from doing. It cannot be so general as to leave the party open to the hazard of conducting business in the mistaken belief that it is not prohibited by the injunction and thus make him vulnerable to prosecution for contempt.Williams v. United States, 402 F.2d 47, 48 (10th Cir. 1967).
Defendant does not assert that the language in the order is ambiguous. Defendant contends, however, that the order is unclear in light of its background and purposes. Specifically, defendant contends that the purposes of the consent order were to (1) bar him "from continuing to promote business ventures in an unfair and deceptive manner's and (2) require him to comply with the franchise disclosure requirements in 16 C.F.R. Part 636. Memorandum of Law of Defendant Dennis W. Vaughan, III In Support Of His Motion To Dismiss ("Defendant's Memorandum") (Doc. #17) filed August 30, 2001, at 6 (quoting Indictment ¶¶ 1-2). Defendant argues that in light of this background, he "could have reasonably expected that he was responding to the complaint against him and obeying the Injunction so long as he complied with the disclosure requirements and prohibitions set forth in 16 C.F.R. Part 436."Defendant's Memorandum at 6.
Defendant cites cases which support the proposition that the Court may consider the background of the injunction when determining whether it is sufficiently specific; none of the cases, however, support defendant's position in this case. See United States v. Christie Indus., Inc., 465 F.2d 1002, 1006 (3d Cir. 1972) (where injunction gives fair warning of forbidden acts it cannot be avoided on merely technical grounds);Terminal R. Ass'n of St. Louis v. United States, 266 U.S. 17, 29 (1924) (court will not expand original decree beyond meaning of its terms when read in light of issues and purpose for which suit was brought). The consent order unambiguously prohibits defendant from advertising, promoting, offering for sale or selling any franchise or business venture or assisting others in such activities. See Consent Order at 3. Moreover, it clearly states that business ventures include "any written or oral arrangement, however denominated, whether or not covered by the Franchise Rule. . . ." Id. at 2 (emphasis added). The terms of the order are sufficiently clear and specific to put defendant on notice that his alleged conduct is unlawful. Moreover, the alleged misconduct in this case is strikingly similar to the conduct which prompted the consent order. See Williams, 402 F.2d at 49 (cannot say injunction was vague where defendant used same corporate name, same unlawful method of raising money and recited same untruths to investors).
Whether defendant misunderstood the terms of the order is a question of fact for the jury in determining willfulness.
IT IS THEREFORE ORDERED that Defendant's Motion To Dismiss (Doc. #16) filed August 30, 2001 be and hereby is OVERRULED.