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Note: Ramesh Kapur and Bhupinder Saini (Investors) invested in gasoline stations operated by Baker Energy Co. (Applicant), which was owned by Rohit Sharma (Owner) and his wife. To assure payment to various petroleum companies with which Applicant conducted business, including Lion Oil Co. (Beneficiary), Applicant sought standby LCs from various banks, including Fox River State (Issuer). Investors guaranteed repayment and posted collateral.

Subsequently, Investors suspected Applicant selfdealing and improper accounting and sued Owner for fraud, accusing Owner of causing Applicant to take "improper and unlawful steps to trigger draws." On Investors' application, the Circuit Court for Sheboygan County, Wisconsin, entered a temporary injunction against Owner. It prohibited him from "causing by any act or omission any further draw by [any beneficiaries] on [the LCs]... either by purchasing products from [any of the beneficiaries] other than for cash, or by failing to pay for products already purchased, or in any other fashion." A later order prohibited Owner from "any action or omission... that would trigger any draws upon the remaining $150,000 [LC] issued by [Issuer] in favor of [the beneficiaries]."

Subsequently, Investors were notified of a drawing of US$128,994.66 on an LC in favor of Beneficiary. The previous month, Applicant had attempted to pay for a delivery of gasoline with postdated checks. Refusing these checks, Beneficiary had drawn on one of the LCs.

Investors then moved for an order of contempt against Owner, contending that Applicant's attempted payment by postdated check constituted a violation of the first injunction against Owner. After a hearing, the Circuit Court for Sheboygan County, Wisconsin, Bourke, J., found Owner to be in contempt and ordered him to post a bond in the amount of the LC drawing. On appeal, the Court of Appeals for the Second District of Wisconsin, Nettesheim, J., affirmed.

The appellate court rejected Owner's argument that his alleged conduct should have been measured from the second injunction because Investors had not posted a bond as required by the first injunction, which would therefore not be in effect. The court noted that the conduct in question occurred before the second injunction was issued and that, in any event, the second injunction did not supersede the first.

The appellate court stated that questions relating to contempt are within a trial court's discretion, which will not be disturbed except for obvious mistake or misuse of discretion and that there will be deference to findings of fact by the trial court. Owner had argued that there was nothing to indicate that the conduct was intentional, noting the trial judge's statement that "he did not act with 'malicious intent.'" The appellate court noted that:

The [trial] court's very next statements are telling on this point. After stating that [Owner] did not act with "malicious intent," the court correctly observed, "Malicious intent is not required." The court then followed that remark with the explanation that while [Owner] intended the postdated checks to cover the [Beneficiary] obligation (hence no "malicious intent"), the fact remained that his conduct intentionally violated the terms of the [first] injunction, which required cash payments on the [Beneficiary] account.

Owner also argued that other persons acting on behalf of Applicant had issued the postdated checks. The appellate court noted:

[Owner's] responsibility under the injunction was to assure that [Applicant] paid [Beneficiary's] invoices by cash. That others executed the postdated checks did not relieve [Owner] of his responsibility under the injunction to assure that payment was made only by cash. A person may be held in contempt of court if he or she has the ability, but refuses, to comply with a court order.

Owner also argued that the sanction imposed by the trial court was inappropriate in light of the fact that Investors had not incurred any pecuniary loss as a result of the drawing on the LC. The court rejected this argument, stating:

While [Investors] had not, as yet, suffered any pecuniary loss directly related to [Owner's] contempt at the time of the contempt hearing, it remained that their financial circumstances had markedly changed for the worse and they were in clear peril under their guarantees to [Issuer]. In that broad sense, [Investors] had incurred a "loss or injury" [under Wisconsin statute].

[JEB/dgd]

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