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UNITED STATES v. CARIELLO

April 15, 1982

UNITED STATES of America, Plaintiff,
v.
Vito CARIELLO, Defendant



The opinion of the court was delivered by: GERRY

Defendant seeks to vacate his sentence on Counts 1 and 2 on the grounds that the Government failed to prove a Racketeer Influenced and Corrupt Organizations (RICO) violation and because of prejudice caused by the submission of the RICO counts to the jury, which prejudice spilled over into the jury's consideration of the substantive counts. Defendant also seeks a new trial on all counts claiming a denial of his Sixth Amendment right to testify and prejudice inherent in the use of special verdict forms by the jury which resulted in a finding of guilt by association and an inadequate consideration by the jury of the essential mental elements of the crimes charged. Defendant also contends that he is entitled to a new trial on the ground that the prosecution relied on inadmissible hearsay. Finally, defendant asks the court to vacate his sentence because of the use of the special interrogatory forms and because there is no evidence of clear nor equivocal proof of defendant's guilt.

Defendant has engaged in extensive briefing of all grounds.

 The court will address each of defendant's contentions individually.

 1. Proof of RICO Charges.

 Defendant argues that in order to make out an offense under RICO the Government must prove that the affairs of an "enterprise" were conducted through a pattern of racketeering activity. Defendant contends that the use of the term "through" in the statute requires the Government to show that the affairs of the enterprise were advanced or profited by virtue of the racketeering activity. Defendant relies on U. S. v. Webster, 639 F.2d 174, 182-86 (4th Cir. 1981) and U. S. v. Nerone, 563 F.2d 836 (7th Cir. 1977).

 While the original opinion of the court in Webster appeared to require a benefit to the charged enterprise in order for the statutory provisions to apply, the Fourth Circuit, as defendant has acknowledged to the court, has subsequently abandoned its view. U. S. v. Webster, 669 F.2d 185 (1982). In rejecting its earlier position, the court stated that there was no basis for limiting the statute by reading "conduct" to mean "promote" or benefit since even businesses out to make money may conduct their affairs for other purposes. Moreover, the court recognized that the problem of requiring a benefit to the enterprise surfaces in cases where the "enterprise" is governmental in nature and almost universally not organized for profit. Rather than require a benefit, the proper inquiry in a RICO case should be whether the affairs of the enterprise were carried on, repeatedly or evenly, through a pattern of racketeering activity. The Webster court found such a requirement satisfied where the evidence at trial established that, by means of the telephone company's call-forwarding service, telephone calls to the individual defendant's homes were frequently directed to the 1508 Club (the charged enterprise). In addition, the club's facilities were used to accept and relay narcotic related messages, and on at least one occasion a club employee was asked by defendant Webster to provide club-owned drinks to one of his customers who was waiting for drugs to be brought. Thus, "the evidence which the Government has offered indicated that the facilities of the club were regularly made available to and put in the service of defendant's drug dealing business." Id. at 2355.

 Defendant also relies on U. S. v. Nerone, supra, for the proposition that a benefit must accrue to the enterprise as a result of the racketeering activity. While the court in Nerone observed that the Government had failed to show that proceeds from an illegal gambling operation were invested in the enterprise (a corporation operating a mobile home park) or in any way channeled into the corporation, it nowhere holds that the enterprise must directly profit from the racketeering activity. On the contrary, the court's observation that the Government's case demonstrated a "total want of proof of connection between the racketeering activities and the affairs of the corporation" would appear to indicate that the statute merely requires a sufficient nexus between the enterprise and the alleged illegal activities.

 Such a reading of the opinion is supported by the subsequent decision of the Seventh Circuit in U. S. v. Lee Stoller Enterprises, Inc., 652 F.2d 1313 (1981), in which the court held that a public body or entity could constitute an "enterprise" under RICO. Since, as the Fourth Circuit on rehearing in Webster pointed out, an enterprise which is governmental in nature is almost universally not organized for profit, the inclusion of a sheriff's department within the meaning of RICO enterprises establishes the Seventh Circuit's position that benefit or profit to the enterprise as a result of the racketeering activity is not a statutory requirement.

 Defendant has indicated to the court that his position on the benefit requirement is bolstered by the recent decision of the Sixth Circuit in U. S. v. Thompson, 669 F.2d 1143 (1982), in which the court excluded from the scope of the term "enterprise" in RICO cases governmental enterprises.

 Defendant's reliance is misplaced. First of all, the Sixth Circuit decided to exclude governmental entities from RICO coverage not because the statute requires a profit or benefit to the enterprise but rather held that because the remedy provisions of the statute could not be applied by the courts to such enterprises, they would be excluded. More importantly, defendant's reliance on Thompson ignores the fact that in U. S. v. Frumento, 563 F.2d 1083 (3d Cir. 1977), cert. denied sub nom. Millhouse v. U. S., 434 U.S. 1072, 98 S. Ct. 1256, 55 L. Ed. 2d 775 (1978), the Third Circuit expressly rejected defendant's argument that the term "enterprise" was never intended to include governmental organizations. The court specifically addressed the concern of the Sixth Circuit in Thompson regarding the remedy provisions. The court reasoned that in the Organized Crime Act Congress was not so much concerned with limiting the protective and remedial features of the Act to business and labor as it was with reducing the insidious capability of persons in organized crime to infiltrate the American economy. Thus, Congress was concerned with enlarging the number of tools with which to attack racketeering and did not confine its scrutiny to specific areas of economic activity. The court found neither articulation nor evidence of intention by Congress to exclude governmental entities from the reach of the statute. Accordingly, it held that a state agency charged with the responsibility of enforcing the tax laws on an interstate industry engaged in the importation of cigarettes from points outside the state constituted an enterprise within the meaning of 18 U.S.C. § 1961. Accord, U. S. v. Welch, 656 F.2d 1039 (5th Cir. 1981).

 While the Third Circuit has never directly addressed the question of whether the statute requires that the enterprise conducted through a pattern of racketeering activity be profited by that activity, this court is confident that the Circuit would reject such a contention. The fact that the court in Frumento construed the statute expansively is consistent with an approach which does not require profit or benefit to the enterprise in order for the conduct to be prohibited. Moreover, the Circuit has never applied the "enterprise" requirement in a limited fashion. See U. S. v. Bacheler, 611 F.2d 443, 450 (3d Cir. 1979); U. S. v. Herman, 589 F.2d 1191 (3d Cir. 1978), cert. denied, 441 U.S. 913, 99 S. Ct. 2014, 60 L. Ed. 2d 386 (1979); U. S. v. Vignola, 464 F. Supp. 1091 (E.D.Pa.1979), aff'd mem., 605 F.2d 1199 (3d Cir. 1979), cert. denied, 444 U.S. 1072, 100 S. Ct. 1015, 62 L. Ed. 2d 753 (1980). See also, U. S. v. Provenzano, 620 F.2d 985 (3d Cir.) cert. denied, 449 U.S. 899, 101 S. Ct. 267, 66 L. Ed. 2d 129 (1980).

 I also find persuasive the reasoning of the Second Circuit in U. S. v. Scotto, 641 F.2d 47 (2d Cir. 1980). In Scotto, the defendants were the president and the secretary-treasurer (later executive vice president) of an International Longshoremen's Association local. Defendants also held offices in the International Union. The Government charged the defendants with operating the affairs of the union (the charged enterprise) through a pattern of racketeering activity. Specifically, the Government's evidence established that defendants individually and jointly received illegal labor payoffs (kickbacks for keeping labor peace) from 1975-1979 from six separate waterfront businesses employing ILA members. Scotto contended on appeal that an insufficient nexus between the predicate misconduct and the conduct of the enterprise existed, and that the trial court should have charged the jury that the predicate acts had to affect the affairs of the ILA in its essential functions. The Second Circuit rejected this approach and held that "one conducts the activities of an enterprise through a pattern of racketeering when (1) one is enabled to commit the predicate offenses solely by virtue of his position in the enterprise or involvement in or control over the affairs of the enterprise, or (2) the predicate offenses are related to the activities of that enterprise." Id. at 54.

 The conduct of the defendants in Scotto, the manner in which they conducted union affairs is factually indistinguishable from the conduct of the defendant herein in his operation of the union funds. All the defendants, including Cariello, by virtue of their control over the funds' investments were able to exert pressure over various bank personnel in order to obtain unsecured loans and other payments. As the Third Circuit stated in the appeal of this matter ( U. S. v. Palmeri, 630 F.2d 192 (1980)), the trustees of the funds had adopted a program of concentrating the assets of the funds into fewer and larger certificates of deposit and had vested the authority for implementation of the program in Cariello. The Government introduced evidence of a series of transactions wherein Palmeri would suggest the possibility of large investments to bank officials, ask for and usually obtain loans for himself or others, and soon thereafter Cariello would contact the officer to inquire about interest rates and issue a check on one of the union's funds bearing his signature. Such conduct certainly satisfies the requirements of the statute as interpreted by the Second Circuit in Scotto.

 Accordingly, defendant's contention that his convictions of the RICO counts must be vacated and the charges dismissed due to lack of the requisite benefit to the enterprise represents an unacceptable interpretation of the statute and must be rejected.

 2. Substantive Counts.

 Defendant contends that the Government's failure to satisfy the elements of proof for a RICO conspiracy violation (on defendant's no profit to the enterprise theory) prejudiced him on the substantive counts and resulted in a finding of guilt by association.

 The court has previously rejected defendant's contention that the submission of the RICO charge to the jury was error, and that the Government's proofs failed to satisfy its burden of introducing evidence that defendant conducted the affairs of the fund through a pattern of racketeering activity. Since the predicate of defendant's argument lacks ...


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