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O'Kane v. Sembritzky

United States District Court, S.D. Texas, Houston Division

December 9, 2019

WILLIAM O'KANE, SYNERGY SOURCE, LLC, and AZKARTA CREST CORPORATION, Plaintiffs,
v.
VERLEY SEMBRITZKY, JR., a/k/a ROCKY SEMBRITZKY, et al., Defendants.

          MEMORANDUM AND ORDER

          LEE H. ROSENTHAL, CHIEF UNITED STATES DISTRICT JUDGE

         William O'Kane, Synergy Source, LLC, and Azkarta Crest Corporation have sued Verley Sembritzky, aka “Rocky Sembritzky, ” Goldie Rose, and others over an allegedly fraudulent investment scheme. During this litigation, the court ordered Goldie Rose to pay real-estate taxes owed on a luxury condominium titled in Rose's name. (Docket Entry No. 111 at 13). The plaintiffs moved for sanctions against Rose, claiming that she violated the order by not paying the real-estate taxes. (Docket Entry No. 127). Rose responded, the plaintiffs replied, and both filed a surreply and surresponse. (Docket Entry Nos. 131, 132, 134, 140). After carefully considering the parties' arguments, the record, and the applicable law, the court grants the plaintiffs' motion for sanctions, for reasons explained in detail below.

         I. Factual Background

         This case arises out of the plaintiffs' large investment in Rasli Bahari Kenya Limited. The facts are set out in the June 19, 2019, Memorandum and Order, (Docket Entry No. 111), and are set out here only as background.

         In late 2015, O'Kane, Synergy, and Azkarta invested a total of $1, 404, 000 in Rasli Bahari Kenya Limited. (Docket Entry No. 38 at ¶¶ 20-22, 34-35, 43, 51). “Rocky” Sembritzky gave the plaintiffs Regulation D, Rule 506 Private Placement Letters, and told the plaintiffs that the investment would be used to design, build, and operate Kenyan desalination plants that would earn hundreds of millions of dollars starting in 2019. (Id. at ¶¶ 20-24). Sembritzky transferred the plaintiffs' money to Compass Bank accounts that he or his then-wife, Goldie Rose, owned. (Docket Entry No. 102-1 at ¶¶ 10-12; Docket Entry No. 102-2 at ¶¶ 10-12; see Docket Entry No. 110-2 at 297). Sembritzky eventually transferred the money to a title company. (Docket Entry No. 105-1 at 2). The plaintiffs allege that the money never made it to a Kenyan desalination plant project. (Id.).

         The plaintiffs allege that Sembritzky and Rose bought a luxury condominium, the “Kirby Condominium, ” with some of the money, and that Rasli Nahari Kenya Limited never attempted to build or operate a desalination plant. (Docket Entry No. 5-1 at ¶¶ 12-16; Docket Entry No. 102-1 at ¶ 12; Docket Entry No. 102-2 at ¶ 12; Docket Entry No. 105-1 at 2; Docket Entry No. 110-2 at 111). The Kirby Condominium was deeded to Rose in December 2015. (Docket Entry No. 5-1 at ¶ 14). On March 6, 2019, Rose and Sembritzky divorced, leaving Sembritzky with no rights, title, or interest in the Kirby Condominium. (Docket Entry No. 107 at 1, 9-10; Docket Entry No. 107-4 at 4).

         In September 2018, the court issued a preliminary injunction prohibiting Sembritzky and Rose “from selling, assigning, transferring, encumbering, or otherwise disposing of any interest in the Kirby Condominium and from receiving or acquiring any interest in the Kirby Condominium, without order from a court of competent jurisdiction.” (Docket Entry No. 11 at 3). The plaintiffs later moved for another order, seeking to compel Rose to pay the ad valorem property taxes assessed against the Kirby Condominium. (Docket Entry No. 105). The court granted the motion, finding that “[t]he plaintiffs seek a constructive trust as an equitable remedy for the alleged fraudulent transfer, which the court could not provide if the Kirby Condominium were lost in a tax sale, ” and ordered payment of the taxes. (Docket Entry No. 111 at 11-12). Rose did not pay. (Docket Entry No. 127-1 at 2). The plaintiffs moved for civil contempt sanctions against Rose for violating the court's order. (Docket Entry No. 127).

         II. Discussion

         “Civil contempt can serve two purposes, either coercing compliance with an order or compensat[ing] a party who has suffered unnecessary injuries or costs because of contemptuous conduct.” In re Bradley, 588 F.3d 254, 263 (5th Cir. 2009) (citations omitted) (alteration in original). Civil contempt requires “(1) that a court order was in effect, and (2) that the order required certain conduct by the respondent, and (3) that the respondent failed to comply with the court's order.” Bradley, 588 F.3d at 264.

         The parties do not dispute that the plaintiffs seek civil contempt sanctions to coerce Rose to comply with the court's order, not to compensate the plaintiffs. (Docket Entry No. 132 at 2; Docket Entry No. 134 at 1). Nor do the parties dispute that this court's order, requiring Rose to pay the ad valorem taxes, is currently in effect, and that Rose has not paid the taxes. (Docket Entry No. 127 at 3-4; Docket Entry No. 131 at 3). Instead, Rose argues that she has no ability to pay the ad valorem taxes and is simply unable to comply with this court's order. (Docket Entry No. 131 at 3).

         An alleged contemnor may assert “a present inability to comply with the order in question” as a defense. United States v. Rylander, 460 U.S. 752, 757 (1983). The alleged contemnor bears the burden to show that compliance with the court order is impossible. Quilling v. Funding Res. Grp., 227 F.3d 231, 235 (5th Cir. 2000) (citing United States v. Sorrells, 877 F.2d 346, 349-50 & n.4 (5th Cir. 1989)). The contemnor may meet this burden only by producing credible evidence. Sorrells, 877 F.2d at 349 n.4.

         Rose has produced an affidavit, an application for tax deferral, a personal bank account statement, and deposition testimony. (Docket Entry Nos. 131-1, 134). But she has not met her burden to produce credible evidence showing a present inability to pay the taxes. Her unsworn affidavit is contradicted and undermined by evidence produced in discovery. Her application for tax deferral has no effect on her present ability to pay the taxes she currently owes. Her bank statements show regular, large deposits, further undermining her affidavit statements, and her deposition testimony reveals an incomplete picture of her finances.

         The plaintiffs argue that Rose has substantial assets and point to evidence produced in discovery indicating that Rose's assets in 2015 were valued at about $3.8 million. (Docket Entry No. 127-1 at 3-4, 26-27, 39). Rose counters that “despite the assets listed by Plaintiffs-all of which are illiquid, ” she is unable to pay the ad valorem taxes. (Docket Entry No. 131 at 7-8). She attaches an unsworn affidavit in support, stating that:

• she applied for the Harris County Appraisal District Deferral Program, which would defer ad valorem taxes on the Kirby Condominium until her death or sale of the property;
• the Kirby Condominium is valued in excess of $2.6 million, which is more than the $1, 404, 000 the ...

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