In re Giorgio
| Decision Date | 02 July 1986 |
| Docket Number | Adv. No. 840016.,Bankruptcy No. 8300260 |
| Parties | In re Frank GIORGIO, Pauline Giorgio, Debtors. John BOYAJIAN, Trustee, Plaintiff, v. Alan J. DEFUSCO and Anita Defusco, individually and in their capacities as coexecutors of the estate of Pasco DeFusco, Defendants. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Rhode Island |
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Andrew S. Richardson, Boyajian, Coleman & Harrington, Providence, R.I., for trustee, plaintiff.
Herbert F. DeSimone, Bruce A. Leach, Law Offices of Herbert F. DeSimone, Providence, R.I., for defendants.
DECISION
Notwithstanding our attempt to be brief, the travel of this case to date, spanning a period of 17 years, and the novelty and complexity of issues of law and fact raised, have resulted in the following (but necessarily) lengthy decision.
From approximately 1953 until 1978, Frank and Pauline Giorgio owned and operated a bar and restaurant in West Warwick, Rhode Island, known as the Club 400. On April 7, 1983, the Giorgios filed a joint Chapter 13 petition. On July 19, 1983, a proof of claim was filed on behalf of the estate of Pasco DeFusco in the amount of $41,445, based on a consent judgment entered into between the Giorgios and DeFusco in November 1977. The instant adversary proceeding, commenced on January 26, 1984, was heard on June 20, July 2, and July 3, 1985, on the trustee's amended complaint, in the following five counts, all of which are strenuously opposed by the defendants:
1. Count I seeks recovery of $15,429 paid by the Giorgios pursuant to a promissory note dated September 8, 1975, on the ground that the loan was usurious under R.I.GEN.LAWS § 6-26-2 and § 6-26-4 (1969) (current versions in 1985 Reenactment).
2. Count II seeks recovery of $19,000 paid by the Giorgios between 1973 and 1975, also on an allegedly usurious loan in violation of R.I.GEN.LAWS § 6-26-2 and § 6-26-4 (1969) (current versions in 1985 Reenactment).
3. Count III is a claim under the Rhode Island Racketeer Influenced and Corrupt Organizations Act (state RICO Act), R.I. GEN.LAWS §§ 7-15-1 to 7-15-11 (1985 Reenactment), seeking treble damages ($150,000).1
4. Count IV is a claim under the federal Racketeer Influenced and Corrupt Organizations Act (federal RICO Act), 18 U.S.C. §§ 1961 to 1968 (1984 & 1986 Supp.), which parallels the state RICO claim.
5. Count V is a request for equitable subordination of a claim in the amount of $41,455, filed in this case on behalf of the estate of Pasco DeFusco, who died on May 17, 1981.
The defendants raise numerous defenses, and also assert a counterclaim in the amount of $41,445, based upon their proof of claim # 9, filed on July 19, 1983. At the conclusion of the hearing on June 20, 1985, the trustee's claims against Anita DeFusco (the widow of Pasco DeFusco), individually, were dismissed for lack of proof.2 Also, believing that he cannot collect damages under both the state and federal RICO statutes, the trustee abandoned his claim under Count IV (federal RICO Act). Trustee's Supplemental Memorandum of Law at 14.
Based upon the testimony, much of which was in sharp and irreconcilable conflict, we make the following findings and conclusions:3 In 1969, Frank Giorgio, an admitted compulsive gambler, began borrowing money from Pasco DeFusco to pay betting losses. Since the beginning of his business relationship with Giorgio, DeFusco accepted no principal payments, but always applied all payments to interest, at the rate of 10% per week. There were no promissory notes executed, no records kept (or produced), and no receipts for payment for any of these transactions, which were always in cash. By 1973, Frank Giorgio's gambling habit had become so serious, and his losses so extensive, that he could no longer make the required weekly interest payments. According to Giorgio, by 1973 he had paid at least $50,000 to DeFusco, on advances of no more than $20,000, with no reduction in principal.4
In 1973, when Pauline Giorgio finally became aware of the real extent of her husband's gambling and borrowing activities, she confronted DeFusco, one on one, and he confirmed that all payments made by Giorgio had been applied to interest only, and that the principal balance was still $19,000. Mrs. Giorgio accepted DeFusco's version of the history and status of the loan, and offered to pay DeFusco $200 per week, until the $19,000 was paid, provided that no additional interest would be charged. Pursuant to this arrangement, to which DeFusco agreed, between 1973 and 1975 a weekly $200 cash payment was either delivered to Pasco DeFusco by Mrs. Giorgio's son, Frank Giorgio III, or was picked up at the Club 400 by DeFusco's son, Alan. Frank Giorgio III (son) and the Giorgios' daughter, Diane Vitalo, both of whom worked at the Club 400 during this period, confirmed that Alan DeFusco came to the restaurant, pretty regularly, on Monday mornings to collect $200.
This was all denied by Alan DeFusco, who testified that he never collected any payments from the Giorgios for his father. Although he stressed that he knew very little about his father's business practices, Alan also asserted (inconsistently) that he was certain that his father was not in the habit of lending money without a written agreement. He also testified that during the relevant period, he and his father had little contact with the Giorgios, that his father played poker at the Club 400 only occasionally (3 or 4 times a year), and that he (Alan) had never played cards at the restaurant. This testimony is in direct conflict with the Giorgios' version (which we accept as true) that both Pasco and Alan DeFusco played cards at the Club 400 on a regular basis. A former employee of the Giorgios, Anthony Parente, also testified that both DeFuscos were frequent patrons at the Club 400. It is the finding of this Court that Alan DeFusco did not testify truthfully concerning his collection activities and/or his involvement in his father's business affairs. As to these and all other relevant items in dispute, the testimony of Alan DeFusco is rejected.
In September 1975, after Mrs. Giorgio had paid the entire $19,000 under the arrangement described above, Frank Giorgio was still in serious financial difficulty, and he again approached Pasco DeFusco to borrow money. DeFusco agreed to loan $25,000 to the Giorgios, but this time, instead of the usual verbal arrangement, he required them to sign a note in the amount of $44,000 (but he did not disclose this until the day of the closing). It is undisputed that the Giorgios received only $25,000 at the closing. According to Pauline Giorgio, when she protested that she was being charged again for the $19,000 she had previously paid, DeFusco shrugged, and said that the additional $19,000 was included because he had not received interest while Mrs. Giorgio was paying off the $19,000. TR. June 20, 1985 at 91. The Giorgios testified that they signed the note, despite their total surprise at its terms, because they were about to lose their business unless they made some immediate payments on their debts, and had no other means of quickly obtaining the desperately needed funds.
A vastly different recital of the facts was testified to by attorney William J. Riccitelli, the drafter of the note in question and the attorney who counseled Pasco DeFusco regarding this transaction. Riccitelli stated that the closing was "amicable, a happy, a joyous occasion." TR. July 3, 1985 at 20. Based on the criteria normally used to judge credibility, we find Mr. Riccitelli's testimony to be implausible, and his version of the events in question is rejected. Of particular concern, and a point on which Mr. Riccitelli was examined by the Court at length, is that the $44,000 note made no reference that only $25,000 was to be advanced and that $19,000 was allegedly for past consideration:
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