The case of the day is AngioDynamics, Inc. v. Biolitec AG (1st Cir. 2015). Actually, there are two cases of the day. In one, the First Circuit affirmed the default judgment against my favorite contemnor, Wolfgang Neuberger, and others, as a sanction for failing to participate in discovery. I’m not going to cover that one. In the second case, the court took up the issue of the contempt sanctions that I dealt with in my prior post.
Here was my description of the facts:
Biolitic, Inc., a US subsidiary of Biolitic AG, a German firm, sold medical equipment to AngioDynamics. The sales contract contained an indemnification clause requiring Biolitic, Inc. to indemnify AngioDynamics for patent infringement claims. AngioDynamics was sued for patent infringement and settled the case; it then obtained a $23 million judgment against Biolitic, Inc. on the indemnification clause in a New York lawsuit. AngioDynamics then sued Biolitic AG, Wolfgang Neuberger (the CEO and majority shareholder of Biolitic AG), and others in Massachusetts on veil-piercing, fraudulent transfer, and other theories. The claim, according to the court, was that the German parent had “looted [Biolitic Inc.] of more than $18 million to render [it] judgment-proof and to move [its] assets beyond reach.” The defendants answered. Biolitic AG raised personal jurisdiction as a defense, but it’s not clear that Neuberger did: his answer only claims that the court “lacks jurisdiction over the person of Defendants BAG [i.e., Biolitic AG] and Biomed.”
AngioDynamics then sought a temporary restraining order and a preliminary injunction to enjoin a merger that Biolitic AG was about to undertake with its Austrian subsidiary; it claimed that the merger would make the judgment unenforceable because American judgments cannot be enforced in Austria.
Judge Zobel granted the motion and enjoined the merger. Here’s where things get crazy. The defendants consummated the merger anyway. AngioDynamics moved for an order holding the defendants in contempt of court, and the court issued an order to show cause that specifically required Neuberger to appear personally at the hearing. Neuberger refused, on the grounds that he was “afraid that the Court may grant ADI’s request to incarcerate him until Biolitec AG relocates its corporate domicile back to Germany.” And so Judge Ponsor issued a warrant for his arrest and imposed an escalating and continuing fine that will begin at $1 million per month and reach $8 million per month. The judge also requested that the United State Attorney prosecute Neuberger for criminal contempt.
The First Circuit affirmed the injunction and (for the most part) the sanction for the kinds of reasons suggested in the oral argument. In short, Neuberger and Biolitec had admitted that they could reverse the merger, so they can hardly complain about the escalating contempt sanction. The court did, however, remand the case to the district court for modification of the contempt order in one respect: the court should set an amount after which the escalating contempt sanction would stop increasing.