In re Stabile

• Citation: 436 F.Supp.2d 406
• Decision Date: 15 June 2006
• Docket Number: Cr. No. 03-1295.
• Parties: In the Matter of Anthony A. STABILE and Stephen E. Saracco, Respondents. United States of America, v. The New York Racing Association, Inc., Defendant.
• Court: U.S. District Court — Eastern District of New York

436 F.Supp.2d 406

In the Matter of Anthony A. STABILE and Stephen E. Saracco, Respondents.

United States of America, v. The New York Racing Association, Inc., Defendant.

Cr. No. 03-1295.

United States District Court, E.D. New York.

June 15, 2006.

Getnick & Getnick, by Neil V. Getnick, Esq., and Margaret J. Finerty, Esq., New York, NY, Court Appointed Monitor.

Aiello & Cannick, by Robert J. Aiello, Esq., Maspeth, NY, for the Respondents.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge.

This is a case of first-impression that requires the Court to consider the extent of its jurisdiction and the remedies available to address alleged improper interference with a court-appointed monitor. The court appointment of monitors in conjunction with deferred prosecution agreements is an increasingly common tool used by prosecutors in cases involving corporate malfeasance. Generally, the consensual arrangement places the monitor in an investigative, quasi-prosecutorial, and quasi-judicial role that is unique in our legal system. In this case, although the term of the monitor's appointment had ended, the monitor petitioned the Court alleging that the respondents, who were non-parties to the original indictment, had attempted to interfere with its authority in an improper manner. This novel and interesting situation requires the Court to address the following questions: (1) Whether the Court has jurisdiction; (2) whether there are any available remedies to address the alleged actions of the respondents; and (3) whether there should be a hearing to determine any facts in dispute.

I. BACKGROUND

In December 2003, a grand jury sitting in the Eastern District of New York indicted the New York Racing Association ("NYRA") and six individuals on charges of conspiracy to defraud the Unites States, in violation of 18 U.S.C. § 371, and aiding and abetting the filing of false tax returns, in violation of 26 U.S.C. § 7206(2). The NYRA is a non-profit corporation licensed by the State of New York to operate thoroughbred racetracks throughout the state, namely, Aqueduct Raceway, in Ozone Park, New York; Saratoga Racecourse, in Saratoga Springs, New York; and Belmont Park, in Elmont, New York (collectively the "NYRA Racetracks"), widely known for its race the "Belmont Stakes," the third and final leg of the Triple Crown in horse racing.

Shortly after the Indictment was filed, on December 10, 2003, the NYRA entered into a Deferred Prosecution Agreement ("DPA") and a Stipulation of Facts with the United States Attorney's Office for the Eastern District of New York ("USAO"). The Stipulation of Facts memorialized an investigation that revealed a far-reaching fraud involving misconduct by employees of NYRA's Pari-Mutuel Department. The Pari-Mutuel Department conducted the betting operations for NYRA. Pari Mutuel tellers were responsible for selling tickets and vouchers to the public from betting terminals at the NYRA Racetracks, and for paying cash winnings to individuals holding winning betting tickets.

From 1980 through 1999, employees of the Pari-Mutuel Department devised and operated a scheme in which they would routinely extract money from their cash drawers, falsely report shortages, receive payroll deductions for such shortages, and declare the deducted wages as un-reimbursed business expenses on their income tax returns. Collectively, the employees unlawfully deducted approximately $19 million from their federal income tax returns as part of this massive tax fraud scam. Apparently, NYRA senior management were aware of and permitted this unlawful conduct in order to keep the Pari-Mutuel employees happy, and to ensure that the employees would not slow down the processing of betting transactions.

The DPA that was offered to the NYRA gave it the opportunity to avoid criminal conviction under the Indictment, if it complied with certain conditions. The DPA was an innovative collaborative effort between federal and state authorities. Although the Indictment was restricted to the unlawful activities involved in the Para-Mutuel scheme, the DPA required the NYRA to submit to a complete organizational restructuring. This was in recognition of the fact that faulty accounting and reporting practices enabled such a long-term and systematic tax evasion scheme to exist.

In addition, prior to the Indictment, both the New York State Comptroller's Office (the "Comptroller") and the New York State Attorney General's Office had issued official reports detailing the need for the NYRA to reform its operating practices, policies, and procedures. The Comptroller's Report was particularly detailed and revealed numerous weaknesses and illegal activities at the NYRA. The report recommended that an Independent Private Sector Inspector General ("IPSIG") be appointed with the legal, auditing, investigative, management, and loss prevention skills to ensure compliance with relevant laws and to deter, prevent, uncover, and report unethical and illegal conduct within NYRA.

Within this back drop, the DPA was structured to require the NYRA to agree to the appointment of an independent monitor by the Court to effectuate the organizational restructuring recommended in the Comptroller's report. The DPA also required the NYRA to report to, and be directed by, a government agency to be designated by the USAO.

On March 1, 2004, the Court entered an order appointing the Law Firm of Getnick & Getnick to serve as the monitor of NYRA ("Monitor") for a period beginning from the date of the order through July 1, 2005 ("Appointing Order"). The Appointing Order also designated the Comptroller to be the government agency that would have the power and authority to direct the Monitor along with the USAO. Under the Appointing Order, the Monitor was given the authority to (1) monitor the NYRA's compliance with the terms of the DPA; (2) monitor the NYRA's business and operations for compliance with federal, state, and local laws; and (3) suggest structural reforms to help ensure compliance after the term of the monitor ended.

The Appointed Monitor set out to conduct the monitorship as an IPSIG consistent with the call for reform set forth in the Comptroller's Report. In undertaking such reform, the Monitor took an approach that "good conduct is good business" and instituted what it called the "Four Pillars of Good Conduct: Integrity; Transparency; Good Governance; and Social Responsibility." Monitor's Report at 3. These principles were applied consistently to the substantial structural and cultural reforms initiated and supervised by the Monitor.

One of the areas identified by the Monitor that was in need of reform was an area of the racetrack known as the backstretch. The backstretch is the colloquial term used for the community of workers, some of whom reside on the NYRA grounds, that are responsible for caring for the horses. It is comprised of grooms, stable hands, exercise riders and hot walkers. The backstretch workers are not employed by the NYRA, but directly by trainers who stable their horses at the racetrack.

During the monitorship the Monitor established a regular on-track presence and built a strong rapport with the backstretch community in order to identify and address the concerns of backstretch workers. In the Monitor's Final Report it noted that "[n]owhere on the track is the need for social responsibility more visible than on the backstretch." Monitor's Final Report at 16. The report explained that the backstretch was comprised largely of Latino immigrant workers who lived in substandard conditions such as dilapidated dormitories. They are underpaid and are compelled to work seven days a week in order to keep their jobs. The Report noted that it received numerous reports of employee mistreatment on the backstretch, including sexual harassment, discrimination, and verbal and physical abuse.

On February 4, 2005, during the course of its investigation, two of the Appointed Monitor's investigating agents encountered the respondent Anthony A. Stabile ("Stabile") in the backstretch area. Stabile is an independent contractor licensed by the New York State Racing and Wagering Board as a jockey agent and trainer and was credentialed by the NYRA to conduct business on NYRA Racetracks, but not as an employee. Jockey agents represent jockeys, and employ various methods for promoting and drumming up potential riding engagements for their clients. Presumably, part of Stabile's work required him to have a presence on the backstretch. Allegedly, during the encounter, investigators for the Monitor and NYRA officials requested that Stabile produce his NYRA credentials, and he refused. Stabile then verbally threatened to cause serious physical injury to one of the investigators. This incident was reported to, the USAO, and also included in the Monitor's status report to the Court that was made on February 23, 2005.

The NYRA took action against Stabile for the misconduct. In June 2005, the NYRA, through its Backstretch Area Violations Panel ("BAVP"), held a hearing on two charges against Stabile: (1) "On or about February 4, 2005 you threatened to cause physical injury to a Federal Monitor while in the performance of his official duties;" and (2) "On or about February 4, 2005 you refused to produce your NYRA credentials when requested by another Federal Monitor acting in his official capacity." The BAVP ruled against Stabile and revoked his credentials and privileges to conduct business at the NYRA Racetracks. Stabile appealed the ruling to the NYRA CEO Charles Hayward, and that appeal was denied. Stabile subsequently retained John Esposito, Esq., and respondent Stephen E. Saracco, Esq., ("Saracco") to represent him in an Article 78 proceeding commenced in New York State Supreme Court, Nassau County, challenging the actions taken by the NYRA and the BAVP.

On September 13, 2006, after an extension of the original 16 month term, the Appointed Monitor filed its Final...