Judges uphold $600k sanction for contempt

After initially vacating a District judge’s $600,000 sanction against SonCo Holdings for contempt of court and remanding it to the lower court for more proceedings, the 7th Circuit Court of Appeals upheld the sanction Friday.  

Securities and Exchange Commission v. First Choice Management Services Inc., et al., 12-3308, comes before the federal appellate court for a second time in less than a year. In May 2012, the Circuit judges ruled Judge Robert L. Miller didn’t fully explain why he imposed the $600,000 sanction against SonCo, so they vacated the sanction. They sent the matter back to the judge to impose the sanction he imposed upon demonstration that it is a compensatory remedy for a civil contempt after all; impose a different or even no sanction, whether for civil contempt or for misconduct not characterized as contempt; or proceed under the rules governing criminal contempts.

As part of a settlement SonCo entered into with the receiver of First Choice Management Services, SonCo agreed to replace ALCO Oil & Gas Co.’s $250,000 cash bond with the Texas Railroad Commission. ALCO operated oil and gas leases in Texas, and SonCo claimed to have a valid legal interest in the leases that were obtained through a sham organization that defrauded victims out of millions.

SonCo never obtained the bond to replace ALCO’s bond and did not obtain the railroad commission’s authorization to operate the wells by a final deadline imposed by Miller. SonCo had paid the receiver the $600,000 for a quitclaim assignment of the leases, which Miller allowed the receiver to keep as a sanction.

In Friday’s decision, the judges found Miller explained and ALCO and the receiver were able to demonstrate that $600,000 is a “gross underestimate of the harm caused by SonCo’s contempt.” A plausible estimate of the total harm is actually closer to $2 million, Judge Richard Posner wrote, meaning SonCo has gotten off lightly.

“The district judge remarked SonCo’s ‘record of truly brazen intransigence’ in this protracted proceeding. That is an understatement. SonCo will be courting additional sanctions, of increasing severity, if it does not desist forthwith from its obstructionist tactics,” he wrote.