
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 94-1186                              GEMCO LATINOAMERICA, INC.,                                      Plaintiff.                                          v.                               SEIKO TIME CORPORATION,                                 Defendant, Appellee.                                      __________                                ROYAL BANK OF CANADA,                                      Appellant.                                 ____________________        No. 94-1671                              GEMCO LATINOAMERICA, INC.,                                      Plaintiff.                                          v.                               SEIKO TIME CORPORATION,                                Defendant, Appellant.                                      __________                                ROYAL BANK OF CANADA,                                      Appellee.                                 ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO                    [Hon. Raymond L. Acosta, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                Boudin, Circuit Judge,                                        _____________                           Campbell, Senior Circuit Judge,                                     ____________________                         and Boyle,* Senior District Judge.                                      _____________________                                 ____________________            Mildred  Caban  with  whom  Jorge Souss  and  Goldman  Antonetti &            ______________              ___________       ____________________        Cordova were on brief for Royal Bank of Canada.        _______            John  M. Newell  with whom  John  E.  Tardera, Richard  A. Levine,            _______________             _________________  __________________        Whitman Breed  Abbott & Morgan,  Rafael Perez-Bachs, Vivian  Nunez and        ______________________________   __________________  _____________        McConnell Valdes were on brief for Seiko Time Corporation.        ________________                                 ____________________                                    August 2, 1995                                 ____________________                                    ____________________        *Of the District of Rhode Island, sitting by designation.                 BOUDIN,  Circuit Judge.   Royal  Bank of  Canada ("Royal                          _____________            Bank") appeals from an order of the district court finding it            in  civil  contempt for  violating  an  attachment order  and            assessing damages  of $1.63 million plus  attorney's fees and            costs.  The district court found that Royal Bank had assisted            in  frustrating the  application  of an  attachment order  to            assets  that Royal Bank claimed  for its own.   Because Royal            Bank was not a party to the underlying execution proceedings,            the contempt order is  considered a final decision appealable            by  Royal Bank  under 28 U.S.C.    1291.   Appeal  of Licht &                                                       __________________            Semonoff, 796 F.2d 564, 568 (1st Cir. 1986).             ________                                          I.                 The  attachment  order  at  issue here  was  entered  on            January  13, 1987, to execute  a New York  judgment for Seiko            Time Corporation ("Seiko")  against Gemco Latinoam rica, Inc.            ("Gemco")  in  the amount  of  $3.16  million plus  interest.            Earlier Gemco  had been  the exclusive distributor  for Seiko            watches  and clocks  in  Puerto Rico.    Initially Gemco  was            wholly  owned and operated by Jos  and Carmen Pascual, as was            a related company, the Watch and Gem Palace, Inc. ("Watch and            Gem"); later Jos  Pascual  ("Pascual") became the sole owner.            Gemco served as a wholesale distributor for jewelry and  time            pieces,  while  Watch  and  Gem operated  two  retail  stores            specializing  in  jewelry  and  time pieces  (the  Plaza  Las            Americas store and the Old San Juan Store).                                            -3-                                         -3-                 Beginning in 1981, Royal  Bank began extending credit to            Gemco secured  by a  factor's lien on  Gemco's inventory  and            accounts receivable under Puerto Rico's Factor's Lien Act, 10            L.P.R.A.    551 et seq.  Gemco thereafter transferred most of                            _______            the funds  it borrowed  from Royal Bank  to Watch and  Gem in            order  to finance  Watch and  Gem's retail  operations; these            transfers  were   recorded  in  Watch  and   Gem's  books  as            intercompany  accounts  payable  and  in   Gemco's  books  as            intercompany accounts  receivable.  By early  1986 Royal Bank            had extended credit to Gemco which exceeded $1.4 million, and            Gemco's books showed an account receivable due from Watch and            Gem of $2.15 million.                 In  March 1986,  Royal  Bank sought  to restructure  and            resecure  Gemco's debt, as well  as a much  smaller debt then            owed to the bank  by Watch and Gem.  To  this end, Royal Bank            obtained new  factor's liens  from both  Gemco and Watch  and            Gem,  assignments of  Gemco's  and Watch  and Gem's  accounts            receivable including all  "intercompany receivables,"  cross-            guaranties from Gemco,  Watch and Gem  and the Pascuals,  and            mortgages on various  properties owned by the Pascuals.   The            amount   owing  to  the  bank  from  Gemco  at  the  time  of            restructuring was $1.25 million, while Watch and Gem owed the            bank just $125,000.                  In  October   1986,  Seiko  obtained   a  $2.85  million            arbitration award  against Gemco  in New York,  stemming from                                         -4-                                         -4-            Gemco's failure to pay  for goods that Seiko had  provided to            Gemco.  The award was  confirmed by the district of  New York            on  November 4, 1986, and  judgment was entered  for Seiko on            November 12, 1986, for $3,167,946.49.  The New York  judgment            was  registered  in the  district  court  in Puerto  Rico  on            December 16, 1986, and on January 13, 1987, that court issued            an  attachment order  and accompanying  writ of  execution to            satisfy Seiko's  $3.16 million  judgment against Gemco.   The            order attached the following assets of Gemco:                 1) All  debts and accounts  receivable belonging to                 Gemco, including those owing from The Watch and Gem                 Palace, Inc. and Timekeepers, Inc.                 2)  The bank accounts in  the name of  Gemco in the                 Royal Bank of Canada (Current Account  No. 132-420-                 1) and  the Plaza Scotia Bank  (Current Account No.                 006-1919-14).                 3)  Merchandise  inventory   consisting  of   Seiko                 watches  and clocks  and  Colirbr  brand  lighters,                 located  at the fourth floor of the building at 204                 San Jos  Street, Old San Juan, Puerto Rico.                 4)  An  IBM  System  36  Computer  with  peripheral                 equipment  located  at  the  second  floor  of  the                 building at 204 San Jos  Street, Old San Juan.                 The  order also  instructed Gemco's  various  debtors to            remit any amounts owed to Gemco into court:                 The Marshal shall also  be instructed to notify the                 present order  to The  Watch and Gem  Palace, Inc.;                 Timekeepers, Inc.; The  Royal Bank  of Canada,  and                 the Plaza  Scotiabank, and to instruct said parties                 to  refrain, upon penalty  of contempt, from making                 any other  payments to  Gemco by concept  of monies                 owed  from  any  of  the  attached  debts, accounts                 receivable  or bank  accounts.   The Marshal  shall                 collect  any amounts  belonging to  Gemco presently                 deposited  in   any  of  the   aforementioned  bank                                         -5-                                         -5-                 accounts.  Any other  amounts owed to Gemco  by any                 of  the aforementioned  under any  of  the attached                 debts,  accounts receivable or  bank accounts shall                 be  henceforth remitted to this  Court . . ., where                 in due  course, it shall  be claimed by  Seiko Time                 Corporation.                 At the  time of execution, Gemco's primary asset was the            account  receivable arising  from  the  various  intercompany            loans  it had  made  to Watch  and  Gem over  the years;  the            account then stood at around $2 million.  Also at the time of            execution, Gemco still owed  Royal Bank around $1.05 million,            while Watch and Gem owed the bank nothing.                       Royal  Bank was  served  with a  copy  of the  order  of            attachment on January 20,  1987.  The very next day  the bank            obtained from  Pascual an assignment of  any proceeds derived            from the  contemplated sale  of Watch  and  Gem's Plazas  Las            Americas store, purportedly as further security for Watch and            Gem's guaranty of Gemco's debt.  On April 27, 1987, Watch and            Gem  sold its  Plazas Las  Americas store  for $850,000.   By            agreement, the purchase price was disbursed directly to Royal            Bank--minus back rent due Watch and Gem's landlord.                 Of the  $850,000  purchase price,  Royal  Bank  received            $797,219.73,  which  was   fully  credited  against   Gemco's            indebtedness, ostensibly  under Watch  and  Gem's March  1986            guaranty.  This reduced  Gemco's total debt to Royal  Bank to            $300,357.71 as of June 30, 1987.  On that day,  Watch and Gem            then  assumed the balance of Gemco's indebtedness by taking a            $300,357.71 loan from  Royal Bank.  According  to Royal Bank,                                         -6-                                         -6-            this  loan   simply  erased  Gemco's  debt   and  created  an            equivalent  debt in Watch and Gem's name; Watch and Gem never            received any money.                  At the same  time, Royal  Bank also extended  a line  of            credit  to Watch  and  Gem for  "working  capital".   Through            December 1987,  Watch and Gem  borrowed a  total of  $200,000            from the bank.  Watch and Gem used the proceeds from this new            loan  to pay off Gemco's creditors other than Seiko, in order            to  maintain  Gemco  as a  viable  entity  so  that it  could            continue a New  York lawsuit that  Gemco had brought  against            Seiko.1  During this  time, Royal Bank also made  some direct            payments to Watch and Gem's creditor.  At no  point did Watch            and Gem pay  into court  the amount originally  owing on  the            intercompany debt.                 Seiko eventually learned of  Watch and Gem's payments to            Gemco's other  creditors and Watch and  Gem's satisfaction of            Gemco's debt to  Royal Bank.  On  July 10, 1987, Seiko  moved            for  a finding of contempt  against Gemco, Watch  and Gem and            the  Pascuals.   After  a hearing,  the Puerto  Rico district            court on January 21, 1988, held Gemco, Watch  and Gem and the            Pascuals in  contempt for violating the  attachment order and            diverting Gemco assets away  from Seiko.  On March  18, 1988,                                            ____________________                 1This litigation  by Gemco was  ultimately unsuccessful.            See  Gemco Latinoamerica,  Inc. v.  Seiko  Time Corp.  671 F.            ___  __________________________     _________________            Supp. 972 (S.D.N.Y. 1987), 685 F. Supp. 400 (S.D.N.Y. 1988).                                         -7-                                         -7-            Seiko  filed  a motion  for contempt  against Royal  Bank and            request for damages.                 Shortly thereafter, on March 22, 1988, Pascual moved for            court permission  to sell the inventory from  Watch and Gem's            Old San  Juan store  in order "to  apply the proceeds  to the            indebtedness [Watch  and  Gem]  owes  to the  Royal  Bank  of            Canada."  In  late June,  before any sale  took place,  Royal            Bank  seized  the  inventory  of  the  Old San  Juan  store--            purportedly acting under an order issued by a local court--to            protect its collateral for the loans it had extended to Watch            and Gem starting in June 1987.  Royal Bank's seizure occurred            shortly before its  show cause hearing in  the district court            on the contempt charge, which took place on July 15, 1988.                  On January  27, 1994, the  district court issued  an 18-            page order finding Royal  Bank in contempt.  The  court found            that  Royal Bank  had aided  and abetted  a violation  of the            January 13, 1987, attachment order by utilizing Watch and Gem            funds  to repay  Gemco's debts  instead of paying  that money            into court.  The district court then assessed damages against            Royal Bank,  reasoning that  if not improperly  diverted, the            funds  would  have  eventually  gone to  Seiko.    The  court            calculated damages to be  $1.63 million (plus attorney's fees            and costs later fixed at $64,954.25) as follows:                  1.   $797,219.73 from  the sale of  Watch and Gem's                 Plazas Las  Americas store,  the proceeds  of which                 were paid directly to Royal Bank;                                         -8-                                         -8-                 2.   $52,780.27  that  Royal Bank  directed  to the                 landlord for  Watch and  Gem's Plazas Las  Americas                 store;                  3.   $250,000  that  had  constituted a  "loan"  to                 Watch and Gem from Royal Bank, which  Watch and Gem                 had used to  pay Gemco's third-party  creditors and                 which Royal  Bank had used  to pay Watch  and Gem's                 creditors directly;                 4.   $530,000   from   Royal   Bank's  seizure   of                 inventory from Watch and  Gem's Old San Juan store,                 which blocked the  sale of the  store to a  willing                 buyer for the purchase price of that amount.                                         II.                 In  reviewing  a  district  court's  contempt  order, we            accept the district  court's factual findings  and reasonable            inferences if  not clearly erroneous.   Project B.A.S.I.C. v.                                                    __________________            Kemp, 947 F.2d 11, 15-16  (1st Cir. 1991).  A  civil contempt            ____            must be established by clear  and convincing evidence and the            underlying order must be clear and unambiguous in  its terms.            Id. at 16.   A nonparty, although  not directly bound  by the            ___            order, may be held in civil contempt  if it knowingly aids or            abets a party in violating the  court order.  G. & C. Merriam                                                          _______________            Co.  v. Webster Dictionary Co., Inc., 639 F.2d 29, 34-35 (1st            ___     ____________________________            Cir. 1980).                 On  appeal, Royal  Bank  argues that  the payments  from            Watch  and Gem  to Royal  Bank did  not violate  the specific            terms of  the order, and  even if they  did, Royal  Bank says            that  it did not aid  or abet the  violation.  Alternatively,            Royal Bank argues  that it had a superior claim  to seize the                                         -9-                                         -9-            Gemco and Watch  and Gem assets  in question despite  Seiko's            attachment.   We will address  each of these  issues, and one            other, in turn.                 1.   By its  terms the January 13,  1987, order attached            "[a]ll debts and accounts receivable belonging to Gemco . . .            owing  from [Watch  and  Gem]" and  directed that  apart from            Gemco  bank  accounts (which  the  marshal  was to  collect),            "[a]ny other amounts owed to  Gemco by [Watch and Gem] .  . .            shall be  henceforth remitted  to this Court   .  . . ."   We            think that a reasonably straightforward reading of this order            required Watch and Gem to pay  over to the district court the            amount that Watch and Gem then owed to Gemco,  which was well            over $1 million.                 Instead,  there   followed  a  series  of   payments  to            recipients other than the  court--primarily by Watch and Gem,            or out of  its assets--to the advantage  of Royal Bank.   The            first and  largest  of these  payments was  the diversion  of            proceeds from the sale of Watch and Gem's Plazas Las Americas            store; the bank received $797,219.73, which it used to reduce            Gemco's outstanding debt to  the bank, and by pre-arrangement            over  $50,000 went  to  Gemco's landlord.   This  transaction            occurred in April 1987, well after the bank had been notified            of the attachment order.                 Although the bank has  filed a 45-page brief, it  is not            easy to  discern from  that document  precisely why the  bank                                         -10-                                         -10-            thinks  that  these   payments  were   consistent  with   the            "henceforth remitted"  directive in  the court's order.   The            brief explains why the bank cannot be deemed to have violated            other provisions  of the  order  but it  largely ignores  the            _____            provision  directing Watch  and Gem  to pay  what it  owed to            Gemco  directly to  the  court, a  provision stressed  in the            district  court's contempt  order.   Queen Victoria's  famous            phrase, "We are not amused," is remarkably apt.                 The  bank does argue that Watch and Gem's payment to the            bank  was  made to  discharge Watch  and Gem's  own allegedly            legitimate  guaranty of Gemco's obligations to the bank.  But            paying  the  bank instead  of the  court,  when there  is not            enough money  for both, still violates  the attachment order.            The  bank says that the attachment order did not forbid Watch            and Gem from paying its own debts, but an $800,000 payment of            another  debt patently  frustrated  the clear  intent of  the            order that Watch  and Gem's  money be  held for  Seiko.   Cf.                                                                      ___            General Motors Acceptance Corp.  v. Superior Court, 85 P.R.R.            _______________________________     ______________            314, 319  (1962) ("[garnished] funds are  symbolically in the            custody of the law").                 Similarly, we reject the bank's contention, offered as a            defense to the  charge of contempt,  that its claims  against            Watch and Gem  assets had  priority.  As  the district  court            correctly explained:                 Watch & Gem was  ordered to remit to the  Court the                 amount  owed  GEMCO, for  the  ultimate  benefit of                                         -11-                                         -11-                 SEIKO TIME.   The court did  not limit or  restrict                 its  Order to the payment of  funds which were free                 of  third-party claims;  rather, the  Court ordered                 that  such funds were to be paid into Court so that                 the  Court  could  then  resolve  any  question  of                 priorities.            If Watch and Gem's assets were subject to claims prior to the            attachment order, the proper course was to pay the money into            court and then litigate  the matter or, possibly, to  ask the            district court  to modify  its attachment.   See  32 L.P.R.A.                                                         ___            App.  III, R.  21.5  (right  to  intervene of  third  parties            claiming property  attached by order  of the court);  R. 21.6            (motion to release property).  But self-help, in the teeth of            the court's  order,  was  not permissible.    See  Matter  of                                                          ___  __________            Providence Journal Co., 820 F.2d 1342, 1346  (1st Cir. 1986),            ______________________            cert. dismissed, 485 U.S. 693 (1988).            _______________                 Lastly, the bank says that, even if the attachment order            were violated,  the bank did not aid or abet the wrong.  Here            the bank not  only fostered but appears  to have orchestrated            the violations.  The  district court found that the  bank had            worked "hand in glove" with Pascual, Gemco and Watch and Gem,            "controll[ed] all flow of monies to and from  those parties,"            and "determin[ed] the corporate strategy of those parties" in            order  "to avoid the scrutiny of the courts and maximize [the            bank's] collections on its  loans to [Gemco]."  Royal  Bank's            brief  in this  court makes  no serious  effort to  show that            these finding were clearly erroneous.                                         -12-                                         -12-                 2.   The district court ruled that Seiko was damaged not            only by the diversion of proceeds to the bank from the Plazas            Las  Americas sale but also by the diversion of about $50,000            from the same sale to Watch and Gem's landlord; by  the later            disbursements of about $250,000 to  other Gemco and Watch and            Gem  creditors; and  still  later by  the  bank's seizure  of            inventory from the  Old San Juan store, frustrating a planned            sale  of  that store  to a  third  party for  about $530,000.            Implicit  in this damage calculation is the view that each of            these payments (or, in the last case, frustration of payment)            was also a violation of the court's attachment order.                 This  is easy enough a conclusion as to the $52,000 paid            to  the landlord.   This  payment was  part of  a prearranged            allocation  of the proceeds of the sale; the bank, which took            the  lion's share  for  itself, was  clearly involved  in the            allocation, and  the allocation  of the $52,000  violated the            court's  "henceforth remitted" directive  for reasons already            discussed in  connection with  the $797,000 payment.   Having            helped arrange these diversions,  the bank is responsible for            the full effect.                 It  less clear that the same view should be taken of the            $250,000 in  payments to  third-party creditors of  Gemco and            Watch and Gem  or the  $530,000 loss that  occurred when  the            bank frustrated  the sale  of the  Old San Juan  store.   The            former  were  apparently included  on  the  theory that  they                                         -13-                                         -13-            represented funds belonging to  Watch and Gem that,  like the            $850,000 in proceeds from the original sale, were diverted to            creditors  of Gemco and Watch  and Gem instead  of being paid            into court.  The $250,000 was a loan by the bank to Watch and            Gem which, by  prearrangement with the bank,  was designed to            pay  off various  Gemco creditors  other than  Seiko, thereby            forestalling an involuntary bankruptcy petition.                 If  the $250,000 is  treated as  Watch and  Gem's money,            then the analysis is the same as with the $850,000.  The bank            might have argued that the $250,000 actually represented bank            money to which Watch and  Gem had no claim and that  there is            something odd about  treating the bank's own  decision to pay            off Gemco creditors  with the bank's  own funds as  depriving            Seiko  of Watch and Gem assets.  Still, having structured the            transaction as  a loan to  Watch and Gem--presumably  to give            the  bank a claim for repayment--the bank may have thought it            dangerous to describe  the loan as a  sham.  Anyway, it  does            not try to distinguish the $250,000 payment.                 As for the $530,000  loss, this was charged to  the bank            because it frustrated the sale  of the Old San Juan store  by            seizing  Watch  and  Gem assets,  effectively  violating  the            attachment order.   Although  it  appears that  the bank  did            cause the loss, it  might have argued that the  proposed sale            was its own creation  (it had proposed to finance  the third-            party buyer)  and that, without its  cooperation, there would                                         -14-                                         -14-            have  been no sale even without its seizure of the inventory.            But  again  the bank  makes  no  such  argument, and  instead            implies (quite  incorrectly) that the  local court's  alleged            approval  of  the   seizure  trumped  the   district  court's            attachment order.                 In all events, the bank has chosen to fight on a broader            front--primarily by denying that anyone's action violated the            attachment  order  or  that  it aided  and  abetted  any such            violation.   Absent  extraordinary circumstances,  we confine            ourselves  in  civil  cases  to  the arguments  made  by  the            parties.   FDIC v.  Fedders Air Conditioning,  USA, Inc.,  35                       ____     ____________________________________            F.3d 18, 21  (1st Cir. 1994).  Whether or  not the bank might            have distinguished among the damage items and sought to limit            its exposure, it has not done so here.                 3.    Even  though  Royal Bank's  conduct  violated  the            attachment order and diverted or blocked the funds that would            otherwise  have been paid into court, Royal Bank is liable in            a civil contempt proceeding  only for actual damages.   In re                                                                    _____            Power Recovery Systems,  Inc., 950  F.2d 798,  802 (1st  Cir.            _____________________________            1991).   In this instance, the bank could arguably defeat the            damage  award--although  not   the  finding  of  contempt--by            showing that the money paid into court would ultimately  have            been awarded to the bank rather than Seiko.                 Neither  in the district court nor in this court has the            bank ever  made this  argument in a  straightforward fashion.                                         -15-                                         -15-            Although there are a number of  references to its priorities,            these  occur in the course  of its various  arguments that no            contempt occurred.  Perhaps as a result, the district court's            brief discussion  of priority issues is also  directed not to            damages  but to  contempt.   For this  purpose, the  district            court's  discussion  is  strictly speaking  unnecessary,  for            reasons already given both by it and by us.                 An appellant waives arguments not made or only cursorily            developed, e.g., Grella v. Salem Five Cent Sav. Bank, 42 F.3d                       ____  ______    _________________________            26, 36 (1st Cir. 1994), and in this instance the  bank can be            reproached  on both grounds:   it makes  no argument assuming                                                     __            contempt arguendo but challenging the computation of damages;                     ________            and  to  the extent  it  discusses the  priority  issues, the            discussion is episodic, incomplete  and (in certain respects)            quite unpersuasive.                 Nevertheless, there are scattered fragments out of which            one might well  try to build  a case  that the 1981  factor's            lien  or the  1986  liens and  assignments  gave the  bank  a            priority as to amounts owing to Gemco.  The law in this area-            -both as to  the Puerto  Rico factor's lien  statute and  the            assignment  of accounts  receivable statute--is  at the  same            time both sparse  (in explanatory case  law) and complex  (in            statutory  language).    See  10  L.P.R.A.      551  et  seq.                                     ___                         ________            (Factor's  Lien Act); 10 L.P.R.A.     581 et seq. (Assignment                                                      _______            of Accounts  Receivable Act).   The security  transactions in                                         -16-                                         -16-            this case are multiple,  interrelated and in certain respects            peculiar.                 We  have now  spent an  undue amount  of time  seeking a            clear  path  through  this  morass  in  a  futile  effort  to            determine whether or not  the bank possessed valid priorities            that could be  used to  reduce or even  eliminate the  damage            claims   against  it.    Although   we  spare  the  reader  a            description  of  false starts  and  dead  ends and  remaining            perplexities,  the conclusion is clear:   there is  no way to            answer  the central  question, short  of a  remand, extensive            further briefing and probably further fact-finding.                 Given  the   bank's  effective  waiver  of  the  damages            argument, no such remand can be justified.  We cannot require            the district court  or Seiko to engage  in further litigation            based  on  a  mere suspicion  that  the  bank  might have  an                                                           _____            argument  for curtailing damages.  It is ironic that, had the            bank permitted the  funds to  be paid into  court instead  of            diverting them  to its own uses, the ensuing litigation would            likely have focused  on its priority  rights rather than  its            contempt.                 Affirmed.                 _________                                         -17-                                         -17-
