The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.
Defendants Patrick J. Kelly and Debra B. Kelly move,
pursuant to Rules 52(b) and 59(e) of the Federal Rules of
Civil Procedure, for an order amending and modifying the
Findings of Fact, Conclusions of Law and Decision of this
Court dated November 28, 1989, and amending the judgment
entered upon said decision on December 13, 1989.
Defendants first take issue with the Court's finding and
imposition of a constructive trust on defendants' real
property located in Connecticut, maintaining (1) it was an
improper extra territorial exercise of this Court's
jurisdiction insofar as the imposition of a constructive trust
shall be deemed to have any in rem effect on the title to the
premises, and (2) the doctrine of unclean hands bars the
granting of such relief, which defendants claim is equitable in
Defendants raise this issue for the first time in their
post-decision motion. Without belaboring the point, the
defendants are the sole owners of the Connecticut property and
were both before this Court, and the cases are clear that in
these circumstances the Court may make such orders as are
necessary to effect justice between the parties, including
imposing a constructive trust on property outside the Court's
jurisdiction. See Massie v. Watts, 10 U.S. (6 Cranch) 148, 160,
3 L.Ed. 181 (1810) ("in a case of fraud, of trust, or of
contract, the jurisdiction of a court of chancery is
sustainable wherever the person be found, although lands not
within the jurisdiction of that court may be affected by the
decree."). See also Mandley v. Backer, 121 F.2d 875, 876 (D.C.
Cir. 1941); Amey v. Colebrook Guaranty Sav. Bank, 92 F.2d 62,
63 (2d Cir.), cert. denied, 302 U.S. 750, 58 S.Ct. 271, 82
L.Ed. 580 (1937); Republic of Philippines v. Marcos,
862 F.2d 1355 (9th Cir. 1988), cert. denied, ___ U.S. ___, 109 S.Ct.
1933, 104 L.Ed.2d 404 (1989); Gardner v. Ogden, 22 N.Y. 327
(1860); Sarrica v. Sarrica, 41 A.D.2d 613, 340 N.Y.S.2d 568
(1973); Smyrna Theatre Co. v. Missir, 198 A.D. 181, 189 N.Y.S.
The argument that such equitable relief should be denied due
to the doctrine of unclean hands also fails. Again, these are
defenses defendants failed to raise earlier. Moreover, the
Court made no finding of unclean hands and declines to do so
now since the preponderance of the credible evidence did not
show plaintiff to have unclean hands. Nor is there sufficient
evidence for the Court to find that plaintiff acted in pari
delicto with the defendants.
Defendants also complain that the Court's findings conclude
that both parties lacked credibility and that therefore the
Court should have denied all parties relief on their claims
and counterclaims for failure to prove their respective cases
by a preponderance of credible evidence. This claim is also
meritless. Although there were aspects of the testimony
presented by plaintiff that appeared dubious, there was a
preponderance of other credible evidence supporting the
findings of the Court.
Next, defendants take issue with the Court's failure to make
findings of fact that Mr. Kelly incurred $461,693.00 in
expenses on plaintiff's behalf and failure to apply such
expenses as a set-off to the calculation of plaintiff's actual
damages of $451,855.32. Defendants' claim fails here also.
First, defendants' pleadings are not consistent with a set-off
counterclaim; the counterclaim herein was for $50,000 in back
wages and not for unreimbursed expenses.
Moreover, there was no evidence that the additional
expenses, which Mr. Kelly claims as set-off, were ever
submitted for reimbursement while Mr. Kelly was employed,
despite the fact that the cancelled checks for 1985 and 1986
in payment for those expenses totalling $228,690.44 were in
Mr. Kelly's possession and would support his payments of those
amounts (Exh. LL). Mr. Kelly also claims as set-off cash
expenditures for fish in the round amount of $300,000 without
back up. Assuming there were cash expenditures for fish, this
evidence, absent evidence of timely request for reimbursement,
is not sufficiently probative for a court to award a
The Court does not feel it is necessary to rule on each
specific expense submitted by Mr. Kelly as a possible set-off,
but finds the testimonial evidence offered by Mr. Kelly as a
whole did not meet the standard required in a federal court.
For example, during testimony, Mr. Kelly claimed $11,255.00
for his housewarming party as a reimbursable expenditure on
behalf of the plaintiff, as well as $1,500 for a fur coat for
one of his female assistants.
Furthermore, as a disloyal employee Mr. Kelly breached his
contract of employment and thus MDO has no legal obligation to
repay him for disbursements allegedly expended pursuant to the
terms of that contract during the period of disloyalty.
Graves v. Kaltenbach & Stephens, Inc., 205 A.D. 110, 199 N.Y.S.
248, (1st Dep't 1923), aff'd, 237 N.Y. 546, 143 N.E. 737
(1923); cf. Heyman v. Kline, 344 F. Supp. 1088 (D.Conn. 1970),
aff'd in part and rev'd in part, 456 F.2d 123 (2d Cir.), cert.
denied, 409 U.S. 847, 93 S.Ct. 53, 34 L.Ed.2d 88 (1972);
Sundland v. Korfund Co., 260 A.D. 80, 20 N.Y.S.2d 819 (1st
Dep't 1940); Turner v. Konwenhoven, 100 N.Y. 115,
2 N.E. 637 (1885).
Lastly, defendants claim that the Court improperly imposed
punitive damages including treble damages under RICO,
18 U.S.C. § 1964. In essence, defendants claim that the Court's
conclusion that under New York law a disloyal employee is not
entitled to reimbursement for any expenses incurred on behalf
of an employer is penal in nature and that the penalty, when
imposed in conjunction with the trebling of damages under RICO,
is in error.
As already stated above, there is substantial doubt that the
defendant suffered any "penalty" by the Court's decision not
to allow a set-off at all, since the evidence consisted of
highly questionable items of set-off and because none of these
items were submitted for approval by Mr. O'Keefe or the
bookkeeper, in accordance with the procedure required by the
Water Club. Furthermore, defendants have not convinced the
Court that the loss of reimbursement is punitive rather than
Secondly, with respect to the imposition of treble damages
under RICO, the defendants failed to submit any authority for
the proposition that the statute, which states that an injured
person "shall recover threefold the damages he sustains," did
not require literal application. In fact, imposition of treble
damages is required by RICO. Cullen v. Margiotta, 811 F.2d 698,
713 (2nd Cir.), cert. denied, 483 U.S. 1021, 107 ...