In Re Fredeman Litigation

Facts

Ds are corporations, and their current or former officers, involved in different facets of the marine industry, including barge towing, shipbuilding and repair, and vessel refueling. Before Ps brought these civil actions, the United States had instituted criminal charges against the Fredeman brothers under RICO and other statutes. The government obtained a court order restraining Ds from disposing of the bulk of their assets during the pendency of the litigation. In those proceedings, which continued into May 1987, each defendant involved herein was either dismissed by the court or acquitted by a hung jury on the RICO counts. Three of the defendants pled guilty to non-RICO offenses based on different facts. Ps sought treble damages, attorney's fees, and costs under the civil provisions of RICO. The restraining order that the government had obtained was vacated on May 4, 1987. The next day, Ps in the civil actions obtained a temporary restraining order from the district court that effectively reinstated the freeze on virtually all of Ds' assets. Ds moved to dissolve the TRO, and Ps sought a preliminary injunction of the same character as the TRO, basing their request on Federal Rule of Civil Procedure 65. The district court entered a preliminary injunction enjoining Ds 'from selling, assigning, encumbering, transferring, or removing from the jurisdiction of this court any of such . . . defendants' interests in the [enumerated] assets without the express approval of this court, and without knowledge of such action being communicated to the plaintiffs.' The assets subject to the order included all corporate stock, securities, cash investments, cash on hand in excess of $3,000, accounts at financial institutions, real property interests, receivables, partnership or other unincorporated venture interests, and promissory notes, and, as to the individual defendants, also any interests in trusts, retirement or profit-sharing plans, or life insurance policies. The order also enjoined the companies from 'dispersing' any assets outside their 'normal business and operating procedures' without the court's express permission and the Ps' knowledge, and the individual defendants from transferring any assets 'except as necessary to maintain the family property and family members in a customary fashion.' The court further required the defendants to present it weekly with, among other things, listings of all cash disbursements and of all other disbursements that exceeded specified amounts, documents showing the nature of each business transaction, and financial statements. It required Ds to 'take the reasonable steps necessary to maintain all property in accordance with this preliminary injunction.' The court conditioned entry of the injunction contingent on Ps' filing a $500,000 bond to secure damages to which Ds might be entitled if the injunction proved unjustified. The court found that Ds regularly charged Ps and other customers for more fuel and lubricating oil than was actually delivered. They paid bonuses to employees based on the amount of fuel they had secretly withheld and had covered up these practices with various accounting devices and false invoices. The court found that Ds had tried to secrete assets in the past and likely would continue to do so in the future. John H. Palmer, a former officer of PATCO and Channel Fueling, testified that Ds would do anything to avoid paying any kind of damages. The court rejected Ds’ contentions that RICO did not allow an injunction and that an injunction would unduly burden them. The court held that Ps had shown a substantial likelihood of prevailing on the merits and faced an immediate risk of irreparable harm. The court stated it relied on its inherent equitable powers to issue the injunction. Ds appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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