Sheldon Barr on the first and second causes of action for
fraud and RICO violations. In addition, Roso moves pursuant to
Fed.R.Civ.P. 64 and N.Y.Civ.P.Law & R. 6201(3) for an order of
attachment to protect certain money in Swiss bank accounts
within Barr's control from being dissipated by him. Barr
cross-moves pursuant to Fed.R.Civ.P. 56 for summary judgment
dismissing the entire action against him individually, or in
the alternative, staying the action, or granting summary
judgment dismissing Roso's RICO cause of action.
This civil action arises out of a scheme whereby members of
the class were induced to invest in leases for energy saving
devices referred to as "Energy Brains." These Energy Brains
were apparently designed to work in tandem with heating and
air conditioning units in order to promote energy efficiency
for large commercial spaces and buildings.*fn1 Three
corporations, Saxon, Enersonics Inc., ("Enersonics"), and ALH
Energy Management Corporation ("ALH") participated in the
Energy Brain Leasing Program. Saxon is self-described as a
"closely held leasing company specializing in energy
conservation equipment." Bouman Affid., Exh. 7. Enersonics
manufactures the Energy Brain units. Bouman Affid., Exh. 7.
ALH were the managers of the Energy Brain, entering into
service agreements with class members. Bouman Affid., Exh. 3,
p. 235; Exh. 1, p. 24. In addition, Sheldon Barr, Leonard
Freedman, Kamal Fereg, Charles Taylor, and Frank Leha
individually and together held different posts at the various
companies and participated in the Energy Brain Leasing
Program. See Bouman Affid., Exh. 2, p. 2. Barr was identified
to be both the secretary of Enersonics and Saxon's corporate
legal counsel. Tr. 4378, 4527.
Members of the class at bar were apparently encouraged to
lease the Energy Brain devices in order to obtain tax
advantages and credit. Status as a lessee was purportedly
crucial because tax deductions were not available to passive
investors whereas owners of businesses for profit were
afforded deductions. See Bouman Affid., Exh. 6. Class members
were told that as lessees, they would be considered business
owners and not security holders, which connotes a passive
investment. See Bouman Affid., Exhs. 5-10. Furthermore, the
promotion materials stated that the lease would likely not be
construed as a security.
Investors in the Energy Brains were provided promotional
materials containing projections of tax credits and tax
deductions. Bouman Affid., Exh. 7. Between credits and
deductions, it was estimated that lessees could get a
tremendous return on their investments. The materials
specifically stated that for every dollar invested, three
dollars could be deducted and/or credited to taxes so that
under the scheme, as delineated in the promotional materials,
only the "government loses".
The tax scheme was a sophisticated one which required a
vertical structure in order to gain the tax advantages.
Enersonics, the manufacturer, was at the top. Saxon was the
intermediary or lessor; it paid a minimal sum for the purchase
of the Energy Brains and then backed its purchases with
promissory notes for the remainder owed. Each installed
"Brain" was supposed to provide sufficient rental funds to pay
off the promissory note between Saxon and Enersonics and
further provide a profit to the investor lessees. Saxon also
functioned as a conduit whereby the tax credits were to pass
through it to the advantage of the lessees at the bottom. An
arms-length relationship between Saxon and Enersonics was
crucial in order for the tax shelter to be legal, meaning that
it was mandatory for Saxon's interests in the scheme to be
wholly separate from Enersonic's interests.
Due to the suspect nature of the scheme, a civil action was
commenced in this Court
on August 7, 1985. On April 29, 1966, Barr was indicted in the
Supreme Court of the State of New York County of New York for
one count of Conspiracy in the Fifth Degree, one count of
Scheme to Defraud in the First Degree, and 122 counts of Grand
Larceny in the Second Degree. On April 30, 1987, Barr was
tried and found guilty of one count of Scheme to Defraud in
the First Degree and nine counts of Grand Larceny in the
Second Degree. Supreme Court Justice A.K. Bradley sentenced
Barr to an indeterminate period of imprisonment not to exceed
three years on the Scheme to Defraud in the First Degree
count. On four counts of Grand Larceny in the Second Degree,
he was sentenced to a minimum of two years and a maximum of
six years. For five other counts of Grand Larceny in the
Second Degree, he was sentenced to a minimum of two years with
a maximum of six years. Counts five-to-ten were to run
concurrently with each other but consecutively with counts
one-to-five. Restitution was set in the amount of $13,200,000.
Bouman Affid., Exh. 4. The remaining defendants plead to
various counts of fraud and larceny.
Roso moves for summary judgment on the theory of issue
preclusion, contending that the requisite elements for both
common law fraud and RICO violations were essentially proven
beyond a reasonable doubt at the state level. The doctrine of
collateral estoppel, which is intended to reduce litigation
and conserve judicial resources, is predicated upon the
general notion that a party should not be permitted to
relitigate an issue that has previously been decided.
Kaufman v. Eli Lilly & Co., 65 N.Y.2d 449, 455, 492 N.Y.S.2d
584, 482 N.E.2d 63 (1985). It is well settled that a criminal
conviction, whether by jury verdict or guilty plea, estops a
convicted defendant from raising factual issues decided in the
criminal proceeding in a subsequent civil lawsuit. In fact, "in
the case of a criminal conviction based upon a jury verdict of
guilty, issues that were essential to the verdict must be
regarded as determined by the judgment." Emich Motors Corp. v.
General Motors Corp., 340 U.S. 558, 569, 71 S.Ct. 408, 414, 95
L.Ed. 534, reh. denied, 341 U.S. 906, 71 S.Ct. 610, 95 L.Ed.
The plaintiff seeking the benefit of collaterally estopping
the defendant from asserting the same claim a second time in
a different forum has the burden of demonstrating the identity
of the issues in the present civil litigation. Ryan v. New York
Tel. Co., 62 N.Y.2d 494, 501, 478 N.Y.S.2d 823, 467 N.E.2d 487
(1984). Each and every element of the claim at bar must have
been proven in the state forum to the satisfaction of Roso's
burden. Roso maintains that the same elements proven beyond a
reasonable doubt in Barr's conviction on scheme to defraud and
grand larceny grounds, are equivalent to that which must be
proven for common law fraud. I agree.
During trial, Judge Bradley instructed the jury that in
order to find Barr guilty of the crime of Scheme to Defraud in
the First Degree in violation of New York State Penal Law
§ 190.65,*fn2 they must find, beyond a reasonable doubt, that
Barr had committed the following three separate elements:
1. That from on or about April 7, 1981 to on or
about March 24, 1986 in the County of New York
and elsewhere the defendant obtained property.
2. That the defendant obtained such property by
engaging in a scheme constituting a systematic on
going [sic] course of conduct.
3. That the defendant intended to obtain property
from ten or more persons by false or fraudulent
pretenses, representations, and promises.
Criminal Trial Transcript ("Tr.") 4997 (emphasis added).
Furthermore, regarding Barr's conviction on Grand Larceny
grounds, the Judge instructed the jury that a person is guilty
of grand larceny in the second degree when he steals property
and when the value of the property exceeds one thousand five
hundred dollars. Tr. 5004. Specifically, the jury was told: "A
person steals property and commits a larceny when with intent
to deprive another of property or to appropriate the same to
himself or to a third person, he wrongfully takes, obtains or
withholds such property from an owner thereof." Tr. 5004. The
judge further charged the jury that they could convict only if
1. That on the period from May 1, 1982 through on
or about April 20, 1983 in the County of New York
and else where [sic] the defendant obtained
property . . . the value of which exceeded
fifteen hundred dollars, to wit, ten thousand
2. That the defendant obtained the property by
making a false and fraudulent representation of a
past or present fact.
3. That the defendant knew those representations
were false. As I explained earlier, a person
knowingly makes a false representation when the
evidence shows that he knew when he made the
statement or representation that it was untrue. . ..
4. That the defendant made the false
representations with the intent of depriving an
owner of property.
Tr. 5004-007 (emphasis added).