Fireman's Fund Insurance Company v. George W. Myers, Appellant in No. 18509, and Regina Myers, Appellant in No. 18510, 439 F.2d 834 (3d Cir. 1971)

This case is here on appeal from a December 8, 1969, order of the United States District Court for the Eastern District of Pennsylvania holding George W. Myers in contempt and granting a motion for "preliminary injunction" by requiring George W. Myers and Regina Myers to deposit with the Fireman's Fund Insurance Co. the proceeds of the sale of their residence.

In 1968 the George W. Myers Co., Inc. (Myers Company) was engaged in the building contracting business. In connection with certain public contracts of the Myers Company the plaintiff, Fireman's Fund Insurance Co. (Fireman's Fund), had executed performance, as well as labor and material, bonds. The defendants, George W. Myers and Regina Myers, had executed general indemnity agreements to indemnify Fireman's Fund against liability, loss, costs, etc., incurred by Fireman's Fund by reason of execution of surety bonds. The indemnity agreements provided that if Fireman's Fund set up a reserve to cov-the bonds, the indemnitors, George W. Myers and Regina Myers, would immediately upon demand deposit with Fireman's Fund a sum equal to the amount of the reserve. The indemnity agreements also provided that the indemnitors assigned to Fireman's Fund, effective as of the date of each bond, but only in the event of default in the performance of the bonded contracts, all of their rights in the bonded contracts and in all sums due or to become due under all other contracts in which any of the indemnitors have an interest.

In the spring of 1968, Myers Company began defaulting under various bonded contracts. On or about July 18, 1968, Fireman's Fund set up reserves in the amount of $170,000.00 to cover liabilities and claims arising under the bonds. On July 19, 1968, Fireman's Fund demanded, pursuant to the general indemnity agreements, that the indemnitors, George W. Myers and Regina Myers, deposit with Fireman's Fund the amount of the reserve. The indemnitors deposited nothing. On July 30, 1968, Myers Company was adjudicated a bankrupt.

During these weeks Fireman's Fund discovered that George W. Myers and Regina Myers had entered a contract for the sale of their residence at 630 Kismet Road, Philadelphia. Fireman's Fund took the position that this contract was a contract within the scope of the general indemnity agreements, and that those agreements operated as an assignment to Fireman's Fund of the sums due under this contract. Alleging that George W. Myers had informed them that the proceeds of the sale of the 630 Kismet Road property would be removed from Pennsylvania to Florida for the purpose of purchasing a new home there, Fireman's Fund commenced the present action on August 2, 1968. Among other requested relief,¹  the complaint sought a temporary restraining order and, after a hearing, a preliminary injunction restraining the defendants from receiving the proceeds of the 630 Kismet Road property, and requiring the same to be deposited with Fireman's Fund pursuant to the indemnity agreements.

After the complaint was filed, the district court on August 2, 1968, issued a temporary restraining order restraining the defendants from disposing of the proceeds of the sale of the 630 Kismet Road property. This temporary restraining order was not continued and therefore expired by its own terms within ten days of its issuance. See generally Fed. R. Civ. P. 65(b).

On August 20, 1968, summons and a copy of the complaint were validly served upon both defendants. That same day the defendants attended a closing and received the proceeds of the sale of the 630 Kismet Road property. As noted above, the temporary restraining order, restraining the receipt by the defendants of those proceeds, had expired at least one week before the defendants attended the closing and received the proceeds.

On August 23, 1968, the district court issued a temporary restraining order, restraining the defendants from disposing of, or using for their benefit, the proceeds of the sale of the 630 Kismet Road property. The temporary restraining order, which was by its own terms to expire within ten days of its issuance, fixed September 3, 1968, as the date for a hearing on the plaintiff's motion for a preliminary injunction. On the same day, August 23, 1968, the district court also issued a rule to show cause why George W. Myers should not be held in contempt. The rule was made returnable on September 3, 1968.

On September 3, 1968, a hearing was held on the plaintiff's motion for a preliminary injunction and the rule to show cause why George W. Myers should not be held in contempt. No action was taken at that time, and both matters were continued indefinitely. There is no indication in the record that the temporary restraining order of August 23, 1968, was continued in effect. It therefore expired by its own terms within ten days of its issuance. See generally Fed. R. Civ. P. 65(b).

More than a year later, on September 25, 1969, another hearing was held on the plaintiff's motion for a preliminary injunction and the rule to show cause why George W. Myers should not be held in contempt. On December 8, 1969, the district court issued a Memorandum Opinion with an order attached, which order²  required the defendants to deposit with the plaintiff the proceeds of the 630 Kismet Road property, and held George W. Myers in contempt. From the part of the order requiring deposit of the proceeds of sale, both defendants appeal; from the part of the order holding George W. Myers in contempt, George W. Myers appeals.

At the outset we must determine whether this court has jurisdiction of either appeal. Although the issue of appealability was not briefed by the parties or presented in the oral argument before this court, we are required to raise the question sua sponte³  in light of the district court record, as supplemented by documents received in this court on February 8, 1971.

THE CONTEMPT

In order to determine whether the contempt order is an appealable final order within the conception of 28 U.S.C. § 1291 (1964), we must first determine the character of the contempt.⁴  Although the distinction between civil contempt and criminal contempt is often cloudy, the important tests in determining the character of a contempt are the nature and purpose of the punishment.⁵  Civil contempt is "wholly remedial," serves only the purpose of a party litigant, and is intended to coerce compliance with an order of the court or to compensate for damage caused by noncompliance.⁶  Criminal contempt, on the other hand, is primarily punitive rather than remedial, serves to vindicate the authority of the court, and cannot be ended by any act of the contemnor.⁷  On the basis of these principles, we conclude that the order before us is civil. Although there is language in the district court's memorandum opinion which suggests that a primary purpose of the order is vindication of the court's authority, the fact that George W. Myers can purge himself by depositing with Fireman's Fund the net proceeds of the sale of the 630 Kismet Road property convinces us that the contempt order is civil. The order is designed to coerce compliance with previous district court orders, serves only the purposes of Fireman's Fund, and does not contain unconditional punitive sanctions.

As to a party to a suit, a civil contempt order, unlike a criminal contempt order, is interlocutory and reviewable only upon appeal taken from a final judgment or decree.⁸  Since this is not an appeal from a final judgment or decree in this case, the contempt order is not a reviewable final order within 28 U.S.C. § 1291 (1964). The appeal by George W. Myers from the contempt order will accordingly be dismissed.

II

THE REQUIREMENT FOR DEPOSIT OF THE PROCEEDS OF SALE AS SECURITY

Assuming that the order requiring the defendants to deposit with Fireman's Fund the proceeds of sale of the 630 Kismet Road property, as relief incident to the application for a preliminary injunction, is a final order within the conception of 28 U.S.C. § 1291 (1964), the district court did not conform its judgment to the requirements of Rule 54(b) of the Federal Rules of Civil Procedure.⁹  The district court made no certification under Rule 54(b), and there was no request for such action by the parties. The judgment is therefore subject to revision at any time before the entry of judgment on all the claims presented in this action (see note 1 above). In this posture, the district court's order requiring the deposit of the proceeds cannot be regarded as final.

In United Bonding Insurance Co. v. Stein, 410 F.2d 483 (3d Cir. 1969), this court held that an order requiring the deposit of collateral was not appealable as an interlocutory injunction under the express provisions of 28 U.S.C. § 1292(a) (1).¹⁰  The district court and the parties in that case had characterized the order as enforcing specific performance of the parties' agreement, and had never characterized it as a preliminary injunction of a mandatory character. Almost the reverse is true in this case. But we noted in United Bonding that "the label used to describe the judicial demand is not controlling,"¹¹  and we cannot now allow form to prevail over substance.

When Fireman's Fund sought a preliminary injunction by motion on August 23, 1968, it sought an order restraining the defendants from disposing of, or using for their benefit, the proceeds of the sale, and requiring them to deposit said proceeds with Fireman's Fund as security pursuant to the indemnity agreement. At the time the district court ruled on the motion, it noted that George W. Myers had already "disposed of the proceeds of the sale." Thus it was impossible at that juncture to restrain the defendants from disposing of the proceeds, or using them for their benefit. The "irreparable harm" that had been alleged as a basis for the granting of a preliminary injunction had occurred at this point. No longer being able to afford the requested injunctive relief, the court ordered the defendants "to deposit with the plaintiff as security, the [amount of the] proceeds of the sale of 630 Kismet Road." What began as an action for injunctive relief, characterized by the elements of timely action and irreparable injury, was transformed by events and the passage of nearly 16 months into an action for specific performance.

Although the facts of this case are not precisely identical to those in United Bonding, the order appealed from is identical in substance, operation and effect to the order declared unappealable in United Bonding. The only difference in the order in this case is that it has less of a final character, being less dispositive of the substantive rights of the parties. In this posture, the order cannot be considered the "granting" of an "injunction" as contemplated by 28 U.S. C. § 1292(a) (1).

For the foregoing reasons, the appeals will be dismissed.