US v. Golden Acres, Inc.

Decision Date15 April 1988
Docket NumberCiv. A. No. 85-179-JRR.
Citation684 F. Supp. 96
PartiesUNITED STATES of America, Plaintiff, v. GOLDEN ACRES, INC., J.L. Capano, Inc., Joseph L. Capano, and Mario B. Capano, Defendants.
CourtU.S. District Court — District of Delaware

William C. Carpenter, Jr., U.S. Atty., and Charlene D. Davis, Asst. U.S. Atty., U.S. Dept. of Justice, Wilmington, Del., for plaintiff; John R. Bolton, Asst. Atty. Gen., J. Christopher Kohn, Robert M. Hollis and Gregory A. Harrison, U.S. Dept. of Justice, Washington, D.C., and Patricia G. Beatley, Dept. of Housing & Urban Development, Washington, D.C., of counsel.

L. Vincent Ramunno, of Ramunno & Ramunno, Wilmington, Del., for defendants.

MEMORANDUM OPINION

ROTH, District Judge.

The United States of America, representing the interests of the Department of Housing and Urban Development (HUD), filed this suit against defendants J.L. Capano, Inc., Joseph L. Capano, Mario B. Capano (The Capanos) and Golden Acres, Inc. on March 21, 1985. The Amended Complaint charges that defendant Golden Acres breached its Regulatory Agreement with HUD; that the payments in violation of the Regulatory Agreement should have been held in trust for plaintiff; that defendants violated the Federal Priority Statute, 31 U.S.C. § 3713; that the Capanos should be deemed constructive trustees of the moneys distributed in violation of the Regulatory Agreement; and that the Capanos should be liable under the alter ego theory for payments made by Golden Acres in violation of the Regulatory Agreement. Default was entered against Golden Acres on August 13, 1985. On February 4, 1988, plaintiff moved for summary judgment in its favor on all counts and for default judgment against Golden Acres for breach of the Regulatory Agreement and violation of the Priority Statute. The Capanos moved for summary judgment in their favor on February 9, 1988, although no grounds therefor are stated in the motion or in their Opening Brief, filed on March 4, 1988. On April 5 plaintiff filed a motion to strike defendants' jury demand and on April 7 the Capanos filed a motion for leave to file responses to plaintiff's Request for Admissions. Trial is scheduled to begin on April 18, 1988.

The pending motions were considered at the Pretrial Conference held on April 11, 1988. For the reasons expressed by the Court at that time and as set out now in this Memorandum Opinion, plaintiff's motion for summary judgment against the Capanos for violation of the Priority Statute is granted; the Capanos' motions for summary judgment and for leave to file responses to plaintiff's Request for Admissions are denied; plaintiff's request to strike the jury demand is granted. Defendants' motion to recuse is denied for the reasons stated at the Pretrial Conference. Decision on the remaining motions will be made at trial.

I. DEFENDANTS' MOTION FOR LEAVE TO FILE RESPONSES TO PLAINTIFF'S REQUEST FOR ADMISSIONS.

Before reciting the facts in this case, we address defendants' Motion to Withdraw Certain Admissions. On July 13, 1987, the United States served "Plaintiff's First Request For Admissions." This request asked defendants to admit, inter alia, that the "value of the assets of Golden Acres, Inc. was less than the liabilities of Golden Acres, Inc. for the period" of each calendar year from 1976 through 1981. Appendix of the United States in Support of Motion for Summary Judgment, D.I. 68A, at 84 (hereinafter "App."). Defendants did not respond to the request. Accordingly, under F.R.C.P. 36(a), these matters were admitted for purposes of this action. Plaintiff noted its reliance on these admissions in its Brief in Support of Motion for Summary Judgment filed February 4, 1988. D.I. 68 at 7, n. 3. The defendants did not object to the use of these admissions in its Brief in opposition to Plaintiff's Motion for Summary Judgment, filed March 4. D.I. 72. Plaintiff again relied on the admitted facts in its Reply Brief, filed March 24. Only on April 7, eight months after the requests were filed, two months after defendants realized plaintiff had relied upon the admissions in its motion for summary judgment, and eleven days prior to trial, did defendants file their Rule 36(b) motion. D.I. 84.

Rule 36(b) of the Federal Rules of Civil Procedure provides that "the Court may permit withdrawal or amendment when the presentation of the merits of the action will be subserved thereby and the party who obtained the admission fails to satisfy the Court that withdrawal or amendment will prejudice him in maintaining his action or defense on the merits." As Judge Muir recently observed:

It is clear from the language of Rule 36(b) that the Court has substantial discretion in deciding whether to allow withdrawal of an admission. While the Rule establishes two prerequisites to permitting withdrawal of an admission, it says nothing about disallowing withdrawal of an admission.

Kleckner v. Glover Trucking Corp., 103 F.R.D. 553, 557 (M.D.Pa.1984). Disallowing withdrawal may be required if Rule 36 is to be effective to narrow issues and speed the resolution of claims. Donovan v. Carls Drug Co., Inc., 703 F.2d 650, 652 (2nd Cir.1983).

If we examine the facts of record in the present case, it becomes evident that we should not permit withdrawal of the admissions in this case. The request for admissions was filed two years after this action was commenced, at a time when the material facts had been well developed through discovery both in this action and in related cases.1 The Capanos' attorney acknowledged at the Pretrial Conference that, when he received the Request for Admission, he telephoned his clients to discuss the responses to be made. He described the contents of the requests, although he may have used words to the effect that the desired admission was that Golden Acres had been "insolvent" for the years in question rather than that "the value of the assets of Golden Acres was less than the liabilities" for those years. The Capanos indicated to their attorney that admission of the described facts was appropriate. Their attorney then deliberately refrained from filing a response to avoid an excess accumulation of unnecessary paper. This was because he was aware that failure to respond would constitute an admission.

When, however, the Motion for Leave to File Responses to Plaintiff's Request for Admissions, was filed on April 7, 1998, the attorney for the Capanos represented that,

Defendants did not file a Response to Request for Admissions because they misunderstood the meaning of "insolvency" and believed that it meant not being able to keep their obligations current and not that the value of the assets were less than the liabilities since as Mario Capano stated in his Affidavit executed on March 2, 1988, and filed with defendants' brief in opposition to summary judgment on March 4, 1988 at all times the value of the assets exceded sic the liabilities. If they had understood what was meant by "insolvency" they would have had their attorney deny the Request for Admissions Nos. one thru six.2

We find little reason to exercise our discretion under Rule 36(b) in favor of defendants. Defendants' delay in responding to the request for admission is measured in months, not days. Cf. United States v. Cannon, 363 F.Supp. 1045, 1048-49 (D.Del. 1973) (ten day delay excused). Granting the motion here could well delay trial. Herrin v. Blackman, 89 F.R.D. 622, 624 (W.D.Tenn.1981) (delay of trial a factor in a Rule 36(b) decision). Moreover, we find permitting withdrawal would prejudice the plaintiff. The government relied on these admissions in writing its briefs and in preparing for trial. To permit their withdrawal on the eve of trial would unfairly disrupt the government's preparations for trial and the orderly procedures of this Court. Rule 36(b) thus directs us to rule against the defendants.

Moreover, even if we allowed the withdrawal of the admissions, the record in this case indicates strongly that the facts in question, if plaintiff were put to the test to prove them, would be easily proved. The only balance sheets for Golden Acres that are of record are those for the years 1975-78. Each of these years shows liabilities in excess of assets (App. 31, 38, 55, 62) and expenses in excess of income (App. 32, 39, 56, 63). In addition, at his deposition, Mario Capano was asked:

Q. Do you remember a time when you were involved with Golden Acres, Inc., at any time where, at the end of the year there was any net income that— there was more income than expenses for a year?
A. Well—
MR. RAMUNNO: Are you talking about before we took out—is it repayment of his loan or after—

BY MR. HARRISON:

Q. No. Including, tossing it all together in a bag, do you ever remember a time where there was a net income, that there was more income than expenses for a year?
A. Well, there couldn't have been, because it was always in debt and in default of debt.

Beyond the request for admissions, the insolvency of Golden Acres is documented and the statements to the contrary are no more than conclusory. Accordingly, we will deny defendants' Motion and will employ these admissions in the statement of facts below.

II. FACTS.

In March, 1972, P. Donald Woodall hired Joseph L. Capano to construct an 88 unit apartment project located in New Castle County. App. at 74. The project was named Golden Acres. It was owned by Golden Acres, Inc., a Delaware corporation. In turn, Mr. Woodall and his wife owned all the outstanding Golden Acres stock. App. 143-44. On March 28, 1974, Golden Acres executed and delivered to the Central Mortgage Company a Mortgage Note for $1,389,100. App. at 15-17. The Mortgage Note was secured by a mortgage encumbering the project. App. at 9-14. Concurrently, HUD insured repayment of the Mortgage Note pursuant to the National Housing Act, 12 U.S.C. § 1715l(d)(4). In consideration for the insurance, Golden Acres signed a Regulatory Agreement with HUD. App. at 1-8. The Regulatory Agreement and...

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