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U.S. v. NAGELBERG

August 26, 1991

UNITED STATES OF AMERICA AND NATIONAL CREDIT UNION ADMINISTRATION BOARD, PLAINTIFFS,
v.
ALVIN NAGELBERG, SANDRA BREAKSTONE NAGELBERG, BRUCE TICHY AND IAN GROSSFIELD, DEFENDANTS.



The opinion of the court was delivered by: Glasser, District Judge:

MEMORANDUM AND ORDER

In this action for unjust enrichment, the government contends that defendants Alvin Nagelberg ["Alvin"], Sandra Breakstone Nagelberg ["Sandra"] and Bruce Tichy ["Tichy"]*fn1 received funds belonging to the Hyfin Credit Union ["Hyfin"] to which they were not entitled and moves for summary judgment. The government alleges that these defendants received the principal amount of $1,427,825 and have failed to return the funds or any portion thereof.

Alvin was the sole shareholder and president of Al Nagelberg & Co. ["Nagelberg Co."]. He was also the sole shareholder and president of Freshville Produce Distributors, Inc. ["Freshville"] until approximately 1983, when he transferred ownership and control to his wife, Sandra. Tichy was the treasurer and comptroller of both Freshville and Nagelberg Co. Ian Grossfield was the Vice President of Hyfin and allegedly had authority to issue checks drawn on Hyfin's account.*fn2 "Hyfin", an acronym for "Help Your Friend in Need", was a credit union chartered in 1955 to serve members of the Hyfin society. U.S. v. Rivieccio, 661 F. Supp. 281, 285 (E.D.N.Y. 1987). In 1986, Hyfin collapsed due to irregularities and fraud in connection with its accounts and was merged into the Municipal Credit Union ["Municipal"]. As part of the merger, Municipal obtained an insurance agreement from the National Credit Union Administration, an independent federal agency that supervises and regulates credit unions and insures accounts in state and federally chartered credit unions. See id.

The government bases its argument on cancelled checks, written between 1981 and 1986, drawn against Hyfin accounts and deposited into accounts maintained by Freshville and Nagelberg Co. Specifically, the government asserts the following wrongdoing. (A) Grossfield issued or caused to be issued checks in the amount of $348,500 drawn on a Hyfin account and made payable to Alvin, Tichy or Nagelberg Co. The government contends that all of those checks were deposited into Nagelberg Co.'s account at Marine Midland Bank, number 016-72344-9, with the exception of a $2,000 check, made payable to Tichy, which was deposited into Republic National Bank account number 186-000-774. (B) Tichy issued checks in the amount of $799,800 drawn against Hyfin account number 718300 and deposited into Nagelberg Co. accounts at the Marine Midland and Republic National Banks. (C) Tichy issued checks in the amount of $279,525 drawn against Hyfin account number 718300 and made payable to and deposited into the account of Freshville. According to the affidavit of Robert Trott, Hyfin account number 718300 was maintained in the name of Freshville.

It is undisputed that the defendants never applied for a Hyfin loan, never signed Hyfin loan documents and never tendered collateral for a loan. The Nagelberg defendants have opposed the government's motion, contending that they never endorsed or deposited Hyfin checks into accounts under their control. The government contends, however, that it is not necessary to prove wrongdoing by the defendants in order to recover for unjust enrichment. The government is correct.

DISCUSSION

A. Unjust Enrichment

To establish unjust enrichment under New York law, plaintiff:

  must establish not only that there was enrichment, but that the
  enrichment was at the plaintiff's expense, and that the
  circumstances dictate that, in equity and good conscience, the
  defendant should be required to turn over its money to the
  plaintiff.

Rivieccio, 661 F. Supp. at 293, (citing Universal City Studios, Inc. v. Nintendo Co., 797 F.2d 70, 79 (2d Cir.), cert. denied, 479 U.S. 987, 107 S.Ct. 578, 93 L.Ed.2d 581 (1986)). It is well established that unjust enrichment does not require proof of any wrongdoing by the enriched party. Rivieccio, 661 F. Supp. at 292; Ptachewich v. Ptachewich, 96 A.D.2d 582, 465 N.Y.S.2d 277, 278-79 (2d Dep't 1983). A court must make its determination based on legal inference drawn from circumstantial evidence, applying the principles of equity. Sharp v. Kosmalski, 40 N.Y.2d 119, 123, 351 N.E.2d 721, 724, 386 N.Y.S.2d 72, 76 (1976).

In the present case the government has shown that none of the defendants nor Freshville nor Nagelberg Co. applied for or received Hyfin loans. Yet, $279,525 in Hyfin funds was deposited into accounts maintained by Freshville and $1,148,300 in Hyfin funds was deposited into accounts maintained by Nagelberg Co. The defendants have denied the allegation that they were enriched by Hyfin funds, but neither has offered a shred of evidence in support of his or her position. The record contains approximately 300 pages of transcripts of the defendants' depositions, but to nearly every question posed by the government each defendant responded with, "I invoke the Fifth Amendment" or an equivalent statement.

The government asks the court to draw adverse inferences from the defendants' invocation of their Fifth Amendment privileges. "It is well-established that the Fifth Amendment privilege against self-incrimination may be invoked in a civil proceeding." U.S. v. Bonanno, 683 F. Supp. 1411, 1449 (E.D.N.Y. 1988) (citing Pillsbury Co. v. Conboy, 459 U.S. 248, 263-64, 103 S.Ct. 608, 617, 74 L.Ed.2d 430 (1983)). If it is, the trier of fact is permitted to draw an adverse inference from the invocation. Bonanno, 683 F. Supp. at 1449 (citing Baxter v. Palmigiano, 425 U.S. 308, 318, 96 S.Ct. 1551, 1558, 47 L.Ed.2d 810 (1976)). However, it is equally well-established that an adverse inference drawn from a defendant's invocation of the Fifth Amendment may not be the sole basis for a finding of liability. Independent, corroborative evidence of wrong-doing must be shown. United States v. Local 560 of Int'l Brotherhood of Teamsters, 780 F.2d 267, 292-93 n. 32 (3rd Cir. 1985), cert. denied, 476 U.S. 1140, 106 S.Ct. 2247, 90 L.Ed.2d 693 (1986); See Nat'l Acceptance Co. v. Bathalter, 705 F.2d 924, 928 (7th Cir. 1983) ("It is our best judgment . . . that even in a civil case a judgment imposing liability cannot rest solely upon a privileged refusal to admit or deny at the pleading stage.").

In the present case such independent evidence has been clearly documented. The government has identified numerous Hyfin checks, some of which were made payable to the defendants directly, some of which were made payable to the corporations they undisputedly controlled and most of which were deposited into the corporations' bank accounts. Although the defendants deny that they or their corporations received any benefit from Hyfin funds, the record is sufficient to permit the court to draw an adverse inference from the defendants' ...


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