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Schrob v. Catterson

filed: June 29, 1992; As Corrected July 2, 1992.

IRWIN SCHROB; AND BARBARA L. SCHROB, HIS WIFE; AND MATAWAN BUILDING SUPPLIES CORPORATION
v.
JAMES CATTERSON INDIVIDUALLY AND IN HIS CAPACITY AS ASSISTANT UNITED STATES ATTORNEY FOR THE EASTERN DISTRICT OF NEW YORK; DAVID TORACINTA, INDIVIDUALLY AND IN HIS CAPACITY AS A SPECIAL AGENT OF THE DRUG ENFORCEMENT ADMINISTRATION; JOHN M. PELUSO, INDIVIDUALLY AND IN HIS CAPACITY AS A SPECIAL AGENT OF THE DRUG ENFORCEMENT ADMINISTRATION; U.S. DEPARTMENT OF JUSTICE - UNITED STATES ATTORNEY; U.S. DEPARTMENT OF JUSTICE - DRUG ENFORCEMENT ADMINISTRATION; JOHN DOES 1 THROUGH 20; AND JANE DOES 1 THROUGH 20, BOTH INDIVIDUALLY AND IN THEIR CAPACITIES AS SUPERVISORY PERSONNEL OVER THE ABOVE IDENTIFIED INDIVIDUAL DEFENDANTS OR AS PERSONS, PRESENTLY UNKNOWN TO PLAINTIFFS, WHO PARTICIPATED IN THE ACTS AND/OR OMISSIONS ALLEGED IN THIS COMPLAINT; AND JOSEPH V. ZARRELLI, BOTH INDIVIDUALLY AND IN HIS CAPACITY AS AGENT/INFORMER OF THE UNITED STATES LAW ENFORCEMENT AGENCIES JAMES CATTERSON, DAVID TORACINTA, AND JOHN PELUSO, APPELLANTS



On Appeal from the United States District Court for the District of New Jersey. (D.C. Civil No. 90-38)

Before: Greenberg and Nygaard, Circuit Judges, and Pollak, District Judge*fn*

Author: Greenberg

Opinion OF THE COURT

GREENBERG, Circuit Judge.

I. FACTUAL AND PROCEDURAL HISTORY

This matter is before the court on an appeal by three federal officers from an order denying a motion to substitute the United States as a defendant with respect to certain claims in the complaint in this action. Although the case was previously before us in Schrob v. Catterson, 948 F.2d 1402, 1405-06 (3d Cir. 1991) (Schrob I), for an understanding of the issues now presented it is necessary that we set forth the factual and procedural background at some length.

A. Factual Background

The case arises from the seizure by the United States of the assets of the Matawan Building Supplies Corporation (MBS).*fn1 When MBS was incorporated in New Jersey in October 1984, it was owned equally by appellee Irwin Schrob, Frank J. Esposito, and Joseph V. Zarrelli. At some point a dispute arose among the owners which resulted in Zarrelli leaving the business and filing suit against MBS, Schrob, and Esposito. This action was resolved, however, in a settlement which resulted in Schrob and Esposito each becoming 50% owners of MBS.

Following the settlement Zarelli contacted agents of the Drug Enforcement Administration, including appellants David Toracinta and John Peluso, to give them information regarding Esposito. As a result, the agents began an investigation which eventually led to Esposito's indictment for tax evasion and conspiracy to distribute narcotics. But neither Schrob nor MBS was ever investigated or implicated in any wrongdoing during the Government's investigation of Esposito.

Nevertheless, on January 4, 1988, appellant James Catterson, an Assistant United States Attorney, filed an in rem complaint on behalf of the Government in the United States District Court for the Eastern District of New York seeking civil forfeiture of certain real and personal property of MBS and Schrob pursuant to 21 U.S.C. § 881(a). The complaint, however, though indicating that Esposito was only one of three partners of MBS, did not contain any allegations of illegal activity by Schrob or MBS. Furthermore, though the complaint indicated that Esposito had engaged in drug transactions, it did not allege that he contributed any drug-related funds to MBS.

On January 5, 1988, pursuant to the in rem complaint, Catterson made an ex parte application for the issuance of a warrant directing the United States marshal to seize the property of MBS.*fn2 At a hearing on the application the Eastern District Court queried Catterson about the criminal involvement of Esposito's partners, without specifically referring to Schrob or MBS, in the following colloquy:

THE COURT: . . . Am I correct that two of Mr. Esposito's partners had been indicted or convicted?

MR. CATTERSON: That is correct.

THE COURT: On what basis do I levy on the property owned by him if there are no charges against him?

MR. CATTERSON: A criminal complaint has been brought in this district and Mr. Pileggi is expecting to return an indictment in the near future--obtain an indictment in the near future.

It's our position once a criminal prosecution is commenced, the court has the power to attach property in other districts.

Id. at 15.

The court then issued the warrant against MBS and Schrob's interest in the company in reliance on these statements.*fn3

Notwithstanding Catterson's representations, the Government only filed a criminal complaint against Esposito. Moreover, neither Schrob nor MBS was named as a co-conspirator in the complaint, nor was either the subject of any criminal investigation. While Schrob alleges that Catterson intentionally misled the court at the ex parte hearing, Catterson contends that he misunderstood the court's question and believed it was referring to Esposito's partners in other ventures who had been indicted.

On January 5, 1988, approximately 30 agents of the United States marshal seized all of the shares and property of MBS. This was not a gentle process, as MBS's customers and certain employees were directed to leave the premises, and some key employees were fired. MBS's bank accounts were seized and frozen, and its computer was accessed and the access code changed. Furthermore, the locks on the property were changed. As a result of this seizure, MBS's normal operations ceased. These events did not go unnoticed by the public and in fact they were reported in a newspaper article.

The following day representatives of Schrob and MBS met with Catterson to demonstrate that Schrob's investment was legitimate and to show that Esposito had capitalized only one-third of the business. On January 7, 1988, Catterson agreed "in principle" to return control of the business to Schrob but Schrob alleges that Catterson made unreasonable demands on him such as imposing fiscal, accounting and other restrictions on the business. Additionally, Schrob states that Catterson demanded a release from personal liability for his actions. At a subsequent hearing, the Eastern District Court made it clear that it would not have issued the warrant had it known ...


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