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State of New Jersey v. Joseph Diorio

October 20, 2011

STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
JOSEPH DIORIO, DEFENDANT-APPELLANT.



On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Indictment No. 05-02-0012.

The opinion of the court was delivered by: Graves, J.A.D.

FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued January 25, 2011

Before Judges Carchman, Graves and Waugh.

The opinion of the court was delivered by GRAVES, J.A.D.

On February 1, 2005, a State grand jury returned a six-count indictment charging defendant Joseph Diorio and co-defendant Michael Fava with the following offenses: first-degree conspiracy to promote or facilitate theft by deception, money laundering, misconduct by a corporate official, and witness tampering, in violation of N.J.S.A. 2C:5-2, N.J.S.A. 2C:20-4, N.J.S.A. 2C:21-25, N.J.S.A. 2C:21-9, and N.J.S.A. 2C:28-5 (count one); second-degree theft by deception, in violation of N.J.S.A. 2C:20-4, N.J.S.A. 2C:20-2(b)(4), and N.J.S.A. 2C:2-6 (count two); first-degree money laundering, in violation of N.J.S.A. 2C:21-25(b), N.J.S.A. 2C:21-8.1(b), and N.J.S.A. 2C:2-6 (count three); second-degree misconduct by a corporate official, in violation of N.J.S.A. 2C:21-9(c) and N.J.S.A. 2C:2-6 (count four); and second-degree witness tampering, in violation of N.J.S.A. 2C:28-5(a)(1), (2) and N.J.S.A. 2C:2-6 (count six). Fava was also charged individually with a separate count of second-degree witness tampering (count five).

Fava negotiated a plea agreement prior to defendant's jury trial, which took place between January 15 and February 21, 2008. At the close of the State's case, the court granted defendant's motion to dismiss the conspiracy to promote or facilitate the witness tampering charge in count one and the witness tampering charge in count six. The jury found defendant guilty of the remaining charges.

On June 6, 2008, the trial court denied defendant's motion for a judgment of acquittal on count three (first-degree money laundering) and a new trial on the other counts of the indictment. The court also denied the State's motion to sentence defendant to an extended term as a persistent offender. After merging count one with counts two, three, and four, the court imposed a seven-year prison term for second-degree theft by deception (count two); a consecutive fifteen-year term with five years of parole ineligibility for first-degree money laundering (count three); and a concurrent seven-year term for second-degree misconduct by a corporate official (count four). Thus, defendant's aggregate sentence is a twenty-two-year prison term with five years of parole ineligibility. Appropriate statutory penalties and assessments were also imposed, and defendant was ordered to pay restitution in the amount of $1,983,281.60. We affirm.

Defendant was a businessman who owned several New Jersey companies, including Paterson Vending and Catering, Inc., trading as Tremont Bottling, Coffee Man, Inc. (Coffee Man), and VCS Rentals. His convictions resulted from his involvement with a wholesale produce company doing business as Packed Fresh Produce, Inc. (PFP), which he operated with co-defendant Fava and David Menadier in 1999 and 2000. Both Fava and Menadier testified for the State at defendant's trial.

By way of background, defendant was initially indicted for second-degree possession of stolen property (cigarettes) and second-degree conspiracy to receive stolen property in October 2001 (the cigarette case). The cigarettes were sold to defendant as part of an undercover sting operation. Because there was strong evidence of defendant's guilt in the cigarette case, his attorney arranged a series of meetings in an effort to negotiate a plea agreement.*fn1

During those discussions, defendant agreed to provide information regarding other individuals involved in the cigarette case, and he offered to provide information about a case involving fraud in the produce industry. Prior to defendant's offer, Deputy Attorney General (DAG) William Gicking, who was prosecuting the cigarette case, was unaware of any on-going investigation regarding the produce industry. However, Gicking soon discovered that the Division of Criminal Justice (DCJ) had been investigating defendant's involvement with PFP for several months.

Two proffer sessions followed: the first on January 9, 2002, and the second on February 13, 2002. During these sessions, defendant was present with his attorney and the State was represented by Gicking, DAG William McGovern, Special Investigator (SI) David Nolan, and two other investigators. The primary purpose of both proffer sessions was to interview defendant regarding his knowledge and involvement in the produce case. The proffer sessions were not recorded or transcribed. Contemporaneous notes taken by Nolan were destroyed after he prepared memoranda in March 2003 summarizing the sessions.

On June 18, 2003, defendant pled guilty to third-degree receiving stolen property in the cigarette case. In exchange for the plea, the State agreed to recommend non-custodial probation. Defendant was subsequently sentenced in accordance with the plea agreement.

With regard to PFP, David Menadier pled guilty to first-degree money laundering and third-degree perjury on May 27, 2004, and Michael Fava pled guilty to first-degree money laundering and third-degree witness tampering on November 14, 2005. When Menadier entered his pleas, he admitted his involvement with PFP and acknowledged that it was "set up as a bust-out company." He also testified that defendant and Fava ran the business, and that Fava was responsible for ordering and selling the produce. Fava provided similar testimony when he entered his guilty pleas. Additionally, Menadier and Fava agreed to testify truthfully at defendant's trial.

The State established at trial that All Statewide Produce, Inc., trading as PFP, was incorporated in New Jersey on March 26, 1999. The certificate of incorporation identified Menadier as the corporation's president, director, and only shareholder. The company's address, "716 Newman Springs Road, Lincroft, N.J., Suite 312," was actually a mailbox that Menadier rented at Mail Boxes Etc.

In April 1999, Menadier signed a lease for warehouse space in Lodi, and he paid a security deposit in the amount of $1200 with cash he received from defendant. On June 1, 1999, Menadier went to the North Brunswick office of the United States Department of Agriculture (USDA) and applied for a PACA*fn2 license on behalf of PFP. The license was issued on June 30, 1999.

On June 15, 1999, a person purporting to be Menadier phoned the Produce Reporter Company (PRC), which publishes the Blue Book, a standard reference source in the produce business. The caller provided information concerning PFP that was recorded on a business operations report and subsequently entered into PRC's database. In addition, PRC received financial statements for PFP, dated June 30, 1999, together with a report prepared by S&G Associates, CPA's, indicating that the statements were prepared "in accordance with standards established by the American Institute of Certified Public Accountants."*fn3 Based on this information, PRC gave PFP a favorable credit rating, which was published in the Blue Book in October 1999.

PFP began purchasing fresh fruits and vegetables from suppliers in late August or early September 1999. At first, PFP ordered relatively small quantities of produce and paid for it quickly. However, as its credit rating improved, the company ordered larger quantities. Payments for the larger orders were made more slowly, and several payment checks were returned for insufficient funds in December 1999 and January 2000. Consequently, the suppliers stopped selling produce to PFP in January 2000.

Complaints to the USDA resulted in a PACA investigation and the suspension of PFP's license in April 2000. Meanwhile, Menadier's attorney negotiated a settlement of a lawsuit brought by H.R. Bushman and Son (Bushman) that required PFP to pay $45,000 to satisfy a $85,279.35 debt. Menadier received $45,000 in cash from defendant in March 2000 to cover a certified check that Menadier paid to his attorney's trust account. Although the Bushman suit settled, discovery soon began in a separate PACA lawsuit brought by other produce companies. By March 2001, PFP was being investigated by the DCJ, the FBI, and the United States Postal Service.

Brian Onieal provided expert testimony for the State "in the area of financial fraud investigations." He explained that a planned bankruptcy, which is also known as a bust-out scheme, is a type of theft by deception in which a legitimate business is established "solely for the purpose of creating the business, operating the business, and then setting up the demise of [the] business in order to defraud the . . . merchandise people that provide credit for that type of business." Onieal testified that a "nominee or front person" is typically involved in such schemes:

A nominee is a person . . . who has a good credit rating . . . [and] can be used as a person that is the business, is set up as a corporate owner or the president, CEO, et cetera. That person then would be responsible for the credit purchases, but at the time they're being used by other people that are in the background that you can't see because their names aren't on anything.

Q. And what's . . . the main purpose of having a nominee?

A. It's to continue the fraud, to establish the business, to get it into its operational phase, and then of course to close it out. And those other . . . people that are involved in the scheme [are] . . . not part of it now because . . . the name of the owner is that nominee person who doesn't have anything to attach.

According to Onieal, there are usually six stages to a planned bankruptcy scheme: (1) a seemingly legitimate business is set up in accordance with normal industry standards; (2) the business seeks a favorable credit rating by paying its debts; (3) a good credit history is established as larger quantities of merchandise are ordered and paid for; (4) the business receives good credit references from trade sources; (5) the business purchases large amounts of merchandise on credit while paying creditors "a little bit at a time"; and, (6) in the final stage, the business sells as much merchandise as possible, sometimes at deep discounts, before declaring the company insolvent or threatening bankruptcy to avoid paying creditors.

Onieal testified cash is often used "as a tool" to continue the scheme because it is difficult to trace and because the intention is to "put [the cash] into your pocket . . . and just walk away." When asked if "all the proceeds of a typical planned bankruptcy scheme end up in [a] bank account," Onieal testified:

No, they can't. That's part of the bust-out. You only want to put that amount of money into the account where you can keep your creditors at bay. You want to keep back the money that you want to take out of the business and put it in your pocket or get rid of it somehow. That's part of the money laundering operation.

In an effort to show how PFP's operations conformed with a typical bust-out scheme, the State presented testimony from produce suppliers and distributors who lost money as a result of their dealings with PFP. Christopher Tagami from Tanimura Distributing, Inc. (TDI), Carolyn Silva from Tanimura and Antle, Vincent Pupillo from H.R. Bushman, Brenda Gray and Louis Fishgold from Western Brokerage, Inc., and Bart Whitten from Tom Lange Company, all related similar experiences. In October 1999, PFP contacted them to initiate a business relationship. After checking the Blue Book, they allowed PFP to purchase produce on credit. Initially, PFP paid for the produce it received, but things began to fall apart in December 1999 when payments became erratic and phone calls to PFP went unanswered. All of the witnesses reported significant unpaid balances in their PFP accounts.

These same witnesses testified that the agreements to sell and ship produce were negotiated over the telephone and, in most cases, payment was required within thirty days. For example, Christopher Tagami, the sales manager for TDI, testified that PFP's credit limit was $300,000 because it initially paid in "30 days or less." Tagami also testified that TDI's last sale to PFP occurred on January 4, 2000.

Menadier testified he had known defendant for a couple of years before defendant approached him about starting a wholesale produce business. According to Menadier, defendant said he was going to be "the financial backer" and that Fava, who owned his own produce company, would handle purchasing and sales. Defendant made it clear that he and Fava would be silent partners and their names would not appear on any of the business documents. Menadier had no experience in the produce industry and was never involved with the day-to-day operations of PFP. In July 1999, Menadier accepted a position as an assistant service manager at a car dealership in Ocean County, and he was a full-time employee at the dealership the entire time that PFP was in operation.

An attorney retained by Fava negotiated the H.R. Bushman settlement and also represented Menadier in the PACA lawsuit brought by other PFP creditors. Menadier testified that when he spoke to defendant about the PACA lawsuit, defendant told him "the lawyer [would] take care of it" and to "just keep your mouth shut." The lawsuit was ultimately settled with a civil consent judgment signed by Menadier's attorney. Menadier testified, however, that the judgment was entered without his knowledge or consent.

Fava testified he worked in the produce industry his entire life, and that he was in charge of buying and selling produce for PFP. According to Fava, the fruits and vegetables he ordered for PFP were mixed with the produce he purchased for his other businesses, Knowles Brokerage (Knowles) and M. Fava, Inc. (MFI). The combined produce was then sold to Fava's customers as if it had all come ...


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