The opinion of the court was delivered by: LEWIS A. KAPLAN
This is an action by the Superintendent of Insurance of the State of New York pursuant to the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. ("RICO"), and various state law theories. The Superintendent claims that Thomas N. Capolino bribed key employees of the Liquidation Bureau of the New York State Department of Insurance. The object of the scheme was to secure contracts for entities owned by Capolino, or in which he held interests, to supply the Bureau with various goods, services and real estate. According to the Superintendent, Capolino entities were paid for some goods and services that were unnecessary or that were not provided, and all of the purchases were overpriced. The Superintendent seeks to recover treble damages and attorneys' fees, plus interest.
Under New York law, the Superintendent is the sole individual eligible to be appointed receiver of insolvent insurance companies domiciled in the State. In consequence, the Superintendent routinely is appointed by the New York courts as receiver of insolvent domestic insurers, some of which are rehabilitated and others liquidated.
The Liquidation Bureau is the arm of the Insurance Department that assists the Superintendent in carrying out his duties as receiver. The Bureau is headed by a Special Deputy Superintendent in Charge, who is appointed by the Superintendent. It contains four departments: Administrative Services, Claims, Finance, and Legal. The Department of Administrative Services is headed by a Director, who reports to the Special Deputy in Charge. It is responsible for, among other things, purchasing goods and services and leasing real estate on behalf of the Bureau.
Defendant Cortapasso was the Director of Administrative Services from October 1980 until September 21, 1987 when he retired. (PTO B-8)
Cortapasso, however, was told to go on vacation in July 1987, when suspected irregularities that led to this suit came to light. In consequence, he ceased functioning as Director of Administrative Services in July 1987. At all relevant times, John DePrima was Cortapasso's assistant. (PTO B-21)
The Bureau's Dealings with Capolino
Beginning as early as 1984, Capolino companies, including but not limited to those named as defendants here, became favored suppliers to the Bureau. The Bureau entered into at least the following transactions with Capolino companies:
1. It leased warehouse premises in Brooklyn known as the Kenston space from a Capolino company.
2. It leased warehouse space in Queens known as the Rodless space from another Capolino company.
3. It leased space at 123 William Street in Manhattan in a transaction in which Capolino's attorney was designated co-broker for the Superintendent and received a commission of approximately $ 690,000, the bulk of which went to Capolino.
4. It purchased a "cardkey" access control and time and attendance system for its offices at 123 William Street.
5. It purchased alarm systems for the Kenston space from Advantage Security.
6. It purchased trucking services from TNC.
7. It purchased security guard services from Advantage Protection.
8. It purchased cleaning services from various Capolino entities.
Except as indicated below, all of the these transactions, or payments for them, were authorized or recommended by Cortapasso. In many cases, the prices paid were substantially in excess of fair market value. Cortapasso approved or recommended these purchases without securing bona fide competitive bids which, in almost all cases, directly violated competitive bidding regulations of the Bureau of which Cortapasso was aware and which, with respect to the later part of the relevant period, he had a role in promulgating. The evidence established, moreover, that on a few occasions Capolino entities with dissimilar names submitted what appeared on their face to be competing proposals for the same work without disclosing that all of the entities submitting proposals were controlled by Capolino. In each case these were addressed to Cortapasso, and the inference that these were prepared in an effort to create a fictitious record of at least partial compliance with the bidding regulations is inescapable.
Cortapasso admitted that he knowingly ignored the bidding regulations and steered work of all sorts to Capolino's companies. He testified that the bidding regulations were promulgated because State auditors wanted such regulations in place, but that he rarely paid any attention to them. He added that none of his superiors ever told him that he was supposed to follow the regulations though, of course, the regulations on their face state that they are mandatory absent a waiver by the Special Deputy in Charge. Waivers were permitted in emergency situations but never sought in any of these transactions.
Cortapasso freely acknowledged as well that he developed a close personal relationship with Capolino, which included shared lunches and vacations as well as gambling excursions to Atlantic City. At one point, Cortapasso's son worked for Capolino. Cortapasso stated, however, that he gave the work to Capolino companies because Capolino constantly importuned him to do so, because the jobs were done by Capolino's companies without any difficulty, and because Capolino's prices were reasonable. Cortapasso admitted that his actions probably made his job easier in the sense that Capolino offered one-stop shopping for a large spectrum of the Bureau's needs, thus saving Cortapasso the labor of going through the less convenient procedures required by the competitive bidding regulations. But Cortapasso denied any improper motive. The Superintendent asserts that Capolino's favored status was the product of garden variety corruption including payoffs and kickbacks to Cortapasso. The case, while circumstantial, is extensive and formidable.
Perhaps the most direct evidence of kickbacks to Cortapasso relates to the Superintendent's lease of the William Street premises in 1985.
In late 1984, the Liquidation Bureau was considering either renewal of the lease for its space at 116 John Street or the procurement of new premises. (PX 180) Cortapasso was involved in the search. On April 12, 1985 he received a proposal from Cushman & Wakefield ("C&W"), the owner's broker, with respect to 123 William Street. Two weeks later, C&W wrote to the Special Deputy in Charge of the Bureau, enclosing a survey of possible rental locations and noting copies to both Cortapasso and Max Markus Katz, who was Capolino's lawyer. (PX 186) On July 3, 1985, following a tour of 123 William Street with Cortapasso, C&W wrote to Katz, who had no relationship to the Bureau other than the connection through Capolino and Cortapasso, to convey the owner's offer of the William Street space. (PX 187) Two days later, Cortapasso passed the offer that C&W had sent to Katz on to the Special Deputy. (PX 187) In due course, the Superintendent leased the space.
Somehow Katz became the Superintendent's broker on the William Street transaction and thus received a commission of $ 692,988.87, paid in three equal, annual installments. (PX 195) This nominally was split among Katz, Capolino, two Capolino companies, and another Capolino associate named Rennert. (PX 192) Notes relating to the division of the commission -- written in Capolino's handwriting on a copy of Katz's commission invoice -- state "108,250.00 3X to Joe C." (PX 195; PTO B-61) It is undisputed that Capolino sometimes referred to Cortapasso as Joe C. (PTO B-68)
During the period in question Cortapasso was employed at a salary of about $ 60,000 a year, reaching a peak just prior to retirement of $ 69,010. His wife earned about another $ 15,000, and the couple had no other regular source of income. Cortapasso, however, was a gambler who visited Atlantic City with some frequency. Casino records offered by the Superintendent demonstrate that he made cash deposits to a casino cage account at Trop World in August and September 1986 totalling $ 10,000. In 1986, he purchased two automobiles in connection with which he paid cash deposits. In 1987, he purchased a boat at a cost of more than $ 27,000, paying over $ 12,000 in cash. There were also three unexplained cash deposits totalling $ 10,900 to Cortapasso's bank account over the period April 1984 through his departure from the Bureau and a documented $ 1,690 cash gambling loss.
Cortapasso sought at trial to explain some, although not all, of this cash flow. He asserted that his wife received $ 20,000 in insurance proceeds on the death of their daughter and, on one occasion, withdrew $ 5,800 in cash from her account and gave the money to Cortapasso, who immediately deposited it in his account. He said that $ 7,000 of the $ 12,000 that he put down in cash on the boat came from his son. He testified also that he generated $ 24,000 in cash at some point between 1983 and 1986 by refinancing his house and kept the cash in his house. No documentary evidence was offered at trial to ...