Appeal from the United States District Courtfor the District of NevadaLloyd D. George, District Judge, PresidingArgued and SubmittedJanuary 13, 1999--San Francisco, CaliforniaFiled June 15, 1999Before: Charles E. Wiggins, A. Wallace Tashima, andBarry G. Silverman, Circuit Judges.Opinion by Judge Wiggins
_____________________________COUNSEL Pamela J. Naughton and Michael P. McCloskey, Baker &McKenzie, San Diego, California, for the defendants-appellants.Michael S. Fried, Federal Trade Commission, Washington,D.C., for the plaintiff-appellee.
_____________________________OPINION WIGGINS, Circuit Judge:A husband and wife, Denyse and Michael Anderson, wereinvolved in a telemarketing venture that offered investors thechance to participate in a project that sold such modern mar-vels as talking pet tags and water-filled barbells by means oflate-night television. Although the promoters promised that aninvestment in the project would return 50 per cent in a mere60 to 90 days, the venture in fact was a Ponzi scheme, whicheventually unraveled and left thousands of investors with tre-mendous losses. When the Federal Trade Commissionbrought a complaint against the telemarketing duo, theyclaimed that they were simply innocent dupes rather than amodern day telephonic Bonnie and Clyde.While the investors' money was lost in the fraudulentscheme, the Andersons' profits from their commissionsremained safely tucked away across the sea in a Cook Islandstrust. When the Commission brought a civil action to recoveras much money as possible for the defrauded investors, theAndersons advanced two incredible propositions. First, theyclaimed that they should retain the 45 percent commissionsthey received for their role in the fraud, even though theyacknowledged that the investors were defrauded. Theyclaimed this entitlement because they merely sold the toxicinvestments that fueled the scheme and propped up the dupli-citous house of cards. Second, the Andersons claimed thatthey were unable to repatriate the assets in the Cook Islandstrust because they had willingly relinquished all control overthe millions of dollars of commissions in order to place thismoney overseas in the benevolent hands of unaccountableoverseers, just on the off chance that a law suit might resultfrom their business activities. The learned district court wasskeptical of both arguments and choose to grant the Commis-sion its requested preliminary relief.An old adage warns that a fool and his money are easilyparted. This case shows that the same is not true of a districtcourt judge and his common sense. After the Andersonsrefused to comply with the preliminary injunction by refusingto return their illicit proceeds, the district court found theAndersons in civil contempt of court. The Andersonsappealed. We have jurisdiction under 28 U.S.C. S1292(a)(1)and we affirm.1ISometime after April 1997, Denyse and Michael Andersonbecame involved with The Sterling Group ("Sterling"). Ster-ling sold such imaginative products as the "Aquabell," awater-filled dumbbell, the "Talking Pet Tag," and a plasticwrap dispenser known as "KenKut" by means of late-nighttelevision commercials broadcast between the hours of 11:00p.m. and 4:00 a.m. The Andersons formed Financial GrowthConsultants, LLC ("Financial") to serve as the primary tele-marketer of media units, an investment that afforded purchas-ers the opportunity to receive a portion of the profitsgenerated from the sales of Sterling's outlandish products.Financial's telemarketers thereupon set about locating pro-spective investors in the media unit scheme.The media units sold for $5,000. Each media unit entitledthe investor to participate in the sale of Sterling's productsfrom 201 of the late-night commercials. Each product sold for$20.00. The investor would receive $7.50 for each productsold during his 201 commercials, up to a maximum of fiveproducts per commercial. According to Financial's telemar-keters, the investors would likely receive $37.50 per commer-cial (from five products sold during each commercial) for atotal of $7,537.50--an astronomical fifty percent return insixty to ninety days. Financial, for its part, would receiveforty-five percent of the investor's $5,000.00 investment, anamount that the Andersons assert is the industry standard.It appears that Financial's telemarketers were especiallyskilled at marketing the media units. Financial may haveraised at least $13,000,000 from investors in the media-unitscheme, retaining an estimated $6,300,000 in commissions foritself. Perhaps unsurprisingly to those not involved in themedia-unit project, it turned out that Sterling could not sellenough Talking Pet Tags and Aquabells to return the prom-ised yields to the media-unit investors. Instead, it appears thatSterling used later investors' investments to pay the promisedyields to earlier investors--a classic Ponzi scheme.On April 23, 1998, the Federal Trade Commission (the"Commission") filed a complaint in the United States DistrictCourt for the District of Nevada, charging the Andersons,Financial, and others with violations of the Federal TradeCommission Act (the "Act") and the Telemarketing SalesRule for their participation in a scheme to telemarket fraudu-lent investments to consumers. Upon motion by the Commis-sion, the district court issued an ex parte temporaryrestraining order against the defendants.2 After hearings onApril 30 and May 8, 1998, the district court entered a prelimi-nary injunction against the defendants, which incorporated theprovisions of the temporary restraining order. Both the tempo-rary restraining order and the preliminary injunction requiredthe Andersons to repatriate any assets held for their benefitoutside of the United States.In July, 1995, the Andersons had created an irrevocabletrust under the law of the Cook Islands. The Andersons werenamed as co-trustees of the trust, together with AsiaCiti TrustLimited ("AsiaCiti"), a company licensed to conduct trusteeservices under Cook Islands law. Apparently, the Andersonscreated the trust in an effort to protect their assets from busi-ness risks and liabilities by placing the assets beyond thejurisdiction of the United States courts. As discussed morefully below, the provisions of the trust were intended to frus-trate the operation of domestic courts, by removing theAndersons as trustees and preventing AsiaCiti from repatriat-ing any of the trust assets to the United States if a so-called"event of duress" occurred.In response to the preliminary injunction, the Andersonsfaxed a letter to AsiaCiti on May 12, 1998, instructing Asia-Citi to provide an accounting of the assets held in the trust andto repatriate the assets to the United States to be held underthe control of the district court. AsiaCiti thereupon notifiedthe Andersons that the temporary restraining order was anevent of duress under the trust, removed the Andersons as co-trustees under the trust because of the event of duress, andrefused to provide an accounting or repatriation of the assets.The trust assets were therefore not repatriated to the UnitedStates and the Andersons have provided only limited informa-tion to the district court and the Commission regarding thetrust assets.On May 7, 1998, the Commission moved the district courtto find the Andersons in civil contempt for their failure tocomply with the temporary restraining order's requirementsthat they submit an accounting of their foreign assets to theCommission and to repatriate all assets located abroad. At ahearing on June 4, 1998, the district court found the Ander-sons in civil contempt of court for failing to repatriate thetrust assets to the United States and failing to provide anaccounting of the trust's assets. The district court, however,continued the hearing until June 9, then until June 11, andfinally until June 17, in an effort to allow the Andersons topurge themselves of their contempt. In attempting to purgethemselves of their contempt, the Andersons attempted toappoint their children as trustees of the trust, but AsiaCitiremoved them from acting as trustees because the event ofduress was continuing. At the June 17 hearing, the districtcourt indicated that it believed that the Andersons remainedin control of the trust and rejected their assertion that compli-ance with the repatriation provisions of the trust was impossi-ble. At the close of the June 17 hearing, the district judgeordered the Andersons taken into custody because they hadnot purged themselves of their contempt. The Andersonstimely appealed the district court's issuance of the preliminaryinjunction and finding them in contempt. We affirm the dis-trict court.3IIThe first issue in the Anderson's appeal concerns the dis-trict court's issuance of the preliminary injunction. This courtonly subjects a district court's order regarding preliminaryinjunctive relief to "limited review." Does 1-5 v. Chandler, 83F.3d 1150, 1152 (9th Cir. 1996). We will reverse a districtcourt's issuance of a preliminary injunction only if the districtcourt abused its discretion by basing its decision on an errone-ous legal standard or on clearly erroneous factual findings.See id. Based on the record, we find that the district court didnot abuse its discretion in issuing the preliminary injunction.Section 13(b) of the Act allows a district court to grant theCommission a preliminary injunction "[u]pon a proper show-ing that, weighing the equities and considering the Commis-sion's likelihood of ultimate success, such action would be inthe public interest." 15 U.S.C. S 53(b). Section 13(b), there-fore, "places a lighter burden on the Commission than thatimposed on private litigants by the traditional equity standard;the Commission need not show irreparable harm to obtain apreliminary injunction." FTC v. Warner Communications,Inc., 742 F.2d 1156, 1159 (9th Cir. 1984). Under this morelenient standard, "a court must 1) determine the likelihoodthat the Commission will ultimately succeed on the merits and2) balance the equities." Id. at 1160.A. Likelihood of Success on the MeritsIn its complaint, the Commission alleged that: (1) theAndersons and Financial violated Section 5(a) of the Act byrepresenting that consumers were highly likely to earn returnsof 25 percent or more on their investments within a period of90 days even though these consumers were not likely to earnsuch returns; and (2) the Andersons and Financial violatedSection 310.3 of the Telemarketing Sales Rule, 16 C.F.R.S 310.3(a)(2)(vi), by misrepresenting a material aspect of theinvestors' investment opportunity by misrepresenting thereturn the investors were likely to earn. In granting the pre-liminary injunction, the district court found a "substantiallikelihood that the Commission will ultimately succeed" inestablishing that the Andersons and their company had vio-lated these provisions and were likely to violate these provi-sions in the future. Preliminary Injunction, entered and servedMay 22, 1998, at 2. The Andersons do not deny that the Ster-ling enterprise was a Ponzi scheme. Instead, the Andersonschallenge the district court's order by claiming that the Com-mission will not succeed in holding them personally liable fortheir involvement in the scheme. This contention lacks merit;the Commission has made a sufficient showing to justify pre-liminary injunctive relief.The Andersons claim that the Commission will not succeedon the merits in holding them personally liable for restitutionfor any deceptive practices of Financial. Their contentionreveals a crucial misunderstanding regarding the requisite fac-tual showing in order to obtain preliminary, as compared topermanent, injunctive relief. Once the correct standard isapplied, it becomes abundantly clear that the district court didnot abuse its discretion in finding that the Commission hadmade a sufficient showing that it will likely succeed in hold-ing the Andersons personally liable for Financial's miscon-duct.[1] Individuals are personally liable for restitution for cor-porate misconduct if they "had knowledge that the corpora-tion or one of its agents engaged in dishonest or fraudulentconduct, that the misrepresentations were the type upon whicha reasonable and prudent person would rely, and that con-sumer injury resulted." FTC v. Publishing Clearing House,Inc., 104 F.3d 1168, 1171 (9th Cir. 1996). The knowledgerequirement can be satisfied by showing that the individuals had actual knowledge of material misrepresentations, [were] recklessly indifferent to the truth or falsity of a misrepresentation, or had an awareness of a high probability of fraud along with an intentional avoid- ance of the truth.Id.4 The Commission, however, "is not required to show thata defendant intended to defraud consumers in order to holdthat individual personally liable." Id.The Andersons concede that reckless indifference is legallysufficient to impose personal liability on principals for corpo-rate wrongdoing. Instead of challenging the legal standardapplied by the district court, they challenge the court's factualfindings. In its preliminary injunction, the district court found"substantial evidence that [the Andersons] were at least reck-lessly indifferent to the deceptive profit representations of thetelemarketers" who worked for Financial and its independentsales offices. Preliminary Injunction, entered and served May22, 1998, at 2. The Andersons assert that the district court's"finding of reckless indifference is based on clearly erroneousfindings of fact." Appellants' Opening Brief at 27. In makingthis assertion, the Andersons reveal a fundamental misunder-standing of the factual showing necessary to support a districtcourt's preliminary injunction (as compared to a permanentinjunction) as well as confusion regarding the appropriatelegal standards for imposing personal liability on principalsfor corporate misconduct.In reviewing a preliminary injunction, our review is signifi-cantly constrained because of the state of the record availablefor our review. This constraint is especially limiting when weare asked to review the district court's factual findings thatserve as the basis for a preliminary injunction. We haveexplained these limitations in another case in which we hadto review a district court's issuance of a preliminary injunc-tion: We begin by identifying how little we can assist in the final resolution of the critical issues before the district court. Until a permanent injunction is granted or denied, we are foreclosed from fully reviewing the important questions presented. . .. Review of factual findings at the preliminary injunc- tion stage is, of course, restricted to the limited and often nontestimonial record available to the district court when it granted or denied the injunction motion. The district court's findings supporting its order granting or denying a permanent injunction may differ from its findings at the preliminary injunction stage because by then presentation of all the evidence has been completed. Then too, our determination whether its subsequent findings are clearly erroneous may differ from our view taken at the preliminary stage.Zepeda v. INS, 753 F.2d 719, 723-724 (9th Cir. 1985)(emphasis added). Recognizing the limitations we face, andapplying the appropriately deferential level of scrutiny to thedistrict court's findings, the Andersons' contentions can bedealt with without any difficulty.[2] The Andersons claim that the district court's finding ofreckless indifference was clearly erroneous because they hadconducted extensive due diligence before becoming involvedwith Sterling. The district court was skeptical of the Ander-sons' claim because extensive due diligence likely wouldhave brought to light the scheme's fraudulent nature.5 Moreimportantly, the Andersons' assertion evidences a clear mis-understanding of the relevant standard for personal liability onthe part of corporate principals for corporate misconduct. Theextent of an individual's involvement in a fraudulent schemealone is sufficient to establish the requisite knowledge for per-sonal restitutionary liability. See FTC v. Sharp , 782 F. Supp.1445, 1450 (D. Nev. 1991); FTC v. Amy Travel Service, Inc.,875 F.2d 564, 574 (7th Cir. 1989) ("Also, the degree of par-ticipation in business affairs is probative of knowledge.") TheAndersons' control of Financial, the chief telemarketer ofSterling and the media units, establishes strong evidence ofthe Andersons' knowledge. See Sharp, 782 F. Supp. at 1450("Here, Hall was a principal in, and president of MEHA, thechief broker of White Rock mines. Hall was deeply involvedin the marketing of White Rock for around two and a halfyears. Thus, there is strong evidence that Hall knew his repre-sentations were false.").[3] Even though the Andersons claim to have relied on theirdue diligence efforts, ample evidence, at least for preliminaryinjunctive relief, supports the district court's conclusion thatin light of their central involvement in the media unit schemethe Andersons were at a minimum recklessly indifferent to thetruth of the representations Financial was making regardingthe profit potential of the media unit investments. See id; seealso Pantron I Corporation, 33 F.3d at 1104 ("Given theoverwhelming evidence that no scientific support existed forthe product's efficacy claims, Lederman could not have failedto know that the scientific support claims were false unless heintentionally avoided the truth.").[4] The district court found that the promised yields on themedia unit investments were so extraordinary that the Ander-sons should have been suspicious of the investment scheme.The Andersons claim that the district court miscalculated thepromised yield on the media units. Instead of the 1000%annualized yield that the district court found would be neces-sary to earn the promised returns to the investors, they claimthat under a profit-margin per-item analysis, the media unitsonly had to yield a more modest 50% return in 60 to 90 daysin order to deliver the promised yields--an annualized returnof 200% to 300%. The Andersons seem to believe that thesemore modest returns on the media unit investments were soreasonable that they were not required to conduct more exten-sive due diligence. Perhaps the Andersons' telemarketerswere able to convince their victims that Sterling could sellenough water-filled barbells and talking pet name tags todeliver 50% returns on their investments in 60 to 90 days, butthe Andersons have failed to convince us that the district courterred in finding that experienced business persons like theAndersons should have conducted greater due diligenceefforts before representing to potential investors that theinvestment would yield 50% returns in a mere 60 to 90 days.Consequently, we cannot conclude, at least at this preliminarystage of the proceeding, that the district court clearly erredwhen it found that "[t]he Andersons had experience in theinvestment business, and should have been highly suspect ofpromises of such yields [on the media unit investments]. Yetthey fell woefully short in verifying the legitimacy of the ven-ture they were promoting." Opinion and Order, entered andserved May 22, 1998, at 2. Therefore, we find that the Com-mission has shown a sufficient likelihood of succeeding inholding the Andersons personally liable for the actions ofFinancial to warrant preliminary relief.B. Balance of the EquitiesThe Andersons also argue that the district court ignored thehardships borne by the Andersons and Financial because ofthe issuance of the preliminary injunction. This argumentignores the fact that the district court released monies to payInter Com's operating expenses,6 to pay Inter Com's employ-ees, and to pay for the Andersons' living expenses and attor-neys' fees. Therefore the burden of the preliminary injunction,although not insubstantial, is not as great as the Andersonsclaim. We find that the district court did not clearly err in bal-ancing the equities involved in this case.[5] Under this Circuit's precedents,"when a district courtbalances the hardships of the public interest against a privateinterest, the public interest should receive greater weight."FTC v. World Wide Factors, Ltd., 882 F.2d 344, 347 (9th Cir.1989); see also Warner Communications, Inc., 742 F.2d at1165. Obviously, the public interest in preserving the illicitproceeds of the media unit-scheme for restitution to the vic-tims is great.Incredibly, the Andersons assert that "the district court didnot find that there was a likelihood of asset dissipation."Appellants' Reply Brief at 7. This astounding assertion ismade even in light of the clear finding of the district court that"[t]here is a substantial likelihood that, absent the continua-tion of the asset freeze, the Enjoined Defendants will conceal,dissipate, or otherwise divert their assets, thereby defeatingthe possibility of the Court granting effective final relief in theform of equitable monetary relief for consumers. " PreliminaryInjunction, entered and served May 22, 1998, at 2. Given theAndersons' history of spiriting their commissions away to aCook Islands trust, which was intentionally designed to frus-trate United States courts' powers to grant effective relief toprevailing parties, the district court's finding regarding thelikelihood of dissipation is far from clearly erroneous.[6] Based on our review of the record, the district court didnot clearly err in balancing the equities in this case simplybecause the court concluded that the important public interestin preserving the Andersons' steep commissions from thePonzi scheme was more important than the private interests,the harm to which was minimized by the district court'srelease of monies to pay particular expenses. Therefore, wefind that the Commission has adequately shown that the bal-ance of the equities warrants preliminary injunctive relief.C. Mootness[7] The Andersons also contend that their cessation of salesfor Sterling mooted the need for injunctive relief. In makingthis contention, the Andersons exhibit a startling misunder-standing of the nature of the preliminary relief that the districtcourt actually granted. At a minimum, the Andersons' cessa-tion of sales has no bearing on the need to repatriate the assetsthey have secreted off to the Cook Islands. More importantly,however, their argument mischaracterizes the law to such adegree that they are advocating a legal proposition that is pre-cisely opposite the rule established by our precedents. Assuch, we conclude that the Commission's need for injunctiverelief has not become moot.The Andersons' first difficulty arises from their misunder-standing of the preliminary relief that the district court actu-ally granted the Commission. The preliminary injunctioncontains both a prohibitory component and a mandatory com-ponent. In relevant part, the prohibitory component prohibitedthe Andersons from (1) engaging in certain types of businesspractices, (2) destroying any of their financial records, or (3)dissipating any of their assets. In relevant part, the mandatorycomponent of the preliminary injunction required the Ander-sons to (1) prepare and deliver financial reports to the Com-mission's counsel, and (2) transfer to the United States allfunds and assets held in foreign countries. While the Ander-sons' cessation of sales might possibly effect the need torestrain them from engaging in prohibited business practices,it could in no way affect the need to have the Andersons repa-triate their assets from the Cook Islands. Therefore, theAndersons' cessation of sales for Sterling has not renderedmoot the Commission's need for the mandatory component ofthe preliminary injunction.The Andersons also appear to misunderstand the legal sig-nificance of their voluntary cessation of sales for Sterling interms of the prohibitory aspect of the preliminary injunction.The Andersons contend that "[v]oluntary cessation of anunlawful course of conduct precludes the issuance of aninjunction if there is no cognizable danger of recurrentviolations." Appellants' Opening Brief at 28. Contrary to theAndersons' assertion, however, it is actually well-settled "thatan action for an injunction does not become moot merelybecause the conduct complained of was terminated, if there isa possibility of recurrence, since otherwise the defendant'swould be free to return to [their] old ways. " FTC v. AmericanStandard Credit Systems, Inc. 874 F. Supp. 1080, 1087 (C.D.Cal. 1994) (quoting Allee v. Medrano,
416 U.S. 802
, 811(1974)) (internal citations omitted) (emphasis added).In part, the Andersons' misunderstanding may involve amisunderstanding of the difference between the effect of theperpetrator's conduct, as compared to the victim's conduct, onthe need for injunctive relief. The difference is that the victimcan moot her need for injunctive relief by her own conduct,but the alleged wrongdoer can not moot the need for injunc-tive relief as easily. This confusion becomes apparent fromthe cases upon which the Andersons rely. If an employeeleaves the employ of an employer, she can not obtain injunc-tive relief to prevent her former employer from engaging infuture retaliation in the workplace. See Taylor v. ResolutionTrust Corp., 56 F.3d 1497, 1502 (D.C. Cir. 1995). It wouldobviously be a different case if an employer claimed that aninjunction to prevent future retaliation against currentemployees was no longer necessary because the employer hadstopped retaliating against its employees in the workplace.It is possible, of course, that a defendant's conduct canmoot the need for injunctive relief, but the "test for mootnessin cases such as this is a stringent one." United States v. Con-centrated Phosphate Export Ass'n., Inc.,
393 U.S. 199
, 203(1968). The reason that the defendant's conduct, in choosingto voluntarily cease some wrongdoing, is unlikely to moot theneed for injunctive relief is that the defendant could simplybegin the wrongful activity again: "Mere voluntary cessationof allegedly illegal conduct does not moot a case; if it did, thecourts would be compelled to leave `[t]he defendant . . . freeto return to his old ways.' " Id. (quoting United States v. W.T.Grant Co.,
345 U.S. 629, 632
(1953)).[8] The Andersons contend that they have satisfied theirburden because "[t]he FTC did not offer any admissible evi-dence that the Andersons were likely to repeat any wrongfulconduct." Appellants' Opening Brief at 28. This asserted fail-ure on the part of the Commission, however, is not sufficientto satisfy the Andersons' burden of establishing that the needfor injunctive relief has become moot as a result of their ownconduct.7 The standard for the voluntary cessation exceptionto mootness is "whether the defendant is free to return to itsillegal action at any time." Public Utilities Comm'n of Cali-fornia v. Federal Energy Regulatory Comm'n, 100 F.3d 1451,1460 (9th Cir. 1996). In order to meet their burden, theAndersons must show that "subsequent events [have] made itabsolutely clear that the allegedly wrongful behavior cannotreasonably be expected to recur." Norman-Bloodsaw v. Law-rence Berkeley Laboratory, 135 F.3d 1260, 1274 (9th Cir.1998) (internal quotation omitted); cf. Lindquist v. Idaho StateBd. of Corrections, 776 F.2d 851, 854 (9th Cir. 1985) (A casemay become moot as a result of voluntary cessation of wrong-ful conduct only if "interim relief or events have completelyand irrevocably eradicated the effects of the allegedviolation."). The Andersons allege nothing that would suggestthat it is "absolutely clear" that their wrongful activities arenot reasonably likely to recur. Because they have failed to sat-isfy their burden, we can not conclude that the need forinjunctive relief is moot solely because of the Andersons' ces-sation of their unlawful conduct.In light of our conclusions regarding the Andersons' vari-ous challenges to the propriety of the district court's grantingthe Commission preliminary injunctive relief, we concludethat the district court did not abuse its discretion in issuing thepreliminary injunction, based on the factual record availableat such a preliminary stage of the proceeding.IIIThe next issue on appeal is the district court's finding theAndersons in contempt for refusing to repatriate the assets intheir Cook Islands trust.8 We review a district court's civilcontempt order for an abuse of discretion. Hilao v. Estate ofMarcos, 103 F.3d 762, 764 (9th Cir. 1996). We review thedistrict court's findings of fact in connection with the civilcontempt adjudication for clear error. Reliance Ins. Co. v.Mast Constr. Co., 84 F.3d 372, 375 (10th Cir. 1996). Wereview a district court's findings in connection with rejectingan impossibility defense for clear error. See Fortin v. Com-missioner of Mass. Dep't of Pub. Welfare, 692 F.2d 790, 797(1st Cir. 1982) (affirming contempt order when districtcourt's finding that compliance was not impossible was notclearly erroneous). Based on the record before us, we find thatthe district court did not abuse its discretion in holding theAndersons in contempt.The standard for finding a party in civil contempt is wellsettled: The moving party has the burden of showing by clear and convincing evidence that the contemnors violated a specific and definite order of the court. The burden then shifts to the contemnors to demon- strate why they were unable to comply.Stone v. City and County of San Francisco, 968 F.2d 850, 856n.9 (9th Cir. 1992) (citations omitted).The temporary restraining order required the Andersons, inrelevant part, to "transfer to the territory of the United Statesall funds, documents and assets in foreign countries heldeither: (1) by them; (2) for their benefit; or (3) under theirdirect or indirect control, jointly or singly." TemporaryRestraining Order, entered and served April 23, 1998, at 8.These provisions were continued in the preliminary injunc-tion. See Preliminary Injunction, entered and served May 22,1998, at 9. It is undisputed that the Andersons are beneficia-ries of an irrevocable trust established under the laws of theCook Islands. The Andersons do not dispute that the trustassets have not been repatriated to the United States. Instead,the Andersons claim that compliance with the temporaryrestraining order is impossible because the trustee, in accor-dance with the terms of the trust, will not repatriate the trustassets to the United States.[9] A party's inability to comply with a judicial order con-stitutes a defense to a charge of civil contempt. See UnitedStates v. Rylander,
460 U.S. 752, 757
(1983) ("While thecourt is bound by the enforcement order, it will not be blindto evidence that compliance is now factually impossible.Where compliance is impossible, neither the moving party northe court has any reason to proceed with the civil contemptaction."). The Andersons claim that the refusal of the foreigntrustee to repatriate the trust assets to the United States, whichapparently was the goal of the trust, makes their compliancewith the preliminary injunction impossible.[10] Although the Andersons assert that their "inability tocomply with a judicial decree is a complete defense to acharge of civil contempt, regardless of whether the inabilityto comply is self-induced," Appellants' Reply Brief at 12(emphasis added), we are not certain that the Andersons'inability to comply in this case would be a defense to a find-ing of contempt. It is readily apparent that the Andersons'inability to comply with the district court's repatriation orderis the intended result of their own conduct--their inability tocomply and the foreign trustee's refusal to comply appears tobe the precise goal of the Andersons' trust.9 The Andersonsclaim that they created their trust as part of an "asset protec-tion plan." See Appellant's Opening Brief at 36. These "[s]o-called asset protection trusts are designed to shield wealth bymoving it to a foreign jurisdiction that does not recognizeU.S. judgments or other legal processes, such as assetfreezes." Debra Baker, Island Castaway, ABA Journal, Octo-ber 1998, at 55. The "asset protection" aspect of these foreigntrusts arises from the ability of people, such as the Andersons,to frustrate and impede the United States courts by movingtheir assets beyond those courts' jurisdictions: Perhaps most importantly, situs courts typically ignore United States courts' demands to repatriate trust assets to the United States. A situs court will not enforce a United States order from a state court compelling the turnover of trust assets to a creditor that was defrauded under United States law, or assets that were placed into a self-settled spendthrift trust.James T. Lorenzetti, The Offshore Trust: A ContemporaryAsset Protection Scheme, 102 Com. L. J. 138, 143-144(1997).Because these asset protection trusts move the trust assetsbeyond the jurisdiction of domestic courts, often times all thatremains within the jurisdiction is the physical person of thedefendant. Because the physical person of the defendantremains subject to domestic courts' jurisdictions, courts couldnormally utilize their contempt powers to force a defendant toreturn the assets to their jurisdictions. Recognizing this risk,asset protection trusts typically are designed so that a defen-dant can assert that compliance with a court's order to repatri-ate the trust assets is impossible: Another common issue is whether the client may someday be in the awkward position of either having to repatriate assets or else be held in contempt of court. A well-drafted [asset protection trust ] would, under such a circumstance, make it impossible for the client to repatriate assets held by the trust. Impossibility of performance is a complete defense to a civil contempt charge.Barry S. Engel, Using Foreign Situs Trusts For Asset Protec-tion Planning, 20 Est. Plan. 212, 218 (1993).[11] Given that these offshore trusts operate by means offrustrating domestic courts' jurisdiction, we are unsure thatwe would find that the Andersons' inability to comply withthe district court's order is a defense to a civil contemptcharge. We leave for another day the resolution of this moredifficult question because we find that the Andersons have notsatisfied their burden of proving that compliance with the dis-trict court's repatriation order was impossible. It is well estab-lished that a party petitioning for an adjudication that anotherparty is in civil contempt does not have the burden of showingthat the other party has the capacity to comply with thecourt's order. See NLRB v. Trans Ocean Export Packing, Inc.,473 F.2d 612, 616 (9th Cir. 1973). Instead, the party assertingthe impossibility defense must show "categorically and indetail" why he is unable to comply. Id.; See also Rylander,
460 U.S. at 757
("It is settled, however, that in raising thisdefense, the defendant has a burden of production.").[12] In the asset protection trust context, moreover, the bur-den on the party asserting an impossibility defense will beparticularly high because of the likelihood that any attemptedcompliance with the court's orders will be merely a charaderather than a good faith effort to comply. Foreign trusts areoften designed to assist the settlor in avoiding being held incontempt of a domestic court while only feigning compliancewith the court's orders: Finally, the settlor should be aware that, although his trust will probably prove unassailable by domestic creditors, he may face minor hassles while defending his trust in court. In particular, if a creditor attacks an offshore trust in United States court, the settlor may face contempt of court orders during the pro- ceedings. . . . [T]here is a possibility that the court will . . . order the settlor to collect his assets from the trust and turn them over to the court. If the settlor does not comply with these orders, a court may hold him in contempt. However, there are ways around such a conflict. . . . [T]he settlor could comply with the court order and `order' his trustee to turn over the funds, knowing full well that the trustee will not comply with his request. Thereby, the settlor would technically comply with the court's orders, escape contempt of court charges, and still rest assured that his assets will remain protected.James T. Lorenzetti, The Offshore Trust: A ContemporaryAsset Protection Scheme, 102 Com. L. J. 138, 158 (1997).With foreign laws designed to frustrate the operation ofdomestic courts and foreign trustees acting in concert withdomestic persons to thwart the United States courts, thedomestic courts will have to be especially chary of acceptinga defendant's assertions that repatriation or other compliancewith a court's order concerning a foreign trust is impossible.Consequently, the burden on the defendant of proving impos-sibility as a defense to a contempt charge will be especiallyhigh.[13] Given these considerations, we cannot find that thedistrict court clearly erred in finding that the Andersons' com-pliance with the repatriation order was not impossible becausethe Andersons remain in control of their Cook Islands trust.In finding the Andersons in civil contempt, the district courtrejected the Andersons' impossibility defense, specificallyfinding that the Andersons "in the judgment of the Court[and] from the evidence that I've heard are in control of thistrust." Transcript of June 17, 1998 Hearing Regarding Plain-tiff's Motion for Civil Contempt, p. 30. Because we onlyreview a district court's findings in connection with rejectingan impossibility defense for clear error, we will treat the dis-trict court's finding that the Andersons were in control of theirtrust as a finding of fact, subject only to the clearly erroneousstandard of review. Based upon the record before us, we findthat the district court's finding that compliance with the repa-triation order was possible because the Andersons remain incontrol of their trust was not clearly erroneous.The Andersons claim that they have "demonstrated to thedistrict court `categorically and in detail' that they can notcomply with the repatriation section of the preliminaryinjunction." Appellants' Reply Brief at 13. The district courtwas not convinced and neither are we. While it is possible thata rational person would send millions of dollars overseas andretain absolutely no control over the assets, we share the dis-trict court's skepticism. The district court found, notwith-standing the Andersons' protestations, that As I look at the totality of the scheme of what I see before me at this time, I have no doubt that the Andersons can if they wish to correct this problem and provide the means of putting these funds in a position that they can be accountable if the final determination of the Court is that the funds should be returned to those who made these payments.Transcript of June 9, 1998 Hearing Regarding Plaintiff'sMotion for Civil Contempt, p. 18.We cannot say that this finding was clearly erroneous. TheAndersons had previously been able to obtain in excess of $1million from the trust in order to pay their taxes. Given theirability to obtain, with ease, such large sums from the trust, weshare the district court's skepticism regarding the Andersons'claim that they cannot make the trust assets subject to thecourt's jurisdiction.Moreover, beyond this general skepticism concerning theAndersons' lack of control over their trust, the specifics of theAndersons' trust indicate that they retained control over thetrust assets. These offshore trusts allow settlors, such as theAndersons, significant control over the trust assets by allow-ing the settlor to act as a cotrustee or "protector" of the trust.See Debra Baker, Island Castaway, ABA Journal, October1998, at 56 ("Further, an offshore trust, may allow settlors tomaintain significant control over their assets. Trusts caninclude cotrustees in the United States to watch over theactions of the foreign trustees, and settlors can name anyone,including themselves, as `protectors' to oversee the trusteesand veto their actions if necessary."). When the settlors retainthis type of control, however, they can jeopardize the assetprotection scheme because they will be subject to a U.S.court's personal jurisdiction and be forced to exercise theircontrol to repatriate the assets. See id. ("If litigation is threat-ened, the protector and the co-trustee can resign so that no onewithin the personal jurisdiction of a federal or state court hascontrol over the assets of the trust.").[14] The district court's finding that the Andersons were incontrol of their trust is well supported by the record given thatthe Andersons were the protectors of their trust. A protectorhas significant powers to control an offshore trust. See GideonRothschild, "Establishing and Drafting Offshore Asset Protec-tion Trusts," 23 Est. Plan. 65, 70 (1996) ("The use of a trustprotector or advisor is common among foreign trusts. Thisperson . . . has the power to replace trustees and veto certainactions by the trustees."). A protector can be compelled toexercise control over a trust to repatriate assets if the protec-tor's powers are not drafted solely as the negative powers toveto trustee decisions or if the protector's powers are not sub-ject to the anti-duress provisions of the trust. See id. ("Theprotector's powers should generally be drafted as negativepowers and subject to the anti-duress provisions to protectagainst an order compelling the protector to exercise controlover the trust."). The Andersons' trust gives them affirmativepowers to appoint new trustees and makes the anti-duress pro-visions subject to the protectors' powers,10 therefore, they canforce the foreign trustee to repatriate the trust assets to theUnited States.[15] Perhaps the most telling evidence of the Andersons'control over the trust was their conduct after the district courtissued its temporary restraining order ordering the repatriationof the trust funds. The Andersons sent a notice to the foreigntrustee, ordering it to repatriate the trust assets because thedistrict court had issued a temporary restraining order. Theforeign trustee removed the Andersons from their positions asco-trustees and refused to comply with the repatriation order.After the Andersons claimed that compliance with the repatri-ation provisions of the temporary restraining order wasimpossible, the Commission revealed to the court that theAndersons were the protectors of the trust. The Andersonsimmediately attempted to resign as protectors of the trust.This attempted resignation indicates that the Andersons knewthat, as the protectors of the trust, they remained in control ofthe trust and could force the foreign trustee to repatriate theassets.11The Andersons contend that even though they are the pro-tectors of the trust, it is impossible for them to repatriate thetrust assets. The Andersons' argument, that "[t]here is a mis-step in the FTC's logic," Appellants' Reply Brief at 17,ignores the fact that they bear the burden of proving impossi-bility, not the Commission. Their pointing to a few provisionsof the trust, alone,12 is insufficient to carry their burden or toestablish that the district court's finding that they remain incontrol of their trust was clearly erroneous.13Because we see no clear error in the district court's findingthat the Andersons remain in control of their trust and couldrepatriate the trust assets, the district court did not abuse itsdiscretion in holding them in contempt. We, therefore, affirmthe district court's finding the Andersons in contempt. Giventhe nature of the Andersons' so-called "asset protection" trust,which was designed to frustrate the power of United States'courts to enforce judgments, there may be little else that a dis-trict court judge can do besides exercise its contempt powersto coerce people like the Andersons into removing the obsta-cles they placed in the way of a court. Given that the Ander-sons' trust is operating precisely as they intended, we are notoverly sympathetic to their claims and would be hesitant tooverly-restrict the district court's discretion, and thus legiti-mize what the Andersons have done.AFFIRMED.
___________________________FOOTNOTES 1 We also grant the Commission's motion to strike the materials con-tained in the first tab of Appellants' Supplemental Excerpts of Record.These materials are declarations, executed in September 1998, monthsafter the district court issued the preliminary injunction and found theAndersons in contempt of court. We, therefore, order these materialsstricken. See Kirshner v. Uniden Corp. of Am. , 842 F.2d 1074, 1078 (9thCir. 1988) (striking portions of excerpts of record that were "neither filedwith the district court, considered by the court, nor even before the courtwhen it entered the order that [appellant] now challenges on appeal").2 The temporary restraining order prohibited the Andersons, the otherdefendants, and their agents from making false or misleading statementsin connection with the marketing of investments or destroying or other-wise failing to maintain their business records. It also froze the defen-dants' assets and required the defendants to provide a financial statementto the Commission's counsel. In addition, it required any financial institu-tions in possession of the defendants' assets to preserve the assets and pro-vide the Commission's counsel information about the assets. Finally, itrequired the defendants to repatriate all assets outside of the United Statesto the territory of the United States.3 Subsequent to the Andersons' appeal to this court, but prior to oralargument, the district court ordered the Andersons released from custody.In its Release Order, filed December 22, 1998, the district court orderedthe Andersons released but found that they remain in contempt of court.Because they remain in contempt, their appeal of the court's order findingthem in contempt has not been rendered moot, even though they are nolonger in custody.4 The Commission claims that knowledge or reckless indifference is notnecessary for disgorgement, as compared to restitution. The Commissionbases this claim upon cases dealing with the Commodity Futures TradingCommission. This argument has been proffered by the Commission beforeand this Circuit has declined to reach the issue. See, e.g., FTC v. PantronI Corporation, 33 F.3d 1088, 1103 (9th Cir. 1994). We will not decidetoday whether the Act allows the Commission to obtain disgorgement,without regard to the defendant's mental state, because we believe that theCommission has made a sufficient showing of reckless indifference toobtain preliminary injunctive relief.5 The district court found the Andersons' due diligence efforts to beextremely deficient. See Opinion and Order, entered and served May 22,1998, at 2-3. The only reliable information concerning actual sales bySterling was obtained five months after the Andersons began selling themedia units for Sterling. Nor did the Andersons conduct continuing dili-gence efforts to ensure that the media units were profitable investmentsrather than the Ponzi scheme that they proved to be. Id. Although theAndersons emphasize what they feel were adequate due diligence efforts,they fail to respond in any way to the specific deficiencies noted by thedistrict court. Our review of the record indicates that there is more thansufficient evidence to support the district court's findings and nothingapproaching what would be necessary for us to conclude that the districtcourt's findings were clearly erroneous, given the level of deferenceafforded a district court's findings in connection with a preliminaryinjunction.6 When the temporary restraining order was granted, the Andersons hadalready discontinued their involvement with Sterling. They were operatinga new telemarketing company, Inter Com, in the same office in which theyhad operated Financial.7 Because the Andersons have failed to satisfy their burden of provingthat they are not likely to resume engaging in illegal telemarketing activi-ties, we do not decide today the merits of the Andersons' assertion that theCommission has failed to "offer any admissible evidence that the Ander-sons were likely to repeat any wrongful conduct. " Nevertheless, we donote that one of the Andersons' complaints about the preliminary injunc-tion is that it disrupted the operations of the Andersons' new telemarketingproject, Inter Com. According to the Andersons, Inter Com is involvedwith pre-paid residential telephone service rather than the sale of mediaunits. Inter Com apparently is involved with Tel Com Plus, which wassubject to at least one state cease and desist order. At this point, the factualrecord is insufficient for us to decide whether the Andersons' involvementin another fraudulent telemarketing scheme could provide a sufficientindependent basis for the prohibitory aspect of the preliminary injunction.8 We have interlocutory appellate jurisdiction over the district court'sadjudication of civil contempt where it is incident to an appeal from a pre-liminary injunction. See Diamontiney v. Borg, 918 F.2d 793, 796-97 (9thCir. 1990).9 The Andersons' trust created the circumstances in which a foreigntrustee would refuse to repatriate assets to the United States by means ofso-called duress provisions. Under the trust agreement, an event of duressincludes "[t]he issuance of any order, decree or judgment of any court ortribunal in any part of the world which in the opinion of the protector willor may directly or indirectly, expropriate, sequester, levy, lien or in anyway control, restrict or prevent the free disposal by a trustee of anymonies, investments or property which may from time to time be includedin or form part of this trust and any distributions therefrom." Trust Agree-ment at 3. Upon the happening of an event of duress, the trust agreementprovides that the Andersons would be terminated as co-trustees, so thatcontrol over the trust assets would appear to be exclusively in the handsof a foreign trustee, beyond the jurisdiction of a United States court: Notwithstanding any other provision contained in this deed any trustee hereof shall automatically cease to be a trustee upon the happening of an event of duress within the territory where such trustee is . . . resident (in the case of an individual) and upon ceasing to be a trustee pursuant to this clause such trustee shall be divested of title to the property of this trust which shall auto- matically vest in the remaining or continuing trustee (if any) located in a territory not having an event of duress and the form for administration of this trust shall notwithstanding any other provision in this deed be deemed to be the place of residence or incorporation (if a corporation) of such continuing trustee.Trust Agreement at 17 (emphasis added).10 For example, the trust provides the protectors with discretion to con-clusively determine that an event of duress has not occurred: "For the pur-pose of determining whether an Event of Duress has occurred pursuant toparagraph (c) and paragraph (d) of this clause (1)(a)(vi) of this Deed, thewritten certificate of the Protector to that effect shall be conclusive." TrustAgreement at 3 (emphasis added).11 Although we have concentrated on the Andersons' capacity as protec-tors of the trust to support the district court's finding that the Andersonsremain in control of the trust, we have not considered whether other factsmight support the Andersons' continuing control over the trust, regardlessof who is the protector of the trust. The Andersons attempted to resigntheir position as protectors and that attempt appears to have failed. If theAndersons have in fact resigned their position as protectors, they may stillremain in control of the trust. We have not resolved this issue at this timebecause the Andersons have conceded that they are the protectors of thetrust.12 The district court excluded evidence that the Andersons claimed sup-ported their impossibility defense. The Andersons did not challenge thisevidentiary ruling at all until their Reply Brief. Accordingly, we will notconsider the propriety of the district court's exclusion of the Andersons'evidence concerning impossibility. See All Pacific Trading, Inc. v. VesselM/V Hanjin Yosu, 7 F.3d 1427, 1434 (9th Cir. 1993). Moreover, what littlethe Andersons say in their Reply Brief cannot be considered an adequateargument challenging the district court's evidentiary ruling. From theAndersons' meager assertions, it is unclear what their challenge to the dis-trict court's ruling would be.13 The provisions of the trust also make clear that the Andersons' posi-tion as protectors gives them control over the trust. In provisions of thetrust agreement that the Andersons conveniently fail to reference, the trustagreement makes clear that the Andersons, as protectors, have the powerto determine whether or not an event of duress has occurred: "For the pur-pose of determining whether an Event of Duress has occurred pursuant toparagraph (c) and paragraph (d) of this clause (1)(a)(vi) of this Deed, thewritten certificate of the Protector to that effect shall be conclusive." TrustAgreement at 3 (emphasis added). Moreover, the very definition of anevent of duress that the Andersons assert has occurred makes clear thatwhether or not an event of duress has occurred depends upon the opinionof the protector: "The issuance of any order, decree or judgement of anycourt or tribunal in any part of the world which in the opinion of theProtector will or may directly or indirectly, expropriate. . . ." Trust Agree-ment at 3 (emphasis added). Therefore, notwithstanding the provisions ofthe trust agreement that the Andersons point to, it is clear that the Ander-sons could have ordered the trust assets repatriated simply by certifyingto the foreign trustee that in their opinion, as protectors, no event of duresshad occurred. the end