suggestion that the original bidding had been tainted, the Court held that the appropriate measure of damages was the difference between the amount the village paid the successful bidder and the original low bid. In S.T. Grand, however, the Court narrowly confined the Gerzof exception, noting that it was born of the fact that both the village's determination that it needed the equipment and the amount of the original low bid were untainted by misconduct. 32 N.Y.2d at 306-07, 344 N.Y.S.2d at 943.
Here, the Bureau's determinations of need are, for the most part, at least suspect if not plainly tainted. We lack any contemporaneous and objective measure, such as that provided by the untainted bid in Gerzof of the arm's length value of what the Bureau procured although the Superintendent in some instances has offered expert testimony as to that value. Moreover, in at least some instances, the services that Capolino contracted to provide in fact were not provided. Accordingly, the New York rule of complete forfeiture would apply to claims against Capolino and his entities.
This brings us to the immediate issue -- whether a public servant who corruptly participates in circumvention of competitive bidding regulations is liable under New York law for the full amount paid to the vendor or only the difference between the value of what the public entity received and the price it paid. We are aware of no New York authority on the point and therefore must seek to predict how the New York Court of Appeals would decide the question were it presented.
The strict forfeiture principle that New York applies to vendors rests on an assessment of the economic consequences of the alternative rules. If the vendor were liable only for the difference between the fair market value of what it provided and the inflated price made possible by its corruption, the economic incentives would tilt in favor corruption. The vendor would keep a supercompetitive profit if the corruption went undetected and make a normal profit if the fraud were detected and the difference disgorged. Putting aside, for the moment, the deterrent effect of criminal sanctions, such a rule of damages would put the vendor in the position of standing to profit from successful corruption while risking no economic loss if the corruption were found out.
The position of the corrupt public servant is not precisely analogous to that of the corrupt vendor. The corrupt public servant is subject to very substantial economic penalties, apart from any criminal sanctions, in the event corruption is discovered. He or she of course is liable for any kickback, bribe or other benefit received. Under the principle described in Musico, which is derived from antecedents common to the S.T. Grand principle applicable to corrupt vendors, the public servant is liable also for all compensation received from the employer during the period of disloyalty. Moreover, it is the policy of this State to forfeit pensions of civil servants who have committed misconduct in violation of the public trust in order to deter such misconduct. See, e.g., Winston v. City of New York, 759 F.2d 242, 249 (2d Cir. 1985); Mahoney v. McGuire, 107 A.D.2d 363, 366, 487 N.Y.S.2d 13, 16 (1st Dep't), aff'd, 66 N.Y.2d 622, 495 N.Y.S.2d 29, 485 N.E.2d 236 (1985). Public servants thus are subject to extremely substantial economic penalties by reason of any breach of their duty of honesty even without subjecting them to liability for the amounts paid to vendors pursuant to contracts tainted by their corruption. They are not, from an economic standpoint, in the "heads I win," "tails I don't lose" posture that corrupt vendors would occupy absent the S.T. Grand rule. Hence, the need for the rule advocated by the Superintendent is not clear, in contrast to the situation in S.T. Grand. We note also that there is at least some suggestion of a countervailing State policy. Section 51 of the General Municipal Law provides that, in the discretion of the Court, a corrupt municipal employee may be declared "personally responsible . . . so as to indemnify and save harmless" the municipality for any "waste or injury" resulting from the official's misfeasance or nonfeasance. N.Y. Gen. Mun. L. § 51 (McKinney 1986). Thus, the liability of a corrupt official subject to the statute
is capped at the amount necessary to make the public whole.
The result the Superintendent seeks here -- holding Cortapasso liable not only for the damage he has done and for the full amount of his compensation for over three years, some of which is subjected to trebling under RICO, but also for the full amounts paid to the Capolino entities without deduction of the value of anything the Liquidation Bureau received -- would be extraordinarily Draconian. Given the fact that this result appears unnecessary to provide an ample deterrent, given the General Municipal Law's suggestion that the measure of liability should be the harm inflicted, and given the lack of any State authority supporting the Superintendent's position, we hold that Cortapasso is liable with respect to the Bureau's payments to Capolino entities only for the difference between the value of what the Bureau received and the price the Bureau paid in its transactions with the Capolino entities.
The Superintendent alleges the following damages based upon the difference between the amounts paid by the Superintendent and the purported fair market value of services: (a) $ 494,833 for the Brooklyn warehouse lease; (b) $ 354,376 for the Queens warehouse lease; (c) $ 101,872 for operating the elevator and opening and closing the Brooklyn warehouse; (d) $ 135,418 for electrical and shelving work at the Brooklyn warehouse; (e) $ 264,395 for security guard services; (f) $ 13,526 for security equipment; (g) $ 202,847 for trucking services; and (h) $ 44,621 for cleaning services. We deal with them in turn.
(a) Brooklyn warehouse lease. The rent paid by the Superintendent on the Brooklyn warehouse was $ 910,833. (See PX 60, 57, 54) Jerome Haims, a real estate expert, testified that the fair market value for the space was $ 1.35 per square foot, whereas the Bureau paid $ 2.50 per square foot. We credit Haims' testimony and therefore find Cortapasso liable for the difference, or $ 418,983.
(b) Queens warehouse lease. Cortapasso is liable for the amount the Bureau overpaid the Capolino entities for the Queens warehouse as well. The Bureau paid $ 683,438 in rent on the Queens warehouse. (See PX 89, 85) Haims testified that the fair market value was $ 3.65 per square foot versus the $ 7.66 the Bureau was charged. Cortapasso is liable for the difference, or $ 357,779.
(c) Operating the Elevator and Opening and Closing the Brooklyn Warehouse. The Superintendent submitted invoices for the costs of opening and closing the Brooklyn warehouse, operating the elevator, answering telephones and accepting deliveries. The total amount the Superintendent paid Capolino entities for these services was $ 101,872. (See PX 66) There is testimony from which we conclude that no one other than employees of the Liquidation Bureau performed these services and therefore that the invoices charging the Bureau for the cost of outside workers were shams. For example, David Jackman, the Supervisor of the Brooklyn warehouse at the relevant times, testified that the warehouse was opened and closed only by employees of the Bureau (PX 412 at 14) and that only Bureau employees accepted deliveries on behalf of the Bureau. (Id. at 16) We find Cortapasso liable for the $ 101,972, the full amount of these services.
(d) Electrical and Shelving Work at Brooklyn Warehouse. Plaintiff submits invoices for electrical and shelving work at the Brooklyn warehouse totalling $ 271,337. (See PX 75,104) Plaintiff has submitted no evidence of the fair market value of this work but urges the Court to find, based on the 100% mark-up above the fair market value on the Brooklyn and Queens warehouse leases, that the amount charged for electrical and shelving work includes a 100% mark-up. We decline to do so. We do not regard the mark-up on the warehouse space as indicative in any way of the value of the electrical and shelving work. We have no persuasive basis for concluding that the Superintendent overpaid by any particular amount. Accordingly, we find no damages with respect to this item.
(e) Security Guards. The Superintendent alleges $ 264,394 in damages. The Superintendent paid $ 652,347 for security guards with respect to security guard services provided to the Bureau by Capolino entities. The Superintendent argues that Cortapasso is liable for $ 5,760, the full amount paid to Janeen Schroeder, a Bureau employee, and John DePrima, whom she later married, for their work as security guards at the Brooklyn warehouse, and that he is liable for 40% of the difference between $ 652,347 and $ 5,670.
There is reason to believe that the jobs held by Schroeder and DePrima were "no show" jobs. Nevertheless, the payments to Schroeder and DePrima were made after Cortapasso left the Bureau and we therefore decline to find Cortapasso liable for the $ 5,760 billed to the Bureau for Schroeder and DePrima.
Advantage Security charged the Bureau $ 15.00 per hour for security guards. (PX 236) The Bureau ultimately replaced Advantage Security with Pinkerton which charged the Bureau $ 9.61 per hour, which we find to reflect the fair market rate. Accordingly, we find that Advantage overcharged the Bureau by 36%. Cortapasso therefore is liable for $ 234,845 with respect to security guard services.
(f) Security Equipment. The Superintendent claims that Cortapasso is liable for $ 13,526 in damages with regard to security equipment. There is evidence that the Bureau made payments totalling $ 184,205 to Advantage Security and Advantage Protection for security equipment. (PX 112) However, the Superintendent indicates in his submissions to the Court that the Bureau paid only $ 152,526 for BASIX security equipment. The fair market value of the BASIX system, according to testimony by David Aggleton, a security systems expert whom we credit, was $ 139,000. Cortapasso therefore is liable for at least $ 13,526, the difference between the Bureau's payment for the system and its fair market value. Since the Superintendent has limited his claim to $ 13,526, we find Cortapasso liable only for this amount.
(g) Trucking. The Superintendent alleges $ 202,847 in damages with regard to payments made by the Bureau to T.N. Capolino Trucking, a Capolino entity, for trucking services. The Superintendent asserts that $ 48,160 of the trucking work associated with the Queens warehouse was unnecessary. Furthermore, the Superintendent would have the Court assume, from the mark-ups on the warehouse leases, that the trucking invoices also included a 100% mark-up. We do not find that plaintiff has proved that any of the trucking work performed was unnecessary. Nor do we find persuasive the Superintendent's argument that we should assume that the cost of the services was marked-up 100%. The Superintendent submitted no persuasive evidence of what work was done or what it was worth. We conclude that he has not met his burden with respect to damages for trucking services.
(h) Cleaning services. The Superintendent has submitted invoices totalling $ 89,242 for amounts paid by the Bureau to Capolino entities for cleaning services. (See PX 25, 30, 32, 20, 31) Again, the Superintendent would have the Court assume that the total amount paid by the Bureau for cleaning services includes a 100% mark-up on the fair market value. The Bureau therefore urges the Court to award $ 44,621 in damages for cleaning services. We decline to do so. Again, we are not persuaded by the Superintendent's argument and find that he has failed to meet his burden.
In sum, Cortapasso is liable to plaintiff for $ 1,127,105, with respect to payments to Capolino entities in connection with corrupt transactions.
Summary of Damages
With regard to the 123 Williams Street commission, plaintiff is entitled to recover $ 450,000 under the RICO which is trebled for a total of $ 1,350,000. Furthermore, plaintiff is entitled to recover $ 113,794 under State law with regard to the Williams Street commission, which is not trebled.
Plaintiff is entitled to recover the salary paid to Cortapasso during the period April 3, 1984 through his retirement, September 18, 1987, which we find to have been $ 193,132.
Plaintiff is entitled to recover the $ 41,202 in bribe payments made by Capolino to Cortapasso. As noted above, this amount will not be trebled.
Plaintiff is entitled to recover $ 593,972, before trebling, for the costs incurred in defending the Bureau against claims by Capolino in prior state court suits.
Finally, plaintiff is entitled to recover $ 1,127,105 for the out-of-pocket damages suffered as a result of the Bureau's transactions with the Capolino entities.
In sum, the Superintendent is entitled to recover $ 2,364,209, trebled, and an additional $ 154,996 which is not subject to trebling. The Clerk therefore will enter judgment in favor of plaintiff and against Cortapasso in the total amount of $ 7,247,623. As this concludes all proceedings relating to Cortapasso, we hold that there is no just cause for delay and direct the entry of final judgment pursuant to Rule 54(b).
Dated: New York, New York
March 31, 1995
Lewis A. Kaplan
United States District Judge