United States v. Pelullo ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
3-23-1999
USA v. Pelullo
Precedential or Non-Precedential:
Docket 98-1527
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1999
Recommended Citation
"USA v. Pelullo" (1999). 1999 Decisions. Paper 72.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/72
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1999 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
Filed March 18, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 98-1527
UNITED STATES OF AMERICA
v.
LEONARD A. PELULLO,
Appellant
On Appeal From the United States District Court
For the Eastern District of Pennsylvania
(D.C. Crim. No. 91-cr-00060)
District Judge: Honorable Robert F. Kelly
Argued: January 27, 1999
Before: BECKER, Chief Judge, SCIRICA, and ROSENN,
Circuit Judges.
(Filed March 18, 1999)
W. NEIL EGGLESTON, ESQUIRE
RICHARD A. RIPLEY, ESQUIRE
(ARGUED)
EVAN J. WERBEL, ESQUIRE
JULIE K. BROF, ESQUIRE
JEANNE-MARIE S. RAYMOND,
ESQUIRE
Howrey & Simon
1299 Pennsylvania Avenue, NW
Washington, DC 20004
Attorneys for Appellant
Leonard A. Pelullo
MICHAEL R. STILES, ESQUIRE
United States Attorney
ROBERT E. COURTNEY, III,
ESQUIRE
Assistant United States Attorney
Chief, Organized Crime Strike Force
WALTER S. BATTY, JR., ESQUIRE
Chief of Appeals
WILLIAM B. CARR, JR., ESQUIRE
(ARGUED)
RONALD G. COLE, ESQUIRE
FRANK A. LABOR, III, ESQUIRE
Assistant United States Attorneys
United States Attorney's Office
615 Chestnut Street
Philadelphia, PA 19106
Attorneys for Appellee
United States of America
OPINION OF THE COURT
BECKER, Chief Judge.
I. Introduction
This appeal by defendant Leonard Pelullo, arising out of
his conviction at his fourth trial in the District Court for
wire fraud and civil RICO violations, brings his case before
this Court for the fourth time as well. See United States v.
Pelullo, 964 F.2d 193 (3d Cir. 1992) ("Pelullo I"); United
States v. Pelullo, 14 F.3d 881 (3d Cir. 1994) ("Pelullo II");
United States v. Pelullo, 105 F.3d 117 (3d Cir. 1997)
("Pelullo III"). The appeal follows our remand in Pelullo III for
the District Court to determine whether Pelullo would have
testified at his first trial regardless of the government's
Brady violations, which we identified in Pelullo II and Pelullo
III. In remanding, we did not decide the quantum of the
government's burden of proving that fact. The District
Court concluded the burden was a preponderance of the
evidence, though it went on to find by clear and convincing
2
evidence that the government's Brady violation did not
cause Pelullo to testify. See United States v. Pelullo, 6 F.
Supp. 2d 403 (E.D. Pa. 1998).
We devote our attention in this appeal to two issues.
First, we consider whether the District Court applied the
correct standard of proof. Second, if the District Court
applied the correct standard, we must decide whether it
erred in concluding that the government successfully met
its burden. We agree with the District Court that the proper
standard of proof is preponderance of the evidence and that
the government met this standard at the evidentiary
hearing. Accordingly, we will affirm on these points. We
dispose summarily of Pelullo's remaining contentions: (i)
that the District Court should have recused itself; and (ii)
that the District Court erred in changing Pelullo's sentence
from two-year suspended sentences on forty-eight counts
following the first trial to four-year active sentences on
those counts following the fourth trial, finding these
contentions patently lacking in merit.1 However, the
government does not counter Pelullo's contention that the
District Court erred in modifying Pelullo's sentence from a
non-committed fine to a committed fine withoutfinding
that he had the present ability to pay the fine. We agree.
Therefore, when the mandate is returned to the District
Court, the District Court shall amend the judgment to
reflect that the fine is a non-committed fine.
II. Facts and Procedural History
The facts in this case have been set forth in detail in
previous opinions, and hence we only set forth those facts
necessary to decide the narrow issues before us. In 1991,
Pelullo was indicted on 54 counts of wire fraud and one
RICO count. The government alleged in Counts 1-53 that
Pelullo, the CEO of a public company called Royale Group,
_________________________________________________________________
1. With regard to the latter point, we note that because we are affirming
Pelullo's conviction on Counts 1 and 55, which amount to a twenty-four
year sentence, and because the District Court designated the four-year
sentences to run concurrently with Counts 1 and 55, the change in the
sentence has no practical effect on the time Pelullo will serve, as
Pelullo
now concedes.
3
engaged in two schemes to divert for his personal use
money loaned to Royale that was to be used to refurbish
several art deco hotels it owned in Miami. In Count 54 of
the indictment, the government alleged a third, similar
scheme: that Pelullo had diverted $114,000 from a Royale
subsidiary to pay off part of a $250,000 loan that Anthony
DiSalvo, a loan shark with purported ties to the
Philadelphia Mafia, had made to him. The government's
theory was that Pelullo submitted false documentation,
including fabricated financing requests, that allowed Royale
to obtain loan money in excess of the expenses it actually
incurred and that Pelullo, as CEO, diverted the excess
funds for his personal use.
The government's case against Pelullo on Count 54 was
based primarily on the testimony of two FBI agents, Randal
Wolverton and Michael Leyden, and of an admitted mafia
underboss named Philip Leonetti. Wolverton testified that
Pelullo, in a June 14, 1990, interview with FBI agents
(including Wolverton and Leyden), had admitted using the
$114,000 to pay off DiSalvo. Leonetti testified that he met
with Pelullo in January 1986 at the Florida home of
Nicodemo Scarfo, who was Leonetti's uncle and the reputed
boss of the Philadelphia mob, to tell Pelullo that he had to
repay DiSalvo. In late February 1986, Pelullo wired
$114,000 from a business bank account to his father's
company (LRP, Inc.) in Philadelphia. One of Pelullo's
brothers (Arthur) allegedly converted the wire transfer to
cash and gave the cash to their other brother (Peter) to
drop off at DiSalvo's home in Philadelphia.
In response to this testimony, Pelullo took the stand and
contradicted Wolverton's claim that Pelullo had admitted to
using Royale funds to repay his DiSalvo debt. He claimed
that he had not started to pay off the DiSalvo loan until
August 1986 and that the $114,000 in question had been
used to repay an intercompany debt in February. The jury,
apparently unconvinced by that defense, convicted Pelullo
of Count 54, 48 other counts of wire fraud, and the RICO
count. We vacated this conviction as to every count but
Count 54, which we affirmed. See Pelullo I, 964 F.2d at
222. We vacated the other convictions because the
government had failed to authenticate bank records.
4
The government subsequently corrected the error, and in
1993, Pelullo was retried and convicted on all counts.
Again, we vacated the entire conviction and remanded for
retrial. See Pelullo II, 14 F.3d at 907. We concluded that the
District Court had erred in instructing the jury that
Pelullo's previous conviction on Count 54 conclusively
established a RICO violation. See id. at 897. We also noted
that the government had committed a Brady violation by
failing to turn over an IRS memorandum detailing a
meeting between IRS Agent James Kurtz and Leonetti, but
we concluded that this violation did not affect the trial's
outcome. See id. at 887.
Prior to the third trial, the government gave Pelullo three
more pieces of Brady evidence. The first piece was
Wolverton's rough notes of the June 14, 1990, interview
during which Pelullo discussed the $114,000 transaction.
The notes included the words, "repaying intercompany
debt." That statement appeared nowhere in the FBI's 302
report, although it ostensibly corroborated Pelullo's defense.
The second piece of Brady material was rough notes of
Agent Kurtz's interview with Leonetti. Those notes
referenced "summer 1986," although that date was not
included in Kurtz's final memo. The third piece of material
was the FBI surveillance log of Nicodemo Scarfo's Florida
residence for January 1986. These logs do not list Pelullo
as a visitor to the residence during that month.
In his first two trials, Pelullo had taken the stand, but in
his 1994 and 1995 trials he did not. In his 1994 trial, the
District Court was forced to declare a mistrial when the
jury failed to reach a verdict. In his fourth trial, although
Pelullo did not testify in person, the government read a
portion of his testimony from the first trial into the record.
At the end of the fourth trial, in early 1995, the jury
convicted Pelullo on 46 wire fraud counts and the RICO
violation.
Pelullo appealed from the judgment in the fourth trial,
challenging his convictions on the 46 wire fraud counts and
the RICO count, his sentence on those counts, and his
earlier conviction on Count 54. With regard to his
convictions following the fourth trial, Pelullo claimed that
he had been forced to take the stand at the first trial solely
5
because the government had violated his constitutional
rights by failing to meet its Brady obligation. Without the
subsequently-revealed Brady evidence in hand, Pelullo
argued, he had no other way to impeach the three
government witnesses. He alleged that his testimony in the
first trial was essentially "fruit from a poisonous tree" and
that his testimony, read into the record at the fourth trial,
tainted the fourth trial as well.
We agreed that there had been a Brady violation relating
to Count 542 but remanded to the District Court for an
evidentiary hearing. See Pelullo III, 105 F.3d at 125. Inter
alia, we held that the District Court had erred in allocating
to Pelullo the burden of proof on the Brady issue and gave
the government the opportunity to establish, in accordance
with Harrison v. United States, 392 U.S. 219 (1968), that
Pelullo would have testified in his first trial even if the
government had complied with its Brady obligations. See
Pelullo III, 105 F.3d at 126. If the government were unable
to prove that Pelullo's testimony in his first trial was not
prompted by its Brady violation, it would be problematic for
the government to have used his testimony from thefirst
trial as evidence in the fourth trial. In other words, the
government had to prove that Pelullo's decision to testify at
the first trial was not caused by the Brady violation. On
remand, the District Court held a hearing and made 69
findings of fact based on the evidence from the hearing, its
review of the records of the first two trials, its observation
of Pelullo's demeanor at all four trials, and its analysis of
Pelullo's attorney's testimony about strategy at thefirst
trial. It concluded that the government met its burden by
clear and convincing evidence (i.e., by more than a
preponderance). Pelullo appeals from this decision.
The District Court's legal determination of the
government's requisite standard of proof is subject to de
novo review. See Polselli v. Nationwide Mutual Fire Ins. Co.,
23 F.3d 747, 750 (3d Cir. 1994). We review its factual
findings about the effect of the Brady material on Pelullo's
_________________________________________________________________
2. Accordingly, we reversed Pelullo's conviction from the first trial on
Count 54, and that Count is not presently before us. See 105 F.3d at
127.
6
trial strategy for clear error. See Maine v. Taylor, 477 U.S.
131, 145 (1986); Campbell v. United States, 373 U.S. 487,
493 (1963). A finding is " `clearly erroneous' when although
there is evidence to support it, the reviewing court on the
entire evidence is left with the definite andfirm conviction
that a mistake has been committed." United States v.
United States Gypsum Co., 333 U.S. 364, 395 (1948).
Where there are two permissible views of the evidence, the
factfinder's choice between them cannot be clearly
erroneous. See Anderson v. City of Bessemer City, 470 U.S.
564, 574 (1985). Our review of the sufficiency of the district
court's findings of fact on the sentencing issue is plenary.
See United States v. Seale, 20 F.3d 1279, 1284 (3d Cir.
1994).
III. Discussion
A. Standard of Proof
We must first decide whether the District Court correctly
required the government to meet its evidentiary burden by
only a preponderance of the evidence or whether, as Pelullo
urges, the Court should have required the government to
prove beyond a reasonable doubt that Pelullo would have
testified at his first trial even if he possessed all of the later-
disclosed Brady material. While we made clear in Pelullo III
that a defendant's testimony may be subject to suppression
if compelled by a Brady violation, we did not direct the
District Court to apply a particular standard of proof when
we remanded for the evidentiary hearing. Instead, we
stated:
[B]ecause the district court misallocated the burden of
proof under Harrison [v. United States, 392 U.S. 219(1968)], we vacate the district court's denial of Pelullo's
Rule 33 motion for a new trial and remand for a new
hearing on that motion consistent with this opinion.
On remand, the government should be afforded an
opportunity to demonstrate, consistent with its burden
of proof, that Pelullo would have testified during his
first trial even if the withheld material had been turned
over.
7
Pelullo III, 105 F.3d at 126.
As instructed, the District Court looked to Harrison for
guidance. In Harrison, the Supreme Court decided that a
defendant's trial testimony must be excluded if that
testimony is "impelled by the prosecution's wrongful use of
his illegally obtained confessions." 392 U.S. at 224. In
allocating the burden of proof, the Supreme Court
reasoned, "Having `released the spring' by using the
petitioner's unlawfully obtained confessions against him,
the Government must show that its illegal action did not
induce his testimony." Id. at 225. The Court did not,
however, articulate what standard of proof applies to the
government's burden.
At the evidentiary hearing, the government argued--and
the District Court implicitly accepted--that Harrison was an
exclusionary rule case and that the proper standard under
such an inquiry is a preponderance of the evidence
standard. The Court reasoned that the Supreme Court has
applied a preponderance standard when the government
has the burden of showing that evidence is not tainted by,
or did not flow directly from, a constitutional violation and
is therefore not subject to suppression under the
exclusionary rule. Pelullo disputes the characterization of
Harrison as an exclusionary rule case, contending that the
government should face a "beyond a reasonable doubt"
standard because Harrison cites Chapman v. California, 386
U.S. 18 (1966), which held that "before a federal
constitutional error can be held harmless, the court must
be able to declare a belief that it was harmless beyond a
reasonable doubt." 386 U.S. at 24. As will be discussed
below, Pelullo misunderstands the import of Harrison and
the nature of the evidentiary hearing at issue in this case.
The exclusionary rule mandates that evidence derived
from constitutional violations may not be used at trial
because illegally derived evidence is considered "fruit of the
poisonous tree." Wong Sun v. United States, 371 U.S. 471,
487-88 (1963). The Supreme Court in Wong Sun explained
that it is important to determine whether the derived
evidence came directly from the exploitation of the
constitutional violation or whether the derived evidence was
obtained "by means sufficiently distinguishable to be
8
purged of the primary taint." Id. at 488. The exclusionary
rule serves to deter constitutional violations by denying the
government the benefit of those violations, and accordingly,
"the application of the rule has been restricted to those
areas where its remedial objectives are thought most
efficaciously served." Segura v. United States, 468 U.S. 796,
804 (1984).
Courts have developed a number of exceptions to the
exclusionary rule, including the independent source,
inevitable discovery, and attenuation doctrines, and a good
faith exception. See, e.g., Segura, 468 U.S. at 805(independent source); Nix v. Williams, 467 U.S. 431, 441-44
(1984) (inevitable discovery); Nardone v. United States, 308
U.S. 338, 341 (1939) (attenuation); Arizona v. Evans, 514
U.S. 1, 14 (1995) (good faith). The independent source,
inevitable discovery, and attenuation doctrines recognize
that where the causal link between the constitutional
violation and later-revealed evidence is tenuous or, indeed,
non-existent, the later-revealed evidence can be said to be
untarnished by the constitutional violation and therefore
may be admissible.
The Harrison Court recognized the importance of
examining that causal link to determine whether the
government's use of a defendant's illegal confession at trial
induced the defendant to take the stand to testify and, in
doing so, make a number of admissions that might not
have come out but for that testimony. See Harrison, 392
U.S. at 224-25. While acknowledging that a number of
factors inevitably play a part in a defendant's decision to
testify, the Court concluded that the government had failed
to prove that the defendant's testimony was obtained by
means sufficiently distinguishable from the underlying
constitutional violation. See id. at 225-26. We believe the
Court in Harrison mandated what is essentially an
exclusionary rule inquiry where there appears to be a link
between a constitutional violation and a defendant's
subsequent decision to take the stand.
Pelullo presses a "beyond a reasonable doubt" standard
on us, based on Harrison's citations to Chapman.3 The
_________________________________________________________________
3. Pelullo also makes much of the fact that Harrison cited People v.
Spencer, 424 P.2d 715 (Cal. 1967). See Harrison, 392 U.S. at 225 n.12.
9
Chapman Court observed that as "the beneficiary of a
constitutional error," the state must prove "beyond a
reasonable doubt that the error complained of did not
contribute to the verdict obtained." Chapman, 385 U.S. at
24. This language has become commonplace in harmless
error analyses. However, the issue in Harrison, and indeed
at the evidentiary hearing, was whether the defendant's
trial testimony was corrupted by an earlier constitutional
violation; at no point had it been determined that the trial
testimony itself was a constitutional violation to which a
harmless error analysis might be applied. Critically, the
inquiry in Harrison was a causation inquiry, not an inquiry
into the effect of a constitutional violation on the verdict.
In light of Harrison's exclusionary rule framework, and by
virtue of the fact that Harrison did not explicitly set out the
government's standard of proof, we look to other
exclusionary rule cases for guidance on the proper
standard of proof. Courts almost invariably have required
the government to prove only by a preponderance of the
evidence that the causal link between the constitutional
violation and the later-revealed evidence is sufficiently weak
or remote to merit admission of that evidence. For example,
in Nix, the Supreme Court determined that the government
must prove by a preponderance that the police would have
inevitably discovered the victim's body without the help of
an illegally obtained confession. See Nix, 467 U.S. at 444
n.5. The Court was unwilling to impose a higher standard
of proof because a higher standard would impose "added
burdens on the already difficult task of proving guilt in
criminal cases by enlarging the barrier to placing evidence
of unquestioned truth before juries." See id.; see generally
United States v. Matlock, 415 U.S. 164, 177 n.14 (1974)
_________________________________________________________________
In Spencer, the Supreme Court of California held that the government
had to prove beyond a reasonable doubt that the defendant did not take
the stand as a result of the government's use of an improper confession
in court. See 424 P.2d at 724. But the Harrison Court gave no indication
that it wished to adopt Spencer's standard of proof analysis, citing
Spencer only for the proposition that the government bears the burden
of disproving causation. We refuse to read more into the Court's decision
to cite Spencer.
10
("[T]he controlling burden of proof at suppression hearings
should impose no greater burden than proof by a
preponderance of the evidence."); Lego v. Twomey, 404 U.S.
477, 488 (1972) ("[N]o substantial evidence has
accumulated that federal rights have suffered from
determining admissibility by a preponderance of the
evidence.").
Lower courts have followed the Supreme Court's lead,
expanding the preponderance standard to the independent
source doctrine and attenuation cases. The Tenth Circuit in
United States v. Lin Lyn Trading, Ltd., 149 F.3d 1112, 1116
(10th Cir. 1998), held that the government had to prove by
a preponderance that the evidence in question came from
an independent source or that the discovery of the evidence
was so attenuated from the constitutional violation as to
escape the violation's taint. Likewise, in United States v.
Dudden, 65 F.3d 1461 (9th Cir. 1995), the Ninth Circuit
concluded that if the government wished to use evidence
against a defendant to whom it had granted statutory
immunity without violating the Fifth Amendment, it had to
prove by a preponderance that it had obtained that
evidence from a source independent from the defendant's
own testimony. See id. at 1468; see also United States v.
Vasquez De Reyes, 149 F.3d 192, 195 (3d Cir. 1998)
(requiring government to prove inevitable discovery by a
preponderance);4 United States v. Griffin, 48 F.3d 1147,
_________________________________________________________________
4. In Vasquez, we expressed concern about applying the inevitable
discovery exception to testimonial evidence. However, in Vasquez, the
defendant was illegally stopped by an INS agent who suspected that she
was an illegal alien. After producing papers showing that she was
married to a resident of the Virgin Islands, but after failing to show a
visa, she was taken to a correctional facility. Her husband arrived at the
facility and, after being questioned, revealed that their marriage was a
sham. As a result, Mrs. Vasquez De Reyes confessed to the sham. She
later filed a motion to suppress her statement based on the illegal nature
of the original stop, but the district court found that the sham nature of
the marriage would have inevitably been discovered through an INS
investigation of her marriage when she applied to live in the U.S. On
appeal, Vasquez De Reyes argued that there were too many variables to
find that a routine INS investigation would have inevitably disclosed the
sham. We agreed, noting that the statement that the government sought
11
1151 (10th Cir. 1995) (requiring government to prove by a
preponderance its independent source and inevitable
discovery theories); United States v. Bartel, 19 F.3d 1105,
1112 (6th Cir. 1994) (requiring proof of independent source
by preponderance).
The purpose of the evidentiary hearing in the District
Court was much like an exclusionary rule inquiry in which
the government argues that it would have obtained the
evidence anyway under the inevitable discovery or
independent source doctrines. The government was given
the chance to prove that Pelullo would have testified at the
first trial--and the government would have thus "obtained"
his testimony therefrom--even if Pelullo possessed all of the
Brady material before the first trial. For the foregoing
reasons, we agree with the District Court's conclusion that
the government had to meet its burden by a preponderance
of the evidence.
B. The Government's Proof
In light of our conclusion that the District Court held the
government to the correct standard of proof at the
evidentiary hearing, we must decide whether the District
Court clearly erred in finding that the government had met
its burden at the hearing. We hold that the District Court
did not clearly err in concluding that the government
established by a preponderance "that Pelullo's testimony at
the first trial was obtained by means sufficiently
distinguishable from the Brady violation to be purged of
any taint arising from that violation." See Pelullo, 6 F.
Supp. 2d at 413. We first review the general scheme of
Count 54 and then address in detail the seven factual
findings explicitly contested by Pelullo.
_________________________________________________________________
to have admitted under the exception was a "statement not yet made,"
which by nature is not capable of ready verification. 149 F.3d at 195-96.
In Pelullo's case, however, the issue is not what Pelullo would or would
not have testified to, which clearly would require speculation, but
whether he would have testified, which is a less speculative and more
easily verifiable determination.
12
Count 54 of the indictment was based on a wire transfer
made on February 26, 1986. Pelullo transferred $114,000
from the account of Palm Beach Heights, a Royale
subsidiary, to LRP, Inc., a company owned by Pelullo's
father. The government alleged that Pelullo performed the
wire transfer and used the transferred corporate funds to
repay the money he had borrowed from DiSalvo.
As proof of this diversion for personal use, the
government relied first on Leonetti's testimony and IRS
Agent Kurtz's notes from an interview with Leonetti.
Leonetti testified that at the end of December 1985, DiSalvo
asked him to help collect DiSalvo's loan to Pelullo. Leonetti
then stated that he told Scarfo, his "boss," about DiSalvo's
request, whereupon they contacted Pelullo in Florida.
Leonetti testified that Pelullo came to Scarfo's house in
Florida in January 1986, at which time they pressured him
to repay the DiSalvo loan.5 The government sought to
connect the timing of this meeting with the February wire
transfer. The government also relied on Agents Wolverton's
and Leyden's testimony. Both agents testified that Pelullo
admitted, during the June 1990 interview with them, that
he had used the $114,000 belonging to Palm Beach Heights
to repay the DiSalvo debt.
During his testimony about Count 54 at the first trial,
Pelullo admitted that DiSalvo had lent him money, but
denied that the $114,000 had been used to repay DiSalvo,
or that he had told the agents that it had. Pelullo also
denied ever meeting Leonetti, although he acknowledged
that he knew who Leonetti was. He admitted going to
Scarfo's house, but claimed that he went there to consult
with a friend who was doing construction for Scarfo.
Finally, Pelullo testified that he only began to repay the
DiSalvo debt in August or September 1986, and that the
loan was not fully paid off until 1987. The District Court
made 69 findings of fact; we discuss only the seven
contested findings, which provide the primary rationales for
_________________________________________________________________
5. The third piece of Brady material, the FBI surveillance logs of
Scarfo's
house, did not list Pelullo as a visitor to the house in January. However,
the logs only covered twelve days in January, see Pelullo III, 105 F.3d at123 n.3, and thus appear to be of little help to Pelullo's case.
13
the District Court's conclusion that Pelullo would have
testified even in the absence of a Brady violation.
1. Propensity to Testify
The District Court concluded that Pelullo's prior course of
conduct established "a long history of voluntarily waiving
his fifth amendment privilege." See United States v. Pelullo,
6 F. Supp. 2d 403, 414 (E.D. Pa. 1998). The Court referred
to a number of instances in which Pelullo had testified
under oath or had voluntarily given interviews to the FBI
about the subject matter of various indictments, including
this one. While we are hesitant to conclude that someone
has a "propensity" to testify, the District Court draws a
number of valid inferences. From the situations in which
Pelullo had waived his Fifth Amendment privilege, including
an example where Pelullo testified and was acquitted, the
Court inferred that "Mr. Pelullo believed he could persuade
the jury that he was telling the truth." See id. The District
Court also hypothesized that after testifying in his own
defense in the first two trials and being convicted both
times, Pelullo may have decided to change tactics in the
third trial. See id. Pelullo tries to refute this conclusion by
arguing that his behavior in the third and fourth trials (i.e.,
his decision not to testify there) shows that he does not
have a propensity to testify. However, this is an area in
which we will defer to the District Court, which has
observed Pelullo's demeanor and conduct over the course of
seven years.
2. Entitlement Defense
At the evidentiary hearing, the government attempted to
show that Pelullo's entire defense--to each of the three
discrete schemes that underlay the various counts--was a
defense of entitlement; that is, Pelullo's response to the
government's accusation that he had embezzled money was
that he was entitled to the money. If the government
succeeded in showing that Pelullo needed to testify about
each scheme in order to proffer his entitlement defense,
then it would be clear that the Brady information was
neither especially useful to Pelullo nor relevant to his
14
decision to testify. The District Court, adopting the
government's theory, placed great weight on this factor.
Specifically, it stated:
I find that the government has established by clear and
convincing evidence that Mr. Pelullo waived his fifth
amendment privilege and voluntarily agreed to testify
at the first trial so that Mr. Pelullo could present a
defense to the jury by explaining that he was entitled
to use the Royale corporate funds in the manner that
he did, and therefore, he did not commit fraud as
charged in the indictment. I further find that the Brady
material does not and cannot establish or even support
the `entitlement' defense Mr. Pelullo sought to establish
through his direct testimony.
6 F. Supp. 2d at 412; see also id. at 421.
In response, Pelullo points to trials three and four. If it
really were necessary for him personally to take the stand
to present his entitlement defense, Pelullo argues, then he
would have had to testify in the third and fourth trials.
Noting that the government's case on Counts 1-53 did not
materially change throughout the four trials, Pelullo
submits that his silence in the third and fourth trials shows
that he had no need to take the stand in his own defense
once he had the Brady material.
While this is a compelling argument, we cannot hold that
it was clearly erroneous for the District Court to give weight
to Pelullo's defense strategy in his first two trials. The
reason Pelullo did not testify in the third trial was most
likely a combination of factors: his testimony in the first
and second trials had not convinced the jury; his attorney
felt that Pelullo could set forth his entitlement defense well
enough using just his father's (and others') testimony; and
the Brady material gave extra support to his defense. That
is, it is highly probable that Pelullo learned certain things
about his case as the first two trials played out, and that
some of that knowledge played a role in his decision not to
testify at the third trial. While the District Court did not
make specific findings about Pelullo's defense strategy at
his third trial, we cannot conclude that it was clearly
erroneous to give weight to Pelullo's strategy in the first
15
trial, even though that strategy had obviously changed
slightly by the third trial.
3. Counts 1-53
The District Court found that each count of wire fraud
would expose Pelullo to five years imprisonment; that
Scheme One alleged that Pelullo diverted $1.6 million in
loan proceeds; that Scheme Two alleged that Pelullo
diverted $471,000 of corporate funds; but that Scheme
Three (which encompassed Count 54 only) alleged a
diversion of $114,000. See 6 F. Supp. 2d at 409. The
District Court also noted that the government had a strong
case against Pelullo on Counts 1-53; the prosecution
introduced approximately thirty witnesses, in addition to
voluminous documentary evidence, to prove Pelullo's guilt
on those counts. See id. Highlighting the fact that only six
of Pelullo's 116 pages of direct testimony related to Count
54, the Court concluded, "[T]he vast majority of Mr.
Pelullo's testimony was dedicated to providing a defense to
the heart of the government's case, namely the two
fraudulent schemes charging Mr. Pelullo with defrauding
[his companies] of over $2 million." See id. at 411.
In sum, the District Court found that the government
clearly established that Pelullo had stonewalled Royale's
accountants to conceal his diversion of corporate funds,
and that absent an explanation justifying that diversion,
the jury would easily have returned guilty verdicts on
Counts 1-53. See id. at 412. In light of this finding, the
Court concluded that the Brady material would not have
deterred Pelullo from testifying about his entitlement
defenses to the weightier charges of diversion in Counts 1-
53. Therefore, the Court found, Pelullo's testimony at the
first trial was "obtained by means sufficiently
distinguishable from the Brady violation to be purged of
any taint arising from that violation." See id. at 413. The
Court then inferred that Pelullo, having decided to testify
about Counts 1-53, knew he would be subject to cross-
examination about Count 54 and testified about Count 54
issues on direct examination to diffuse their potency. See
id.16
The Court drew support for its conclusion from another
situation at the first trial. Well into the first trial, one of
Pelullo's attorneys, Dennis Richard, told the Court that the
defense would call two more witnesses before it decided
whether to put Pelullo on the stand. After calling those two
witnesses, neither of whom testified about anything related
to the DiSalvo loan or the $114,000 wire transfer, the
defense decided to call Pelullo as a witness. The District
Court found that this decision supported the government's
position that Pelullo would have testified even if the Brady
material had been disclosed. See id. at 417-18. The Court
apparently reasoned that the decision whether to call
Pelullo hung on what those two witnesses managed to
convey; that the defense knew at that point that those
witnesses would have nothing to say about the $114,000;
and that Pelullo had to take the stand to convey additional
information that the two witnesses had not imparted,
information unrelated to the DiSalvo loan. See id. at 418.
While this is not the only inference that the District Court
could have drawn from these facts, it is a viable inference,
and thus we cannot find clear error.
4. Whitaker
Although Pelullo did not bear the burden of proving the
causal connection between the Brady violation and his
testimony, he nevertheless introduced the testimony of
Glenn Whitaker, his attorney from the first trial. Whitaker
testified as follows:
Q: What were the determining factors in that decis ion
to have [Pelullo] testify [at the first trial]?
W: Well, primarily that we had two F.B.I. agents
testifying about a meeting at which Mr. Pelullo was
present, and their testimony needed to be rebutted
about a particular reference that's contained in this
302 [report] . . . .
Q: Is that the reference that is at Page JA-774, t he last
four lines?
W: Yes. The reference is that a $114,000 wire tran sfer
from the debtor-in-possession account to LRP, Inc.,
17
was used to repay Tony DiSalvo. We felt it essential
that we call Mr. Pelullo to respond to that, because,
quite frankly, there was no other way to deal with that
issue. In addition, we felt that we were required to
respond to the testimony of Mr. Leonetti about his
contacts with Mr. Pelullo, and, again, there was no one
else available to deal with that, and there was no
effective cross-examination material to deal with those
witnesses.
6 F. Supp. 2d at 408. Whitaker further stated that Pelullo
was put on the stand to deny that he made the statement
alleged in the 302 report and to deny that he had had
direct contact with Leonetti. See id. at 408-09. In addition,
Whitaker noted that he felt that they had "adequate
defenses and adequate presentation as to the other counts.
Count 54 was the one [they were] most concerned about."
See id. at 409.
The Court considered five factors in weighing Whitaker's
credibility: (i) Whitaker spoke with Pelullo after we
remanded for an evidentiary hearing; (ii) Whitaker reviewed
our opinion in Pelullo III; (iii) Whitaker reviewed the Brady
material before testifying at the evidentiary hearing; (iv)
Whitaker understood the purpose of the remand hearing;
and (v) Whitaker testified that the law firm he worked for
when he represented Pelullo was owed over $100,000 in
legal fees. See id. at 419. Coupled with the Court's
incredulity that, counter to Whitaker's testimony, Pelullo
would not have defended himself against Counts 1-53 in
person using his entitlement defense, the Court found
these factors rendered Whitaker's testimony unbelievable.
However, as Pelullo points out on appeal, most prepared
witnesses would meet factors (i)-(iv). It is also doubtful that
Whitaker would feel an obligation to help his oldfirm
obtain outstanding fees. Had the District Court relied on
factors (i)-(v) alone in questioning Whitaker's credibility, we
might well have found clear error. But the District Court
made further findings about Whitaker that affect the
calculus.
For instance, Whitaker's closing argument troubled the
District Court. The Court observed that Whitaker's closing
at the first trial did not mention the evidence Pelullo now
18
claims was the sole reason he testified. See id. at 416. In
fact, in closing, Whitaker conceded for the sake of
argument that the $114,000 may have been used to repay
DiSalvo, as the government had contended. Whitaker then
argued that Pelullo was nevertheless entitled to use the
money for that purpose:
[L]et's assume that Peter Pelullo used that money to
repay Tony DiSalvo. Let's assume that what the
Government has said is correct, and we deny it, and
the evidence doesn't establish that that happened in
any way, shape [or] form. But let's assume he did that.
. . . Because again, Peter Pelullo was entitled to the
money as compensation and he could use that money
any way that he wanted to use it. And if he wanted to
use it to repay a debt of his son, if he wanted to use [it]
to take to the racetrack . . . whatever it was that he
wanted to do with it, it was his business.
Id. at 417.
In the District Court's view, the quoted language called
into question the asserted reason that Pelullo testified,
since Whitaker did not mention Pelullo's testimony
rebutting Leonetti and Wolverton. Second, it illustrated the
importance of the entitlement defense to Pelullo's case and
bolstered the District Court's conclusion that Pelullo would
have testified anyway to set forth that defense.
The District Court was troubled by yet another of
Whitaker's trial strategies. The Court thought that when
Pelullo reviewed Wolverton's formal report and saw that the
report included an "admission" that the $114,000 went to
pay off DiSalvo, Whitaker should have requested
Wolverton's rough notes of the interview to see whether
those notes correlated with the formal report. See id. at
419. Instead, Whitaker merely filed a pretrial motion asking
that the rough notes be preserved so that they would be
available for use at trial. Whitaker did not ask to see the
rough notes after Wolverton and Leyden testified.
The District Court found a final reason to disbelieve
Whitaker. It properly noted the "questionable" impeachment
value of the surveillance logs, see Pelullo III, 105 F.3d at123 n.3 (noting that the logs only covered twelve days in
19
January), and therefore found unpersuasive Whitaker's
testimony that having the logs available would have
influenced Pelullo's decision to testify in thefirst trial. See
id. at 421.
Pelullo strongly opposes the District Court's (and the
government's) supposed intimations that Whitaker's
conduct was less than impeccable and objects to their
putative slur on his professional reputation. We do not find
such supposed aspersions to have been made; indeed, it
appears to us that Whitaker is a highly reputable (and
capable) lawyer. We also acknowledge the force of Pelullo's
response to the District Court's (and the government's)
arguments on this point. However, taking as a whole the
Court's findings about Whitaker, we cannot conclude that
it clearly erred in choosing not to credit Whitaker's
testimony about the reasons Pelullo testified in the first trial.6
5. Ambiguous Testimony at the First Trial
The District Court devoted a number of its findings to a
comparison between Whitaker's testimony about why
Pelullo took the stand and what Pelullo actually testified to
on the stand at the first trial. Finding that Pelullo did not
testify unambiguously about the things he had purportedly
planned to testify to, the District Court inferred that
Whitaker's testimony was not entirely believable and
appeared to be an "after-the-fact" explanation of why
Pelullo took the stand. See id. at 414-15.
_________________________________________________________________
6. The District Court was mistaken when it faulted Whitaker for failing
to cross-examine Wolverton and Leyden about the content of their notes.
The Court concluded, "Mr. Whitaker's failure to even broach this subject
during the cross-examination of Agents Wolverton and Leyden at the first
trial raises a significant doubt that Mr. Pelullo told Mr. Whitaker before
the first trial that he had made the statement`repaying intercompany
debt' during his interview with the agents." See 6 F. Supp. 2d at 420.
However, as Pelullo points out, Whitaker had nothing with which to
confront the agents, in light of the Brady violation. Whitaker did cross-
examine the agents on other issues, but he can hardly be faulted for
believing he had nothing to cross-examine the agents with on the
$114,000 question. This fact does not, however, alter our ultimate
conclusion.
20
Specifically, Whitaker stated that Pelullo wanted to tell
the jury his version of events; with regard to the FBI
interview, the Court perceived that version to be a clear
statement that Pelullo used the $114,000 to "repay
company debt." But the Court found that Pelullo never
explicitly offered this explanation. See id. at 415. Instead,
the Court noted that Pelullo testified at trial, "I said I don't
remember the $114,000 going to pay Tony DiSalvo, but I do
have or did have a loan with Tony DiSalvo." See id. The
Court concluded that the "two versions of what Mr. Pelullo
supposedly told the FBI agents are irreconcilable." See id.We disagree. The District Court apparently wanted
Pelullo to testify verbatim about what he ostensibly told the
FBI agents, but that was not within its power to require. At
all events, the two versions are not irreconcilable. The
District Court ignored the segment of Pelullo's testimony
that came just before the above-quoted language. In
response to a question about the circumstances of the
February wire transfer, Pelullo stated, "That transfer was a
transfer that I made to authorize to LRP for moneys that
my dad was owed by the company." Since Pelullo had just
testified that the February wire transfer went to pay off an
intercompany debt, it is overly formalistic to require that he
reiterate that point a few questions later in predetermined
language. In sum, the District Court clearly erred on this
set of findings, but this does not render its overall
conclusion clearly erroneous.
The District Court found similar problems with Pelullo's
testimony about Leonetti. While acknowledging that Pelullo
denied meeting Leonetti, the Court noted that Pelullo
admitted that he had been to Scarfo's house on two
occasions, and that he did not deny that these visits had
occurred in January 1986. The Court then faulted Pelullo
for failing to deny that "he met with Mr. Scarfo and Mr.
Leonetti on either or both of those occasions." See id. at
416. But Pelullo had already testified, when asked if
Leonetti ever contacted him about the DiSalvo loan, that
Leonetti never had contacted him. Perhaps his lawyer
should have made sure to ask Pelullo whether he visited
Scarfo's house in January; it appears that Pelullo did not
deny that his visits to Scarfo's house were in January
21
because he was never asked when those visits occurred.
The District Court declared, "It is inconceivable to me
under these circumstances that Mr. Pelullo would have
given up his constitutional privilege only for the purpose of
providing such vague and ambiguous testimony." See id.While it would be unfair to require Pelullo to lay out his
defense in specific words, we do not think the District
Court erred in inferring that Pelullo would have set forth a
clearer defense if he truly had decided to testify solely to
rebut the government's case on Count 54.
6. Testimony in the Second Trial
At his second trial, Pelullo again testified in his own
defense, setting out his entitlement theory much as he had
in the first trial. The District Court found that the only
significant difference between his testimony at the two
trials was that he did not testify about the $114,000 in the
second trial. The Court found that this was "powerful and
compelling evidence that his reason for waiving his fifth
amendment privilege and testifying at the first trial had
nothing to do with the information contained in the Brady
material, because the information contained in the Brady
material was relevant only to the $114,000 transaction with
Mr. DiSalvo and was not relevant to the other counts about
which Mr. Pelullo freely testified." See id. at 413.
Pelullo correctly points out that the District Court had
(erroneously) ruled at the beginning of the second trial that
the jury would be instructed that it had to find as a matter
of law that Pelullo had committed the acts set forth in
Count 54. Pelullo argues that he had no choice but to take
the stand in an attempt to mitigate the explosive impact of
that error, though he fails to explain precisely why he felt
that taking the stand to discuss Counts 1-53 would
mitigate the error. Thus, he would have us conclude, the
trial was so fraught with error that it cannot be used as
evidence of anything.
However, with regard to trial two, either of two
assumptions could be correct. While it might be true that
Pelullo had to get on the stand in order to combat the
District Court's erroneous use of collateral estoppel, it also
22
could be true that taking the stand when Count 54 was not
in issue indicates that the role of Pelullo's testimony in his
own defense encompassed more than just a response to
Count 54. Since either inference is viable, we discern no
clear error in the District Court's finding.
7. Pelullo's Other Evidence in Defense Against Count 54
The District Court found that Pelullo had a significant
amount of evidence that he could use in mounting a
defense to Count 54. This evidence included his father's
testimony that Royale owed his company money for the
hotel renovation project; that the $114,000 transfer in
February was partial payment of that debt; that he used
the $114,000 for personal reasons; and that he did not use
the money to repay DiSalvo on his son's behalf. See id. at
411.
Beyond refuting the accusations against Pelullo, Pelullo's
family offered an affirmative explanation for the events at
issue. See id. His father testified that in August 1986,
Leonard's brother Arthur told him that Leonard had
borrowed money from DiSalvo and that Scarfo and Leonetti
had advised the Pelullos to repay DiSalvo. Leonard's
brother Peter testified that he helped Leonard repay DiSalvo
by borrowing money from a bank in September 1986; Peter
stated that he then gave that money to Arthur to give
DiSalvo. Leonard introduced bank documents supporting
this story, including a $55,000 bank check drawn on his
brother's account, made payable to DiSalvo. The District
Court did not clearly err in concluding that, based on this
evidence list, Pelullo could have mounted a defense to
Count 54 without taking the stand himself.
The Court also found that Pelullo had a number of ways
to impeach Leonetti's testimony, only one of which was
taking the stand. As we noted in Pelullo II, "Leonetti was
subject to extensive cross-examination and impeachment.
The defense attacked Leonetti's credibility by bringing to
light the accounts of his murders and his desperate deals
with the government in order to get out of prison sooner."
Pelullo II, 14 F.3d at 887. The District Court also found that
Pelullo, in a motion after the second trial, had described
23
Leonetti's trial testimony as having "minuscule relevance."
See 6 F. Supp. 2d at 420. From that language, the District
Court inferred that Leonetti's testimony had little effect on
Pelullo's decision to waive his Fifth Amendment rights.
While an alternate reading--that Pelullo simply was
downplaying to the court the significance of an adverse
witness's testimony--is possible, the District Court's
reading is plausible too.
In sum, based on the whole of the District Court's
findings of fact, we cannot say that the District Court
clearly erred when it found that the government proved by
a preponderance of the evidence that Pelullo would have
testified during his first trial even if the withheld material
had been made available to him. While the District Court's
findings of fact were not uniformly correct, we are not left
with a "definite and firm conviction that a mistake has been
committed." See United States Gypsum, 333 U.S. at 395.
The judgment of the District Court will be affirmed.
However, upon return of the mandate to the District Court,
the Court shall amend the judgment to reflect that the fine
is a non-committed fine.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
24