U.S. v. Caliendo, s. 88-2061

• Decision Date: 13 August 1990
• Docket Number: Nos. 88-2061,88-2062,88-2079 and 88-2080,s. 88-2061
• Citation: 910 F.2d 429
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Vito CALIENDO, Susan Barker, Salvatore Cataudella and Thomas Stathas, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 429

910 F.2d 429

UNITED STATES of America, Plaintiff-Appellee, v. Vito CALIENDO, Susan Barker, Salvatore Cataudella and Thomas Stathas, Defendants-Appellants.

Nos. 88-2061, 88-2062, 88-2079 and 88-2080.

United States Court of Appeals Seventh Circuit.

Argued Oct. 23, 1989.

Decided Aug. 13, 1990.

J. Kenneth Lowrie, Dept. of Justice, Chicago Strike Force, Chicago, Ill., Douglas J. Wilson, Dept. of Justice, Crim. Div., Washington, D.C., Anton R. Valukas, U.S. Atty., David J. Stetler, James R. Ferguson, Victoria J. Peters, Asst. U.S. Attys., Crim. Receiving, Appellate Div., Chicago, Ill., for U.S.

Allan A. Ackerman, James J. Roche, Condon, Cook & Roche, Chicago, Ill., for Vito Caliendo.

James S. Montana, Jr., Lydon & Griffin, Chicago, Ill., Joseph N. DiNatale, Dinatale & Montemurro, River Forest, Ill., for Susan Barker.

Allan A. Ackerman, Chicago, Ill., for Salvatore Cataudella.

Robert J. McDonnell, Chicago, Ill., for Thomas Stathas.

Before CUDAHY, POSNER, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

This case deals with prostitution on credit. Appellants, along with other defendants who are not before this court, were convicted in the district court under various counts of a twenty-eight count indictment. Count One, a RICO conspiracy count, alleged that the defendants conspired through a pattern of racketeering activity to conduct the affairs of an enterprise promoting prostitution in violation of 18 U.S.C. Sec. 1962(c). Counts Two through Twenty-Six alleged various violations of the federal Travel Act. 18 U.S.C. Secs. 2 and 1952. ¹ Each appellant was convicted under the RICO conspiracy count. As for the substantive Travel Act counts, Vito Caliendo was found guilty under twenty two counts; Susan Barker guilty under seven counts; Salvatore Cataudella guilty under nine counts; and Thomas Stathas guilty under nine counts. This appeal challenges the propriety of those convictions.

I.

A full exposition of the facts giving rise to the convictions below is not necessary at this stage of the discussion. Rather, a description of the "big picture" as it portrays the combined efforts of all of the individual appellants to come together to further the conspiratorial scheme will be sufficient for the majority of issues raised on appeal.

The evidence presented at trial revealed that the appellants and other defendants conspired through various means to operate houses of prostitution in the Chicagoland area. The foundation of this conspiracy--that is, the basis for the convictions below--was the fact that the conspiratorial enterprise structured itself and "influenced" others in such a manner that the patrons of the houses of prostitution were able to pay for the services rendered with Visa, Mastercharge, and American Express credit cards. The catch: neither these credit card companies nor their issuing banks permit their credit accounts to be maintained for illegal purposes. Thus, the conspiracy necessarily involved the appellants' efforts to process their credit card slips by "laundering" them through legitimate businesses or by bribing a credit card representative to permit the appellants to maintain their accounts. The fact that sexual services were exchanged for credit also necessitated, in this case, the transportation of credit card slips across interstate lines and the use of interstate telephone facilities to obtain approval for charge transactions.

Philip Caliendo, together with his brother Vito, owned and operated various houses of prostitution. Two of their establishments, the Western Health Spa and the Petite Lounge, served as the focal points for the federal investigation which culminated in the appellants' convictions. Although the Western Health Spa and the Petite Lounge differed in the manner in which they catered their services, the overall scheme was the same. The customer would enter the establishment, select a prostitute, negotiate a price and then pay for the service which was soon to be rendered. If the customer chose to pay with a credit card, the establishment would have to obtain authorization for the transaction by use of the interstate telephone wires.

Because the credit companies do not allow their accounts to be maintained for illegal purposes, however, the appellants could not simply call the credit company and obtain authorization like any other legitimate business. Rather, the conspiracy was forced to use illicit means to process their credit card slips and/or maintain their accounts. These included: the services provided by the National Credit Card Service; the infiltration of legitimate businesses; and the bribery of a credit card company representative.

The National Credit Card Service ("NCS") was formed by Thomas Gervais exclusively for the purpose of laundering illicit credit card receipts for Chicagoland strip joints and brothels. In late 1978, Gervais offered his services to the Mansion House, a Caliendo establishment which functioned as a house of prostitution. For approximately a year, Gervais provided his service to the Mansion House without a hitch. Soon thereafter, however, the relationship soured from Gervais' perspective. The Caliendos began to "pressure" Gervais into taking them on as partners in his business. When he balked, a "tax" was instituted on Gervais' business by the Caliendos because of his monetary success. Moreover, the bank which Gervais was using to process the charges from the Mansion Club discovered the Mansion Club's illegal operation and closed its account and froze the funds. Gervais was stuck with approximately $12,000 in the frozen funds which represented charges made by the Mansion Club. These were funds which Gervais would end up covering at the risk of bodily injury. He was also "invited" by the Caliendos to get out of the credit card processing business. Soon thereafter, Gervais contacted the FBI and agreed to introduce an undercover FBI agent as a partner in NCS.

The House of Kobe, a Japanese restaurant in Schererville, Indiana, was one of the legitimate businesses targeted by the conspiracy to process its illicit credit card receipts. In early 1982, Philip Caliendo approached Samuel Schultz, the owner of the House of Kobe. Caliendo informed Schultz that he had recently lost his merchant number for his American Express account and asked Schultz if he could process the receipts for his "catering, limousine and entertainment" business through Schultz's American Express account. Schultz ultimately agreed after repeated requests. Charles Swanson, an investigator for American Express, soon discovered, however, that Schultz was processing credit charges for Caliendo's houses of prostitution and closed the House of Kobe account. Unfortunately for Schultz, Swanson also froze the funds which American Express owed on the outstanding receipts, including those funds which represented the charges made at the Caliendo's houses of prostitution. After being threatened by Philip Caliendo with the prospect of having to deal with "the organization or Uncle Vito", Schultz agreed to pay out of his own pocket the amount of the Caliendo's charges which American Express refused to honor.

In February of 1983, Charles Swanson discovered that a separate business, Major's Restaurant in Lyons, Illinois, was also processing illicit receipts for the Caliendos through its American Express account. As he did with Mr. Schultz and the House of Kobe, Swanson closed Major's account. Unlike Mr. Schultz, however, the owner of Major's attempted to bribe Swanson to keep the account open by offering him the services of the prostitutes at the Petite Lounge. Swanson demurred on that offer, but agreed to accept a monthly payment in return for reopening the account and releasing the frozen funds. Swanson, who had anticipated these "offers", had contacted the FBI prior to the meeting and was wearing a body recording device on the day he met with Major's owner.

Our recitation of the "big picture" and various scattered events in the conspiratorial scheme has not painted the entire picture. Specifically, we have not given a detailed description of each of the individual appellant's involvement in the conspiratorial scheme. We have, however, provided a flavor for the manner in which the enterprise operated. For the majority of issues raised on appeal, this is sufficient. Only as they become germane to the issues raised will the individual roles of the various appellants be portrayed.

II.

Two separate briefs have been filed on appeal. The first, a joint brief filed on behalf of all of the appellants, argues: (1) that the district court committed prejudicial error in giving the jury a "conspiracy membership" instruction different from that prescribed by Federal Criminal Jury Instructions of the Seventh Circuit Sec. 5.11 (1980); (2) that the district court committed prejudicial error in giving the jury an "ostrich instruction"; and, (3) that the prejudice which resulted from certain witness and prosecutorial statements made during the trial necessitates a reversal of the convictions. The second brief, filed individually on behalf of Susan Barker, argues: (1) that the district court erred in refusing to grant her motions for severance; and, (2) that the delivery of a Pinkerton instruction in this RICO conspiracy prosecution resulted in an unwarranted extension of criminal liability. We address each issue in turn.

A. The Pattern Conspiracy Instruction

Over the objections of defense counsel, the district court adopted the rationale of the ninth circuit as set out in United States v. Giese, 597 F.2d 1170 (9th Cir.), cert. denied, 444 U.S. 979, 100 S.Ct. 480, 62 L.Ed.2d 405 (1979), and incorporated the following as part of its jury charge on the conspiracy count:

In determining whether or not a particular defendant was a member of the conspiracy, you may consider the evidence of his or her conduct and actions, together with his or her own statements and declarations. You...