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Spagnuolo v. Bonnet

Decided: November 29, 1954.


On appeal from the Essex County Court, Law Division.

For affirmance -- Justices Oliphant, Wachenfeld, Burling, Jacobs and Brennan. For modification -- Justice Heher. The opinion of the court was delivered by Oliphant, J. Heher, J. (for modification).


This case concerns the title to money seized by police in a raid on the headquarters of a lottery operation.

As the result of incriminating information obtained police officers on March 2, 1951 raided the home of one A. Edward Spagnuolo at 536 South 20th Street in Newark. After being admitted to the house by Mrs. Spagnuolo the officers were led to the bedroom occupied by herself and husband. In a dresser drawer were found lists of numbers sold, result slips, a list of agents, names of players and bill wrappers. In a small iron safe, in a corner of the bedroom, were found a list of some agents, a list of numbers sold and result slips. There was a small locked compartment in the safe for which Mrs. Spagnuolo produced the key. Upon it being opened $50,000 in cash was found, removed and taken to the office of the Sheriff of Essex County.

Upon being arrested Spagnuolo admitted that he, with others, had for some time conducted a lottery. He was indicted on two counts for violation of R.S. 2:135-3 to which he pleaded non-vult, and on June 20, 1951 was sentenced to the State Prison for a term of one to two years.

On March 19, 1951 the Commissioner of Internal Revenue made a jeopardy assessment against A. Edward Spagnuolo of additional income taxes in the amount of $85,664.04 with interest and penalty. On March 21, 1951 he gave notice of the assessment to Spagnuolo, filed a notice of lien in the Essex County Register of Deed's Office and served a notice of levy together with a warrant of distraint and notice of tax lien on the Sheriff of Essex County who had possession of the seized $50,000. 26 U.S.C.A., ยงยง 3670, 3671, 3672.

Because of the levy and distraint by the Collector the sheriff was compelled to retain the $50,000 in his possession although the usual procedure would have been to deposit the money with the county treasurer subject to the supervision of the prosecutor. R.S. 2:178-7.2, now N.J.S. 2 A:152-8.

On January 28, 1952 the plaintiff here, who is the mother of A. Edward Spagnuolo, instituted suit against the Sheriff of Essex County claiming the $50,000 as her property. The

sheriff, not claiming the money in his own right, filed a counterclaim for interpleader and obtained an order adding as additional defendants the United States of America, the Collector of Internal Revenue, A. Edward Spagnuolo, Lillian Spagnuolo, his wife, John E. Cash, Treasurer of Essex County, and the County of Essex. Upon motion there was a dismissal as to the United States and the Collector, and by the same order the United States was granted leave to intervene to assert its alleged lien, and thereupon it filed a petition in intervention by which it sought a judgment that the $50,000 was the property of A. Edward Spagnuolo on and after March 21, 1951, the date of its alleged lien for income taxes, and subject thereto.

Spagnuolo and his wife Lillian failed to answer the counterclaim for interpleader and at the time of the pretrial conference judgment by default was entered against them.

Under the pretrial order the factual issues to be tried were limited to the following: (1) Was the plaintiff the owner of the currency in question; (2) whether or not the plaintiff is the owner of the currency, was it earmarked and segregated and being held as part of a gambling operation, namely, the lottery at 536 South 20th Street, Newark; (3) whether the fund of $50,000 was the property of A. Edward Spagnuolo against whom the United States asserts a claim for unpaid income taxes; and the determination of the question of priority between the United States and the County of Essex, if it be determined that the money was the property of A. Edward Spagnuolo.

By consent of counsel the case was tried before the court without a jury and Judge Daniel A. Brennan, after hearing the testimony, adjudged that the $50,000 was not the property of the plaintiff but that of A. Edward Spagnuolo and that that money was employed by him in his gambling operations and was as such contraband of the law; that the money was received and held by Spagnuolo in those gambling operations, earmarked and segregated for gambling purposes; that it was contraband when seized and still remained contraband at the precise time it was seized and its legal status never

changed. The judgment provided that the money be forfeited to the County of Essex and be paid over to the treasurer of that county. The judgment further sets forth that as of March 2, 1951, the date of the seizure of the money, the United States had no lien thereon and the relief sought by the United States was therefore denied.

The plaintiff and the United States of America appealed from the judgment entered in the Essex County Court to the Appellate Division of the Superior Court, and before the case was heard there we certified it on our own motion. R.R. 1:10-1(a).

We deal first with the appeal of the plaintiff Margaret B. Spagnuolo.

The pertinent statutory provisions relating to money seized in connection with an arrest for violation of a gambling law of this State are found ...

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