Opinion ID: 491653
Heading Depth: 2
Heading Rank: 1

Heading: The Appointment of a Receiver.

Text: 14 The defendants challenge both the appointment of the receiver and the breadth of his powers. They claim first that the district court erred in failing to hold an evidentiary hearing before appointing the receiver, and second that the evidence was inadequate to justify the extraordinary step of appointing a receiver. We reject each of these challenges. 15 First, we see no reason why the district court needed to hold a plenary hearing on the government's application. All defendants--including the corporate defendant Osbro Restaurant, Inc.--had made clear that they would refuse to answer any questions regarding the operation of Umberto's. When asked by the district court what evidence he would introduce at a hearing, defense counsel gave no satisfactory response, arguing only that the defendants' refusal to answer questions did not justify a negative inference. As Judge Haight said, [I]f defendants are justified in their refusal to testify or produce additional information   , it is difficult to see how much a plenary trial will add. Defendants make no concrete offers of proof. Ianniello, 646 F.Supp. at 1300 n. 2. 16 We can readily agree with the general observations offered by defendants that a receivership is an extraordinary remedy to be employed with the utmost caution, SEC v. Republic National Life Insurance Co., 378 F.Supp. 430, 438 (S.D.N.Y.1974), and that an evidentiary hearing should normally precede the granting of temporary injunctive relief, at least where there are disputed issues of fact, see Carter-Wallace, Inc. v. Davis-Edwards Pharmacal Corp., 443 F.2d 867, 872 (2d Cir.1971). Here, however, Judge Haight proceeded with an abundance of caution; twice he declined to appoint a receiver and urged development of a fuller factual record. He gave defendants ample opportunity to rebut the government's case, including deposing the key government expert, Feigenbaum, presenting their own experts, and arguing extensively the merits of the receivership application. We conclude that it was not an abuse of discretion to refuse to hold a plenary hearing. See Herbert Rosenthal Jewelry Corp. v. Grossbardt, 428 F.2d 551, 554-55 (2d Cir.1970) (not every application for a preliminary injunction require[s] an evidentiary hearing); Redac Project 6426, Inc. v. Allstate Insurance Co., 402 F.2d 789, 790-91 (2d Cir.1968); cf. SEC v. Frank, 388 F.2d 486, 490 (2d Cir.1968) (In many instances    [t]he taking of evidence would serve little purpose   .). While in Frank the court referred to a lack of serious dispute about the facts as obviating the need for a hearing, its rationale is equally valid where, as here, it is unlikely that a hearing will provide the district court with any additional information. 17 Second, the record before the district court was sufficient to justify a receivership. The evidence underlying the convictions of Matthew and Alfred Ianniello, the study and conclusions of government expert Feigenbaum, and the refusal of the defendants to answer any questions--all of which the district court properly considered--collectively provided strong evidence of continued skimming of Umberto's profits, and it was therefore not an abuse of discretion for Judge Haight to appoint a receiver. See Doran v. Salem Inn, 422 U.S. 922, 931-32, 95 S.Ct. 2561, 2567-68, 45 L.Ed.2d 648 (1975) (imposition of temporary injunctive-type relief subject to abuse of discretion review); Meineke Discount Muffler Shops, Inc. v. Noto, 603 F.Supp. 443, 444 (E.D.N.Y.1985) ( 'The appointment of a receiver pendent lite lies in the discretion of the Court   .'  (quoting Republic National Life Co., 378 F.Supp. at 438)); Guy v. Citizens Fidelity Bank and Trust Co., 429 F.2d 828, 833-34 (6th Cir.1970) ([A]ppointment of receivers in order to protect property    is within the sound discretion of the District Judge.); 7 Moore, Federal Practice p 66.05 at 1920.1-20.2 & n. 2a (2d ed. 1986). 18 The defendants argue that it was improper for the district court to give preclusive effect to the criminal convictions of Matthew and Alfred Ianniello, since Robert Ianniello, the sole record owner of Umberto's, was acquitted in the criminal prosecution. It is clear that Judge Haight did not do so. Rather, he treated the criminal case simply as evidence--albeit strong evidence--of past skimming at Umberto's, and as therefore helping to establish in the civil trial that skimming had gone on. Quite properly, the convictions--or more accurately, the record underlying the convictions--were considered as probative of whether Robert Ianniello was unable or unwilling to prevent the skimming, and thus made stronger the government's case for a temporary receiver. It was therefore not error to consider the criminal proceeding. 19 Nor did the district court rely solely on the fact of past skimming at Umberto's; initially, it denied the government's motion for appointment of a receiver and required the government to produce evidence of continuing skimming. So prompted, the government commissioned the Feigenbaum study, which concluded that there was an approximate $500,000 difference between the receipts that the restaurant could be expected to generate and those actually reported in tax returns and other corporate documents discovered by the government. Defendants offered no estimate of their own, but rather simply attacked the weight to be attached to Feigenbaum's conclusions. 20 There was no abuse of discretion in according substantial weight to this study. Judge Haight did not simply adopt wholesale what Feigenbaum said; indeed, he rejected significant parts of the projections, including the estimate of Umberto's cost-sales ratio, and accepted the rest partially because it was significantly corroborated by other evidence in the record. Ianniello, 646 F.Supp. at 1296. Since it was not error to consider Feigenbaum's findings, we will not second-guess the exact weight or significance given to them by the district court, which was acting in an area committed to its discretion. 21 Finally, the court permissibly drew a negative inference from the refusal of any of the defendants to answer questions relating to the operation of Umberto's. In the civil context, such a negative inference does not violate the fifth amendment, Baxter v. Palmigiano, 425 U.S. 308, 318-19, 96 S.Ct. 1551, 1557-58, 47 L.Ed.2d 810 (1976) (the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them), and the district court correctly concluded that the case at bar is civil in nature. Ianniello, 646 F.Supp. at 1298, citing United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 326, 81 S.Ct. 1243, 1250, 6 L.Ed.2d 318 (1961) (fact that divestiture is an ultimate remedy does not render proceeding criminal) and United States v. Cappetto, 502 F.2d 1351, 1357 (7th Cir.1974) (civil proceeding is not rendered criminal in character by the fact that the acts also are punishable as crimes). 22 Defendants' attack on the breadth of the receivership need not detain us long. In 18 U.S.C. Sec. 1964 congress empowered district courts to prevent    violations of section 1962 by issuing appropriate orders,    ordering dissolution or reorganization of any enterprise    , Sec. 1964(a), and to enter such restraining orders or prohibitions, or take such other actions    as it shall deem proper, Sec. 1964(b). Under these sections, the district court has considerable discretion to frame the scope of a receivership to meet the needs of the case. Cf. View Crest Garden Apartments, Inc. v. United States, 281 F.2d 844, 849 (9th Cir.1960) (It having been determined that appointment of a receiver    is proper, sensible administration may require that the receiver be given the additional power to manage the property    ). The evidence supports the conclusion that a receiver with powers limited to monitoring the affairs of Umberto's would be ineffective in preventing skimming. The receiver himself stated, in response to Judge Haight's questioning at the hearing on defendants' aborted motion to vacate the receivership, that there is a powerful suggestion in the documents that we have recently analyzed and reported on to the court that some skimming was going on in 1986, after the district court had ordered monitoring of the financial affairs of Umberto's. Even without considering the information garnered after the receiver assumed his duties, it is clear that the district court had sufficient reason to believe skimming was continuing at Umberto's despite the court-ordered monitoring. For example, the district court had continued an order, entered by Judge Weinfeld in the criminal case, requiring Osbro to submit    on a monthly basis certain financial records relevant to its operations. 646 F.Supp. at 1293. These records showed that gross receipts at Umberto's continued to average less than $75,000 per month at least through March, 1986, long after Judge Weinfeld had ordered monitoring of Umberto's affairs. Id. A receiver with broad authority to operate the restaurant was therefore a reasonable means of bringing to an end the skimming at Umberto's. 23