Opinion
403989/03.
Decided June 2, 2004.
Robert M. Morgenthau, District Attorney of New York County ("plaintiff" or "District Attorney" and/or "DA"), has brought this CPLR Article 13-A forfeiture action against defendants Alex Figliolia, Sr. ("Alex Sr."), Janet Figliolia ("Janet"), Alex Figliolia, Jr. ("Alex Jr.") (collectively the "Figliolia defendants" or "defendants"), and corporate defendant Alex Figliolia Plumbing Co., Inc., d/b/a Alex Figliolia Contracting Corp., ("Figliolia Plumbing") as well as defendants Howard Weissman, Ronald Allen and Gary Weissbard, former officials of the Metropolitan Transit Authority ("MTA") (collectively the "MTA defendants"). The DA seeks to recover Eighteen Million, Six Hundred and Ninety-Eight Thousand, One Hundred and Ninety-Five Dollars and Eighty-Two Cents ($18,698,195.82) that purportedly represent the proceeds, substituted proceeds and/or instrumentalities of defendants' criminal activity. Alternatively, the DA seeks the entry of a money judgment in that amount.
On December 11, 2003, this Court issued a temporary restraining order (the "TRO") pending the hearing of plaintiff's application for a preliminary injunction and an order of attachment. The TRO, inter alia, bars defendants from disposing of any and all assets they owned valued up to $18,698,195.82.
The Figliolia defendants have been indicted for numerous felonies arising from a purported criminal enterprise whereby the Figliolia defendants defrauded and overcharged the MTA by submitting inflated invoices for services and materials. In furtherance of their criminal enterprise, it is alleged that the Figliolia defendants bribed the MTA defendants to ensure that their invoices were approved for payment. The DA now seeks a preliminary injunction and an order of attachment. The Figliolia defendants oppose the DA's application and move/cross-move for the vacatur of the TRO, or, alternatively, a reduction in the amount of funds subject to the TRO and an order permitting the release of attached funds for reasonable living expenses and attorneys' fees. See, CPLR § 1312 (4). The motion and cross-motion are consolidated for disposition herein.
The Court of Appeals noted in Morgenthau v. Citisource, 68 N.Y.2d 211, 219 (1986), "[t]he fact that [even if] defendants have not been convicted of the crimes for which they have been indicted [it] does not bar the claiming authority from commencing a forfeiture action against them as putative 'criminal defendants.' The statute explicitly provides that an action relating to a post-conviction forfeiture crime 'may be commenced, and a court may grant a provisional remedy provided under this article, prior to such conviction.'"
Counsel for all parties are well aware that whenever possible, this Court eschews elevating form over substance. In reviewing this matter, and with the consent of counsel, this Court has overlooked certain procedural infirmities with respect to the proper filing of motion papers. Upon further consent of counsel, this Court has accelerated the return date of defendants' [cross-]motion. Although these actions were taken in the interest of preserving judicial resources and limiting the expenditures incurred by respective counsel, counsel must still comply with the rules of the CPLR (CPLR § 1350). Such compliance will ensure all parties are given a full and fair opportunity to be heard and allow for a complete and accurate record of this action. Toward that end, counsel is further advised that this Court is unable to accept any requests for relief that are made by letter.
"A court may grant an application for a provisional remedy when it determines that: (a) there is a substantial probability that the claiming authority will prevail on the issue of forfeiture and that failure to enter the order may result in the property being destroyed, removed from the jurisdiction of the court, or otherwise be unavailable for forfeiture; [and] (b) the need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order may operate. . . ." (CPLR § 1312 (3); Morgenthau v. Citisource, 68 N.Y.2d 211).
In support of its application the DA has presented the following relevant information: a one-hundred and forty three (143) page indictment alleging one hundred and sixteen (116) counts of criminal activity, the affidavit of Katherine N. Lapp, Executive Director and CEO of the MTA and the affidavit of John Tampa, Chief Financial Investigator, of the DA's Rackets Bureau.
Defendants assert that "Tampa's evaluation is seriously flawed. . . . [and] [i]t is evident from Tampa's affidavit that he did not conduct a 'careful and detailed investigation' of the facts and circumstances . . ." (Rayo Aff. dated March 24, 2004 at ¶ 9). To the contrary, the Tampa affidavit contains specific and detailed factual information to support his conclusions. In addition, Tampa has formal training as an accountant and acquired extensive expertise in the evaluation of financial crimes; viz, twenty-eight (28) years as a Special Agent in the Criminal Investigation of the Internal Revenue Service, three (3) years in his present position with the DA's office, in the investigation of hundreds of financial crimes, his testimony in excess of one-hundred appearances before state and federal grand juries and his participation in the execution of approximately twenty-five (25) search warrants (Tampa Aff. at ¶ 1). Tampa has unequivocally demonstrated his qualifications to perform said investigation. Moreover, defendants' collateral attack on the Grand Jury's finding of probable cause (Rayo Aff. dated March 24, 2004 at ¶ 9) based largely on conclusory and self-serving allegations is of no moment in this action.
Significantly, although the Figliolia defendants dispute the accuracy of the DA's calculations regarding the total amount of assets that may be subject to CPLR Article-13 A forfeiture, they do not definitively aver that they have not committed any of the crimes contained in the indictment. Plaintiff's complaint is not based on mere conclusory allegations. To the contrary, it is supported by detailed and specific factual references, the vast majority of which remain wholly uncontroverted. The DA has clearly demonstrated the likelihood of success in this forfeiture action.
In Kuriansky v. Bed Stuy-Health Care Corp., 135 A.D.2d 160, 168 (2nd Dept., 1988), the Court upheld the granting of an order of attachment and noted that "[c]ontrary to the defendants' contentions, the indictment and the affidavits do not contain vague or conclusory allegations; rather, they provide detailed factual information as to the pervasiveness of the criminal defendants' alleged scheme to defraud, albeit based in substantial part on hearsay." (emphasis added).
"A high degree of proof is not necessary to demonstrate that the failure to enter the order may result in the property being destroyed or otherwise unavailable for forfeiture [citing to Morgenthau v. Citisource, supra]." Kuriansky v. Natural Mold Shoe Corp., 133 Misc.2d 489, 494 (Sup.Ct., Westchester Co., 1986). "An actual assignment or dissipation of the property is not necessary." Holtzman v. Samuel, 130 Misc.2d 976, 983 (Sup. Ct., Kings Co., 1985).
The Figliolia defendants have been charged, inter alia, with Enterprise Corruption (Penal Law § 460.20(1)[a]) and Grand Larceny in the First Degree (Penal Law § 155.42). (Indictment annexed as Exh. D to Marinaccio Aff.). Both crimes are Class B felonies and punishable by a maximum of twenty-five (25) years in prison. In addition, the Figliolia defendants have also been charged, in relevant part, with multiple counts of: Offering a False Instrument for Filing in the First Degree (Penal Law § 175.35), Falsifying Business Records in the First Degree (Penal Law § 175.10), Forgery in the Second Degree (Penal Law § 170.10) and Criminal Possession of a Forged Instrument in the Second Degree (Penal Law § 170.25). Both the deceptive nature of the purported criminal activity and the potentially lengthy periods of incarceration that may be imposed on the Figliolia defendants support a conclusion that defendants may well seek to dissipate assets that could help satisfy a potential judgment. The defendants have failed to demonstrate that they will suffer any appreciable hardship as the result of the TRO. Moreover, the need to preserve the assets to satisfy a potential judgment clearly outweighs any perceived hardship to defendants.
In Pirro v. Schaible, N.Y.L.J. September 17, 1998, p. 17, col. 6 (Sup.Ct., Westchester Co., 1998), the defendant argued, inter alia, that an order of attachment would cause her financial ruin because she was unemployed and had large monthly bills. To buttress her claim she submitted a list of her monthly expenses but did not submit a supporting affidavit. In granting the order of attachment, the court found that the defendant failed to demonstrate that any hardship she would suffer would outweigh the government's interest in securing the availability of assets for forfeiture. The court also noted that the absence of defendant's past income tax returns and her failure to be questioned under oath undercut her claims.
The totality of the circumstances presented here sufficiently demonstrates the likelihood that plaintiff will succeed in this forfeiture action and absent an order restraining the transfer of the seized assets, said property will be unavailable to satisfy a judgment of forfeiture. Accordingly, this Court grants plaintiff's application for a preliminary injunction (CPLR § 1333) and an order of attachment (CPLR § 1316). Plaintiff is directed to submit an appropriate proposed order for this Court's signature.
Defendants seek to reduce the amount of restrained assets by the amount of funds the MTA paid for four projects on which Figliolia Plumbing purportedly worked as subcontractors. They assert that these funds must be released because plaintiff is unable to demonstrate that the defendants engaged in any criminal wrongdoing in the performance of this work and because there was no privity of contract between the MTA and any of the Figliolia defendants concerning these projects. Although defendants' claim the absence of privity, Alex Jr. avers that Figliolia Plumbing "performed non-contractual work on four different projects at a fixed price which I negotiated with MTA officials" (Alex Jr. Aff. dated March 16, 2004 at ¶ 11) and apparently MTA approval was required for all sub-contractors. The Lapp Affidavit makes it abundantly clear that fraudulent conduct on a contractor's part in the performance of work or billing on any MTA project may serve as a bar to any further employment of said contractor in any MTA project. This bar applies regardless of whether the contractor at issue is employed by the MTA itself or by a third party. Defendants' application to reduce the amount of assets by the amount received for work performed on said four (4) projects is denied.
The amount sought is listed as Three Million Four Hundred Forty-Seven Thousand Four Hundred Eighty-One Dollars and Six Cents ($3,447,481.06) (Rayo Aff., dated March 24, 2004 at ¶ 6) or, alternatively, as Five Million Eight Hundred Thirty-Three Thousand Forty-Seven Dollars and Twenty-Six Cents ($5,833,047.26) (Rayo Aff., dated May 12, 2004 at ¶ 30).
See letter from Trevor Downey, P.E., MTA Construction Manager to Innovax-Pillar Inc., dated March 4, 2003, "Subject Approval of Subcontractor" (annexed as Exh. 4 to Rayo Aff., dated March 24, 2004).
Defendants assert that the total value of assets subject to the TRO is significantly higher than the amount needed to satisfy any potential judgment namely Twenty-Seven Million, Four Hundred Nine Thousand and Seventy-Four Dollars ($27,409,074.00). Defendants assert that the value of assets seized in excess of the sum specified by the TRO must be released from restraint.
Contrarily, plaintiff asserts that the total value of assets actually restrained by the TRO is, in fact, only Nine Million Dollars, Seven-Hundred and Seventy-One Thousand Twenty-Four Dollars and Two Cents ($9,771,024.02). The disparity in the claimed value of restrained assets is based largely on the significant differences in the actual market value ascribed by the respective parties to certain real property. These include property located at 420 Carrol Street, Brooklyn, New York and Alex Sr.'s and Janet's personal residence located at 105 Middletown Road, Holmdel, N.J. (the "Holmdel property").
The DA has apparently filed a notice of pendency, more commonly referred to as a lis pendens, against these properties. (Miner Aff. at ¶ 4). However, while the filing of said notices provide constructive notice to potential buyers that these properties may be subsequently forfeited in satisfaction of this civil forfeiture action (CPLR §§ 1343 and 1344), the filing of the lis pendens does not ensure that these properties will be immediately available to satisfy a potential judgment. The New Jersey property poses a particular difficulty in this regard. The TRO bars defendants from transferring any of their property, real or otherwise, whether it is located within or without of New York State, upon penalty of contempt of court. However, in the absence of a final judgment that a New Jersey State court may accord full faith and credit, it would be premature for this Court to conclusively find that the New Jersey real property will be readily available to satisfy a potential judgment or that defendants will be unable to frustrate the availability of said property.
Plaintiff's OSC sought an order of attachment against defendant's property located within the state of New York, but the TRO and preliminary injunction enjoin defendants from disposing of any property wherever it may be located. For a detailed discussion of the impact of an order of attachment and a preliminary injunction on real property located outside of New York State, See, People v. Martinez, 151 Misc.2d 641 (Sup.Ct., N.Y. Co., 1991) and District Attorney v. McAuliffe, 129 Misc.2d 416 (Sup.Ct., Qns., Co., 1985).
Defendants contend that the value of the Holmdel property is $13,500,000.00 and acknowledge that the property is encumbered by a mortgage of $3,500,000.00 resulting in a purported actual value of $10,000,000.00. Even by defendants' own calculations, in the absence of the Holmdel property the amount of assets restrained is less than the amount authorized by the TRO.
Should defendants wish to fully utilize the purported "actual value" of their real property, they may seek to cancel the notices of pendency and post an undertaking in accordance with CPLR § 1348. The posting of such a bond will obviously benefit all concerned parties.
Defendants seek the release from restraint of $57,566.63 purportedly received by Alex Sr. as the proceeds of an insurance settlement for damages sustained to the Holmdel property and deposited in the corporate bank account. Defendants claim that because these funds were not part of the "tainted proceeds" arising from their alleged criminal activity they should be freed from restraint. However, it is clear that the provisional remedies available under Article 13-A against a criminal defendant can apply to assets having no relation to the underlying crimes. "A provisional remedy in an action against a 'criminal defendant' is not limited to assets that can be traced to the alleged crimes but can reach any assets of the defendants that could be used to satisfy a potential judgment in the forfeiture action. Morgenthau v. Citisource, Inc., 68 N.Y.2d 211, 220 (1986); See also, Kuriansky v. Natural Mold Shoe Corp., 136 Misc. 2d 684, 685; Kuriansky v. Bed Stuy-Health Care Corp., 135 A.D.2d 160, 167-68 (2nd Dept., 1988). The purported lawful provenance of the $57,566.63 in insurance settlement proceeds does not diminish the availability of these funds to satisfy a potential money judgment.
Defendants seeks the release of funds pursuant to CPLR § 1312(4) for the payment of "reasonable living expenses." CPLR § 1312(4) allows that:
[u]pon motion of any party against whom a provisional remedy granted pursuant to this article is in effect, the court may issue an order modifying or vacating such provisional remedy if necessary to permit the moving party to obtain funds for the payment of reasonable living expenses, other costs or expenses related to the maintenance, operation, or preservation of property which is the subject of any such provisional remedy or reasonable and bona fide attorneys' fees and expenses for the representation of the defendant in the forfeiture proceeding or in a related criminal matter relating thereto, payment for which is not otherwise available from assets of the defendant which are not subject to such provisional remedy. Any such motion shall be supported by an affidavit establishing the unavailability of other assets of the moving party which are not the subject of such provisional remedy for payment of such expenses or fees.
By stipulation dated January 16, 2004, the DA and the defendants agreed to modify the TRO to allow Figliolia Plumbing to pay Alex Sr. and Janet a combined monthly salary of $40,000.00 and to pay Alex Jr. a bi-weekly salary of $4,700.00. The defendants assert that they are unable to meet their reasonable living expenses on these sums and seek a further modification of the TRO. The defendants have submitted varied requests for the amount of funds they "require" for reasonable living expenses. Janet and Alex Sr. seek the release of funds to pay approximately $62,000.00 in "reasonable" monthly expenses. In support of this application, Alex Sr. has submitted a list of monthly expenses bearing the heading "Janet's monthly expenses" (Annexed as Exh. 21 to Rayo Aff. dated May 12, 2004). Inexplicably, the defendants have not offered any statements, sworn or otherwise, by Janet herself. Instead the defendants rely on Alex Sr.'s affidavits to support the legitimacy and reasonableness of these charges. A review of these charges discloses that they are an amalgam of seemingly reasonable expenses, expenses that are wholly unsupported by either detailed information or documentary evidence as well as expenses that appear wholly unreasonable.
This so-ordered stipulation specifically mandates that all property and assets of the defendants and Figliolia Plumbing remain subject to the TRO but allows for the release of funds in accordance with the terms of the stipulation. The stipulation allows Figliolia Plumbing to pay legitimate and reasonable operating expenses and mandates that defendants provide supporting documentation demonstrating the legitimacy of expended funds. This agreement allows for the maintenance, operation and preservation of Figliolia Plumbing which inures to the benefit of all parties; viz, regardless of which party prevails in this forfeiture action, the value of Figliolia Plumbing is maximized. (In addition, pending the outcome of this action the employees of Figliolia Plumbing are able to maintain their employment.) However, the parties to this action must strictly adhere to the terms of this stipulation. The continued operation of Figliolia Plumbing preserves a significant asset and no party to this action may engage in conduct that either dissipates its assets or needlessly diminishes its value. Any willful disregard of this Court's orders will engender significant consequences.
Interestingly, in an affidavit dated January 6, 2004, that defendants previously presented to this Court, Alex Sr. averred that "prior to the attachment, my wife Janet and I were receiving wages from the corporation in the sum of $400,000.00 in 2002 (see Tax Return Exhibit "A") and $450,000.00 in 2003, which is my own personal estimate as our 2003 tax returns have not been reconciled."
These include: "Saks old Bill to pay off — $2,000.00 . . . Food, vit[amins], etc. five dogs, six swans, eleven guinea hens, two chickens, two peacocks, one parrot — $4,000.00. . . . window maintenance — $300.00; carpet cleaners . . . — $300.00; satellite storage $320.00; Food Personal — $4,000.00" and multiple credit card charges totaling $15,000.00.
Alex Sr.'s request for the release of funds to pay for "Casino debt $30,000.00, check for $10,000.00 was deducted from my personal account" (Alex Sr. Supp. Aff. dated May 11, 2004 at ¶ 3[c]) is particularly unjustified. Alex Sr. has failed to indicate when or where this debt accrued. Assuming that this debt was incurred prior to the issuance of the TRO, there is no basis in law to grant defendants' request for the release of funds. Assuming that these debts were incurred following the issuance of the TRO, the release of any restrained funds for this purpose is patently unreasonable.
In Morgenthau v. Clifford, 157 Misc. 2d 331, (Sup.Ct., N.Y. Co., 1992, Crane J.), the court noted that "the bills for legal services and expenses predating the existence of the forfeiture proceeding and its related criminal matter are not within the contemplation of CPLR § 1312 (4). . . . [even] for services that predated the indictment but may have been devoted to avoiding one." Id. at 345. It is self-evident that the release of funds for the repayment of gambling debts is not within the contemplation of CPLR § 1312 (4).
Alex Jr. has asserted that "[a]t the present time my fixed monthly personal expenses are $15,000.00 per month" (Alex Jr. Aff. dated March 24, 2004) and that "my fixed personal expenses are $17,000.00 per month . . ." (Alex Jr. Supp. Aff., dated May 11, 2004 at ¶ 6). Alex Jr. seeks the release of $7,200.00 bi-weekly for the payment of reasonable living expenses and "back pay in the amount of $12,090.00" ( Id. at ¶ 11). A review of the materials submitted in support of this request discloses a similar amalgam of expenses that prevents this Court from finding that the funds sought by Alex Jr. are, in fact, for reasonable living expenses.
In support of his need for increased sums, Alex Jr. notes that because "[my] wife and I both work and have three dogs our housekeeper is reasonable and necessary . . . [and] our meat bill and grocery bill for March is over $2,500 and miscellaneous items $600.00." (Alex Jr. Supp. Aff. dated May 11, 2004 at ¶ 6).
A review of the American Express ("AMEX") statement Alex Jr. presented (Exh. 27 annexed to Rayo Aff. dated May 12, 2004) discloses the following items charged to the account: purchases made from the Franklin Mint (a "1990 Fatboy Pocket-Watch" [$89.57] and a "1936 Knucklehead Pocket" [$89.57]), multiple restaurant charges (Tavern on the Green [$106.10], Barolo New York [$170.00], Jordan's Lobster Dock [$95.00]), an unspecified Ebay purchase ($319.42), and a charge made at Bella Vita Pork Stores labeled "Deli" in the amount of $1,436.56. (Only a portion of the bill has been presented to the court and includes charges incurred from March 16, 2004 through April 10, 2004 apparently made on Alex Jr.'s account and/or the joint AMEX account of Alex Jr. and his wife.)
Contrary to defendants' assertion, this Court need not deem as "reasonable" all sums that defendants typically expended prior to the commencement of this action. To adopt that analysis would render any order of attachment or preliminary injunction ineffectual. That branch of defendants' motion which seeks the release of additional funds for "reasonable" living expenses is denied upon the failure of defendants to sufficiently demonstrate the need for the release of any such funds.
Both Alex Sr. and Alex Jr. have averred that they lack any unrestrained assets that can assist them in paying their reasonable living expenses or attorneys' fees. However, it appears that Alex Sr. has taken a loan against his life insurance policy and certain "minimal" personal expenses have been "inadvertently" charged to Figliolia Plumbing. If, in fact, the Figliolias have found other funding sources to meet their living expenses, comprehensive financial disclosure may be warranted prior to the release of further funds (CPLR § 1326).
As the Appellate Division, Second Department noted in Kuriansky v. Bed-Stuy Health Care Corp., 135 A.D.2d 160, 169 (2nd Dept., 1988), [t]he governmental need to preserve assets is particularly appropriate in this case where the profits of the criminal defendants' alleged crimes are misappropriated public funds which can be potentially restored to the taxpayers."
Defendants also seek release of $582,902.00 to pay for "outstanding attorneys' fees" that relate to this forfeiture action and the related criminal action. This Court is cognizant that the criminal action poses a serious threat to the liberty interests of the defendants and CPLR § 1312(4) specifically allows for the release of funds to enable defendants to mount a defense in the criminal action. However, this application is not supported by any affirmation from counsel in the criminal action or any supporting documentation at all. Accordingly, that branch of defendants' application for the release of funds to pay legal costs associated with the criminal action is denied, without prejudice to a further application supported by proper documentation.
Defendants further seek the release of funds for the payment of legal fees and expenses related to the instant forfeiture action as a result of 414 hours of attorney's time at $450.00 per hour and 81.5 hours of paralegal services. Defense counsel affirms that his customary hourly rate" is $350.00 per hour (Rayo Aff. dated May 12, 2004 at ¶ 38) but in this action seeks payment of $450.00 per hour in accordance with a retainer agreement. Defendants also seek payment for paralegal services at the rate of $200.00 per hour but fail to include an affidavit from any paralegal attesting to the accuracy, validity and reasonableness of these charges.
Defendants also seek funds for the payment of $4500.00 in disbursements. Although defendants have provided a copy of the front of a check for $4,500.00 made payable to Louis A. Badolato, Esq. from Mr. Rayo's "Attorney Office Account," there is absolutely no explanation of the services provided in exchange for this payment.
In an application pursuant to CPLR § 1312(4) a court is required to determine the reasonable of the fees sought. Although defendants entered into a retainer agreement that called for the hourly fees that are now sought, that, in and of itself, does not establish that the fees sought are, in fact, reasonable.
The Court has no reason, at this juncture, to dispute the reasonableness of the requested attorneys' fees. However, the absence of sufficient supporting documentation mandates the denial of this application, without prejudice to a further application.
The foregoing constitutes the Decision and Order of this Court. Courtesy copies of this Decision and Order have been sent to counsel for all parties.