MEDIA

September 14, 2007

On Extortionate Debt Collection, Denial of Arbitration

Published in: New York Law Journal | volume 238

This column reports on several significant, representative decisions handed down recently in the U.S. District Court for the Eastern District of New York. Judge Eric N. Vitaliano dismissed criminal charges alleging extortionate debt collection as based on conduct not covered by the statute. Judge Nicholas G. Garaufis dismissed two criminal contempt counts in an indictment against an attorney. Judge Frederic Block held that a Macy’s employee had not ‘silently’ acquiesced in an agreement to arbitrate her harassment and retaliation claims. And Judge Raymond J. Dearie granted disability benefits to a law firm employee under an insurance plan, contrary to the denial of her claim by the insurance company.

Extortionate Debt Collection

In United States v. Kramer, 106 CR 200 (EDNY, Aug. 15, 2007), Judge Vitaliano held that defendant Alhababi’s discussions with co-defendant Kramer regarding Kramer’s holding of a debtor’s ‘green card’ to secure payment of a loan did not show the ‘extortion’ necessary to support charges against Mr. Alhababi for collecting an extension of credit by extortionate means, 18 USC §894(a), or conspiring to do so. Judge Vitaliano therefore granted Mr. Alhababi’s pretrial motion to dismiss the two counts against him in a superseding indictment.

The only charged act relating to Mr. Alhababi is that he called Kramer to discuss Kramer’s possession of a debtor’s green card as a circumstance ensuring repayment of a loan issued by both of them. When asked to amplify its theory and evidence against Mr. Alhababi, the government asserted that Mr. Alhababi collected payment on Kramer’s loans, that Mr. Alhababi knew of Kramer’s holding of the green card, and that this improper possession of a vital travel documents rendered the loan extortionate. The government did not allege that Mr. Alhababi used force or the threat of force to collect payment.

As stated in 18 USC §894(a)(1): ‘Whoever knowingly participates in any way, or conspires to do so, in the use of any extortionate means to collect or attempt to collect any extension of credit…shall be fined under this title or imprisoned not more than 20 years, or both.’

As Judge Vitaliano observed, §894(a)(1) applies only if defendant plays a role in the extortion itself, ”but not if he merely performs acts that he knows will facilitate a debtor’s repayment of a debt being collected by extortionate means.’ United States v. Scotti, 47 F3d 1237, 1246 (2d Cir. 1995).’

Moreover, §894(a)(1) is distinct from §892(a), which applies to an extortionate extension of credit. Even with respect to an extortionate loan, there is no violation of §894(a)(1) unless extortionate means are used in the collection process.

The statutory term ‘extortionate means’ is defined to include not just the use or threat of violence, but the use of ‘other criminal means’ to harm another person. The legislative history, however, shows that the term ‘other criminal means’ was intended to punish those who forced nonpaying victims to commit crimes. Slip op. 4.

In concluding that possessing a green card as security was not extortion under the statute, the court stated:

Individuals commonly provide their licenses, passports and other similar documents as security in transactions. For instance, movie theatres accept licenses and other forms of identification when lending headsets to the hearing impaired, as do municipal golf courses and bowling alleys when lending golf carts and other equipment to patrons. Such arrangements are not extortionate.

Contempt of Court

In United States v. Bronson, 05 CR 714 (EDNY, Aug. 23, 2007), Judge Garaufis granted an attorney’s pretrial motion to dismiss the two counts in the indictment charging him with contempt of court.

Defendant, an attorney, was indicted on counts alleging RICO and money laundering conspiracies, and on two counts alleging contempt of court in violation of the contempt statute, 18 USC §401, and the aiding and abetting statute, 18 USC §2. Count two charged defendant with contempt for aiding and abetting the violation of a court order, in that defendant helped an ‘individual on supervised release’ to violate the conditions of release by meeting with a convicted felon. Count four charged defendant with contempt for aiding and abetting a violation of his client’s pretrial release in that defendant misrepresented his client’s whereabouts to United States Pretrial Services.

As Judge Garaufis noted, 18 USC §3583 sets forth a comprehensive and specific scheme applicable to violations of supervised release. That statute ‘controls over §401,’ which gives a court power, in general terms, to punish disobedience to ‘its lawful writ, process, order, rule, decree and command.’ Though §3583 sets forth sanctions for violations of supervised release, it says nothing about contempt.

Judge Garaufis emphasized the legislative history of §3583. When originally enacted in 1984, §3583 did indeed authorize a court to punish a violation of supervised release as a contempt of court under §401(3). But the statute was amended in 1988 to eliminate contempt as a sanction.

As the court explained:

Because §3583 does not authorize contempt of court as a sanction for violation of a condition of supervised release, [defendant’s] client could not be charged with contempt for such a violation. It follows that [defendant] cannot be charged with aiding and abetting contempt of court.

Nor did Judge Garaufis agree with the government’s argument that, even apart from ‘aiding and abetting’ another, defendant himself violated §401(3). The supervised release order was directed at defendant’s client, and defendant ‘was not legally capable of having violated it.’ Slip op. 12.

The court employed a similar analysis in dismissing count four, relating to violating conditions of pretrial release. Once again, the government could point to no court order directed to defendant – as opposed to his client – that defendant disobeyed. The government’s ‘aiding and abetting’ theory made no difference here. 18 USC §3148, the pretrial release statute, allows the government to initiate a proceeding for ‘revocation’ of a release order, but authorizes only a judicial officer to commence a prosecution for contempt under §401 for a violation of pretrial release. Given this clear delineation of powers, the government cannot initiate a contempt prosecution in this context simply by using the ‘aiding and abetting’ statute. Slip op. 16-17.

Though dismissing the contempt counts, Judge Garaufis denied all of defendant’s other pretrial motions. The court intimated that, at the end of the proceedings, there may be a referral to the appropriate disciplinary committee to deal with the conduct underlying the dismissed counts. Slip op. 25.

Denial of Arbitration

In Manigault v. Macy’s East, LLC, 06 CV 3337 (EDNY, Aug. 28, 2007), Judge Block, denying defendants’ motion to compel arbitration, rejected the contention that plaintiff’s silence was sufficient to indicate agreement to arbitrate.

Plaintiff began employment with Macy’s in 2002, prior to Macy’s initiation of a dispute resolution program in 2003. Plaintiff denied that she had received information about the program, and never responded to any mailings notifying her that she was bound by the program, including its agreement to arbitrate, unless she opted out of it.

Plaintiff sued Macy’s and an individual defendant for sexual harassment and retaliation in violation of Title VII.

As Judge Block noted, arbitration of Title VII claims is encouraged, but an employee could not be compelled to arbitrate a dispute in the absence of an agreement to arbitrate.

The court acknowledged that Macy’s arbitration clause – which includes ‘all employment-related legal disputes, controversies or claims arising out of or relating to, employment’ – covered plaintiff’s claims. Slip op. 9. There was also a rebuttable presumption that plaintiff received the information mailed to her about the dispute resolution program. Nonetheless, plaintiff could not be compelled to arbitrate because, except for limited circumstances not present here, silence ‘may not be translated into acceptance.’ Slip op. 10.

One of the limited exceptions to this rule would occur where previous dealings between the parties give the offeror reason to understand that silence will mean acceptance. In Judge Block’s view, plaintiff had not said or done anything that could justify a conclusion on Macy’s part that plaintiff’s silence would constitute acceptance. As Judge Block stated:

no unilateral conduct on the part of an offeror, regardless of how extensive or well-intentioned, can ever be the basis for the creation of a binding agreement in the face of an offeree’s utter silence and inaction. Slip op. 15- 16.

Long-Term Disability Benefits

In Alexander v. Winthrop, Stimson, Putnam and Roberts Long Term Disability Coverage, 04 CV 760 (EDNY, July 17, 2007), Judge Dearie granted plaintiff’s motion for summary judgment, finding that she was entitled to disability benefits, along with pre-judgment interest, costs and attorney’s fees.

Plaintiff worked at defendant Winthrop, Stimson for nine years until she could no longer work because of severe back pain. Winthrop, Stimson terminated her employment in March 1998. In May 1998 defendant Prudential Insurance Company of America approved payment of disability benefits, but reversed its decision in January 1999.

The court found plaintiff totally disabled under the terms of the Prudential plan and entitled to long-term benefits. First, there was substantial medical evidence supporting her claim of severe, persistent lower back pain. Second, plaintiff was unable to perform her secretarial duties, which required her to sit at her desk for six hours a day and occasionally lift heavy boxes. Her back pain made it difficult for her to sit and walk; she could not sit or stand for more than 30 minutes; and her medication produced debilitating side effects, including drowsiness, which interfered with her work. Third, plaintiff was unable to perform any job for which she was reasonably qualified by education, training or experience.

In a separate matter, an administrative law judge, approving plaintiff’s application for Social Security benefits, had found her back pain to be disabling, based on reports by five physician reports. Though the ALJ’s conclusion was not controlling here, Judge Dearie found it convincing.

Judge Dearie noted the difference in the issue that the ALJ had to determine and the one before the court. The ALJ had to determine ‘whether plaintiff ‘not only [was] unable to do [her] previous work but [could not], considering [her] age, education, and work experience, engage in any other kind of substantial gainful work which exist[ed] in the national economy.” Slip. op 19-20, quoting 42 USC §423(d)(2)(A). In contrast, Judge Dearie had to decide ‘whether plaintiff is able to do any work for which she is ‘reasonably fitted by [her] education, training or experience.” Slip op. 20. By that standard, plaintiff was totally disabled. Slip op. 21.

Equity dictated that plaintiff receive prejudgment interest, because defendants had violated a federal statute and awarding interest would increase the likelihood that other participants and beneficiaries under single-employer plans would receive their full benefits. Similarly, the court awarded attorney’s fees to plaintiff in order to ‘help deter plan administrators assessing other claims from denying those claims in the face of similar evidence of disability.’ Slip op. 25.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[This article is reprinted with permission from the September 14, 2007, issue of the New York Law Journal. Copyright © 2007 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]