Earthgrains Baking Co., v. Sycamore, 2022 WL 433486 (10th Cir., Feb. 14, 2022).

Opinion 2022 Utah Exclusive_Remedy Receiver Other_Orders 2022UtahEarthgrainsBakingReceiverExclusivity

Earthgrains Baking Co. v. Sycamore Family Bakery, Inc., D.Utah Case No. 09CV523 (Aug. 21, 2015).

EARTHGRAINS BAKING COMPANIES, INC., Plaintiff,

v.

SYCAMORE FAMILY BAKERY INC., and LELAND SYCAMORE, Defendant.

Case No. 2:09CV523DAK.

United States District Court, D. Utah Central Division.

August 21, 2015.

MEMORANDUM DECISION AND ORDER

DALE A. KIMBALL, District Judge.

This matter is before the court on EarthGrains's Motion for Contempt Sanctions, EarthGrains's Motion for Order Restraining Sale of Sycamore Family LLC Asset, Jeri Sycamore and Sycamore Family LLC's Motion to Stay, and the correct Amended Judgment pursuant to the Tenth Circuit's decision in this matter. On June 23, 2015, the court held a hearing on these matters. At the hearing, Plaintiff was represented by Charles A. Burke and Nicholas Frandsen, Defendants Sycamore Family Bakery was represented by Jason M. Joyal, Defendant Leland Sycamore was represented by Sean N. Egan, and Jeri Sycamore and Sycamore Family, LLC were represented by Andrew G. Deiss and Kevin A. Catlett. The court denied Sycamore Family LLC's Motion to Stay at the hearing and took the remaining motions under advisement. The parties filed supplemental briefing on June 29, 2015. After carefully considering the parties arguments and the law and facts relevant to the pending motions, the court issues the following Memorandum Decision and Order.

Motion for Contempt Sanctions

EarthGrains contends that the Sycamore Family LLC has repeatedly violated this court's Charging Order by failing to compensate EarthGrains for a damages judgment that has been upheld by the Tenth Circuit. Federal district courts have the "power to punish by fine or imprisonment, or both, at its discretion, such contempt of its authority . . . as . . . [d]isobedience or resistance to its lawful writ, process, order, rule, decree, or command." 15 U.S.C. sec. 401. It is well-settled law that a "district court has broad discretion in using its contempt power to require adherence to court orders." Consumers Gas & Oil, Inc. v. Farmland Indus., 84 F.3d 367, 370 (10th Cir. 1996). In order to hold a party in civil contempt, a court must find clear and convincing evidence "[1] that a valid court order existed, [2] that the defendant[s] had knowledge of the order, and [3] that the defendant[s] disobeyed the order." FTC v. Kuykendall, 371 F.3d 745, 757-58 (10th Cir. 2004).

The court order at issue in this dispute is the court's Charging Order entered March 6, 2014. At the hearing on this motion, the Sycamore Family LLC challenged whether the Charging Order is valid because it was entered under Utah law instead of Nevada law, which it submits is the proper law. The LLC is incorporated under Nevada law. However, even if the court considered this argument timely asserted, it fails on its merits. The Charging Order does not implicate the internal affairs of the Sycamore Family LLC. It merely relates to the LLC's obligations to a third party.

The internal affairs of an LLC are limited only to "matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders." Wasatch Oil & Gas, LLC v. Reott, 263 P.3d 391, 393 (Utah Ct. App. 1994). Many courts have already concluded that claims, such as EarthGrains's, asserted by third party creditors against an LLC fall outside the internal affairs doctrine. Alphonse v. Arch Bay Holdings, LLC, 548 Fed App'x 979, 986 (5th Cir. 2013); Hitachi Med. Sys Am. Inc. v. Branch, 2010 WL 816344, at PAGE_10 (N.D. Ohio Mar. 4, 2010). Moreover, under a choice of law analysis, Utah law would govern the Charging Order because all of the LLC's activities, dealings, and properties are located in Utah, and Leland Sycamore is a resident of Utah. Therefore, the court concludes that the Charging Order was properly issued under Utah law and is a valid court order for purposes of contempt proceedings.

Second, there is no dispute that the Sycamore Family LLC has notice of the court's Charging Order. EarthGrains served a copy of the Charging Order on Jeri Sycamore, as a member-manager of the LLC, on March 13, 2014.

Therefore, the final dispute with respect to a determination of contempt relates to whether the LLC is disobeying the Charging Order. The Charging Order provides that the LLC is to pay Leland's portion of any proceeds or distributions to EarthGrains directly until EarthGrains's Judgment is satisfied. The LLC's Operating Agreement also requires distributions to be made to all members in proportion to their ownership interest. EarthGrains asserts that the Sycamore Family LLC has made distributions of hundreds of thousands of dollars to Leland Sycamore's wife, Jeri Sycamore, without making the requisite payments to EarthGrains in proportion to Leland Sycamore's membership interests in the LLC. EarthGrains claims that the LLC's failure to make proportional distributions is an effort to block EarthGrains from receiving LLC funds due under the court's Charging Order.

After this court issued summary judgment and a permanent injunction but prior to trial, the court found Defendants in contempt for continuing to sell bread under the Sycamore brand. The court granted compensatory damages and attorney fees to EarthGrains, but Defendants have not satisfied the amounts awarded at that time. In addition, in April 2012, a jury awarded EarthGrains damages in the amount of $2,333,129. The court enhanced damages under 15 U.S.C. sec. 1116 to $4,674,950, awarded $1,091,336.40 in attorney fees and costs, and prejudgment interest at 2.18%. The Tenth Circuit affirmed the monetary amounts of the Judgment. Therefore the total amount Defendants owe to EarthGrains is now over $6 million.

Leland and Jeri Sycamore hold and manage the majority of their assets in and through the Sycamore Family LLC. When the LLC was formed, Leland and Jeri Sycamore each took a 48% membership interest, with each of their four children receiving a 1% interest. Leland Sycamore executed a document purporting to transfer 46% of his ownership interest in the LLC to Jeri Sycamore, leaving him with only a 2% interest (the "Relinquishment"). However, in a separate lawsuit between these parties, Judge Nuffer of this District Court ruled that the Relinquishment document was invalid, null and void, and of no force or effect because the managing members of the LLC did not give their prior written consent to the transfer of Leland Sycamore's membership interest as the LLC's Operating Agreement requires. That case is now stayed pending this court's determination of the contempt issue. However, that case has already determined that Leland Sycamore continues to hold a 48% interest in the Sycamore Family LLC.

EarthGrains asserts that the LLC regularly makes distributions to Jeri Sycamore. Jeri Sycamore, as a member-manager of the LLC, often carries out these distributions by endorsing checks made to the LLC and depositing them in her personal accounts, treating them as a LLC distribution. These distributions vary in amount but are often for thousands of dollars, including a recent $800,000 distribution that Jeri Sycamore used to purchase a home in Heber, Utah. The LLC argues that it, rather than Jeri Sycamore, bought the home in Heber as an investment.

The LLC also argues that the payments made to Jeri Sycamore are payments to compensate her for managing the LLC. However, Jeri Sycamore and the LLC do not provide any evidence of the existence of any contracts-oral or written-to compensate Jeri Sycamore for managing LLC assets. The deposition testimony of Jeri Sycamore indicates that the LLC has secured contracts or arrangements with outside parties for management of the LLC's assets and financial accounts. For example, Vision Real Estate manages real estate assets, Urban Development manages real estate assets, and an outside accountant manages the LLC's accounts. Jeri Sycamore did not identify management expenses as an expense of the LLC.

However, the LLC also argues that the information EarthGrains refers to is outdated because EarthGrains learned it more than a year before the Charging Order was issued. Before the court determines whether there is, in fact, a violation of Charging Order that would support a finding of contempt, the parties should engage in 70 days of discovery. During that time, EarthGrains can obtain updated information from depositions and document requests. Because of the lack of current information, the court denies EarthGrains's Motion for Contempt without prejudice, to be renewed, if appropriate, at the close of the seventy days of discovery.

EarthGrains's Motion for Order Restraining Sale of A Sycamore Family LLC Asset

EarthGrains also seeks an order enjoining the Sycamore Family LLC from selling or attempting to sell the Sycamore family home in violation of the Charging Order against Leland Sycamore's interest in the Sycamore Family LLC. The parties dispute whether the debt belongs to the LLC or Leland Sycamore.

Leland Sycamore financed the purchase of his former business, Sycamore Family Bakery, through a $2.1 million dollar line of credit from Wells Fargo. On the line of credit agreement with Wells Fargo, Leland Sycamore is listed as the sole borrower. To secure the loan, the LLC executed a deed of trust on the Sycamore family home to Wells Fargo. The Short Form Open-End Deed of Trust lists the Sycamore Family LLC as the borrower, but it also states that the document is the security interest together with all Riders to the document. The Third Party Rider to Deed of Trust states that it amends and supplements the Deed of Trust and it identifies Leland Sycamore as the borrower.

The principal balance on the line of credit, $1.95 million, was due in September 2013, but Wells Fargo has reportedly granted a five-year extension and has not foreclosed on the home. The Sycamores have listed the family home for sale-for $3,999,000—to pay off Leland Sycamore's debt under the Wells Fargo line of credit. When EarthGrains learned that the house was for sale, it sent a letter to the Sycamores's counsel outlining why such a sale would violate the Charging Order and requesting that the house be taken off the market pending the outcome of the disputes between the parties. The Sycamore's counsel disagreed and EarthGrains filed the present motion.

The Charging Order gives EarthGrains the same rights of an assignee of Leland Sycamore's interest in the LLC. As an entity with the rights of an assignee, EarthGrains is entitled to receive any distributions to which Leland Sycamore would be entitled as a member. If the LLC decides to make distribution to Leland Sycamore or transfer funds characterized as payment for his loans, the LLC must distribute that money directly to EarthGrains.

Utah's Limited Liability Company Act defines a "distribution" as "a direct or indirect transfer by a company of money or other property, except: (i) an interest in the company; or (ii) incurrence of indebtedness by a company, to or for the benefit of members in the company in respect of any interest in the company." Utah Code Ann. sec. 48-2c-102(5)(a). Therefore, the sale of the Sycamore home and subsequent transfer of the proceeds to Wells Fargo to satisfy Leland Sycamore's debt is either an indirect distribution to Leland Sycamore or an indirect transfer of funds to him as payment for his loans. Both characterizations constitute a violation of the plain language of the Charging Order. Under the Charging Order, the LLC must "[p]ay directly to [EarthGrains] all assets, profits, proceeds, distributions, advances, draws, and any other remuneration due to [Leland] Sycamore as a result of his ownership interest in Sycamore Family LLC, including without limitation any transfers characterized or designated as payment for Sycamore's tax liabilities, salary, wages, reimbursements, or loans, until [EarthGrains's] Judgment is satisfied in full."

Although the LLC tries to argue that the LLC is the borrower and it is trying to pay off its own indebtedness, the evidence does not support that assertion. The LLC merely allowed Leland Sycamore to use its property as collateral. Leland Sycamore is the borrow and it is his debt. The documents support that conclusion as does prior testimony from the LLC stating that the debt is Leland's.

Under the Charging Order, the LLC cannot pay off Leland's debt to Wells Fargo without first paying EarthGrains the money due under this court's Judgment. The Charging Order states that "any transfers characterized or designated as payment for [Leland] Sycamore's . . . loans" be transferred directly to EarthGrains until its Judgment is satisfied in full. The court agrees with EarthGrains that one of the largest assets of the LLC cannot be sold to pay off Leland's debt to another third party. The loss of such a significant asset could cause irreparable harm to EarthGrains in its ability to satisfy the Judgment.

The LLC argues that it is inconsistent for EarthGrains to argue that the LLC's payment of the debt would be a distribution to Leland Sycamore when it argued in the fraudulent transfer litigation that the LLC's agreement to put the house up for collateral was a loan rather than a distribution. However, the issues in the fraudulent transfer litigation was whether the promissory note was a distribution or a loan, which is readily distinguishable. The promissory note actually supports EarthGrains's position that the debt is Leland's not the LLC's. Moreover, the parties have not even addressed the validity of the promissory note, which itself could be invalid, in either case. The court also notes that it could as easily be argued that the LLC is taking inconsistent positions in the two lawsuits because it claimed the other action that the promissory note was a distribution to Leland and it now argues that paying off Leland's debt to Wells Fargo, which is what the promissory note appears to reflect, would not be a distribution.

The Sycamores further argue that Wells Fargo is now an indispensible party to this litigation under FRCP 19. However, Wells Fargo is not seeking to foreclose on the house or threatening any action against the LLC or Leland on the line of credit. Wells Fargo has extended the loan terms for several years. EarthGrains's motion does not seek to establish that it has priority over Wells Fargo's security interest in the Sycamore home. Instead, EarthGrains seeks to preserve the home for potential satisfaction of EarthGrains's Judgment. An order preventing the LLC from selling the asset does not impair or impede Wells Fargo's ability to protect its security interest. Wells Fargo is not a indispensable party to this motion or case.

Based on the above reasoning, the court enjoins the Sycamore Family LLC from selling or attempting to sell the Sycamore family home, at 4302 N. Sheffield Dr, Provo, Utah 84604, in violation of the Charging Order Against Defendant Leland Sycamore's Interest in Sycamore Family LLC. The home is a significant asset that must be preserved for possible satisfaction of the Judgment in this action. The court, however, will reconsider this ruling if, within twenty days of the date of this Order, Defendants and/or the LLC can provide the court with a specific and verified accounting of Defendants' available funds and assets that can be used to satisfy the Judgment separate and apart from the home.

Post-Remand Amended Judgment

The Tenth Circuit disagreed with this court's interpretation of the forfeiture provision of the Trademark License Agreement ("TLA") relating to Leland Sycamore's trademark rights in Nevada and California and reversed this court's ruling that Sycamore forfeited his license in Arizona and Nevada. The Tenth Circuit remanded the case back to this court "for further proceedings consistent with this order and judgment."

After receiving the Mandate from the Tenth Circuit, the court issued an order requesting the parties to submit their positions on what further proceedings were necessary in the case. The parties submitted initial position statements and requested a scheduling order that allowed time for mediation to occur. The parties's mediation was unsuccessful. Defendants lodged a proposed Amended Judgment, EarthGrains submitted objections to the proposed Amended Judgment, Defendants submitted a response to EarthGrains's objections, and EarthGrains filed a reply.

Defendants's proposed Amended Judgment includes three changes to the original Judgment. The first change proposes that the court add the words "in California" to paragraph 5 of the Judgment to limit the geographic area in which Sycamore is found to have contractually forfeited his rights under the TLA. This change is in line with the Tenth Circuit's ruling and the parties agree that the first proposed change is proper.

Defendants's second change would add a new paragraph 6 to the Judgment stating that Sycamore has trademark rights in Arizona and Nevada under the TLA that remain in full force and effect. Defendants's third proposed change requests that the court's Injunction prohibit misconduct "except as otherwise permitted in the licensed Nevada and Arizona territories." EarthGrains opposes Defendants's second and third proposed changes.

The disputed issue is whether the Tenth Circuit's ruling on contract forfeiture in Arizona and Nevada has an impact on the scope of this court's permanent injunction. Specifically, there is a question as to whether the injunction was proper when it enjoined Sycamore from usage of "Sycamore" and other confusingly similar conduct in Arizona and Nevada. Sycamore contends that, based on the Tenth Circuit's ruling, this court's permanent injunction should not extend to Arizona and Nevada. However, notwithstanding the Tenth Circuit's ruling, EarthGrains contends that Sycamore has no remaining trademark rights in Arizona and Nevada because of a variety of other factual and legal grounds that caused Sycamore to forfeit his trademark rights.

This court did not previously rule on whether Sycamore's previously adjudicated material breaches of the TLA and his intentional damaging of the Grandma Sycamore's marks in Arizona and Nevada were grounds for losing his trademark rights because it was not necessary to do so given the court's interpretation of the TLA's forfeiture provision. However, now that the Tenth Circuit has reversed the court's ruling on the TLA's forfeiture provision, EarthGrains asks the court to consider additional grounds for Sycamore's loss of trademark rights.

The Tenth Circuit decision interpreted the TLA's forfeiture clause and determined whether a forfeiture had occurred under that provision. Whether Sycamore lost the right to use the Grandma Sycamore's marks based on misconduct or other grounds unrelated to the forfeiture provision was not considered. The Tenth Circuit never ruled that Sycamore presently possessed trademark rights under the TLA because it was not raised on appeal.

For example, on summary judgment, this court already ruled that Sycamore materially breached the TLA by sublicensing the mark to Holsum and providing the trade secret formula and process for the trademarked product without authorization. A licensee terminates a license agreement where the licensee commits a material beach of that license. See Metabolite Labs, Inc. v. Lab Corp of Am. Holdings, 370 F.3d 1354, 1370 (Fed. Cir. 2004). A licensee's material breach "constitutes termination even where the license agreement termination clause does not expressly so provide." Id.

The Tenth Circuit remanded the case for further proceedings consistent with its finding that Sycamore did not forfeit his rights in Arizona and Nevada under the TLA's forfeiture provision. The Tenth Circuit's mandate only requires a finding that Sycamore maintained his rights under the forfeiture provision. It does not require this court to ignore other misconduct and material breaches that might terminate Sycamore's rights under the TLA. Maintaining an injunction within the licensed territories does not render the Tenth Circuit's decision on the forfeiture provision meaningless. The permanent injunction in Arizona and Nevada was premised on Sycamore's forfeiture. However, the court made findings in its previous summary judgment order that Sycamore had materially breached the TLA as well. Therefore, the permanent injunction may now be premised on Sycamore's loss of rights under the TLA based on those material breaches. Defendants's changes to the Judgment would expand the scope of the Tenth Circuit's decision far beyond the narrow issue appealed.

Moreover, Defendants's proposed change ignores this court's proper imposition of permanent injunctive relief against Sycamore prohibiting him from engaging in any use of the Grandma Sycamore's marks. Defendants did not challenge the injunction on appeal and the injunction was based on a variety of misconduct, including unfair competition in Arizona and Nevada. The Injunction upholds essential aspects of the Lanham Act, one of which is preventing consumers from being misled or confused. The Lanham Act protects consumers by ensuring that branded products come from a specific, identifiable source. Even if Sycamore did not forfeit his trademark rights in Arizona and Nevada under the TLA's forfeiture provision, he is still properly enjoined from using those licensed rights based on his abuse of those rights and other Lanham Act violations that this court recognized in its summary judgment order. The court cannot simply ignore Sycamore's other material breaches of the TLA.

The court's Judgment would be contradictory if it provided that Sycamore currently has trademark rights under the TLA. Paragraph 4 of the Judgment, which was not appealed, establishes that "Sycamore breached his contractual obligations under the" TLA. These breaches, which were not appealed, included Sycamore's unlawful attempt to sublicense his rights to one of EarthGrains's largest competitors, Sycamore's unlawful diversion of confidential trade secret information to that competitor, and his unauthorized use of a trademark that was confusingly similar to the Grandma Sycamore's marks. Based on these material breaches to the TLA, Sycamore lost all rights he once had under the TLA. Thus, there is no basis for an Amended Judgment stating that his trademark rights in Arizona and Nevada are in full force and effect.

Defendants argue that Sycamore's rights under the TLA can only be terminated based on forfeiture. However, the TLA does not limit EarthGrains's remedy for breach of contract. Section 6(a) of the TLA provides EarthGrains's remedy for Sycamore's breach of contract is "to commence an action to enforce the rights available to [EarthGrains] at law or in equity." EarthGrains did just that. This court determined that Sycamore materially breached his obligations under the TLA. That ruling entitles EarthGrains to all "rights available . . . at law or in equity." It is well settled that equitable relief for breach of contract may include termination of the contract as well as injunctive relief. Accordingly, Defendants misread the TLA when they argue that EarthGrains may not terminate the License for any reason other than forfeiture. Neither the Tenth Circuit's decision nor this court's ruling on forfeiture eliminates the equitable relief EarthGrains is entitled to under the TLA. Such relief has not been waived. Based on the prior rulings, it may have been unnecessary, but it was not waived.

Defendants also argue that EarthGrains cannot have an injunction because it elected to recover damages for Sycamore's material breaches, sublicensing, and infringement. But Defendants's response confuses EarthGrains's election of damage remedies at the damages trial with EarthGrains's substantive claims for relief and this court's summary judgment order. EarthGrains is not attempting to reelect remedies. There is a fundamental difference between causes of action and remedies. EarthGrains elected to pursue only Lanham Act damages, as opposed to damages for breach of contract, at the damages trial in this action. EarthGrains has never made any elections concerning the various bases for Sycamore's breach of the TLA. EarthGrains moved for, and this court granted, summary judgment on EarthGrains's causes of action for breach of contract and violations of the Lanham Act. The court also granted the remedy of injunctive relief at the summary judgment stage. Having failed to appeal the court's summary judgment order that Sycamore breached the TLA by sublicensing to Holsum, Sycamore waived the right to object to that ruling. However, the improper sublicense can still justify the scope of the court's injunctive relief.

EarthGrains further argues that Sycamore's response misinterprets the Tenth Circuit decision. The critical question before this court is whether the equitable relief granted in connection with Sycamore's breach of contract and trademark infringement remains consistent with the limited decision by the Tenth Circuit on the issue of contractual forfeiture. Sycamore's misconduct, which was never the subject of the appeal, supports the current scope of equitable relief under both the TLA and the Lanham Act. Sycamore's argument that he could only lose rights in Arizona and Nevada by forfeiting those rights represents a fundamental misapprehension of the plain language of the TLA. As explained above, Sycamore's position also seeks to undermine this court's prior rulings and expand the Tenth Circuit's decision beyond the narrow grounds of the appeal.

Because the Tenth Circuit did not affirm Sycamore's ongoing rights or the ongoing validity of the TLA, the full breadth of this court's permanent injunction remains warranted. The court's prior finding of material and willful breach of contract entitled EarthGrains to broad injunctive relief and other equitable measures. Sycamore selectively cites to this court's summary judgment order to support his argument that the Injunction was based solely on forfeiture. The Injunction remains consistent with the court's finding of breach of contract on summary judgment. Absent some express affirmation of Sycamore's rights under the TLA, Sycamore's proposed second and third modifications are unsupported. There is no legal basis for Sycamore's rights under the TLA in Arizona and Nevada to remain "in full force and effect." In addition, there is no need to except Nevada and Arizona in paragraph ten of the Injunction.

Accordingly, the court concludes that the only necessary amendment to the Judgment is Defendants's first proposed change, which was agreed to by the parties. The court requests that EarthGrains submit an Amended Judgment reflecting that change within ten days of the date of this Order.

CONCLUSION

Based on the above reasoning, EarthGrains's Motion for Contempt Sanctions is DENIED WITHOUT PREJUDICE to be renewed after discovery, if appropriate, EarthGrains's Motion for Order Restraining Sale of Sycamore Family LLC Asset is GRANTED, Jeri Sycamore and Sycamore Family LLC's Motion to Stay is DENIED, and the court directs EarthGrains to submit an Amended Judgment as outlined above.

= = = = = = = = = =

Earthgrains Banking Cos., Inc. v. Sycamore Family Bakery, Inc., 2018 WL 5776545 (D.Utah, Nov. 2, 2018).

United States District Court, D. Utah, Central Division.

EARTHGRAINS BAKING COMPANIES, INC., Plaintiff,

v.

SYCAMORE FAMILY BAKERY INC., and LELAND SYCAMORE, Defendant.

Case No. 2:09CV523DAK

Filed 11/02/2018

MEMORANDUM DECISION AND ORDER

DALE A. KIMBALL United States District Judge

PAGE_1 This matter is before the court on EarthGrains's Renewed Motion for Contempt Sanctions. On October 23, 2018, the court held a hearing on these matters. At the hearing, Plaintiff was represented by Charles A. Burke and Nicholas Frandsen, Defendants Leland Sycamore and Sycamore Family Bakery were represented by Sean N. Egan, and Jeri Sycamore and Sycamore Family, LLC were represented by Andrew G. Deiss. After carefully considering the parties arguments and the law and facts relevant to the pending motion, the court issues the following Memorandum Decision and Order.

BACKGROUND

EarthGrains contends that the Sycamore family is evading payment of EarthGrains' judgment and failing to comply with this court's Charging Order. In April 2012, a jury awarded EarthGrains $2,333,129 in damages. The court enhanced the damages to $4,674,950, awarded Earthgrains $1,091,336.40 in attorney fees and costs, and prejudgment interest at 2.18%. The total amount of the verdict is now over $6 million, and six years later, EarthGrains has not recovered anything on the Judgment.

The Sycamore Family LLC holds virtually all of the Sycamore family's assets. Leland Sycamore owns 48% of the LLC, his wife Jeri Sycamore owns 48%, and each of their four children own 1%. Leland Sycamore attempted to transfer his ownership in the LLC to his wife. But, in a separate action, Judge Nuffer ruled that it was a fraudulent transfer.

On March 6, 2014, EarthGrains sought and this court granted a Charging Order. The Charging Order provides that the LLC is to pay Leland's portion of any proceeds or distributions to EarthGrains directly until EarthGrains's Judgment is satisfied. EarthGrains served a copy of the Charging Order on Jeri Sycamore, as a member-manager of the LLC, on March 13, 2014. On March 10, 2012, EarthGrains also obtained a charging order with identical provisions against Leland Sycamore's interest in Mary Rae Sycamore LLC, another Sycamore family limited liability company that holds assets.

The LLC operating agreement requires all LLC distributions to be distributed to the owners based on their percentage ownership. Despite distributions to Jeri Sycamore since the Charging Order went into effect, the LLC has never made a payment to EarthGrains. Accordingly, in December 2014, EarthGrains filed a motion for contempt sanctions. At the time, the information presented to the court demonstrated a violation of the Charging Order. Because the Sycamores were not forthcoming with the financial information as required by the Charging Order, the court allowed EarthGrains to engage in additional discovery to demonstrate the amount of the Sycamores' violations. The court did not deny the motion without prejudice because of a failure to demonstrate contempt. The only reason the court denied the motion without prejudice was because the motion would need to be renewed after the discovery was conducted and the extent of the contempt was documented.

EarthGrains conducted discovery but did not file a renewed contempt motion because Leland Sycamore filed a second appeal that was unsuccessful and EarthGrains' successor, Bimbo Bakeries, became engaged in another lawsuit against Leland Sycamore and others for subsequent trade secret and trade dress infringement. That lawsuit resulted in another jury verdict against Leland Sycamore and another permanent injunction. In that case, there are pending motions for attorney fees and a motion for judgment as a matter of law or for new trial.

PAGE_2 EarthGrains renews its motion for contempt sanctions in this case, asking the court to hold Leland Sycamore, Jeri Sycamore, and Sycamore Family LLC in contempt of court for noncompliance with the Charging Order. EarthGrains also asks to be paid the equivalent of all distributions that have been made to Jeri Sycamore since the issuance of the Charging Order and that a receiver be appointed who can liquidate Leland Sycamore's interest in the LLC and pay the value obtained to satisfaction of EarthGrains' judgment.

ANALYSIS

Federal district courts have the "power to punish by fine or imprisonment, or both, at its discretion, such contempt of its authority ... as ... [disobedience or resistance to its lawful writ, process, order, rule, decree, or command." 15 U.S.C. § 401. It is well-settled law that a "district court has broad discretion in using its contempt power to require adherence to court orders." Consumers Gas & Oil, Inc. v. Farmland Indus., 84 F.3d 367, 370 (10th Cir. 1996).

In order to hold a party in civil contempt, a court must find clear and convincing evidence that "(1) the order at issue was valid and enjoined conduct in reasonable detail; (2) the enjoined party had actual knowledge of the order through personal service or otherwise and was subject to it; and (3) the enjoined party disobeyed the order." Clear One Communications, Inc. v. Chiang, 670 F. Supp. 2d 1248, 1281-82 (D. Utah 2009). "In civil contempt proceedings, disobedience of the order need not be willful. Rather, 'a [d]istrict court is justified in adjudging a person to be in civil contempt for failure to be reasonably diligent and energetic in attempting to accomplish what was ordered.' " ClearOne, 670 F. Supp. 2d at 1282.

In this case, under this court's Charging Order, EarthGrains is entitled to all distributions that should be made to Leland Sycamore in accordance with his ownership interests in the LLC. The LLC's Operating Agreement requires distributions to be made to all members in proportion to their ownership interest. The LLC's failure to make proportional distributions can only be seen as an effort to block EarthGrains from receiving LLC funds due under the court's Charging Order. Leland Sycamore, Jeri Sycamore, and the Sycamore Family LLC are all well aware of the requirement under the Charging Order.

The court's Charging Order is clear, and the LLC's failure to pay EarthGrains funds due to Leland Sycamore violates the Charging Order. The Sycamores ignore the vast majority of the evidence EarthGrains submits and contest only a few evidentiary citations on relatively minor matters given the breadth of the Sycamores' obstruction over a period of many years. The Sycamore Family LLC has made substantial distributions to Jeri Sycamore without making the requisite payments to EarthGrains in proportion to Leland Sycamore's membership interests in the LLC. These distributions run into the hundreds of thousands. In addition, Jeri Sycamore and members of her family use LLC assets without compensation to the LLC, such as allowing family members to live rent free in LLC homes and condominiums.1 Even if these practices are not currently ongoing, they have occurred and the practice effectively gives family members de facto distributions. This conduct also shows the Sycamores' lack of adherence to corporate structure and duties.

1

The LLC argues that Jeri Sycamore lived rent free as the caretaker of an $800,000 home "while it appreciated." But her care taking duties do not equal market rent. Therefore, Jeri Sycamore received a substantial benefit from the LLC that was not given to the other LLC members. There are significant de facto LLC distributions the Sycamores cannot escape.

PAGE_3 The Sycamores argue that the information EarthGrains relies on is outdated. However, the Charging Order requires the LLC to provide EarthGrains with financial information. EarthGrains does not have updated information because the Sycamores have failed to comply with the Charging Order's requirements. The Sycamores claim that there is no urgency to EarthGrains' request, but the Sycamores have had a constant and continuous duty to comply with the court's order. The only parties to benefit from EarthGrains' delay in moving forward with its contempt motion is the Sycamores. EarthGrains' delay does not provide the Sycamores with a basis for ignoring the Charging Order. A party is charged with complying with an order from that date it is entered, not just when the opposing party chooses to move for contempt for noncompliance. EarthGrains has a right to collect on its judgment, and the Sycamores are required to comply with this court's orders.

The Sycamores also suggest that there is need for another round of discovery into the operations of the LLC and compliance with the Charging Order. However, there is no reason for the court and the parties to engage in endless rounds of discovery when the Sycamores simply need to comply with the payment and financial disclosures required in the Charging Order. EarthGrains has presented evidence that payments are being made to other members of the LLC and EarthGrains has not received its proportional distribution. The contempt is clear even if the exact amount is not. The court cannot and will not overlook the Sycamores' past and continued violations of the Charging Order or condone their delay tactics.

The Sycamores attempt to lessen the amount of their contempt by alleging that they have been putting money for EarthGrains in a separate account. However, nothing in the Charging Order refers to or provides for a separate account. The Sycamores did not seek permission from the court to put money in a separate account. The Charging Order clearly requires the Sycamores to make distributions to EarthGrains. It does not provide for the Sycamores to hold the money until this court orders them to make payment. Moreover, the Sycamores do not present the court with financial records demonstrating the propriety of the amounts they are setting aside, financial records that should have been provided to EarthGrains in compliance with the Charging Order. The Sycamores do not claim to misunderstand the requirements of the Charging Order. EarthGrains is entitled to collect on its judgment and this court's Charging Order already ordered the Sycamores to make the payments to EarthGrains. Requiring the court to order you to comply with a prior order before you comply with it is textbook contempt.

The parties dispute whether this court previously made a determination as to whether Jeri Sycamore's distributions were actually management fees. However, the court explained in its last order that there was no basis for the LLC to be paying Jeri Sycamore management fees. There is no evidence of any management services she provided or her qualifications for providing such services. Mrs. Sycamore had no contractual arrangement to compensate her for asset management and there was evidence that she used outside third parties to conduct most of the management work for the LLC. On tax returns, the LLC's accountants have treated the LLC's payments to Jeri Sycamore as distributions rather than management fees. Moreover, Jeri Sycamore treated the LLC accounts as if they were her own personal account and had no regard for the corporate structure. The evidence before the court demonstrates that she simply took money from the LLC when she wanted it. That does not comport with a salary for management duties. After the last hearing, the LLC apparently started paying Jeri Sycamore a set monthly fee. However, there is still no evidence that she had an agreement with the LLC or that the fees correlated with the duties she performed. The Sycamores have never demonstrated a basis for paying Jeri Sycamore for management fees.

PAGE_4 The LLC now claims that two of Leland and Jeri Sycamore's children are managing the LLC and being paid $12,000 per month for their services. However, the LLC has again failed to present a management agreement between the LLC and the children or an explanation of what duties the children are performing to justify the monthly fees the LLC pays to them. The Sycamores have also failed to demonstrate that they complied with the LLC's Operating Agreement to make the change in management.

Since the court's last order, the Sycamores also claimed that the payments from the LLC to Jeri Sycamore were not distributions or management fees, but loans. The LLC's most recent tax returns show amounts paid to Jeri Sycamore as loans. None of the usual documents that would accompany a loan exist for any funds paid to Jeri Sycamore. Moreover, Jeri Sycamore is not making any loan payments to the LLC and she freely admitted that she has no idea if she is supposed to pay any of the money back to the LLC. In fact, even if the money was a loan, Jeri Sycamore would be unable to repay the loan without withdrawing money from the LLC to fund the payment. She and Leland Sycamore do not claim to have assets outside the LLC. Moreover, the characterization of the money as loans appears to help minimize Jeri Sycamore's reported income for tax and social security purposes. Despite EarthGrains' arguments to this effect, the Sycamores did not present any evidence that the payments are actually loans. Therefore, the characterization of payments as loans from the LLC to Jeri appears to be yet another way to circumvent EarthGrains' rights as a judgment creditor.

The Sycamores also title personal assets, like their home, in the name of the LLC but do not list them as property of the LLC in accounting and tax records. The LLC does not have basic accounting procedures and records in place. After the court's hearing on these pending motions, Tyler Sycamore submitted a supplemental declaration stating that a $4.5 million home has always been valued by the LLC at $0. He stated that he has no knowledge of why the home is valued at $0. And as the new manager of the LLC, he has seen no reason to change the valuation despite the fact that he knows the county assessor values the home for tax purposes at $2.9 million. Not only is there evidence of a lack of proper financial records, there is evidence of questionable accounting practices. EarthGrains alleges that an accountant for the LLC fired the Sycamores as clients because of their failure to adhere to basic accounting practices.

In addition to payments on the final judgment, prior to trial in this case, the court found Defendants in contempt for resuming their sale of bread under the Sycamore brand and granted EarthGrains compensatory damages and attorney fees. Although the court imposed those contempt damages prior to trial, Defendants have never satisfied any of the amounts awarded. Defendants know that these amounts have been due and owing since before the trial and make no attempt to explain why there has been no payment. Their complete failure to make any payments under the court's order constitutes contempt.

Leland Sycamore claims that EarthGrains has failed to establish that he has violated this court's orders. The court agrees that contempt sanctions are not warranted simply because a judgment debtor has not paid a judgment. But, despite his assertions to the contrary, there is evidence that he is involved in the failure to comply with the court's orders. Leland currently claims to have had no involvement in the LLC since the time he set it up. This assertion is belied by the fact that he made himself a co-manager of the LLC at that same time. Jeri Sycamore testified that the outside managers preferred to work with Leland on LLC matters. As a co-manager of the LLC, Leland Sycamore has the responsibility to make sure that the LLC complies with the court's Charging Order. The LLC's Operating Agreement designates Leland Sycamore as one of the managers of the LLC. He admitted that he and his wife are listed as co-managers of the LLC. As such, he has duties to ensure compliance with court orders. The Sycamores have not provided any evidence demonstrating that an actual change in management has been made or that the Operating Agreement was complied with in making the change.

PAGE_5 In the fraudulent transfer lawsuit, EarthGrains obtained evidence demonstrating that Leland Sycamore has consistently been active in managing LLC affairs and assets during the time period that he claims that other family members have had those management functions. Leland and his family have worked together to make Leland appear to be judgment proof even though he is a multimillionaire. The family has rearranged its finances to make it appear that Leland has no possessions and no income. It then rearranged finances to make it appear that Jeri Sycamore has no income. Yet somehow Leland and Jeri Sycamore live in comfort despite their lack of income or assets. Leland Sycamore cannot claim that he is not responsible for the LLC's failure to comply with the court's Charging Order. Everything being done by the family appears to be being done with the overriding purpose of advancing Leland's interests in not paying the judgment against him.

Based on the above circumstances, the court concludes that there is clear and convincing evidence that Leland Sycamore, Jeri Sycamore, and the Sycamore Family LLC are in willful contempt of the court's Charging Order. Having held a party in civil contempt, the court may then impose sanctions for the purpose of achieving "either or both of two distinct remedial purposes: (1) to compel or coerce obedience to a court order ...; and (2) to compensate the contemnor's adversary for injuries resulting from the contemnor's noncompliance." O'Connor v. Midwest Pipe Fabrications, Inc., 972 F.2d 1204, 1210-11 (10th Cir. 1992). When determining the proper amount of a coercive sanction, "the court must consider 'the character and magnitude of the harm threatened by continued contumacy, and the probable effectiveness of any suggested sanction in bringing about the result desired.' " Id. at 1211.

EarthGrains' actual loss is the amount it would have received had the LLC distributed corresponding funds to EarthGrains that it made to Jeri Sycamore. Because of the Sycamore's failure to comply with the Charging Order's requirements to turn over relevant financial information and their disregard for corporate structures or recordkeeping, the exact amount of the contempt is unknown. Accordingly, EarthGrains requests that the court appoint a receiver to (1) assume all rights and powers granted to Leland Sycamore as a member-manager of the LLC under the LLC's Operating Agreement; (2) conduct an accounting of all the distributions that the LLC has made to Jeri Sycamore since the court entered the Charging Order; and (3) immediately transfer that same amount to EarthGrains up to satisfaction of judgment.

The court recognizes that the appointment of a receiver can be considered a drastic remedy. Wing v. Horne, 2009 WL 2929389, PAGE_3 (D. Utah Sept. 8, 2009). However, the court agrees with EarthGrains that the Sycamores' and the LLC's nebulous finances coupled with the repeated management changes and procedural maneuvering fits squarely within the circumstances for appointing a receiver. "The appointment of a receiver in a diversity case is a procedural matter governed by federal law and federal equitable principles." World Fuel Servs. Corp. v. Moorehead, 229 F. Supp. 2d 584, 596 (N.D. Tex. 2002). Rule 66 of the Federal Rules of Civil Procedure recognizes that the Federal Rules of Civil Procedure govern an action in which a receiver is appointed and that the administration of the receivership should "accord with the historical practice in federal courts or with a local rule." Fed. R. Civ. P. 66. The District of Utah has no local rules pertaining to receivers. Thus, the court must be guided by federal common law traditions applicable to receivers.

Factors courts consider in appointing a receiver include: "(1) the validity of the claim of the party seeking a receiver; (2) the probability that fraudulent conduct has occurred or will occur to frustrate that claim; (3) imminent danger that property will be concealed, lost, or diminished in value; (4) inadequacy of legal remedies; (5) lack of a less drastic remedy; and (6) the likelihood that appointing a receiver will do more harm than good." Id.

PAGE_6 Each of the factors to consider in determining whether to appoint a receiver supports the appointment of a receiver in this case. Earthgrains has a valid final Judgment and has documented fraudulent conduct that has occurred to frustrate EarthGrains' ability to collect on the Judgment. The Sycamores put almost all their assets into the LCC and have used the LLC to shield the assets from Leland's creditors. Leland then attempted to transfer his interest in the LLC and brought a lawsuit to get out of paying the judgment in this case. However, Judge Nuffer found the transfer to be fraudulent and ineffective.

In addition to that case, the LLC has taken every position possible in this case to keep from making any payments to EarthGrains. Defendants have not paid anything on the Judgment or past contempt order and ask the court to believe that Leland Sycamore has no assets and no income. Corporate structures can provide protection, but the Sycamores appear to be using the structure to shield all their assets and income from known creditors. The Sycamores previously claimed that Jeri Sycamore received money from the LLC for "management fees" instead of as distributions because distributions would have to be made equally to each member based on proportional ownership. When the court questioned the management fee claims, the Sycamores switched managers to two of their adult children. Now the Sycamores claim that Jeri Sycamore is no longer receiving money from the LLC and neither she nor Leland have any access to the LLC accounts. The Sycamores have not attempted to explain to the court how Leland and Jeri Sycamore are currently living with all their assets in the LLC, no income, and no access to LLC accounts. Meanwhile, two of their children are now paid $12,000 per month to oversee LLC management while the LLC continues to pay outside accountants and other professionals as well.

The change in management appears to be an attempt to take LLC management decisions away from the person who owes the Judgment. But, despite Leland Sycamore's lack of management power or access to LLC accounts or assets, the LLC has still failed to comply with the court's Charging Order. Even if the current managers have an interest in complying with the order in the future, they have made no attempt to comply since supposedly taking over and made no attempt to amend the LLC's past mistakes with compliance. When questioned about the propriety of their actions in motions such as the present motion for contempt, the Sycamores provide no information to the court to explain the circumstances or give any transparency.

Throughout all of this there has been no documentation to support the Sycamores' claims regarding LLC management or operations. The LLC's Operating Agreement spells out a specific succession plan in the event that Leland and Jeri are unwilling or unable to serve as co-managers–Mary Nicole Sycamore is to serve as sole manager. There is no documentation of managers resigning or being unanimously voted out. With respect to LLC record keeping, the Sycamores represent that Jeri Sycamore received $62,690 in management fees from March 2014 to December 2, 2014, but they provide no representations about all of 2015. The sporadic and random disclosure of information is inconsistent and troubling. In addition, EarthGrains has demonstrated instances where the LLC has potentially engaged in tax fraud and the LLC has taken no steps to correct past tax filings. The complete lack of documentation and transparency, especially with respect to the management of the LLC, supports the appointment of a receiver.

PAGE_7 The LLC argues that a receiver is unnecessary because EarthGrains requests a sum certain to be paid to it and there is no evidence that the LLC does not have the funds to pay that amount. However, the financial information the LLC provides to the court is contradictory depending on the issue being discussed. Moreover, the lack of transparency by the LLC makes it impossible for the court to determine the amount that should be properly distributed to EarthGrains. And, despite the requirements of the Charging Order, the LLC provides no comprehensive documentation of the sum certain that is due and owing to EarthGrains. The LLC claims that it has a separate account with funds intended for distribution to EarthGrains, but the LLC does not provide documentation regarding the amounts in the account and the amounts do not appear to be equal to the amount of distributions made to Jeri Sycamore since the entry of the Charging Order. Moreover, the amount the Sycamores are willing to pay EarthGrains to avoid a receiver changed between the briefing of the motion and the hearing on the motion. While the court can appreciate their desire to avoid a receiver, the fluctuating amounts demonstrate that the LLC is not properly accounting for its funds and likely has not attempted to determine the exact amount due to EarthGrains. A receiver can review the LLC's accounts and determine the amount due, which the management has been either unable or unwilling to provide to the court. The court concludes that EarthGrains has met the second factor to consider in appointing a receiver because there is significant evidence in this case regarding the probability that fraudulent conduct has occurred or will occur to frustrate EarthGrain's rightful claim to payment of its Judgment and collection under the Charging Order.

Next, the risk that the LLC is diminishing or concealing assets that could potentially satisfy EarthGrains' judgment is real, continuous, and thus the court considers it imminent. The LLC has been making distributions without giving any to EarthGrains and without providing documentation. Moreover, the Sycamores have a history of making de facto distributions to family members that are not considered distributions. There is a constant danger that the LLC property will be concealed, lost, or diminished in value. The Sycamores know that their lack of record-keeping and documentation can allow them to hide what is happening. The loss of value in the LLC since it was formed shows that there is a continual loss of revenue. Additionally, the LLC values some properties at nothing. Arguably, if an asset is valued at nothing it allows you to assert that the value of it is not diminishing. However, if that asset is actually worth $3 million, a valuation of nothing is not only bad practices but potentially fraudulent. One of the current managers of the LLC not only does not know why the home is valued at nothing but sees no reason for changing the valuation. Such representations demonstrate the lack of interest the LLC has in the value of its property. The Sycamores' complete lack of respect for the corporate form and structure requires a receiver. A receiver will bring transparency and consistency to the LLC's financial management and enable the Sycamores to comply with the court's Charging Order.

The next factor deals with whether legal remedies are inadequate. EarthGRains has had its Judgment for six years and a Charging Order to assist in the collection of that Judgment for four years. The fact that the Charging Order has been in place for four years and the Sycamores have not made a single payment to EarthGrains demonstrates that EarthGrains' available legal remedies have been inadequate. At this point in the process, EarthGrains has demonstrated that the court needs to exercise its equitable powers to appoint a receiver.

As to whether there is a less drastic remedy in this situation, the Sycamores argue that the court should appoint a special master instead of a receiver. The Sycamores have filed a separate motion seeking appointment of a special master under Rule 53 of the Federal Rules of Civil Procedure. Under the rule, a special master can be used in post trial matters. But a special master can only make or recommend findings of fact based on submissions by the parties. A special master could oversee additional discovery and fact finding procedures. However, with a special master, the Sycamores could delay the proceedings even further and put the case in an endless discovery merry-go-round, a result that the court has already rejected. The court has already documented that the Sycamores delay tactics and lack of transparency. The Sycamores simply are not forthcoming with information even when an issue is before the court. A special master is an insufficient remedy in a case such as this involving long-standing violations of the court's orders. Moreover, a special master in this case would lack the power to conduct critical tasks. A receiver can become involved in the organization, review the actual accounts and assets, make an accounting, determine what distributions are due to be made to EarthGrains, and take action to recover amounts owed to the LLC.

PAGE_8 The Sycamores claim that a special master is sufficient because the LLC is currently well run. But the assertion is not consistent with the evidence presented to the court. The record in this action as well as the record in the action before Judge Nuffer is replete with LLC mismanagement. The evidence shows repeated failures to keep LLC and personal financial transactions separate, a complete lack of record-keeping, knowingly inaccurate tax returns, mischaracterizations of payments, failures to make required payments, and falsifying or back dating transaction records. In the face of this evidence, the Sycamores offer the court nothing more than vague, self-serving claims.

In addition, the current "managers" appear to have been complicit in Leland Sycamore's avoidance of the judgment. The current managers claim to have money in an account for EarthGrains, which is itself a violation of the Charging Order. The money has been due and owing for years. A Special Master would be too limited in this situation. Only a receiver, with the authority proposed by EarthGrains, can conduct the proper financial analysis and bring the LLC into compliance with the Charging Order.

On the final factor, the court finds no evidence to suggest that a receiver will do more harm than good. The Sycamores assert that a receiver is costly but there is no evidence that the special master requested by the Sycamores would cost significantly less. Without a receiver, the LLC has not paid a penny for over four years. A receiver can make amends and make sure the Charging Order is complied with going forward.

The Sycamores further claim that the LLC is a Nevada entity and Nevada law limits the actions this court can take to assure compliance with the court's prior orders. But the underlying conduct related to an attempt to defraud EarthGrains as a creditor is not considered the internal affairs of the LLC and would not be governed by Nevada law. Wasatch Oil & Gas LLC v. Edward A. Reott, 2011 UT App 152, ¶ 3, 263 P.3d 391, 393 (Utah Ct. App. 2011). Moreover, federal law and equitable principles govern the appointment of a receiver. World Fuel Servs. Corp. v. Moorehead, 229 F. Supp. 2d 584, 596 (N.D. Tex. 2002).

Given the above analysis, the court concludes that all the factors to consider in appointing a receiver support the appointment of a receiver in this case. A special master is not a viable alternative given the circumstances explained above. Accordingly, the court will grant EarthGrain's request for appointment of Wayne Klein as the receiver in this case and enter a separate order setting forth his authority and responsibilities.

To the extent the receiver's accounting does not satisfy the judgment, EarthGrains requests that the court grant the receiver all necessary powers to foreclose the Charging Order lien against Leland Sycamore's 48% ownership interest in the LLC. Under Utah Code Ann. § 48-3a-503(3), if a judgment creditor makes a "showing that distributions under a charging order will not pay a judgment debt within a reasonable time, the court may foreclose the lien and order the sale of the transferable interest." In accordance with this statute, the Charging Order in place in this case provides for the court to order a foreclosure of Leland Sycamore's membership interests in the LLC, upon EarthGrains' request, to the extent the judgment is not fully satisfied by Leland Sycamore's charged rights and interests in the LLC.

While a foreclosure of Leland Sycamore's interest in the LLC may be a viable option to pursue at a later date, the court declines to order the power of foreclosure prior to the receiver's accounting and review of the LLC and his efforts to bring the LLC into compliance with the Charging Order. After the receiver has taken all the necessary steps to bring the LLC into compliance with the Charging Order, the court would prefer to be involved again prior to granting the right to foreclose Leland Sycamore's interest. The parties currently disagree as to the law applicable to foreclosing Leland Sycamore's interest. If the Sycamores are correct and Nevada law is applicable to foreclosing on Leland Sycamore's interest, the receiver will be able to obtain information relevant to a reverse piercing of the corporate veil and present it at that later date.2

2

Nevada "recognizes 'reverse piercing' where a creditor may reach a corporation's assets 'to satisfy the debt of a corporate insider based on a showing that the corporate entity is really the alter ego of the individual.' " LFC Mktg. Grp., Inc. v. Loomis, 8 P.3d 841, 846 (Nev. 2000). Courts have held that such reverse piercing "is particularly appropriate ... when the controlling party uses the controlled entity to hide assets or secretly to conduct business to avoid the pre-existing liability of the controlling party." Id.

PAGE_9 Given the court's finding of contempt, EarthGrains asks the court to impose additional coercive sanctions and attorney fees in addition to the appointment of the receiver. The court believes the imposition of the receiver is adequate to ensure that the LLC will not again violate the court's Charging Order with respect to proper distributions. Therefore, the court declines to award coercive sanctions in addition to the outstanding judgment and sanctions award already due. The court, however, will award EarthGrains some attorney fees given the substantial work EarthGrains has been required to do to collect on its judgment, most of which should have been unnecessary. The court grants this award of attorney fees to demonstrate that there are consequences for the Sycamores' obstructionist behavior and to discourage any further gamesmanship by the Sycamores. The court, therefore, will award EarthGrains its attorney fees in connection with its renewed motion for contempt and the Sycamores' responsive motion regarding a special master. Leland Sycamore, Jeri Sycamore, and the Sycamore Family LLC are jointly and severally liable for the payment of these attorney fees. EarthGrains shall file the necessary documentation of its fees in connection with the motions at issue within fifteen days of the date of this Order. The court also notes, for purposes of its coercive effect, that the court will continue to award attorney fees for any future motions the Sycamores file that appear to be designed to obstruct or delay the collection of the judgment or any party's compliance with the court's Charging Order or other orders.

Jeri Sycamore and the Sycamore Family LLC's Motion to Appoint Special Master

The Sycamores ask the court to appoint a special master under Rule 53 of the Federal Rules of Civil Procedure, which authorizes the court to appoint a special master to address pretrial and posttrial matters. Fed. R. Civ. P. 53(a)(1)(3). In addition to the authority granted under Rule 53, the court retains broad equitable powers to appoint a "quasi-judicial officer such as a receiver, special master, or interim CEO." Chen v. Stewart, 2004 UT 82, ¶ 39. The court explained above that a receiver is more appropriate given the circumstances of this case. Given the court's decision to appoint a receiver and for the same reasons discussed above, the court denies the Sycamores' motion to appoint a special master.

CONCLUSION

Based on the above reasoning, EarthGrains's Renewed Motion for Contempt Sanctions is GRANTED, and Jeri Sycamore and Sycamore Family LLC's Motion for Special Master is DENIED. The court will separately enter an order appointing Wayne Klein as a receiver of the Sycamore Family LLC, and setting forth his authority and responsibilities. EarthGrains is directed to file its supporting documentation for attorney fees in connection with these pending motions within 15 days of the date of this Order.



Earthgrains Baking Companies, Inc. v. Sycamore Family Bakery, Inc., 2019 WL 6001940 (D.Utah, Nov. 14, 2019).

United States District Court, D. Utah.

EARTHGRAINS BAKING COMPANIES, INC., Plaintiff,

v.

SYCAMORE FAMILY BAKERY INC., and Leland Sycamore, Defendant.

Case No. 2:09CV523DAK

Signed 11/14/2019

Attorneys and Law Firms

Charles A. Burke, Pro Hac Vice, Womble Bond Dickinson (US) LLP, Winston-Salem, NC, Nicholas Ushio Frandsen, Raymond J. Etcheverry, Juliette P. White, Margaret N. McGann, Parsons Behle & Latimer, Salt Lake City, UT, Melissa G. Ferrario, Pro Hac Vice, Womble Carlyle Sandridge & Rice PLLC, Winston-Salem, NC, for Plaintiff.

Sean N. Egan, South Temple Tower Ste 1505, Salt Lake City, UT, Brenda E. Weinberg, Deiss Law PC, Salt Lake City, UT, Caroline Y. Bussin, Pro Hac Vice, Sedgwick LLP, Los Angeles, CA, Heather L. McCloskey, McCloskey Waring & Waisman LLP, EL Segundo, CA, for Defendant.

MEMORANDUM DECISION & ORDER

DALE A. KIMBALL, United States District Judge

PAGE_1 On July 10, 2019, R. Wayne Klein, the court-appointed Receiver of the assets of the Sycamore Family LLC, submitted a Report and Recommendation on Accounting for Distributions to Members of Sycamore Family LLC. On August 7, 2019, Plaintiff Earthgrains Baking Companies, Inc., filed a Motion to Implement the Receiver’s Recommendations for Distributions from the Sycamore Family LLC. The parties have fully briefed the issues raised in the Report and Recommendation.

The Receiver has completed his forensic accounting, determination of what expenditures and imputed benefits should be deemed distributions, and allocation of those expenditures and benefits to each LLC member. The Report and Recommendation addressed: (1) whether the analysis of expenditures used to perform the calculation should include all expenditures by the Sycamore Family LLC or exclude those related to the income generating and operational aspects of the Sycamore Family LLC; (2) which types of financial transactions and asset uses should be treated as distributions; (3) how particular financial transactions and asset uses should be allocated among members of the Sycamore Family LLC; (4) how the proportionate share of distributions that would be owed to Leland Sycamore should be calculated considering his 48% membership interest in the Sycamore Family LLC and distributions to other members of the Sycamore Family LLC; (5) what payment should be made to EarthGrains now from funds controlled by the Receiver; (6) what assets should be made available to satisfy the Judgment; and (7) prospects of the LLC being able to make future distributions to EarthGrains.

Based on the information and records the Receiver was able to review, the Receiver made two calculations of distributions owed to EarthGrains. EarthGrains has agreed to focus on payment of the lesser amount of $3,859,898.96. The Receiver recommends that he pay EarthGrains $1.1 million from the available cash in the Sycamore Family LLC’s bank accounts and liquidate sufficient LLC real estate to pay EarthGrains the remaining $2.7 million. The court agrees that selling LLC assets to generate funds is the only feasible option since the Receiver found that the LLC assets do not generate sufficient income and foreclosure on Leland Sycamore’s interest in the LLC is not practical.

The Sycamores’ objections to the Receiver’s recommendations raise many issues the court has already ruled upon in previous orders. There is no basis for the court to revisit those issues. The Sycamores also raise irrelevant objections casting blame on EarthGrains and the Sycamores’ attorneys for the Sycamores’ failure to cooperate and adhere to the court’s orders. None of these objections changes the fact that distributions are owing to EarthGrains.

The Receiver thoroughly analyzed the basis for each distribution. The Sycamores’ objections regarding the Receiver’s determinations on what LLC expenditures should be treated as distributions are without merit. The Receiver properly treated a “loan” to the Sycamores’ daughter as a disguised distribution and accurately calculated imputed rent. The Sycamores’ lack of documentation on these matters make their contentions nothing more than speculation. The court concludes that all legitimate interests of other LLC owners would be adequately protected by the Receiver’s recommendations.

PAGE_2 The Sycamores further claim that the Receiver’s recommendations are against Utah law. The Sycamores contend that the Utah Limited Liability Act (“LLC Act”) does not allow for the liquidation of the LLC’s real estate assets. However, the LLC Act contemplates this remedy by allowing a Receiver to be appointed and orders put in place to give effect to the charging order. The Sycamores claim liquidation of the LLC’s real estate assets is not allowable because it would force the members of the LLC to accept a creditor of Leland Sycamore. But the Receiver’s recommendation does not require acceptance of a creditor, it advocates for selling assets to raise liquid assets. Because the LLC does not have sufficient cash assets to make the payments that should have been made to EarthGrains, and the LLC will not be able to do so in any reasonable amount of time, liquidation gives effect to the Charging Order as contemplated by the LLC Act. The Sycamores provide no argument as to why real estate holdings should be treated differently from cash assets with respect to ensuring compliance with the Charging Order.

The LLC also argues that the Receiver can only make imputed distributions to EarthGrains that occurred after he became Receiver. However, this eviscerates the purpose of the Charging Order and the Court’s Order Appointing Receiver. The appointment of the Receiver was as a necessary remedy for the Sycamores’ contempt. Allowing the Receiver to only make payments occurring after the Receiver’s appointment would forgive five years of disregard for the Charging Order. The appropriate time frame is from the date of the Charging Order not the date the Receiver was appointed.

In addition, the Sycamores argue that Nevada law should apply to the Charging Order. However, the court has previously found that the Sycamores waived this argument by not timely filing objections to the entry of the Charging Order when it was entered. Furthermore, the Charging Order does not implicate the internal affairs of the LLC, it merely relates to the LLC’s obligation to a third party.

Moreover, there are no grounds for disqualifying the Receiver or investigating his contacts with EarthGrains. Some level of communication between the Receiver and parties to the case is necessary and to be expected. Nothing out of the ordinary has occurred in this case.

The court, therefore, adopts the Receiver’s recommendations and orders the Receiver: (1) to promptly pay EarthGrains $1.1 million in cash; and (2) liquidate sufficient LLC real estate assets to allow for the payment of the remaining distributions, $2,759,898.96, to EarthGrains.



Earthgrains Baking Co., v. Sycamore, 2022 WL 433486 (10th Cir., Feb. 14, 2022).

United States Court of Appeals, Tenth Circuit.

EARTHGRAINS BAKING COMPANIES, INC., Plaintiff - Appellee,

v.

Leland SYCAMORE; Sycamore Family Bakery, Inc., Defendants.

Sycamore Family LLC, Movant - Appellant.

No. 19-4174

FILED February 14, 2022

(D.C. No. 2:09-CV-00523-DAK-DBP) (D. Utah)

Attorneys and Law Firms

Charles A. Burke, Womble Bond Dickinson, Winston-Salem, NC, Juliette Palmer White, Parsons Behle & Latimer, Salt Lake City, UT, for Plaintiff - Appellee.

Brenda E. Weinberg, Felix Weinberg, Salt Lake City, UT, for Defendant Leland Sycamore.

Andrew Graham Deiss, Deiss Law, Salt Lake City, UT, Brenda E. Weinberg, Felix Weinberg, Salt Lake City, UT, for Sycamore Family LLC, Sycamore Family Bakery, Inc.

Before HARTZ, Circuit Judge, LUCERO, Senior Circuit Judge, and EID, Circuit Judge.

ORDER AND JUDGMENT fn.

Fn.This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

Allison H. Eid, Circuit Judge

PAGE 1 This appeal arises out of a lengthy effort by EarthGrains Baking Companies, Inc. (“EarthGrains”), to collect on its multimillion-dollar judgment against Leland Sycamore and the Sycamore Family Bakery. After two years of nonpayment, the district court entered a charging order against Leland's 48% interest in the Sycamore Family LLC (“the LLC”). Although the charging order required the LLC to pay EarthGrains all distributions owed to Leland until the judgment against him was satisfied, the LLC failed to make any payment to EarthGrains for another four years. The district court found the LLC in contempt of court and appointed a receiver to inventory the distributions proportionately owed to EarthGrains based on the distributions made to LLC members since the charging order's entry. The receiver submitted a report outlining the distributions owed to EarthGrains and asking the district court for permission to liquidate some of the LLC's real estate assets to satisfy these distributions. Over the LLC's objections, the district court entered an order adopting the receiver's recommendations.

The LLC appeals, arguing that the district court overstepped its authority under Utah law by ordering the liquidation of the LLC's assets. The LLC also asserts that the distribution calculations were clearly erroneous and that the receiver's recommendations should have been rejected because of his contacts with EarthGrains. We must first decide, though, whether the LLC, a nonparty to the underlying suit, can appeal the district court's order. We find that it can. On the merits, we reject all the LLC's challenges except its argument about how the distributions were calculated. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm in part, reverse in part, and remand for further proceedings consistent with this order.

I.

Leland Sycamore created Grandma Sycamore's Home-Maid Bread (“Grandma Sycamore's”), a popular line of baked goods which he sold to Metz Baking Company (“Metz”) in 1998 for around $9.5 million. The sale encompassed all marks, goodwill, and trade secrets associated with Grandma Sycamore's, but Leland retained a limited license to sell the bread in several states—not including Utah. Later, Metz merged into the Sara Lee Corporation (“Sara Lee”) and all rights under the agreement transferred to Sara Lee.

Leland put the money from the Grandma Sycamore's deal into his newly formed Sycamore Family LLC. The LLC's founding members were Leland, his wife Jeri, and their four children: Tyler, Nichole, Kristina, and Kami. Leland and Jeri held 48% membership interests while the children initially received 1% interests.1 The LLC's business operations were limited to holding and managing the family's assets, including a multimillion-dollar mansion in Provo, Utah, known as the Sheffield Property. A decade later, Leland returned to the bread game.

fn1. Although Leland and Jeri still hold 48% interests today, the Sycamores’ daughter Kami has withdrawn from the LLC and the 4% remainder is now split between the other Sycamore children.

PAGE 2 In 2008, Leland bought a bakery, which became the Sycamore Family Bakery, by obtaining a $2,112,500 line of credit from Wells Fargo Bank. The LLC (not Leland) secured the line of credit by pledging the Sheffield Property as collateral. In exchange, Leland gave the LLC a promissory note for $2,112,500 and allegedly signed a document purporting to transfer all but 2% of his membership position in the LLC to his wife Jeri. The latter transfer was ruled invalid in a separate lawsuit for failing to comply with the LLC's operating agreement, so Leland retains his 48% interest. See Sycamore Family LLC v. EarthGrains Baking Cos. Inc., No. 2:13–CV–00639–DN, 2014 WL 7261769, at PAGE 5 (D. Utah Dec. 18, 2014).

Leland's new business soon breached the Sara Lee license by selling homemade bread products under the Sycamore name in Utah. Several cease-and-desist letters followed, but Leland and the Sycamore Family Bakery were undeterred. In 2009, Sara Lee sued Leland and the Sycamore Family Bakery in the District of Utah for trademark infringement, unfair competition, cybersquatting, and breach of contract. At that point, EarthGrains acquired the relevant interests from Sara Lee and replaced Sara Lee as the plaintiff. In 2012, a jury awarded EarthGrains $2,333,129 in damages, $2,324,429 of which was attributed to Leland. The district court doubled the award against Leland. The district court also tripled the remaining damages attributed to the Sycamore Family Bakery—bringing the total damages award to $4,674,958, plus interest—and awarded EarthGrains $1,091,336.40 in attorney's fees. We affirmed the district court's damages award enhancement. See EarthGrains Baking Cos. Inc. v. Sycamore Family Bakery, Inc., 573 F. App'x 676, 682 (10th Cir. 2014) (unpublished).

Two years passed and EarthGrains's judgment “remain[ed] completely unsatisfied.” Aple. App'x Vol. I at 78. That was because all Leland's assets were housed in the family's LLC, beyond his creditors’ reach. As the district court explained, “Leland and his family have worked together to make Leland appear to be judgment proof even though he is a multimillionaire” by “rearrang[ing] ... finances to make it appear that Leland has no possessions and no income.” Aplt. App'x Vol. IV at 1065. EarthGrains sought a charging order against Leland's 48% interest in the LLC. In 2014, a magistrate judge entered the charging order against the LLC, including the following instruction:

Sycamore Family LLC ... is ordered to pay directly to [EarthGrains] all assets, profits, proceeds, distributions, advances, draws, and any other remuneration due to [Leland] Sycamore as a result of his ownership interest in Sycamore Family LLC, including without limitation any transfers characterized or designated as payment for [Leland's] tax liabilities, salary, wages, reimbursements, or loans, until the [judgment against Leland] is satisfied in full.

Aplt. App'x Vol. I at 56. More than three months after it was served with the order, the LLC objected. The district court denied the objection as untimely.

By late 2018, “the LLC ha[d] not paid a penny” to EarthGrains, despite the charging order, and EarthGrains had not recovered anything on its judgment by other means. Aplt. App'x Vol. IV at 1072–73. EarthGrains had first complained about the LLC's noncompliance and moved for contempt sanctions in late 2014. The LLC opposed. After a hearing in which the LLC participated, the district court denied the motion without prejudice to permit further discovery. See id. at 1058 (noting that the district court “did not deny the [2014] motion ... because of a failure to demonstrate contempt” and that “the information presented to the court” at the time “demonstrated a violation of the [c]harging [o]rder”).

PAGE 3 EarthGrains renewed its motion for contempt sanctions in July 2018, seeking the appointment of a receiver to account for and transfer to EarthGrains any wrongly withheld distributions, as well as to foreclose on Leland's membership interest in the LLC to the extent necessary to satisfy EarthGrains's judgment. The LLC again filed a brief in opposition and participated in the hearing on the motion. In November 2018, the district court granted EarthGrains's motion. The district court found by “clear and convincing evidence that Leland Sycamore, Jeri Sycamore, and the Sycamore Family LLC [we]re in willful contempt of the court's [c]harging [o]rder.” Id. at 1066. For instance, the LLC's “operating agreement requires all LLC distributions to be distributed to the owners based on their percentage ownership.” Id. at 1058. Yet the “LLC ha[d] made substantial distributions”—“run[ning] into the hundreds of thousands” of dollars—“to Jeri Sycamore without making the requisite payments to EarthGrains in proportion to Leland Sycamore's membership interests in the LLC.” Id. at 1060. The LLC also “g[ave] family members de facto distributions” by “allowing [them] to live rent free in LLC homes and condominiums.” Id. at 1060–61.

But the district court stated that “the exact amount of the contempt [wa]s unknown” because the LLC “fail[ed] to comply with the [c]harging [o]rder's requirements to turn over relevant financial information” and because of its “disregard for corporate structures or recordkeeping.” Id. at 1066. Accordingly, the district court granted EarthGrains's request for a receiver—denying the LLC's competing request for a less powerful special master—and entered a separate order appointing Wayne Klein as the LLC's receiver and outlining his powers and responsibilities.

In the receivership order, the district court gave the receiver “exclusive custody, control, and possession of” the LLC's assets. Id. at 1078. The district court ordered the receiver to inventory the LLC's assets and document all distributions made by the LLC since the charging order's entry in 2014, “including without limitation all distributions or transfers characterized as payment for tax liabilities, salary, wages, reimbursements, or loans.” Id. at 1080. Based on those numbers, the receiver would calculate the proportional distributions owed to EarthGrains and pay EarthGrains with cash in the LLC's bank accounts. See id. (“For example, if the holder of a 1% membership interest in the Sycamore Family, LLC had received cash or rent benefits totaling $10,000 since March 6, 2014, Leland Sycamore's 48% membership interest entitles him to a distribution of $480,000.”). If the LLC had insufficient cash to cover whatever it owed EarthGrains, the receiver could “seek leave from the court to initiate foreclosure proceedings” on Leland's 48% interest. Id. at 1083.

In July 2019, the receiver submitted his accounting of the distributions made by the LLC since the charging order was put in place and his corresponding calculation of the share owed to EarthGrains. At the outset, the receiver noted the LLC's “lack of cooperation,” including providing “limited” and sometimes “demonstrably incorrect information.” Id. at 1163–64. Nevertheless, the receiver believed he had “sufficient information to prepare the accounting and perform the calculation mandated by” the receivership order. Id. at 1164.

In the receiver's view, not every dollar spent by the LLC during the relevant period was a distribution. The receiver explained that the LLC “own[ed] three general categories of assets: rental properties, investment properties, and financial investments (including cash).” Id. at 1165. The receiver outlined two kinds of expenditures related to these assets that were business costs, as opposed to distributions: $115,909.91 in expenses required to generate rental income and $666,286.32 in capital expenditures related to real estate. Next, the receiver identified three kinds of distributions made since the charging order's entry: cash distributions, imputed rent for real property occupied by the LLC members or their relatives, and “real property ... being abandoned by the LLC for the benefit of a member.” Id. at 1167.

PAGE 4 Within the cash category, the receiver included “cash payments, salaries paid to managers of the LLC, and cash paid to others for the benefit of members (including legal expenses, vehicle lease payments, and real estate expenses),” as well as an approximately $175,000 loan to Kristina Sycamore, who holds a minor interest in the LLC. Id. at 1166. The legal fees catalogued by the receiver totaled several hundred thousand dollars. In the imputed rent category, the receiver calculated how much rental income the LLC would have obtained by renting property occupied by LLC members or their relatives.

The abandoned property category involved one of the LLC's more substantial holdings, the Sheffield Property. The receiver noted that the LLC pledged the Sheffield Property to secure a $2,112,500 line of credit that Leland took out in his personal capacity from Wells Fargo. After Leland defaulted, Wells Fargo began foreclosure proceedings. The receiver recommended treating the future loss of the property as a present distribution to Leland in the amount of the property's 2018 tax assessed value, $2,917,400.00. The receiver reasoned this would be appropriate because “the LLC is losing an asset because of the actions of one member and that member (Leland Sycamore) will benefit by obtaining forgiveness of a loan he owes to Wells Fargo Bank.” Id. at 1171. This would reduce the LLC's value by approximately $2.9 million while benefiting Leland by $2,112,500, in the receiver's view.

Having calculated the LLC's total distributions since the charging order's entry, the receiver explained his proposed methodology for allocating them between the LLC's members. For each expenditure, the receiver “attempted to identify whether the distribution should be allocated to a particular LLC member or divided among all LLC members based on their percentage of ownership.” Id. The receiver explained that he generally “had sufficient information to identify a particular beneficiary of each expenditure,” and acknowledged Tyler Sycamore's assistance. Id. When the receiver could not ascertain a beneficiary, he divided the expenditure proportionately. The receiver allocated all LLC legal expenses to Leland alone.

In total, the receiver allocated $3,859,898.96 to Leland, $963,339.62 to Jeri, $175,319.31 to Kristina, $50,664.72 to Tyler, and $25,798.92 to Nichole. Filtering these numbers through each Sycamore's membership percentage, the receiver extrapolated the total distributions the LLC should be viewed as having made since the charging order's entry. Focusing on the largest of these sums, the receiver presented the district court with two potential amounts of distributions that could be imputed to Leland's 48% membership interest and therefore owed immediately to EarthGrains. If Kristina's distributions—almost entirely consisting of her loan—were the touchstone, the LLC would owe EarthGrains $6,313,073.43 (“Kristina amount”). Alternatively, the receiver noted that if the district court “determine[d] not to treat the loan to Kristina Sycamore as a distribution, the highest assumed distributions” would come from Leland, so the LLC would owe EarthGrains his $3,859,898.96 (“Leland amount”). Id. at 1174. Without explaining why, the receiver recommended against “imputing the loan to Kristina Sycamore as a distribution” and instead proposed adopting the Leland amount. Aplt. App'x Vol. V at 1184.

The LLC had approximately $1,100,000 in cash, which the receiver recommended paying to EarthGrains immediately. Of course, that would not be enough to cover even the lower Leland amount. Because of the insufficient amount of cash, the inadequacy of anticipated future cash, the LLC's unwillingness to make required payments, the LLC's decision to own most of its assets in real estate, and the likelihood that foreclosing on Leland's interest in the LLC would be impractical and ineffective, the receiver asked to liquidate some of the LLC's real estate. The receiver asserted that “[t]his result is no different in substance than the existing authority granted to [him] ... to use available cash of the LLC to pay to [EarthGrains] the equivalent of Leland Sycamore's distributions.” Aplt. App'x Vol. IV at 1177. The receiver catalogued Jeri's involvement in the LLC's misconduct and proposed treating distributions imputed to Leland as distributions for her benefit, which would reduce distributions owed to Jeri and avoid exhausting the LLC's assets. If the court disagreed and decided to protect Jeri's interest, the receiver sketched out several options for doing so.

PAGE 5 EarthGrains moved to implement the receiver's recommendations. EarthGrains took the position that the first set of calculations, which included Kristina's loan, were correct, but it conceded that the resulting sum vastly exceeded the LLC's assets. For that reason, EarthGrains agreed to “focus upon payment of the second calculation,” the one based on distributions allocated to Leland. Aplt. App'x Vol. V at 1208. The LLC objected to the recommendations, contending among other theories that the district court should decline to implement the receiver's suggestions because the receiver had an undisclosed attorney-client relationship with EarthGrains. Rejecting the LLC's arguments, the district court adopted the receiver's recommendations.

Choosing between the Kristina amount and the Leland amount, the district court observed that EarthGrains “agreed to focus on payment of the lesser amount,” and it accordingly found that the LLC owed EarthGrains $3,859,898.96, the Leland amount. Id. at 1246. At the same time as it rejected the Kristina amount, however, the district court stated that the receiver “properly treated a ‘loan’ to the Sycamores’ daughter as a disguised distribution.” Id. at 1247.

The district court did not discuss the Sheffield Property foreclosure issue in its order, but when the district court stated that it “adopt[ed] the [r]eceiver's recommendations,” it indicated no exception or concern. Id. at 1248. The court ordered the receiver “to promptly pay EarthGrains $1.1 million in cash” and, agreeing with the receiver that foreclosing on Leland's interest would not be feasible, to “liquidate sufficient LLC real estate assets to allow for the payment of the remaining distributions, $2,759,898.96, to EarthGrains.” Id. The LLC timely appealed. On May 27, 2020, a motions panel denied the LLC's request for a stay pending appeal.

II.

Before reaching the merits of the LLC's appeal, we must determine whether it may appeal at all. EarthGrains argues that it cannot because it was a nonparty to the underlying suit and never sought to intervene. We disagree.

Although it is a “well settled” general rule that “only parties to a lawsuit, or those that properly become parties, may appeal an adverse judgment,” Marino v. Ortiz, 484 U.S. 301, 304 (1988), this general rule is not without exception. Shortly after the Supreme Court announced this rule as settled, it “affirmed ... ‘[t]he right of a nonparty to appeal an adjudication of contempt’ ... given the binding nature of that adjudication upon the interested nonparty.” Devlin v. Scardelletti, 536 U.S. 1, 8 (2002) (brackets in original) (quoting U.S. Catholic Conference v. Abortion Rights Mobilization, Inc., 487 U.S. 72, 76 (1988)); see also id. at 7 (stating the Court “ha[s] never ... restricted the right to appeal to named parties to the litigation”).

We too have recognized exceptions to this general rule, such as “in certain cases where the non-party possesses a ‘unique interest’ in the outcome of the case and actively participates in the proceedings relating to that interest.” Abeyta v. City of Albuquerque, 664 F.3d 792, 795 (10th Cir. 2011). In Dietrich Corp. v. King Resources Co., for example, we entertained an appeal by an “aggrieved” nonparty contesting an order that “directly” altered his fee arrangement with the law firms involved in the case. 596 F.2d 422, 424 (10th Cir. 1979).2 Elsewhere, we have recognized that “[t]hose who are the subject of civil contempt orders, sanctioned attorneys, class members who object to a judgment settling their rights—among others—may sometimes be parties to an appeal even though they were not named parties in the district court litigation.” Raley v. Hyundai Motor Co., Ltd., 642 F.3d 1271, 1275 (10th Cir. 2011) (collecting cases); accord Frank v. Crawley Petroleum Corp., 992 F.3d 987, 993 (10th Cir. 2021).

fn2. Although Dietrich was decided before Marino, we have since approvingly cited Dietrich. See Raley v. Hyundai Motor Co., Ltd., 642 F.3d 1271, 1275 (10th Cir. 2011).

PAGE 6 That said, we have rejected appeals by nonparties even when they had a “unique interest.” For instance, in Abeyta v. City of Albuquerque, the nonparty had a unique interest but had refused a request to join a previous appeal. 664 F.3d at 797. Because the nonparty “deliberately chose not to involve herself in the details until after we reached the merits” in the previous appeal and was requesting a do-over, we refused to entertain the nonparty's appeal in “[t]he interests of judicial economy.” Id.

Under the circumstances here, we conclude an exception to the general rule applies. There can be no question that the LLC possesses a “unique interest” in its appeal. Just as in Dietrich, the district court's order directly and adversely affects the LLC's interests. The order permits the receiver to transfer LLC cash to EarthGrains, as well as to sell its real property and transfer the proceeds to EarthGrains. While a unique interest is not necessarily the end of the inquiry, see id., and the LLC never sought to intervene, there is no apparent reason why the LLC should have intervened before final judgment. And once the charging order drew the LLC into the postjudgment proceedings, its interests were implicated and it “actively participate[d].” Id. at 795. The LLC opposed EarthGrains's two motions for contempt, participated in the hearings on those motions, objected to the receiver's recommendations, and opposed EarthGrains's motion to implement those recommendations. It also filed an objection to the charging order, albeit an untimely one. The LLC's involvement is quite unlike the wait-and-see tactic employed by the nonparty in Abeyta. Finally, although the LLC was not named as a party in the underlying case, it was named on the charging order, order appointing a receiver, and order implementing the receiver's recommendations. The LLC can bring this appeal and we will consider the issues it raises.

III.

The LLC first argues that the district court exceeded its authority under the Utah Revised Uniform Limited Liability Company Act (“Utah LLC Act”) by authorizing the receiver to liquidate some of the LLC's real estate assets and transfer the proceeds to EarthGrains to account for the distributions the LLC wrongly withheld from EarthGrains. We are unconvinced.

The district court assessed its power to order liquidation of the LLC's assets by analyzing the section of the Utah LLC Act under which the charging order was entered. See Utah Code Ann. § 48-3a-503. This was proper under the Federal Rules of Civil Procedure, which direct federal courts to follow state procedures when executing on a judgment, except to the extent that federal statutes apply. See Fed. R. Civ. P. 69(a)(1) (“The procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.”).3 We review the district court's interpretation of the Utah LLC Act de novo. See United Int'l Holdings, Inc. v. Wharf (Holdings) Ltd., 210 F.3d 1207, 1235 (10th Cir. 2000). Because we are interpreting a Utah statute, we give weight to Utah's rules of statutory construction. See Phelps v. Hamilton, 59 F.3d 1058, 1071 & n.23 (10th Cir. 1995). “When interpreting a statute, [Utah courts] look first to the plain and ordinary meaning of its terms.” Hertzske v. Snyder, 390 P.3d 307, 312 (Utah 2017) (citation omitted). In Utah, “statutory interpretation requires that each part or section be construed in connection with every other part or section so as to produce a harmonious whole.” Id. (citation omitted).

fn3. We express no opinion on the conformity of the underlying receivership with Rule 69 because the receiver's appointment is not an issue on appeal, and it need not be reached to resolve this case.

PAGE 7 The Utah LLC Act's charging order section permits “a court [to] enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment.” Utah Code Ann. § 48-3a-503(1). A “transferable interest” is defined as “the right, as initially owned by a person in the person's capacity as a member, to receive distributions from a limited liability company in accordance with the operating agreement, whether or not the person remains a member or continues to own any part of the right.” Id. § 48-3a-102(29). A charging order, in turn, has two parts. First, it “constitutes a lien on a judgment debtor's transferable interest.” Id. § 48-3a-503(1). Second, “after the limited liability company has been served with the charging order,” it “requires the limited liability company to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor.” Id.

“To the extent necessary to effectuate the collection of distributions,” the Utah LLC Act permits a court to “appoint a receiver of the distributions subject to the charging order, with the power to make all inquiries the judgment debtor might have made.” Id. § 48-3a-503(2)(a). Notably, the Utah LLC Act also allows a court to “make all other orders necessary to give effect to the charging order.” Id. § 48-3a-503(2)(b). The district court relied on this latter provision when it ordered the receiver to liquidate the LLC's real estate assets to make up for the distributions the LLC failed to transfer to EarthGrains. Utah courts have not addressed the scope of this statute before, as far as we can tell, so whether this provision confers the power the district court thought it did is the question we must decide.

We think the district court was correct and see no reason to draw a line the plain language of the statute does not. The Utah LLC Act states that a “court may ... make all other orders necessary to give effect to the charging order.” Id. (emphasis added). That is exactly what the district court did here. A charging order “requires the limited liability company to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor.” Id. § 48-3a-503(1). Consistent with this provision, the charging order here required the LLC “to pay directly to [EarthGrains] all ... distributions ... due to [Leland] Sycamore as a result of his ownership interest.” Aplt. App'x Vol. I at 56. Because the charging order was frustrated by the LLC's failure to comply, however, the district court had to find a way to give it effect.

The district court started by appointing a receiver, which the law contemplates, to assess the situation. The receiver determined that foreclosing on Leland's membership interest would not be effective for several reasons. Instead, the receiver thought that transferring the LLC's cash to EarthGrains and selling off some of its real estate assets to transfer the proceeds to EarthGrains would “give effect to the charging order.” Aplt. App'x Vol. V at 1247. The district court agreed, and its order adopting the receiver's recommendations implemented this solution. Considering the extended contempt proceedings and rampant bad faith that sustained the nonpayment of the judgment below and led to this appeal, we think the statute's “necessary” standard was satisfied under the circumstances. Liquidating the LLC's assets fell within the bounds of the charging order provision.

The LLC presses a few contrary arguments, but we are unpersuaded. The LLC points to another part of the charging order statute, which states that “[t]his section provides the exclusive remedy by which a person seeking to enforce a judgment against a member or transferee may, in the capacity of judgment creditor, satisfy the judgment from the judgment debtor's transferable interest.” Utah Code Ann. § 48-3a-503(8). The LLC argues that the “exclusive remedy” is found in § 48-3a-503(3), which provides that “the court may foreclose the lien and order the sale of the transferable interest” “[u]pon a showing that distributions under a charging order will not pay the judgment debt within a reasonable time.” Id. § 48-3a-503(3). While it may be true that § 48-3a-503(8) limits the authority of a court to execute a judgment via a charging order, we see no reason why “[t]his section” should refer solely to one subsection of § 48-3a-503, rather than the statute as a whole, nor why the one subsection it would refer to would be § 48-3a-503(3). After all, the LLC's reading would eviscerate courts’ explicit power to “appoint a receiver of the distributions subject to the charging order,” which resides in a different subsection of the statute. Id. § 48-3a-503(2)(a). But we must construe “each part or section ... in connection with every other part or section so as to produce a harmonious whole.” Hertzske, 390 P.3d at 312. It is wrong to use § 48-3a-503(8) to read out of the statute broad language permitting a court to “make all other orders necessary to give effect to the charging order.” Id. § 48-3a-503(2)(b). That language is crucial to the statute's procedural design and effectiveness, as this case illustrates.

PAGE 8 The LLC also argues that the terms “effectuate” and “give effect to” are “present and forward-looking.” Aplt. Br. at 18. In the LLC's view, this language restricts a court to imposing measures that affect future distributions and prohibits measures redressing wrongly withheld past distributions. We find no such limitation in the statute or the definitions of these terms. See Give effect to, Webster's New World College Dictionary (4th ed. 2009) (defining “give effect to” as “to put into practice; make operative”); Effectuate, New Oxford Am. Dictionary (3d ed. 2010) (defining “effectuate” as “put into force or operation”). In fact, even the LLC admits that “[t]o ‘give effect to’ something is to make it work or to make it carry out its desired intent” such as “ensur[ing] that the judgment creditor is paid its share of the distributions.” Aplt. Br. at 18. Even under the LLC's explanation of the terms, there is no “forward-looking” limitation.

Finally, the LLC argues that the district court exceeded its authority because a charging order constitutes a lien and the LLC will be forced to accept Leland's creditor, as well as because the order adopting the receiver's recommendations exceeded the scope of the district court's prior orders. These arguments are misplaced. With respect to the first, the LLC ignores the fact that a charging order is not just a lien on a transferable interest but also a “require[ment] [that] the limited liability company ... pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor.” Utah Code Ann. § 48-3a-503(1). And, as discussed above, the Utah LLC Act permits the district court to “make all other orders necessary to give effect to” that requirement. Id. § 48-3a-503(2)(b). As for whether the order “exceeded” the charging order and initial receivership order, that concern is beside the point. The charging order required the LLC to pay over to EarthGrains the distributions owed to Leland, and the district court put in place two orders to give effect to the charging order. This sequence of events is within the statute's contemplation. The broad language of the Utah LLC Act allowed the court to order the receiver to liquidate some of the LLC's real estate assets to pay for the wrongly withheld distributions, and the district court acted within its authority.

IV.

The LLC argues that the imputed distribution calculation the district court adopted was error. The LLC's argument is principally concerned with the Sheffield Property, which increased Leland's imputed distributions by nearly $3 million. The LLC also contends that additional findings were erroneous, such as the allocation of all legal expenses to Leland. Although the LLC is wrong to suggest that issue preclusion applies, we agree that the district court clearly erred by including the Sheffield Property's 2018 assessed value within its calculation and remand for a redetermination of the sum the LLC owes EarthGrains.

a.

The LLC first invokes issue preclusion to argue that the district court could not characterize the loss of the Sheffield Property as a distribution. The LLC points to a declaratory judgment action in the District of Utah concerning Leland's purported transfer of 46% of his membership interest. In that suit, the district court concluded in 2015 that “the funds received by Leland Sycamore through the [Wells Fargo] line of credit and the encumbrance of the LLC's real property were a loan, and not a distribution.” Aplt. App'x Vol. V at 1301. We find this argument without merit.

“[T]he preclusive effect given in federal court to a prior federal decision is subject to federal law.” Matosantos Commercial Corp. v. Applebee's Int'l, Inc., 245 F.3d 1203, 1207 (10th Cir. 2001) (citation omitted). Our review is de novo. See In re Zwanziger, 741 F.3d 74, 77 (10th Cir. 2014). Issue preclusion requires that “(1) the issue previously decided is identical with the one presented in the action in question, (2) the prior action has been finally adjudicated on the merits, (3) the party against whom the doctrine is invoked was a party, or in privity with a party, to the prior adjudication, and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action.” Matosantos, 245 F.3d at 1207 (citation omitted). The LLC fails at the first step.

PAGE 9 The LLC cannot invoke issue preclusion here because the question whether the loss of the Sheffield Property should be characterized as a distribution was simply not an issue in the declaratory judgment litigation. That case addressed only how to characterize “the funds received by Leland” from Wells Fargo “through the line of credit and the encumbrance of the LLC's real property.” Aplt. App'x Vol. V at 1301. It did not address how to characterize the LLC's loss of the Sheffield Property should Leland fail to repay Wells Fargo the loaned funds and Wells Fargo foreclose. The receiver recognized this distinction: he characterized the funds received by Leland from Wells Fargo and secured by the Sheffield Property as a “loan” but then went on to explain why the “impending foreclosure” of the property “should be treated as a distribution” to Leland. Aplt. App'x Vol. IV at 1170. Because the prior action did not address or anticipate the question here, the issues are not identical and we reject the LLC's issue preclusion argument at the first requirement. That means we need not address the others. See Dodge v. Cotter Corp., 203 F.3d 1190, 1198–1200 (10th Cir. 2000).

b.

Next, we consider the district court's calculation of the distributions owed to EarthGrains. Our review does not include the district court's choice to use the Leland amount to assess the LLC's liability instead of the Kristina amount. Rather, our review is limited to the computation of the Leland amount itself because that is what the district court ordered paid. We review a district court's factual findings for clear error. See Mathis v. Huff & Puff Trucking, Inc., 787 F.3d 1297, 1305 (10th Cir. 2015). “A finding of fact is clearly erroneous if it is without factual support in the record or if, after reviewing all the evidence, we are left with a definite and firm conviction that a mistake has been made.” Id. (citation omitted). “In conducting this review, we view the evidence in the light most favorable to the district court's ruling and must uphold any district court finding that is permissible in light of the evidence.” Id. (citation omitted). To be sure, the district court adopted the receiver's recommended findings in calculating the imputed distributions owed to EarthGrains, but that does not change the standard of review. See Flying J Inc. v. Comdata Network, Inc., 405 F.3d 821, 830 (10th Cir. 2005). We start by discussing the Sheffield Property's supposed abandonment, which made up the bulk of the Leland amount.

In its order adopting the receiver's recommendations, the district court did not mention the Sheffield Property at all. But adopting the receiver's recommendations necessarily included adopting the finding that the property's upcoming abandonment upon foreclosure should be treated as a past distribution to Leland of $2,917,400, the property's 2018 assessed value. The LLC argues that the district court was wrong to consider the Sheffield Property abandoned when it was not only retained by the LLC at the time of the order but subject to both an uncertain valuation and an injunction prohibiting its alienation. We agree. Although the district court has wide latitude to make factual findings supported by the record, it was clear error to find that the LLC had made a distribution that it had not yet made.

Among other responsibilities, the receiver was tasked with accounting for the distributions made by the LLC since the charging order's 2014 entry. Because of the LLC's history of evasion, the scope of the receivership order's definition of “distribution” was broad. See Aplt. App'x Vol. IV at 1080 (referring to “distributions to or for the benefit of any members of the Sycamore Family, LLC since March 6, 2014, including without limitation all distributions or transfers characterized as payment for tax liabilities, salary, wages, reimbursements, or loans”). But even that definition had limits. After all, this aspect of the receivership was premised on distributions having been made in the past and proportionate distributions having been wrongly withheld from EarthGrains. Future, unknowable distributions bore no role in the receiver's calculus of events. Nonetheless, the receiver recommended counting a distribution that had not yet happened—the Sheffield Property's foreclosure—and the district court adopted that recommendation without even acknowledging the issue. But this theory of distribution was limited to the Sheffield Property's abandonment via foreclosure and that simply has not happened yet. The LLC cannot be held to account for unmade distributions, and it was error to find otherwise. Because “we are left with a definite and firm conviction that a mistake has been made,” Mathis, 787 F.3d at 1305, we must reverse the adoption of the Leland amount, and the relief predicated upon it, to the extent that it included the 2018 assessed value of the Sheffield Property.

PAGE 10 Even if the property does sell for the 2018 assessed value at foreclosure, we would agree with the LLC that a mistake was made.4 That is because the receiver, and therefore the district court, found without any analysis that the LLC would lose the full value of the home and imputed the entire distribution to Leland. But the court also found that Leland owed less than the value of the Sheffield Property to Wells Fargo. At over $800,000, the difference between the Sheffield Property's 2018 assessed value and Leland's debt obligation is significant. This discrepancy raises obvious concerns about why the entire value would be lost. Just as Leland would likely be on the hook for any deficiency if the property sold for less than he owed on the debt, see Utah Code Ann. § 57-1-32, Wells Fargo would probably not be able to keep any surplus from a foreclosure sale. The receiver seemed to recognize this dynamic, telling the district court that surplus value could be “captured” by the LLC if the foreclosure proceeds exceeded Leland's debt to Wells Fargo. Aplt. App'x Vol. V at 1254. This illustrates the problem with the premature inclusion of the Sheffield Property's foreclosure proceeds into the Leland amount. Whatever the Sheffield Property sells for, any imputed distribution likely cannot exceed the value that leaves the LLC upon foreclosure. While the sale value cannot be known until foreclosure, it is unclear how an imputed distribution could significantly exceed Leland's debt. Whichever way the dust settles, it has not settled yet, and it was clear error for the district court to adopt, without analysis or consideration, the receiver's finding that it had.

4

Events since this case was argued suggest the Sheffield Property may sell for far less. To explain, we take judicial notice of the status reports that have been submitted by the receiver since the parties’ records on appeal were filed. See Banner Bank v. Smith, No. 19-4131, 2022 WL 351161, at PAGE 3 n.3 (10th Cir. Feb. 7, 2022). In 2020, the receiver obtained several appraisals of the property. See Receiver's Sixth Status Report at 2–3, EarthGrains Baking Cos., Inc. v. Sycamore Family Bakery Inc., No. 2:09-CV-00523-DAK-DBP (D. Utah) (Jan. 15, 2021), ECF No. 506. Because the property was in a state of disrepair, the appraisals averaged only $1,243,333. See id. at 2. Based on Leland's line of credit exceeding even the highest appraisal value, the receiver's position became that the LLC “ha[d] no equity in the home,” and that it should be abandoned. Id. at 3. As of January 2022, that remains the receiver's position. See Receiver's Ninth Status Report at 2, EarthGrains Baking Cos., Inc., No. 2:09-CV-00523-DAK-DBP (Jan. 24, 2022), ECF No. 511. To the extent these filings foreshadow a low sale price, they illustrate the district court's error in holding the LLC to a valuation disconnected from the actual distribution that would occur upon foreclosure.

c.

The LLC also argues that Leland's “remaining imputed distributions are similarly unsupported or contradicted by facts in the record.” Aplt. Br. at 17. First, the LLC contends that the receiver's categorization of certain real estate expenditures as distributions is “[w]ithout basis.” Id. But the expenses in question were incurred while managing property occupied by LLC members. The receiver assessed imputed rent on the properties the LLC allowed its members to live in, making it perfectly logical to treat the expenses incurred maintaining those properties the same way. The receiver consistently distinguished between real estate expenses tied to the LLC's rental property and the expenses made for the benefit of individual members of the LLC. It was not error, let alone clear error, for the district court to adopt this aspect of the receiver's recommendation.

Second, the LLC argues that its legal expenses should not have been treated as distributions to Leland because they “were for the benefit of the LLC.” Id. It appears that neither the receiver nor the district court seriously addressed this contention, but our standard of review is deferential. It is conceivable that the receiver and district court viewed all the LLC's legal expenses as made on Leland's account and for his benefit. After all, the receiver explained that he tried to figure out whether an expense should be allocated to one or several members, or split proportionately, and that he was able to do so for nearly every expenditure. The receiver even credited Tyler Sycamore for helping with this part of his work. And, after doing that work, the receiver proposed allocating all legal fees to Leland. While we may have sought further detail from the receiver concerning the nature of the payments for legal fees if we were evaluating these findings on a blank slate, it was certainly possible for the receiver and the district court to find that the legal fees should all be allocated to Leland in full. The record supports that position, so the standard of review requires that we reject the argument that it was clear error to allocate the LLC's legal expenses to Leland alone.

V.

PAGE 11 Finally, the LLC argues that the district court erred by adopting the receiver's recommendations because the receiver should have been disqualified or, at least, further investigated. The LLC points to billing entries by EarthGrains lawyers indicating that they communicated with the receiver before the district court decided EarthGrains's motion to implement a receivership. The district court rejected this contention and adopted the recommendations anyway. We see no reason to reverse.

We must first determine the proper standard of review. The parties offer several and figuring out the right one requires focusing on this theory's procedural posture. The LLC never moved to disqualify the receiver below. Nor is this an appeal from the receiver's appointment. Instead, the LLC appeals the denial of its opposition to EarthGrains's motion to implement the receiver's recommendations, in which the LLC argued that the receiver “recently had an attorney-client relationship with [EarthGrains] that he did not disclose.” Aple. App'x Vol. I at 247 (capitalization altered). More specifically, the LLC contended that the relationship “may be grounds for disqualification,” so the recommendations were “suspect and unreliable and should not be adopted until sufficient investigation has been conducted.” Id. at 250. The district court disagreed, noting that “[s]ome level of communication between the [r]eceiver and parties to the case is necessary and to be expected” and that “[n]othing out of the ordinary” happened here. Aplt. App'x Vol. V at 1248.

According to the LLC, we review this decision de novo because it relied on the district court's misinterpretation of a state statute governing the appointment and disqualification of receivers. EarthGrains, in contrast, suggests that we review a district court's factual finding whether an attorney-client relationship existed for clear error, and a decision on a motion to disqualify for abuse of discretion. But the district court did not acknowledge the existence of a state statute concerning receivers, did not make an explicit factual finding (nor implicitly adopt a receiver-recommended finding) about the existence of an attorney-client relationship, and did not rule upon a motion to disqualify. These dueling articulations of the standard of review all fail because they misunderstand the nature of this issue. We think the LLC's blanket challenge to the district court's adoption of the receiver's recommendations, premised on an alleged conflict of interest, essentially amounts to a contention that the receiver was unfit and untrustworthy. This Court reviews a decision to appoint a receiver for abuse of discretion, SEC v. Scoville, 913 F.3d 1204, 1213 (10th Cir. 2019), and we will apply that standard to this issue as well. “A district court abuses its discretion if its ruling is arbitrary, capricious, or whimsical, or arises from an error of law or a clear error of fact.” Hayes v. SkyWest Airlines, Inc., 12 F.4th 1186, 1194 (10th Cir. 2021).

According to the LLC, the entries in EarthGrains's lawyers’ timesheets demonstrate that the receiver “provided legal advice” and “legal strategy” to EarthGrains, as well as helped EarthGrains “draft motions” before EarthGrains “s[ought] to appoint” him. Aplt. Br. at 22. Two of EarthGrains's attorneys submitted declarations to the district court stating that the receiver's work was independent from EarthGrains, that EarthGrains never sought legal advice from the receiver, that the receiver never provided EarthGrains with legal advice, and that there was no financial arrangement between the receiver and EarthGrains. While the attorneys acknowledged contact between the receiver and EarthGrains's counsel, they stated this contact was limited to conflicts checks and routine, impartial matters related to the receivership. The district court rejected the LLC's argument, finding “[n]othing out of the ordinary has occurred in this case” because “[s]ome level of communication between the [r]eceiver and parties ... is necessary and to be expected.” Aplt. App'x Vol. V at 1248. It found “no grounds for disqualifying the [r]eceiver or investigating his contacts with EarthGrains.” Id.

PAGE 12 Having considered the record, we conclude the district court did not abuse its discretion. The declarations support the commonsense notion that the receiver was not EarthGrains's lawyer, and suggest that he properly limited his contacts with EarthGrains to the receivership. As the district court recognized, contact between the receiver and the parties to a case is expected. Aplt. App'x Vol. IV at 1248. It was neither arbitrary, capricious, nor whimsical to conclude that it would be standard practice for a potential receiver to consult with the party seeking his appointment. The district court was thus within its discretion to adopt the receiver's recommendations notwithstanding the LLC's objections.

VI.

Utah law permitted the district court to require the LLC to liquidate its assets to afford the sum it owed EarthGrains based on actual and imputed distributions made since the charging order's entry. But federal law permitted the LLC to appeal. Upon considering the record on appeal, we can only conclude that the district court clearly erred by selecting a sum that consisted overwhelmingly of a distribution that had not yet been made, and that would likely be excessive by almost a million dollars even if it had. We AFFIRM in part, REVERSE in part, and REMAND for further proceedings consistent with this order.



Earthgrains Baking Cos. v. Sycamore Family Bakery, Inc, 2024 WL 95680 (D.Utah, Jan. 9, 2024).

United States District Court, D. Utah.

EARTHGRAINS BAKING COMPANIES INC., Plaintiffs,

v.

SYCAMORE FAMILY BAKERY INC. and Leland Sycamore, Defendants.

Case No. 2:09-CV-523-DAK-DBP

Signed January 9, 2024

Attorneys and Law Firms

Charles A. Burke, Pro Hac Vice, Womble Bond Dickinson (US) LLP, Winston-Salem, NC, Melissa G. Ferrario, Pro Hac Vice, Womble Carlyle Sandridge & Rice PLLC, Winston-Salem, NC, Raymond J. Etcheverry, John L. Cooper, Juliette P. White, Margaret N. McGann, Parsons Behle & Latimer, Salt Lake City, UT, for Plaintiffs.

Sean N. Egan, Salt Lake City, UT, Caroline Y. Bussin, Pro Hac Vice, Sedgwick LLP, Los Angeles, CA, Heather L. McCloskey, Pro Hac Vice, McCloskey Waring & Waisman LLP, El Segundo, CA, for Defendants.

MEMORANDUM DECISION AND ORDER

DALE A. KIMBALL, UNITED STATES DISTRICT JUDGE

PAGE_1 This matter is before the court on the Sycamore Family, LLC's Motion for Order Determining Past Distributions and Requiring Proportionate Distributions [ECF No. 529] and Receiver R. Wayne Klein's Revised Report and Recommendation on Accounting for Distributions to Members of Sycamore Family LLC [ECF No. 556]. The court does not find that oral argument would assist in the determination of these matters. After carefully considering the parties’ written submissions and the relevant law and facts, the court issues the following Memorandum Decision and Order.

Sycamore Family LLC's Motion

The Sycamore Family LLC moves the court for an order determining the amount of past distributions and requiring proportionate distributions to all members of the Sycamore Family LLC going forward. The Sycamore Family LLC claims that distributions against Leland Sycamore can only be calculated between the time of the Charging Order and the time of the Receivership Order.

Due to years of obstruction by Defendant Leland Sycamore and the Sycamore Family LLC with respect to payment of the Judgment Plaintiff received in this case, the court appointed a Receiver to ensure compliance with the court's March 6, 2014 Charging Order. The Receiver was tasked with preparing an accounting listing the amount and value of all distributions to or for the benefit of any members of the Sycamore Family LLC from the date of the Charging Order. The Receiver's Report listed the Sheffield Home as an asset valued at $2,917,400.00 and explained that Leland Sycamore pledged the Sheffield Home as security for a loan that he had taken from Wells Fargo. The Report further outlined that Leland Sycamore had stopped paying on the loan, Wells Fargo had initiated foreclosure proceedings on the Sheffield Home, and the amount still owed on Leland Sycamore's loan was approximately $2,112,500.00. The Receiver recommended that because the Sycamore Family LLC was to lose an asset with the assessed value of $2,917,400.00 due to Leland's default on the Wells Fargo loan, the amount of the asset's value should be imputed to Leland as a distribution. This, in combination with other amounts, brought Leland's total imputed distribution amount to $3,859,898.96. To satisfy that amount, the Receiver recommended that all assets of the LLC be made available to satisfy Plaintiff's Judgment. On November 14, 2019, the court entered a Memorandum Decision & Order adopting the Receiver's recommendations. The Sycamore Family LLC appealed the court's order. The Tenth Circuit ruled that the Receiver improperly assigned a distribution value to the Sheffield Home based on assessed values when it should have used the amount of the home's value at the time of foreclosure. After remand, the court allowed the Receiver to abandon the Sheffield Home by transferring title to Wells Fargo as lien holder and stated that the Receiver could determine the value that abandonment generated for Leland Sycamore based on the foreclosure value of the Sheffield Home.

PAGE_2 The Sycamore Family LLC's motion misconstrues the Tenth Circuit's order, which reversed the court's prior distribution order only to the extent that it included the 2018 assessed value of the Sheffield Property. The Tenth Circuit observed that it was the premature inclusion of the Sheffield Home's value from the 2018 assessment, rather than as derived from a foreclosure that was in error. The court stated that the imputed distribution amount could not be known until foreclosure. The Tenth Circuit was concerned about the amount attributed to the home's value, not the propriety or authority of such a distribution in the first place. The Tenth Circuit expressly upheld the propriety and authority of the court in determining and ordering imputed distributions under the Charging Order. The Sycamore Family LLC has exhausted its arguments in regard to these issues, which are no longer subject to appeal.

The Sycamore Family LLC also appears to suggest that because the future abandonment of the Sheffield Home is not a past distribution falling between the entry of the Charging Order and the entry of the Receivership Order, it is technically too late for the value of the Sheffield Home to be imputed to Leland Sycamore under the Receivership Order. But this argument ignores the timing of Leland's impairment of the Sheffield Home. The Charging Order was in place when Leland Sycamore stopped making payments on his loan obligation to Wells Fargo. The default of the loan at the time the Charging Order was in place impaired a significant asset of the Receivership Estate because Leland Sycamore had obtained the loan using the Sheffield Home as security. If the court were to grant the Sycamore Family LLC's motion, Leland Sycamore would avoid a quantifiable distribution that should be imputed as a distribution to him and preclude a fair recovery for Plaintiff under the Charging Order. In the court's February 14, 2023 Order, the court allowed the Receiver to abandon the Sheffield Home to Wells Fargo and stated that the Receiver could determine the value that abandonment generated for Leland based on the home's future sale.

For these reasons, the court finds the Sycamore Family LLC's motion to be without merit. It would undermine the purpose of the Charging Order and reward Leland Sycamore for impairing and dissipating assets in defiance of the Charging Order. Accordingly, the court denies the Sycamore Family LLC's Motion for Order Determining Past Distributions and Requiring Proportionate Distributions [ECF No. 529].

Receiver's Revised Report and Recommendation

To cure the defect in the original Report and Recommendation identified by the Tenth Circuit regarding the value of the Sheffield Home, the Receiver has submitted his Revised Report and Recommendation on Accounting for Distributions to Members of Sycamore Family LLC. The Revised Report provides a corrected accounting of distributions made to Leland Sycamore. The Revised Report then summarizes the amounts already paid to EarthGrains and recommends selling real property assets to pay Plaintiff the amounts necessary to recompense EarthGrains for payments not made to it as required by the Court's 2014 Charging Order.

The Receiver's original Report and Recommendation calculated the amount of prior distributions that should be imputed to Leland Sycamore as $3,859,898.96, which was based on an assessed value of the Sheffield Home. The Revised Report and Recommendation is based on the actual abandonment and foreclosure sale of the Sheffield Home. The Sheffield Home was sold at a foreclosure auction on May 2, 2023, to Wells Fargo Bank for $2,111,487. This amount represents Well's Fargo's valuation of the property, and Wells Fargo subsequently reduced the amount that Leland Sycamore personally owes on his personal Wells Fargo loan by that amount. Therefore, $2,111,487 is the benefit Leland received from the LLC's asset and is the amount that should be deemed as a distribution to Leland. This amount makes the imputed prior distribution to Leland the exact value of the disposed asset at the time of its removal from the LLC.

PAGE_3 The $942,498.96 in imputed prior distributions to Leland Sycamore from the original Report and Recommendation plus the corrected $2,111,487.00 value of the Sheffield Home, makes $3,053,985.96, the total distributions to Leland Sycamore. Deducting the $1,375,000 that the Receiver has already paid to EarthGrains, leaves $1,678,985.96 that the LLC still owes EarthGrains for prior distributions required by the Charging Order. The Receiver recommends and the court agrees and directs that the Receiver sell sufficient LLC assets to fund payment to EarthGrains of this amount due under the Charging Order for prior distributions. The Receiver may consult with the LLC, or counsel for the LLC if counsel enters an appearance in this case, on which LLC properties to sell to make that payment. If counsel does not appear for the LLC, the Receiver may rely on a statement signed by all members of the LLC identifying the properties to sell. If all members of the LLC do not timely provide a signed statement of unanimous agreement on which properties to sell, the Receiver shall use his own good faith judgment on which properties to sell.

When this $1,678,985.96 is paid, it will satisfy the Charging Order's requirement that prior imputed distributions for the benefit of Leland Sycamore be paid to EarthGrains. However, that will not satisfy the LLC's entire obligation to EarthGrains. The 2012 Judgment against Leland Sycamore was for $5,740,194.40 plus pre- and post-judgment interest. After this prior distribution is paid, Leland Sycamore will still owe $2,686,208.44 on the Judgment, along with pre- and post-judgment interest. Therefore, the Charging Order will still require the LLC to pay EarthGrains Leland Sycamore's future distributions from the LLC, which provides for him to receive a 48% share of LLC distributions, until the Judgment is fully satisfied.

When sufficient assets within the Receivership Estate are sold to pay EarthGrains the $1,678,985.96 in prior imputed distributions, the LLC can begin making distributions to all LLC members according to the terms of the LLC, and Leland Sycamore's 48% share of future distributions will be forwarded to EarthGrains until the Judgment is fully satisfied. The court finds no basis for revisiting its prior ruling that the receivership will not be terminated until the full Judgment Leland Sycamore owes to EarthGrains has been satisfied. At that time, the Receiver shall propose to the court a method for terminating the receivership estate and returning control over the assets to the managers of the Sycamore Family LLC. These findings, however, do not preclude the parties and Receiver from engaging in settlement negotiations with respect to the future of the receivership and satisfaction of the Judgment.

Accordingly, the court affirms and adopts as the order of the court the Receiver's Revised Report and Recommendation on Accounting for Distributions to Members of Sycamore Family LLC [ECF No. 556].