Grace Browne
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
Section 105 of title 11 of the United States Code (the “Bankruptcy Code”) gives the court civil contempt power.[1] In Vital Pharm. Inc. v. Owoc (In re Vital Pharm., Inc.), the United States Bankruptcy Court for the Southern District of Florida held its civil contempt power extends to parties that violate a stipulation that the Bankruptcy Court approved.[2] Specifically, in this case, an order which provided that the former CEO and SVP of Debtor, Bang Energy, would “post” content requested by the Debtors (as defined below) on the “@bangenergy.ceo” Instagram account and would refrain from posting any other content or making posts of any kind to or from such account. [3]
On October 10, 2022, Vital Pharmaceuticals and Bang Energy (collectively, the “Debtors”) filed petitions for relief under Chapter 11 of the Bankruptcy Code.[4] Prior to seeking bankruptcy relief, the Debtors were in the business of selling energy drinks.[5] As part of their bankruptcy cases, in addition to continuing to sell their products, the Debtors sought to sell their business as a going concern. One of their primary methods for marketing their product and the business was through various social media platforms, which the parties called the “CEO Accounts.” [6]
The Debtors fired their Chief Executive Officer and Senior Vice President of Marketing. [7] Despite being fired, the former CEO and SVP had access and used the CEO Accounts. [8] As a result, the Debtors demanded that the former CEO and SVP return all company property and stop using such property, including the CEO Accounts. [9] The former CEO and SVP refused. Thereafter, the Debtors filed an adversary proceeding against the CEO and the SVP. [10] In the adversary proceeding the Debtors claimed that the accounts were property of their estate and sought a turnover of the accounts.[11] Because they feared that the former CEO and SVP would post content that could negatively affect their business, the Debtors sought a temporary injunction to prohibit the former CEO and SVP from using the CEO Accounts and to require them to give the control of the CEO Accounts back to the Debtors.[12] In order to resolve the request for injunctive relief, the parties agreed to file a stipulation, which was subsequently approved by the Bankruptcy Court.[13] Under the stipulation and order, the parties agreed that: (1) the former CEO and SVP would not post any content or make any posts from the CEO Accounts for forty-five days following the stipulation; (2) within nine hours of a request by the Debtors, the former CEO and SVP would post requested content to the CEO Accounts; (3) if one party is alleged to have violated the stipulation, a hearing would take place on the alleged violation.[14] The Debtors subsequently requested that the former CEO and SVP post content to the CEO Accounts, which they did not post until four days later, exceeding the time period agreed upon by the parties.[15] The former CEO then “ranted” about the post, commenting, among other things, that he was “forced by threat” to post.[16] Debtors filed a motion to hold him in contempt for violating the Court’s order, which included a request that he and the former SVP turn over the passwords to the CEO Accounts, and for him to take down his Instagram comments.[17]
Pursuant to Section 105 the Bankruptcy Code, the court has statutory civil contempt power.[18] Civil contempt is a “‘severe remedy,’” that should not be used unless there is no “fair ground” of doubt regarding the wrongfulness of the defendant’s actions.[19] A movant bears the burden, by clear and convincing evidence, to show that the court order was valid, clear and unambiguous, and that the nonmoving party was able to comply with the order.[20]
Here, the Bankruptcy Court found that the Debtors had met this burden.[21] First, the order was valid because the former CEO testified that he had notice of the order after it was entered, made no attempt to set it aside, and complied with it by providing the passwords to the CEO Accounts and posting the requested content.[22] Second, the order was clear and unambiguous because it used the exact language from the parties’ stipulation, and the plain language of the order refuted the former CEO’s claims that the words “post” and “content” were ambiguous.[23] Third, the former CEO was able to comply with the order because he provided no evidence suggesting otherwise after the Debtors had proven that the order was valid, clear, and unambiguous.[24]
These findings led to the conclusion that the former CEO was in contempt of the Bankruptcy Court because there was no doubt regarding the former CEO’s wrongful behavior.[25] The Bankruptcy Court, in finding that the former CEO was in contempt, found that the former CEO could purge part of his contempt by deleting the Instagram comments he had made within a certain time period and turning over the passwords to the CEO Accounts to the Debtor’s counsel in a timely manner.[26]
Accordingly, while it is within the discretion of bankruptcy courts to impose civil contempt, it will only do so where the unreasonableness and wrongfulness of a party’s conduct is in direct contravention of a court order and interferes with the bankruptcy process.[27]
[1] 11 U.S.C. § 105(a).
[2] No. 23-01051-PDR, 2023 Bankr. LEXIS 1117, at *15 (Bankr. S.D. Fla. Apr. 25, 2023).
[3] Id. at *2.
[4] See In re Vital Pharms., Inc., 651 B.R. 847, 850 (Bankr. S.D. Fla. 2023).
[5] No. 23-01051-PDR, 2023 Bankr. LEXIS 1117, at *2.
[6] Id.
[7] Id. at *3.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id. at *3–4.
[15] Id. at *4.
[16] Id. at *4–5.
[17] Id. at *5.
[18] 11 U.S.C. § 105(a).
[19] Id. at *14 (quoting Taggart v. Lorenzen, U.S. 139 S. Ct. 1795 (2019)).
[20] No. 23-01051-PDR, 2023 Bankr. LEXIS 1117, at *7.
[21] Id.
[22] Id. at *7–8.
[23] Id. at *8.
[24] Id. at *13.
[25] Id. at *15.
[26] Id.
[27] Id.