Schrob v. Catterson

Decision Date18 June 1992
Docket NumberNo. 91-5669,91-5669
Citation967 F.2d 929
PartiesIrwin SCHROB; and Barbara L. Schrob, his wife; and Matawan Building Supplies Corporation v. James CATTERSON, Individually and in his capacity as Assistant United States Attorney for the Eastern District of New York; David Toracinta, Individually and in his capacity as a Special Agent of the Drug Enforcement Administration; John M. Peluso, Individually and in his capacity as a Special Agent of the Drug Enforcement Administration; U.S. Department of Justice--United States Attorney; U.S. Department of Justice--Drug Enforcement Administration; John Does 1 through 20; and Jane Does 1 through 20, both individually and in their capacities as supervisory personnel over the above identified individual defendants or as persons, presently unknown to plaintiffs, who participated in the acts and/or omissions alleged in this complaint; and Joseph V. Zarrelli, both individually and in his capacity as Agent/Informer of the United States law enforcement agencies, James Catterson, David Toracinta, and John Peluso, Appellants. . Submitted under Third Circuit Rule 12(6),
CourtU.S. Court of Appeals — Third Circuit

Stuart M. Gerson, Asst. Atty. Gen., Michael Chertoff, U.S. Atty., Barbara L. Herwig, Richard A. Olderman, Attys., Appellate Staff, Civ. Div., Dept. of Justice, and Nancy R. Gaines, Torts Branch, Civ. Div., U.S. Dept. of Justice, Washington, D.C., for appellants.

Robert P. Zoller, Janyce M. Wilson, and Mark D. Miller, Hannoch Weisman, P.C., Roseland, N.J., for appellees.

Before: GREENBERG and NYGAARD, Circuit Judges, and POLLAK, District Judge. *

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. FACTUAL AND PROCEDURAL HISTORY

This matter is before the court on an appeal by three federal officers from an order denying a motion to substitute the United States as a defendant with respect to certain claims in the complaint in this action. Although the case was previously before us in Schrob v. Catterson, 948 F.2d 1402, 1405-06 (3d Cir.1991) (Schrob I ), for an understanding of the issues now presented it is necessary that we set forth the factual and procedural background at some length.

A. Factual Background

The case arises from the seizure by the United States of the assets of the Matawan Building Supplies Corporation (MBS). 1 When MBS was incorporated in New Jersey in October 1984, it was owned equally by appellee Irwin Schrob, Frank J. Esposito, and Joseph V. Zarrelli. At some point a dispute arose among the owners which resulted in Zarrelli leaving the business and filing suit against MBS, Schrob, and Esposito. This action was resolved, however, in a settlement which resulted in Schrob and Esposito each becoming 50% owners of MBS.

Following the settlement Zarelli contacted agents of the Drug Enforcement Administration, including appellants David Toracinta and John Peluso, to give them information regarding Esposito. As a result, the agents began an investigation which eventually led to Esposito's indictment for tax evasion and conspiracy to distribute narcotics. But neither Schrob nor MBS was ever investigated or implicated in any wrongdoing during the Government's investigation of Esposito.

Nevertheless, on January 4, 1988, appellant James Catterson, an Assistant United States Attorney, filed an in rem complaint on behalf of the Government in the United States District Court for the Eastern District of New York seeking civil forfeiture of certain real and personal property of MBS and Schrob pursuant to 21 U.S.C. § 881(a). The complaint, however, though indicating that Esposito was only one of three partners of MBS, did not contain any allegations of illegal activity by Schrob or MBS. Furthermore, though the complaint indicated that Esposito had engaged in drug transactions, it did not allege that he contributed any drug-related funds to MBS.

On January 5, 1988, pursuant to the in rem complaint, Catterson made an ex parte application for the issuance of a warrant directing the United States marshal to seize the property of MBS. 2 At a hearing on the application the Eastern District Court queried Catterson about the criminal involvement of Esposito's partners, without specifically referring to Schrob or MBS, in the following colloquy:

THE COURT: ... Am I correct that two of Mr. Esposito's partners had been indicted or convicted?

MR. CATTERSON: That is correct.

THE COURT: On what basis do I levy on the property owned by him if there are no charges against him?

MR. CATTERSON: A criminal complaint has been brought in this district and Mr. Pileggi is expecting to return an indictment in the near future--obtain an indictment in the near future.

It's our position once a criminal prosecution is commenced, the court has the power to attach property in other districts.

Id. at 15.

The court then issued the warrant against MBS and Schrob's interest in the company in reliance on these statements. 3

Notwithstanding Catterson's representations, the Government only filed a criminal complaint against Esposito. Moreover, neither Schrob nor MBS was named as a co-conspirator in the complaint, nor was either the subject of any criminal investigation. While Schrob alleges that Catterson intentionally misled the court at the ex parte hearing, Catterson contends that he misunderstood the court's question and believed it was referring to Esposito's partners in other ventures who had been indicted.

On January 5, 1988, approximately 30 agents of the United States marshal seized all of the shares and property of MBS. This was not a gentle process, as MBS's customers and certain employees were directed to leave the premises, and some key employees were fired. MBS's bank accounts were seized and frozen, and its computer was accessed and the access code changed. Furthermore, the locks on the property were changed. As a result of this seizure, MBS's normal operations ceased. These events did not go unnoticed by the public and in fact they were reported in a newspaper article.

The following day representatives of Schrob and MBS met with Catterson to demonstrate that Schrob's investment was legitimate and to show that Esposito had capitalized only one-third of the business. On January 7, 1988, Catterson agreed "in principle" to return control of the business to Schrob but Schrob alleges that Catterson made unreasonable demands on him such as imposing fiscal, accounting and other restrictions on the business. Additionally, Schrob states that Catterson demanded a release from personal liability for his actions. At a subsequent hearing, the Eastern District Court made it clear that it would not have issued the warrant had it known that Esposito was the only owner of MBS implicated in the indictment. Furthermore, the court suggested that Schrob might have a cause of action for Catterson's conduct.

B. Procedural Background

As a result of these events, Schrob, his wife Barbara, and MBS 4 filed this action in the District of New Jersey against Catterson and DEA agents Toracinta and Peluso alleging various constitutional claims under Bivens v. Six Unknown Named Agents of the Fed. Bureau of Narcotics, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), as well as claims under the common law and Federal Tort Claims Act, (FTCA) (see 28 U.S.C. § 1346(b)). In addition, Schrob asserted a claim under 21 U.S.C. § 881, the section invoked by the Government in the forfeiture action. As required by the FTCA, Schrob filed administrative claims with the Department of Justice against Catterson and the DEA agents, but no action was taken on the claim against Catterson and the claims against the agents were rejected. Thereafter, Schrob amended his complaint to add claims against the DEA and the Department of Justice.

While Schrob's complaint naturally focuses on the allegation that Catterson misrepresented the facts to the court when he sought the warrants at the ex parte hearing, Schrob also alleges that the appellants wrongfully: (1) failed to conduct a diligent investigation to determine whether the assets seized were subject to forfeiture; (2) violated the Federal Rules of Civil Procedure governing in rem actions; (3) failed to disclose to the court a relevant decision denying the same relief in a related proceeding; (4) obtained the warrant without probable cause; (5) delayed restoring control of MBS to Schrob; (6) demanded a personal release as a condition of returning MBS; (7) made false statements to the press and to the public with respect to the plaintiffs; (8) interfered with the plaintiffs' personal and financial relationships; (9) terminated MBS employees; and (10) mismanaged MBS.

On September 28, 1990, the appellants filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) on grounds of qualified and absolute immunity and at that time pursuant to 28 U.S.C. § 2679(d)(1) they also sought substitution of the United States as the defendant with respect to the common law tort claims. 5 That section provides that, upon certification of the Attorney General that the defendant employee was acting within the scope of employment at the time of the incident giving rise to the claim, the United States shall be substituted as a party in place of the employee. See generally, Melo v. Hafer, 912 F.2d 628, 639-42 (3d Cir.1990), aff'd on other grounds, --- U.S. ----, 112 S.Ct. 358, 116 L.Ed.2d 301 (1991).

On October 22, 1990, in an oral ruling, the district court partially dismissed the Bivens claims as well as the claim under 21 U.S.C. § 881, but denied the remainder of the motion. On December 21, 1990, the appellants filed an appeal from the court's denial of absolute and qualified immunity. On November 15, 1991, in Schrob I we reversed as to some of the claims against Catterson on the ground that he is entitled to absolute prosecutorial immunity for his actions in initiating the in rem proceeding, in seeking the seizure warrant, and in making his statements before the ...

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