People v. Rosano

• Decision Date: 06 August 1979
• Citation: 419 N.Y.S.2d 543,69 A.D.2d 643
• Parties: The PEOPLE, etc., Respondent, v. Lawrence ROSANO, Michael Newmark, Thomas Naples a/k/a Tim Naples and Village Mall Townhouses, Inc., Appellants.
• Court: New York Supreme Court — Appellate Division

Page 543

419 N.Y.S.2d 543

69 A.D.2d 643

The PEOPLE, etc., Respondent, v. Lawrence ROSANO, Michael Newmark, Thomas Naples a/k/a Tim Naples and Village Mall Townhouses, Inc., Appellants.

Supreme Court, Appellate Division, Second Department.

Aug. 6, 1979.

James M. La Rossa, New York City, for appellants Rosano, Newmark and Village Mall Townhouses, Inc., and Lawrence S. Goldman, New York City, for appellant Naples (Andrew B. Melnick, New York City, of counsel)

Robert Abrams, Atty. Gen., New York City (John M. Farrar and Robert Schonfeld, Asst. Attys. Gen., New York City, of counsel), for respondent.

Before SUOZZI, J. P., and LAZER, RABIN and COHALAN, JJ.

LAZER, Justice.

This appeal results from judgments convicting the defendants on various counts of a 224-count indictment relative to their alleged criminal misconduct in the course of the development of a 141-unit condominium project in the Bayside area of Queens County. Of the defendants, Village Mall Townhouses, Inc. (Village Mall) is the corporate builder; Lawrence Rosano and Michael Newmark are officers and principals of Village Mall; and Thomas Naples has been variously labeled as its corporate controller and the secretary-treasurer. After the conclusion of an 18-day nonjury trial, the trial court rendered a written determination convicting all the defendants of 15 counts of larceny under section 79-a of the Lien Law (Misappropriation of funds of trust), four counts of making apparently sworn false statements in violation of section 210.35 of the Penal Law, one count of violating sections 352-c, 352-e and 359-g of the General Business Law in connection with a public offering of securities and one count of violating sections 352-h and 359-g of the General Business Law for misappropriating trust funds. Village Mall, Rosano and Newmark were also convicted of one additional count of violating sections 352-c, 352-e and 359-g of the General Business Law.

I. The Larceny Counts

Each of the defendants was convicted of disbursing for nontrust purposes building loan contract funds in the amount of $777,851 during the period October 31, 1973 to November 27, 1973 and funds advanced by contract vendees in the amount of $245,408.76 during the period September 19, 1973 to December 13, 1973, for a total of $1,023,259.76. The payments were made to the corporate principals, Newmark and Rosano, or to other corporations controlled by them.

In their brief, the defendants contend, Inter alia, that the evidence would have been insufficient to sustain their convictions had the trial court not mistakenly treated their repayment defense to the larceny charges as an affirmative defense; that the court's reliance upon the presumption in subdivision 3 of section 79-a of the Lien Law was in error because that section is unconstitutional; and that further error was committed when the court refused to disregard the separate existence of the individual defendants' various business entities and when it held the individual defendants liable for the acts of the corporate defendant.

A. The Repayment Defense

(Lien Law, § 79-a

, subd. 3 )

The defendants' brief describes their repayment defense to the larceny charges as follows:

"At the trial all of the defendants relied on (the repayment defense in section 79-a (subd. 2) of the Lien Law) as a complete defense to the Lien Law violations charged.

"The defendants at trial contended that under Lien Law Section 79-a(2), they were justified in repaying at least $850,000 of the construction loan funds to themselves, to entities they controlled, or to other entities they designated. Thus, the first $850,000 of monies expended from the trust funds for 'non-trust purposes' was justified. If the $850,000 figure is allowable, under either Altusky's (the People's witness) or the Court's computation, the defendants did not violate Lien Law Section 79-a(2)."

At the trial, the attorneys for the defendants declared that their clients were "justified in repaying" the mentioned sum of $850,000 for the acquisition of the land which Rosano and Newmark had purchased for $1,700,000. In furtherance of this position, they adduced the testimony of the mortgage broker who had helped defendants obtain a construction loan of $5,000,000.00. According to the broker's testimony, at a meeting in August, 1973, the lending institution's mortgage officer (who was also a vice-president of the institution), agreed that 50% Of the value of the land or The repayment defense has its source in subdivision 2 of section 79-a of the Lien Law, which section provides:

$850,000 of the 5 million dollar loan was to be "a land advance". However, when the mortgage officer had testified for the People, he refused to concede that the $850,000 was to be used as reimbursement for the cost of the land and instead insisted that a sum equal to half the value of the land was to be applied to "indirect construction items" or "soft costs" which he defined as including "interest, taxes, appraisal, brokerage fees" and commitment fees.

"1. Any trustee of a trust arising under this article, and any officer, director or agent of such trustee, who applies or consents to the application of trust funds received by the trustee as money or an instrument for the payment of money for any purpose other than the trust purposes of that trust, as defined in section seventy-one, is guilty of larceny and punishable as provided in the penal law if

"(a) such funds were received by the trustee as owner, as the term 'owner' is used in article three-a of this chapter, and they were so applied prior to the payment of all trust claims as defined in such article three-a, arising at any time; or

"(b) such funds were received by the trustee as contractor or subcontractor, as such terms are used in article three-a of this chapter, and the trustee fails to pay, within thirty-one days of the time it is due, any trust claim arising at any time; provided, however, that if the trustee who received such funds as contractor or subcontractor disputes in good faith the existence, validity or amount of a trust claim or disputes that it is due, the application of trust funds for a purpose other than a trust purpose, or the consent to such application, shall not be deemed larceny by reason of failure to pay the disputed claim within thirty-one days of the date when it is due if the trustee pays such claim within thirty-one days after the final determination of such dispute.

"2. Notwithstanding subdivision one of this section, if the application of trust funds for a purpose other than the trust purposes of the trust is a repayment to another person of advances made by such other person to the trustee or on his behalf as trustee and the advances so repaid were actually applied for the purposes of the trust as stated in section seventy-one, or if the trustee has made advances of his personal funds for trust purposes and the amount of trust funds applied for a purpose other than the trust purposes of the trust does not exceed the amount of advances of personal funds of the trustee actually applied for the purposes of the trust, such application or consent thereto shall be deemed justifiable and the trustee, or officer, director or agent of the trustee, shall not be deemed guilty of larceny by reason of such application or by reason of his consent thereto.

"3. Failure of the trustee to keep the books or records required by section seventy-five shall be presumptive evidence that the trustee has applied or consented to the application of trust funds received by him as money or an instrument for the payment of money for purposes other than a purpose of the trust as stated in section seventy-one.

"4. Notwithstanding any other provision of law, no act of the trustee in relation to the assets of the trust shall, by reason of any express covenant as provided in section thirteen or section twenty-five of this chapter, be deemed larceny in a case in which it is not declared by subdivision one of this section to be larceny or in a case in which the act is deemed justifiable as provided in subdivision two of this section."

Section 79-a (subd. 2) thus provides a trustee with a defense to the charge of larceny where his application of trust funds for a nontrust purpose is a repayment of an advance Actually applied for a trust purpose (Jensen, Mechanics' Liens (4th ed.), § 175). The "purpose of the trust" as stated in section 71 of the Lien Law, is that the trust assets of which an owner is trustee "shall be held and applied for payment of the cost of improvement." "Improvement" as "the demolition, erection, alteration or repair of any structure upon, connected with, or beneath the surface of, any real property and any work done upon such property or materials furnished for its permanent improvement, and shall also include any work done or materials furnished in equipping any such structure with any chandeliers, brackets or other fixtures or apparatus for supplying gas or electric light and shall also include the drawing by any architect or engineer or surveyor, of any plans or specifications or survey, which are prepared for or used in connection with such improvement and shall also include the value of materials actually manufactured for but not delivered to the real property, and shall also include the reasonable rental value for the period of actual use of machinery, tools and equipment and the value of compressed gases furnished for welding or cutting in connection with the demolition, erection, alteration or repair of any real property, and the value of fuel and lubricants consumed by machinery operating on the improvement, or by motor vehicles owned, operated or controlled by the owner, or a contractor or subcontractor while engaged exclusively in the transportation of materials to or from the improvement for the purposes thereof."

defined in section 2 (subd. 4) of the Lien Law includes:

"Cost of improvement", as defined in ...