United States v. Pelullo

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Precedential or Non-Precedential: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

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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 at

123 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 at

123 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