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United States v. Palmeri

decided: September 3, 1980.

UNITED STATES OF AMERICA
v.
PALMERI, ERNEST P., SR., APPELLANT; UNITED STATES OF AMERICA V. CAMPISANO, JOSEPH, APPELLANT; UNITED STATES OF AMERICA V. CARIELLO, VITO, APPELLANT; UNITED STATES OF AMERICA V. SMITH, FRANK, APPELLANT; UNITED STATES OF AMERICA V. CHESTNUT, FLEN, APPELLANT



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

Before Aldisert and Sloviter, Circuit Judges, and Hannum, District Judge.*fn*

Author: Aldisert

Opinion OF THE COURT

These consolidated appeals from a jury verdict of conviction present a number of questions for consideration. The first issue concerns the proper scope of 18 U.S.C. § 1954, which proscribes the receipt of kickbacks and other illegitimate benefits by persons associated with employee benefit plans. The second issue is whether the district court failed to distinguish transactions involving money covered by § 1954 from transactions involving money not covered by that section. Third, we must determine whether the court erred in submitting special interrogatories to the jury. Finally, we must decide whether the government produced insufficient evidence to support each conviction under 18 U.S.C. §§ 1962(c) and (d), which proscribe transactions and conspiracies related to racketeering enterprises. We hold that the government produced insufficient evidence to support the conviction of appellant Flen Chestnut, and we will therefore reverse his conviction. We resolve all other issues against appellants, however, and the other convictions will therefore be affirmed.

Local 945 of the International Brotherhood of Teamsters, with offices at West Paterson, New Jersey, was an employee organization within the meaning of 18 U.S.C. § 1954, and maintained three collective bargaining funds: a Pension Fund; a Welfare Fund, which provided hospitalization and related benefits to the members; and a Severance Fund, which made payments to retired or laid-off workers from individual accounts. The local also maintained a treasury consisting of unearmarked union monies. Both the Welfare Fund and the Severance Fund were "employee welfare benefit plans" within the meaning of § 1954 and were covered by the Welfare Pension Plan Disclosure Act, 29 U.S.C. §§ 301-09, repealed by Employee Retirement Income Security Act, Pub.L. No. 93-406, § 111, 88 Stat. 851, codified at 29 U.S.C. § 1031, and the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1381. Each fund was managed by a board of trustees comprised of three management trustees and three union trustees. Joseph Campisano was the president and Vito Cariello the secretary-treasurer of Local 945, and both were union trustees of each fund. Ernest P. Palmeri, Sr., Flen Chestnut, and Frank Smith were business representatives and employees of Local 945.

The government introduced evidence tending to show that in July, 1973, the board of trustees adopted a program of concentrating the assets of the funds into fewer and larger certificates of deposit, thereby maximizing their investment performance. The board vested authority to implement the program in Cariello. During the ensuing three years, nine area banks received more than $1,200,000 from the union in savings deposits and investments in certificates of deposit, while at the same time extending nearly three quarters of a million dollars in loans to participants in the scheme or their nominees. The banks made little or no effort to collect the loans that they had extended for fear of jeopardizing future deposits or renewals of current deposits by the local.

Under the scheme, Palmeri would contact officers of banks and indicate to them that Local 945 was interested in obtaining certificates of deposit in large face amounts from certain banks. During these conversations and with varying degrees of bluntness, Palmeri would suggest that he or persons close to him were in need of loans. The bank officers, operating on the basis of the implied quid pro quo, would grant the loan with little or no meaningful evaluation of the loan application. Soon thereafter, Cariello would contact the officer to inquire about interest rates, and a deposit check on one of the union's funds would promptly arrive bearing Cariello's signature. As the scheme progressed, recipients of the loans began to default, and several of the banks victimized by the scheme experienced severe financial difficulties. In addition, the facade of extending and receiving credit began to give way to the reality of percentage kickbacks.

I.

Many transactions were alleged in the twenty-three count indictment and supported by the government at trial. Although we will not detail each transaction, we will summarize them.

In November, 1973, Alexander Smith, President of the State Bank of Chatham, was introduced to Palmeri. They discussed Palmeri's desire for a loan and Smith's interest in obtaining deposits from Local 945. Palmeri offered to speak to Cariello and said that union funds would probably be deposited in the bank. He also indicated that from time to time he would be sending friends into the bank for loans. Palmeri, who was not a customer of the bank, requested and received a $10,000 unsecured loan on the spot. A week later Smith received a telephone call from Cariello who had talked with Palmeri and was ready to deposit $20,000. Smith received the check in December and issued a certificate of deposit to Local 945.

In January, 1974, Palmeri obtained an additional $7,500 unsecured loan from the bank after he promised to speak to Cariello about increasing Local 945's deposits. A few days later, Cariello called requesting interest rate quotations. Smith continued to press Palmeri for additional deposits and in March, 1974, Cariello called again to say that more money would soon be available.

On March 14, Palmeri obtained a $20,000 loan for his son's business, Elton Fashions. On the next day, the bank received an additional $80,000 check from Local 945. The same month, Smith agreed to lend Palmeri $20,000 for the construction of a restaurant, but only if he came up with four qualified borrowers, each of whom would receive $5,000. The loans were consummated using Campisano, two restaurant employees, and Palmeri's son as the four borrowers. Campisano's application stated that "education" was the purpose of his loan. Campisano and Palmeri later paid off the loan in cash because of Palmeri's uneasiness about Campisano having a loan outstanding from the same bank at which the union kept its funds. Campisano later denied to the FBI and to the grand jury ever having taken out a personal loan at the State Bank of Chatham or having been asked by anyone to do so.

In April, 1974, Palmeri and two officials from other unions threatened to withdraw their union deposits from the State Bank of Chatham unless Smith adopted a one hundred percent loans-for-deposits ratio. At that point Cariello and Campisano entered the room and Cariello announced that the union could keep its money in any bank with a competitive interest rate. On the promise of still more union deposits, and with the approval of the bank's board of directors, Smith ultimately agreed to a sixty percent ratio.

Several more loan for deposit transactions followed. The bank extended another loan to Elton Fashions for $15,000, and another to a sister corporation for $15,000. At Palmeri's request, appellant Chestnut received unsecured loans for $7,000 and $4,500, Emily Bonniello received one for $20,000, and appellant Frank Smith a car loan for $3,100. Palmeri also obtained a $5,000 unsecured loan for his brother. Throughout this time, Local 945's original $100,000 CD was continuously renewed, and an additional $100,000 CD was purchased with a check drawn on the Welfare Fund.

In August, 1974, Palmeri and the same two officials from other unions met with Alexander Smith to demand a two percent kickback on their deposits. Smith acquiesced in this demand. At the next meeting, which Campisano also attended, Frank Rando, one of the other officials, threatened to cooperate with the FBI's investigation of the kickback scheme. Palmeri responded: "(If) you like breathing you won't even think such things, let alone say them." Campisano echoed the warning: "Frank, he's not kidding. Al (Smith) doesn't know anything. You know too much." Rec. at 2.171.

Alexander Smith testified that these loans were granted because of the loans for deposits arrangement with the union. Shortly after Smith left the State Bank of Chatham in May, 1975, Local 945 and its Welfare Fund redeemed their $100,000 CDs, and withdrew their deposits from the bank.

In the spring of 1974, Rando introduced Palmeri to Robert Prodan, vice-president and chief operating officer of the Bank of Bloomfield. Rando described his own loans-for-deposits relationship with the bank and Palmeri said that he would attempt to duplicate it. Palmeri went to the bank, stated his intention to obtain deposits from the local, and applied for a $15,000 unsecured loan. Prodan granted this loan on May 31, 1974. On June 21, 1974, the bank received a $100,000 check from the Welfare Fund for the purchase of a six month CD. Although Cariello signed this check, as he did all the Welfare Fund and Severance Fund checks, he never spoke to Prodan about the deposit or its terms. A few weeks later Prodan wrote to Palmeri acknowledging receipt of the money and thanking him. Palmeri called Prodan and insisted that he destroy the letter to prevent anyone from linking him to the union deposits. In July, Palmeri received a second unsecured loan for $10,000 from the Bank of Bloomfield. Four days later, the bank received a $100,000 check from Local 945.

The relationship with the Bank of Bloomfield continued with a $20,000 unsecured loan to Chestnut, a $25,000 loan to Philip Amster for the purchase of a restaurant, two $25,000 loans to the restaurant, the first of which Palmeri and George Franconero used to buy out Amster, a $20,000 loan to Emily Bonniello and Palmeri's Hotel and Tavern, an installment loan of $5,000 to Palmeri's brother, three unsecured loans totalling $25,000 to Palmeri, a loan for $125,000 to the restaurant in behalf of Palmeri, Campisano, and Franconero, and two unsecured loans totalling $12,500 to appellant Frank Smith. Palmeri also used his influence and the incentive of union deposits to obtain loans for several other persons. Throughout this time, the two certificates of deposit, one drawn on the Welfare Fund and one from the local's general funds, were continuously renewed, and an additional $100,000 deposit from the Welfare Fund was made in June of 1975.

In August, 1975, Frank Smith met with Prodan's assistant in charge of delinquent loans at the Bloomfield Bank. The bank had requested that three past due loans, one each to Palmeri, Smith, and Chestnut, be renewed and that the interest and some amount of principal be paid. Smith brought in three signed renewal notes and paid the interest up to date on the three loans. When asked if he was prepared to pay some of the principal on the three loans, one of which was his own, Smith replied that he "didn't know anything about it, that Mr. Palmeri took care of it." Smith later denied to the FBI that he knew anyone other than himself who had loans at the Bank of Bloomfield.*fn1

In 1973 Palmeri was introduced to Paul Sheridan of the National Newark and Essex Bank as a man who could direct deposits to the bank. Palmeri promised to help direct union deposits to the bank and also requested and received a $10,000 unsecured loan. Palmeri later received an unsecured loan for $5,000 from the bank. In October, 1973, at Palmeri's request, Sheridan granted a $5,000 loan to Anthony LoParto. On the same day, Cariello drew a $100,000 check on the Welfare Fund for a certificate of deposit at the National Newark and Essex Bank. Palmeri later promised another officer of National Newark and Essex that he would obtain an additional $100,000 CD for the bank. On July 15, 1974, the $100,000 Local 945 Welfare Fund CD was renewed again, and on August 7, 1974, Palmeri received another $10,000 loan. The CD was renewed repeatedly thereafter until mid-1977.

During the summer of 1973 Carl Berger, President of the Anthony Wayne Bank, met with a group including Campisano and Palmeri at Local 945, to solicit deposits and indicate his willingness to offer loans to union employees. On September 18, 1973, the bank issued a $20,000 CD to the Local 945 Severance Fund in exchange for its check dated September 11. On October 17, 1973, Berger granted a $5,000 unsecured loan to Palmeri. The loan application that Palmeri had completed and signed showed no outstanding loans even though Palmeri had $15,000 in loans outstanding from the National Newark and Essex Bank. Later that month, Palmeri received a $3,600 auto ...


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