                             In the

United States Court of Appeals
               For the Seventh Circuit

No. 12-3308

S ECURITIES AND E XCHANGE C OMMISSION,
                                                            Plaintiff,
                                 v.

F IRST C HOICE M ANAGEMENT S ERVICES, INC., et al.,

                                                         Defendants.


S ONC O H OLDINGS, LLC,
                                             Intervenor-Appellant,
                                 v.

JOSEPH D. B RADLEY, Receiver, and
    A LCO O IL & G AS C O ., LLC,
                                                           Appellees.


             Appeal from the United States District Court
      for the Northern District of Indiana, South Bend Division.
      No. 3:00-cv-00446-RLM-CAN—Robert L. Miller, Jr., Judge.


     A RGUED JANUARY 23, 2013—D ECIDED M ARCH 1, 2013



  Before P OSNER, R IPPLE, and W ILLIAMS, Circuit Judges.
  P OSNER, Circuit Judge. This appeal is a sequel to an
appeal in the same case that we decided last year. 678 F.3d
2                                               No. 12-3308

538 (7th Cir. 2012). The case had begun in 2000 as a suit by
the SEC charging First Choice and others with fraud in
violation of federal securities law. The district court
had appointed a receiver to take charge of the defen-
dants’ assets and distribute them among the victims of
the $31 million fraud. The receiver went hunting for
the assets and found that some of them had been used
to acquire oil and gas leases in Texas. SonCo Holdings
claimed an interest in the leases. The claim delayed
the receiver’s sale of the assets, but in January 2010, after
protracted negotiations, SonCo made a deal with the
receiver pursuant to which the district court issued an
“agreed order” that required SonCo to pay the receiver
$580,000 (later upped to $600,000 because of SonCo’s
delay in paying) for a quitclaim assignment of the leases
in which it claimed an interest. The parties also agreed
to release each other from all claims and counterclaims
in a parallel Canadian class action—Eaton v. HMS Finan-
cial—in which SonCo and its principal were alleged to
have misappropriated funds belonging to the defrauded
investors.
   A third party to the agreed order was Alco Oil & Gas,
the operator of the leased wells. (The operator is the
firm or individual legally permitted to extract minerals
pursuant to an oil or gas lease. It is regulated by the
Texas Railroad Commission and can be, and in this in-
stance was, separate from the lessee.) Alco had had to
post a $250,000 cash bond with the Texas Railroad Com-
mission to assure payment of any costs that the Com-
mission might impose on it for failing as operator to
conserve oil and gas and prevent or remedy environ-
No. 12-3308                                                 3

mental damage from its operations. See Texas Natural
Resources Code §§ 91.103, .104, .1041, .1042, .105, .142. Alco
could get its $250,000 back only if it was replaced as
operator and the new operator posted an equivalent
bond. The receiver wanted Alco replaced because the
$250,000 for its bond had come in part from the
defrauded investors (though there is no suggestion that
Alco was guilty of any wrongdoing). So the agreed order
required SonCo to “obtain a bond . . . that shall replace
Alco’s bond so that Alco and the Receiver may obtain the
release of its bond paid for with defrauded investor
funds.” Thus the $250,000 would not stop with Alco if
it ceased to be the operator of the wells—not all $250,000
at any rate. Some (we’ve not been told how much) would
be added to the receiver’s assets because it had come
from victims of the fraud.
  Alco wanted to be replaced as operator—wanted desper-
ately because it was incurring mounting liabilities to
the Texas Railroad Commission and perhaps to other
entities as well for environmental damage caused by
the wells, and it had little prospect of generating off-
setting revenues. The agreed order therefore not only
required SonCo to replace Alco’s $250,000 bond but
also—according to the interpretation of the order
proposed by the receiver and Alco, adopted by the
district judge, and accepted by us in rejecting SonCo’s
previous appeal, see 678 F.3d at 543—required SonCo
to do whatever had to be done to enable it to replace
Alco as the operator of the wells. The replacement would
require the permission of the Texas Railroad Commission
but the grant of that permission was expected to be
4                                              No. 12-3308

pro forma—provided that SonCo filed the necessary
papers and demonstrated, presumably by posting
the replacement bond, its financial ability to shoulder
the costs of the environmental liabilities to which the
operator would be subject.
  SonCo failed, within the generous final deadline
imposed by the district judge after he had granted
multiple extensions of earlier deadlines, to obtain the
Commission’s authorization to operate the wells. It
had applied for that authorization—but only at the last
minute and its application had been incomplete. It was
apparent that SonCo had never intended to become
the operator. (Its motives in claiming an interest in the
wells in the first place remain murky, as does its motive
for pursuing this appeal, since the receiver had only
$41,350 available for distribution as of December 10,
2012, and is likely to have even less by now. SonCo
claims that it’s looking to encumber another oil and
gas lease the receiver may obtain, but currently doesn’t
have, if the sanction order is reversed; we warn SonCo
against harassing the receiver.)
  On motion by the receiver and Alco, the district
judge held SonCo in civil contempt of the 2010 agreed
order and as a sanction ordered it to return the leases to
the receiver. But rather than ordering a simple rescission,
which would have restored the parties to the status quo
before the agreed order, the judge allowed the receiver
to keep the $600,000 that SonCo had paid the receiver
for them. SonCo returned the leases as ordered but ap-
pealed the contempt order. It wanted the $600,000 that
No. 12-3308                                                5

it had paid for the leases returned to it. We upheld
the finding of civil contempt but remanded with respect
to the sanction—the refusal to order the receiver to
return the $600,000.
  The justification that the district judge had offered
was that “that money must be used to compensate the
attorneys for Alco and the Receiver . . . [and] also . . . to
compensate Alco for the harms caused by SonCo’s non-
compliance with [the agreed order] . . . . Those uses of the
$600,000 will make the Receiver and Alco whole and
will replenish funds that should have been returned
to defrauded investors but instead have been dipped
into as a result of SonCo’s contempt of court.”
  A judge has to justify the amount of a monetary
sanction that he imposes for a contempt. FTC v. Trudeau,
579 F.3d 754, 770 (7th Cir. 2007); FTC v. Kuykendall, 371
F.3d 745, 763 (10th Cir. 2004) (en banc). If as in this
case the judge intends the sanction (perhaps better
termed “remedy”) to be compensatory rather than puni-
tive, he has to explain, as we noted in our previous op-
inion, 678 F.3d at 545, what loss the sanction is
intended to compensate for; and he had not done that,
which is why we remanded. On remand the judge
sought to justify the award, and SonCo has again appealed.
  SonCo argues that the district judge denied it due
process by failing to grant its request for an evidentiary
hearing on remand. But as the judge explained, there
was no need for such a hearing. “The due process clause
does not require a hearing…where there is no disputed
issue of material fact to resolve.” Wozniak v. Conry, 236
6                                              No. 12-3308

F.3d 888, 890 (7th Cir. 2001). The $600,000 sanction was
based on evidence of the costs caused by SonCo’s
delay that had been presented earlier in this protracted
proceeding (now in its thirteenth year). While insisting
that it was not in contempt, SonCo had presented no
evidence contesting the receiver’s $600,000 estimate
of the costs imposed by its dilly-dallying, despite
being given multiple opportunities by the district judge
to do so.
   And as the judge explained and the appellees
have demonstrated at length, $600,000 is a gross under-
estimate of the harm caused by SonCo’s contempt. SonCo
had agreed as part of the “agreed order” to take over
the operation of Alco’s wells within 90 days. By failing to
do so for more than a year after the order was
issued, SonCo exposed Alco to an estimated $490,000
to $780,000 in additional environmental compliance
costs because the Texas Railroad Commission refused
to authorize operation of the wells without costly rehab-
ilitation, and, left nonproducing, the wells had to be
capped as otherwise they would have continued to
cause environmental damage for which Alco, as their
operator, would have been liable. In addition, SonCo
had agreed in the order to replace the $250,000 bond
that Alco had been required to post with its own $250,000
bond, and it had not done so. Furthermore, as part of
the agreed order the receiver had released either
$375,000 or $2 million (the record is unclear on which
figure is correct) in claims of fraud and disgorgement
that had been lodged against SonCo in Eaton v. HMS
Financial. The receiver has also charged $70,000 in addi-
No. 12-3308                                            7

tional receivership fees because SonCo’s procrastina-
tion prolonged the receivership. And he has incurred a
further $30,000 in expenses of overseeing the property
in receivership during the period of procrastination. The
harm inflicted by the contempt exceeded $600,000 by a
large margin. A plausible estimate of the total harm
would be $2 million. SonCo has gotten off lightly.
  The district judge remarked SonCo’s “record of truly
brazen intransigence” in this protracted proceeding. That
is an understatement. SonCo will be courting additional
sanctions, of increasing severity, if it does not desist
forthwith from its obstructionist tactics.
                                              A FFIRMED.




                          3-1-13
