De Falco v. Bernas

Facts

Ps are two companies and their principal officers, directors, and shareholders. Ps own land in Delaware, New York which is located in Sullivan County. Top of the World Estates, Inc. owns a residential development known as 'Top of the World Estates.' JOBO Associates, Inc. owns property that contains deposits of sand and gravel. Ds are an assortment of public officials, private individuals, and corporations from Sullivan County, New York. P purchased the properties in 1987 and formed the two corporations. Before the closing of the land purchase, P was approached by local resident Harry Fisher ('Fisher'), who told P that there were potentially valuable gravel deposits on one of the parcel's. P was visited by Fisher and William Dirie ('Dirie'), Supervisor of the Town of Delaware and a local firewood salesman. Dirie informed P that Delaware, New York 'is not Long Island,' and that 'around here in Sullivan County, you got to deal with the local people.' P was advised that Dirie would help guide P 'through the muddy waters' of real estate development so long as P followed Dirie's suggestions. Dirie informed P that Fisher was about to retire and he recommended that P hire Fisher as a foreman for the real estate development project at $300 per week. It was imperative, however, that Fisher not show the $300 per week as income, so Dirie suggested that P pay Fisher by purchasing him a new truck in Fisher's son's name and making the loan payments on the truck purchase. Dirie recommended that P buy shrubs and other landscaping items from V. Edward Curtis ('Curtis'), a local nursery owner and Chairman of the Delaware Planning Board. Dirie also suggested that P, an avid hunter with a televised hunting program, support Tax Assessor Donald Meckle ('Meckle') by purchasing equipment at Meckle's sporting goods store. Dirie suggested that P use local resident John Bernas ('Bernas') to do the road construction at the development and mine the gravel from the JOBO gravel pit. P complied with all the suggestions. Curtis indicated that 'things [would] go a lot easier' if P were to use a particular landscaping contractor, Ed Matern, who would purchase plants and shrubs from Curtis' nursery. Later, Curtis also suggested that P hire a particular contractor, Jim Glavin, to design the entrance to the development, indicating that P should 'do it the right way and bring in Galvin [sic]. And if you use these people, everything is going to go smoother.' P and Bernas agreed that Bernas' company John Bernas, Inc. ('JBI') would construct roads at TOP in exchange for the cost of labor plus a one-third stock interest in JOBO. Bernas was to extract gravel from the JOBO site to use in building the roads at TOP and was additionally entitled to sell any excess sand and gravel removed from JOBO, with any profits from such sales split 50-50 between Bernas and Ps. Ds were not satisfied and made additional demands on P coupled with a threat of adverse official action on the project. Dirie suggested that P let Dirie's son cut timber on the property. When DeFalco resisted and indicated that he intended to bring in a logger to cut timber for himself, Dirie responded, 'If you want to go by the Planning Board and you want things to go smooth, you know, this is the way it is in Sullivan County. That's it.' More and more demands followed. Each time a demand was made, and P resisted, D used their political power to impede the development or otherwise harm Ps. Conversely, each time DeFalco complied with a demand, he was 'rewarded' by having the development project proceed. After repeated requests from P Bernas rendered the accountings of materials sold from the JOBO site. P became skeptical of the accuracy of the accountings and insisted that Bernas both refrain from giving away any materials free-of-charge and that he share the profits of any sales with the plaintiffs. Whenever P broached the topic with Bernas, however, Bernas threatened to get the Town to either stop the project or refuse dedication of the development's roads. Even after P signed over the one-third interest in JOBO to Bernas, Bernas wanted rights to the entire gravel pit, and suddenly the dedication of the Phase I roads was again called into question. By 1992, tax issues led P to bring an Article 78 proceeding in state court seeking the removal from office of Tax Assessor Meckle, Tax Assessor Ferber and the following members of the Town Board: Gerald Doetsch, William Diehl, Michael Henke, and Carl Rosenberger. With respect to Doetsch, Diehl, and Ferber, however, the Court found 'a pattern of intentional and reckless wrongdoing, breach of trust and abuse of authority sufficient to warrant the relief requested in the petition.' The Court therefore that Diehl, Doetsch, and Ferber be removed from office. P eventually got fed up and filed a complaint. The District Court dismissed the claim against William Rosen in that RICO does not provide for aider and abettor liability. Ps' claims against the eleven remaining Ds were tried. The jury found that the Town of Delaware had been operated as a RICO enterprise and that six of the defendants had conducted or participated in the affairs of the Town through a pattern of racketeering activity. The jury returned verdicts in favor of the other five defendants. The jury found that each of the six liable defendants committed two or more predicate acts and assessed monetary damages (prior to trebling) as follows: William Dirie $250,000, John Bernas $500,000, JML Quarries, Inc. $500,000, V. Edward Curtis $250,000, Paul Rouis $1,000,000, John Bernas, Inc. $0. After motions for judgment as a matter of law and for a new trial pursuant to Rules 50(b) and 59 of the Federal Rules of Civil Procedure the Court held that there was insufficient evidence for the trier of fact to have concluded that the predicate acts found to have been committed by them were the proximate cause of harm to Ps' business or property and, accordingly, their motions for judgment as a matter of law pursuant to Rule 50(b) were granted. With respect to the remaining four defendants, however, the Court concluded that the proof of damages adduced at trial was too speculative and imprecise to support the damages awarded by the jury and, because the issues of damages and liability were inextricably intertwined, Dirie, Bernas, JML, and JBI were entitled to a new trial on both liability and damages. The Court stated that: Common experience teaches that real estate developments are inherently speculative and that myriad factors - foreseen and unforeseen - can frustrate their completion. The court held that P's proof at trial of the two inchoate land deals was insufficient. The Court directed counsel for Ps to supply an affidavit informing the Court what evidence of the Tri-Sec and Valente deals would be offered at the second trial that was not offered at the first. Ps submitted an affirmation that, at the second trial, Ps intended to offer essentially the same proof with respect to the Valente and Tri-Sec deals that was offered at the first trial. The Court carefully considered the evidence proffered and concludes that it is still too speculative, conjectural and contingent to serve [as] a predicate for the possible imposition of RICO damages. The second trial was conducted. The jury awarded $1.6 million as damages in addition to the damages described in answers to specific interrogatories. On motions to set aside all or part of the jury verdict, or, in the alternative, for a new trial, the Court noted that: For the second time in this Court a jury has held unanimously that the plaintiffs have proved that the Town of Delaware was conducted as a RICO enterprise which affected interstate commerce, and that all Ds on trial before it conducted or participated in the conduct of the affairs of the Town through a pattern of racketeering activity, namely William Dirie, John Bernas, John Bernas, Inc. and JML Quarries, Inc., and probably others. The court then concluded that the wrongdoings so inflamed the passions of the jury that they found damages beyond those which were actually proved at the trial. It then vacated that much of the jury's award in the amount of $1,600,000.00 . . . and grant judgment on that issue in favor of defendants notwithstanding the verdict. The Court sustained the other damages awards: (1) $250,000 (before trebling) against the Bernas defendants, based upon a predicate act of extortion of sand and gravel mined from the JOBO property; and (2) a total of $33,551.94 (before trebling) against Dirie for extortion of firewood or timber; the used truck wheels and tires for his son; and the pickup truck for Harry Fisher. The trial court also required JBI to deliver its one-third of the outstanding shares in JOBO Associates, Inc. to Ps, based upon the jury's finding that those shares were extorted and plaintiffs' election to recover the shares in lieu of monetary damages. Ds appealed and Ps cross-appealed.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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