The opinion of the court was delivered by: GLASSER
GLASSER, United States District Judge:
Twenty First Century L.P. I and Twenty First Century L.P. II (collectively "Twenty First Century" and "plaintiff"), owned and operated as many as 38 franchises for McDonald's restaurants in New York and New Jersey. Defendants, in two related schemes, embezzled and defrauded millions of dollars from Twenty First Century. In one scheme, defendants diverted monies paid by Twenty First Century for construction work and, in the other, defendants diverted monies that were paid by Twenty First Century for security services. This motion for partial summary judgment is directed toward some of the defendants who participated in the construction scheme. These defendants are: Michael Malpiedi, Richard Redzinski, Stephen Delli Bovi, Delli Bovi Construction Corporation, Angelo Vignola, and D & D Electric.
In 1987, plaintiff began a large construction project at its McDonald's stores. Defendant Joseph LaBianca ("LaBianca") was Vice President of Operations at the time the construction began and he was in charge of this construction company wide.
Prior to this time, in 1985, LaBianca had renewed an acquaintance with defendant Michael Malpiedi ("Malpiedi"), whom he had known when both were in the military. LaBianca suggested to Malpiedi that he form a construction company to do general contracting work for Twenty First Century. Thereupon, Malpiedi formed Jen T Contracting ("Jen T"). LaBianca steered general contracting work to Jen T and in return, Malpiedi submitted inflated invoices to Twenty First Century and kicked back a portion of the proceeds to LaBianca.
In February of 1988, Malpiedi became the Director of Construction at Twenty First Century at LaBianca's suggestion. Malpiedi was to contract directly with subcontractors for construction work and to supervise the construction. LaBianca and defendant Richard Redzinski ("Redzinski") were Malpiedi's immediate superiors at Twenty First Century.
Also at that time, Malpiedi encouraged his niece's husband, defendant Stephen Delli Bovi ("Delli Bovi"), to form a sham construction company that would contract to perform work that would actually be done by a legitimate firm. This sham company would then submit inflated invoices to Twenty First Century that were far in excess of the actual cost and kick back proceeds to Malpiedi. Eventually LaBianca and Redzinski were also receiving kickbacks.
Finally, other contractors joined the scheme. Defendant Angelo Vignola ("Vignola") and his company, defendant D & D Electric ("D & D"), were one of the principal outside contractors who participated in the scheme by submitting inflated invoices and paying kickbacks.
In 1990, another one of the outside contractors informed the owners of Twenty First Century, John H. Kornblith and his wife Dorothy Kornblith, about the construction scheme. Following an investigation by the company, law enforcement authorities were informed and arrests were made beginning in September of 1990.
On June 19, 1992, Twenty First Century commenced this action, asserting claims for fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, conversion, constructive trust, commercial bribery, commercial bribe receiving, and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968. This civil action, however, was stayed during the pendency of the related criminal trial, United States v. Joseph LaBianca and Stephen Delli Bovi, 92-CR-579. In connection with this matter, Redzinski and Malpiedi pleaded guilty to various counts of wire fraud, mail fraud, and interstate transportation of checks taken by fraud, and Vignola pleaded guilty to one count of mail fraud. Delli Bovi was convicted of numerous counts of wire and mail fraud and obstruction of justice, but his conviction was reversed on appeal. Subsequently, Delli Bovi pleaded guilty to one count of transporting money in interstate commerce knowing it to have been stolen and one count of obstruction of justice. LaBianca was acquitted of all charges brought against him.
Plaintiff now argues that the plea allocutions, trial testimony, and sentencing hearings of each of the defendants subject to this motion provide the factual basis for granting Twenty First Century summary judgment.
Plaintiff argues that since Malpiedi, Redzinski, Delli Bovi, and Vignola pleaded guilty to various counts of felony mail and/or wire fraud, they are estopped from contesting their liability for common law fraud in this action. Defendants, in turn, argue that summary judgment cannot be granted because plaintiff has not established reliance.
In New York, "[a] cause of action for fraud may arise when one misrepresents a material fact, knowing it is false, which another relies on to its injury." Gordon & Co. v. Ross, 84 F.3d 542, 544 (2d Cir. 1996). More specifically:
To prevail on a claim for common law fraud, the plaintiff must prove that the defendant made a false representation of fact, that the defendant made the representation with scienter, that the defendant intended the plaintiff to act or to refrain from acting in reliance on the misrepresentation in taking . . . action and that the plaintiff sustained pecuniary loss as a result of this reliance.
In order to collaterally estop a defendant from being able to further litigate the issue of common law fraud, the elements proved by the state that led to defendant's criminal convictions must be similar enough to prove civil common law fraud. Roso v. Saxon Energy Corp., 758 F. Supp. 164, 168 (S.D.N.Y. 1991). "Just as it is clear that a guilty plea can collaterally estop the relitigation of certain issues in subsequent civil litigation, it also is clear that the estoppel extends only to those issues that were essential to the plea." Goodridge v. Harvey Group Inc., 728 F. Supp. 275, 278-79 (S.D.N.Y. 1990) (citing Alsco-Harvard Fraud Litigation, 523 F. Supp. 790, 802 (D.D.C. 1981)). "The party asserting collateral estoppel based on a guilty plea has the burden of showing precisely which facts the plea established." Goodridge v. Harvey Group Inc., 728 F. Supp. 275, 279 (S.D.N.Y. 1990) (citing Appley v. West, 832 F.2d 1021, 1026 (7th Cir. 1987)).
Reliance on the part of plaintiff is not an element of a criminal prosecution for mail or wire fraud and thus this element of a common law claim for fraud was not established by Malpiedi's, Redzinski's, Delli Bovi's, and Vignola's guilty pleas. Nevertheless, although defendants are not estopped from challenging plaintiff's claim of reliance, plaintiff is entitled to summary judgment on this issue for the reasons stated below.
It is undisputed that plaintiff paid each of the inflated invoices; therefore, plaintiff has established as a matter of law that it relied on defendants' fraudulent representations. Thus, the only remaining issue is whether such reliance was justified. In New York, "the proper test of reliance in a fraud case is not 'reasonable' reliance, it is 'justifiable' reliance, a clearly less burdensome test." Gordon & Co. v. Ross, 84 F.3d 542, 546 (2d Cir. 1996). Clearly, Twenty First Century's reliance on its employees' (one of whom was an officer of the corporation) approval of the vendors was justified. Redzinski was Twenty First Century's Director of Operations and then, after La Bianca left Twenty First Century, its Vice President of Operations, and Malpiedi was the Director of Construction. The very purpose of their positions in the company was to monitor the hiring of contractors and the construction itself. It seems fatuous to suggest that yet another officer or supervisor should have monitored Redzinski and Malpiedi.
It is also clear that Twenty First Century was justified in relying on the invoices submitted to it by its vendors. As the New York courts have noted, "if the facts represented are not peculiarly within the representor's knowledge and the other party has the means available to him of knowing by the exercise of ordinary intelligence the truth or real quality of the subject of the representations he must make use of those means or he will not be heard to complain that he was induced to enter the transaction by misrepresentation." DiFilippo v Hidden Ponds Assocs., 146 A.D.2d 737, 738, 537 N.Y.S.2d 222 (2d Dep't 1989). Here plaintiff was not in the construction business. It was indeed because others in Twenty First Century lacked the requisite knowledge of construction that Redzinski and Malpiedi were employed. And, although Redzinski and Malpiedi had the means available to them to know if an invoice was inflated, they were themselves involved in the construction scheme. It is, therefore, specious to suggest that someone ...