United States v. Baudanza

UNITED STATES OF AMERICA, v. CARMINE BAUDANZA, et al. Defendants.

06 CR0181 (RJD)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

Dated: February 26, 2014

MEMORANDUM AND ORDER

DEARIE, District Judge.

In an unusual application, a convicted defendant is joined by one of his victims in moving the court to vacate or modify an order of restitution entered against the defendant, or deem his restitution obligation satisfied, pursuant to the terms of a post-sentence settlement agreement in state court between the defendant and the victim. The Court held a status conference on the application on November 26, 2013. (See ECF No. 426); (Conference Tr. 1). The Court writes now to answer the question of whether we have statutory authority and jurisdiction to grant the motion. We answer in the affirmative.

BACKGROUND

On December 13, 2007, this Court entered a judgment of conviction against defendant Carmine Baudanza on one count of racketeering conspiracy in violation of 18 U.S.C. § 1962(d), the Racketeer Influenced and Corrupt Organizations Act ("RICO"). (J. 1, ECF No. 340). Pursuant to the Mandatory Victims Restitution Act, 18 U.S.C. § 3663A ("MVRA"), the Court's sentence included an order of restitution in the amount of $106,515.50, to be borne jointly and severally with co-defendant Joseph Baudanza (Carmine Baudanza's brother). (J. 6). Although the judgment did not identify a payee, the United States Probation Department for the EasternDistrict has subsequently identified two victims: Esther Salama and her son Martin. (Gov't Letter Opp'n 2, ECF No. 424); (Conference Tr. 3, ECF No. 430).

Esther Salama is a principal of Cesar's Bay Shopping Center, LLC ("Cesar's Bay"). Cesar's Bay owes approximately $450,000 to Carmine's Dream, Inc. through a default judgment entered by the Supreme Court of the State of New York, Kings County on November 16, 2010. As his name suggests, Carmine Baudanza is the principal of Carmine's Dream. In the New York state lawsuit, Carmine's Dream alleged that it made loans to Cesar's Bay, which defended on the grounds that the loans were actually investments. (Conference Tr. 5-7). The case proceeded through discovery and summary judgment motion practice. (Conference Tr. 5). Cesar's Bay concluded, wrongly, that it lacked assets to satisfy any judgment and therefore abandoned its defense before trial. (Conference Tr. 6). The Supreme Court entered a default judgment after Cesar's Bay did so, but not before conducting an inquest at which Carmine's Dream presented proof of its damages. (Conference Tr. 6).

At the recent hearing before the undersigned, the parties disputed whether the RICO conspiracy underlying Baudanza's judgment of conviction involved the same business debt litigated in the state court action. (Conference Tr. 15). The Court itself thought otherwise, as did counsel for Baudanza. (Conference Tr. 15). But our subsequent review of the criminal docket, Presentence Investigation Report ("PSR"), and sentencing transcript demonstrates that the same business debt is indeed at issue in both the federal and state cases. More specifically, Carmine and Joseph Baudanza were originally indicted as part of a racketeering conspiracy that involved wide-ranging securities fraud, what is colloquially known as a "pump-and-dump" scheme. (Indictment 5-11, ECF No. 1); (Superseding Information (S-l) 5-19, ECF No. 208). However, Carmine Baudanza was not charged with direct participation in that scheme; rather, theIndictment charged Baudanza and his brother with extortion and conspiracy to commit extortion from "John Doe #10" and "Jane Doe #1" - now revealed to be Esther and Martin Salama. (See Indictment 49-52). Both Baudanza brothers ultimately pled guilty to an extortion conspiracy charge in the Superseding Information. (Superseding Information (S-l) 23-24). The PSR provides additional details that, when read alongside the parties' submissions and the sentencing transcript (ECF No. 368), indicate that the money Carmine and Joseph Baudanza extorted from the Salamas was part of the same underlying debt that Cesar's Bay now owes to Carmine's Dream pursuant to the state court's judgment.

In May 2011, after entry of the state court's approximately $450,000 judgment, Baudanza moved this Court to amend its judgment, arguing that the order directed him to make "payments to the same person who owes him the money from this Judgment." (Baudanza Letter Appl. 1, ECF No. 412). This is not the sort of application that typically gains traction under the MVRA, at least not when made solely by a defendant, and so the Court denied the application (Order, Jan. 20, 2012, ECF No. 415) for the reasons set forth in the government's opposition (Gov't Letter Opp'n, Dec. 12, 2011, ECF No. 414).

Now Baudanza has brought a similar application, asking the Court to either vacate, or modify the judgment or otherwise deem restitution satisfied. This time Ms. Salama, represented by counsel, has joined in the application. Her outwardly surprising enthusiasm springs from a proposed deal between the parties to the New York state lawsuit that would satisfy the default judgment still hanging over her company, Cesar's Bay. As related in their joint application and confirmed at the subsequent hearing, Cesar's Bay eventually reconsidered its litigation position after entry of the default judgment in favor of Carmine's Dream, and moved the Supreme Court to vacate that judgment. We are advised that, pursuant the CPLR, the Supreme Court hasvirtually no discretion to vacate that judgment. (Conference Tr. 9). Nevertheless, while the motion to vacate the judgment was pending, Carmine's Dream offered to resolve the matter on two central conditions: (1) Cesar's Bay would pay $75,000 to Carmine's Dream; and (2) Esther Salama would "waive" her right to receive restitution from the defendant and any other party (that is, both Joseph and Carmine Baudanza). In monetary terms, Carmine's Dream offered to surrender its approximately $450,000 judgment (excluding interest) in exchange for total consideration of approximately $180,000, a net benefit to Cesar's Bay of approximately $270,000. The settlement further provided that Ms. Salama would "cooperate to achieve the waiver" of Baudanza's restitution.

That is where the parties have run into trouble. Ms. Salama cannot "waive" Baudanza's obligation to pay court-ordered restitution. The order is treated as a lien in favor of the United States, and a victim has only limited authority to reassign her interest to the Crime Victims Fund. 18 U.S.C. §§ 3613(c), 3664(g)(2); See also Lavin v. United States, 299 F.3d 123, 127 (2d Cir. 2002); United States v. Johnson, 378 F.3d 230, 244 (2d Cir. 2004).

The government opposed the joint application by letter dated July 29, 2013. (Gov't Letter Opp'n, ECF No. 424). Baudanza and Ms. Salama replied shortly thereafter, in separate submissions. Ms. Salama's submission quite pointedly states that she - the victim, along with her son - will be "substantially harmed" if the Court does not grant her relief, noting that the default judgment continues to accrue interest and interferes with her efforts to enter into an "anticipated transaction" without posting substantial monies in escrow. At the hearing, Ms. Salama's attorneys clarified that Cesar's Bay has sold assets and has substantial monies being held in escrow, monies that will be distributed to its shareholders if and when the default judgment is vacated or satisfied. (Conference Tr. 9-10). Not surprisingly, Ms. Salama told theCourt that she is very much in favor of the arrangement. (Conference Tr. 17 ("I would much rather have the [$]250,000 . . . than the $100,000 that he is supposed to owe.")). She stands to suffer additional pecuniary harm if we do not afford relief and will be fully made whole if we do.¹

We readily denied Baudanza's earlier motion, but these representations give the Court pause. Although restitution is punitive, see, e.g., Johnson, 378 F.3d at 244, the "primary and overarching" goal of restitution (in contrast to forfeiture) is the full compensation of victims. United States v. Pescatore, 637 F.3d 128, 138 (2d Cir. 2011) (quoting United States v. Boccagna, 450 F.3d 107, 115 (2d Cir. 2006)); See also United States v. Peters, 732 F.3d 93, 98-99 (2d Cir. 2013). After Ms. Salama sent us her letter, we asked the government to take a second look at the joint application; the government has maintained its opposition. (Gov't Letter Opp'n, Sep. 18, 2013, ECF No. 425). The Probation Department continues to oppose the application as well.

ANALYSIS

We first address a preliminary issue: setting aside the propriety of revisiting the restitution order at this time, does the MVRA permit restitution to be made in the unorthodox manner proposed by Baudanza and Ms. Salama, rather than through monetary payment? Over the government's opposition, the Court concludes that it does.

The Court starts with the common observation that a civil settlement agreed to prior to sentencing cannot bind the Court when fashioning a restitution order under the MVRA or itspredecessor, the Victim and Witness Protection Act of 1982 ("VWPA"). See United States v. Stennis-Williams, 557 F.3d 927, 930-31 (8th Cir. 2009); United States v. Masek, 588 F.3d 1283, 1289-90 (10th Cir. 2009); United States v. Bearden, 274 F.3d 1031, 1041 (6th Cir. 2001); United States v. Karam, 201 F.3d 320, 329 (4th Cir. 2000) (so holding pursuant to the VWPA); United States v. Savoie, 985 F.2d 612, 619 (1st Cir. 1993) (so holding pursuant to the VWPA). Because the MVRA requires the district court to order full compensation, a private settlement consummated before sentencing can neither waive a defendant's restitution obligation nor cabin the value of restitution to whatever sum the parties negotiate in advance. See, e.g., United States v. Gallant, 537 F.3d 1202, 1250 (10th Cir. 2008) ("The MVRA requires the sentencing court to provide restitution to victims. . . . A private...