Filed: Oct. 09, 1996
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 1996 Decisions States Court of Appeals for the Third Circuit 10-9-1996 Elliott v. Kiesewetter Precedential or Non-Precedential: Docket 95-3104,95-3105 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996 Recommended Citation "Elliott v. Kiesewetter" (1996). 1996 Decisions. Paper 40. http://digitalcommons.law.villanova.edu/thirdcircuit_1996/40 This decision is brought to you for free and open access by the Opinions of the United Sta
Summary: Opinions of the United 1996 Decisions States Court of Appeals for the Third Circuit 10-9-1996 Elliott v. Kiesewetter Precedential or Non-Precedential: Docket 95-3104,95-3105 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996 Recommended Citation "Elliott v. Kiesewetter" (1996). 1996 Decisions. Paper 40. http://digitalcommons.law.villanova.edu/thirdcircuit_1996/40 This decision is brought to you for free and open access by the Opinions of the United Stat..
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Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
10-9-1996
Elliott v. Kiesewetter
Precedential or Non-Precedential:
Docket 95-3104,95-3105
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1996
Recommended Citation
"Elliott v. Kiesewetter" (1996). 1996 Decisions. Paper 40.
http://digitalcommons.law.villanova.edu/thirdcircuit_1996/40
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
Nos. 95-3104 and 95-3105
___________
CONSTANCE K. ELLIOTT; PATRICIA J.
KIESEWETTER; LINTON A. ELLIOTT; CHARLES L.
ELLIOTT, individually and/or as a Minor, by
Constance K. Elliott, his Parent and
Guardian; JONATHAN B. ELLIOTT, a Minor by
Constance K. Elliott, the Parent and Guardian
vs.
WILLIAM B. KIESEWETTER, JR.
WILLIAM B. KIESEWETTER, JR. and
JAYNE H. KIESEWETTER*
(*Pursuant to Rule 12(a), F.A.R.P.),
Appellants No. 95-3104.
___________
CONSTANCE K. ELLIOTT; PATRICIA J.
KIESEWETTER; LINTON A. ELLIOTT; CHARLES L.
ELLIOTT; JONATHAN B. ELLIOTT, Minors by
Constance K. Elliott, their parent and
guardian
vs.
WILLIAM B. KIESEWETTER, JR.
JAYNE H. KIESEWETTER
WILLIAM B. KIESEWETTER, JR. and
JAYNE H. KIESEWETTER
Appellants No. 95-3105.
___________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
(D.C. Civil Nos. 93-cv-00753 and 94-cv-00576)
___________
ARGUED MARCH 4, 1996
BEFORE: MANSMANN, ALITO, LEWIS, Circuit Judges.
(Filed October 9, l996)
___________
Kenneth M. Argentieri (ARGUED)
Nicholas P. Vari
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, PA 15222
Attorneys for Appellant, William B. Kiesewetter, Jr.
Jan C. Swensen (ARGUED) Jayne H. Kiesewetter
Swensen, Perer & Johnson 624 Pitcairn Place
Two PNC Plaza Pittsburh, PA 15232
Suite 2710
Pittsburgh, PA 15222
Attorney for Appellant, Jayne H. Kiesewetter
Ronald L. Hicks, Jr. (ARGUED)
Meyer, Unkovic & Scott
1300 Oliver Building
Pittsburgh, PA 15222
Attorney for Appellees
___________
OPINION OF THE COURT
___________
LEWIS, Circuit Judge.
I.
This appeal involves a challenge to the district
court's asset freeze order arising out of certain litigation
pending in the district court between members of the Kiesewetter
family. The asset freeze order bound Appellant William B.
Kiesewetter Jr. and his wife, Appellant Jayne H. Kiesewetter
(collectively, the "Kiesewetters").
We hold that the district court did not err in entering
the asset freeze order without holding a hearing, and that it
made adequate factual findings with respect to its freezing of
William B. Kiesewetter Jr.'s assets. In addition, we will hold
that the Freeze Order properly enjoined Jayne Kiesewetter from
transferring or otherwise disposing of the assets she owned with
William B. Kiesewetter, Jr.
We also hold that the district court properly
determined that the Appellees, Constance K. Elliott, Patricia J.
Kiesewetter, Linton A. Elliott, Charles L. Elliott, and Jonathan
B. Elliott (collectively, the "Beneficiaries"), would suffer
irreparable harm without the protection of an asset freeze and
that the hardship to the Kiesewetters did not prevent entry of
the order. We will reverse the district court's waiver of the
Rule 65 bond requirement because it did not make any findings as
to the Beneficiaries' financial ability (or inability) to post
the bond. Finally, we will reject the Kiesewetters' arguments
that the asset freeze order was too broad and that it violated
their due process rights.
II.
A. The Parties and the Underlying Litigation
The parties to this appeal and the underlying
litigation are all members of the same family. The Beneficiaries
brought two actions against William B. Kiesewetter, Jr. The
first action was a demand for an accounting of their family's
assets and is premised on various claims against Mr. Kiesewetter,
alleging breach of fiduciary duties, fraud, unjust enrichment and
violations of the Uniform Gifts to Minors Act ("UGMA")
(hereinafter the "Accounting Action"). A year after filing the
Accounting Action, the Beneficiaries filed a second lawsuit
alleging that Mr. Kiesewetter and his second wife, Appellant
Jayne H. Kiesewetter, fraudulently conveyed Kiesewetter family
assets from William B. Kiesewetter, Jr.'s name into the joint or
individual name of Jayne H. Kiesewetter (hereinafter the
"Fraudulent Conveyance Action") in order to protect the assets
from a judgment in the Accounting Action.
The litigation between the Kiesewetter family members
began shortly after the death in October 1992 of Grace J.
Kiesewetter, the wife of the late Dr. William B. Kiesewetter
("Dr. Kiesewetter"). Dr. Kiesewetter had passed away years
earlier. Constance K. Elliott, Patricia K. Elliott and William
B. Kiesewetter, Jr. are the daughters and son of Dr. and Mrs.
Kiesewetter. Linton, Charles and Jonathan Elliott are the sons
of Appellee Constance Elliott and the only grandchildren of Dr.
and Mrs. Kiesewetter.
The primary dispute between the Kiesewetter family
members stems from the manner in which certain family assets,
properties and accounts were handled and managed. The
Beneficiaries allege that, prior to their deaths, Dr. and Mrs.
Kiesewetter placed substantially all of their assets into the
names of the Beneficiaries and William B. Kiesewetter, Jr. to
avoid or lessen the estate tax liability upon their respective
deaths. William B. Kiesewetter, Jr., a licensed attorney with a
masters degree in taxation, was Dr. and Mrs. Kiesewetter's
natural choice as the person to manage these assets. The
Beneficiaries allege that Mr. Kiesewetter agreed to manage the
assets on behalf of himself and the Beneficiaries. According to
the Beneficiaries, they discovered after Grace J. Kiesewetter's
death that Mr. Kiesewetter had acquired their property rights in
the family assets without their knowledge or consent.
In the Accounting Action, the Beneficiaries alleged
that Mr. Kiesewetter's mismanagement and other fraudulent conduct
resulted in the dissipation of the family assets that had been
placed in their names and that Mr. Kiesewetter was liable to them
for the value of their collective interests in those assets. The
Beneficiaries sought an accounting of the family's financial
affairs and of the UGMA accounts established for Linton A.
Elliott, Charles L. Elliott and Jonathan B. Elliott. The
Beneficiaries demanded over $5 million in compensatory damages
plus punitive damages and other equitable relief.
On December 5, 1994, a jury returned a verdict by
special interrogatories in the Accounting Action in which it
determined, inter alia, that Mr. Kiesewetter had breached various
fiduciary duties that he owed to the Beneficiaries. Evidence at
trial revealed that the Beneficiaries had held property interests
in numerous Kiesewetter family assets. These assets included
life insurance proceeds, pension proceeds, property sale
proceeds, trust funds, bonds, and various bank accounts.
At trial, the Beneficiaries established that their
collective interests in these family assets had a total principal
value of over $3.4 million. The evidence established that the
Beneficiaries' interests in these assets were placed into
accounts held only in Mr. Kiesewetter's name, and that Mr.
Kiesewetter reported in excess of $1 million in interest and
dividend income from these assets. In addition, the
Beneficiaries introduced evidence suggesting that they may have
an interest in other assets Mr. Kiesewetter acquired using a
portion of their interests in the family assets.
On December 30, 1994, Mr. Kiesewetter moved for a new
trial or alternatively for judgment notwithstanding the verdict.
None of the bases for his motion pertained to the sufficiency of
the trial evidence regarding the Beneficiaries' interests in the
family assets or the principal value of those interests. In
addition, Mr. Kiesewetter did not challenge the jury's findings
of liability on the basis that the evidence was insufficient.
B. The Asset Freeze
On December 13, 1994, the Beneficiaries moved the
district court, pursuant to its inherent equitable powers and
Rule 65, to freeze all of the Kiesewetter family assets held in
the name of or on behalf of Mr. Kiesewetter, including those
assets subject to the Fraudulent Conveyance Action. (A. 91-112).
In support of their motion, the Beneficiaries relied on facts
adduced at trial and the jury's verdict. In the motion, the
Beneficiaries stated that the purpose of the freeze order was "to
preserve the assets and properties in the possession, custody or
control of [Mr. Kiesewetter] that will be necessary to satisfy
the judgment and other equitable remedies ultimately to be
entered in [the Accounting Action] in order to make [Appellees]
whole." (A. 99). Attached to the Beneficiaries' motion was a
proposed asset freeze order, in which the Beneficiaries proposed
a freeze on all assets held in the name of or on behalf of Mr.
Kiesewetter, except for monthly payments of up to $2,000 for
ordinary living expenses, including attorneys' fees. (A. 95-97).
After Mr. Kiesewetter and Jayne H. Kiesewetter filed
separate responses in opposition to the Beneficiaries' request
for an asset freeze, the district court held two telephone
conferences with counsel to discuss the freeze order request. At
the first conference, the district court advised counsel that,
unless Mr. Kiesewetter voluntarily posted a bond in an amount
sufficient to satisfy a judgment against him in the Accounting
Action, it would enter an order granting the Beneficiaries'
freeze order request. The district court then scheduled a second
telephone conference, at which Mr. Kiesewetter was to advise the
court whether he would voluntarily post a bond.
Prior to the second conference, the Beneficiaries
submitted to the district court and all counsel a summary of the
Beneficiaries' damages for purposes of determining the bond
amount (S.A. 1-4). The summary, based upon the evidence at trial
and the jury's punitive damage award, indicated that the
Beneficiaries' total damages, with interest and capital
appreciation, equalled in excess of $6 million. Neither Mr.
Kiesewetter nor Jayne H. Kiesewetter submitted any materials to
the district court prior to the second conference.
At the second conference, Mr. Kiesewetter's counsel
stated that Mr. Kiesewetter was financially unable and personally
unwilling to post a bond for several million dollars. The
district court then ruled that it would impose a freeze on all
assets held in the name or on behalf of Mr. Kiesewetter for a
period of 30 days, during which time it would require Mr.
Kiesewetter to post a bond of $4 million. The court also ruled
that, if Mr. Kiesewetter did not file the requisite bond within
30 days, the asset freeze would remain in effect until final
disposition of both lawsuits, during which time it would permit
Mr. Kiesewetter to access funds only for ordinary and reasonable
living expenses.
On February 1, 1995, after considering the
Beneficiaries' proposed order and Mr. Kiesewetter's objections
thereto, the district court entered a freeze order against Mr.
Kiesewetter and Jayne H. Kiesewetter (the "Freeze Order"). The
Freeze Order enjoined Mr. Kiesewetter and Jayne H. Kiesewetter
from:
. . . withdrawing, transferring,
encumbering, disposing of and/or secreting
away any monies, stocks, bonds, properties
(real or personal) and/or other assets,
located anywhere and held or opened in any
capacity or name, other than payments for
[Mr. Kiesewetter's] ordinary and reasonable
basic living expenses not to exceed $2,500
per month, without the approval of the Court
or of Plaintiffs' counsel.
(A. 163). The Freeze Order also prohibited Jayne H. Kiesewetter
from disposing of her assets without proving to the district
court that the assets did not derive from Mr. Kiesewetter.
On February 3, 1995, Jayne H. Kiesewetter filed an
emergency motion for relief from the Freeze Order. In her
motion, Jayne H. Kiesewetter alleged that she controlled two
trusts and five bank accounts that provided her at least $13,000
in monthly income and were independently acquired by her. Jayne
H. Kiesewetter sought to have these assets released by the court
from its Freeze Order. In response, the district court held a
telephone conference with counsel regarding the motion. The
court then entered an order exempting these particular assets
from the Freeze Order. This order, however, contained the
proviso that Jayne H. Kiesewetter submit, within 21 days, a
verification of the noncommingling of the independently acquired
assets and of the existence of the trust agreements. Jayne H.
Kiesewetter never filed the verification.
Mr. Kiesewetter also filed a motion to modify the
Freeze Order. Mr. Kiesewetter sought an increase in the $2,500
monthly living expense cap to $9,112, as well as permission to
pay his attorneys' fees out of the frozen funds. Mr. Kiesewetter
attached an affidavit to the motion containing a schedule of Mr.
Kiesewetter's purported "ordinary and reasonable [monthly]
financial obligations." According to the schedule, Mr.
Kiesewetter's monthly living expenses include $1,500 in air
travel and rental cars, $1,288 in club dues and expenses, $650 in
groceries and $405 in self storage units. (A. 190-92). The
schedule also lists monthly expenses covering the joint
obligations of Mr. Kiesewetter and Jayne H. Kiesewetter,
including items such as $1,978/month in rent for two apartments
in Pittsburgh (even though Mr. Kiesewetter and Jayne H.
Kiesewetter are the registered owners of the Kiesewetter family
home in Pittsburgh), and $1,017/month in lawn care maintenance
for both their Pittsburgh home and their Florida condominium.
III.
The Kiesewetters argue that the district court erred by
not holding an evidentiary hearing prior to its entry of the
Freeze Order and by entering the Freeze Order without setting
forth findings of facts and conclusions of law.
A. Evidentiary Hearing
The district court entered the Freeze Order without a
hearing, determining that:
After considering such argument [in the
telephone conferences with counsel] as well
as the evidence presented at trial and by
motion or response and the jury's December 5,
1994 verdict, the Court finds that an
accounting is required in order to determine
Plaintiffs' damages, that Plaintiffs are
likely to become entitled to the encumbered
funds upon the completion of the accounting,
that Plaintiffs' damages are expected to be
at least $4 million, and that Plaintiffs will
suffer immediate and irreparable harm if no
order is issued.
(A. 157). In making its findings, the district court determined
that there were enough facts in the record to support its
conclusions and that an evidentiary hearing was unwarranted. We
review the district court's decision to issue the Freeze Order
without holding an evidentiary hearing only for an abuse of
discretion. Acierno v. New Castle County, 40 F.3d 645, 652 (3d
Cir. 1994).
In determining whether the district court should have
held an evidentiary hearing, we must focus on whether there were
any issues of fact in dispute with respect to the Freeze Order.
A district court cannot issue a preliminary injunction that
depends upon the resolution of disputed issues of fact unless the
court first holds an evidentiary hearing. Professional Plan
Examiners of New Jersey, Inc. v. Lefante, 750 F.2d 282, 288 (3d
Cir. 1984). We have recognized, however, that "a decision [to
enter an order] may be based on affidavits and other documentary
evidence if the facts are undisputed and the relevant factual
issues are resolved." Bradley v. Pittsburgh Board of Education,
910 F.2d 1172, 1175-76 (3d Cir. 1990) (emphasis added).
The Kiesewetters argue that in order to resolve the
Beneficiaries' request for the asset freeze, the district court
was forced to "resolve disputed issues of fact which directly
impacted upon the fundamental inquiry of whether Plaintiff-
Appellees will suffer irreparable harm if no injunction is
issued." Appellants' Br. 18. The Kiesewetters identified the
following "factual issues" as being in dispute: (1) whether Mr.
Kiesewetter was likely to improperly dissipate or conceal the
assets that remained in his name; (2) whether Jayne H.
Kiesewetter was likely to assist Mr. Kiesewetter in dissipating
the assets; (3) whether the Beneficiaries are likely to recover a
judgment in an amount that exceeds Mr. Kiesewetter's net worth.
Id. at 18-19.
In refusing to hold an evidentiary hearing, the
district court impliedly resolved the above "factual issues"
against the Kiesewetters. The Kiesewetters offer little to
suggest that to do so was an abuse of discretion. In addition,
close examination reveals that the Kiesewetters' "factual issues"
were either not in dispute given the facts in the record, or were
not relevant to the district court's entry of the Freeze Order.
Prior to the district court's entry of the Freeze
Order, the jury determined that the Beneficiaries were entitled
to their share of the family assets and that Mr. Kiesewetter was
liable for the dissipation of those assets. In addition, the
jury determined that Mr. Kiesewetter had fraudulently obtained
the Beneficiaries' interest in the family assets, that he had
unjustly enriched himself at the Beneficiaries' expense and that
his conduct was sufficiently outrageous to warrant the imposition
of $500,000 in punitive damages. Thus, the Kiesewetters' first
"factual issue" was not improperly ignored by the district court.
It was hardly an abuse of discretion for the district court to
conclude, based on Mr. Kiesewetter's prior course of conduct with
respect to the family assets, that he was likely to dissipate the
remaining assets if he was not restrained from doing so.
The second factual issue raised by the Kiesewetters,
whether Jayne H. Kiesewetter was likely to assist Mr. Kiesewetter
in dissipating the assets, is in dispute but does not preclude
entry of the Freeze Order. The existence of this factual issue
does not mandate a finding that the district court could not have
entered, without a hearing, a freeze order enjoining Mr.
Kiesewetter. There are facts in the record that indicate that
there is a strong likelihood that Mr. Kiesewetter will, if he is
not enjoined, transfer additional assets to Jayne H. Kiesewetter
to avoid payment of a judgment in the Accounting Action. In the
Fraudulent Conveyance Action, Mr. Kiesewetter admitted that he
had transferred most, if not all, of the fraudulently obtained
family assets to joint ownership with Jayne H. Kiesewetter. (A.
75-76). Further, in response to the Beneficiaries' motion for an
asset freeze, Mr. Kiesewetter acknowledged that he was aware
that, in Pennsylvania, his conveyance of the family assets to
joint ownership with his wife, Jayne H. Kiesewetter, caused the
assets to become tenants by entireties property. (A. 126). Mr.
Kiesewetter was also aware that tenants by entireties property is
protected under Pennsylvania law from any judgment which might be
rendered against an individual spouse. (A. 126).
The third factual issue that the Kiesewetters claim the
district court resolved against them was never in fact resolved
by the district court in its entry of the Freeze Order. The
district court's entry of the Freeze Order was not based on an
evaluation of Mr. Kiesewetter's net worth. Mr. Kiesewetter
refused to post the $4 million bond, perhaps leading the court to
consider whether he would ultimately be able to satisfy a multi-
million dollar judgment. A district court is clearly permitted
to consider the likelihood that a defendant will be able to pay a
judgment in determining whether to enter an asset freeze order.
See Hoxworth v. Blinder, Robinson & Co., Inc., 903 F.2d 186, 205
(3d Cir. 1990). Further, the Freeze Order was entered to
preserve what remained of the family assets. The evidence at
trial revealed that the total principal value of the family
assets to which the Beneficiaries had an interest equalled over
$3.4 million. Adding the jury's punitive damages award and a
potential interest award, the district court set the $4 million
bond amount, reasonably approximating the amount of the judgment
that would ultimately be entered against Mr. Kiesewetter. The
court made no finding with respect to whether this amount
exceeded Mr. Kiesewetter's net worth.
As such, we conclude that the district court did not
abuse its discretion in refusing to hold an evidentiary hearing
prior to its entry of the Freeze Order enjoining Mr. Kiesewetter.
B. Factual Findings -- Rule 52(a)
Rule 52(a) provides that "in granting or refusing
interlocutory injunctions the court shall . . . set forth the
findings of fact and conclusions of law which constitute grounds
of its actions." Fed. R. Civ. P. 52(a). The Supreme Court has
recognized the importance of requiring district courts to comply
with Rule 52(a), stating that:
It is of the highest importance to a proper
review of the action of a court in granting
or refusing a preliminary injunction that
there should be fair compliance with Rule
52(a) of the Rules of Civil Procedure. . . .
[I]f appellants conceived themselves
aggrieved by the action of the court upon
motion for preliminary injunction, they were
entitled to have explicit findings of fact
upon which the conclusion of the court was
based. Such findings are obviously necessary
to the intelligent and orderly presentation
and proper disposition of an appeal.
Mayo v. Lakeland Highlands Canning Co., Inc., 309 U.S. 310, 316-
317 (1940). We have recognized the continuing import of the
Court's fact finding requirements in Mayo.
Bradley, 910 F.2d at
1178. We have held that a district court's order must be vacated
if its findings "are inadequate to explain the basis for [its]
ruling or to permit meaningful review" of its ruling.
Professional Plan
Examiners, 750 F.2d at 289.
The Kiesewetters argue that "Rule 52(a) has been
flaunted" because the district court did not make adequate
factual findings supporting its Freeze Order. Reply Br. 13. In
entering the Freeze Order, the district court found that: (1) An
accounting was required in order to determine the Beneficiaries'
compensatory damages; (2) the Beneficiaries were likely to become
entitled to the encumbered funds upon completion of the
accounting; (3) the Beneficiaries' damages were expected to be at
least $4 million; and (4) the Beneficiaries would suffer
immediate and irreparable harm if no order was issued. (A. 157).
The district court indicated that these findings were based upon
the evidence presented both at trial and by motion or response,
as well as on the jury's verdict.
The Kiesewetters have not identified what particular
factual findings were not made by the district court, nor have
they challenged the propriety of the district court's findings.
Instead, they assert in conclusory fashion that "the District
Court did not state its findings of fact in this case."
Appellants' Br. 20. We construe this argument as an argument
that the factual findings made by the district court failed to
satisfy the requirements of Rule 52(a).
In determining whether a district court has made
adequate findings supporting the issuance of an injunction, we
have "looked to see whether the record provides a sufficient
basis to ascertain the legal and factual grounds for the grant or
denial of the injunction." Bradley, 910 F.2d at 1178-79. In
cases in which a jury has issued a verdict, the jury's resolution
of factual and legal issues in reaching the verdict can properly
serve as a basis for the district court's issuance of an
injunction. See, e.g., Educational Testing Services v. Katzman,
793 F.2d 533, 546 (3d Cir. 1986); Danny Kresky Enterprises Corp.
v. Magid,
716 F.2d 206, 214-15 (3d Cir. 1983).
In this case, the district court's factual findings
were sufficient to support the entry of the Freeze Order. The
district court entered the Freeze Order only after the jury found
that the Beneficiaries had a legitimate interest in the
Kiesewetter family assets and that Mr. Kiesewetter, in acquiring
the Beneficiaries' interests in the assets, had breached his
fiduciary duties, committed fraud, and unjustly enriched himself.
Thus, the factual findings underlying the jury's verdict were
properly used by the district court to support its entry of the
Freeze Order. The facts supporting the jury's verdict, along
with the facts found by the district court, clearly provide the
legal and factual basis for the district court's issuance of the
injunction and, as such, satisfied the requirements of
Rule 52(a).
Accordingly, we reject the Kiesewetters' argument that
the district court abused its discretion by not making adequate
factual findings in support of its issuance of the Freeze Order.
IV.
The district court's Freeze Order was directed in part
at Jayne H. Kiesewetter, providing that:
This freeze order does not affect any
accounts that involve monies, properties or
other assets that belong to Jayne H.
Kiesewetter which she acquired independently
from Mr. Kiesewetter. However, during the
period of this freeze order, Jayne H.
Kiesewetter shall not be permitted to make
any withdrawals, transfers, encumbrances or
other dispositions of such independently-
acquired assets until she files with the
Court and serves on Plaintiffs' counsel an
accounting of such assets, which shall
include the location, identity and
origin/source of such asset.
Dist. Ct. Order. 3 (emphasis added).
The Kiesewetters argue that the district court erred in
not making any findings with respect to the Beneficiaries'
likelihood of success on the merits against Jayne H. Kiesewetter
in the Fraudulent Conveyance Action or the Accounting Action.
The Beneficiaries suggest that, because both Mr. Kiesewetter and
Jayne H. Kiesewetter admitted that Mr. Kiesewetter transferred
some of the family assets from Mr. Kiesewetter's ownership to
Jayne H. Kiesewetter's ownership, Jayne H. Kiesewetter will
ultimately be liable to the Beneficiaries.
In entering the Freeze Order, the district court
concluded that "[p]laintiffs are likely to become entitled to the
encumbered funds upon completion of the accounting, that
Plaintiffs damages are expected to be at least $4 million, and
that Plaintiffs will suffer immediate and irreparable harm if no
order is issued." (A. 157). The "encumbered funds" that the
district court referred to included assets that were jointly held
in the names of William B. Kiesewetter and Jayne H. Kiesewetter.
Thus, implicit in the district court's conclusion that the
Plaintiffs will become entitled to the encumbered funds is a
finding that the Beneficiaries will likely succeed on the merits
in the Fraudulent Conveyance Action.
We conclude that the district court's finding is
warranted. Under Pennsylvania law, "[w]hen a creditor
establishes that a grantor was in debt at the time of the
conveyance, the burden shifts to the grantees to establish by
clear and convincing evidence, either that the grantor was then
solvent and not rendered insolvent by the conveyance, or that he
received fair consideration for the conveyance." Coscia v.
Hendrie, 629 A.2d 1024, 1026 (Pa. Super. 1993) (citation
omitted); see also Stinner v. Stinner,
446 A.2d 651 (Pa. Super.
1982); United States v. Purcell,
798 F. Supp. 1102 (E.D. Pa.
1991), aff'd,
972 F.2d 1334 (3d Cir. 1992) (Table). As
Plaintiffs point out, they established that William B.
Kiesewetter unlawfully obtained the family assets, and he and
Jayne H. Kiesewetter admit that William transferred most of these
assets held in his sole name to his joint name with Jayne. There
is ample evidence from which the district court could have found
that William was in debt to plaintiffs at the time of the
transfers. The burden of establishing otherwise, or of showing
that the conveyances were supported by consideration, then
shifted to Jayne. Jayne H. Kiesewetter offered no evidence as to
William's continued solvency, and she presented no evidence to
the district court suggesting that William's transfer of the
family assets to her was supported by any consideration.
Indeed, plaintiffs presented evidence during the trial in the
accounting action that William's movement of the family's assets
into his joint name with Jayne occurred after or about the time
when plaintiffs had employed counsel to investigate his
activities, and that William had a meeting with plaintiffs where
he failed to reveal to them the true nature of his conduct. SeeApp. 107.
For these reasons, we will not disturb the district
court's finding that plaintiffs are likely to succeed on the
merits of the fraudulent conveyance action.
V.
The Kiesewetters next argue that we should vacate the
Freeze Order because the district court erred in finding that the
Beneficiaries would suffer irreparable harm absent the Freeze
Order and in not balancing the harm to be suffered by the
Kiesewetters as a result of the Freeze Order.
A. Irreparable Harm
In Hoxworth, we recognized that a district court had
the equitable power in certain situations to protect a future
damages remedy. 903 F.2d at 197. We noted, however that this
power is far from unlimited. Specifically, we stated that:
Of course, just because a district court
enjoys the power to protect a potential
future damages remedy with a preliminary
injunction does not mean that such an
injunction is appropriate in a run-of-the-
mill damages action. The traditional
requirements for obtaining equitable relief
must be met. These include, in this context,
a showing that plaintiffs are likely to
become entitled to the encumbered funds upon
final judgment and a showing that without the
preliminary injunction, plaintiffs will
probably be unable to recover those funds.
Id.
The Kiesewetters focus on the second Hoxworthrequirement, which is
essentially an irreparable harm inquiry
(i.e., if plaintiffs cannot recover the funds absent the
injunction, they will suffer irreparable harm), arguing that "the
irreparable harm element is established by a showing that, in the
absence of an injunction, the party being enjoined is likely to
wrongfully dissipate or conceal his [or her] assets."
Appellants' Br. 25. The Beneficiaries counter by arguing that in
Hoxworth, we determined that irreparable injury exists if a
judgment will probably go unsatisfied absent an injunction.
Appellees' Br. 37.
We need not rule, in this context, on the parties'
arguments regarding Hoxworth to affirm the district court's entry
of the Freeze Order in this case. That irreparable harm would
occur absent an asset freeze is even more apparent where the very
assets subject to a potential judgment will likely be dissipated
without entry of the order. Thus, consistent with Hoxworth, we
hold that a court may find that a party seeking an asset freeze
to preserve a money judgment may show irreparable injury by
showing that the freeze is necessary to prevent the consumption,
dissipation or fraudulent conveyance of the assets that the party
pursuing the asset freeze seeks to recover in the underlying
litigation. The fact that the assets subject to the Freeze
Order are primarily money assets does not preclude entry of a
freeze order enjoining the use of those assets.
In fact, the money assets subject to the Freeze Order
will likely provide the Beneficiaries relief which is equitable
in nature. The equitable nature of the Beneficiaries' desired
relief offers an additional compelling justification for
affirming the district court's entry of the Freeze Order. The
Beneficiaries seek to have returned to them property interests in
assets that the jury determined were given to them but never
received due to Mr. Kiesewetter's unlawful conduct. Mr.
Kiesewetter admitted at trial that his sole source of income
since 1983 has derived from his "management" of the family
assets. Thus, the only way that the Beneficiaries will be able
to be made whole is by recovering what is left of the family
assets and preventing Mr. Kiesewetter from further dissipating
the assets. Given Mr. Kiesewetter's history of fraud with
respect to the family assets, it was not clear error for the
district court to conclude that the Beneficiaries would likely
suffer irreparable harm, as a result of Mr. Kiesewetter's further
dissipation of the assets, without the Freeze Order.
We emphasize that this is an extraordinary case that
demanded extraordinary measures by the district court to preserve
what was left of the family assets. Given that a jury had
already concluded that Mr. Kiesewetter has unconscionably lied to
and stolen from his family members, the district court properly
entered the Freeze Order against Mr. Kiesewetter and has properly
placed a limit on the amount that Mr. Kiesewetter can spend on
"ordinary and reasonable basic living expenses" during the course
of the litigation.
B. Balancing of Hardships
The Kiesewetters argue that the district court erred in
not balancing the hardships to the respective parties before
entering the Freeze Order. In Hoxworth, we held that "[o]f
course a preliminary injunction causing serious injury to
defendants can be justified if it inflicts no more harm than
reasonably necessary to prevent plaintiffs who are likely to
prevail on the merits from suffering an irreparable injury." 903
F.2d at 207.
The Kiesewetters claim that Mr. Kiesewetter "is
suffering tremendous hardship" because he is "unable to meet his
monthly obligations or pay his attorneys . . . ." Appellants'
Br. 28. These obligations are detailed in his motion to increase
his monthly allowance, which is currently before the district
court. As we noted earlier, these obligations include $1,500 per
month in air travel and rental car expenses, $1,300 per month in
club dues and expenses, $405 in self-storage unit rental costs,
and approximately $1,000 in lawn care and maintenance expenses
for two residences in Pittsburgh and Florida. In addition, Mr.
Kiesewetter's obligations include rent payments on two apartments
in Pittsburgh approximating $2,000, despite the fact that he and
Jayne H. Kiesewetter are the registered owners of a home in
Pittsburgh. Finally, the Kiesewetters, in their hardship
discussion, fail to mention that Jayne H. Kiesewetter (Mr.
Kiesewetter's wife) receives at least $13,000 a month from assets
not effected by the Freeze Order.
We cannot conclude that the Freeze Order, which may
prevent Mr. Kiesewetter from covering the above living expenses,
constitutes a hardship that outweighs the potential harm faced by
the Beneficiaries, who have already lost a considerable portion
of their collective interests in the family assets due to Mr.
Kiesewetter's blatant fraud. The inability to spend over $6,000
a month on primarily luxury expenses does not strike us as a
hardship. We are, however, unwilling to conduct our own analysis
of whether Mr. Kiesewetter's claim that he is harmed by not being
able to meet his monthly obligations is valid. The district
court presumably is conducting such an analysis in its
consideration of Mr. Kiesewetter's motion to increase his monthly
amount. As such, we will not vacate the Freeze Order on the
grounds that the district court failed to balance the hardship to
the parties involved.
VI.
The district court, in its Freeze Order, waived the
requirement that the Beneficiaries post a security bond.
Specifically, the court held:
The posting of security pursuant to
Fed.R.Civ.Proc. No. 65(c) is hereby waived in
light of the equitable and substantial nature
of Plaintiffs' claims against Mr.
Kiesewetter, the jury's December 5, 1994
verdict finding against him with respect to
all such claims, and the lack of proof by Mr.
Kiesewetter as to any hardship on him as a
result of this freeze order.
Dist. Ct. Order 5.
The Kiesewetters argue that, because of the financial
harm that Mr. Kiesewetter suffered as a result of the Freeze
Order, the district court's waiver of the requirement that the
Beneficiaries post a security bond was error. Rule 65(c) of the
Federal Rules of Civil Procedure provides in pertinent part that:
(c) Security. No restraining order or
preliminary injunction shall issue except
upon the giving of security by the applicant,
in such sum as the court deems proper, for
the payment of such costs and damages as may
incurred or suffered by any party who is
found to have been wrongfully enjoined or
restrained.
Fed.R.Civ.P. 56(c).
We have strictly interpreted the bond requirement of
Rule 65(c) and have recognized that such a bond "provides a fund
to use to compensate incorrectly enjoined defendants." Hoxworth,
903 F.2d at 210 (quoting Instant Air Freight Co. v. C.F. Air
Freight, Inc.,
882 F.2d 797, 805-06 n.9 (3d Cir. 1989)). In
Hoxworth, we noted that, "[w]hile there are exceptions, the
instances in which a bond may not be required are so rare that
the requirement is almost mandatory."
Id.
Notwithstanding our strict reading of Rule 65(c), we
have indicated that there may be instances in which a strict
reading of the rule is not appropriate. In Temple University v.
White, we explicitly recognized an exception to the Rule 65(c)
bond requirement.
941 F.2d 201, 219 (3d Cir. 1991). Relying on
an approach articulated by the First Circuit, in Temple
University we determined that, "at least in noncommercial cases,
the court should consider the possible loss to the enjoined party
together with the hardship that a bond requirement would impose
on the applicant."
Id. (quoting Crowley v. Local No. 82,
Furniture & Piano,
679 F.2d 978 (1st Cir. 1982)). Thus, the
Temple University exception involves a balance of the equities of
the potential hardships that each party would suffer as a result
of a preliminary injunction. Where the balance of these equities
weighs overwhelmingly in favor of the party seeking the
injunction, a district court has the discretion to waive the Rule
65(c) bond requirement.
In this case, the district court made no findings
regarding the Beneficiaries' financial ability to post the bond.
The district court based its waiver on "the equitable and
substantial nature of Plaintiffs' claims against Mr. Kiesewetter,
the jury's December 5, 1994 verdict finding against him with
respect to all such claims, and the lack of proof by Mr.
Kiesewetter as to any hardship on him as a result of this freeze
order." The district court's failure to make findings regarding
Beneficiaries' potential financial hardship suggests that it did
not adequately perform the balancing of equities required to find
a Temple University exception to the Rule 65(c) bond requirement.
Thus, we will reverse the district court's waiver of
the security bond and remand the case so that the district court
can determine whether a balance of the potential hardships to
both parties weighs in favor of the Beneficiaries. See Temple
University, 941 F.2d at 220 n.28 (concluding that the proper
remedy of a district court error in waiving the Rule 65(c) bond
requirement necessitates a remand for reconsideration).
In so holding, we make no judgment as to whether the
actual waiver was appropriate. We reverse only on the basis that
the district court failed to make findings regarding the
financial hardships that a bond requirement would impose upon the
Beneficiaries. We have consistently determined that strict
adherence to the requirements of Rule 65(c) is necessary to
combat rash, baseless applications for preliminary injunctions.
As such, we must ensure that the exception we have set forth in
Temple University remains a narrow exception. Because departure
from the bond requirement is rare, we hold that a district court
must make specific findings, in granting a Temple Universityexception,
regarding the relative hardships to each party.
VII.
The Kiesewetters restate their arguments with regard to
the district court's refusal to hold an evidentiary hearing prior
to entry of the Freeze Order and argue that the refusal amounted
to an unconstitutional denial of their due process rights. The
Kiesewetters remind us that "[f]undamental concepts of due
process require that a person may not be deprived of his property
without first being afforded the opportunity to be heard."
Appellants' Br. 32, citing Simmerman v. Corino, 27 F.2d 58, 64
(3d Cir. 1994). The Kiesewetters suggest that they were not
permitted to address several significant factual issues prior to
issuance of the injunction.
An individual's due process right to an opportunity to
be heard does not ensure a hearing in all contexts. To so
require would grind judicial and administrative gears to a
screeching halt. Thus, an individual's due process right to an
opportunity to be heard can be preserved by courts or
administrative bodies in many different ways. The constitutional
requirements of due process are not technical, nor is any
particular form of procedure always necessary to provide due
process. Mitchell v. W.T. Grant Co., 416 U.S. 600, 609 (1974).
We are convinced that the Kiesewetters had several
opportunities to be heard, and as such did not suffer a denial of
their due process rights. The Kiesewetters had many
opportunities to respond both in writing and orally to the
district court before its entry of the Freeze Order. In fact,
both William B. Kiesewetter, Jr. and Jayne H. Kiesewetter
submitted written responses after the Beneficiaries filed their
request for an asset freeze. In addition, the Kiesewetters'
counsel were present during the conferences held on January 20
and 25, 1995, and both parties had the opportunity to file
objections to the proposed orders prior to the district court's
final entry of the Freeze Order. Finally, both Mr. Kiesewetter
and Jayne H. Kiesewetter have filed requests to modify the Freeze
Order. In fact, Jayne H. Kiesewetter has already requested and
received relief, based on her due process rights, from the
district court with respect to assets that she independently
acquired. (A. 170).
Clearly, the Kiesewetters had ample opportunity to
challenge the district court's entry of the Freeze Order. As
such, we reject the Kiesewetters' argument that the district
court deprived them of their due process rights.
Finally, the Kiesewetters argue that the relief
provided by the Freeze Order "goes well beyond the proper purpose
of preserving the status quo." Appellants' Br. 34. We have
recognized that an injunction should be designed to preserve the
status quo and should not be punitive in nature. CFTC v.
American Metals Exchange Corp., 991 F.2d 71, 79 (3d Cir. 1993).
The Freeze Order in this case does no more than
preserve the Kiesewetter family assets from further dissipation
by the Kiesewetters. It merely attempts to ensure that the
Beneficiaries receive some legal and equitable relief once the
accounting is completed. This is precisely what an asset freeze
should accomplish. Id. at 79. As stated before, because Mr.
Kiesewetter has a motion pending before the district court with
respect to whether the $2,500 limit on his monthly spending
should be increased, we need not address in this appeal the
Kiesewetters' argument that the Freeze Order's restriction on Mr.
Kiesewetter's ability to meet his financial obligations
impermissibly amounts to punishment, rather than preservation of
the status quo. We find that the district court's Freeze Order,
including the $2,500 spending limit, did nothing more than
attempt to preserve the status quo and was supported by facts in
the record.
VIII.
We hold that the district court properly concluded that
the Beneficiaries would suffer irreparable harm without the
protection of the Freeze Order and that the potential hardship to
the Kiesewetters did not preclude entry of the order.
Accordingly, we will affirm district court's entry of the Freeze
Order. Finally, we hold that the district court's waiver of the
Rule 65 bond requirement was error because it did not make
findings as to the Beneficiaries' financial ability (or
inability) to post the bond. We will thus reverse the district
court's order in this regard and remand for reconsideration.
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