NMSC News:
SANTA FE — The New Mexico Supreme Court Monday clarified the contempt powers of state courts and their authority to impose sanctions on attorneys under judicial rules governing court procedures.
In a unanimous opinion, the Court concluded that a district court’s contempt and sanctions order against Albuquerque attorney William Ferguson was valid under a procedural rule – Rule 1-011 – intended to deter baseless court filings. That rule provided grounds for the sanctions against Ferguson to the extent that the court’s order “contemplated ‘willful misstatements in documents’ filed with the court,” the justices explained.
The Court determined that the district court’s contempt and inherent powers did not provide a valid basis for the punishment imposed by the sanctions order.
“The district court’s Sanctions Order was inconsistent with the purposes of remedial contempt; rather, the sanctions imposed rendered the contempt punitive,” the Court wrote in an opinion by Justice C. Shannon Bacon. “Because the punishable conduct occurred outside the presence of the district court, the punitive contempt was indirect. Therefore, Ferguson was entitled to criminal-level due process protections. Because he was not afforded those protections, the sanctions were an improper exercise of the district court’s contempt power.”
The district court issued the contempt order and imposed sanctions in 2021 in a dispute over whether a Ferrari grand touring car and other assets could be seized to help pay a $292,000 judgment against a company owned by Ferguson.
The Court remanded the contempt matter to the district court in Bernalillo County for further proceedings.
In today’s opinion, the Court outlined the due process requirements for sanctions imposed under a court’s contempt powers, its inherent judicial powers and under Rule 1-011.
A person subject to punitive sanctions – whether under contempt or inherent powers of a court – is entitled to due process similar to that in criminal proceedings when the punishable conduct occurs outside the judge’s presence, the Court explained. Those due process protections include a person’s right to appear in court, defend themselves and present evidence. In the most serious instances, a person may be entitled to a jury trial.
Due process requirements for sanctions under Rule 1-011, however, are not as extensive because “while Rule 11 violations may be vexatious, they do not strike at the authority and dignity of the court in a way that makes the sanctioning power ripe for abuse,” the Court wrote.
In 2018, a jury found Ferguson’s automotive company, Motiva Performance Engineering, was liable for breach of contract, negligent and fraudulent misrepresentation and violation of the Unfair Trade Practices Act for failing to perform upgrades to Creig Butler’s vehicle. The court entered the six-figure judgment against Motiva, plus interests, costs and attorney fees. Ferguson and his law firm represented Motiva in the case, and he was a managing member of the company.
Ferguson shifted ownership of the 2012 Ferrari FF from Motiva to another one of his companies a few days after the jury’s verdict but before the court’s judgment for damages. Butler then asked the district court to determine who owned the Ferrari and to issue an order to prevent Ferguson from draining assets while the ownership dispute was resolved.
A day after the court indicated it would likely grant Butler’s request, Ferguson applied for a $120,000 bank loan with the Ferrari pledged as collateral. The bank became a lienholder on the car’s title, but Ferguson never disclosed that to the court.
Several months later in 2019, the court conducted a bench trial on the ownership issue and an old copy of the Ferrari’s title – without the bank’s lien – was introduced as evidence by Ferguson. At the conclusion of the trial, the court ruled that Motiva held title to the Ferrari rather than the other Ferguson company. Motiva declared bankruptcy four days later.
Butler discovered the bank’s lien on the Ferrari because of the bankruptcy filings, and he asked the district court to order Ferguson to show why he should not be held in contempt of court. The court conducted a hearing and held Ferguson in what was described as “remedial contempt.”
To erase the contempt finding, Ferguson was directed to pay Butler the judgment in the civil case and donate $50,000 to an Albuquerque food bank. Ferguson appealed, arguing that he was held in punitive contempt without due process.
The state Court of Appeals affirmed the sanctions, concluding they were appropriate under Rule 1-011 and the inherent powers of the district court. Ferguson then asked the Supreme Court to review the matter.
The justices determined that Ferguson was held in punitive rather than remedial contempt because the sanctions requiring him to satisfy the judgment and donate money to the food bank “were punishments per se, not punishments used as tools to gain compliance” with a court order.
