The Corporation in Contempt What to Do?, 0718 SCBJ, SC Lawyer, July 2018, #20

AuthorBy Jarrett Bouchette
PositionVol. 30 Issue 1 Pg. 20

The Corporation in Contempt What to Do?

Vol. 30 Issue 1 Pg. 20

South Carolina BAR Journal

July, 2018

By Jarrett Bouchette

It can be said that all of a litigator's efforts during the course of a case are ultimately spent trying to obtain a desirable court order. For example, the civil attorney hopes for a large judgment that, assuming there are sufficient collectable assets (no doubt a large assumption in many cases!), can ultimately form the basis of an order to sell, liquidate or otherwise collect on those assets. For the family court litigator, the goal is a final order (either through agreement or contested hearing) addressing who pays for what? Who has custody of whom? Who's restricted from doing what? Etc.

In hopes of obtaining that final order, we may utilize various court orders to move a case forward during the course of litigation. If a party fails to respond to the subpoena, for example, the attorney can file a motion for an order compelling a response. Should that party then willfully fail to comply with the court's order, they are in contempt. Most of us are familiar with the remedies at the court's disposal if the contemnor is an individual, and how to go about requesting those remedies. But what happens if the contemnor is a corporate entity? What remedies are available? Who is responsible to appear on behalf of the corporation? If you have an order requiring Verizon or Wells Fargo to produce documents and the company fails to comply, do you hold the local branch manager in contempt, or is it the CEO?

Very large corporations generally have departments and processes in place to respond to subpoenas and orders. As a result, they will often comply fairly quickly. Smaller closely-held entities, especially in cases where the s hareholders or members are also named as individual defendants, usually do not have such processes. They may more often be under the mistaken belief that because the order is to the corporate entity no one will be held personally responsible. Effectively applying and utilizing the contempt powers of the court with corporate contemners can help save time and ensure that all resources are at your disposal.

Review of the court's contempt power

The recognition of a court's power to punish those parties that have disobeyed its order(s) pre-dates the prevalent use of the corporation, at least in its modern form. The pre-civil war South Carolina decision of Johnson v. Wideman1 makes clear that a court may punish the contemnor by either fine or imprisonment. The court in Johnson also noted that contempt proceedings are separate and distinct from the merits of the underlying case, and do not terminate even if the underlying case is concluded. Modem cases note additional remedies for contempt, such as striking pleadings, suppressing evidence against the contemnor, and granting summary judgment.2

With the proliferation of the corporation in the post-war era, courts have been faced with the conundrum of effecting corporate compliance when the corporate entity, and not any particular shareholder, officer or individual executive, is in contempt.

The "responsible party" rule

In Wilson u. United States,3 the US Supreme Court made clear that the contempt powers of the court can reach through the corporate veil and extend to an individual shareholder. In determining which...

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