United States v. Gleneagles Inv. Co., Inc.

• Decision Date: 13 September 1983
• Docket Number: Civ. No. 80-1424.
• Citation: 571 F. Supp. 935
• Parties: UNITED STATES of America, Plaintiff, v. GLENEAGLES INVESTMENT CO., INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

571 F. Supp. 935

UNITED STATES of America, Plaintiff, v. GLENEAGLES INVESTMENT CO., INC., et al., Defendants.

Civ. No. 80-1424.

United States District Court, M.D. Pennsylvania.

September 13, 1983.

COPYRIGHT MATERIAL OMITTED

Beth A. Kaswan, Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for Dept. of Justice.

D. Alan Harris, Sp. Deputy Atty. Gen., Chicago, Ill., for Com. of Pa.

Robert C. Nowalis, Doran & Nowalis, Wilkes-Barre, Pa., for trustee.

Eugene J. Wien, I.R.S., Philadelphia, Pa., for I.R.S.

Joseph Solfanelli, Dolphin, Solfanelli & Butler, Scranton, Pa., for Gleneagles Inv.

Thomas G. Bailey, Jr., David Allen Koenigsberg, Whitman & Ransom, New York City, for Pagnotti Enterprises.

Sidney Levy, Scranton, Pa., for Lackawanna County.

OPINION

MUIR, District Judge.

I. Introduction.

The first issue of liability in this case was tried beginning November 2, 1982 and ending March 17, 1983. That issue was whether the IIT mortgages given in substantial part to finance the purchase of Raymond Colliery and its affiliates (hereinafter the Raymond Group) were fraudulent conveyances. In an earlier opinion of this Court, United States of America v. Gleneagles Investment Co., Inc., et al., 565 F.Supp. 556 (M.D.Pa.1983), we concluded that the IIT mortgages were fraudulent.

Trial of the 2nd, 3rd and 4th liability issues started April 18, 1983 and concluded June 28, 1983. This opinion deals with those issues which were tried in series. The 2nd liability issue was whether the 1976 Lackawanna County tax sale of lands subject to the mortgages was valid. The 3rd liability issue was whether a similar 1980 Lackawanna County tax sale was valid. The 4th liability issue was whether the purchaser of the IIT mortgages was a bona fide purchaser.

On June 15, 1983, during the trial on the 2nd liability issue the parties stipulated that the Lackawanna County Tax Claim Bureau had failed to post tax sale notices on those Raymond Colliery properties which the county had purported to sell at the December 17, 1976 and the December 16, 1980 tax sales, that the tax sales were invalid and that no title passed by the tax sales and resultant tax deeds. Defendant Tabor Court Realty was the purchaser of Raymond Colliery's lands at the 1976 tax sale. On the date of the 1976 tax sale, Defendant Pagnotti Associates was the equitable owner of the stock of Tabor Court Realty and became the actual owner in January, 1977. At the December 16, 1980 tax sale, Defendant Joseph Solfanelli purchased the properties for $612,239.56. In January of 1981, Defendant Gleneagles Investment Co., Inc., was incorporated with Joseph Solfanelli as its sole shareholder. Mr. Solfanelli was on December 16, 1980 and is now counsel to the Pagnotti-Tedesco interests. The Lackawanna County Commissioners purported to convey the Raymond Colliery properties to Gleneagles by deed of April 15, 1981. As a result of the June 15, 1983 stipulation, the lands of Raymond Colliery which were ostensibly sold at the tax sales are still owned by Raymond Colliery and its subsidiaries.

The fraudulent mortgages were assigned by IIT to Defendant McClellan Realty Co. on January 26, 1977. On the same date Defendant Pagnotti Enterprises purchased the stock of McClellan Realty. The United States asserts that the mortgages are void in the hands of McClellan Realty because, inter alia, McClellan Realty knew or had reason to know that the mortgages were fraudulent.

Following are the Court's findings of fact, discussion and conclusions of law with respect to the fourth issue of liability.

II. Findings of Fact.

1. Prior to 1972, James Tedesco had numerous contacts with the Raymond Group and particularly with Raymond Colliery and Blue Coal.

2. In 1965, James Tedesco unsuccessfully attempted to purchase the coal lands of Blue Coal.

3. In 1971, James Tedesco and Louis Pagnotti, II, unsuccessfully attempted to purchase the Loree Colliery culm bank which was owned by the Raymond Group.

4. In 1972, Pagnotti Enterprises and the Raymond Group were the two top producers of anthracite coal in the United States.

5. Pagnotti Enterprises, Inc. is owned 34/60 by the Pagnotti Family, 13/60 by Tedesco Corp. and 13/60 by Henry Ventre, Inc.

6. James Tedesco is an experienced coal operator and businessman.

7. James Tedesco has known James Durkin for more than 40 years.

8. In early 1972, James Durkin obtained an option to purchase the stock of Raymond Colliery.

9. Subsequently, James Durkin incorporated Great American Coal Co. and assigned to it his option to purchase the stock of Raymond Colliery.

10. James Durkin financed Great American's purchase of the stock of Raymond Colliery in part through loans obtained from the Old Forge Bank and No. 1 Contracting Co.

11. From 1966 through the present, James Tedesco has been president of Old Forge Bank.

12. James Tedesco and Louis Pagnotti, II are minority shareholders and directors of the Old Forge Bank.

13. No. 1 Contracting Co. is a corporation whose stock is owned by Louis Pagnotti, Inc., Ventre, Inc., and Tedesco Corporation.

14. James Tedesco and Louis Pagnotti, II are shareholders of Tedesco Corporation and Louis Pagnotti, Inc., respectively.

15. At the time James Durkin sought financing from the Old Forge Bank and No. 1 Contracting, he revealed to James Tedesco that he had reached an agreement for the acquisition of Raymond Colliery and its subsidiaries, including Blue Coal.

16. On July 16, 1973, the Old Forge Bank lent James and Anna Jean Durkin $100,000 towards the purchase of Raymond Colliery's stock without the submission by the Durkins of a loan application or financial statements.

17. On July 16, 1973, No. 1 Contracting Co. entered into a transaction framed as a loan whereby No. 1 Contracting Co. ostensibly lent James and Anna Jean Durkin $200,000 towards the purchase of Raymond Colliery's stock and accepted $300,000 in cash as "collateral".

18. James Riddle Hoffa, Sr. supplied the $300,000 used as "collateral" for the $200,000 loan made by No. 1 Contracting Co.

19. James Riddle Hoffa, Sr. was a silent partner of James Durkin in his negotiations to purchase the stock of Raymond Colliery.

20. The $300,000 "collateral" was kept in a safe deposit box in the Old Forge Bank used by companies dominated by James Tedesco and drew no interest.

21. James Durkin obtained a written receipt for the cash collateral signed not by the "lender" but by Mr. Sebastianelli, an officer of the Old Forge Bank.

22. James Tedesco, was president of both Old Forge Bank and No. 1 Contracting Co. James Tedesco as president of the bank did not request loan applications from the Durkins because of his belief that Anna Jean Durkin was wealthy.

23. On August 13, 1973, Old Forge Bank lent Great American $105,000 without submission by Great American of a loan application or financial statements.

24. Because James Tedesco looked to James and Anna Jean Durkin for repayment of the Old Forge Bank loan to Great American, he did not request financial statements for Great American or for the Raymond Group.

25. James Tedesco was not shown any financial statements of the Raymond Group on July 16, 1973 or on August 13, 1973.

26. In the summer of 1973, Hyman Green became a joint venturer with James Durkin and James Riddle Hoffa in the negotiations to purchase Raymond Colliery.

27. Prior to 1973, representatives of several anthracite coal companies, including Joseph Frank a direct assistant of Mr. Tedesco on behalf of Pagnotti Enterprises and Carl Tomaine on behalf of the Raymond Group, entered into agreements to fix prices and control production of anthracite coal.

28. On October 11, 1973, Henry Greenwald, counsel for James Durkin, sought from James Tedesco information regarding the amount of counsel fees and expenses paid by Blue Coal or for which it had become obligated with respect to the antitrust litigation which arose out of the price fixing and production control activities set forth in the last preceding finding of fact. Henry Greenwald explained that this information was needed to resolve a dispute which had arisen in the course of James Durkin's negotiations to purchase Raymond Colliery.

29. On or about October 31, 1973, James Tedesco provided Henry Greenwald with an appraisal of a Bucyrus-Erie Electric Walking Dragline owned by a member of the Raymond Group valuing the dragline at $2,500,000.

30. This appraisal was used by James Durkin to support his efforts to obtain financing from Institutional Investors Trust (IIT) for the purchase of the stock of Raymond Colliery.

31. In early 1974 James Tedesco knew about James Durkin's efforts, after Great American's purchase of Raymond Colliery, to liquidate the Raymond Group. Specifically, James Tedesco was aware that James Durkin had sold or was attempting to sell equipment, culm banks and draglines owned by the Raymond Group.

32. In January of 1974, James Tedesco had discussions with James Durkin and Hyman Green regarding the possibility that Pagnotti Enterprises might acquire a "lease to exhaustion" of all coal lands of the Raymond Group.

33. The proposal discussed among James Tedesco, Hyman Green, and James Durkin contemplated that Pagnotti Enterprises would have the use of the mining equipment owned by the Raymond Group.

34. James Tedesco did not see any financial statements or data on the financial condition of the Raymond Group at this time.

35. During the January, 1974 negotiations, James Durkin advised James Tedesco that the Raymond Group was losing money on its coal production business and intended to cease operation of the same.

36. No agreement on the lease to exhaustion proposal was reached between James Tedesco, James Durkin, and Hyman Green.

37. Later in 1974, James Durkin and Hyman Green entered into a lease to exhaustion with Lucky Strike Coal Corp. of certain Raymond Group coal lands.

38. Lucky Strike Coal was operated by Louis Beltrami.

39. Prior to April 1974, James Tedesco offer...