Cont'l Cas. Co. v. Caramadre

• Court: U.S. District Court — District of Rhode Island
• Writing for the Court: PATRICIA A. SULLIVAN, United States Magistrate Judge.
• Decision Date: 31 January 2020
• Docket Number: C.A. No. 18-461WES
• Citation: Cont'l Cas. Co. v. Caramadre, C.A. No. 18-461WES (D. R.I. Jan 31, 2020)
• Parties: CONTINENTAL CASUALTY COMPANY, Plaintiff, v. JOSEPH A. CARAMADRE, PAULA CARAMADRE, JOHN W. MITCHELL, ESQ., EDWARD C. ROY, ESQ., MELISSA LARSEN, ESQ., UNITED STATES OF AMERICA, WESTERN RESERVE LIFE ASSURANCE COMPANY OF OHIO, and TRANSAMERICA LIFE INSURANCE COMPANY, Defendants.

CONTINENTAL CASUALTY COMPANY, Plaintiff,
v.
JOSEPH A. CARAMADRE, PAULA CARAMADRE, JOHN W. MITCHELL, ESQ., EDWARD C. ROY, ESQ.,
MELISSA LARSEN, ESQ., UNITED STATES OF AMERICA,
WESTERN RESERVE LIFE ASSURANCE COMPANY OF OHIO,
and TRANSAMERICA LIFE INSURANCE COMPANY, Defendants.

C.A. No. 18-461WES

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND

January 31, 2020

REPORT AND RECOMMENDATION

PATRICIA A. SULLIVAN, United States Magistrate Judge.

This interpleader action seeks to divide up $250,000, the proceeds of the settlement ("Settlement Fund" or "Fund") of an attorney malpractice action brought in the Rhode Island Superior Court by Defendant Joseph A. Caramadre against the attorneys who initially represented him in defending criminal charges based on a fraudulent scheme to obtain money from insurance companies and bond issuers to which he subsequently pled guilty. Plaintiffs are the legal malpractice insurers who are responsible to pay the Settlement Fund - Continental Casualty Company ("Continental") and now-dismissed-Plaintiff Navigators Insurance Company ("Navigators"). Because the claims to the Fund vastly exceed its value, the malpractice insurers initiated this interpleader action pursuant to 28 U.S.C. §§ 1335, 1397 and Fed. R. Civ. P. 22 and joined all claimants as defendants. Consistent with the character of the case as an interpleader and pursuant to Fed. R. Civ. P. 67, Plaintiffs have deposited the amount of the Settlement Fund, a total of $250,000, in the Court registry. The Court has enjoined any action against them in

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connection with the Fund and dismissed one of them (Navigators) from the case. Cont'l Cas. Co. v. Caramadre, C.A. No. 18-461WES, 2019 WL 3577775, at *1, *3 (D.R.I. Aug. 6, 2019), adopted, 2019 WL 4059840 (D.R.I. Aug. 28, 2019).

Now pending are the dueling motions for summary judgment of four distinct groups of claimants who are joined as Defendants.

The first group comprises the three attorneys - John W. Mitchell, Melissa Larsen and Edward C. Roy, Jr. (collectively, the "Attorneys") - who represented Mr. Caramadre in prosecuting the legal malpractice case and in procuring the Settlement Fund. Based on their Attorneys' charging liens totaling $288,422.13, plus statutory interest¹ (a total that exceeds the value of the Fund), calculated pursuant to the contractual terms of their engagement, they argue that they are entitled to all of the Fund because their charging liens have "super-priority" pursuant to 26 U.S.C. § 6323(b)(8).

Second is the United States; it asserts priority over all claimants other than the Attorneys, who it concedes have super-priority, but extending to far less than what the Attorneys seek. Its claim is based on the amended judgment in Mr. Caramadre's federal criminal case, which imposed a restitution obligation to pay the victims of the scheme (insurers and bond holders) in excess of $46 million. United States v. Caramadre, CR. No. 11-186 S, 2014 WL 409336, at *1, *5 (D.R.I. Feb. 3, 2014), aff'd, 807 F.3d 359 (1st Cir. 2015).

In the third group are two affiliated insurance companies, Western Reserve Life Assurance Company of Ohio and Transamerica Life Insurance Company (collectively, "Transamerica"); its claim to the Fund derives from its status as two of the dozens of victims of Mr. Caramadre's fraud. Collectively, it claims entitlement to restitution in the total amount of

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$2,012,371.49. It alleges that its assistance to the United States in the criminal investigation should give it priority over other victims.

The fourth claimant is Paula Caramadre, the now-divorced spouse of Mr. Caramadre. Relying on United States v. Harris, 79 F.3d 223, 233 (2d Cir. 1996) and other cases from the 1990s, she argues that she is entitled to whatever remains of the Fund after the Attorneys are properly paid because the Caramadre, 2014 WL 409336, at *5, restitution order should be vacated based on the Court's failure to calibrate it to consider "the financial needs and earning ability of the defendant and [his] dependents," Harris, 79 F.3d at 233, pursuant to 18 U.S.C. § 3664(a) and (f)(2)(C). See United States v. Harris, 60 F. Supp. 2d 169, 177 (S.D.N.Y. 1999) (post-remand, in setting restitution, district court considers needs of spouse and minor children as reflected in family court order). Once the restitution order is properly vacated and reset with due consideration to her needs as a former spouse entitled to alimony, she contends that the United States and Transamerica will lose their priority over her claim.²

Not asserting a claim is Mr. Caramadre himself, who acknowledges the entitlement of the Attorneys to the entire Fund; he considers their fees to be appropriately reflective of hard work, well-earned and consistent with the terms of his engagements with them.

These claims were initially filed pursuant to an order entered at the Fed. R. Civ. P. 16 conference, which directed all claimants to submit "Motions for Summary Judgment or Briefs in Support of Claim to the Proceeds" by October 22, 2018. Text Order of Sept. 5, 2018. In compliance, Attorneys Mitchell and Larsen filed a joint motion for summary judgment and Attorney Roy submitted a brief in the form of an affidavit (ECF Nos. 39, 42), while

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Transamerica and Ms. Caramadre filed briefs (ECF Nos. 38, 40). The United States submitted nothing.

After what had been filed as motions were referred to me for report and recommendation, a hearing was held on August 23, 2019, following which the Court clarified that all filings by all claimants would be treated as referred motions for summary judgment. Also based on the hearing, the Court ordered the Attorneys to supplement their submissions with information sufficient to permit the Court to determine the amount of reasonable compensation secured by their charging liens (and allowed other claimants to object). Text Order of Aug. 23, 2019. The Court also permitted the United States provisionally to file an out-of-time motion for summary judgment, as well as to move for leave to make such a filing despite its apparent waiver of its claim to the Settlement Fund.

The motion of the United States (ECF No. 51) to file its out-of-time summary judgment motion was referred to me for determination under 28 U.S.C. § 636(b)(1)(A) and has been granted by a memorandum and order that issued today. ECF No. 81. The remainder of what is pending are motions for summary judgment (or filings that are being treated as motions for summary judgment) to determine the fate of the Fund, based on a largely undisputed factual record. These are ECF Nos. 38 (Transamerica), 39 (Attorneys Mitchell and Larsen), 40 (Paula Caramadre), 42 (Attorney Roy), 52 (United States), 59 (all Attorneys). They are now ripe for report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B). For the reasons that follow, I recommend that the Court allocate the Fund as follows:

Attorney Mitchell	$211,736.97
Attorney Larsen	$5,350.00
Attorney Roy	$8,235.00
United States	$24,678.03

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Transamerica	$03
Paula Caramadre	$0

I. BACKGROUND⁴

The facts pertinent to the allocation of the Settlement Fund are essentially undisputed. They begin with Mr. Caramadre's guilty plea, entered on November 19, 2012, to one count of Wire Fraud and one count of Conspiracy to Commit Offenses Against the United States. U.S. SUF ¶ 1. As part of the criminal sentence imposed on February 3, 2014, the Court ordered that he make restitution to victims of $46,330,077.61. Id. ¶ 2; Caramadre, 2014 WL 409336, at *1, *5. Mr. Caramadre challenged the restitution order but, in 2015, it was affirmed on appeal. Caramadre, 807 F.3d at 377-79. On March 14, 2014, the United States perfected its restitution lien by recording it at the Cranston Office of Recorder of Deeds. U.S. SUF ¶ 4 & U.S. Ex. A. Pursuant to the Court's 2014 judgment, when there are partial payments of the restitution amount, "each payee shall receive an approximately proportioned payment, unless specified otherwise in the priority order or percentage payment column below." United States v. Caramadre, CR 11-186WES, ECF No. 247 at 5. Since entering the judgment, the Court has never altered its terms; specifically, it has never "specified" that any victim has priority over any other victim. Therefore, the judgment requires that any recovery of Mr. Caramadre's assets must be allocated pro rata to all victims.

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Transamerica is one of the victims entitled to restitution pursuant to the Court's 2014 order. Caramadre, 2014 WL 409336, at *5. It appears to have perfected⁵ its restitution claim by obtaining the requisite abstracts of judgment under 18 U.S.C. § 3664(m)(1)(B), which it filed on April 30, 2014, in a civil matter related to Mr. Caramadre's fraudulent scheme, Western Reserve v. Conreal LLC, C.A. No. 09-470WES, ECF Nos. 162, 163. Transamerica's total restitution claim is $2,012,371.49. Caramadre, 2014 WL 409336, at *5. This represents less than 5% of the total owed to all victims. While the Court had the discretion to direct the allocation of restitution in a manner other than pro rata, United States v. O'Connor, 321 F. Supp. 2d 722, 731 n.23 (E.D. Va. 2004) (citing 18 U.S.C. § 3664(i)), no such order has entered in United States v. Caramadre, CR. No. 11-186WES. Rather, as noted, the judgment requires pro rata payments to all victims. Further, Transamerica's consolidated civil actions against Mr. Caramadre remain pending; therefore, it is not a judgment creditor. E.g., Western Reserve v. Conreal LLC, C.A. No. 09-470WES.

By the end of 2015, the criminal case was resolved, the restitution order had entered, been affirmed on appeal and recorded by the United States, and Transamerica's entitlement to restitution appears to have been perfected. More than a year later, in February 2017, Ms. Caramadre filed for divorce in the Rhode Island Family Court. U.S. SUF ¶ 8. On July 26, 2017, the Rhode Island Family Court issued its decision pending...