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MARSELLIS-WARNER v. RABENS

February 24, 1999

MARSELLIS-WARNER CORP., PLAINTIFF,
v.
CHARLES RABENS, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Lechner, District Judge.

    OPINION

This is an action brought by plaintiff, Marsellis-Warner Corp. ("Marsellis-Warner"), against Charles Rabens ("Rabens"), Jack Fernandez ("Jack Fernandez"), Patricia Fernandez ("Patricia Fernandez"), Paul and Marc Construction, Inc. ("PAM Co."), and John Does # 1-20 and ABC Corp.-XYZ Corp. (collectively, the "Defendants").*fn1 In a verified complaint filed 21 September 1998, (the "Complaint"), Marsellis-Warner seeks money damages and equitable relief for violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964(c) and 1962(c), and for various state law violations, including fraud, breach of contract, fraudulent misrepresentation, conversion, conspiracy, unjust enrichment, breach of fiduciary duty and state RICO violations. Jurisdiction is alleged pursuant to 18 U.S.C. § 1964(c), 28 U.S.C. § 1331 and 28 U.S.C. § 1367(a).

Currently before the court is an application by Marsellis-Warner for a preliminary injunction (the "Preliminary Injunction Application") to enjoin the Defendants from dissipating or disposing of any assets. The Preliminary Injunction Application is brought pursuant to the New Jersey Racketeering Act, N.J.S.A. 2C:41-4 ("Section 2C:41-4") and Fed.R.Civ.P. 65 ("Rule 65"). Marsellis-Warner also requests a writ of attachment (the "Attachment Request") against the assets of the Defendants which are located in New Jersey, pursuant to Fed.R.Civ.P. 64 ("Rule 64") and N.J.S.A. 2A:26-2 ("Section 2A:26-2").*fn2

Also pending is a motion by the Defendants to stay the instant civil action pending completion of a Federal criminal investigation into the conduct of the Defendants (the "Motion to Stay").*fn3

For the reasons set forth below, the Preliminary Injunction Application is granted; the Attachment Request is denied; the Motion to Stay is denied without prejudice.*fn4

Background

A. Procedural History

As mentioned, Marsellis-Warner filed the Complaint commencing this action on 21 September 1998. See Complaint. On the same date, Marsellis-Warner, seeking temporary restraints against the Defendants, applied ex parte for an order to show cause (the "Ex Parte Application"). On 22 September 1998, Judge William Bassler issued an order to show cause (the "Order to Show Cause") granting the Ex Parte Application. See Order to Show Cause. The Order to Show Cause set 25 September 1998 as the date on which to hear the parties on the application of Marsellis-Warner for temporary restraints against the Defendants. See Order to Show Cause. The Defendants were directed to submit opposition, if any, by 25 September 1998. See id.

The Order to Show Cause directed the Defendants not to convert, transfer, sell or dispose of or dissipate any property or rights in property in which they possess a legal or ownership interest pending the 25 September 1998 return date. The Defendants also were directed to preserve all documents relating to the allegations set forth in the Complaint. See Order to Show Cause.

On 25 September 1998, Judge Bassler signed a consent order (the "25 September 1998 Consent Order"), pursuant to which the Defendants consented to the terms and provisions set forth in the Order to Show Cause. The 25 September 1998 Consent Order directed the continuance of the temporary restraints granted in the Order to Show Cause until further court order. See 25 September 1998 Consent Order.

Judge Bassler, thereafter, recused himself; that recusal resulted in the transfer of the instant action to the undersigned. On 6 October 1998, an order of reassignment was entered.

By consent order, signed by the undersigned and filed 5 October 1998, (the "5 October 1998 Consent Order"), the temporary restraints granted in the Order to Show Cause were continued pending further court order. A return date of 25 November 1998 was set for the Order to Show Cause. The 5 October 1998 Consent Order further provided: "Any and all affidavits supporting [moving briefs and reply briefs] shall be based solely on firsthand knowledge and shall contain no legal argument." 5 October 1998 Consent Order at ¶ 6.

Following the 5 October 1998 Consent Order, numerous briefs and affidavits were received relating to the Preliminary Injunction Application and the Motion to Stay. Several of the affidavits contained argument of both fact and law in violation of Rule 7.2(a) of the Local Rules Governing the District of New Jersey (the "Local Rules") and the 5 October 1998 Consent Order. In particular, the Supplemental Amsterdam Affidavit originally submitted by Marsellis-Warner in conjunction with the Preliminary Application Reply Brief, attached more than forty documents spread through ten exhibits presenting novel issues.

In a letter, dated 19 November 1998, (the "Defendants' 19 November 1998 Letter"), the Defendants objected to consideration of the Preliminary Injunction Application Reply Brief and the Supplemental Amsterdam Affidavit which, they contended, "present new factual assertions and issues that were not presented in [Marsellis-Warner's] original moving papers[.]" Defendants' 19 November 1998 Letter. The Defendants requested a continuance of the 25 November 1998 return date for the Order to Show Cause and an opportunity to submit a factual response to the new factual allegations of Marsellis Warner (the "Defendants' Request to Respond"). Id. Marsellis-Warner objected to the Defendants' Request to Respond, in a letter, dated 19 November 1998, (the "Marsellis-Warner 19 November 1998 Letter"). See Marsellis-Warner 19 November 1998 Letter.

By order, dated 24 November 1998, (the "24 November 1998 Order"), the 25 November 1998 return date for the Order to Show Cause was continued pending the receipt in chambers of a revised Supplemental Amsterdam Affidavit and the Defendants' Rebuttal Brief responding to the new factual allegations of Marsellis-Warner. See 24 November 1998 Order. The 24 November 1998 Order also directed the parties not to file additional submissions in conjunction with the Preliminary Injunction Application. Id. A revised Supplemental Amsterdam Affidavit and the Defendants' Rebuttal Brief subsequently were received in chambers.

The provisions of the 24 November 1998 Order notwithstanding, counsel for Marsellis-Warner submitted a letter, dated 23 December 1998, (the "Marsellis-Warner 23 December 1998 Letter") objecting, inter alia, to the content of the Defendants' Rebuttal Brief and accompanying affidavits. On 4 January 1999, an order to show cause was issued sua sponte (the "4 January 1999 Order to Show Cause"), directing counsel for Marsellis-Warner to show cause why he should not be sanctioned for submission of the Marsellis-Warner 23 December 1998 Letter. See 4 January 1999 Order to Show Cause.

On 11 January 1999, counsel for Marsellis-Warner submitted a letter-brief stating its position in connection with the 4 January 1999 Order to Show Cause (the "Marsellis-Warner 11 January 1999 Letter"). See Marsellis-Warner 11 January 1999 Letter. In a detailed order, dated 27 January 1999, (the "27 January 1999 Order"), it was observed the Marsellis-Warner 23 December 1998 Letter and the Marsellis-Warner 11 January 1999 Letter violated the 24 November 1998 Order and the 5 October 1998 Consent Order, as well as Local Rule 7.1(f), Appendix N. See 27 January 1999 Order. Counsel for Marsellis-Warner was sanctioned in the amount of $250.00. Id.

By order, dated 11 January 1999, (the "11 January 1999 Order"), the return date on which to hear to Preliminary Injunction Application and Motion to Stay was extended. See 11 January 1999 Order. The 11 January 1999 Order also affirmed an order by Magistrate Judge Dennis M. Cavanaugh, dated 17 December 1998, which denied in part the application of Marsellis-Warner to compel discovery and imposed a stay of discovery (the "Discovery Stay") pending the resolution of the Motion to Stay. See 11 January 1999 Order.

As mentioned, a hearing was held on 23 February 1999 to address the Preliminary Injunction Application and the Motion to Stay. During the 23 February 1999 Hearing, Marsellis-Warner stated it had reached a settlement agreement-in-principal with Rabens. The parties subsequently were directed to re-brief the issues relevant to the Motion to Stay. Counsel for Jack Fernandez, Patricia Fernandez and PAM Co. also consented to the restraints proposed in the Preliminary Injunction Application.

B. Facts

1. The Parties

Marsellis-Warner is a paving and excavating contractor which performs work generally for governmental agencies and Fortune 500 companies. See Complaint at ¶ 1. Rabens and Jack Fernandez were employed by Marsellis-Warner as executive vice president and foreman for more than twenty years. See id. at ¶¶ 1, 5, 6. During the course of their employment, Rabens and Jack Fernandez were given full responsibility, authority and discretion to operate a satellite office of Marsellis-Warner located in Morganville, New Jersey (the "South Jersey Office"). See id. at ¶ 1. At the South Jersey Office, Rabens, as executive in charge, supervised the work of Jack Fernandez. Patricia Fernandez, the wife of Jack Fernandez, was at all relevant times the co-owner of PAM Co., a construction company. See Complaint at ¶ 7. Rabens and Jack Fernandez also had an ownership interest in PAM Co. Id.

Under the billing system of Marsellis-Warner, Jack Fernandez was responsible for submitting a "daily work report" or "timesheet" to the principal office of Marsellis-Warner describing particular work performed on projects for clients of Marsellis-Warner. The daily work report detailed the project name, the work to be performed at the project, the hours worked by laborers on that particular day at the project, the hours worked by the operating engineers on that day at the project, the type of equipment used on the project on that day, the length of time such equipment was in use on that day, the names of the trucking companies and other subcontractors who were utilized on that day, the number of hours spent by each truck hired for the project, the type of materials required for each project on that day, the number of tons of each material used and the name of the supplier of each material for that particular day. Based upon these daily work reports, Marsellis-Warner made payments to the Defendants.

2. The Alleged Misconduct

Marsellis-Warner alleges that on several occasions during the course of their employment, Rabens and Jack Fernandez, in various conspiracies with each other and with Patricia Fernandez, willfully engaged in a pattern of racketeering activity and breached their fiduciary and contractual duties to Marsellis-Warner. Specifically, Marsellis-Warner alleges Rabens and Jack Fernandez submitted numerous falsified documents to Marsellis-Warner during the course of many years. According to Marsellis-Warner, Rabens and Jack Fernandez submitted, by regular mail and/or facsimile transmissions, "fictitious timesheets and/or invoices" to Marsellis-Warner detailing work not actually performed for clients of Marsellis-Warner. See Complaint at ¶¶ 1, 13. Instead, it is alleged, the falsified documents disguised various lucrative "side" projects performed secretly for the customers of PAM Co. Id. at ¶ 1. These side projects allegedly were performed for the following corporations: Shore Point Bottling Corp., King's Welding, Traffic Lines, Inc., Larsen's Ford, Allstar Tool Rental, The Cabin Restaurant, Metetaconk Golf Course, The Italian-American Club, the Fernandez Residences, Carlton & Bilter Insurance Agency, and various unspecified country clubs, driveways and yards. See id. at ¶ 18.

Marsellis-Warner further alleges the fictitious daily work reports falsely represented that workers, equipment, services and/or materials had been utilized by the Defendants for only the clients of Marsellis-Warner. See id. at ¶ 14. Marsellis-Warner contends the daily work reports and timesheets do not disclose the Defendants in fact performed numerous side projects for their personal financial gain using the workers, equipment, services and materials of Marsellis-Warner. See id. In this manner, the Defendants allegedly effected a scheme to avoid paying for labor and materials for the side projects. See id. at ¶ 15.

Marsellis-Warner alleges the Defendants

  individually, and in various conspiracies with each
  other, engaged in wrongful, fraudulent and otherwise
  illegal schemes to embezzle and steal monies from
  [Marsellis-Warner], and to otherwise defraud
  [Marsellis-Warner], utilizing fictional timesheets
  and invoices to effectuate said schemes.

See id. at ¶ 21. Rabens allegedly compounded the fraudulent activity by writing numerous unauthorized checks out of the checking account of Marsellis-Warner, made payable to "cash" or himself. See id. at ¶ 25; Amsterdam Aff. at Exhibit A.

As a result of the conduct and activities of the Defendants, Marsellis-Warner contends it suffered "massive financial injury" and reputational injury. See Complaint at ¶ 1. More specifically, Marsellis-Warner alleges it suffered injury and losses in the "hundreds of thousands of dollars." See id. at ¶¶ 16, 26, 31, 37, 40, 45, 47, 54, 62, 65, 69, 72. It demands judgment in its favor and against the Defendants for, inter alia, compensatory damages, treble damages (RICO claims only), attachment of assets, expedited discovery in aid of attachment and temporary restraints. See id. at ¶¶ 16, 17, 18-19, 19-20, 21, 21-22, 23, 26, 26-27, 27, 28.

Marsellis-Warner terminated Rabens effective 30 June 1998. See Furst Aff. at Exhibit 2; Complaint at ¶ 11. Jack Fernandez resigned his position with Marsellis-Warner on 23 May 1998. See Amsterdam Aff. at ¶ 6.

3. The Criminal Proceedings

The Complaint also discloses the existence of several pending investigations into the conduct of the Defendants. For instance, Marsellis-Warner alleges "the defendants' actions are the subject of ongoing investigations by the Office of the United States Attorney [(the "U.S. Attorney")]." See Complaint at ¶ 3. It appears the allegations of Marsellis-Warner sparked a criminal investigation conducted by the U.S. Attorney and a Federal grand jury (the "Grand Jury"). It appears Rabens has been designated a target of the investigation. See Furst Aff. at ¶ 4. It also appears various subpoenas have been served, including one served on Due Process Country Club for documents concerning work performed "by or on behalf" of Rabens, Jack and Patricia Fernandez or PAM Co. and for membership dues and information concerning them. See id. at Exhibit A.

It appears Sean Quinn, a special agent ("Special Agent Quinn") of the Federal Bureau of Investigation (the "FBI") is investigating the sources of income of Jack and Patricia Fernandez, as well as the alleged use of equipment of Marsellis-Warner without payment. See Palma Aff. at ¶ 3. The FBI questioned Jack Fernandez concerning two side jobs allegedly performed at Shore Points Distributors and Larsen Ford. See Lomurro Aff. at ¶ 3. It appears Special Agent Quinn advised counsel for Jack Fernandez the criminal investigation included the unauthorized use of the equipment, labor and materials of Marsellis-Warner. Id. at ¶ 6. According to Assistant United States Attorney Alan Leibman ("AUSA Leibman"), the scope of the criminal investigation against the Defendants includes the receipt by Rabens of financial benefits from third parties for work outside the scope of his employment with Marsellis-Warner. See Furst Aff. at ¶ 6.

It further appears a grand jury subpoena was served upon PAM Co. and its accountant, demanding personal and corporate financial records covering the last five years. See Bonney Aff. at ¶ 9; Lomurro Aff. at ¶ 6.

The U.S. Attorney declined to specify an exact timetable for the conclusion of the pending criminal investigation. See Furst Aff. at ¶ 5.

Counsel for the Defendants have recommended their clients invoke the Fifth Amendment privilege against self-incrimination in the instant civil action. See Furst Aff. at ¶¶ 9-10; Bonney Aff. at ¶¶ 10-12; Lomurro Aff. at ¶¶ 7-9.

Discussion

A. Prerequisites of Preliminary Injunctive Relief

In anticipation of final judgment rendered in its favor, Marsellis-Warner seeks a preliminary injunction enjoining the Defendants from dissipating or otherwise disposing of any assets and/or documents. The Preliminary Injunction Application is made pursuant to the New Jersey Racketeering Act, N.J.S.A. 2C:41-4,*fn5 Rule 65 and common law. See Preliminary Injunction Moving Brief at 3.

  1. Equitable Relief Under Federal and State Racketeering
    Statutes

Marsellis-Warner, invoking Section 2C:41-4, contends the New Jersey legislature has recognized the availability of injunctive relief where defendants have engaged in a pattern of racketeering activity prohibited under the New Jersey Racketeering Act, N.J.S.A. 2C:41-1 et seq. See Preliminary Injunction Moving Brief at 28-29. The Defendants, by contrast, argue a preliminary injunction based upon alleged violations of the Federal RICO statutes, 18 U.S.C. § 1961 et seq.,*fn6 and the New Jersey Racketeering Act, N.J.S.A. 2C:41-1 et seq., is unavailable to private litigants. See Preliminary Injunction Opposition Brief at 26.

Section 1964(a) of the RICO statute and Section 2C:41-4(a) of the New Jersey Racketeering Act do not expressly preclude equitable actions by private plaintiffs. See 18 U.S.C. § 1964(a); N.J.S.A. 2C:41-4(a). The plain language of Section 1964(a) and Section 2C:41-4(a) appears to accord Federal and State courts the authority to grant equitable relief in appropriate actions. Such authority is not expressly limited to cases brought by the Government.*fn7 Nevertheless, Section 1964(c) and Section 2C:41-4(c), which grant private parties a cause of action under RICO, are silent as to the availability injunctive relief to private plaintiffs.

This Circuit has not squarely addressed the availability of injunctive relief to private litigants under the RICO statutes.*fn8 A few district courts in the Circuit, however, have held a private litigant may not seek equitable remedies, namely a preliminary injunction, under either the RICO statute or the New Jersey Racketeering Act. In Curley v. Cumberland Farms Dairy, Inc., 728 F. Supp. 1123, 1136 (D.N.J. 1989) (SSB), it was held private injunctive relief was unavailable under both Federal and State anti-racketeering laws. The court, analyzing the legislative history of the RICO statutes, found that Congress explicitly rejected a private injunctive relief provision. Id. at 1137. It was reasoned:

  that Congress made an express provision for an
  equitable remedy in suits brought by the government
  and simultaneously declined to make a similar
  provision for private actions carries with it the
  strong suggestion that no private equitable remedy
  was intended.

Id. at 1137 (citing, inter alia, Religious Technology Center v. Wollersheim, 796 F.2d 1076, 1082-83 (9th Cir.), cert. denied, 479 U.S. 1103, 107 S.Ct. 1336, 94 L.Ed.2d 187 (1987)); see also Johnston Development Group, Inc. v. Carpenters Local Union No. 1578, 728 F. Supp. 1142, 1146 (D.N.J. 1990) (SSB) ("RICO . . . makes no provision for private equitable relief[.]"); Vietnam Veterans of Am., Inc. v. Guerdon Indus., Inc., 644 F. Supp. 951, 961 (D.Del. 1986) (JJF) (dismissing RICO claim of plaintiff to extent it sought injunctive relief, observing Congress repeatedly rejected attempts to amend RICO to provide private injunctive remedies).

The Curley court similarly determined the New Jersey Racketeering Act does not provide for injunctive relief in private suits.

  The New Jersey RICO provisions parrot those of the
  [F]ederal statute. [Section] 2C:41-4(a), like its
  [F]ederal law counterpart, [Section] 1964(a),
  contains the affirmative grant of jurisdiction to the
  Superior Court. That section specifically provides
  the Superior Court with the power to enter orders
  providing equitable relief. Although the statute
  provides for equitable remedies in cases brought by
  the Attorney General, it does not speak to the
  availability of injunctive relief in private actions.
  This suggests that the New Jersey General Assembly,
  like Congress with respect to [Section] 1964(c), did
  not intend to provide for injunctive relief.
  Curley, 728 F. Supp. at 1138 (internal citations and footnotes omitted). The court concluded: "To the extent that the [F]ederal statute does not provide for a private equitable remedy, the New Jersey statute similarly omits such a cause of action." Id.

Several other Circuit courts share the conclusions drawn by the Curley court with respect to the Federal RICO statute. See In re Fredeman Litig., 843 F.2d 821, 830 (5th Cir.), reh'g denied, 847 F.2d 840 (5th Cir. 1988); Religious Technology Center, 796 F.2d at 1077; Dan River Inc. v. Icahn, 701 F.2d 278, 290 (4th Cir. 1983). Other courts, however, have concluded RICO affords a private injunctive remedy. See, e.g., Nat'l Organization for Women, Inc. v. Scheidler, 897 F. Supp. 1047, 1082-83 (N.D.Ill. 1995); Chambers Development Co. v. Browning-Ferris Indus., 590 F. Supp. 1528, 1540 (W.D.Pa. 1984) (holding equitable relief is available to private parties in RICO claims, in part because the RICO statute must be liberally construed to effectuate its purpose).

A determination of whether equitable relief is available to private plaintiffs under the Federal or State racketeering statutes is, in the instant matter, unnecessary. Irrespective of any statutory grant of authority, a Federal court may, in the exercise of its inherent equity powers, enjoin actionable conduct. See McMonagle, 868 F.2d at 1355 (declining to decide whether injunctive relief is available to private parties under the RICO statute because "all the injunctive relief [the plaintiff] seeks could be granted under its state law claim"); Dixie Carriers, Inc. v. Channel Fueling Serv., 843 F.2d 821, 830 (5th Cir. 1988) (acknowledging other forms of injunctive relief may not be foreclosed to private plaintiffs suing under RICO statute); Chambers, 590 F. Supp. at 1541 (recognizing the inherent power of Federal courts to grant equitable relief to prevent irreparable injury from conduct prohibited by RICO); Aetna Casualty & Surety Co. v. Liebowitz, 570 F. Supp. 908, 910 (E.D.N.Y.) (granting preliminary injunction to private RICO litigant after finding traditional standards in that circuit for obtaining preliminary injunctive relief met), aff'd, 730 F.2d 905 (2d Cir. 1984).

Significantly, preliminary injunctive relief remains available under Rule 65 to private plaintiffs who invoke Federal jurisdiction pursuant to the RICO statute. See Fed.R.Civ.P. 65; McMonagle, 868 F.2d at 1355. Grounds for an injunction may rest independently on meritorious non-RICO Federal claims or pendent State law claims. See Roe v. Operation Rescue, 919 F.2d 857, 867 (3d Cir. 1990) (citing McMonagle, 868 F.2d at 1355) (upholding issuance of injunction which rested independently on pendent State law claims); see also People by Abrams v. Terry, 45 F.3d 17, 23 (2d Cir. 1995) (citing Roe, 919 F.2d at 867) ("[E]ven assuming that [42 U.S.C. §] 1985(3) does not authorize an injunctive remedy, the injunction can be sustained on the basis of the independent [S]tate law claims."); Lincoln House, Inc. v. Dupre, 903 F.2d 845, 848 (1st Cir. 1990) (citing, inter alia, McMonagle, 868 F.2d at 1355) (stating "it is not clear whether injunctive or other equitable relief is available at all in private civil RICO actions" but expressly declining to exercise inherent power to grant injunctive relief based on facts before it); Northern Virginia Women's Medical Center v. Balch, 617 F.2d 1045, 1049 (4th Cir. 1980) (sustaining injunction based on pendent State law claims). As discussed below, Marsellis-Warner has alternatively asserted viable non-RICO grounds on which it may secure equitable relief in the instant action.

2. Traditional Bases for Equitable Relief

Marsellis-Warner also alleges pendent State law claims of fraud, breach of contract, conversion, conspiracy, unjust enrichment and breach of fiduciary duty. See Complaint. As discussed, the Preliminary Injunction Application relies not only on the RICO statute, but also on injunctive relief afforded by Rule 65 and the common law.

Injunctive relief pursuant to Rule 65 is an extraordinary remedy. When reviewing the Preliminary Injunction Application of Marsellis-Warner, the following four factors (the "Injunction Factors") must be considered:

  (1) the likelihood that [Marsellis-Warner] will
  prevail on the merits at final hearing;
  (2) the extent to which [Marsellis-Warner] is being
  irreparably harmed by the conduct complained of;
  (3) the extent to which [the Defendants] will suffer
  harm if the preliminary ...

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