U.S. v. Ianniello

• Citation: 824 F.2d 203
• Decision Date: 21 July 1987
• Docket Number: Nos. 1143,1203,D,s. 1143
• Parties: UNITED STATES of America, Plaintiff-Appellee, Cross-Appellant, v. Matthew IANNIELLO, a/k/a "Matty the Horse;" Benjamin Cohen, a/k/a "Benny Cohen;" Paul Gelb; Alfred Ianniello; Osbro Restaurant, Inc., d/b/a "Umberto's Clam House;" Robert Ianniello; P & G Funding Corp., d/b/a "Mardi Gras;" Pauline Gelb; John Zaffarano; John Doe; and John Doe, Inc., d/b/a "John Doe Restaurant," Defendants, Osbro Restaurant, Inc., and Robert Ianniello, Defendants-Appellants, Cross- Appellees. ockets 86-6251, 87-6003.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 203

824 F.2d 203

UNITED STATES of America, Plaintiff-Appellee, Cross-Appellant, v. Matthew IANNIELLO, a/k/a "Matty the Horse;" Benjamin Cohen, a/k/a "Benny Cohen;" Paul Gelb; Alfred Ianniello; Osbro

Restaurant, Inc., d/b/a "Umberto's Clam House;" Robert

Ianniello; P & G Funding Corp., d/b/a "Mardi Gras;"

Pauline Gelb; John Zaffarano; John Doe; and John Doe,

Inc., d/b/a "John Doe Restaurant," Defendants,

Osbro Restaurant, Inc., and Robert Ianniello,

Defendants-Appellants, Cross- Appellees.

Nos. 1143, 1203, Dockets 86-6251, 87-6003.

United States Court of Appeals,

Second Circuit.

Argued May 11, 1987.

Decided July 21, 1987.

Randy M. Mastro, Asst. U.S. Atty., S.D.N.Y., New York City (Rudolph W. Giuliani, U.S. Atty., S.D.N.Y., David R. Lewis, Nancy Kilson, Asst. U.S. Attys., S.D.N.Y., of counsel), for plaintiff-appellee, cross-appellant.

Mark F. Pomerantz, New York City (Fischetti & Pomerantz, New York City, of counsel), for defendant-appellant, cross-appellee Osbro Restaurant, Inc.

Michael G. Berger, New York City, of counsel, for defendant-appellant, cross-appellee Robert Ianniello.

Before LUMBARD, PRATT, and ALTIMARI, Circuit Judges.

GEORGE C. PRATT, Circuit Judge:

This appeal raises the narrow issue of whether, pursuant to 18 U.S.C. Sec. 1964, the district court had a sufficient basis to appoint a receiver to manage Umberto's Clam House. The defendants-appellants, Robert Ianniello and Osbro Restaurant, Inc., do not raise the issue of, and thus we have no occasion to consider, whether a receivership, traditionally used to protect the value of an asset that is the subject of litigation, see Kelleam v. Maryland Casualty Co., 312 U.S. 377, 380-81, 61 S.Ct. 595, 597-98, 85 L.Ed. 899 (1941), may properly be used, as here, to ensure the collection of taxes. Because the parties have done so we, too, assume, but do not decide, that this is a proper case for a receiver. We affirm the district court's order appointing the receiver as fully justified by the evidence, and further affirm Judge Haight's imposition of the costs of the receivership on the government pending trial.

BACKGROUND

The instant litigation followed close on the heels of the criminal convictions of many of the same defendants, convictions that were affirmed by this court in United States v. Ianniello, 808 F.2d 184 (2d Cir.1986). That prosecution centered around charges that defendant Matthew Ianniello had skimmed the receipts of six restaurants, including Umberto's Clam House, all owned and operated by him and his associates. Matthew Ianniello was convicted on all charges against him, and in addition to his prison sentence he was ordered to forfeit to the government $666,666.67. Alfred Ianniello was convicted on charges based on skimming receipts from Umberto's alone and was not subjected to any forfeiture. The charges and background of the criminal case are set forth in United States v. Ianniello, 621 F.Supp. 1455 (S.D.N.Y.1985).

On February 21, 1986, two months after the criminal convictions, the government commenced this civil RICO suit. The complaint seeks injunctive relief against participation by Matthew, Alfred, and Robert Ianniello in the restaurant business, and an order compelling divestiture of their holdings in any bars or restaurants, including Umberto's. Robert Ianniello has always been listed formally as the owner of Umberto's.

The government moved several times in the district court for certain preliminary injunctive relief, including the appointment of a receiver for Umberto's. Although several of the defendants had consented to some of the requests for preliminary relief, Judge Haight denied the government's motion for a receiver on April 16, 1986, without prejudice to renewal if the government could demonstrate "a general inference of continued wrongdoing" at Umberto's. Judge Haight noted that Robert Ianniello, the nominal owner of Umberto's, had not been convicted at the criminal trial, and that those who had been convicted had consented to an injunction barring them In response to Judge Haight's invitation to generate evidence of continued wrongdoing, the government began an investigation in April 1986, retaining Stewart Feigenbaum, a recognized expert in the field of restaurant management. He and his staff made numerous visits to Umberto's between April 30 and May 4, 1986, for the purpose of projecting Umberto's gross receipts. Feigenbaum concluded that a "conservative estimate of the yearly gross receipts of Umberto's Clam House is $1.3 million per year." Armed with Feigenbaum's projections, and with records produced by the defendants that showed that the reported annual gross receipts for Umberto's were $850,000 per year, or approximately $500,000 less than projected by the government expert, the government renewed its motion for a receivership on May 22, 1986.

from involvement in the affairs of Umberto's. Thus, he concluded that absent a showing of continued skimming at Umberto's, the government had not shown a need for a receiver.

During his deposition one day earlier, Robert Ianniello had refused, on fifth amendment grounds, to answer any questions about Umberto's, even though the government had stipulated that it would consent to an order limiting the use of the deposition to the instant case. Later, Matthew and Alfred Ianniello--and even Osbro Restaurant as a corporate entity--also asserted fifth amendment privileges and refused to respond to any government questions regarding Umberto's.

On June 3, 1986, Judge Haight declined to sign the government's proposed order to show cause why a receiver should not be appointed. Instead, he ordered discovery designed to unearth relevant facts with an eye toward deciding the government's motion, and on July 31, 1986, heard argument on the government's application. At this hearing, defendants requested a plenary, evidentiary hearing, which Judge Haight denied.

Approximately two months later, on September 30, 1986, Judge Haight granted the government's application for a receiver pendente lite. United States v. Ianniello, 646 F.Supp. 1289 (S.D.N.Y.1986). He based his decision on the record underlying the Ianniellos' criminal convictions, the expert testimony of Feigenbaum, and on the refusal of all defendants to answer any questions concerning the operation of the restaurant.

After receiving proposed orders from the parties setting forth the scope of the receivership, Judge Haight entered an order that gave the receiver somewhat less discretion in running Umberto's than the government had sought, but significantly more authority than defendants proposed. The order gave the receiver, John C. Sabetta, "sole and exclusive control over the affairs of [Umberto's]", but it limited his power to fire employees, and did not give him title to the restaurant. See United States v. Ianniello, Memorandum Opinion, 86 Civ. 1552 (S.D.N.Y. Nov. 14, 1986).

Defendants' motion for a stay pending appeal was denied by a unanimous panel of this court on December 4, 1986. A month later, defendants obtained a stipulation and order permitting them to withdraw their appeal without prejudice to renewal within 60 days.

On February 20, 1987, defendants moved by order to show cause in the district court to vacate the receivership. They claimed that the financial affairs of Umberto's under the receiver had deteriorated to the point that the restaurant was on the verge of insolvency, and that experience under the receiver had demonstrated that the inference of continued skimming of the profits at Umberto's was unjustified. Shortly after a hearing on the defendants' motion, which can charitably be said to have gone poorly for them, defendants withdrew the motion and reinstated their appeal from the original order imposing the receivership.

DISCUSSION

We address first the merits of Judge Haight's decision to impose the receivership, and then turn to his simultaneous decision to impose the costs of the receivership on the government pending trial.

A. The Appointment of a Receiver.

The defendants challenge both the appointment of the receiver and the breadth of his powers. They claim first that the district court erred in failing to hold an evidentiary hearing before appointing the receiver, and second that the evidence was inadequate to justify the extraordinary step of appointing a receiver. We reject each of these challenges.

First, we see no reason why the district court needed to hold a plenary hearing on the government's application. All defendants--including the corporate defendant Osbro Restaurant, Inc.--had made clear that they would refuse to answer any questions regarding the operation of Umberto's. When asked by the district court what evidence he would introduce at a hearing, defense counsel gave no satisfactory response, arguing only that the defendants' refusal to answer questions did not justify a negative inference. As Judge Haight said, "[I]f defendants are justified in their refusal to testify or produce additional information * * *, it is difficult to see how much a plenary trial will add. Defendants make no concrete offers of proof." Ianniello, 646 F.Supp. at 1300 n. 2.

We can readily agree with the general observations offered by defendants that a receivership "is an extraordinary remedy to be employed with the utmost caution", SEC v. Republic National Life Insurance Co., 378 F.Supp. 430, 438 (S.D.N.Y.1974), and that an evidentiary hearing should normally precede the granting of temporary injunctive relief, at least where there are disputed issues of fact, see Carter-Wallace, Inc. v. Davis-Edwards Pharmacal Corp., 443 F.2d 867, 872 (2d Cir.1971). Here, however, Judge Haight proceeded with an abundance of caution; twice he declined to appoint a receiver and urged development of a fuller factual record. He gave defendants ample opportunity to rebut the government's case, including deposing the key government expert, Feigenbaum, presenting their own experts, and arguing...