United States v. Leonard A. Pelullo
964 F.2d 193, 1992 WL 95985 (1992)
Rule of Law:
Under the Federal Rules of Evidence, business records are admissible under Rule 803(6) only with a proper foundation from a qualified witness, and the residual hearsay exception under Rule 803(24) requires advance notice; summaries of voluminous writings are admissible under Rule 1006 only if based on admissible underlying evidence. Furthermore, a jury instruction on RICO's 'pattern of racketeering activity' must clearly delineate the separate requirements of relatedness and continuity, and the 'enterprise' element requires proof of an ongoing organization distinct from the pattern of criminal activity.
Facts:
- Leonard A. Pelullo served as the chief executive officer of The Royale Group, Limited (Royale), a publicly held corporation.
- In late 1983, Royale acquired six 'art deco' hotels in Miami Beach, Florida, through wholly owned subsidiaries.
- In June 1984, the hotels obtained a $13.5 million loan from FCA Mortgage Corporation (FCA Mortgage), a wholly owned subsidiary of American Savings and Loan Association (American), with $3.5 million (later increased to $6.2 million) designated for renovation costs, to be disbursed by American upon certified draw requests.
- Pelullo certified most draw requests, overstated renovation costs, submitted false documentation, and directed loan disbursements via wire transfers to Delta Development and Construction Corporation (Delta), a company he controlled.
- Pelullo diverted proceeds for personal use, including purchasing farms and a ranch, funding restaurants, repaying a loan for his father, and converting $100,000 to cash at a casino.
- Pelullo failed to disclose information regarding loan proceeds use to Royale's board, withheld financial records from independent auditors, and fired two accounting firms (Touche Ross & Company and Coopers & Lybrand) who requested these records.
- Pelullo diverted $114,000 from Palm Beach Heights Development Corporation (PBH), another Royale subsidiary, to repay a personal debt he owed to a loanshark, Anthony DiSalvo, who sought assistance from Philip Leonetti and Nicodemo Scarfo of the Philadelphia mafia.
- FBI Agent Randall Wolverton conducted an investigation, tracing Pelullo's fund diversions through subpoenaed bank records of Royale, Delta, and other Pelullo-controlled companies, and through numerous interviews.
Procedural Posture:
- Leonard A. Pelullo was convicted by a jury in the United States District Court for the Eastern District of Pennsylvania on 49 counts of wire fraud and one count of racketeering.
- The district court sentenced Pelullo to 24 years' imprisonment, $4,400,000 in fines, and ordered restitution of $2,071,000 and $114,000.
- Pelullo appealed his conviction to the United States Court of Appeals for the Third Circuit, raising multiple grounds for error by the district court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Did the district court commit reversible error by admitting bank documents without a proper foundation under the business records exception or prior notice for the residual hearsay exception, and by admitting summaries based on inadmissible hearsay, thereby requiring the reversal of wire fraud and RICO convictions?
Opinions:
Majority - Greenberg, Circuit Judge
Yes, the district court committed reversible error by improperly admitting bank documents and summaries, leading to the reversal of convictions on most counts due to the failure to satisfy the stringent requirements of the Federal Rules of Evidence. The court found that the bank documents were hearsay and not admissible under the business records exception (Fed.R.Evid. 803(6)) because the Government failed to lay a proper foundation by a custodian or qualified witness familiar with the banks' record-keeping systems. Agent Wolverton, who testified about the documents, did not have such familiarity. The court also rejected the residual hearsay exception (Fed.R.Evid. 803(24)) as a basis for admission because the Government failed to provide Pelullo with advance notice of its intention to rely on this rule, as required by United States v. Furst. Because the bank documents were inadmissible, the summaries prepared by Agent Wolverton, which were based on these inadmissible documents and his out-of-court interviews, were also inadmissible under Fed.R.Evid. 1006, which requires summaries to be based on admissible underlying materials. The court concluded that these errors were not harmless, except for count 54, a mail fraud count, which was independently established by admissible evidence. Regarding the RICO count, the court determined that the jury instruction on the "pattern of racketeering activity" element was erroneous because it did not adequately apprise the jury of the "continuity" requirement, as mandated by H.J., Inc. v. Northwestern Bell Telephone Co., which requires proof of both relatedness and continuity. The instruction did not guide the jury on how to find continuity (either through a substantial closed period or a threat of future activity). Similarly, the instruction on the RICO "enterprise" element was flawed as it did not explicitly refer to the three sub-elements required by United States v. Turkette and United States v. Riccobene: an ongoing organization, a continuing unit, and an entity separate from the pattern of activity. The court emphasized that a Riccobene instruction should be given on remand. The court also addressed Pelullo's other arguments: it found no reversible error in the wire fraud instruction, which adequately conveyed the specific intent to obtain money or property despite confusing discussions of civil fiduciary duties (though a limiting instruction would have been advisable); upheld the applicability of the ten-year statute of limitations for offenses affecting a financial institution (18 U.S.C. § 3293(2)), noting that fraud against a wholly owned subsidiary could affect the parent financial institution; affirmed the district court's decision to bar Pelullo from suggesting prosecutorial misconduct in summation without proper foundation; and deemed any error in admitting Philip Leonetti's hearsay testimony harmless for count 54, but cautioned proper instruction for a retrial. Finally, the court noted that the district court's charge conference procedure did not fully comply with Fed.R.Crim.P. 30 by not providing a fair opportunity for specific objections after counsel was informed of the final charge, though this error was harmless for count 54.
Analysis:
This case significantly reinforces the procedural safeguards of the Federal Rules of Evidence, particularly concerning hearsay. It establishes a high bar for admitting business records and summaries, preventing prosecutors from circumventing foundational requirements merely because documents appear inherently trustworthy or voluminous. The ruling also provides critical guidance on proper jury instructions for RICO's complex elements of 'pattern' and 'enterprise,' ensuring that juries are properly guided on proving each distinct component. This decision cautions trial courts to strictly adhere to Rule 30 for charge conferences and highlights the importance of precise evidentiary foundations and clear jury guidance in complex white-collar criminal cases, likely increasing the difficulty for the prosecution in establishing financial crimes if proper evidence management is not followed.
