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UNITED STATES v. PACCIONE

January 21, 1998

UNITED STATES OF AMERICA, - v - ANGELO PACCIONE, et al., Defendants.


The opinion of the court was delivered by: MOTLEY

 On June 18 and June 25, 1997, the court issued temporary restraining orders directing Dominick Vulpis ("Vulpis") to take certain actions with respect to assets allegedly belonging to the Rosedale Carting Co. ("Rosedale"). Vulpis refused to comply with certain aspects of these orders and, therefore, was held in contempt following a July 17, 1997 proceeding. The court, in light of the findings of fact and conclusions of law discussed below, now issues this opinion which converts the temporary restraining order into a preliminary injunction.

 BACKGROUND

 The underlying facts in this case have been set forth in this court's previous opinions and familiarity therewith is assumed. See U.S. v. Paccione, 751 F. Supp. 368 (S.D.N.Y.) (sentencing three of the defendants), aff'd, 949 F.2d 1183 (2d Cir. 1991); U.S. v. Paccione, 975 F. Supp. 537 (S.D.N.Y. 1997) (summarizing the Receiver's attempts between 1991 and 1997 to procure the long-standing money owed to the federal government). This case began as a criminal action against Angelo Paccione, Anthony Vulpis, and a number of other defendants. On June 8, 1990, a jury found defendants guilty under the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) and (d) (West 1988), and related fraud charges. The court approved a forfeiture consent order on that date requiring defendants to pay $ 22 million to the United States within 90 days. Barrington D. Parker *fn1" was then appointed, by Order dated June 19, 1990, Trustee and Receiver (the "Receiver") for the Government's interest in those corporations which were owned by defendants, including Rosedale, a waste carting company and one of the corporate defendants.

 Nearly nine years later, the Government has yet to receive the bulk of the $ 22 million which it was supposed to collect. The Receiver encountered numerous obstacles in his attempt to sell Rosedale and eventually had to sell it for a relatively modest sum to a company called K.C. Waste Services, Inc. ("K.C. Waste"). The difficulty of finding a buyer and of securing a good price were not the function of mere market forces; Rosedale's competitors had eroded the value of the company with predatory activities. Indeed, on February 13, 1997, Dominick Vulpis, who held a significant minority interest in K.C. Waste, pled guilty in New York Supreme Court to two counts of the crime of Combination in Restraint of Trade and Competition and admitted that he had participated with other members of the waste carting industry in a customer allocation scheme whereby business formerly belonging to Rosedale was diverted to a competitor and then funneled back to him, in disguise as consulting fees. See 975 F. Supp. at 540.

 Suspecting that Vulpis may have engaged in payment schemes which led to the loss in value of Rosedale prior to its sale to K.C. Waste, the Receiver gained access to documents seized by the District Attorney in connection with its indictment of Vulpis. After reviewing the documents on June 10, 1997, the Receiver concluded that Vulpis may have collected in excess of $ 4 million from rival carting companies for business which they had taken from Rosedale. Moreover, one document suggested to the Receiver that Vulpis had obtained approximately $ 6.3 million in connection with the sale of Rosedale to K.C. Waste, implying that, absent this payment, K.C. Waste would have been able to pay a great deal more for Rosedale. See id. The Receiver also determined after inspecting the seized documents that a state court breach of contract action brought by Vulpis against K.C. Waste and related companies (collectively, the "Vulpis Action Defendants") was an attempt by Vulpis to collect some of the payments which were owed to him under these schemes and that such payments were properly assets of the Receiver, since they led to the loss of Rosedale's value.

 On the basis of this as well as other information provided by the Receiver to the court, the court issued a temporary restraining order, dated June 17, 1997 (the "June 17 Order"), directing Vulpis to (1) place certain funds which he had received into an escrow account under the supervision of the Clerk of the Court, (2) instruct certain persons who had made payments to Vulpis or his nominees that any future payments were to be paid directly into the escrow account, (3) deliver to the trustee and Receiver appointed by the court in this matter copies of such instructions within two days of the June 17 Order, and (4) appear in court for a hearing on June 23, 1997 to show cause why a preliminary injunction should not be granted. In addition, pursuant to the All-Writs Act, 28 U.S.C. § 1651, the court removed the state court action brought by Vulpis to this court. The June 17 Order was granted ex parte because the court was concerned that notice to Vulpis would induce him to settle the state court action prematurely.

 Following Vulpis' non-compliance *fn2" with the above Order and with a June 25, 1997 revised Order which clarified Vulpis' obligations, Vulpis was held in contempt, by opinion dated September 3, 1997. At his contempt hearing, Vulpis argued that his Fifth Amendment rights would be violated if he answered a series of questions concerning his present financial condition, his relationship with Lyn-Val Associates (a corporation controlled by Vulpis which received a payment disguised as a fee for consulting services), and his receipt of payments from various carting companies.

 At the close of the hearing, the court scheduled a preliminary injunction hearing for September 30, 1997 and later allowed the parties to submit briefs in lieu of an oral hearing. This opinion follows.

 FINDINGS OF FACT AND CONCLUSIONS OF LAW

 Each aspect of the temporary restraining order will be addressed in turn.

 I. Uncontested Aspects of the Temporary Restraining Order

 The first paragraph of the temporary restraining order, dated June 25, 1997, orders that: "Vulpis and the Vulpis Action Defendants be, and hereby are, temporarily enjoined and restrained from prosecuting the Vulpis Action, from settling the Vulpis Action, or from pursuing the Vulpis Action funds in any state or federal court other then the District Court for the Southern District of New York." June 25 Order, para. (a). Vulpis does not challenge the incorporation of this part of the temporary restraining order into the preliminary injunction. Mem. of Dominick Vulpis in Opp. to Certain Provisions of the Prop. Prelim. Inj., 2.

 Mr. Vulpis likewise is not contesting the second paragraph of the temporary restraining order which essentially forbids him from receiving, disposing, or diverting receivership assets and it, too, will be incorporated into the preliminary injunction. Specifically, this second paragraph directs Vulpis to "place any funds he, or Vulpis' Nominees, Successors or Assigns have received or do receive, directly or indirectly, from or on behalf of the Vulpis Action Defendants (or any of their respective nominees, successors, or assigns) as payments under or related to the Vulpis Agreements, into an escrow account under the supervision of ...


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