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Transamerica Life Insurance Co. v. Caramadre

United States District Court, D. Rhode Island

August 31, 2017

TRANSAMERICA LIFE INSURANCE COMPANY and WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO, Plaintiffs,
v.
JOSEPH CARAMADRE; RAYMOUR RADHAKRISHNAN; ESTATE PLANNING RESOURCES, INC.; ADM ASSOCIATES, LLC; HARRISON CONDIT; EDWARD MAGGIACOMO, JR.; and FORTUNE FINANCIAL SERVICES, INC., Defendants.

          MEMORANDUM AND ORDER

          WILLIAM E. SMITH CHIEF JUDGE.

         As discussed in the Court's February 27, 2017 Memorandum and Order (ECF No. 231), Plaintiffs are moving for Prejudgment Attachment of Caramadre's Membership Interest in ADM Associates, LLC (“ADM”) and for a Preliminary Injunction Preventing Caramadre from Transferring Assets of ADM or his Interest therein (“Motion”) (ECF No. 187). The Motion was referred to Magistrate Judge Patricia A. Sullivan, who received additional briefing, held a hearing, and issued a Report and Recommendation (“R&R”) on July 27, 2017, recommending that Plaintiffs' Motion be granted (ECF No. 245). With respect to the part of the Motion seeking an order for prejudgment attachment, the Magistrate Judge concluded that, pursuant to Rhode Island General Laws § 10-5-6, Caramadre's membership interest in ADM could be attached because he is currently not a resident of Rhode Island and Plaintiffs have prevailed on their tort claims against him. The Magistrate Judge also concluded that, pursuant to Rhode Island General Laws § 10-5-5, his membership interest in ADM could be attached because Plaintiffs' pending claim for unjust enrichment is an equitable claim. With respect to the part of the Motion seeking a preliminary injunction, the Magistrate Judge concluded that the circumstances of this case warrant barring Caramadre from transferring or dissipating the Buckman annuity, which is undisputedly ADM's sole asset.

         Caramadre and ADM (“Defendants”) filed an objection to the R&R, arguing that the Magistrate Judge erred by deeming Caramadre a nonresident of Rhode Island and concluding that Plaintiffs had shown the irreparable harm factor of the preliminary injunction analysis. The Court reviews de novo the parts of the R&R to which an objection is made. 28 U.S.C. § 636(b)(1).

         After considering Plaintiffs' Motion, Defendants' objection, the R&R, and Defendants' objection thereto, the Court agrees with the Magistrate Judge's analysis and adopts her reasoning in its entirety. Defendants' objection to the finding that Caramadre is a non-resident of Rhode Island is based on his argument that Caramadre remains a resident of Rhode Island even though he has been incarcerated in a different state throughout the pendency of the litigation. In the case that Defendants cite for support, the First Circuit examined the citizenship and domiciliary status of an inmate to assess diversity jurisdiction, but does not discuss residency status at all. See Hall v. Curran, 599 F.3d 70, 72 (1st Cir. 2010). Section 10-5-6 is explicitly based on residency, which is distinct from domicile. See Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48 (1990). Moreover, Defendants do not object to the Magistrate Judge's conclusion that prejudgment attachment is warranted pursuant to § 10-5-5 based on Plaintiffs' equitable claim for unjust enrichment. Regardless of Caramadre's state of residence, the writ of attachment may issue based on Plaintiffs' unjust enrichment claim.

         Turning to Defendants' objection to the issuance of a preliminary injunction, the Court notes that “[a] finding of irreparable harm must be grounded on something more than conjecture, surmise, or a party's unsubstantiated fears of what the future may have in store, ” Charlesbank Equity Fund II v. Blinds To Go, Inc., 370 F.3d 151, 162 (1st Cir. 2004), and that “prevarications about repayment” and “strong indication[s] that the defendant may dissipate or conceal assets” are sufficient to demonstrate the irreparable-harm prong of the necessary analysis, Micro Signal Research, Inc. v. Otus, 417 F.3d 28, 31 (1st Cir. 2005) (citation omitted). Magistrate Judge Sullivan's reasoning and ultimate conclusion that this case's facts tip the balance in favor of finding irreparable harm bears repeating:

[T]he undisputed evidence establishes Caramadre's pervasive fraudulent behavior in concocting and implementing the scheme, as well as his ongoing failure to satisfy his restitution obligation to Plaintiffs or to his other victims beyond a de minimis payment, none of which has been distributed to Plaintiffs. The sheer size of what he owes in restitution alone is enough to push Plaintiffs' belief that their judgment will be uncollectable over the line demarcating the “unsubstantiated fear” found in Charlesbank Equity Fund II and the concrete and demonstrable risk as found in Micro Signal Research and Teradyne. Also, while far from determinative, the Court cannot ignore Caramadre's 2011 representations of ‘limited financial resources, ' as well as the potentially destabilizing impact of the ongoing divorce proceeding.

         The R&R (ECF No. 245) is, therefore, ACCEPTED in its entirety. Plaintiffs' Motion for Prejudgment Attachment and Preliminary Injunction (ECF No. 187) is GRANTED. A Writ of Attachment for Caramadre's interest in ADM assets shall issue forthwith.

         IT IS SO ORDERED.

         REPORT AND RECOMMENDATION

          PATRICIA A. SULLIVAN, United States Magistrate Judge.

         Before the Court is the Motion of Plaintiffs Western Reserve Life Assurance Co. of Ohio (“Western Reserve”) and Transamerica Life Insurance Company (“Transamerica”) (collectively, “Plaintiffs”) for prejudgment attachment of Defendant Joseph Caramadre's membership interest in Defendant ADM Associates, LLC (“ADM”), and for a preliminary injunction preventing Caramadre from transferring his interest in or the assets of ADM. ECF No. 187. This Motion was originally filed on November 17, 2015. The Court addressed this issue in the same proceeding that resulted in the granting of Plaintiffs' motion for partial summary judgment, but determined that this issue should be held for additional briefing. ECF No. 231; Transamerica Life Ins. Co. v. Caramadre, C.A. No. 09-470 S, 2017 WL 752145, at *7-9 (D.R.I. Feb. 27, 2017) (“Transamerica”).

         After the Motion was referred to me for further proceedings, I ordered all parties to advise the Court which of them wished to be heard on the Motion, present further evidence, or file supplemental briefs. Only Plaintiffs and Defendants Caramadre and ADM responded; these parties advised the Court that resolution of the Motion depends on the application of law to undisputed facts and that no testimony or additional evidence would be offered. ECF No. 238. A supplemental briefing schedule was set and a hearing was held on June 23, 2017. At the hearing, Defendants requested and were given an opportunity to supplement the record with additional information but then opted not to do so. The Motion is now ripe for report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B). For the reasons that follow, I recommend that it be granted.

         I. BACKGROUND

         This civil action arises out of a complex fraudulent scheme concocted by Mr. Caramadre, which has been exhaustively described by this Court, the First Circuit Court of Appeals and the Rhode Island Supreme Court. See Transamerica, at *1.[1] This report and recommendation assumes the reader's familiarity with both the scheme and the civil and criminal litigation it spawned.

         In 2008, Plaintiff Western Reserve issued an annuity with a double-enhanced death benefit to Caramadre's alter ego entity, ADM. See Transamerica, at *4 (holding that “ADM is an alter ego of Caramadre as a matter of law”).[2] The annuity provided that this death benefit would become available upon the death of the terminally-ill annuitant, Charles Buckman. ADM paid Western Reserve a premium of $1 million for the Buckman annuity. As a result of Charles Buckman's death on July 14, 2013, ADM now owns the contractual right to claim the death benefit on the annuity from Western Reserve, worth over $1 million.[3] However, the annuity remains in limbo because ADM has not yet filed a claim.

         When the scheme was first revealed, soon after the Buckman annuity issued, Western Reserve tried to rescind the annuity and tender the $1 million premium back to ADM. After the tender was refused, Western Reserve and its affiliate, Transamerica, initiated this lawsuit. Plaintiffs sought rescission of the Buckman annuity, as well as damages and other relief from Caramadre and others arising from the scheme. Western Reserve's effort to rescind the annuity ultimately failed (after six years of litigation), based on a ruling on two certified questions by the Rhode Island Supreme Court. Western Reserve Life Assurance Co. v. ADM Assocs., Inc., 116 A.3d 794, 804, 806 (R.I. 2015). After that decision, Plaintiffs amended their complaint, consolidating their remaining claims into a single pleading; the Consolidated Complaint (“Complaint”) was filed on November 17, 2015. ECF No. 186. Against Caramadre, its claims are: Count III (state law conspiracy); Count IV (Racketeer and Corrupt Organizations Act (“RICO”)); Count V (civil liability for crimes); and Count XII (unjust enrichment). The unjust enrichment claim is based in part on the allegations that the Buckman annuity is a financial benefit received by Caramadre as a result of the fraudulent scheme through his alter ego, ADM, and that it would be inequitable for him to retain it. ECF No. 186 ¶¶ 298-303. Count XIII is asserted against ADM, alleging reverse piercing/alter ego based on the claim that ADM was formed by Caramadre as part of the scheme to obtain the Buckman annuity. ECF No. 186 ¶¶ 315-22.

         Paralleling the civil case, the criminal prosecution of Caramadre was initiated by an indictment returned by the grand jury on November 17, 2011. The criminal case culminated in November 2012 in Caramadre's guilty plea, [4] pursuant to which he admitted to mail fraud, wire fraud and identity fraud, including the fraudulent receipt of “millions of dollars by making . . . material misrepresentations and omissions to [ ] terminally-ill people . . .” Transamerica, at * 2. As part of that plea, Caramadre now owes restitution in the amount of $909, 907.21 to Plaintiff Transamerica and $1, 102, 464.28 to Plaintiff Western Reserve. United States v. Caramadre, CR No. 11-186 S, 2014 WL 409336, at *5 (D.R.I. Feb. 3, 2014) (“Caramadre”). In total, Caramadre owes over $46 million in restitution to the victims of the scheme; the sentence requires that this be paid in a lump sum “immediately.” Caramadre, at *4; ECF No. 247. According to the public record, he has paid a total of $4, 815.69 towards this obligation. As of this writing, the public record also reflects that the United States has begun to take action to collect the restitution in that it has initiated three garnishment proceedings[5] to recover assets of Caramadre in the hands of third parties, although no such action has been filed against ADM. It is undisputed that Plaintiffs have yet to receive any restitution.

         Based on their belief that the right to the Buckman death benefit may be the only asset available to Caramadre to satisfy a judgment in this case and that the dissipation or loss of ADM's assets will cause them irreparable harm, Plaintiffs filed this Motion in 2015, seeking to attach Caramadre's interest in ADM and to enjoin him from transferring this interest, or any other of ADM's assets, to any other person or entity. To support their need for security and to establish the likelihood of irreparable harm, Plaintiffs point to various Caramadre filings in 2011, in which he claimed to have “limited resources.”[6] ECF No. 125 at 10; ECF No. 187-8 at 2. More significantly, they emphasize Caramadre's $46 million-plus restitution obligation, towards which he has paid virtually nothing, exacerbated by his sentence of incarceration during which time he will be unable to earn more than a de minimis amount. Moreover, Caramadre is now involved in divorce proceedings.[7] Based on these obligations, Plaintiffs have consistently argued that Caramadre will be unable to satisfy a judgment in this case, which they estimate could exceed $10 million. Transamerica, at *7. In response, Caramadre has stood silent, providing no assurance that he expects to be able to pay Plaintiffs' judgment.

         The landscape pertinent to Plaintiffs' Motion shifted when the Court issued its memorandum and order in Transamerica. In particular, by granting partial summary judgment in favor of Transamerica and Western Reserve on two of their four claims against Caramadre and on their claim against ADM, Transamerica definitively resolved the issue of Plaintiffs' likelihood of success on the merits on some of their claims against these two Defendants.

         Specifically, Transamerica resolved Count V, with the holding that Caramadre[8] is civilly liable to Plaintiffs for money damages, pursuant to R.I. Gen. Laws § 9-1-2, based on the criminal conduct admitted in his plea agreement, which includes, inter alia, mail fraud, wire fraud, identity theft, forgery and conspiracy to defraud Plaintiffs and other insurance companies. Transamerica, at *2-3. Second, the Court ruled on Count IV that the undisputed evidence establishes that Caramadre engaged in “racketeering” and is consequently liable to Plaintiffs for treble damages, attorney's fees and costs. Third, the Court sustained Plaintiffs' claim in Count XIII that they may reach the assets of ADM through Caramadre through a reverse piercing of the corporate veil based on application of the “equitable alter ego doctrine.” Id. at *4. The Court also granted summary judgment in favor of Plaintiffs on all of Caramadre's and ADM's counterclaims for breach of contract, promissory estoppel, breach of the duty of good faith and fair dealing, declaratory judgment, and negligent infliction of emotional distress. Id. at *4-7. The Court specifically rejected the claim that Western Reserve's unsuccessful attempt to rescind the Buckman annuity was a breach of contract or otherwise actionable. Id. at *5.

         The Court considered, but did not resolve, Plaintiffs' arguments that a prejudgment attachment is appropriate because they will likely obtain a judgment against Caramadre for millions of dollars; that Caramadre will not have the financial means to satisfy the judgment; and that the only asset that may be available to Caramadre is the Buckman annuity owned by his alter ego, ADM. Transamerica, at *7. The Court alluded to, but did not resolve, Caramadre's counter-argument that Rhode Island law permits prejudgment attachment in tort actions only against nonresidents with property in the state, R.I. Gen. Laws § 10-5-6, and all of Plaintiffs' claims sound in tort while he is still a resident of Rhode Island, despite being incarcerated in a federal prison in Massachusetts. Id. at *8. The Court also considered, but did not resolve, Plaintiffs' argument that the federal court is empowered to issue an asset-freezing injunction pending resolution of an equitable claim for unjust enrichment, even though it may lack authority to issue an injunction to preserve assets pending adjudication of legal claims. Id. at *8, (citing Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 333 (1999)). Ultimately, based on its ...


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