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International Controls Corp. v. Vesco

decided: January 24, 1979.


Consolidated appeals from two orders of the District Court for the Southern District of New York, Judge Charles E. Stewart, Jr. In these two consolidated appeals, Robert L. Vesco appeals from two orders denying: (1) a motion to vacate a default judgment entered against Vesco on October 5, 1973; and (2) a motion in an entirely different action to vacate another default judgment entered against Vesco on September 11, 1974. The orders in each of these two cases are affirmed, with costs. The opinions below have not been officially reported.

Before Medina and Mansfield, Circuit Judges, and Ward, District Judge.*fn*

Author: Medina

We have before us two consolidated appeals by Robert L. Vesco. The first is from an order of Judge Charles E. Stewart, Jr., dated February 1, 1978, denying a motion pursuant to F.R.C.P. 60(b)(4) by Vesco, on certain papers and "on all the proceedings heretofore had herein" to vacate a default judgment entered against him on October 5, 1973. The second is from another order of Judge Stewart entered on May 3, 1978, denying a motion by Vesco in an entirely different action, also made "upon all of the proceedings heretofore had herein," to vacate a default judgment entered on September 11, 1974. We shall proceed with the first appeal, leaving the second until the end of this opinion. Judge Stewart's opinions in the two cases are not officially reported.

After probing and analyzing a considerable number of side issues, digressions and a morass of procedural detail raised in the briefs and on the oral argument of the appeals, we have concluded to affirm, as dispositive of the two appeals, Judge Stewart's findings that: (1) the service of the summons and complaint on Vesco on July 30, 1973 at his Brace Ridge Road residence in Nassau, Bahamas, gave the Court In personam jurisdiction over Vesco (73 Civ. 2518); and (2) the service of the summons and complaint on Vesco on April 17, 1974 in the separate action in the Southern District of New York (74 Civ. 1588) at the same Brace Ridge Road residence in Nassau, Bahamas, gave the Court In personam jurisdiction over Vesco. With regard to the attempted service of the amended complaint on October 24, 1973, referred to in Vesco's brief on the first of the two appeals, we also approve Judge Stewart's finding that this service did not give the Court In personam jurisdiction over Vesco. We do not reach Judge Stewart's ruling that Vesco's motion to vacate the default judgment of October 5, 1973 was not timely made.

As this Vesco controversy will probably reach this Court again from time to time for some years to come, we think it may spare other judges the time and effort we have spent studying the briefs and the twelve large manila folders in the Clerk's Office containing the "proceedings heretofore had herein," and constituting the original record in Appeal 78-7092, if we make a preliminary statement describing the salient features of the prior proceedings and especially the prior opinions filed by various panels of this Court. This we think is especially important as it will serve to place the matters dispositive of these appeals in their proper relation to what has already been decided and what has not already been decided.


Prior History of the Case.

For some years prior to 1972 the SEC took note of the conduct of Vesco and his manipulation of corporate entities, spin-offs, the shuffling about of individual officers and directors and the use of foreign banks as depositaries of the alleged hundreds of millions of dollars he is said to have misappropriated from investors in violation of the federal securities laws. The result of the ensuing investigation was that on November 27, 1972 the Commission filed a suit against Vesco, 20 other individuals and 21 corporate entities in which the complaint, based upon a vast array of alleged wrongdoing by Vesco and his associates, prayed for extensive legal and equitable relief. This action in the District Court for the Southern District of New York is entitled Securities and Exchange Commission v. Robert L. Vesco, No. 72 Civ. 5001.*fn1 The complaint in this action alleged "a scheme of extraordinary magnitude, deviousness and ingenuity in violation of the anti-fraud provisions of the Securities and Exchange Act of 1934 * * * masterminded by Vesco." One of the defendants was International Controls Corp., alleged to be a principal vehicle used by Vesco to implement various features of the scheme to defraud investors. On March 16, 1973 ICC consented to the entry of final judgment against it in the SEC action, and Judge Stewart, in lieu of the appointment of a receiver sought by the SEC, appointed a Special Counsel and a new interim board of directors to represent ICC.

David M. Butowsky, the Special Counsel appointed by the Court as authorized by the terms of the consent judgment, on June 7, 1973 filed in the District Court for the Southern District of New York the complaint in the action in which we have the first of the two consolidated appeals (78-7092). In this action plaintiff ICC sued 32 individual and corporate defendants, 22 of whom were defendants in the already pending SEC action (72 Civ. 5001) and 10 of whom were not. These new defendants included Vesco & Co., Inc. and various corporations connected in one way or another with a Boeing 707 aircraft purchased for $1,375,000 and refurbished by an expenditure of $600,000 to $700,000 "for the personal comforts, conveniences and zest for living" of Vesco and with the yacht Patricia III, located in Miami, Florida, to be fitted up at great expense to suit Vesco's "Sybaritic tastes." On June 20, 1973, Vesco, Patricia Vesco, his wife, and Vesco's family boarded the yacht, and Vesco and his family remained its sole users until shortly before it was put into Miami for repairs.

The first phase of this case (International Controls Corp. v. Vesco, 73 Civ. 2518 (S.D.N.Y.))*fn2 to reach this Court was an appeal from an order of Judge Stewart granting a preliminary injunction, among other things enjoining the control or disposition of certain assets, including the Boeing 707 and the yacht Patricia III. This is Appeal No. 1. The opinion affirming Judge Stewart's injunction, with a certain modification, was written by Chief Judge Kaufman, for a panel consisting of himself, Judge Mansfield and Judge Mulligan, the latter of whom dissented in part. This Appeal No. 1 was argued on December 10, 1973, decided on January 15, 1974, and it is reported as International Controls Corp. v. Vesco, 490 F.2d 1334 (2d Cir.), Cert. denied, 417 U.S. 932, 94 S. Ct. 2644, 41 L. Ed. 2d 236 (1974).

The part of that opinion pertinent to these two present consolidated appeals states that Vesco was not one of the appellants but Vesco & Co., Inc. was one of the appellants. The default judgment of October 5, 1973 is mentioned (490 F.2d at page 1350); also that Vesco & Co., Inc. was incorporated by Vesco on July 12, 1972 as an estate planning device, all the voting common stock of which is owned by Patricia Vesco as custodian for Vesco's children, and the officers are Mrs. Vesco and Shirley Bailey, Vesco's personal secretary (490 F.2d at page 1349). Judge Stewart, in the findings upon which the preliminary injunction was based, stated that "Vesco & Co. is a corporate alter ego for defendant Robert Vesco and was created by him during and after the perpetration of the fraud charged in the complaint." This is the finding referred to in Chief Judge Kaufman's opinion (490 F.2d at page 1350). Because of the relevance of this alter ego finding to the disposition of the two appeals now before us, however, we think it proper to state that, at a later date and on August 22, 1975, in connection with a different application in this same action, Judge Stewart repeated this finding. We shall find that an appeal was taken to this Court and the upshot was that the finding was not reversed or modified and that it stands now as the law of this case for all purposes. We shall discuss this particular matter later in some detail.

For our present purposes this opinion in Appeal No. 1 by Chief Judge Kaufman, made as above stated on the appeal from the order of Judge Stewart granting the preliminary injunction, also refers to the fact that Vesco had already absented himself from the territorial limits of the United States, had refused to return and was "safely ensconced in Nassau, the Bahamian capital" (490 F.2d at page 1338). The order to show cause, on which this motion for the preliminary injunction was made, is dated June 8, 1973.

After the affirmance of the order of Judge Stewart granting the preliminary injunction, Special Counsel for plaintiff proceeded with the utmost diligence to try to reach assets to satisfy the default judgment, which did not provide for the payment of any specific sum as the damages had not yet been proved. This led to extended and time-consuming hearings which resulted in a finding of "specified damages of $2,433,466.72, but left open the possibility that ICC might be able to prove further damages in subsequent proceedings." A second default judgment in this amount was entered against Vesco on July 16, 1974. All this time, quite obviously aware of the allegations in the complaint in this action and of all the proceedings above referred to, Vesco was sitting in the wings leaving it to his alter ego to do the appealing and the presentation to this Court of the reasons for reversal of some or all of Judge Stewart's rulings. One of these arguments asserted by Vesco & Co., Inc. was that because of the alleged defective service of process the judgment against Vesco was void. And this is precisely the principal question asserted by Vesco in the first of these two consolidated appeals now before us for decision. As he had not directly submitted to the personal jurisdiction of the court, Judge Stewart in the hearings above referred to properly refused to permit Vesco & Co., Inc. to assert or prove defenses personal to Vesco. At this point it is well to remember that the complaint alleges the facts from which the alter ego relationship is to be inferred and Vesco by his default has placed none of the allegations of the complaint in issue.

On May 20, 1975 ICC moved before Judge Stewart for an order of execution to reach the assets of Vesco & Co., Inc. to satisfy the default judgment against Vesco. On August 22, 1975 Judge Stewart ruled that Vesco & Co., Inc. was the alter ego of Vesco and directed both Vesco and Vesco & Co., Inc. to turn over their ICC stock to a receiver. Vesco & Co., Inc. took an appeal from this decision to our Court. The resulting opinion is reported as International Controls Corp. v. Vesco, 535 F.2d 742 (2d Cir. 1976), Cert. denied, 429 U.S. 1088, 97 S. Ct. 1160, 51 L. Ed. 2d 574 (1977). This Appeal No. 2 came on for argument before a different panel consisting of Judges Kaufman, Smith and Anderson. The appeal was argued on March 8, 1976 and decided on May 13, 1976. The Court, in an opinion by Judge Smith, did not decide the merits or any part thereof. Instead, its attention was diverted by counsel for Vesco & Co., Inc. to the interesting questions of finality and compliance with Rule 54(b). Since the judgment appealed from was against Vesco and not the other defendants, it was held that further damages might be proved later; and, as the complaint contained multiple claims, this Court stated that it could not discern with the clarity required by the final judgment rule just how much of the judgment was final and how much was not. The Court was also unsure as to whether the single Rule 54(b) certification was intended to apply not only to the first default judgment but also to the second. Accordingly, on May 13, 1976, the case was remanded to Judge Stewart. While the opinion makes no reference to Vesco, the fact is that extradition to face the three indictments described in footnote 1 to Chief Judge Kaufman's opinion on Appeal No. 1 had been refused and Vesco was still at large and eluding process servers as will more fully appear later in this opinion.

However disheartening the further delay caused by this remand might have seemed to Special Counsel for appellee, he took immediate steps to remedy the procedural defects that had been brought to the attention of the Court by counsel for Vesco & Co., Inc. So, upon proper notice to Vesco & Co., Inc. and to Vesco by order to show cause dated May 21, 1976, and on May 27, 1976, despite urgent and prolonged arguments on behalf of Vesco & Co., Inc. for further hearings and further delay, Judge Stewart prepared and signed a new and amended judgment entered May 27, 1976, in which the part of the claims asserted in the complaint that was covered by the judgment and the part of the claims asserted in the complaint that was not covered by the judgment were made unmistakably clear. He also certified, in compliance with the requirements of Rule 54(b), that as to the amended judgment thus defined "there is no just reason for delay in entering a final judgment."

This led to a fantastic series of events and a new spate of procedural smoke screens by Vesco & Co., Inc. which, whether so intended or not, resulted in further delays in bringing Vesco to justice.

Vesco & Co., Inc. appealed to this Court from the amended judgment, entered on May 27, 1976 on the remand. But this notice of appeal was served on July 7, 1976, nine days too late. The flimsy excuses for this "mistake" are exposed in Judge Stewart's opinion of October 27, 1976. On August 4, 1976 appellee moved in this Court to dismiss the appeal; on August 31 Vesco & Co., Inc. moved in the District Court, pursuant to Rule 4(a) of the Federal Rules of Appellate Procedure for an extension of time within which to file a notice of appeal, which was denied. On September 14, 1976 this Court heard appellee's motion to dismiss and a cross-motion by Vesco & Co., Inc. for reconsideration of the remand. On the same day, by order of Judges Anderson, Mansfield and Mulligan, the motion for reconsideration was denied and the motion to dismiss was granted "for lack of jurisdiction."

Accordingly, as no effective appeal was taken by Vesco & Co., Inc. from the order of Judge Stewart holding that Vesco & Co., Inc. was the alter ego of Vesco, that ruling is now the law of this case. Moreover, it is the key to reaching the assets of Vesco, who for all these years has by one means or another frustrated every attempt to bring him back to the United States and cause him to disgorge the avails of his misconduct, including the huge sums said to be deposited in secret accounts in banks in Switzerland, Liechtenstein and elsewhere.

In any event, as of September 14, 1976 it appeared that Special Counsel for appellee might then be able to get at Vesco's assets in Vesco & Co., Inc. But Vesco merely shifted lawyers and tried something entirely new. This was a motion in the District Court to vacate the May 27, 1976 judgment pursuant to Rule 60(b) of the F.R.C.P.

The main thrust of the motion was for the first time to bring before the Court the fact that the judgment of October 5, 1973 was plainly based on the original complaint and, so the argument of Vesco & Co., Inc. went, the mere filing of an amended complaint on September 7, 1973, before the entry of the default judgment of October 5, 1973, superseded the original complaint and made the default judgment void (Rule 60(b)(4)). Judge Stewart's reason for denying this motion on October 27, 1976 was that the mere filing of an amended complaint does not supersede the original complaint, and that until proper service of an amended complaint has been made pursuant to Rule 5(a) the original complaint remains in full force and effect. He further held that the only attempted service of the amended complaint on Vesco was at his Brace Ridge Road residence in Nassau, Bahamas, on October 24, 1973, and that this service was invalid and ineffective because not made in compliance with his order authorizing the service. Accordingly, as this service gave the Court no In personam jurisdiction over Vesco, the amended complaint did not supersede the original complaint and the motion under F.R.C.P. Rule 60(b)(4) to vacate the default judgment of October 5, 1973 against Vesco was denied on October 27, 1976. Thus, in connection with the first of the two consolidated appeals, and to be sure that we leave no loose ends, we feel that we should discuss in a later part of this opinion the details concerning this attempted service and our reasons for approving Judge Stewart's ruling that the service was improperly made and ineffective to give the Court In personam jurisdiction over Vesco.

This brings us to the third time this case has come before our Court. Appeal No. 3 by Vesco & Co., Inc. was from Judge Stewart's order of October 27, 1976. On June 3, 1977 the order was affirmed, in an opinion by Judge Oakes, in which Judge Wyzanski, Senior Judge of the District Court for the District of Massachusetts, sitting by designation, and Judge Holden, Chief Judge of the District Court for the District of Vermont, also sitting by designation, concurred. The case is reported as International Controls Corp. v. Vesco, 556 F.2d 665 (2d Cir. 1977), Cert. denied, 434 U.S. 1014, 98 S. Ct. 730, 54 L. Ed. 2d 758 (1978).

In the opening paragraph of the opinion Judge Oakes commented (556 F.2d at page 667):

While those transactions are not before us in the instant appeal, it was Mr. Vesco's "multifarious manipulations" that led him to absent himself from this country and to be unavailable for service of process. This persistent refusal to appear in any American court is the single most important ...

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