Commercial Litigation and Arbitration

What Exactly Is an “Outlaw”? — The Demise of Outlawry and Rise of the Fugitive Disentitlement Doctrine — The Latter’s Inaptness in Most Civil Cases

Niemi v. Lasshofer, 2013 U.S. App. LEXIS 18589 (10th Cir. Sept. 6, 2013):

An unconventional real estate financing scheme presents us with some unconventional legal questions. Questions ranging from whether an Austrian financier should be denied access to the American legal system because he failed to comply with an order freezing his assets worldwide -- to whether the district court had the power to issue such a far-flying order in the first place.

Our case starts in Breckenridge and lean economic times. John Niemi and his business partners set out to build a large luxury ski condominium complex in two phases, working through a set of companies controlled by Mesatex, LLC. But traditional financing proved hard to find: after completing the first phase of development they found no bank willing to loan the $220 million needed to finish the project. So they began casting about for alternative sources.

They found a shady one in Michael Burgess. A Florida businessman, Mr. Burgess claimed to represent a European investor, Erwin Lasshofer, with an easy $250 million at hand. All Mesatex had to do to secure a loan was to pay a $180,000 commitment fee and provide another $2 million as a collateral deposit. This Mesatex did, but the promised loan never materialized. Where the $2.18 million wound up is anyone's guess, but for his part in the scheme Mr. Burgess eventually found himself in federal prison serving time for fraud and money laundering.

Of course, Mr. Burgess's sentence did little to satisfy Mesatex and its investors. They wanted their money back, and damages too. So they brought this lawsuit alleging that the lost loan wrecked Mesatex's business, caused it millions in lost profits, and sent its properties into foreclosure. But for whatever reason, neither Mesatex nor any of its subsidiaries -- the only parties to the loan arrangements with Mr. Burgess -- was included as a party to this lawsuit. Instead, the suit named only Mr. Niemi, Robert Naegele, and Jesper Parnevik -- Mesatex's investors -- as plaintiffs. A tactical decision with consequences that will become apparent soon enough.

As defendants Mr. Niemi and his fellow investors named not just Mr. Burgess and Mr. Lasshofer. Thinking here about the relevant companies, the plaintiffs sued as well the Innovatis Group, a set of foreign companies associated with Mr. Lasshofer. Proceeding under (among other laws) the Racketeer Influenced and Corrupt Organizations Act and the Colorado Organized Crime Control Act, Mr. Niemi and the other plaintiffs demanded as much as $150 million in relief. See 18 U.S.C. §§ 1961-1968; Colo. Rev. Stat. §§ 18-17-101 to 109.

Soon enough Mr. Burgess and Mr. Lasshofer began the finger pointing. Mr. Burgess insisted he was just following Mr. Lasshofer's instructions. Mr. Lasshofer rejoined that he found himself unwittingly in business with a con man. Unpersuaded that Mr. Lasshofer was quite the innocent he claimed to be, the district court in June 2012 granted the plaintiffs' motion for a preliminary injunction, effectively freezing the worldwide assets of Mr. Lasshofer and the corporate defendants and ordering them to deposit $2.18 million in escrow pending a final judgment. It is this interlocutory order Mr. Lasshofer and the corporate defendants now ask us to undo. See 28 U.S.C. § 1292(a)(1).


Alternatively, Mr. Niemi and his colleagues suggest we still shouldn't reach the merits of the appeal because of the "fugitive disentitlement doctrine." The plaintiffs note that Mr. Lasshofer and the corporate defendants have failed to abide fully the terms of the June 2012 preliminary injunction. In fact, since we heard argument in this appeal, the district court apparently first held Mr. Lasshofer and his companies in (civil) contempt -- for failing to deposit the $2.18 million in escrow as ordered -- and then entered a default judgment against them for nearly $62 million. In the plaintiffs' view, the defendants should not be allowed to challenge on appeal the lawfulness of an order they have defied in the district court.

But the so-called "fugitive disentitlement doctrine" doesn't do nearly so much work as this. To understand the doctrine's pedigree is to understand why. At common law, when someone was charged with a crime but failed to appear for trial, he was deemed an outlaw -- a term the common law didn't use lightly. An outlaw was, literally, outside the law's protection. His goods and chattels were forfeit to the crown, he could be punished just as if he had been convicted, and -- in the earliest days -- he could be killed with impunity. 4 William Blackstone, Commentaries *319-20. Happily, the criminal law has long since abandoned outlawry. See United States v. Hall, 198 F.2d 726, 727-28 (2d Cir. 1952). But this humane advance brought with it new questions of its own. If the absconding defendant is no longer entirely outside the law's protection, the question inevitably arises: which specific legal protections is he entitled to? Surely his life now receives a degree of protection -- pursuers are supposed to try to arrest the fugitive rather than feel free to slay him on sight. 4 William Blackstone, Commentaries *320. And no trial can begin without his presence. See Crosby v. United States, 506 U.S. 255, 262 (1993); see also Fed. R. Crim. P. 43(a), (c)(1)(A). But what happens if he flees after indictment or conviction? Can he use the legal system to challenge the charges against him from the safety of his hideout? Does the law give a fleeing criminal defendant protection enough to do that? The answer courts have arrived at is a firm no, and today we call that answer by this mouthful -- the "fugitive disentitlement doctrine."

Courts adopted this rule in order to avoid turning trials and appeals into unenforceable farces. If a defendant could file motions and appeals while on the lam, the litigation risks turning into nothing more than a rigged game, a sort of no-lose proposition for the defendant in which an adverse judgment guarantees nothing but a continuation of the chase -- "heads, I win; tails you can't find me." See Allen v. Georgia, 166 U.S. 138, 141 (1897); United Elec., Radio & Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1097 (1st Cir. 1992). Contemporary fugitive disentitlement doctrine exists to rebalance the playing field, to afford courts the "discretion to refuse to hear a criminal case . . . unless the convicted party [or charged defendant] . . . is where he can be made to respond to any judgment we may render." Ortega-Rodriguez v. United States, 507 U.S. 234, 240 (1993); see also Bonahan v. Nebraska, 125 U.S. 692 (1887); Smith v. United States, 94 U.S. 97 (1876).

Precisely none of this helps Mr. Niemi and his colleagues. So far as we know, neither Mr. Lasshofer nor any of his companies has been charged with (let alone convicted of) crimes, and they aren't hiding from the law -- the usual preconditions for the doctrine's application. Instead, they seem to be in their home countries, Austria and Panama, going about their business as usual, if in contempt of civil court orders here. All this leaves the plaintiffs to argue less for an application of the fugitive disentitlement doctrine than for a serious extension of it. They want us to disentitle not a criminal in hiding, but a civil litigant who has chosen to sit defiantly at home.

That is quite a leap. To date, the plaintiffs can point to only one small step we've taken in the direction they encourage. This court has held that aliens hiding from deportation orders cannot simultaneously challenge those orders in court. We've done so explaining that the rationale underlying the doctrine in the criminal context applies with equal force in the immigration context: a fugitive alien makes the enforcement of any deportation order against him impossible, just as a fugitive defendant does with the criminal judgment against him -- in this way again turning the litigation into a one-way street. See Martin v. Mukasey, 517 F.3d 1201, 1204-05 (10th Cir. 2008); Sapoundjiev v. Ashcroft, 376 F.3d 727, 729-30 (7th Cir. 2004). The only other time we tried to extend the doctrine into the civil arena -- a case involving a civil forfeiture action itself closely tied to a criminal case -- the Supreme Court later firmly rebuffed our efforts. See Degen v. United States, 517 U.S. 820, 825 (1996), abrogating United States v. Timbers Preserve, 999 F.2d 452, 455 (10th Cir. 1993).

Even worse for the plaintiffs, the Supreme Court long ago expressly rejected the very idea they ask us to accept -- that a civil contemnor loses the right to participate further in his case because he -- as here -- failed to deposit funds in the court's registry pursuant to a court order. See Hovey v. Ellott, 167 U.S. 409, 411-14 (1897). The plaintiffs' suggestion that we turn away a civil contemnor's interlocutory appeal sits more than a little awkwardly, too, with the law's jealous insistence in other situations that a civil litigant must invite and accept contempt as the price to be paid for earning the right to pursue an interlocutory appeal. See, e.g., United States v. Copar Pumice Co., 714 F.3d 1197, 1206-07 (10th Cir. 2013).

Quite apart from these formal problems with the plaintiffs' invitation to extend into mainstream civil litigation a doctrine rooted in crime, the rationale underlying the doctrine simply isn't in play here. The reason it isn't lies in the difference between cash and the corporeal. In crime, the absence of the defending party's person prevents a trial and the execution of an adverse judgment. Any litigation could only inhere to his advantage, creating a one-way street. But the same isn't necessarily true when lucre rather than liberty is at stake. When only money is at stake, a court can usually proceed to issue an executable judgment even if the defendant chooses not to appear. Before final judgment, the court can try contempt orders to cajole his appearance and compliance. Failing that, the court can proceed to judgment without him, by entering a default judgment in a sum certain that provides the plaintiff with an executable interest in the defendant's assets. See Fed. R. Civ. P. 37(b), 55. After a final judgment, too, an absent civil defendant cannot appeal without either posting a bond or coming to court and winning a stay. See Fed. R. Civ. P. 62. In all these ways, a civil defendant's physical absence doesn't guarantee him the chance to turn proceedings into a no-lose game. After outlawry's demise, the criminal law may have needed something like the fugitive disentitlement doctrine to deal with the problem of the absent party, but mainstream civil law has evolved many rule-based solutions of its own adapted to its special circumstances to ensure evasion doesn't always pay. Our case nicely illustrates the point: the plaintiffs have already won a default judgment against the defendants in the amount of $62 million and are presumably busy working to execute that judgment, just as the law entitles them to do. See Degen, 517 U.S. at 827.

The fugitive disentitlement doctrine provides a discretionary remedy whose provenance lies in the common law or "inherent powers" of a court. Degen, 517 U.S. at 823-24. We are always hesitant about deploying authority of that kind, especially when existing rules or statutes anticipate and address the same subject. See id.; Chambers v. NASCO, Inc., 501 U.S. 32, 46-47 (1991) (inherent power to sanction bad-faith conduct "fill[s] in the interstices" of federal statutes and rules). This isn't to say a court's common law or inherent powers are always enervated when rules and statutes touch on the same subject. See Chambers, 501 U.S. at 46. Or even that the disentitlement doctrine might never come to play some role in the civil arena: we do not claim foresight enough to anticipate every contingency. But the existence of so many civil rules adapted to the particular problem the plaintiffs face in this case surely casts their demand that we dismiss this appeal before hearing it in an unattractive light.

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