QUESTION: I have been appointed receiver in a case involving contentious litigation over a business. The defendant has appealed my order of appointment. The defendant has also repeatedly violated the injunction issued along with my appointing order and has refused to turn over or account for receivership property. Because of the defendant’s conduct, at my request, the court issued an order to show cause why the defendant should not be held in contempt. Given the defendant’s conduct, is there an argument that his appeal should be dismissed because he has refused to comply with the lower court’s orders?
ANSWER: Yes. Indeed, two very recent cases, one from the California Court of Appeal and the other from a bankruptcy court in Washington, both discuss the “disentitlement doctrine,” which provides that an appellate court has the inherent power to dismiss an appeal by a party who refuses to comply with a lower court order. In the state court case, Stoltenberg v. Ampton Investments, Inc., et al., 215 Cal App 4th 1225 (2013), an individual and a corporate defendant appealed a California judgment but did not post a bond to stay enforcement of the judgment. The plaintiff obtained a sister state judgment in New York and served the defendants with a subpoena seeking financial information. The defendants did not comply with either the subpoena or a later court order compelling them to respond, and the trial court in New York held the defendants in contempt. Because of the defendants’ non-compliance with and contempt of the New York orders, the plaintiffs filed a motion to dismiss the defendants’ appeal. The court of appeal held that it had the inherent power, under the disentitlement doctrine, to dismiss an appeal by a party that refuses to comply with a lower court order. It also held that no formal judgment of contempt is required. An appellate court may dismiss an appeal where there has been willful disobedience of a lower court’s orders or obstructive tactics. The court stated that the basis for this inherent power is that a “party to an action cannot, with right or reason, ask the aid and assistance of a court in hearing his demands while he stands in an attitude of contempt to legal orders and processes of this state.” The court also held that the fact that the orders being violated were issued by a New York court did not matter because it was trying to enforce a judgment from California and, even if it were not, the New York orders should be given full faith and credit and treated no different than ones entered in California. The court finally noted that the disentitlement doctrine has been applied in a number of cases in which a judgment debtor seeks to frustrate or obstruct legitimate efforts to enforce a judgment, including receivership actions.
In the bankruptcy case, In Re Mastro, __ B.R. __, 2013 WL 623097 (W.D. Wash. 2013), the debtors appealed the involuntary bankruptcy filed against them. In the case, the bankruptcy court had ordered the debtors to turn over two large diamond rings, but they refused to do so. They were ordered to pay a monetary sanction and again ordered to turn over the rings and refused to comply. The court issued an order to show cause why sanctions, including incarceration, should not be imposed, and the debtors continue to defy the court. They refused to appear at scheduled hearings and refused to turn over the rings. The court ultimately issued bench warrants for their arrest and they fled. They were later arrested with 200 pieces of jewelry, including the two rings, and were indicted for bankruptcy fraud and money laundering. The trustee moved to dismiss the debtors’ appeal of the involuntary based on the fugitive disentitlement doctrine, which provides that a fugitive should not be able to exploit judicial resources to his or her advantage in one matter while scoffing at them in another. The doctrine has been expanded to bar fugitives from seeking relief as plaintiffs in civil suits, concluding that disentitlement in criminal cases “should apply with greater force in civil cases where an individual’s liberty is not at stake.” The court held that the bench warrants issued by the bankruptcy court and the indictment stemmed from the debtors’ attempt to escape the bankruptcy judgments and that the defendants’ blatant disregard for the authority of the judicial system rendered them ineligible to pursue an appeal from the orders they were flouting.
As indicated, the disentitlement doctrine has come up in a few receivership cases. In Tobin v. Cacaus, 128 Cal. App. 2d 588 (1954), a receiver was appointed to take over certain of the appellant’s assets, and a judgment debtor exam for the appellant was scheduled. The appellant failed to appear at the examination, and a bench warrant issued for his arrest. The respondent moved to dismiss the appeal because, as of the time of the motion, the appellant had not surrendered on the warrant or otherwise satisfied the demand of the trial court for his appearance. Based on these facts, the court dismissed the appeal. See also Alioto Fish Company Ltd. v. Alioto, 27 Cal. App. 4th 1669 (1994) (ordering funds to be turned over to court-appointed receiver in protracted litigation where defendants failed to do so). The court subsequently granted a motion by the receiver to compel compliance and set sanctions. It later found that the defendants had willfully violated numerous provisions of the receivership order. The court of appeal dismissed the appeal of the order appointing the receiver based on the disentitlement doctrine. In dismissing the appeal the court noted “[a]lthough the power to stay or dismiss an appeal is typically exercised when a litigant is formerly adjudicated in contempt of court, the same principal applies to willful disobedience or obstructive tactics without such an adjudication.” Id. at 1683.