Appeal from the United States District Court for the Central District of California. D.C. No. CV-93-03073-R. Manuel L. Real, District Judge, Presiding.
Before: Cecil F. Poole, Charles Wiggins, and Pamela Ann Rymer, Circuit Judges. Opinion by Judge Wiggins.
The Securities and Exchange Commission ("SEC") brought this civil enforcement action against several defendants, including Interlink Data Network of Los Angeles, alleging securities fraud involving the sale of unregistered securities. In the early stages of the litigation, the SEC obtained a temporary restraining order and preliminary injunction that, inter alia, froze the defendants' assets. Ultimately, the SEC obtained a judgment against Interlink requiring, in relevant part, the disgorgement of over $12 million (representing the funds of defrauded investors) and the deposit of Interlink's assets in the court registry for disbursement.
After entry of the judgment, the district court determined that certain funds paid in advance by Interlink to its attorneys, Lewis, D'Amato, Brisbois & Bisgaard, were earned by Lewis, D'Amato upon payment. Thus, the court concluded that the funds were not encompassed by the asset freeze in the temporary restraining order or the preliminary injunction and therefore need not be deposited in the court registry for disbursement pursuant to the judgment against Interlink. The SEC appeals this order of the district court. We have jurisdiction under 28 U.S.C. § 1291 and, for the following reasons, we REVERSE and REMAND.
On May 27, 1993, the SEC filed a civil action against several defendants, including Interlink, alleging securities fraud involving the sale of unregistered securities. The same day, the district court entered a temporary restraining order, which, inter alia, froze the assets of the defendants. The TRO provided in relevant part:
Any financial or brokerage institution or other person or entity holding any funds or other assets in the name, for the benefit or under the control of the Defendants, or their subsidiaries, and which receives actual notice of this order by personal service, telecopy, telephone, or otherwise, shall hold and retain within its control and prohibit the withdrawal, removal, transfer or other disposal of any such funds or other assets.
On June 7, 1993, the district court filed a preliminary injunction containing identical language; moreover, the preliminary injunction stated that the asset freeze provisions could be modified "to provide Defendant Gartner with reasonable living expenses upon an application to the Court." No provision was made for attorney's fees.*fn1
Prior to the entry of the TRO asset freeze, Interlink had made payments totalling $45,000 to Lewis, D'Amato. In addition, on the day the TRO was entered, Interlink paid Lewis, D'Amato $25,000 in the form of a cashier's check.*fn2 It is undisputed that, at the time the asset freeze was entered, Lewis, D'Amato had performed services totalling $28,177; thus Lewis, D'Amato had received $41,823 for services not yet rendered.
On July 19, 1993, Lewis, D'Amato on behalf of Interlink filed a motion asking the court (1) to clarify that the freeze order did not prevent defendants from utilizing their funds to pay attorneys; (2) to permit defendants to utilize their funds to pay attorney's fees; or (3) to permit withdrawal of counsel. The court orally denied that motion on August 2, 1993; the court also informed counsel that in order to withdraw Lewis, D'Amato would have to bring a separate motion.
Lewis, D'Amato, however, did not renew its motion to withdraw. On November 16, 1993, judgment was entered against Interlink, requiring, in relevant part, that Interlink disgorge over $12 million representing the funds of defrauded investors. The judgment also required
that all liquid assets (such as cash, certificates of deposit, money market funds, and securities) in the name of, for the benefit of, or under the control of InterLink (including signatory authority) be immediately turned over to the registry of the Court - regardless of who has them - where they shall be held pending final distribution.
Pursuant to the judgment, the SEC requested that Lewis, D'Amato deposit the $41,823.05 in the court's registry. After several months, on April 12, 1994, Lewis, D'Amato did so under protest. In the SEC's memorandum in support of holding Lewis, D'Amato in contempt of the judgment, the SEC argued that the funds were held by Lewis, D'Amato for the benefit of Interlink and therefore were encompassed by the TRO, preliminary injunction and final judgment. The SEC claimed that, as set forth in Lewis, D'Amato's fee agreement, the funds were not a "retainer," i.e., a sum paid to secure the attorney's availability over a period of time. Rather, the funds were paid as a deposit against future costs, expenses and legal fees. ...