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Stochastic Decisions, Inc. v. DiDomenico

June 4, 1993

STOCHASTIC DECISIONS, INC., PLAINTIFF-APPELLANT-CROSS-APPELLEE,
v.
JAMES DIDOMENICO; ANTHONY DIDOMENICO; CAROL DIDOMENICO; DCJM REALTY CORP.; CAROL COACHES, INC.; J.D. ENTERPRISES, INC.; SOUTHGATE BUS SERVICE; ARTHUR WAGNER; LUCILLE WAGNER; WAGNER, MCNIFF & DIMAIO; T. GLUCK & CO., INC.; AND MICHAEL BERKE, DEFENDANTS-APPELLEES-CROSS-APPELLANTS,
KINGSBURY-PUTNEY, INC.; GEOFFREY ASHBY; AND THOMAS MIRAL, DEFENDANTS.



Before: Van Graafeiland, Winter, and Mahoney, Circuit Judges.

SYLLABUS BY THE COURT

Judgment creditor brought civil Racketeer Influenced and Corrupt Organizations Act (RICO) alleging conspiracy to prevent it from satisfying outstanding judgments. The United States District Court for the Eastern District of New York, Jack B. Weinstein, J., awarded judgment to creditor and cross appeals were taken. The Court of Appeals, Mahoney, Circuit Judge, held that: (1) uncollected judgments were not part of RICO injuries; (2) attorney fees incurred to obtain underlying judgments were not RICO damages; (3) attorney fees incurred to collect underlying judgments were RICO damages (4) trial court did not abuse its discretion in awarding reduced amount of attorney fees; and (5) New Jersey entire controversy doctrine did not bar federal claim.

Affirmed.

The opinion of the court was delivered by: Mahoney, Circuit Judge

Nos. 110, 111, 112,

Argued Sept. 21, 1992.

Plaintiff-appellant-cross-appellee Stochastic Decisions, Inc. ("Stochastic") appeals from a final judgment entered November 19, 1991, an order for turnover of funds and securities and other relief entered January 28, 1992, and a supplemental final judgment entered February 27, 1992 in the United States District Court for the Eastern District of New York, Jack B. Weinstein, Judge. The final judgment found defendants-appellees--cross-appellants James DiDomenico ("James"), Anthony DiDomenico ("Anthony"), Carol DiDomenico ("Carol"), DCJM Realty Corp. ("DCJM"), Carol Coaches, Inc. ("Carol Coaches"), J.D. Enterprises; Inc. ("JD Enterprises"), Southgate Bus Service ("Southgate"), Arthur Wagner ("Wagner"), and Wagner, McNiff & DiMaio ("Wagner McNiff"), and defendant Kingsbury-Putney, Inc. ("Kingsbury")*fn1 liable to Stochastic on its claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 (1988) et seq., and on its state law fraudulent conveyance and common law fraud claims. The district court dismissed plaintiff's complaint against defendants Geoffrey Ashby and Thomas Miral with the consent of Stochastic. The supplemental final judgment accordingly dismissed the complaint with prejudice against them, and also against defendants-appellees-cross-appellants Lucille Wagner, T. Gluck & Co., Inc. ("Gluck"), and Michael Berke, whom the court found not liable on Stochastic's claims. Stochastic contends that the district court erred in its allowance of damages and attorney fees, and in its dismissal as to Lucille Wagner, Berke, and Gluck.*fn2

Defendants - appellees - cross - appellants ("Cross-Appellants") cross-appeal, contesting the district court's determinations as to liability, damages, and attorney fees.*fn3

We affirm the final judgment and supplemental final judgment of the district court.

Background

From 1982 through June 1985, Stochastic provided insurance brokerage services to all of the corporations owned by Anthony (husband) and Carol (wife) that were in the interstate bus transportation business. Stochastic also purchased two buses that it leased to Anthony and Carol's former operating company, Eagle Bus, Inc., ("Eagle").

In 1984, Anthony and Carol and their corporations fell behind in their payment of insurance premiums to Stochastic. In order to pay Stochastic and other creditors, Anthony indicated that he and Carol would sell some of their real estate. In the fall of 1984, the DiDomenicos retained Wagner and his law firm; Wagner McNiff, to represent them in various actions brought against them as guarantors of obligations of Eagle.

In October 1985, allegedly unbeknownst to Wagner, Eagle filed for reorganization under Chapter 11. At the time, Eagle owed approximately $2.3 million in secured claims, and Stochastic was listed as an unsecured creditor having a $165,000 claim. Stochastic asserts that Anthony and Carol filed misleading reports during the bankruptcy, fraudulently transferred Eagle's assets to Carol Coaches and other's, and paid their personal living expenses under the guise of "officer's loans." A garage in Staten Island (the "Garage") was one of the assets allegedly transferred from Eagle to Carol Coaches without disclosure to the bankruptcy court and without consideration.

Ultimately, the bankruptcy petition was dismissed when Eagle failed to fine financial reports. No Eagle creditors were ever paid. Stochastic alleges that Anthony and Carol continued to have their living expenses paid by Carol Coaches and thereafter by Southgate, Anthony and Carol's current bus operating company, formed by Wagner McNiff after Stochastic obtained a judgment against Carol Coaches.

Following the bankruptcy of Eagle, Anthony and Carol arranged for Wagner and Wagner McNiff to take control of essentially all of their assets and much of what were, at least on their face, the assets of James (son of Anthony and Carol), to whom Anthony and Carol were then transferring most of their own assets. The district court found that Wagner thereafter used these assets, which were adequate to pay all of the debts of the DiDomenicos and their companies, to settle some of those debts, to pay personal expenses of Anthony and Carol and business expenses of James, to pay fees to Wagner and Wagner McNiff, and to pay Wagner's personal family expenses.

On January 10, 1986, Stochastic instituted a suit in New Jersey Superior Court to recover unpaid insurance premiums against James, Carol Coaches, DCJM, and two other bus companies operated by Anthony and Carol. Stochastic Decisions, Inc. v. James DiDomenico, No. L-009868-86 (N.J.Super.Ct.Law Div.) (the "Insurance Case"). Stochastic alleged that James was authorized to sign checks on behalf of Eagle, and had issued several Eagle checks to Stochhastic in payment of insurance premiums for the corporate defendants that were returned for insufficient funds, or on which James stopped payment. Stochastic further alleged that James' fraudulent acts deprived him of the protection of the corporate veil under New Jersey law.

On June 13, 1988, judgment was entered in favor of Stochastic. The court held that: (1) the corporate defendants were liable for $175,564 in compensatory, damages and $46,584.92 in prejudgment interest; and (2) James was personally liable for $41,265 of the compensatory damages, plus $10,949.42 of prejudgment interest, and $100,000 in punitive damages. The court indicated that it would consider rescinding the punitive damages award if Stochastic received payment of the balance of the judgment.

On October 31, 1988, Stochastic moved in New York Supreme Court, Richmond County for the appointment of a receiver for James, Carol Coaches, and DCJM, contending that James and the corporations had been determined by the New Jersey court to have fraudulently transferred assets. On December 6, 1988, a receiver was appointed, and ascertained that $150,000 would be available by the end of that month for payment of the Insurance Case judgment as a result of Stochastic's levy upon a contract between the New York City Board of Education and one of the Insurance Case defendants.

The Insurance Case judgment was ultimately affirmed by the Appellate Division of the Superior Court, and certification was denied by the New Jersey Supreme Court. No. A-5827-87T1 (N.J.Super.Ct.App.Div. Oct. 30, 1989), certification denied No. C502 (ICJ. Jan. 25, 1990). Stochastic eventually recovered the full amount of the judgment subsequent to the filing of the instant action.

Stochastic also filed suit on January 10, 1986 in New Jersey Superior Court against Anthony and Carol as guarantors of Eagle's obligations under the bus lease with Stochastic. Stochastic Decisions, Inc. v. Anthony DiDomenico, No: L-010054-86 (N.J.Super.Ct.Law Div.) (the "Guarantee Case "). On April 10, 1989, Stochastic obtained a judgment in the amount of $474,150.38. On September 7, 1989, Stochastic was awarded an additional judgment of $19,338.38 for legal fees and expenses incurred in the Guarantee Case. No appeal has been taken from these judgments. Stochastic apparently has not filed these judgments in New York, and they remain unpaid.

In 1986, Wagner proposed to Anthony and Carol that the Garage be sold, and allegedly developed a plan to conceal the proceeds of the sale from Eagle's creditors. In December 1984, the Garage had been used by Anthony and Carol to secure a $499,000 loan to Eagle from Gateway State Bank ("Gateway"). In addition, Anthony and Carol personally guaranteed the loan, and pledged fifteen acres of land in Staten Island (the "Vacant Land") and their Bayonne residence (the "Residence") as collateral. The loan closing was handled by DiMaio, an employee of, and alleged partner in, Wagner McNiff. See supra note 2.

The Garage was sold for $2.1 million in May 1987. The Gateway mortgage was satisfied from the proceeds of this sale, but Wagner arranged for the mortgage to be assigned by Gateway to Wagner's son-in-law, Berke, as a continuing encumbrance upon the Vacant Land and the Residence.

Wagner, on behalf of Berke, then proceeded with a foreclosure action against the Residence that had initially been instituted by Gateway prior to the full satisfaction of its mortgage. Berke v. Anthony DiDomenico, No. F-5186-88 (N.J.Super.Ct.Ch.Div.) (the "Foreclosure Case"); see also Gateway State Bank v. DCJM Realty Corp., No. F-6628-86 (N.J.Super.Ct.Ch.Div.) (original foreclosure action by Gateway). The complaint in the Foreclosure Case was amended on December 28, 1988 to name Stochastic as a defendant, but the amended complaint was not served upon Stochastic until February 14, 1989.

After a question arose in the foreclosure proceedings whether Berke had paid consideration for the assignment of the mortgage on the Residence, Berke's counsel wrote a letter to the court dated December 11, 1987 that enclosed a check from Berke to Wagner McNiff dated December 10, 1987 in the amount of $249,139.48, as evidence of such payment. Wagner subsequently admitted in testimony at the trial of the instant case, however, that "the 247 or 249 was never actually put up by [Berke]. It was put up by money that we advanced to him out of the Carol Coaches mortgage for the purpose of attempting to insulate the elder DiDomenico's family home in Bayonne, New Jersey." This testimony is confirmed by documentary evidence of a $250,000 wire transfer to Berke on December 7, 1987.

The New Jersey chancery court ultimately determined that there was "a very neat, contrived, controlled plan of both Wagner and [Berke]" designed "for the purpose of causing a fraudulent conveyance [to] insulat[e] a judgment [debtor] from ... creditors," and granted summary judgment against Berke in the foreclosure proceeding on October 31, 1990.

On June 6, 1988, just prior to the entry of judgment in the Insurance Case, James, upon Wagner's instructions, executed a deed on behalf of DCJM that transferred the Vacant Land to Kingsbury for nominal cash and an assumption of existing obligations. Kingsbury was a shell corporation recently formed for this purpose whose nominal shareholder was a Wagner McNiff client. Wagner testified in the instant action that the transfer was intended "to safeguard the property" against seizure for execution of the forthcoming' judgment in the Insurance Case.

After transferring the Vacant Land, Wagner solicited $350,000 from clients, the principals of Gluck, for an unspecified investment, which took the form of a loan to Wagner in that amount. The $350,000 check was made out to Paradise Properties, an entity controlled by Wagner. After the loan was made, Wagner had Kingsbury execute a $425,000 mortgage on the Vacant Land to Gluck. Wagner testified at this action that the purpose of the mortgage was "to put another step between the property and Stochastic." Gluck apparently never requested a mortgage, and remained unaware of the mortgage until shortly before a principal of Gluck was deposed in the instant case.

On January 31, 1989, Stochastic filed the instant action in the United States District Court for the Eastern District of New York, alleging that the defendants engaged in a civil RICO conspiracy involving bankruptcy fraud, wire fraud, and mail fraud to prevent Stochastic from collecting the amounts it was owed. The complaint also alleged that the property transfers effected in the course of the conspiracy were fraudulent conveyances under applicable state law,, and that the overall scheme constituted common law fraud.

After a twelve-day bench trial, the district court awarded judgment to Stochastic on all its claims against most of the defendants. See supra text accompanying note 1. The court found that Wagner and Wagner McNiff developed a plan to block Stochastic's attempts to collect on its judgments, and in the execution of that plan "used dummy corporations, dummy sales and mortgages, trust and special accounts of [Wagner McNiff], and nominees who had no understanding of how they were being used, including Wagner's son-in-law, some of his country club friends, and clients." The court further found that the resulting conspiracy continued over a period of five years, and "included the commission of scores of wire frauds and scores of mail frauds."

The court stated that "[p]articular attention was devoted by the co-conspirators to protecting the Vacant Land so that Wagner and [Wagner McNiff] could ultimately profit from its sale," and that Wagner's intention in that regard was to "cheat[] the elder DiDomenicos out of their last substantial asset" for his own personal benefit. The court also found that DiMaio individually was not responsible for any of the RICO predicate acts, and that Wagner McNiff ...


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