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McDonald's Corp. v. Victory Investments

decided: February 13, 1984.

MCDONALD'S CORPORATION
v.
VICTORY INVESTMENTS, SAMUEL H. RAPPAPORT, LEON SILVERMAN, THEODORE SNYDER, AND ELIAS H. STEIN; SAMUEL RAPPAPORT, APPELLANT



On Appeal from the District Court for the Eastern District of Pennsylvania.

Gibbons, Sloviter, Circuit Judges, and Caldwell, District Judge.*fn*

Author: Sloviter

Opinion OF THE COURT

SLOVITER, Circuit Judge.

Defendant Samuel H. Rappaport appeals from an order entered February 10, 1983 holding him in contempt for failure to pay attorney's fees as earlier ordered by the court, imprisoning him, and ordering him to pay to the Ronald McDonald House the sum of $100 for each day beginning October 18, 1982 that counsel fees were not paid.

I.

The contempt order was the culmination of a dispute which arose between McDonald's Corporation and two of its landlords, Victory Investments, which owns two buildings in which McDonald's has restaurants, and Samuel Rappaport, who owns a third building. Rappaport is also a partner in Victory Investments. McDonald's sued Victory Investments and Rappaport in the United States District Court for the Eastern District of Pennsylvania alleging they had, inter alia, overcharged McDonald's on utility bills in violation of the leases and that Rappaport maliciously cut off electric power to a McDonald's restaurant during peak hours. The dispute was settled on November 16, 1981 after three days of trial, and the settlement agreement was read into the record but not entered as a formal order of the court. The agreement provided, in addition to other undertakings, that the landlords at each location would install a new water meter service in each building which would go only to McDonald's, that Rappaport would rewire the electric system of the building he owned so that the primary service would go directly to McDonald's, and that further disputes relating to the leases would be arbitrated. It provided that McDonald's would give up its claim for past damages and that Rappaport would pay McDonald's $4,500 for utility overcharges. The agreement also provided for the resolution of a separate foreclosure action then pending in state court, and required payment by defendants of counsel fees with regard to that state court matter.

Less than three months later, on February 11, 1982, McDonald's was back in court seeking to compel performance of the terms of the settlement, because Rappaport had refused to pay the $4,500 to McDonald's on the ground that there had been allegedly excessive counsel fees paid by Victory Investments in the state court foreclosure matter. On March 9, 1982 the district court granted the motion and ordered Rappaport to pay $4,500 plus interest and all counsel fees and costs incurred in preparing the motion. App. at 109a.

On June 21, 1982, McDonald's brought a second motion to compel performance, alleging, among other things, that Rappaport had failed to proffer any evidence of completion of the work required under the settlement. Rappaport thereafter furnished three of the four letters of verification concerning the utility work. On July 16, 1982 the district court ordered the defendants to complete the remaining utility work within five days, to furnish the fourth letter of verification, to reimburse McDonald's for utility overcharges since the time of the settlement agreement, and to pay counsel fees and costs incurred in preparing the motion. App. at 167a-68a. When the defendants did not comply, McDonald's filed a motion on July 23, 1982 to have the defendants held in contempt of the July 16 order. Defendants thereafter complied with the order and McDonald's withdrew the contempt motion.

On September 2, 1982 McDonald's filed with the court two itemized statements of the costs and counsel fees incurred by it in the preparation of the two motions to compel performance. McDonald's also sent the court a letter dated August 30, 1982 stating that "by copy of this letter, copies are being served on defendants' counsel." One statement detailed fees and costs totaling $3,480.74 incurred in connection with Rappaport's failure to comply with the March 9 order which had been directed to him. The other statement covered fees and costs totaling $3,502.62 incurred in connection with the July 16, 1982 order which had been directed to all defendants. On October 14, 1982, the district court, having received no response from the defendants, entered two orders, one directing Rappaport to pay $3,480.74, and the other directing all defendants to pay $3,502.62. App. at 177a-78a. No payment was made as ordered, and on October 27, 1982 McDonald's moved to have the defendants held in contempt of the October 14 orders. In answer to the motion, counsel for defendants alleged that he had never received the itemized statements and believed that the matter had been finally concluded when McDonald's withdrew its first contempt motion.

At the show cause hearing on the contempt motion on December 13, 1982, Rappaport's counsel again stated that he had never received a copy of the itemized statements of fees and costs filed with the court and that defendants had had no opportunity to contest the amount of fees. The court suggested that counsel for McDonald's file a petition to have counsel fees fixed and stated it would "have a hearing [on the counsel fees] and permit the defendant the opportunity to cross-examine and to produce whatever evidence is deemed necessary", App. at 250a, but declined to vacate the orders of October 14 ordering payment of the fees and instead agreed the orders were suspended pending the hearing. App. at 251a-52a.*fn1

On December 15, 1982, the court denied McDonald's motion to hold defendants in contempt. McDonald's filed a motion for reconsideration of this order, arguing that under Fed. R. Civ. P. 5(b) "service by mail is complete upon mailing," that defendants had maintained a pattern of resisting compliance with the court's mandates and with the terms of the settlement, and that Rappaport had taken no action on receipt of the October 14 orders until McDonald's filed the contempt motion. In reply, the defendants emphasized nonreceipt of the Statement of Itemization of fees and costs, and plaintiff's withdrawal of its initial contempt motion of July 26.

The district court held a hearing on the motion for reconsideration on February 10, 1983. At that hearing, the district court focused on defendants' failure to comply with the order of October 14. When Rappaport's counsel reminded the district court that at the earlier hearing, he "specifically asked [the court] for a specific order, and [the court] said that you were holding it in abeyance," the district court replied "I have no such recollection." App. at 338a. The court stated that "There is no doubt that the October 14 Order was never vacated; there is no doubt that the October 14 Order is still in effect and has been since October 14, and . . . that your client has failed to comply with that Order since October 14." App. at 346a. Because it appeared that management of Victory Investments had been entrusted solely to Samuel Rappaport and his management company, the district court directed its order solely to Rappaport. The court ordered that Rappaport was in contempt of the order of October 14, that "[he] shall pay the sum of $3,653.84 plus interest from October 18 [the date of receipt of the October 14 order]" and also that

Defendant Samuel Rappaport shall pay to the plaintiff by draft to the order of Ronald McDonald House $100 for every day that they have failed to pay the plaintiff the amount owed it, beginning with October 18, 1982, and the ...


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