Stochastic Decisions, Inc. v. DiDomenico

• Decision Date: 04 June 1993
• Docket Number: Dockets 92-7303,No. 110,92-7383.,112,92-7321,111,110
• Citation: 995 F.2d 1158
• Parties: STOCHASTIC DECISIONS, INC., Plaintiff-Appellant-Cross-Appellee, v. James DiDOMENICO; Anthony DiDomenico; Carol DiDomenico; DCJM Realty Corp.; Carol Coaches, Inc.; J.D. Enterprises, Inc.; Southgate Bus Service; Arthur Wagner; Lucille Wagner; Wagner, McNiff & DiMaio; T. Gluck & Co., Inc.; and Michael Berke, Defendants-Appellees-Cross-Appellants, Kingsbury-Putney, Inc.; Geoffrey Ashby; and Thomas Miral, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

995 F.2d 1158

STOCHASTIC DECISIONS, INC., Plaintiff-Appellant-Cross-Appellee, v. James DiDOMENICO; Anthony DiDomenico; Carol DiDomenico; DCJM Realty Corp.; Carol Coaches, Inc.; J.D. Enterprises, Inc.; Southgate Bus Service; Arthur Wagner; Lucille Wagner; Wagner, McNiff & DiMaio; T. Gluck & Co., Inc.; and Michael Berke, Defendants-Appellees-Cross-Appellants, Kingsbury-Putney, Inc.; Geoffrey Ashby; and Thomas Miral, Defendants.

Nos. 110, 111, 112, Dockets 92-7303, 92-7321, 92-7383.

United States Court of Appeals, Second Circuit.

Argued September 21, 1992.

Decided June 4, 1993.

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Helen Davis Chaitman, New York City (Jody B. Keltz, Georgia McMillen, Scott Turner, Ross & Hardies, New York City, of counsel), for plaintiff-appellant-cross-appellee.

Michael R. Perle, Weehawken, NJ (Barry A. Tessler, New York City, Hayden, Perle & Silber, Weehawken, NJ, of counsel), for defendants-appellees-cross appellants Arthur Wagner, Lucille Wagner, Wagner, McNiff & DiMaio, T. Gluck & Co., Inc., and Michael Berke.

Ronald G. Russo, New York City, for defendants-appellees-cross-appellants James DiDomenico, Anthony DiDomenico, Carol DiDomenico, DCJM Realty Corp., Carol Coaches, Inc., J.D. Enterprises, Inc., and Southgate Bus Service.

Before: VAN GRAAFEILAND, WINTER, and MAHONEY, Circuit Judges.

MAHONEY, Circuit Judge:

Plaintiff-appellant-cross-appellee Stochastic Decisions, Inc. ("Stochastic") appeals from a final judgment entered November 19, 1991, an order for turnover of funds and securities and other relief entered January 28, 1992, and a supplemental final judgment entered February 27, 1992 in the United States District Court for the Eastern District of New York, Jack B. Weinstein, Judge. The final judgment found defendants-appellees-cross-appellants James DiDomenico ("James"), Anthony DiDomenico ("Anthony"), Carol DiDomenico ("Carol"), DCJM Realty Corp. ("DCJM"), Carol Coaches, Inc. ("Carol Coaches"), J.D. Enterprises, Inc. ("JD Enterprises"), Southgate Bus Service ("Southgate"), Arthur Wagner ("Wagner"), and Wagner, McNiff & DiMaio ("Wagner McNiff"), and defendant Kingsbury-Putney, Inc. ("Kingsbury")¹ liable to Stochastic on its claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 (1988) et seq., and on its state law fraudulent conveyance and common law fraud claims. The district court dismissed plaintiff's complaint against defendants Geoffrey Ashby and Thomas Miral with the consent of Stochastic. The supplemental final judgment accordingly dismissed the complaint with prejudice against them, and also against defendants-appellees-cross-appellants Lucille Wagner, T. Gluck & Co., Inc. ("Gluck"), and Michael Berke, whom the court found not liable on Stochastic's claims. Stochastic contends that the district court erred in its allowance of damages and attorney fees, and in its dismissal as to Lucille Wagner, Berke, and Gluck.²

Defendants - appellees - cross - appellants ("Cross-Appellants") cross-appeal, contesting the district court's determinations as to liability, damages, and attorney fees.³

We affirm the final judgment and supplemental final judgment of the district court.

Background

From 1982 through June 1985, Stochastic provided insurance brokerage services to all of the corporations owned by Anthony (husband) and Carol (wife) that were in the interstate bus transportation business. Stochastic also purchased two buses that it leased to Anthony and Carol's former operating company, Eagle Bus, Inc. ("Eagle").

In 1984, Anthony and Carol and their corporations fell behind in their payment of insurance premiums to Stochastic. In order to pay Stochastic and other creditors, Anthony indicated that he and Carol would sell some of their real estate. In the fall of 1984, the DiDomenicos retained Wagner and his law firm, Wagner McNiff, to represent them in various actions brought against them as guarantors of obligations of Eagle.

In October 1985, allegedly unbeknownst to Wagner, Eagle filed for reorganization under Chapter 11. At the time, Eagle owed approximately $2.3 million in secured claims, and Stochastic was listed as an unsecured creditor having a $165,000 claim. Stochastic asserts that Anthony and Carol filed misleading reports during the bankruptcy, fraudulently transferred Eagle's assets to Carol Coaches and others, and paid their personal living expenses under the guise of "officer's loans." A garage in Staten Island (the "Garage") was one of the assets allegedly transferred from Eagle to Carol Coaches without disclosure to the bankruptcy court and without consideration.

Ultimately, the bankruptcy petition was dismissed when Eagle failed to file financial reports. No Eagle creditors were ever paid. Stochastic alleges that Anthony and Carol continued to have their living expenses paid by Carol Coaches and thereafter by Southgate, Anthony and Carol's current bus operating company, formed by Wagner McNiff after Stochastic obtained a judgment against Carol Coaches.

Following the bankruptcy of Eagle, Anthony and Carol arranged for Wagner and Wagner McNiff to take control of essentially all of their assets and much of what were, at least on their face, the assets of James (son of Anthony and Carol), to whom Anthony and Carol were then transferring most of their own assets. The district court found that Wagner thereafter used these assets, which were adequate to pay all of the debts of the DiDomenicos and their companies, to settle some of those debts, to pay personal expenses of Anthony and Carol and business expenses of James, to pay fees to Wagner and Wagner McNiff, and to pay Wagner's personal family expenses.

On January 10, 1986, Stochastic instituted a suit in New Jersey Superior Court to recover unpaid insurance premiums against James, Carol Coaches, DCJM, and two other bus companies operated by Anthony and Carol. Stochastic Decisions, Inc. v. James DiDomenico, No. L-009868-86 (N.J.Super.Ct.Law Div.) (the "Insurance Case"). Stochastic alleged that James was authorized to sign checks on behalf of Eagle, and had issued several Eagle checks to Stochastic in payment of insurance premiums for the corporate defendants that were returned for insufficient funds, or on which James stopped payment. Stochastic further alleged that James' fraudulent acts deprived him of the protection of the corporate veil under New Jersey law.

On June 13, 1988, judgment was entered in favor of Stochastic. The court held that: (1) the corporate defendants were liable for $175,564 in compensatory damages and $46,584.92 in prejudgment interest; and (2) James was personally liable for $41,265 of the compensatory damages plus $10,949.42 of prejudgment interest, and $100,000 in punitive damages. The court indicated that it would consider rescinding the punitive damages award if Stochastic received payment of the balance of the judgment.

On October 31, 1988, Stochastic moved in New York Supreme Court, Richmond County for the appointment of a receiver for James, Carol Coaches, and DCJM, contending that James and the corporations had been determined by the New Jersey court to have fraudulently transferred assets. On December 6, 1988, a receiver was appointed, and ascertained that $150,000 would be available by the end of that month for payment of the Insurance Case judgment as a result of Stochastic's levy upon a contract between the New York City Board of Education and one of the Insurance Case defendants.

The Insurance Case judgment was ultimately affirmed by the Appellate Division of the Superior Court, and certification was denied by the New Jersey Supreme Court. No. A-5827-87T1 (N.J.Super.Ct.App.Div. Oct. 30, 1989), certification denied, No. C-502 (N.J. Jan. 25, 1990). Stochastic eventually recovered the full amount of the judgment subsequent to the filing of the instant action.

Stochastic also filed suit on January 10, 1986 in New Jersey Superior Court against Anthony and Carol as guarantors of Eagle's obligations under the bus lease with Stochastic. Stochastic Decisions, Inc. v. Anthony DiDomenico, No. L-010054-86 (N.J.Super.Ct.Law Div.) (the "Guarantee Case"). On April 10, 1989, Stochastic obtained a judgment in the amount of $474,150.38. On September 7, 1989, Stochastic was awarded an additional judgment of $19,338.38 for legal fees and expenses incurred in the Guarantee Case. No appeal has been taken from these judgments. Stochastic apparently has not filed these judgments in New York, and they remain unpaid.

In 1986, Wagner proposed to Anthony and Carol that the Garage be sold, and allegedly developed a plan to conceal the proceeds of the sale from Eagle's creditors. In December 1984, the Garage had been used by Anthony and Carol to secure a $499,000 loan to Eagle from Gateway State Bank ("Gateway"). In addition, Anthony and Carol personally guaranteed the loan, and pledged fifteen acres of land in Staten Island (the "Vacant Land") and their Bayonne residence (the "Residence") as collateral. The loan closing was handled by DiMaio, an employee of, and alleged partner in, Wagner McNiff. See supra note 2.

The Garage was sold for $2.1 million in May 1987. The Gateway mortgage was satisfied from the proceeds of this sale, but Wagner arranged for the mortgage to be assigned by Gateway to Wagner's son-in-law, Berke, as a continuing encumbrance upon the Vacant Land and the Residence.

Wagner, on behalf of Berke, then proceeded with a foreclosure action against the Residence that had initially been instituted by Gateway prior to the full satisfaction of its mortgage. Berke v. Anthony DiDomenico, No. F-5186-88 (N.J.Super.Ct.Ch.Div.) (the "Foreclosure Case"); see also Gateway State Bank v. DCJM Realty Corp., No. F-6628-86 (N.J.Super.Ct.Ch.Div.) (original foreclosure action by Gateway). The complaint in the Foreclosure Case was amended on December 28, 1988 to name Stochastic as a defendant, but the amended complaint was not served upon Stochastic until February 14,...