881 F2d 1083 Federal Savings and Loan Corporation v. Ferm

881 F.2d 1083

Unpublished Disposition

Kimberleigh FERM, Defendant-Appellant.

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

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No. 87-6729.


United States Court of Appeals, Ninth Circuit.


Aug. 1, 1989.


Before FLETCHER and KOZINSKI, Circuit Judges, and D. LOWELL JENSEN, District Judge.*




Kimberleigh Ferm, the ex-wife of John Molinaro, a co-defendant in the action below, appeals from a preliminary injunction freezing her assets. The district court granted the injunction after evidence was uncovered that Ferm had conspired with Molinaro to conceal millions of dollars from FSLIC, in the Cayman Islands and elsewhere, in violation of a court order freezing Molinaro's assets. We affirm.



On September 12, 1986, the Federal Home Loan Bank Board (FHLBB) determined that Ramona Savings and Loan Association (RSLA) was insolvent and appointed the Federal Savings and Loan Corporation (FSLIC) as receiver. FSLIC as receiver assigned to FSLIC in its corporate capacity the right to prosecute actions arising out of the operation of RSLA.

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FSLIC filed its original complaint on September 16, 1986. FSLIC alleges that Molinaro, and other defendants below, engaged in a series of schemes to loot RSLA's assets, and that Molinaro engaged in a series of fraudulent conveyances to conceal his assets from FSLIC. FSLIC believes that Molinaro, RSLA's former president and sole shareholder, personally diverted over $11 million dollars from RSLA to himself. The amount he concealed is not definitely known.


On September 17, 1986, FSLIC obtained a temporary restraining order (TRO) and an order to show cause re preliminary injunction, which froze Molinaro's assets. The district court found that Molinaro successfully avoided personal service of the TRO and the order to show cause despite FSLIC's extreme diligence in seeking to personally serve him with process. The district court further found, however, that Molinaro and Ferm received approximately three copies of the TRO and order to show cause by mail between September 18, 1986 and September 24, 1986, when copies were served at their San Jose residence.


The district court converted the TRO into a preliminary injunction on October 30, 1986. The injunction prohibited Molinaro from selling, transferring, concealing, or dissipating, any of his assets in excess of $2,000 per month.


On September 26, 1986, Molinaro and Ferm entered into a stipulated divorce agreement. A judgment of dissolution was entered on September 30, 1986. Pursuant to the terms of the marital settlement agreement, Molinaro and Ferm agreed to divide their assets equally. No assets were identified in the agreement. The attorneys representing Ferm in the divorce proceeding knew of FSLIC's suit against Molinaro.


On September 29, 1986, Molinaro gave Ferm a grant deed to real property, which she valued at $255,000. On October 15, 1986, Ferm also deposited $1,825,420.10 in an account at Pacific Valley Bank. That same day, Ferm obtained a letter of reference from Pacific Valley Bank for use in obtaining a Cayman bank account. On October 16, 1986, Ferm withdrew $1.5 million from her Pacific Valley Bank account.


On March 31, 1987, the district court entered summary judgment against Molinaro, on FSLIC's third, fourth, and fifth causes of action, for $2 million plus interest in the sum of $183,725.24.


On April 2, 1987, Molinaro and Ferm each paid a company called International Risk Assurance $7,000 to form four to six companies, called Business Trust Organizations (BTO's), in the Turks and Caicos Islands. The shares of each BTO were owned by another BTO. Molinaro was the president and Ferm was the secretary of the BTO's.


On May 7, 1987, FSLIC filed an amended complaint naming Ferm as a defendant. The first amended complaint alleges causes of action for breach of fiduciary duties, payment of illegal dividends, fraud, conversion, and other related claims, seeking damages, imposition of a constructive trust, an accounting, a TRO, and a preliminary injunction.


The thirty-first and thirty-second causes of action are directed towards Molinaro and Ferm. Although FSLIC later amended its thirty-first claim against Ferm for fraudulent conveyance, at the time of the injunction, FSLIC's allegations against Ferm in the first amended complaint stated only that: (1) Molinaro, with knowledge that the FSLIC had filed suit against him and with intent to defraud FSLIC, conveyed real property and a promissory note to Ferm; (2) that Ferm received the transfer of cash and assets with the intent to hinder and defraud FSLIC in the recovery of its claims against Molinaro; (3) that Ferm conspired with Molinaro to hinder and defraud FSLIC in the recovery of its claims against Molinaro; and (4) that Ferm's receipt of the promissory note, in supposed discharge of marital obligations, was fraudulent because she knew that Molinaro owed FSLIC substantial sums and had been sued by FSLIC to recover such sums.


Ferm denies knowledge of the FSLIC lawsuit against Molinaro and of the TRO at the time of the divorce.


Molinaro and Ferm lived together at the Toll House Hotel in Los Gatos, California, from May 22 through June 19, 1987. During this period, they made frequent phone calls to the Cayman, Turks and Caicos Islands, obtained death certificates of two males and females, and obtained various other types of false identification.


In late June 1987, Molinaro and Ferm flew to the Cayman Islands. Ferm withdrew money from Cayman banks in cash blocks of $250,000 and placed it in a safe deposit box accessible by Ferm and "John Cook". Molinaro also took approximately $500,000, and placed it in a BTO.


Molinaro and Ferm planned to fly again to the Cayman islands on August 2, 1987. However, on July 22, 1987, Molinaro was arrested for making a passport application in the false name of John Cook.


FSLIC discovered Molinaro's and Ferm's activities at the Toll House Hotel in late September 1987.1 Within days, FSLIC applied ex parte for a TRO and order to show cause re preliminary injunction to freeze Ferm's assets to prevent further dissipation of Molinaro's assets by Ferm.2 The district court granted FSLIC's application.


After a hearing, the district court entered a preliminary injunction against Ferm on October 20, 1987. The injunction prohibited Ferm from transferring, selling, assigning, or dissipating, any assets without FSLIC's written approval, but excepted the sum of $2,000 per month. Additionally, the injunction ordered Ferm to identify the sum and location of all assets obtained from Molinaro from August 15, 1986 to the present, and required that she transfer all such sums to the Clerk of the Court.


On October 28, 1987, the district court modified the injunction, increasing Ferm's monthly allowance to $5,000 and permitting disbursement of additional sums for taxes, attorney, and emergencies upon leave of the court or stipulation of the parties.


On November 12, 1987, the district court issued findings of fact and conclusions of law re preliminary injunction.


On November 23, 1987, the district court awarded summary judgment against Molinaro, on FSLIC's first, nineteenth, twentieth, and twenty-first causes of action, for $6.4 million plus interest in the sum of $778,171.60.


Ferm timely appealed the district court's preliminary injunction on December 3, 1987. We have jurisdiction over the appeal based on 28 U.S.C. section 1292(a)(1).



A. A district court's order regarding a preliminary injunction is subject to a limited standard of review. Hunt v. NBC, No. 87-6625, slip op. at 3347-48 (9th Cir.Apr. 3, 1989). The grant or denial of a preliminary injunction can be reversed only if the district court abused its discretion. Id. (citing Caribbean Marine Services Co. v. Baldridge, 844 F.2d 668, 673 (9th Cir.1988); Zepeda v. United States Immigration & Naturalization Service, 753 F.2d 719, 724 (9th Cir.1983); Sports Form, Inc. v. United Press Int'l, Inc., 686 F.2d 750, 752 (9th Cir.1982)).


A district court may abuse its discretion in any of three ways: (1) failing to apply the correct preliminary injunction standard or applying incorrect substantive law; (2) applying the proper preliminary injunction standard in a manner that results in an abuse of discretion; or (3) basing its decision on a clearly erroneous finding of fact material to the injunction; Zepeda, 753 F.2d at 724-25. Review of fact finding is restricted to the limited record available to the district court when it ruled on the injunction. Sports Form, 686 F.2d at 753.


In reviewing the district judge's application of the preliminary injunction test to the substantive legal area and the facts of the case, the appellate court cannot reverse simply because it would have reached a different result. In order to determine whether there has been an abuse of discretion, the appellate court must determine whether the decision was based on a consideration of relevant factors and whether there has been an error in judgment, but must refrain from substituting its judgment for that of the district court's. Zepeda, supra, 753 F.2d at 725 (citing Citizens to Preserve Overton Park, Inc. v. Volpa, 401 U.S. 402, 416 (1971)).


An appeal from an order granting or denying an injunction cannot be a preview on how the appellate court will rule on the merits. Hunt, slip op. at 3348. The narrow constraints on our review of the preliminary injunction order means that our disposition provides little if any guidance on the merits of the case. Id. Indeed, "one may properly wonder whether this is an efficient use of limited judicial facilities." Id. (citing Zepeda, 753 F.2d at 724).


B. In order to obtain a preliminary injunction, the movant must satisfy one of two tests. Under the first test, the party must demonstrate (1) a strong likelihood of success on the merits, (2) a balance of harm which tips in its favor, and (3) public interest favoring the injunction. Bank of America Nat'l Trust & Savings Ass'n v. Summerland County Water Dist., 767 F.2d 544, 548 (9th Cir.1985). Under the second test, the party must show either (1) probable success on the merits and the possibility of irreparable harm, or (2) the presence of serious questions with the balance of hardships tipped sharply in its favor. Hunt, slip op. at 3348 (citing United States v. Odessa Union Warehouse Co-op, 833 F.2d 172, 174 (9th Cir.1987). "These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success on the merits decreases." Id. at 3349.


Ferm argues that the district court did not follow the proper standard for determining whether an injunction should issue. Additionally, Ferm contends that the district court abused its discretion by issuing an overly broad injunction. We disagree. The district court's findings of fact and conclusions of law demonstrate that the district court was aware of and correctly applied the proper legal standard for evaluating a preliminary injunction application. A review of the district court's injunction also reveals that the injunction was not overbroad.


C. We turn now to the application of our rules governing appellate review of a preliminary injunction to determine whether the district court applied the correct standard or whether the district court applied the correct standard in a manner that resulted in an abuse of discretion.


To determine whether an abuse of discretion occurred, we examine whether the district judge applied "an incorrect preliminary injunction standard." Zepeda, 753 F.2d at 724. Based on its evaluation of the record, the district court, in its findings of fact and conclusions of law, concluded that FSLIC would probably succeed on the merits, that FSLIC's rights would probably be defeated if the preliminary injunction were not issued, that the danger to FSLIC outweighed the foreseeable harm to Ferm, and that the injunction would aid the public interest by preserving the status quo pending a final determination.


Because the district court's order tracks the standard for issuing a preliminary injunction, Ferm cannot be arguing that the district court did not follow the proper standard. As FSLIC correctly points out, Ferm's real argument goes to the district court's evaluation of the evidence and in essence asks this Court to second guess the district court's findings.


As discussed above, however, "the reviewing court is not empowered to substitute its judgment for that of the district court." Hunt, slip op. at 3348 (citing Zepeda, 753 F.2d at 725). The narrow constraints on our review of an order granting a preliminary injunction limits us to a determination of whether the district judge applied "the proper preliminary injunction standard in a manner that results in an abuse of discretion." Zepeda, 753 F.2d at 724. We cannot and do not accept Ferm's invitation to express an opinion on the underlying merits of the case.


We conclude that the district court was justified in finding that FSLIC was entitled to an injunction under either prong of the Bank of America test. FSLIC demonstrated probable success on the merits by providing evidence that that Ferm had conspired with Molinaro to conceal millions of dollars from FSLIC, in the Cayman Islands and elsewhere, in violation of a court order freezing Molinaro's assets, that efforts to sequester assets were ongoing, and that Molinaro's assets were insufficient to satisfy his substantial and yet unquantified obligations.


FSLIC also demonstrated a possibility of irreparable injury by showing that its right to rescission and restitution would be defeated if the injunction did not issue. The probable danger that FSLIC would be unable to recoup, through rescission and restitution, monies fraudulently obtained supports a claim of irreparable injury. FTC v. H.N. Singer, 668 F.2d 1107, 1112 (9th Cir.1982).


We cannot say that the district judge abused her discretion in concluding that the balance of hardships tipped in FSLIC's favor. FSLIC was not adequately protected by the $2 million already attached because, when it obtained the injunction, FSLIC had knowledge that Molinaro's liability for assets wrongfully received from RSLA approached $11 million, not only $2 million as Ferm claims. FSLIC was also not adequately protected as to any funds that Molinaro secreted in institutions other than those known to FSLIC in the Cayman, Turks, and Caicos Islands.3 There is evidence, for example, that Molinaro wired funds to Liechtenstein and other places in Europe.4 Absent the injunction, Ferm could further conceal funds.


While the freeze order was needed to preserve the possibility of restitution and prevent further concealment, on balance, the harm to Ferm as a result of the injunction was minimal. All assets that Molinaro transferred to Ferm remained in her name, and she received the comfortable sum of $5,000 per month, not including emergencies and attorneys' fees.


The district judge also did not abuse her discretion in concluding that the preliminary injunction was in the public's interest. Based on representations by FSLIC that Molinaro wrongfully received and concealed much more than $2 million, and evidence strongly suggesting that Ferm conspired with Molinaro to conceal assets, the district judge perceived a need to preserve the status quo pending a final determination of the action. The legislative history of the statute that authorized the FHLBB to appoint FSLIC as receiver also supports the district court's conclusion. The purpose of this statute is:


to safeguard the financial integrity of FSLIC which provides savings account insurance, not only for federally chartered savings and loan associations, but for the 2,400 state-chartered associations as well. Federal insurance of savings accounts is fundamental to the financial stability of the entire savings and loan industry.... Therefore, if the ability of FSLIC to meet its insurance commitments is ever called into question, there would be serious grounds for public concern....


S.Rep. No. 1263, 90th Cong.2d Sess., reprinted in 1968 U.S. Code Cong. & Admin.News 2530, 2535 (emphasis added).


For these reasons, we conclude that the district court did not abuse its discretion in granting the injunction.


D. Ferm argues that the preliminary injunction entered against her was overbroad because it did not identify "what it is that Ferm owes FSLIC." This argument is unsound.


Federal Rule of Civil Procedure (FRCP) 56(d) requires that every order granting an injunction: (1) set forth the reasons for its issuance; (2) describe in reasonable detail the acts sought to be restrained; and (3) bind only parties to the action. Fed.R.Civ.Proc. 56(d).


The district court's preliminary injunction meets these requirements. Ferm is a party to the action and the injunction describes with specificity which of Ferm's acts were to be restrained. The district court's findings of fact and conclusions of law, lodged on the same day as the order of preliminary injunction and filed two weeks later, also sets forth the reasons why the injunction was issued.


Accordingly, we conclude that the injunction was not overbroad. See FTC v. H.N. Singer, 668 F.2d 1107, 1111 (9th Cir.1982).



We affirm the grant of the preliminary injunction.




Hon. D. Lowell Jensen, United States District Judge for the Northern District of California, sitting by designation


This disposition is not appropriate for publication and may not be cited to or by the Courts of this Circuit except as provided by Circuit Rule 36-3


Personnel there indicated that they may have prepared one or more letters for Molinaro directing the wire transfer of funds to Liechtenstein or other places in Europe


FSLIC moved for civil contempt against Molinaro concurrent with its application for an injunction against Ferm. After a hearing, the district court found Molinaro in civil contempt of the TRO and preliminary injunction entered against him


Molinaro's refusal to answer questions concerning his transfer of assets permits, as the district court acknowledged, the adverse inference that assets have in all likelihood been concealed in places unknown to FSLIC


See supra note 1 and accompanying text