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U.S. Commodity Futures Trading Commission v. Escobio

United States Court of Appeals, Eleventh Circuit

January 6, 2020

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff - Appellee,
v.
ROBERT ESCOBIO, Defendant-Appellant, SUSAN ESCOBIO, Intervenor.

          Appeal from the United States District Court for the Southern District of Florida D.C. Docket No. 1:14-cv-22739-JLK

          Before ED CARNES, Chief Judge, BRANCH, and TJOFLAT, Circuit Judges.

          PER CURIAM:

         This case involves the enforcement of a judgment the Commodity Futures Trading Commission ("CFTC") obtained against Robert Escobio. Among other things, the judgment ordered Escobio to pay $1, 543, 892 within 10 days in restitution to the investors who fell victim to his commodity-fraud scheme. Instead of enforcing the restitution order pursuant to legal remedies provided by the Federal Debt Collection Procedures Act ("FDCPA"), the CFTC asked the District Court to enforce Escobio's payment of restitution pursuant to its civil contempt power.

         Following a show-cause hearing, the Court held Escobio in contempt for failing to pay the restitution as ordered. Rather than sanctioning Escobio's contempt, however, the District Court sua sponte modified its restitution order and required Escobio to pay $350, 000 within 10 days of its revised order, and $10, 000 per month thereafter. If Escobio failed to make any of the payments, on receipt of "written notice from the CFTC," the Court would order the U.S. Marshals Service to take him into custody and jailed.

         Escobio appeals the District Court's contempt adjudication and its sua sponte modification of the restitution provisions of its judgment. Concluding that those provisions constitute a money judgment enforceable under the FDCPA, but not by the District Court's civil contempt power, we vacate the Court's contempt adjudication and its modification of the restitution provisions of its judgment.

         I.

         A.

         This is not the first time this case has been before us. The current appeal arises from the CFTC seeking to enforce a judgment that we partially upheld. See Commodity Futures Trading Comm'n v. S. Tr. Metals, Inc., 894 F.3d 1313 (11th Cir. 2018). As we explained there, Escobio was the Chief Executive Officer and Director of Southern Trust. Id. at 1319. The CFTC, acting on a customer complaint, investigated Southern Trust and Escobio (collectively, the "Defendants") for commodities fraud. Id. at 1320. The CFTC filed suit against the Defendants alleging that they had engaged in two illegal schemes in violation of the Commodities Exchange Act ("CEA"). Id. at 1321.

         In the first, which we deemed the "unregistered-futures scheme," the CFTC alleged that the Defendants were not registered as futures commission merchants. Id. In the second, the "metals-derivative scheme," the CFTC alleged that the Defendants accepted money from investors for metals, but instead invested the money in metal derivatives. Id. In addition, the complaint alleged, the Defendants charged these investors interest for nonexistent loans. Id. at 1322.

         Following a bench trial, the District Court entered a judgment awarding restitution for losses the investors incurred from both schemes. Id. at 1328. For the metals-derivative scheme, it ordered the Defendants to pay $1, 543, 892. Id. For the unregistered-futures scheme, it ordered the Defendants to pay $559, 725. Id. The Court held the Defendants jointly and severally liable and ordered payment of the "Restitution Obligation" within ten days. The Court appointed the National Futures Association[1] as Monitor to collect and distribute the restitution payments to those who lost money in connection with the two schemes.[2] The Court ordered Defendants to cooperate with the Monitor, including executing any documents necessary to release funds for payment toward the Restitution Obligation. The Court further made each investor who suffered a loss an intended third-party beneficiary under Rule 71 of the Federal Rules of Civil Procedure. The Court also permanently enjoined the Defendants from participation in commodities trading and ordered other civil penalties, payable to the CFTC.

         Escobio appealed. On January 22, 2018, we determined that the "CFTC did not prove that the Defendants' violations in the unregistered-futures scheme caused any loss" and vacated that portion of the restitution award. Commodity Futures Trading Comm'n v. S. Tr. Metals, Inc., 880 F.3d 1252, 1268 (11th Cir. 2018).

         On rehearing on July 12, 2018, we arrived at the same outcome, but by different reasoning. S. Tr. Metals, Inc., 894 F.3d at 1313. We vacated the restitution award for the unregistered-futures scheme after determining that the registration violation did not proximately cause the loss as required by the CEA. Id. at 1335. We affirmed the restitution award for the metals-derivative scheme. Id. Our mandate issued on October 26, 2018.

         B.

         In March 2018, while Escobio's appeal was pending, the CFTC moved the District Court to issue an order requiring Escobio to show cause for his failure to pay the Restitution Obligation and the civil penalties. Escobio challenged the motion, arguing that the Restitution Obligation and the civil penalties are money judgments that cannot be enforced pursuant to the civil contempt power. The District Court decided that it could invoke the contempt power to coerce payment of the Restitution Obligation, but that it lacked any authority to coerce payment of the civil penalties. The Court reasoned that because restitution was an equitable remedy-not a money judgment-it could be enforced by the civil contempt power rather than by the remedies provided by the Federal Debt Collection Procedures Act ("FDCPA").

         The District Court then granted the CFTC's motion and ordered Escobio to show cause for his failure to pay the Restitution Obligation. The District Court held evidentiary hearings on October 24 and 25, 2018-a few months after we granted rehearing in Southern Trust Metals, but one day before we issued our mandate. During the hearing, Escobio testified that he had paid approximately $3, 525 to the restitution fund. He claimed that he could not afford to pay more than $100 per month toward the Restitution Obligation.

         On March 18, 2019, the District Court held Escobio in contempt for failing to pay the Restitution Obligation. The Court found that Escobio did not lack the ability to pay the ordered restitution in full given the significant value of his assets, discretionary spending, the benefits of his and his wife's incomes, and money received from other sources.

         1.

         Based on evidence Escobio presented, the District Court concluded that he had at least $941, 447 in assets. The Court identified the following assets:

• An individual retirement account ("IRA") worth $300, 000;
• A joint securities-investment account worth $35, 000;
• $3, 000 in a joint checking account;
• $554, 000 of equity in a co-owned Florida house;
• $21, 000 of personal property.[3]

         Escobio and his wife, Susan Escobio, jointly own the securities-investment account, the checking account, and the Florida house. Escobio argued that these joint assets are exempt under state law. He also argued that his IRA is exempt from consideration under state law.

         The District Court rejected Escobio's arguments. It reasoned that "courts have broad equitable powers to reach assets otherwise protected by state law to satisfy an order for restitution." The Court found that because Escobio withdrew approximately $250, 000 from his IRA following the entry of the final judgment, he made a "deliberate, conscious choice to pay his own expenses instead of paying the judgment." The Court ruled that "Escobio cannot insulate himself from the restitution order by keeping his assets in an IRA to spend as he chooses." The Court also found that Escobio had the "unfettered ability to withdraw money" from the joint investment and checking account. Citing to SEC v. Bilzerian, 112 F.Supp.2d 12, 27 n.29 (D.D.C. 2000), but without further analysis, the District Court determined that despite Florida's "homestead exemption," it could consider the value of Escobio's house in determining his ability to pay. The District Court also noted that Escobio provided no reason that his personal property could not be sold to satisfy the Restitution Obligation.

         2.

         The Court also considered Escobio's expenses and both of the Escobios' incomes. The Court acknowledged that Escobio makes approximately $30, 000 to $40, 000 per year as a pilot. However, the Court found that Escobio's prioritization of discretionary payments[4] as well as multiple international travel trips evidenced "willful evasion of the Court's judgment." The Court found that under "principles of equity," it could consider the income that Mrs. Escobio makes as the president of Southern Trust. The Court determined that Mrs. Escobio's income was directly attributable to "Escobio's transfer of shares (and title) to her" and that, because Southern Trust continues to operate and benefit Escobio in the same way as it did before he was barred from participating in the company, the Court could consider the benefits he derives from it.

         3.

         The District Court also considered the $200, 000 to $300, 000 in "loans" that Escobio had received from family, friends, and other unidentified sources in its determination of his ability to pay. The Court did not credit Escobio's testimony that these were repayments. Moreover, the Court reasoned, Escobio used this ...


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