Robert Hillis Miller was found by a jury to have violated federal securities laws and a $160,000 judgment was entered against him in SEC v. Miller, D.Md. Case No. DLB-19-2810 (Oct. 21, 2014). The security violations are not the subject of this article and thus we can omit them from discussion, but there is something that is very interesting about this case.
During the jury trial, Miller in his sworn testimony made it clear that he simply would not pay the judgment, stating that “[m]y assets are held by these offshore companies until I get out of this mess.” Based on Miller’s own testimony, the Court entered a order compelling Miller to bring enough of his assets back to the U.S. to satisfy the judgment against him, which is known as a repatriation order. All this brings up some interesting points of discussion.
The first thing is that some debtors feel compelled for whatever reason to announce that they will not be paying a judgment entered against them, even if they have the ability to do so. Usually, they think a creditor will hear this and become discouraged from pursuing them further. Other times, it is simply bravado. The one thing that it is certain is that this is a serious self-inflicted error by the debtor.
A judgment that is entered against a debtor is a judgment that is entered in favor of the creditor. But a judgment is also one more thing: It is the judgment of the court. Whenever a debtor is telling the creditor “Up yours!” the debtor is also essentially telling the court “Up yours!” as well. Since the court has a vested interest in seeing that its judgments are enforced ― they might as well turn off the lights and lock the doors of the courthouse otherwise ― such statements are like waiving red flags in front of a bull. A judge who hears that a debtor has stated that he will not pay the judgment will quickly go from a perhaps disinterested judge to an indeed very interested judge who will start to push the legal envelope to see that the judgment is paid to the fullest extent of the debtor’s assets.
If a debtor is ever asked whether he intends to pay a judgment, the debtor should also respond something like “yes, to the extent the law permits”. Since the creditor cannot argue that the judgment should be enforced for any more than the law permits, that will usually bring that line of questioning to an immediate close. There will be plenty of time later for counsel to argue over what the law permits or not. The point being that there is never a compelling reason for a debtor to shoot himself in the foot by stating that he has no intention of paying the judgment.
The second point is that a conditional refusal to pay a judgment ― “I’ll pay it when I get out of this mess” or at some other time ― isn’t any better than an outright refusal to pay the judgment. The liability of a debtor to pay on a judgment exists in the today and it is will not salve the court for the debtor to state his intention to pay the judgment at any later date. If anybody is going to grant any temporary relief against the enforcement of the judgment, that will by the court. A debtor cannot unilaterally determine the time when the judgment will be paid, unless the debtor wants to risk the judge’s wrath.
Changing topics, we now see one of the downsides to offshore planning: A defendant facing a jury really doesn’t want the jury to hear that the defendant has engaged in offshore planning. While offshore planning may not sound particularly onerous to sophisticated business people, to the average lay juror (somebody who has qualified for that role by being a licensed driver or registered voter) the mere mention of offshore planning usually starts them thinking that the defendant was deliberately engaged in some really wrongful conduct. This goes far beyond the old adage that “sunny climes are for shady people” and deep into the psyche of the average juror, where offshore accounts and entities are primarily used by drug dealers and people of that ilk.
This is why prosecutors and good trial lawyers will go to great lengths to get into evidence the defendant’s offshore planning, and why defense attorneys will exert themselves to the utmost to try to keep that evidence out. The latter is usually a losing battle as most judges have a “let everything in and then let the jury figure it all out” approach to jury trials, and the appellate courts are apt to dismiss a defendant’s complaints of such evidence being unduly prejudicial as being mere harmless error.
The upshot here is that a defendant who has offshore accounts and entities and who is also facing a jury trial is on the horns of a serious dilemma. If the defendant winds up all the offshore planning and bring all of her assets back to the U.S. prior to trial, the defendant’s chances of winning at trial will increase dramatically ― and, of course, if the defendant wins at trial then there may not be a need for any offshore planning against that claim. Of course, if the defendant does that and loses before the jury anyway, then the defendant will not get any asset protection benefits of the offshore planning. On the other hand, if the defendant does continue to keep offshore assets and the jury gets wind of it, then the defendant may lose a case that was otherwise winnable. Stated differently, offshore planning can perversely create a need for itself by landing the defendant with an adverse judgment that might otherwise have not occurred but for the offshore planning.
Now we come to the repatriation order itself. Such orders are ubiquitous in cases involving violations of securities laws and nearly all the initial freeze orders issued by the federal courts will come with provisions requiring the repatriation of foreign assets whether the defendant actually has such assets or not.
A post-judgment repatriation order is an order that is directed to the debtor and requires that the debtor cash out the debtor’s offshore accounts and return the assets back to the United States for the benefit of the creditor. As an order of the court, if the debtor refuses then the available remedy is contempt: The debtor can either comply, or can go sit in jail until he complies. How long can the court hold the debtor in jail? The current American record is just short of 14 years held by H. Beatty Chadwick, who never did comply with the repatriation order but by then the court determined that holding Chadwick in jail was no longer serving its coercive purpose and so let him walk. But the Chadwick case is an outlier: Most folks will just spend a night or two in jail before they decide that it is in their best interests just to bring back their offshore assets.
To be held in contempt of any court order, the order needs to be very specific as to what the debtor needs to do and when the debtor needs to do it. The order here is very general insofar as it only describes assets that are “offshore” and sets no time line for the debtor to comply with the repatriation. What usually happens in these securities fraud cases is that if the debtor does not comply with a general order within a reasonable period of time, then the court will enter a much more specific order that will later justify a contempt finding.
If Miller decides not to comply with the repatriation order then things might become much more interesting, so stay tuned.