1999 Decisions

Opinions of the United

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Precedential or Non-Precedential: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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Recommended Citation

"USA v. Pelullo" (1999). 1999 Decisions. Paper 72.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/72
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 laterdisclosed 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 crossexamination 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 crossexamine 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