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UNITED STATES v. LOCAL 1804-1

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK


August 19, 1993

UNITED STATES OF AMERICA, Plaintiff,
v.
LOCAL 1804-1, INTERNATIONAL LONGSHOREMEN'S ASSOCIATION, et al., Defendant. DONALD CARSON AND PEGGY CARSON, Plaintiffs, v. LOCAL 1588, INTERNATIONAL LONGSHOREMEN'S ASSOCIATION, its Officers, Executive Board, and Trustees, et al., Defendant.

The opinion of the court was delivered by: LEONARD B. SAND

OPINION

 SAND, J.

 Having previously determined that the four remaining defendants in this action -- Donald Carson, Anthony Gallagher, George Lachnicht, and Venero Mangano -- were liable to the government for violations of the civil RICO statute, 18 U.S.C. § 1962(c), the Court now turns to the remedy phase of this litigation. See United States v. Local 1804-1, Int'l Longshoremen's Ass'n, 812 F. Supp. 1303 (S.D.N.Y. 1983) (the "Liability Opinion"), modified, United States v. Local 1804-1, Int'l Longshoremen's Ass'n, 831 F. Supp. 167 (1993) (the "Rule 52(b) Opinion"). In Part I of this Opinion, the Court will consider whether further evidence should be received in connection with the remedy phase of this lawsuit. After concluding that there is no need to receive further evidence, the Court will address, in Part II, the remedy to which the government is entitled in light of this Court's liability findings. In Part II the Court will also address defendant Venero Mangano's request to exempt his attorney's fees from any remedy award ordered by this Court. See United States v. Local 1804-1, Int'l Longshoremen's Ass'n, 90 Civ. 963 (LBS), 1993 U.S. Dist. LEXIS 3354, 1993 WL 77319 at *8 n.1. (March 15, 1993) (the "Asset Restraint Opinion") (reserving decision on whether Mangano's attorney's fees should be exempted from Asset Restraining Order). Finally, in Part III, the Court will address defendant Anthony Gallagher's request to proceed with his appeal in forma pauperis.

 Familiarity with the Court's previous Opinions in this case -- including the Liability Opinion, the Asset Restraint Opinion, and the Rule 52(b) Opinion -- is assumed.

 I.

 THE APPROPRIATENESS OF FURTHER EVIDENTIARY PROCEEDINGS

 The first issue this Court must address is whether the defendants should be permitted to submit further evidence in connection with the remedy phase of this action. By Order dated March 29, 1993, the parties were instructed to submit to the Court a list of the testimony and evidence they proposed to introduce, if the Court were to conduct further proceedings. In that Order the Court reminded the parties that "the only matter that would be at issue in such [further proceedings] would be the relief to which the government is entitled in light of this Court's liability findings." *fn1" In response, Donald Carson and Anthony Gallagher wrote letters to the Court listing those witnesses they would propose to call and documents they would seek to introduce during the remedy phase. We will briefly go through the requests. We conclude, however, that no further evidentiary proceedings are required at this time. *fn2"

 A. Carson's List of Proposed Witnesses

 1. Carson proposes to call six witnesses -- including two former federal district judges and a former federal prosecutor -- and to introduce numerous documents to support his claim of entitlement to an "equitable offset of all losses proximately caused by the government's violations under the Fourth Amendment and/or Title III." Letter to the Court from Fredric J. Gross, Attorney for Donald Carson, dated April 6, 1993 ("Carson's Letter") at 2. Carson has previously calculated the value of such an offset at approximately one million dollars. See Brief for Donald Carson in Opposition to Freeze of Assets at 4. We conclude that Carson's claim of entitlement to an equitable offset is completely without merit, for many reasons, including sovereign immunity, statutory immunity, see 18 U.S.C. § 2520(d)(1) (good faith reliance on court warrant or order is a "complete defense" against any claim for damages for violation of wiretapping statute), and laches. Accordingly, Carson's request to offer evidence pertaining to these issues is denied.

 2. Carson proposes to call three of the Assistant United States Attorneys assigned to this action to prove that the Government is "seeking recovery on behalf of others," which Carson contends violates Fed. R. Civ. P. 17(a) and Article III of the United States Constitution. Carson's Letter at 2. While disputing Carson's view of the law, the government concedes that it "seeks to restore ill-gotten gains to the defendants' victims and that a portion of the proceeds may be deposited into the United States Treasury." Letter to the Court from Claude Millman, Assistant United States Attorney, dated April 21, 1993 ("Govt. Letter") at 3. The government also concedes that it seeks to impose the costs of all court-appointed officers on the defendants. Id. The defendants have had notice that this was the government's intent from the outset of this litigation. See Amended Complaint at 123-24. Since the disagreement between Carson and the government involves a pure question of law, there is no need to receive any evidence pertaining to these issues.

 Turning to the question of law, we conclude that Carson's argument that the government is attempting to assert the rights of third parties in violation of Fed. R. Civ. P. 17(a) and Article III of the United States Constitution must be rejected as meritless. *fn3" The mere fact that certain victims of the defendants' racketeering acts may receive partial restitution as a result of the government's prosecution of this case does not mean that the government has brought this suit on behalf of the victims. On the contrary, the government brought this action to vindicate its own interest in ensuring that the RICO statute is enforced. The Attorney General, who is empowered to bring actions on behalf of the United States, 28 U.S.C. § 516, is authorized to "institute proceedings under" the civil RICO statute. 18 U.S.C. § 1964(b). Carson's argument must be rejected as meritless.

 3. Carson also proposes to call the Clerk of the United States District of New Jersey, presumably to authenticate various documents from the DiGilio criminal case, to support his claim that the government is barred from obtaining monetary relief by the Double Jeopardy Clause of the United States Constitution. Since these documents have already been admitted in evidence in this case, and since the government does not dispute their authenticity, see Govt. Letter at 4, Carson's request is denied. The Court also denies Carson's request to call three of the Assistant United States Attorneys assigned to this action in connection with his double jeopardy claim. The Court addresses Carson's double jeopardy argument in Part II.A.5 of this Opinion.

 4. In this Court's Liability Opinion, we held that Carson violated the Taft-Hartley Act by accepting meals and entertainment from employers of ILA labor. See Liability Opinion, 812 F. Supp. at 1328. Since the government "is not seeking restitution with respect to the meals and entertainment," Govt. Letter at 4, there is no need to receive any further evidence with regard to Carson's claim that the receipt of these meals yielded no personal benefit to Carson.

 5. Since the Court withdraw its finding that Carson embezzled expenses from Local 1588, see Rule 52(b) Opinion, slip op. at 16-17, there is not need to hear any further testimony with regard to Carson's expenses. Accordingly, Carson's request to offer evidence regarding whether the union local would have disapproved of Carson's expenses is denied as moot.

 6. Carson asks to present evidence that he claims would demonstrate that Seal and saved money from the MOTBY mixed-labor contract. The government does not dispute that Sealand saved money when it moved its operations from Port Newark to MOTBY due to increased security and employee productivity. Govt. Letter at 5-6. However, the dispositive issue is not whether Sealand saved money after it moved to MOTBY; the dispositive issue is whether UTI billed Sealand at the higher longshoremen rate when it only provided Sealand with a mixed-labor force. Indeed, if the MOTBY participants had not defrauded Sealand by charging the higher longshoremen rate, but instead had reduced the amount charged to account for labor savings resulting from the use of mixed-labor, Sealand would have saved even more money.

 This issue is irrelevant. Accordingly, there is no need for further evidence with regard to this issue.

 7. Carson proposes to present evidence that he claims will demonstrate: (1) that Local 1588's treasury was not harmed, but actually benefited from the mixed labor contract at MOTBY; (2) that all salaries were approved at general membership meetings of Local 1588; and (3) that Carson rendered services to the union in return for his salary. These are matters that go to the heart of the Court's liability findings and are outside the parameters that have been set by this Court for the remedial phase of this litigation. Carson had an opportunity to, and to some extent did, present evidence concerning these issues during the liability trial. We will not afford him an opportunity to relitigate these issues at this late stage in the proceedings. See also Rule 52(b) Opinion, slip op. at 17-18 (rejecting Carson's attempt, through Rule 52(b), to revisit same issues).

 8. Carson proposes to present evidence concerning the value of the services he provided to the union. Carson also proposes to present evidence regarding how much he paid in taxes and union dues during the relevant periods as a potential offset if the Court were to order disgorgement of his salary. We believe that the size of the disgorgement award ordered by this Court obviates a need for further evidentiary hearings on these issues. See Part II.A.2, infra. If the Court is mistaken in this belief, the parties are instructed to inform the Court that such is the case promptly upon receipt of this Opinion.

 9. Finally, Carson would also like to present evidence concerning his claim of entitlement to an offset in the amount of sums expended on his attorneys fees incurred during his criminal trial and appeal. This request is frivolous, and therefore is denied. *fn4"

 B. Gallagher's Proposed List

 Gallagher has submitted a list of documents he would like to introduce, and witnesses he would like to call, during the remedy phase of this action. Much of the evidence that Gallagher would like to introduce appears to relate to his claim that Sealand profited by moving from Port Newark to MOTBY. An even greater portion of the evidence he wishes to introduce relates to the soundness of this Court's Liability Opinion. Frankly, it is difficult to discern from Gallagher's submissions his purpose for calling a number of the witnesses he proposes to call and for introducing a number of the documents he wishes to introduce. After reviewing Gallagher's submissions, we conclude that Gallagher has not proposed to introduce any relevant evidence probative of disputed issues pertaining to the appropriate remedy to which the government is entitled in light of this Court's determination of liability against Gallagher. Gallagher was specifically instructed by the Court that he would not be allowed to relitigate issues of liability during the remedy phase. *fn5" Accordingly, Gallagher's request to call the witnesses and to introduce exhibits set forth in his submissions to the Court is denied. *fn6"

 II.

 THE REMEDY TO WHICH THE GOVERNMENT IS ENTITLED

 We turn next to the specific relief sought by the government against each individual defendant in light of the liability findings made by this Court. In Part A we will address the government's request for monetary relief against Carson, Gallagher, Lachnicht, and Mangano. In Part B, we will address the government's request for injunctive relief against these defendants. *fn7"

 A. Monetary Relief

 1. The MOTBY Scheme: Carson, Gallagher, and Mangano

 Relying on Judge Glasser's thorough opinion in United States v. Bonanno Organized Crime Family, 683 F. Supp. 1411, 1442-49 (E.D.N.Y. 1988), aff'd, 879 F.2d 20 (2d Cir. 1989), this Court concluded that § 1964(a) bestows upon the Court "broad equitable powers" and that the "government may seek, pursuant to § 1964, disgorgement of the defendants' ill-gotten gains resulting from participation in a RICO enterprise in violation of § 1962(c)." Asset Restraint Opinion, 1993 U.S. Dist. LEXIS 3354, 1993 WL 77319 at *3 As Judge Glasser noted:

 

The authority to order disgorgement derives from the broad equitable powers given courts under the securities laws 'to provide such remedies as are necessary to make effective the congressional purpose.' J.I. Case Co. v. Borak, 377 U.S. 426, 433, 84 S. Ct. 1555, 1560, 12 L. Ed. 2d 423 (1964). The fashioning of equitable remedies under the securities laws lies within the 'sound discretion' of the court. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 386, 90 S. Ct. 616, 622, 24 L. Ed. 2d 593 (1964). A court exercising the broad equitable powers of RICO's § 1964 has similar, if not wider, latitude in designing appropriate relief.

 Bonanno, 683 F. Supp. at 1448. Of course, to obtain a disgorgement award, the government must demonstrate that the proceeds sought to be disgorged were ill-gotten under the RICO statute. Asset Restraint Opinion, 1993 U.S. Dist. LEXIS 3354, 1993 WL 77319 at *4; Bonanno, 683 F. Supp. at 1449.

 We reserved decision on whether the government could obtain the remedy of "restitution" under § 1964. Asset Restraint Opinion, 1993 U.S. Dist. LEXIS 3354, 1993 WL 77319 at *4. We conclude today that § 1964 vests the district courts with the power to order restitution. Restitution is a remedy, historically available in equity, "by which [the] defendant is made to disgorge ill-gotten gains or to restore the status quo, or to accomplish both objectives." Securities & Exchange Comm'n v. Commonwealth Chemical Securities, Inc., 574 F.2d 90, 95 (2d Cir. 1978) (citation omitted). The availability to the government of the remedy of restitution follows from the broad equitable powers bestowed upon the federal courts by § 1964, see Bonanno, 683 F. Supp. at 1448, and is not seriously disputed by the parties.

 However, the parties dispute the permissible scope of an award of restitution or disgorgement. It is the government's position that the Court has the power to order that each individual defendant pay restitution to the victims of the MOTBY scheme in the full amount of the loss suffered by the victims regardless of the amount of ill-gotten gains that defendant actually received. This position dovetails with the government's argument that the Court is empowered under § 1964 to order the defendants to disgorge, on a theory of joint and several liability, the amount of the ill-gotten gains received by all the participants in the MOTBY scheme. Based on this Court's finding that UTI saved $ 546,000 during the operation of the MOTBY scheme (the "MOTBY profits"), see Liability Opinion, 812 F. Supp. at 1320, the government asks this Court to award restitution from Carson, Gallagher, and Mangano in this amount, with prejudgment interest. The government also requests that the Court order that an equitable lien arose against Carson for $ 16,100, Mangano for $ 16,100, and Gallagher for $ 175,800, as of October 1, 1982.

 We need not address the thorny question of whether the Court is empowered under the remedial provisions of the civil RICO statute to order "joint and several" disgorgement or full restitution against any of the individual defendants, regardless of the portion of ill-gotten sums received by the defendant in question. But see United States v. Local 295, Int'l Brotherhood of Teamsters, 90 CV 970, 1991 U.S. Dist. LEXIS 9564, *4, 1991 WL 128563 at *1 (E.D.N.Y June 28, 1991) (disgorgement under § 1964 not available on joint and several basis). For, even assuming arguendo that the Court is vested with such power, the Court would not, on the facts before it, exercise that power. Sitting in equity, this Court must balance several factors when fashioning relief. Upon such a balancing, we conclude that the remedy to which the government is entitled is a disgorgement award in an amount that approximates the amount that each of the defendants actually received. We will briefly state some of the factors that compel us to reach this conclusion.

 First, we note that the government is seeking to hold the defendants liable for a sum which exceeds, at least in the cases of Carson and Mangano, the amount actually received by each defendant by sixty times. It is the opinion of the Court that this amount is excessive. Second, more than a decade has passed since the MOTBY scheme occurred. Indeed, the individual members of Local 1588, who were the principal victims of the MOTBY scheme, would be time-barred from bringing suit for damages on the theory and in the amount now advanced by the government. See Agency Holding Corp. v. Malley-Duff & Assoc., 483 U.S. 143, 156, 97 L. Ed. 2d 121, 107 S. Ct. 2759 (1987) (four year statute of limitations governs private civil RICO damage suits). *fn8" Third, as we have previously noted, when fashioning an equitable remedy it is appropriate to consider "the likelihood of future racketeering activity on the part of the defendants." Asset Restraint Opinion, 1993 U.S. Dist. LEXIS 3354, 1993 WL 77319 at *3 Given the advanced age of the three defendants, and the fact that a sentence has been imposed on Mangano which will likely result in his spending the remainder of his life behind bars, the likelihood of the commission of similar illegal acts by the defendants in the future is not overwhelming. The likelihood that the defendants will engage in racketeering acts in the future is also diminished by the injunctive relief granted by the Court. See Part II.B., infra. Fourth, we note that the MOTBY scheme was of relatively short duration; indeed, it lasted just over one year. The part played by the MOTBY scheme in casting the pall of organized crime over the New York/New Jersey waterfront is relatively small. *fn9"

 We turn next, therefore, to a determination of the remedial relief to which the government is entitled against each defendant.

 a. Donald Carson

 In this Court's Liability Opinion, defendant Donald Carson was found to have committed multiple violations of the Taft-Hartley Act, 19 U.S.C. § 186(b), by receiving payments from UTI, in the form of kickbacks, in the amount of $ 5 per container stripped. *fn10" See Liability Opinion, 812 F. Supp. at 1326. Since 3220 containers were stripped during the operation of the MOTBY operation, see Tr. at 3879, 3890 (Ruffino), and since Carson's share of the kickbacks was $ 5 per container stripped, we conclude that Carson received a total of $ 16,100. Carson is hereby ordered to disgorge $ 16,100.

 b. Venero Mangano

 This Court found that Mangano aided and abetted Carson's multiple violations of the Taft-Hartley Act. Liability Opinion, 812 F. Supp. at 1327.

 As a preliminary matter, Mangano objects to the admission of Gallagher's criminal testimony against him during the remedy phase of this action, on the grounds that the testimony is hearsay as against him and on the theory that it was derived from electronic surveillance tapes which were suppressed because the government, in violation of the federal wiretapping statute, failed to seal the tapes in a timely fashion. Mangano made these same objections with regard to the admission of the same evidence during the liability phase, which this Court rejected. See Rule 52(b) Opinion, slip op. at 8-12; Liability Opinion, 812 F. Supp. at 1323. For the reasons set forth in the Rule 52(b) Opinion, we reject Mangano's objections to this evidence during the remedy phase. This case has proceeded on the understanding that the record for the purposes of the remedy phase would be the record established during the liability phase. Since the Gallagher confession has been properly admitted into the record, and since it was relied upon to support the liability findings, it would be absurd to allow suppression of this evidence during the remedy phase. Mangano's request to suppress the Gallagher confession during the remedy phase is denied.

 In this Court's Liability Opinion, we held that Mangano made a division of $ 25 a container, and that Mangano, Carson, and others each received $ 5 shares. Mangano claims that the Gallagher confession indicates that he and DiGilio divided $ 5 per container move. *fn11" On this basis, Mangano contends that the evidence in the record demonstrates that he received only $ 2.50 per container move. Although we acknowledge that Gallagher's testimony is ambiguous as to whether Mangano retained a full $ 5 per each container move, we conclude that there is no doubt that Mangano received a full $ 5 per each container move. The fact that Mangano ultimately may have "taken care of" DiGilio by sharing with him a portion of the MOTBY kickbacks he received is irrelevant. Moreover Mangano failed to present evidence during the liability phase, or to request, by the Court-imposed deadline, to present evidence during the remedy phase, which would indicate what portion, if any, of the $ 5 went to DiGilio.

 Therefore, since 3220 containers were stripped during the MOTBY operation, and since Mangano's share of the kickbacks was $ 5 per container stripped, the evidence in the record supports the conclusion that Mangano received a total of $ 16,100. Mangano is ordered to disgorge this amount.

 This Court previously reserved decision as to whether Mangano's attorney's fees should be exempted from the Temporary Restraining Order issued by this Court on March 15, 1993. See Asset Restraint Opinion 1993 U.S. Dist. LEXIS 3354, 1993 WL 77319 at *8 n.1. Of course the restraining order is in effect now, and will remain in effect until such time as Mangano has disgorged the $ 16,100 in accordance with this Opinion. In light of the Opinion issued today, we deny Mangano's application for an exemption from the temporary restraining order. Nor will we exempt his attorney's fees from the disgorgement award we issue today.

 c. Anthony Gallagher

 This Court found that Gallagher aided and abetted Carson's multiple violations of the Taft-Hartley Act. *fn12" Liability Opinion, 812 F. Supp. at 1327.

 Although this Court held that Gallagher's company, B & A Reefer, siphoned $ 175,800 out of UTI, a great portion of that amount went to other participants in the MOTBY scheme. For example, $ 80,500 went to Carson, Mangano, and others. The government acknowledges that "tens of thousands of dollars were distributed by Gallagher as 'longshoremen extras' to foremen and other longshoremen supervisors to persuade them not to disclose the scheme." Govt.'s Reply Mem. of Law in Support of its Request for Remedial Relief at 55. This Court has not made a finding of the exact amount retained by Gallagher as a result of his participation in the MOTBY scheme. Although the Court cannot exactly quantify the amount that Gallagher retained, given the state of the record, it certainly was far less than $ 175,800. Just as certainly, Gallagher retained a healthy portion of the kickbacks. In the very least, Gallagher received the same amount that Carson and Mangano received: $ 16,100.

 Accordingly, in the exercise of this Court's equitable discretion, we conclude that Gallagher should be ordered to disgorge only $ 16,100, although the evidence in the record supports the reasonable inference that Gallagher received and retained a sum in excess of this amount.

 d. Government's Request for Prejudgment Interest and Equitable Lien

 Finally, in the exercise of this Court's discretion under § 1964, we deny the government's request for an Order that equitable liens arose against Carson, Gallagher, and Mangano in the amounts ordered disgorged today as of October 1, 1982. In the exercise of this Court's equitable discretion, we also deny the government's request for prejudgment interest.

 2. Disgorgement of Carson's Salary

 In the Liability Opinion, this Court held that Carson embezzled a full-time salary from Local 1588, after he became a part-time officer, because the union membership did not approve the retention by Carson of a full-time salary after he became a part-time officer, and because he had the requisite intent to embezzle. Although we adhere to our finding that Carson did "precious little" for the union, it is undisputed that Carson performed some services for the union. Obviously, those services have an economic value. In other words, Carson was entitled to a part-time salary to compensate him for his services as a part-time officer. Therefore the amount that Carson embezzled from the Local is the difference between the full-time salary he received and the part-time salary he should have received, with the union's approval, as a part-time officer.

 The government implicitly recognizes this, because it seeks a disgorgement award of only 80% of Carson's full-time salary. The government extracts that number from the fact that the Court credited testimony that Carson spent 80% of his time in New York after he was elected General Organizer of the ILA International. Carson responds by arguing that he "devoted more than 40% of the average workweek to local matters." Carson Mem. at 19. He also argues that his "level of responsibility for local matters did not decrease with the reduction in pay and hours." Id. These contentions contradict this Court's findings of fact. See Liability Opinion, 812 F. Supp. at 1329-31.

 Although the state of the record does not permit the Court to calculate the exact amount that Carson embezzled from the union as salary, we believe that an evidentiary hearing exploring this issue might well prove to be a waste of the parties' and this Court's time in light of the disgorgement award this Court, in the exercise of its discretion, is prepared to order. After balancing the equities involved, it is this Court's opinion that Carson should be required to disgorge 20% of the salary he received during the relevant years. This percentage is deliberately chosen since it would appear to be an amount which the government should have little difficulty establishing if further proceedings were held. If any party believes that this percentage is inappropriate and the matter is worth pursuing, the Court will arrange for further proceedings to be conducted. The evidence in the record demonstrates that between 1982-1988 Carson received as salary the following amounts: Year Salary 1982 $ 51,395 1983 48,200 1984 48,900 1985 48,900 1986 48,785 1987 49,400 1988 22,200

19930819

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