U.S. v. Agnello

• Decision Date: 29 October 2004
• Docket Number: No. 00 CR 205(NG).,00 CR 205(NG).
• Citation: 344 F.Supp.2d 360
• Parties: UNITED STATES of America, Plaintiff, v. Carmine AGNELLO, Steven Scala, Mark Lomonaco, Joseph Burger, Debra Decarlo, Michael Agnello, John Sowalski and New York Shredding Corporation, Defendants.
• Court: U.S. District Court — Eastern District of New York

344 F.Supp.2d 360

UNITED STATES of America, Plaintiff, v. Carmine AGNELLO, Steven Scala, Mark Lomonaco, Joseph Burger, Debra Decarlo, Michael Agnello, John Sowalski and New York Shredding Corporation, Defendants.

No. 00 CR 205(NG).

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

October 29, 2004.

COPYRIGHT MATERIAL OMITTED

Charles E. Graf, John Nields, Jr. — Washington, DC, (Both of Howrey, Simon, Arnold, & White, LLP), for plaintiff.

Andrew M. Genser-USAO, Brideet M. Rhode, USAO, Brooklyn, NY, for defendant.

OPINION AND ORDER

GERSHON, District Judge.

Supervision of all ancillary proceedings relating to the Consent Order of Forfeiture ("Consent Order") approved by the court on September 7, 2001 was referred to Magistrate Judge Robert M. Levy. All dispositive issues relating to the Consent Order were also referred to Judge Levy for report and recommendation. Caterpillar World Trading Corporation ("CWTC") moved to amend the Consent Order to exclude certain property that allegedly belongs to it, pursuant to 18 U.S.C. § 1963(l). Following an evidentiary hearing, Judge Levy has recommended that the application of CWTC be granted in part and denied in part. CWTC has filed objections to that part of the report which recommends denial of its application. The government, while opposing CWTC's application before Judge Levy, has filed no objections to his report. Although counsel for defendant Agnello requested, and was granted, additional time to file papers relating to the Report and Recommendation, no papers have been filed with the court by Agnello. CWTC's objections will be reviewed de novo.

The background and facts, ably set forth by Judge Levy, are adopted by the court and will not be repeated. As Judge Levy found, before CWTC can obtain an amendment to the Consent Order, it must assert, among other things, a "legal right, title or interest in the property" that has been seized by the government that was vested in the petitioner rather than the defendant, or was superior to any right, title or interest of the defendant, at the time the defendant committed the acts giving rise to the forfeiture. 18 U.S.C. § 1963(l)(6)(A); United States v. Schwimmer, 968 F.2d 1570, 1580 (2d Cir.1992). An interest "in" property, for the purposes of the forfeiture statute, must be an interest in a particular, specific asset, as opposed to a general interest in an entire forfeited estate or account. United States v. Ribadeneira, 105 F.3d 833, 836 (2d Cir.1997).

A. The Six Machines Sold by CWTC to Defendant New York Shredding

Initially, the government agreed that five of the six machines which CWTC sold to New York Shredding should be excluded from the Consent Order, but contested CWTC's rights relating to a sixth machine, Material Handler Model No. 320MH. However, the government has filed no objections to Judge Levy's recommendation that the Consent Order be amended to exclude that machine or the proceeds thereof. Therefore, adopting Judge Levy's well-reasoned conclusions as to all six machines, it is ordered that CWTC has a superior security interest in all six machines and that it is due both the outstanding debt on all six machines plus interest on the outstanding debt, as per the contract, up to the date of the final judgment in this case. The Consent Order must be so amended.

I turn now to the principal issues in dispute.

B. Expenses and Advance Payments

CWTC objects to Judge Levy's conclusion that New York Shredding's indebtedness to it for expenses and advance payments is not secured and therefore is not properly excluded from the Consent Order. Upon review of CWTC's various arguments, I conclude that Judge Levy was entirely correct in his analysis and that CWTC's arguments are without merit. In essence, CWTC must establish a secured interest in the expenses and advance payments. As Judge Levy concluded, it has established only that it is a general creditor of New York Shredding with respect to those expenses and payments. Put another way, CWTC has not established that its security interest in the six machines extended to expenses and advance payments.

CWTC's argument that it does so extend depends on the following clause, which appears in the contract between CWTC and Shredder:

SHREDDER hereby grants to [CWTC] a continuing security interest in MACHINES including: attachments, accessories, optional features installed or not, substitutions, replacements, additions, and proceeds of all of the foregoing to secure payment of SHREDDER"S indebtedness.

Judge Levy analyzed this clause as a "dragnet clause," which he held had to be sufficiently clear and unambiguous to provide sufficient notice to subsequent creditors. Judge Levy then concluded that the clause was not sufficiently clear and unambiguous to create a security interest in CWTC covering not only New York Shredding's indebtedness on the purchase of the machines themselves but also, as CWTC claims, its indebtedness for expenses and advance payments. CWTC's objections to these conclusions are rejected, and Judge Levy's comprehensive analysis of the applicable law and its application to the facts at bar is adopted.

CWTC argues, alternatively, that, having found the language of the dragnet clause ambiguous, Judge Levy should have relied upon extrinsic evidence establishing that the parties to the contract containing the dragnet clause understood that the Caterpillar machines would secure all of New York Shredding's indebtedness and not just the principal and interest owed for the purchase of the machines. This argument misses the point of In Re Riss Tanning Corp., 468 F.2d 1211 (2d Cir.1972), upon which Judge Levy properly relied. The reason a dragnet clause must be clear and unambiguous is to assure that it will "be effective and sufficient to put a subsequent creditor on notice." Riss, 468 F.2d at 1213. The subsequent creditor, relying on the perfected security agreement containing a dragnet clause, has no access to the parties' extrinsic evidence; it must rely solely on the language of the filed agreement. It is for that reason that the language of a dragnet clause must be clear and unambiguous; only if it is, can it be relied upon to give a secured party rights superior to a subsequent creditor.

Finally, CWTC's attempt to transform the advance payments into debt constituting payments of principal due and owing on the machines appears to be based solely upon a criticism of its own accounting methods. The argument is without any basis in law and is rejected.

C. Metropolitan Recycling Machine Debt

CWTC also objects to Judge Levy's conclusion that the Consent Order should not be amended to exclude New York Shredding's debt arising from New York Shredding's guarantee of Metropolitan Recyling's purchase of two machines from CWTC. CWTC does not dispute that the machines securing the debt were in Metropolitan Recycling's possession at the time of the forfeiture and were not part of the government's forfeiture. It argues, nonetheless, that, pursuant to N.Y.U.C.C. § 9-203(f), it has a security interest in the guarantee made by New York Shredding and that the proceeds of the sale of the six machines which New York Shredding possessed and forfeited to the government can be used to satisfy this secured obligation.

First, any security interest in the guarantee is limited to the value of the collateral — the two machines. See Comment 8 to N.Y. U.C.C. § 9-203 ("Implicit in subsection (f) is the principle that the secured party's interest in a supporting obligation extends to the supporting obligation only to the extent that it supports the collateral in which the secured party has a security interest."). But even a secured interest in that amount does not constitute an "interest" in a particular, specific asset within the seizure; rather, it constitutes a general interest in the entire amount forfeited. Thus, even if CWTC could assert a security interest in the supporting obligation (the guarantee) without first attempting to foreclose on the two machines in the hands of Metropolitan Recycling, which constitute the collateral, an issue the court need not reach, that security interest would not meet the requirements of the forfeiture statute for an amendment to the Consent Order.

Second, CWTC argues that it has a security interest in "additional collateral" pledged by New York Shredding in support of Metropolitan Recycling's obligations to CWTC. Specifically, CWTC asserts an interest in certain accounts receivable that were payable by CWTC to New York Shredding under the terms of the agreement they entered into prior to the Metropolitan Recycling deal. Since these accounts receivable payable by CWTC were not among the assets forfeited to the government, they cannot serve as the basis for an amendment to the Consent Order. A party's interest in property must be an interest in a particular, specific asset that has been ordered forfeited to the government to warrant relief under 18 U.S.C. § 1963(l)(6)(A). Ribadeneira, 105 F.3d at 836.

D. $1,254,304.88 Collected Subsequent to Arrests

Judge Levy rejected the government's claim seeking forfeiture of this sum, which CWTC acknowledges it collected on behalf of New York Shredding subsequent to the defendants' arrests in January 2001. No objection having been raised to Judge Levy's conclusions with respect to this sum, I adopt Judge Levy's recommendation and direct that CWTC is permitted to keep the money collected subsequent to the arrests, to the extent that it constitutes reimbursements to CWTC for advances, expenses and monthly payments due at the time, and that any overage be turned over to the defendants.

E. The Global Mills Escrow

CWTC seeks an order releasing to it the funds ($193,994.33 and accruing interest) which Global Mills, a scrap broker, placed in escrow pursuant to an order of Judge Levy. CWTC claims that these funds would have been received by CWTC in the ordinary course of business and are not forfeitable....