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ROBERTO'S FRUIT MKT. v. SCHAFFER

July 16, 1998

ROBERTO'S FRUIT MARKET, INC.; FOUR STAR VIDEO, INC.; PENGUIN TIRES, INC.; W.A.L.S.U. INC.; CROSS ISLAND SANITATION, INC.; PGS CARTING CO., INC., Plaintiffs, against RICHARD H. SCHAFFER, individually; DOUG JACOB, individually; RON KLUESENER, individually; ADAM BARSKY, individually; BABYLON SOURCE SEPARATION COMMERCIAL, INC.; JAMAICA ASH & RUBBISH REMOVAL CO., INC.; JET SANITATION SERVICE CORP.; S.P.F. CARTING CORP.; METS ROLL-OFF SERVICE, INC.; TRINITY TRANSPORTATION CORPORATION; OMNI RECYCLING OF BABYLON, INC.; OMNI RECYCLING OF WESTBURY, INC.; WESTBURY PAPER STOCK CORP.; EMEDIO FAZZINI; ANTHONY CORE; DOMENICK TESTA; PATRICIA DiMATTEO; SIDNEY FENSTER; JOSEPH PETRIZZO; and JOHN PAGANO, Defendants.


The opinion of the court was delivered by: SPATT

MEMORANDUM OF DECISION AND ORDER

 SPATT, District Judge.

 This case involves the disposal of rubbish. Specifically, it is about the many tons of waste produced each year by commercial businesses in the Town of Babylon, and how certain companies were awarded valuable Town contracts for its removal, incineration and recycling. The plaintiffs' First Amended Complaint ("the Complaint") alleges violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962, and a state law cause of action for common law fraud. These claims stem from an alleged conspiracy by crooked Town officials to award lucrative contracts to corrupt garbage haulers by bribes, back-door schemes and illegal campaign contributions, for the purpose of charging customers jacked-up prices for garbage removal and to steal business from the legitimate haulers who previously serviced the Town. Presently before the Court are four, separately-drafted motions to dismiss under Rules 9(b) and 12(b)(6), each of which is joined by the other defendants: (1) a motion submitted on behalf of SPF Carting Corporation ("SPF"), Mets Roll-Off Service, Inc. ("Mets"), Sidney Fenster ("Fenster"), Joseph Petrizzo ("Petrizzo") and John Pagano ("Pagano"); (2) a motion by defendant Adam Barsky ("Barsky"); (3) a motion by defendants Richard H. Schaffer ("Schaffer"), Doug Jacob ("Jacob"), and Ron Kluesener ("Kluesener"); and (4) a motion by defendants Babylon Source Separation Commercial, Inc. ("BSSCI"), Jamaica Ash & Rubbish Removal Company, Inc. ("Jamaica Ash"), Jet Sanitation Service Corporation ("Jet"), Trinity Transportation Corporation ("Trinity"), Omni Recycling of Babylon, Inc. ("Omni-Babylon"), Omni Recycling of Westbury, Inc. ("Omni-Westbury"), Westbury Paper Stock Corporation ("Westbury Paper"), Emedio Fazzini ("Fazzini"), Anthony Core ("Core"), Domenick Testa ("Testa") and Patricia DiMatteo ("DiMatteo").

 I. BACKGROUND

 A. The Town's Creation of a Commercial Garbage District

 Many of the details surrounding the Town's creation of a commercial garbage district, which is the crux of this dispute, were set forth by the Second Circuit in USA Recycling, Inc. v. Town of Babylon, 66 F.3d 1272, 1276-80 (2d Cir. 1995), where licensed garbage collectors unsuccessfully challenged the Town's waste management system on commerce clause grounds. Since the creation of the garbage district is critical to an understanding of the present dispute, those and related details warrant discussion in the opinion.

 1. The Babylon Incinerator

 In 1983, the Town began considering building a garbage incinerator ("the Incinerator") as a garbage disposal option, in response to the New York Legislature's directive that the Town close its environmentally harmful dumps. USA Recycling, Inc. v. Town of Babylon, 66 F.3d at 1277. After soliciting proposals for the construction and operation of the Incinerator, the Town awarded the contract to Ogden Martin Systems, Inc. ("Ogden"), a New Jersey corporation. The Town financed construction of the Incinerator with tax-exempt bonds issued by the Town of Babylon Industrial Development Agency (the "Agency"), which the Town controls. The land on which the Incinerator was built is owned by the Town, leased to the Agency, and subleased to Ogden. The Agency owns the Incinerator and leases it to Ogden, which operates it. Id. A 1985 Service Agreement between Babylon and Ogden provides that the Town has an unconditional obligation to pay Ogden a Service Fee for operating the Incinerator, regardless of whether any garbage is processed there. Id. at 1277-78. Through the Service Fee, Babylon pays for debt service on the bonds, operation and maintenance expenses, and various pass-through costs. Under the Agreement, the Town holds exclusive rights to accept garbage for disposal at the Incinerator, and to set and collect fees for disposal. Ogden is required to process whatever garbage the Town accepts for disposal. In turn, Babylon must deliver a minimum of 225,000 tons of garbage each year to the Incinerator. Id.

 2. Babylon's Pre-Carbone Garbage Collection and Disposal System

 In 1986, the Town created a Residential Garbage Improvement Area (the "Residential District") to provide municipal garbage collection and disposal services to all Town residents, pursuant to New York Town Law §§ 54 and 198 (McKinney 1965 & Supp. 1986). In 1987, following a competitive bidding process, the Town contracted with Babylon Source Separation, Inc. ("Babylon Source"), to collect residential refuse and to provide recycling services in the Residential District. That same year, the Town passed a flow control ordinance that required all solid waste collected within Babylon to be disposed of at a location designated by the Town, and specified the Incinerator as the only permissible disposal site. The ordinance also required garbage haulers to pay "tipping fees" to the Town for each ton of garbage delivered there. The revenues from these fees offset some of Babylon Source's costs under its Service Agreement with Ogden.

 Several years later, however, the United States Supreme Court struck down a similar town ordinance which mandated the processing of all solid waste at a local, privately owned transfer station. C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 114 S. Ct. 1677, 128 L. Ed. 2d 399 (1994). In response to the Carbone opinion, Babylon created the Commercial Garbage Collection District No. 2 (the "District"), covering most commercial properties in the Town. The Town then mandated the uniform municipal collection and disposal of waste generated in the District, replacing the myriad contracts between individual businesses and the seventeen haulers licensed to collect commercial waste in Babylon. 66 F.3d at 1278-79.

 In 1994, following a competitive, public bidding procedure -- although the plaintiffs allege that the bid was rigged -- the Town entered a five-year Service Agreement with the defendant Babylon Source Separation Commercial, Inc. ("BSSCI") to provide garbage hauling services to all improved commercial property within the District. Under the Service Agreement, the Town granted BSSCI an exclusive license to collect commercial garbage within the District. The Service Agreement provides that the Town must pay BSSCI a base fee of $ 22.75 per week for basic service to each parcel, plus additional fees for collection of garbage above the base amount. Also, the Service Agreement permits BSSCI, at no charge, to dispose of up to 96,000 tons of garbage per year at the Incinerator and unlimited amounts of recyclable material at the town recycling facility. The Service Agreement further provides that if BSSCI dumps more than 96,000 tons at the Incinerator, it is obligated to "pay the prevailing tipping fee to the Town at the time of such delivery." BSSCI has the option to deliver commercial refuse elsewhere, but it must bear those disposal costs itself. Id.

 To finance these collection and disposal services in the District, the Town imposed a $ 1500 "annual benefit assessment" against each improved parcel of commercial property within the District. All such parcels are entitled to "basic service" from BSSCI, consisting of weekly collection of one cubic yard of commercial refuse and one-half cubic yard of recyclables. The property owner may allocate this basic service to one commercial establishment per parcel. If there is more than one commercial establishment on the parcel, or a business requires more than basic service, a user fee is charged for each additional cubic yard of garbage. Id.

 3. The Recycling Facility

 According to the Complaint, in 1992, the Town undertook to build a recycling facility ("The Recycling Facility") to comply with the New York State Waste Management Act and respond to mounting solid waste management problems. Like the Incinerator, construction of the Recycling Facility was financed through municipal bonds.

 When the Recycling Facility opened, it was operated by Babylon Recycling Center, Inc. ("BRCI"), a company selected by competitive bid. Several years later, the Recycling Facility experienced financial difficulty and BRCI filed for bankruptcy in January 1994. Evidently, the Bankruptcy Court determined that the Recycling Facility should continue to operate, and following another bidding process, awarded an interim contract to the defendant Omni-Westbury, which began overseeing the Recycling Facility on or about September 30, 1994. Just over a year later, on or about November 3, 1995, the Bankruptcy Court authorized BRCI to enter an agreement under which defendant Omni-Babylon became the Recycling Facility's owner and permanent operator (See Complaint at PP 130-143).

 B. The Complaint

 The plaintiffs commenced this action on August 18, 1997 by filing a complaint (the "Initial Complaint"). After various defendants moved to dismiss the Initial Complaint, the plaintiffs filed the First Amended Complaint (which the Court will refer to, simply, as "the Complaint"). Evidently, the amendments addressed some of the issues raised in the defendants' motions, such as their argument that the claims against certain municipal defendants should be dismissed. The defendants' original moving papers were withdrawn, and the second set of motions to dismiss which presently are before the Court followed.

 1. The Plaintiffs

 The Complaint presents the plaintiffs in two, distinct categories, which the plaintiffs indicate they will seek to certify as class representatives: (1) commercial property owners, such as Roberto's Fruit Market, Inc. ("Roberto's), Four Star Video, Inc. ("Four Star"), Penguin Tires, Inc. ("Penguin") and W.A.L.S.U., Inc. ("W.A.L.S.U."), who assert that the creation of the Garbage District and the award of the Service Agreement to BSSCI has resulted in increased rates for the collection and disposal of their refuse; and (2) commercial trash haulers, including Cross Island Sanitation ("Cross-Island") and PGS Carting ("PGS"), who complain about the loss of their commercial trash collection contracts.

 2. The Defendants

 The Complaint also divides the defendants into two groups. The first, characterized as the "Town Defendants," consists of Babylon officials who allegedly were instrumental in awarding the bid to BSSCI: Schaffer, Supervisor of the Town; Jacob, Comptroller and Finance Director of the Town; Barsky, former Town Comptroller; and Kluesener, Commissioner of Environmental Control of the Town.

 The second, referred to as the "Commercial Defendants," includes the businesses which purportedly benefitted from the Town's creation of the Commercial Garbage District: BSSCI, which is alleged to be comprised of defendants Jamaica Ash, Jet, S.P.F., and Mets; Jet's Chairperson and owner, DiMatteo; S.P.F.'s Chairperson, owner and manager, Fenster; Petrizzo, Chairman of Mets; Pagano, an alleged owner and manager of Mets; Trinity; Westbury Paper; Omni-Babylon; Omni-Westbury; Testa, Chairman of Trinity; Core, a manager, officer and owner of Trinity, Omni-Babylon, Omni-Westbury, Westbury Paper; and Fazzini, an owner and manager "who has complete and unfettered control over" Omni-Westbury, Omni-Babylon, Trinity, Westbury Paper, Trinity, BSSCI, Jamaica and Jet.

 3. The Alleged RICO Conspiracy

 Stated broadly, as it is in the Complaint, the plaintiffs allege that "The Town Defendants, joined with the Commercial Defendants to collectively form the BSSCI/Omni Enterprise for both their political and personal gain . . . . This illicit relationship has resulted in the commission of several RICO predicate act crimes including . . . numerous acts of bribery, accepting bribes, mail fraud and wire fraud. In addition to these RICO predicate acts, the Town Defendants have committed a litany of other crimes, including violations of election law, conspiracy to fix public bids, violations of public procurement laws, fraud, and creating and filing false records." (Complaint, P 7). Reduced to its essence, the plaintiffs' theory is that the Commercial Defendants provided cash bribes and ...


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