Free Reply to Response to Motion - District Court of Arizona - Arizona

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MICHAEL S. REEVES, ESQ. State Bar Number: 010420 1212 East Osborn Phoenix, Arizona 85014 Tel: [602] 604-7577 Fax: [602] 604-7555 Attorney for Ronald Holt UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Securities and Exchange Commission, Plaintiff ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CV 03-1825 PHX PGR

Vs. Ronald Stephen Holt; and International Funding Associations, and Defendants.

Related Cases Commodities Futures Trading Commission v. Ronald Holt, et al, CV 03-1826 Investors in IFA, et al, v. International Funding Association, et al, CV 03-1302

Annette Holt; American Assets Limited Trust; Leonora Street Trust; Dover Childrens Trust; Clarendon Avenue Holding Trust ; Duplin Holding Trust; Jeffery Williams (aka Jeffrey Williams); Mari Ann Alston; Pacific Central Asset Management; and American Benefit Card Service, Inc., Defendants Solely for Purposes of Equitable Relief.

DEFENDANT'S REPLY TO PLAINTIFF'S RESPONSE TO DEFENDANT RONALD STEPHEN HOLT'S EMERGENCY MOTION FOR RELEASE

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Defense hereby replies to the Response (Response) filed by the Securities and Exchange Commission, other plaintiffs and receiver (SEC) to Defense's emergency release Motion (Motion). The SEC's arguments against releasing Ronald Holt are ill founded and do not support re-incarcerating Mr. Holt. We urge that Mr. Holt remain free because Mr. Holt's prior incarceration period exceeded time limits allowable under 28 U.S.C. §1826. This reply is supported by the attached Memorandum of Points and Authorities.

Case 2:03-cv-01825-PGR

Document 285

Filed 02/21/2006

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MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION The law requires that Ronald Holt remain out of custody. As Defense argued in our original Motion seeking his release, 18 U.S.C. §1826 strictly limits incarceration for civil contempt to 18 months, and Mr. Holt's period of incarceration surpassed that limit. Moreover, the SEC's arguments for ongoing incarceration are legally unsupportable because they rely on either irrelevant or invalid precedents (or no precedents at all). As there is no demonstrable,

legal basis for re-incarcerating Mr. Holt as a civil contempt sanction, we ask that the Court affirm the Order releasing him. PROCEDURAL HISTORY Defense filed an emergency Motion to release Ronald Holt on February 13, 2006, that the Court granted the same day (setting a civil contempt hearing for February 22, 2006). The SEC filed its Response opposing release on February 15, 2006. ARGUMENT A. Mr. Holt cannot be re-incarcerated for civil contempt because the duration of his prior civil contempt incarceration exceeds the period authorized by 28 U.S.C. §1826. 1. Section 1826 mandates release of civil contemnors after 18 months. As was argued

in the initial Motion, Section 1826 prohibits incarceration of civil contemnors for more than 18 months. 28 U.S.C. Section 1826(a)(2006) (in no event shall such confinement exceed eighteen months); U.S. v. Powers, 629 F.2d 619, 626 (9th Cir. 1980). ("The period of confinement cannot, however, exceed the shorter of the life of the court proceeding or eighteen months."); In the Matter of Younger, 986 F.2d 1376, 1378 (11th Cir. 1993) (`By its clear language, 28 U.S.C. §1826(a) requires that the term be limited by the lesser of the duration of the bankruptcy case or eighteen months."). See also U.S. v. Mitchell, 556 F.2d 371, 385 (6th Cir. 1977) ("we find that the civil contempt was invalid to the extent it exceeded 18 months, which period must be credited against the defendant' sentences."). Further indicating the limit's mandatory nature is s

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the fact that Section 1826 itself requires that appeals from contempt findings be heard promptly, and not more than 30 days after filing date. (28 U.S.C. 1826(b) ("Any appeal from an order of confinement under this section shall be disposed of as soon as practicable, but not later than thirty days from the filing of such appeal.") 2. Section 1826 applies to this case and Mr. Holt's conduct. The SEC's argument that no time limit governs the Court's civil contempt powers fails on all counts. Essentially, the SEC argues that Section 1826 does not apply here because (1) the statute does not apply to contemnors violating injunctive orders, and (2) the statute applies only to refusal to give testimony, not to refusal to comply with the Court's production/disgorgement orders. Additionally, one of the cases the SEC cites raises additional arguments worth considering, but which are still unpersuasive. We address each claim in turn. a. Section 1826 clearly applies to the Court's injunctive orders.

The claim that Section 1826 does not concern injunctive orders is absurd. Its language explicitly encompasses "any proceeding before or ancillary to any court or grand jury of the United States . . . ." 28 U.S.C. §1826(a); In re Younger, 986 F.2d at 1378 (quoting In re Martin-Trigona, 732 F.2d 170, 174 (2nd Cir. 1984) (emphasizing use of the word "any" in the statute to conclude that "[t]he use of the word `any' indicates that Congress intended this section to apply to bankruptcy proceedings.")). The one case the SEC cites to support its argument, SEC v. Princeton Economic International, Ltd., 152 F. Supp. 2d 456 (S.D.N.Y. 2001) (Princeton), is unpersuasive. There, the court refused to apply Section 1826' time limit to a civil contemnor s refusing to disgorge missing corporate assets. Its arguments against applying Section 1826' s time limits are sloppy and clearly contradict the statute's language and Congressional intent.1

The Second Circuit affirmed by arguing that, even though the incarceration sentence had exceeded 18 months, the contemnor's ongoing ability to comply with the order and large amount of money sought ($14.9 million) validated the extension. CFTC v. Armstrong, 284 F.3d 404, 406 (2nd Circ. 2002). The court did not attempt to explain why the 18 month limit was not mandatory.

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b. By its terms, Section 1826 governs all proceedings before all U.S. Courts. Initially, the Princeton court contends that Section 1826 does not expressly apply to the contempt proceeding before it because it usually governs grand jury proceedings and that the 18-month limitation applies only to grand jury proceedings. Princeton Economic International, Ltd., 152 F. Supp. 2d at 458 n.2. (citing Natural Gas Pipeline Co. of America v. Fritz, 853 F. Supp. 236, 237 (S.D. Tex. 1994)). Worse, it claims the statute is inapplicable because its language does not specifically govern the type of contempt proceeding before it. Id. ("... does not because of the ipse dixit of counsel apply to one under court order to produce missing corporate assets . . ."). As demonstrated above, the statute employs the broadest possible term - "any" - to describe its applicability. Arguing its inapplicability to district court proceedings regarding contempt orders is therefore unpersuasive (and, for the Princeton court, ignorant of governing precedent, see Martin-Trigona). c. Section 1826 codifies federal courts' common law contempt powers. The court further contends that Section 1826 is inapplicable because the contempt order in question does not mention Section 1826 and instead relies upon the inherent power of courts to hold parties in contempt. Id. (citing Sigety v. Abrams, 632 F.2d 969, 976 (2nd Cir. 1980); Dole Fresh Fruit Co. v. United Banana Co., Inc., 821 F.2d 106, 110 (2nd Cir. 1987); Quantum Corp. Funding, Ltd. v. Assist You Home Health Care Servs. of Virginia, L.L.C., 2001 WL 637387, at *1-3 (S.D.N.Y. June 8, 2001)). First, it is unlikely that any court would claim that failure to mention a statute which governs its order somehow nullifies that statute's authority over the order. Otherwise, courts could simply ignore laws by not referring to them. Second, while courts do have general contempt powers by their nature, specific codifications of those powers override general empowerment claims. See Florez-Chavez v. Ashcroft, 362 F.3d 1150, (9th Cir. 2004) (quoting U.S. v. Soberanes, 318 F.3d 959, 963 (9th Cir. 2003) ("[A]s a matter of construction, courts have

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repeatedly adhered to the fundamental canon of statutory interpretation [which] holds that, when there is an apparent conflict between a specific provision and a more general one, the more specific one governs..."). Additionally, Congress intended Section 1825 as a codification of then-existing contempt powers for federal courts. House Report (Judiciary Committee) No. 91-1549, Sept. 30, 1970 states: " TITLE III IS INTENDED TO CODIFY PRESENT CIVIL CONTEMPT PRACTICE WITH RESPECT TO RECALCITRANT WITNESSES IN FEDERAL GRAND JURY AND COURT PROCEEDINGS. AS AMENDED BY THE COMMITTEE, THE TITLE AUTHORIZES A MAXIMUM CIVIL CONTEMPT COMMITMENT OF 18 MONTHS, AND ALSO ESTABLISHES A STANDARD OF DISCRETIONARY BAIL DURING APPEAL OF A CIVIL CONTEMPT ORDER WHICH IS CONSISTENT WITH THE FEDERAL RULES OF CRIMINAL PROCEDURE." 2 U.S.Code Cong. & Ad.News, 91st Cong., 2d Sess. 4008 (1970). See In the Matter of Grand Jury Impaneled January 21, 1975 (Freedman), 529F.2d 543, 550 (3rd Cir. 1976) (citing In re Grand Jury Proceedings (Schofield), 486 F.2d 85, 88 (3rd Cir. 1973) (quoting report). The statute's broad terms underscore the fact that Congress' obvious intent was to codify existing civil contempt practice in a single statute. As Congress clearly intended to codify civil contempt practice with this statute, attempts to claim powers outside of it are untenable. d. Section 1826 clearly governs refusal to comply with production/ disgorgement orders. The SEC's claim that Section 1826 concerns only witness' testimony is also wrong, given that the statute itself (in language the SEC quotes in its Response) provides "[w]henever a witness in any proceeding before or ancillary to any court or grand jury of the United States refuses without just cause shown to comply with an order of the court to testify or provide other information, including any book, paper, document, record, recording or other material . . . ." Again, the statute's broad terms clearly encompass the matters here.

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B. Mr. Holt has fully complied with the Court's Order and should not be further coerced to do the impossible. Mr. Holt has complied with all of the terms of the Court's 7/27/04 Contempt Order save disgorgement of the $3 million dollars. Undersigned counsel has previously notified the Court in the 1/3/06 Motion to Extend Furlough and to Reconsider Order Holding Ronald Holt in Civil Contempt that Mr. Holt does not have any of the $3 million dollars, yet the SEC continues to allege, without evidence, that he does. The SEC has agreed previously that the money was transferred to a transfer agent in Oregon and from Oregon the money went to the Bahamas. Mr. Holt has surrendered to the Receiver's inspection and possession all of his assets and records. There are no records indicating that Mr. Holt retains any control over the $3 million dollars. Requiring demonstration that he does not have the $3 million dollars is to demand he prove a negative, something he should not have to do. Sissoko v. Rocha, 412 F.3d 1021, 1036 (9th Cir. 2005) ("[F]airness and common sense often counsel against requiring a party to prove a negative fact . . . ."). CONCLUSION Defense respectfully requests that the Court affirm its Order releasing Mr. Holt and find that he has purged his contempt through compliance with that Order or that he can no longer be held in custody pursuant to 28 U.S.C. §1826. Dated: February 21, 2006 _/s/_______________________________________ MICHAEL S. REEVES CERTIFICATE OF SERVICE I hereby certify that on this date, February 21, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of Notice of Electronic Filing to the following CM/ECT registrants: Marshall Gandy Merwin D. Grant Patrick M. Murphy

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by:

/s/ Michael S. Reeves

I hereby certify that on February 21, 2006, I served the attached document by U.S. mail, fax and/or e-mail on the following, who are not registered participants of the CM/ECF System: Timothy J. Mulreany, Chief Trial Attorney Karon Powell, Trial Attorney Division of Enforcement 1155 21st Street, NW Washington, D.C. 20581 Attorneys for the Commodities Future Trading Commission Warfield & Company, CPAs 14555 North Scottsdale Rd., #340 Scottsdale, Az 85254 Receiver Thomas M. Connelly, Esq. 2425 East Camelback Road, Suite 880 Phoenix, Az 85016-4208 Susanne Ingold, Esq. Burch & Cracchiolo, PA 702 East Osborn Rd., #200 P.O. Box 16882 Phoenix, AZ 85011-6882 by: /s/ Michael S. Reeves

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