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UNITED STATES v. IANNIELLO

September 30, 1986

UNITED STATES OF AMERICA, Plaintiff,
v.
MATTHEW IANNIELLO, a/k/a "Matty the Horse," BENJAMIN COHEN, a/k/a "Benny Cohen," PAUL GELB, ALFRED IANNIELLO, OSBRO RESTAURANT, INC., d/b/a "Umberto's Clam House," ROBERT IANNIELLO, P & G FUNDING CORP., d/b/a the "Mardi Gras," PAULINE GELB, JOHN ZAFFARANO, JOHN DOE, and JOHN DOE, INC., d/b/a "John Doe Restaurant," Defendants



The opinion of the court was delivered by: HAIGHT

contd

[EDITOR'S NOTE: The page numbers of this document may appear to be out of sequence; however, this pagination accurately reflects the pagination of the original published documents.]

 MEMORANDUM OPINION AND ORDER

 HAIGHT, District Judge:

 The Government renews its application for the appointment of a receiver pendente lite of Umberto's Clam House, owned by defendant Osbro Restaurant, Inc. The action is brought under the "Civil Remedies" section of the Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO"), 18 U.S.C. § 1964. The factual background of the case is set forth in the Court's Memorandum Opinion and Order of April 16, 1986, which denied the requested relief on the record then existing. Familiarity with that Opinion is assumed.

 The Court's prior opinion held, in essence, that the Government had not made a sufficiently strong factual showing of certain individuals' continued skimming from Umberto's to justify appointment of a receiver. I suggested that the Government's case might be bolstered by expert opinion evidence from a witness qualified in restaurant procedures and accounting. Slip op. at 13. Since the entry of that Opinion, the Government retained such an expert, who conducted certain inquiries and submitted an affidavit. Defendants retained experts who also prepared affidavits. The experts have been subjected to cross-examination in depositions.

 The Government sought to bolster the record further by pre-trial discovery. That effort was blocked by a blanket invocation of the Fifth Amendment. Defendant Robert Ianniello, the president of Osbro, pleaded the Fifth Amendment in bar to all questions put to him at his deposition. Defendants Matthew and Alfred Ianniello, in a pragmatic time-saving device, have stipulated with the Government that they would also invoke the Fifth Amendment if sought to be deposed. In written interrogatories propounded to Osbro, the Government asked inter alia for the names and addresses of "all officers, directors, employees and suppliers of Osbro"; and for the identification and description of the custodian, location and general description of all documents, including pertinent employment and business records of Osbro's relevant to the subject matter of the action. In addition to making objections and assertions with which I need not presently deal, Osbro also responded:

 "There is no person who can answer the remainder of [these interrogatories] on behalf of defendant without invoking his Fifth Amendment right to decline to answer on the ground that any answer might tend to incriminate him."

 I have considered the recently developed expert testimony and defendants' invocation of the Fifth Amendment within the context of the entire record. I now conclude that the Government is entitled to the appointment of a receiver.

 I.

 Count 37 of the superseding criminal indictment tried before Judge Weinfeld charged that from on or about September 1, 1982 up to and including the filing of the indictment on February 15, 1985, Matthew Ianniello, Alfred Ianniello, and other individuals entered into a fraudulent scheme, part of that scheme being "that the said defendants and their co-schemers regularly skimmed, diverted, extracted, and converted to their own use a substantial portion of the daily gross receipts of Osbro." Indictment at [P]98. The jury convicted Matthew and Alfred Ianniello on this count. Under the RICO statute, they are now estopped from denying those allegations of the criminal charge. § 1964(d).

 The central issue on the present motion is whether the Government has made a sufficient showing of post-indictment, continuing skimming on the part of these defendants to justify appointing a receiver to take charge of Umberto's affairs. The receiver's essential function would be to put an end to any continued skimming or improper diversion of Umberto's receipts into the hands of one or more of the individual defendants.

 II.

 I shall first consider the affidavits and deposition testimony of the expert witnesses called by the parties. Before doing so, certain preliminary observations should be made.

 Under an order entered in the criminal case by Judge Weinfeld, and continued in this civil case by this Court, Osbro has been submitting on a monthly basis certain financial records relevant to its operations. Those records have been reviewed by a certified public accountant retained by the Government, Murray J. Weinman. Weinman's detailed affidavit of May 21, 1986 in support of the renewed application summarizes his findings at [PP]25 and 26:

 "25. According to the records which defendants have produced pursuant to court order and which I have reviewed, during the past year (from April 1, 1985, to March 31, 1986), Umberto's had average monthly gross receipts of approximately $73,000. Also according to those records, during the six months immediately preceding the indictment in the criminal case (from August 10, 1985, to February 11, 1985), Umberto's had average monthly gross receipts of approximately $73,000. Thus, Umberto's average monthly gross receipts, as reflected in those records, were the same for the pre- and post-indictment periods described above.

 "26. According to the records which defendants have produced pursuant to court order and which I have reviewed, approximately 40 percent of Umberto's gross receipts were spent on food and beverage costs in 1984 and 1985."

 Monthly gross receipts which average $73,000 yield annual gross receipts of $876,000.

 The motion papers also include transcripts of telephone conversations between Matthew Ianniello and Alfred Ianniello which occurred on September 20 and October 13, 1982. Notwithstanding defense counsel's faint suggestions to the contrary, it seems clear enough that in these conversations Matthew and Alfred Ianniello are discussing economic aspects of operations at Umberto's. The conversations establish that Alfred Ianniello was keeping a close eye on the restaurant, and then discussing with Matthew Ianniello problems of waste, inefficiency of staff, and the like. At one point Alfred Ianniello says to Matthew Ianniello: "We average thirty, Matty, we average thirty a week." Transcript of September 20, 1982 conversation at 3. The context of the conversation shows that Alfred Ianniello is referring to demonstrated average gross receipts of $30,000 a week. At another point in the transcript, Alfred Ianniello quotes himself as criticizing a staff member named Oscar:

 "I said Oscar why'd you stop the extra five? Well, it's slowing down. I said what do you mean slowin' down did almost like thirty-five thousand last week, that's not this week. The week before." Id. at 2.

 Further references to an apparently realized gross receipts average of $30,000 per week appear in the transcript of the October 13, 1982 conversation at 9 and 11.

 Average weekly gross receipts of $30,000 yield annual gross receipts of $1,560,000.

 This brings us to the testimony of the Government's expert witness. He is Stuart L. Feigenbaum. Feigenbaum is qualified to give testimony on the points at issue. He holds a Bachelor of Science degree from the School of Hotel Administration at Cornell University. Following employment as director of food and beverage services at various hotels and clubs, Feigenbaum joined the firm of Laventhol & Horwath, certified public accountants, in September 1983, where he is the manager in New York in charge of the Food Services and Restaurant Advisers Group.

 Feigenbaum and staff from Laventhol & Horwath visited Umberto's over a five day period in late April and early May, 1986. On the basis of what was observed and calculations made in the light of Feigenbaum's experience, he reached a conclusion which is stated in [P]6 of his affidavit:

 "Based upon my knowledge of industry practices and standards, my experience in the restaurant business and my work regarding Umberto's Clam House, I have formulated an estimate of the yearly gross receipts of Umberto's Clam House. My conservative estimate of the gross yearly receipts of Umberto's Clam House is $1.3 million per year. By conservative estimate, I mean that, in my estimation, Umberto's Clam House has gross receipts of at least $1.3 million per year and may have substantially higher receipts than $1.3 million per year."

 The details of Feigenbaum's methodology appear in his answers, set out in the margin, *fn1" to the questioning of defendants' counsel at his subsequent deposition.

 Feigenbaum also stated in his affidavit at [P] 4:

 "Based upon my knowledge of industry practices and standards and my experience in the restaurant business, I have found that for Italian restaurants serving no 'hard' alcoholic beverages, approximately 28-32 percent of the average ...


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