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Davidson v. Castillo

Court of Appeals of Louisiana, Second Circuit

August 14, 2019


          Appealed from the Forty-Second Judicial District Court for the Parish of DeSoto, Louisiana Trial Court No. 78487 Honorable Charles B. Adams, Judge.

          LAW OFFICE OF BRYCE J. DENNY, LLC Counsel for Appellant Bryce J. Denny Allan Neil Castillo

          AYRES, SHELTON, WILLIAMS, Counsel for Appellees BENSON & PAINE, LLC Lee H. Ayres Ryan P. Telep

          Before MOORE, GARRETT, and STONE, JJ.

          GARRETT, J.

         This case arises from a dispute between the plaintiffs, Robert and Linda Davidson, and the defendant, Allan Neil Castillo, over dissolution of a business they formerly operated together. Castillo appeals from a trial court judgment finding him to be in constructive contempt of court for a second time and imposing penalties upon him. For the following reasons, we affirm the trial court judgment.


         In December 2004, Robert and Linda Davidson formed a business with Castillo known as Lagniappe and Castillo Research and Investigations, LLC ("L&C"). The company performed background checks. The Davidsons owned 50% of the business and Castillo owned 50%. Disagreements developed as to how to run the business and the frequency of distributions. By May 2017, the parties were not able to work together. Castillo formed Castillo Investigations and Research, Inc. ("CIR"). The Davidsons alleged that Castillo began diverting business to his company and took money owed to L&C. On June 2, 2017, the Davidsons filed a petition seeking dissolution of L&C, partition of immovable property, and damages. Castillo and CIR were named as defendants. The Davidsons sought appointment of a liquidator and suggested that the company's accountant, Deborah D. Dees, be appointed by the court to perform this function.

         After a hearing, the parties agreed to an order of dissolution and to the appointment of Dees as liquidator, which was signed and filed on July 6, 2017. Regarding the authority given to Dees, the order stated, in part:

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as liquidator, Deborah D. Dees, CPA, has all authority as permitted pursuant to La. R.S. 12:1335 et seq. And any other applicable law to act on behalf of L&C, including, but not limited to the following:
a) To request and require any members of L&C to return any and all assets of L&C to her possession and control, including but not limited to assets such as financial records, check books, bank records, deposit slips, bank statements, invoices, accounts receivable, accounts payable, general ledgers, accounting journals, customer lists, customer files, credit card statements, background search requests, electronic accounting records, electronic accounting software (e.g. Quickbooks), invoices, contracts, furniture, fixtures, and any other assets of any kind;
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that all plaintiffs and defendants in this litigation shall fully cooperate with all reasonable requests of the liquidator, Deborah D. Dees. This obligation includes but is not limited to the obligation to provide her any and all assets of L&C within five (5) business days of her request. If any plaintiff or defendant fails to cooperate with Deborah D. Dees, then she shall report such failure to this Honorable Court, which will consider any and all appropriate sanctions and remedies to be imposed against the non-cooperating party.

         On August 4, 2017, the Davidsons filed their first motion for contempt against Castillo, claiming that he failed to comply with the order to turn over records and equipment, he used software designed for L&C, he established a new business with a misleading name, and his attorney was not cooperative in complying with the order of dissolution. A hearing was held in September 2017, and Castillo was found to be in contempt of court. He was directed to provide the liquidator with documents and information necessary to establish the accounts receivable of L&C, and to deliver any incoming checks for L&C to the liquidator. He was granted a purge period, until September 19, 2017, to provide the materials requested by the liquidator. After conferences with the court and the parties, in October 2017, the Davidsons filed a motion to reopen the evidence on the contempt motion and to reset the sentencing hearing. They alleged that, after Castillo turned over records, it was determined that he was in possession of more than $11, 000 that belonged to L&C. The trial court granted the motion.

         An additional hearing on the motion for contempt was held on November 13, 2017. The trial court determined that Castillo intentionally delayed the delivery of L&C assets to the liquidator in violation of the dissolution order and his behavior was contemptuous. The court ordered Castillo to pay a fine of $500 and be imprisoned for ten days. The term of imprisonment was suspended, and Castillo was ordered to pay "all of the costs of the liquidator, when that amount is finally determined, and to pay the attorney's fees and court costs of the plaintiffs for the pursuit of these contempts, totaling $10, 708.00 within 72 hours or report for his 10 days' imprisonment." Castillo did not appeal from this contempt adjudication.

         On November 13, 2017, Dees billed $24, 070.71 for her services up to that date.

         On March 16, 2018, the Davidsons filed a second motion for contempt, claiming that Castillo failed to timely turn over bank statements; information from his accounting firm; access to his accounting software, FreshBooks; and access to his billing system. They claimed that Castillo was still in possession of funds owed to L&C, and that Castillo failed to pay the liquidator's fee.

         On April 23, 2018, the trial court signed an order directing Castillo to pay the liquidator for fees and expenses from June 29 through November 13, 2017, in the amount of $24, 070.71, on or before April 27, 2018. Castillo's accountant, Anthony Juneau, Jr., was ordered to produce the general ledger, monthly bank reconciliations from June 1 through December 31, 2017, monthly profit and loss statements from June 1 through December 31, 2017, and monthly balance sheets from June 1 through December 31, 2017, for CIR. The order specified that, if Juneau did not produce the records by April 27, 2018, a subpoena would be issued requiring his appearance and production of the documents at the hearing on the second motion for contempt.

         On April 30, 2018, Dees billed an additional $13, 206 for her services.

         A hearing on the second motion for contempt was held on June 21, 2018. The Davidsons' lawyer argued that the motion was based upon Castillo's flagrant disregard of four things: (1) the order of dissolution entered in July 2017; (2) the instructions on the record at the first contempt hearing; (3) the order following the hearing in November 2017, when the evidence was reopened on the first motion for contempt; and (4) the order issued by the trial court on April 23, 2018, requiring Castillo to pay the liquidator's fees and to produce specified documents from his accountant, Juneau. The Davidsons' attorney noted that not all of the requested information had been turned over to the liquidator and that Castillo paid the liquidator's first bill in a piecemeal fashion, making the last payment on June 8, 2018. The Davidsons asked the trial court to hold Castillo in contempt a second time, withdraw the suspension of sentence, order him to serve ten days in jail, and order him to pay the liquidator's second invoice and any subsequent invoices presented within a reasonable time.

         At the hearing, Juneau testified. He stated that Castillo never showed him the dissolution order appointing the liquidator and specifying that records requested by the liquidator were to be produced within five days. Castillo never conveyed to him any sense of urgency in producing any of the records for CIR. In February 2018, Juneau was made aware of the request for the general ledger, bank reconciliations, monthly profit and loss statements, and balance sheets. Juneau said that Castillo had the bank statements and Juneau did not have general ledger information. He stated that preparation of the 2017 records was delayed because amounts related to Castillo's gambling required the filing of an amended tax return for 2016. Juneau said that accurate figures for 2017 could not be determined until the problems with 2016 were resolved. Juneau testified that monthly profit and loss statements or balance sheets could not be produced because they were never prepared for CIR. Juneau eventually received a subpoena for the financial information and timely produced what records he had. Juneau said that, from June through December 2017, Castillo took draws totaling $131, 374.43 from CIR.

         Dees, the liquidator, testified regarding the difficulties she experienced in getting information from Castillo to dissolve L&C. She was concerned that Castillo was diverting funds from L&C to CIR. Several instances were discovered where that happened. In December 2017, Castillo cut off her access to CIR's accounting software, FreshBooks. Eventually, her access was restored. She stated that Castillo never produced some of the financial information requested. The information was received only after a subpoena was issued to Castillo's accountant. Dees also outlined the delays in getting payment from Castillo on the initial invoice for her services. At first, Castillo's lawyer said she would get a check. Then she was told that she would only be paid after the dissolution was complete. She then received a series of partial payments. The second bill, for $13, 206, was submitted two months before the hearing and Castillo had not paid anything on that.

         Castillo testified that he had several conversations with Juneau about getting materials together for the liquidator. He thought that Juneau was supposed to produce everything he had to the trial court. Castillo said that when Dees was cut off from access to FreshBooks for a time, that was done by a technology consultant, Jack Haines. Castillo claimed he had no control over that issue and Dees had to work the problem out with Haines.

         Castillo was asked about his ability to pay the liquidator. He stated his income for 2017 was $198, 000, and that he takes draws of $9, 000 to $11, 000 per month from CIR. However, he has to pay for his parents' house, his own expenses, and child support. He also said he thought he did not have to pay the liquidator's bill until after all the work to dissolve L&C was completed. Castillo admitted that he did not pay the liquidator's initial bill of $24, 070.71 within five days of receipt of the invoice. He claimed that he did not have the money and that he took out a loan for $10, 000 to pay half of the amount due.

         After examination by his attorney and cross-examination by the Davidsons' attorney, the trial court stated that the door had been opened regarding Castillo's ability to pay Dees and the court needed to ask some questions. After questions regarding Castillo's business expenses, the following colloquy occurred:

THE COURT: Now what about we're still - Ms. Dees still has a bill of thirteen two oh six and been pending since April 30th. Are you gonna try to tell me that you don't think you owe that until I, you know, come to the threshold of holding you in contempt?
THE WITNESS: No, sir. But I did not know and I've asked [my lawyer] too when did I need to pay it. Because I would pay but I don't know if it's due right now. I mean -
THE COURT: You don't know if it's due right now?
THE WITNESS: Now paying her, I don't have an issue with it.
THE COURT: Do you understand, Mr. Castillo, that the costs of the liquidator is a lot more than it had to be?
THE WITNESS: Yes, sir.
THE COURT: And why do you think that is?
THE WITNESS: I'm trying to give everything I can, Judge.
THE COURT: Mr. Castillo, it's because of your behavior.
THE WITNESS: Well I mean I've tried - and they're mixing all of this up. ...

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