U.S. v. Salerno

Decision Date24 April 1991
Docket NumberNo. 151,D,151
PartiesUNITED STATES of America, Appellee, v. Anthony SALERNO, Vincent Cafaro, Vincent Di Napoli, Louis Di Napoli, Guiseppe Sabato, Carmine Della Cava, Thomas Cafaro, John Tronolone, Milton Rockman, Nicholas Auletta, Edward J. Halloran, Alvin O. Chattin, Richard Costa, Alphonse Mosca, Neil Migloire and Matthew Ianniello, Defendants, Blue Circle Atlantic, Inc., Appellant. ocket 90-1241.
CourtU.S. Court of Appeals — Second Circuit

Robert L. Tofel, Tofel, Berelson & Saxl, New York City (Lawrence E. Tofel, of counsel), for appellant.

Alan M. Cohen, Asst. U.S. Atty., S.D.N.Y. (Otto G. Obermaier, U.S. Atty., Mark Hellerer, Edward T. Ferguson, III and James L. Garrity, Jr., Asst. U.S. Attys., of counsel), for appellee.

David M. Brodsky, Schulte, Roth & Zabel, New York City (MaryJane C. Shimsky, of counsel), for intervenor-appellee.

Before MAHONEY and WALKER, Circuit Judges, and LEVAL, District Judge *.

WALKER, Circuit Judge:

Blue Circle Atlantic, Inc. ("Blue Circle") appeals from two orders of the United States District Court for the Southern District of New York, Mary Johnson Lowe, Judge, authorizing the government to turn over to the trustee in bankruptcy its interest in certain companies forfeited in a criminal proceeding and authorizing the trustee to sell substantially all the assets of those companies pursuant to an order of the United States Bankruptcy Court for the Southern District of New York. Blue Circle, an unsecured creditor of the bankrupt companies, asserts that the government's relinquishment of its interest in the companies to the trustee violated both the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sec. 1961, et seq. ("RICO") and the due process clause of the Fifth Amendment. Because Judge Lowe's order has already been affirmed on appeal by this court and any issues not addressed in that order are now moot, we dismiss the appeal.

BACKGROUND

Blue Circle is an unsecured trade creditor of two cement companies: Marine Pollution Services, Inc. d/b/a Certified Concrete Co., Inc. ("Certified") and Transit Mix Concrete Corp. ("Transit Mix"). Between March, 1986, and August, 1987, Blue Circle supplied Certified and Transit Mix with cement ingredients worth $1,192,775.45.

Defendant Edward J. Halloran owned all of Certified and substantially all of the stock of Big Apple Concrete Co., Inc. ("Big Apple"), which in 1982 was merged into Transit Mix. In March, 1986, Halloran, with others, was indicted for mail fraud In August, 1987, during the course of criminal proceedings against Halloran, Certified and Transit Mix filed petitions in the bankruptcy court for reorganization under Chapter 11 of the Bankruptcy Code. The government agreed to withdraw its objections to the bankruptcy filing upon the condition that any bankruptcy court decision concerning the use, sale, or lease of Certified or Transit Mix assets would be effective only on approval by Judge Lowe. The bankruptcy proceeding was assigned to Judge Cornelius Blackshear. Further, in September, 1987, the bankruptcy court appointed David M. Brodsky as the Chapter 11 operating trustee for Certified and Transit Mix (the "trustee").

racketeering, and making illegal labor payoffs in violation of RICO. On March 21, 1986, the government obtained from the district court a sealed ex parte Order of Restraints and Prohibitions ("restraining order") enjoining the sale, transfer or encumbrance of Halloran's assets. The criminal case was assigned to Judge Lowe.

In May, 1988, following a trial before Judge Lowe, a jury convicted Halloran of the racketeering charges. The jury then returned a verdict forfeiting all of Halloran's interest in the stock, assets, monies and property of Certified and Big Apple.

In October, 1988, Judge Lowe entered the First Order of Forfeiture ("forfeiture order"), directing the forfeiture of Halloran's property and incorporating by reference the 1986 restraining order. The government argued that the forfeiture order encompassed all of the assets of Certified and Transit Mix; the bankruptcy trustee maintained that the forfeiture order covered only Halloran's (now worthless) stock holdings in the companies.

In December, 1988, the government reviewed all proofs of claim filed by creditors of Certified and Transit Mix in the bankruptcy court. As to two creditors of the bankrupt companies, First Interstate Credit Alliance Corp. ("Credit Alliance") and New York Cement Co. ("NYCEMCO"), the government asserted that they might have known about Halloran's racketeering activity while extending credit to Certified and Transit Mix, and objected to any distribution to them, absent a showing under RICO that the creditors were "reasonably without cause to believe that" Certified and Transit Mix had been "subject to forfeiture" due to Halloran's racketeering activities. 18 U.S.C. Sec. 1963(l )(6)(B).

In March, 1990, after a lengthy search for purchasers of the assets, the bankruptcy trustee sought the bankruptcy court's permission to sell substantially all the assets of Certified and Transit Mix to a group of companies controlled by John Quadrozzi and Michael DiBenedetto. Those companies were: Quad Acquisition Corporation, Red Hook Concrete Loading Corporation, Maspeth Concrete Loading Corporation, Edgewater Concrete Loading Corporation, Queens Concrete Delivery & Leasing Corporation, Maspeth Truck Depot Corporation, Manhattan West Concrete Loading Corporation and Harlem Concrete Loading Corporation (collectively "the Quad companies"). John Quadrozzi, who has acknowledged making payments to a reported member of the Lucchese crime family in order to fix prices in the concrete industry, is a principal owner of NYCEMCO. Nonetheless, the government consented to the sale to the Quad companies.

The final sale price was $8 million, reduced from an earlier asking price of $12.5 million. The terms of sale required the Quad companies to pay the trustee $2.2 million in cash, release post-petition claims of approximately $2.3 million, cure certain obligations worth $1.5 million and issue secured promissory notes and mortgages worth over $3 million to which liens of the secured creditors of Certified and Transit Mix would attach.

On March 16, 1990, the bankruptcy court conducted an evidentiary hearing on the proposed sale. Although the Creditors Committee, which included Blue Circle, was aware of the proposed terms of the sale prior to March 16, Blue Circle was not informed of the sale's final terms until the night before the hearing. Its request to adjourn the hearing was denied.

At the hearing, Blue Circle, the only objector to the proposed sale, raised constitutional Thereupon, the government sought permission from Judge Lowe to modify the RICO forfeiture order to permit the transfer of the forfeited assets to the trustee. Blue Circle then requested a hearing before Judge Lowe on the proposed modification. The government opposed a hearing claiming that Blue Circle had enjoyed a full and fair opportunity to be heard in the bankruptcy court. On March 27, 1990, Judge Lowe denied a further hearing, authorized the government to relinquish the forfeited assets to the trustee, and approved a consent order between the government and the buyers of the companies that enabled the government to monitor Certified and Transit Mix for seven years for signs of renewed organized crime influence. On March 27, 1990, Judge Lowe also approved the sale of the assets in bankruptcy by endorsing the bankruptcy court's March 16 sale order.

and statutory objections and examined the trustee and Quadrozzi. The bankruptcy court quashed Blue Circle's subpoena of the Assistant United States Attorney, however, since insufficient time was provided for official clearance of his testimony. See 28 C.F.R. Sec. 16.22(c). The government was permitted to state that it approved of and supported the sale. After the hearing, Judge Blackshear approved the sale, signing an order of sale dated March 16, 1990.

The following day, Blue Circle noticed an appeal to the district court of the bankruptcy court's March 16 order, but did not seek a stay of the sale pending appeal. Blue Circle never perfected that appeal.

With the sale of Certified and Transit Mix scheduled for March 30, 1990, a panel of this court (Oakes, C.C.J., Winter, C.J., and Patterson, J.) granted Blue Circle leave to take an immediate appeal from Judge Lowe's March 27 order authorizing the government's relinquishment of the forfeited property to the bankruptcy trustee. At oral argument on March 30, 1990, the panel heard argument on the two issues identified in Blue Circle's notice of motion for expedited relief: (1) whether the government may, under RICO, relinquish title to forfeited property to enable the bankruptcy court to sell that property over the objections of a bona fide creditor; and (2) whether Blue Circle was unlawfully denied an evidentiary hearing in the district court prior to Judge Lowe's approval of the relinquishment and the sale.

The panel affirmed Judge Lowe's order, in a ruling from the bench. The panel then denied Blue Circle's application for a stay of the sale pending application to the Circuit Justice of the Supreme Court. Chief Judge Oakes stated in open court:

[W]e believe that there are not grounds for us to reverse the district court's authorization to the government to release the assets. The sale of the assets [by the trustee] is not before us. You have had as expedited a hearing of the issues as is possible under the circumstances, and if you still wish to pursue your appeal, it may well be mooted by today's, it may, it may not be. I have no idea. But, we are not granting any stay of the sale and, I think that disposes of it.

The sale of the assets to Certified and Transit Mix to the Quad companies and DiBenedetto closed on March 31, 1990.

Blue Circle then appealed from Judge Lowe's March 27 orders...

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