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SPINALE v. U.S.

January 9, 2004.

ANTHONY SPINALE and G & T TERMINAL PACKAGING CO., INC., Plaintiffs, -against- UNITED STATES, ANN M. VENEMAN, SECRETARY OF AGRICULTURE, UNITED STATES DEPARTMENT OF AGRICULTURE, DAVID L. BALL, WILLIAM CASHIN, PAUL I. CUTLER, EDMUND R. ESPOSITO, GLENN A. JONES, ELIAS MALAVET, MICHAEL STRUSIAK, MICHAEL TSAMIS and THOMAS VINCENT Defendants


The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge

REPORT AND RECOMMENDATION
The plaintiffs, G&T Terminal Packaging Co., Inc. ("G&T"), a corporation that purchases potatoes for sale to wholesalers and retailers, and Anthony Spinale, the president of G&T, bring this action in the aftermath of a bribery scandal at Hunts Point Terminal Market in the Bronx. The plaintiffs allege that the defendants coerced monetary payments or facilitated such extortion in violation of Section 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et sea. Certain defendants — namely the United States, the United States Department of Agriculture (the "USDA"), and Ann M. Veneman, Secretary of the USDA (collectively, the "Federal Defendants"), as well as Paul I. Cutler and Elias Malavet — have moved to dismiss Page 2 the Complaint pursuant to Rules (12)(b)(1) and (12)(b)(6) of the Federal Rules of Civil Procedure.

For the reasons stated below, I recommend that the motions be granted.

 Background

  G&T is a New York corporation with its principal place of business at the Hunts Point Terminal Market. (Complaint ("Compl.") 1 29). G&T purchases potatoes from shippers across the country and either sells them to various wholesalers and retailers or repackages them for sale to consumers in various supermarkets. (Compl. ¶ 29). Anthony Spinale was the president and sole stockholder of G&T from 1964 through 2002. (Compl. ¶ 31).

  Pursuant to the Agricultural Marketing Act of 1946 (the "AMA"), 7 U.S.C. § 1622(h), the USDA provides inspection services for a fee to wholesale produce dealers such as G&T to determine whether their agricultural products meet the quality standards of both the shipper and the dealer. (Compl. ¶¶ 13-14). The inspection certifies that "the produce is free from damage due to various germs, worms and insects," as well as other defects that would render it unsafe for consumption. (Compl. ¶ 15). The Agricultural Marketing Service (the "AMS"), an arm of the USDA, is responsible for issuing regulations establishing quality grades for a wide variety of agricultural products pursuant to the Perishable Agricultural Commodities Act (the "PACA"), 7 U.S.C. § 499a et sea. Page 3 (Compl. ¶¶ 4, 16). Any person with a financial interest in the produce can request an inspection from a licensed USDA agricultural inspector. (Compl. ¶¶ 17, 19). A grower or shipper of produce, for instance, may call for an inspection before a product is delivered in order to document its quality at its place of origin. (Compl. ¶ 19). Similarly, a dealer may request an inspection at the time the product arrives if it contests the quality of the product. (Compl. ¶ 19). The AMS has exclusive jurisdiction over these inspections, and AMS inspectors act as impartial referees in resolving disputes about the quality of delivered produce. (Indictment in United States v. Ball, 99 Cr. 1085 ("Ball Indictment"), attached as Exh. A to Compl., ¶ 4). The AMS inspection office for New York City is located at the Hunts Point Terminal Market. (Compl. ¶¶ 18, 21). An application for an inspection is generally received by the AMS office the night before the inspection is to take place. (Ball Indictment ¶ 9). During the inspection, the inspector will examine random samples of the produce to determine the official AMS grade for the shipment. (Ball Indictment ¶ 11). The inspection certificate is filed with the AMS office at the Hunts Point Terminal Market, and copies are provided to the applicant and the grower whose produce is at issue. (Ball Indictment ¶ 12).

  Defendants David L. Ball, William Cashin, Paul I. Cutler, Edmund R. Esposito, Glenn A. Jones, Elias Malavet, Michael Page 4 Strusiak, Michael Tsamis, and Thomas C. Vincent (collectively, the "Inspector Defendants") were all employed by the USDA as inspectors assigned to the Hunts Point office during the relevant time periods. (Compl. ¶¶ 32-40). In March 1999, William Cashin became a confidential informant for the government and was ultimately indicted and convicted for bribery of a public official in violation of 18 U.S.C. § 201(b). (Compl. ¶ 41). On October 27, 1999, the other eight Inspector Defendants were charged with engaging in a pattern of racketeering activity with a RICO enterprise — the AMS office at the Hunts Point Terminal — in violation of 18 U.S.C. § 201(b)(2) and 18 U.S.C. § 1962(c). (Compl. ¶¶ 42-48). It was alleged that these defendants "accepted cash payments (usually $50 per lot) from owners and employees of wholesale produce firms in exchange for agreeing to alter the results of produce inspections by `downgrading' produce." (Ball Indictment at 1, 7, 11, 12). On February 9, 2000, Mr. Ball, Mr. Cutler, Mr. Esposito, Mr. Jones, Mr. Malavet, Mr. Strusiak, and Mr. Tsamis pled guilty to bribery, and the RICO charges were dropped with respect to these defendants. (Transcript of pleas, attached as Exh. B to Compl., at 14-15, 28). Mr. Vincent pled guilty to the RICO charge on December 13, 1999. (Transcript of Vincent plea, attached as Exh. B to Compl., at 5-7).

  According to the plaintiffs, "[i]t was common knowledge that for many years complaints had been made to senior administrators in Page 5 the USDA that Receivers in the Hunts Point Market could not obtain timely or fair inspections." (Compl. ¶ 48). Because of the bribery scheme among the inspectors, Mr. Spinale claims that the inspection reports he received were not accurate. (Compl. ¶ 51). For instance, when G&T "ordered an inspection of a load of produce which they received at Hunts Point, the inspections would not reflect the true condition of the produce; that is, the inspections would fail to show all the defects, decay and other existing problems in the product." (Compl. ¶ 53). Moreover, "inspectors would not arrive to conduct the inspections in a timely fashion," which is pertinent given the perishable nature of the goods. (Compl. ¶ 54). Mr. Spinale attempted to report these fraudulent inspections to AMS supervisors at Hunts Point and to AMS officials in Washington, B.C. (Compl. ¶ 56). However, since he required "fair and accurate inspections immediately in order to properly run [his] business, [his] only option was to pay the inspectors." (Compl. ¶ 58). In support of the RICO claim, the plaintiffs allege 85 specific racketeering acts committed by the Inspector Defendants. The alleged acts span the period from November 4, 1998 through August 12, 1999, and involve payoffs ranging from $50.00 to $360.00. (Compl. ¶ 86(a)-(gggg)). Six of the specifically alleged racketeering acts involve bribes that were given to William Cashin by Mr. Spinale himself. (Compl. ¶ 86(u), (x), (tt), (ooo), (bbbb), (ffff)). Mr. Spinale was ultimately indicted on nine counts of Page 6 bribing a public official, which included five of the incidents alleged in the Complaint. (Indictment in United States v. Spinale, 99 Cr. 1093, attached as Exh. D to Compl.; Compl. ¶ 86 (u), (x), (tt), (ooo), (bbbb)).

  On January 26, 2001, Mr. Spinale pled guilty to one count of bribing a public official in violation of 18 U.S.C. § 201(b)(1)(A). (Transcript of plea ("Plea Tr."), attached as Exh. A to Declaration of Jonathan Marks dated September 19, 2003) ("Marks Decl."), at 2nd unnumbered page). In his plea, Mr. Spinale stated that he "paid money to [USDA Inspector] Bill Cashin for the purpose of influencing the outcome of his inspection report on a load of potatoes," telling the inspector "the specific amount I wanted him to put in the inspection report." (Plea Tr. at 10th-11th unnumbered pages). Although Mr. Spinale has never appealed or attempted to vacate his conviction, the plaintiffs devote a substantial portion of the complaint in this case to a collateral attack on Mr. Spinale's guilty plea. According to the plaintiffs, it was Mr.Spinale's "fervent desire to go to trial with the case in order to prove his innocence of the charges, and, in order to prove that he was extorted by the Defendant inspectors into making the payments," but his attorney "coerced him" into pleading guilty. (Compl. ¶¶ 64, 66). "Immediately after accepting the plea arrangement, after having had an opportunity to think about what happened, [Mr.] Spinale realized that he had made a grievous error, Page 7 and that he had desired all along to go to trial." (Compl. ¶ 67). Mr. Spinale "maintains that he was not guilty of any of the charges against him." (Compl. ¶ 68). He attempts to explain that he was coerced into paying the bribes and did not attempt to take advantage of the inspections to seek excessive downgrades from suppliers. (Compl. ¶¶ 59, 84). The plaintiffs argue that Mr. Spinale was "not himself" at the time of his plea due to a "medical condition." (Compl. ¶ 66). However, during his plea, Mr. Spinale stated that his ability to see, hear, and understand the proceedings was not affected by any medical condition, that he was satisfied with his attorney, and that he understood his right to plead not guilty and go to trial; he confirmed that he was pleading "voluntarily, . . . of [his] own free will and choice." (Plea Tr. at 5th-10th unnumbered pages).

  The Complaint contains three claims for relief. The first alleges a RICO violation under 18 U.S.C. § 1962(c). (Compl. ¶¶ 71-153). The Complaint states that "the association in fact of the [Federal Defendants] and [the Inspector Defendants] constituted a "RICO' "enterprise' within the meaning of 18 U.S.C. § 1961(4)." (Compl. ¶ 72). The defendants "engaged in a pattern of conduct which furthered the scheme to coerce bribes, extort money, loans and illegal gratuities from the produce Wholesalers at the Hunts Point Terminal Market." (Compl. ¶ 72). The Complaint also alleges that the Federal Defendants aided and abetted the Inspector Page 8 Defendants in the RICO enterprise by under-staffing Hunts Point, staffing it with under-qualified inspectors, giving inspectors excessive discretion in determining the produce grade, and providing insufficient training and supervision of inspectors. (Compl. ¶ 80, 137, 140, 142-43, 145-46, 153). In the second claim for relief, the plaintiffs allege that the Federal Defendants "breach [ed] [their] contract with Plaintiffs" by failing to provide timely inspections without the use of "coercion and extortion." (Compl. ¶ 154). In the third claim, they accuse the Federal Defendants of fraud based on misrepresentations that the government would provide "timely, fair and accurate inspections," as well as the government's failure to inform the plaintiffs that they would not receive fair inspections "without being subjected to extortion." (Compl. M 161, 163-64). As a result of the alleged RICO violations, the plaintiffs claim the following injuries: (1) "anxiety and mental anguish" based on the coercion that motivated Mr. Spinale to plead guilty; (2) damage to Mr. Spinale's health "as a result of his home confinement term of one year, which was the outcome of his conviction of charges of which he was innocent;" (3) "enormous monetary losses" suffered by Mr. Spinale personally "as a direct and proximate result of the racketeering activities;" (4) and "enormous losses" suffered by G&T "as a result of the actions of the [Federal Defendants], and the actions of the [Inspector Defendants]." (Compl. ¶¶ 149-52). The total amount of losses is Page 9 alleged to be "in the hundreds of thousands of dollars." (Compl. ¶ 153).

 Discussion

  The defendants have moved to dismiss the Complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure "A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). Although the court must afford the complaint a "broad[] and liberal[]" construction, "argumentative inferences favorable to the party asserting jurisdiction should not be drawn." Cole v. Aetna Life & Casualty, 70 F. Supp.2d 106, 109 (D. Conn. 1999) (internal quotation marks and citation omitted); see also Klein & Vibber, P.C. v. Collard & Roe P.C., 3 F. Supp.2d 167, 169 (D. Conn. 1998), aff'd, 201 F.3d 431 (2d Cir. 1999). The burden of proving subject matter jurisdiction rests with the plaintiff, see Makarova, 201 F.3d at 113, and the court may look to evidence outside the pleadings when determining whether the plaintiff has met its burden. See City of New York v. Federal Deposit Insurance Corp., 40 F. Supp.2d 153, 160 (S.D.N.Y. 1999) (citing Kamen v. American Telephone & Telegraph Co., 791 F.2d 1006, 1011 (2d Cir. 1986)).

  On a motion to dismiss pursuant to Rule 12(b)(6), the court's function is to rule on the legal sufficiency of the claim as stated Page 10 in the complaint. See Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). A court should not dismiss a claim unless it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see also Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). In deciding the motion, the court must accept the complaint's factual allegations as true and draw all reasonable inferences in the plaintiff's favor. Bolt Electric Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995). "[A] complaint must include only `a short and plain statement of the claim showing that the pleader is entitled to relief.'" Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002)(quoting Fed.R.Civ.P. 8(a)(2)). A complaint is sufficient if it "give[s] the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Id. (quoting Conley, 355 U.S. at 47).

  The plaintiffs allege that this Court has subject matter jurisdiction over their RICO claim pursuant to 28 U.S.C. § 1331 because the claim "arise[s] under the laws and Constitution of the United States," and also pursuant to 18 U.S.C. § 1964(c) since the claim seeks recovery for violations of Section 1962. (Compl. ¶ 27(a), (b)). The plaintiffs assert that subject matter jurisdiction is available for the remainder of their claims under 28 U.S.C. § 1367(a), since the breach of contract and fraud claims are part of Page 11 the same case or controversy as the claims arising under federal law. (Compl. ¶ 27(c)).

  Since the Federal Defendants have moved to dismiss on different grounds from those advanced by Mr. Malavet and Mr. Cutler, I will discuss their motions separately.

  A. Federal Defendants' Motion to Dismiss

  1. RICO Claims

  RICO authorizes a private cause of action for "[a]ny person injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(c). To state a claim for damages based upon a violation of section 1962, plaintiffs must establish that "a defendant, through the commission of two or more acts constituting a pattern of racketeering activity, directly or indirectly participated in an enterprise, the activities of which affected interstate or foreign commerce." De Falco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001); see also Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir. 1983). An "enterprise" is defined as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). A "pattern of racketeering activity" may be found if plaintiffs allege "at least two acts of racketeering activity, one of which occurred after [October 15, 1970] and the last of which occurred within ten years (excluding any period of imprisonment) after the Page 12 commission of a prior act of racketeering activity." 18 U.S.C. § 1961(5). In addition, the United States Supreme Court has held that RICO plaintiffs must show that "racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." H. J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239 (1989). Predicate acts include violations of various state and federal criminal statutes, including those prohibiting extortion, mail fraud, wire fraud, and bank fraud. 18 U.S.C. § 1961(1). Section 1962(c) requires that the "persons" liable and the "enterprise" be distinct entities. De Falco, 244 F.3d at 307; Bennett v. United States Trust Co. of New York, 770 F.2d 308, 315 (2d Cir. 1985); cf. B.F. Hirsch v. Enricrht Refining Co., 751 F.2d 628, 634 (3d Cir. 1984).

  Claims for violations of RICO generally need only meet the notice pleading requirements of Rule 8(a) of the Federal Rules of Civil Procedure. See McLaucrhlin v. Anderson, 962 F.2d 187, 194 (2d Cir. 1992) (extortion as predicate act); Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 26 n.4 (2d Cir. 1990) (RICO conspiracy claim). However, any alleged predicate acts involving fraud must be pled with the specificity required by Rule 9(b). See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir. 1993). Plaintiffs must specify the allegedly fraudulent statements, identify the speaker, state where and when the statements were made, and explain why the statements were fraudulent. See id. Page 13 Plaintiffs must also plead facts that give rise to a strong inference that the defendant possessed fraudulent intent. See id.

  The Federal Defendants assert that the plaintiffs' RICO claims should be dismissed for failure to state a claim pursuant to Rule 12(b)(6). They argue that the plaintiffs "frame their RICO claim against the [Federal Defendants] as one of `aiding and abetting' a RICO enterprise," and that "courts in this district have routinely declined to recognize [this] as a cause of action." (Memorandum of Law in Support of the Federal Defendants' Motion to Dismiss the Complaint ("Fed. Def. Memo.") at 5). The Federal Defendants also argue ...


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