¶ 3901
Overview
Scope of the chapter. This chapter addresses the court's power to compel a debtor to bring assets back from abroad and the consequences of failing to do so. It covers the distinction between civil and criminal contempt, the sources of authority for repatriation and turnover orders, the defense that compliance is impossible and the rule that self-created impossibility is no defense, the reported cases in which settlors of offshore trusts were held in contempt, the limits on the duration of coercive confinement, the English law of committal, and the design and conduct that bear on the contempt risk.
Why contempt is the critical risk. An offshore trust may be beyond the reach of a United States court. The settlor usually is not. A court that has personal jurisdiction over the settlor may order the settlor to cause the trust assets to be returned, and if the settlor does not comply, may confine the settlor until the settlor does. The trust's legal resilience in its own jurisdiction does not answer that order. The Ninth Circuit observed, quoting a practitioner, that "often times all that remains within the jurisdiction is the physical person of the defendant." FTC v. Affordable Media, LLC, 179 F.3d 1228, 1240 (9th Cir. 1999) (quoting an article in the ABA Journal). For a settlor who lives in the United States, contempt is the remedy that most often decides whether an offshore structure protects anything in practice.
The settled position. Four propositions emerge from the cases. First, a court with personal jurisdiction over a party may order the party to repatriate property abroad that is under the party's control. Second, inability to comply is a defense to civil contempt, but the contemnor bears the burden of producing evidence of it, and in the asset protection context the burden is "particularly high." Id. at 1241. Third, the courts that have decided the question hold that impossibility the contemnor created is no defense. Fourth, coercive confinement may continue as long as it retains a realistic prospect of producing compliance, and must end when it no longer does, though courts have permitted confinement to continue for many years. Each proposition is developed below.
Relation to other chapters. The design of the offshore trust, including duress clauses, protectors and flight provisions, is addressed in chapter 30 (see supra ch. 30), and retained control in chapter 19 (see supra ch. 19). Freezing orders, whose breach is a contempt, are addressed in chapter 38 (see supra ch. 38). The trustee's position when the settlor is in contempt is addressed in chapter 40 (see infra ch. 40). The planner's own exposure to sanctions and to criminal liability is addressed in chapter 3 (see supra ch. 3).