U.S. v. Palumbo

• Citation: 897 F.2d 245
• Decision Date: 02 March 1990
• Docket Number: No. 89-1756,89-1756
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. William R. PALUMBO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 245

897 F.2d 245

UNITED STATES of America, Plaintiff-Appellee, v. William R. PALUMBO, Defendant-Appellant.

No. 89-1756.

United States Court of Appeals Seventh Circuit.

Argued Nov. 27, 1989.

Decided March 2, 1990.

Michael C. Carr, Asst. U.S. Atty., Benton, Ill., Robert T. Coleman, Asst. U.S. Atty., East St. Louis, Ill., for plaintiff-appellee.

John Zwerling, Zwerling, Mark, Sutherland, Ginsberg & Lieberman, New York City, for defendant-appellant.

Before CUDAHY and POSNER, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

CUDAHY, Circuit Judge.

Promises of immunity are important weapons in the fight against large-scale criminal enterprises; the government often snares big fish with information gained from little fish. In return, the little fish are granted immunity from prosecution based upon the information they provide to the government. The system works, however, only if each side keeps its end of the bargain: the informant must provide accurate information, and the government must not use that information against the informant. In this case, the informant charges that the government broke its promise by using immunized information to indict him.

I.

In 1986, federal and state law enforcement officials began investigating the importation and distribution of large marijuana shipments in San Francisco and New Orleans. By January 1987, federal prosecutors had obtained indictments against ten individuals for various drug offenses. Some of those indicted talked to the government about the drug operation: James Blair told FBI Agent Robert Dueker that William Palumbo operated gates at a San Francisco shipyard so that trucks could enter and exit the dock, and that Palumbo remained on the site during the actual unloading of the ships; Jeffrey Tuchband confirmed that Palumbo operated the shipyard. Others said that Palumbo established a shipyard in New Orleans where loads of marijuana were imported into this country.

To begin a personal investigation of these charges, IRS agent Charles Quarenghy flew to New Orleans and, by interviewing Palumbo's business associates and employees, learned that Palumbo leased the dock in 1984 on behalf of two companies. Further, Quarenghy learned that Palumbo paid an unusually high price for the lease. Quarenghy also examined two corporations established by Palumbo and discovered that no tax documents had ever been filed on their behalf. He concluded that Palumbo established these corporations as a "front" for a marijuana importation conspiracy. As a result, he and other agents obtained subpoenas for Palumbo's credit card transactions, his bank statements, his telephone records and various other business records.

In October 1987, two of Palumbo's attorneys arranged to meet with Assistant United States Attorney Michael Carr (of the Southern District of Illinois), FBI Agent Dueker and other federal and state officials about the investigation. The attorneys refused to divulge the name of their client, stating only that they represented an individual who had "inadvertently got involved in this matter [and] wanted to come forth and set the record straight concerning his involvement." Appellee's Brief at 14. The attorneys explained that

their client had been used by the conspiracy leaders to form a company, rent a ship yard, and legitimately operate the company without ever knowing that these actions were in furtherance of a marijuana scheme ... their client later became suspicious of the leaders, and when he finally confronted them he was told that his activities had been part of a marijuana conspiracy.

Appellant's Brief at 3. At this point, Agent Dueker asked the attorneys if they were talking about Palumbo; they acknowledged that they were.

Interested in Palumbo's testimony, Assistant United States Attorney Carr told the attorneys that Palumbo would have to make a proffer--to demonstrate the truthfulness and relevance of his information--before he could engage in any plea negotiations. Carr offered Palumbo informal use and derivative use immunity for his proffer, tantamount to the protections provided by 18 U.S.C. section 6002. Further, Carr agreed not to reveal the existence of the proffer (or its source) if the parties could not reach a plea agreement. ¹

Palumbo appeared with his attorneys in the Southern District of Illinois to answer questions posed by law enforcement agents involved in the investigation. Palumbo told the agents that "when he originally made arrangements for the San Francisco barge he did not know about the marijuana on board," but that he later became suspicious (and involved) when George Brock gave him $100,000 to keep quiet. Memorandum and Order at 3 (June 27, 1988) (Kastigar hearing). At the conclusion of the proffer, Agent Dueker contacted Assistant United States Attorney Carr and, without revealing any specific facts about the proffer, told him that Palumbo had provided a truthful account. Still, Palumbo's attorneys and Carr were unable to negotiate a plea agreement.

Less than one month later, Palumbo and his attorneys were surprised to learn that Eugene Fischer, one of the individuals Palumbo fingered in his proffer, had been arrested in Florida pursuant to a warrant obtained in the Southern District of Illinois. They were even more shocked to discover, however, that FBI Agent Davis testified at Fischer's detention hearing and, despite the agreement not to disclose material facts about Palumbo's proffer, revealed the substance of the proffer. Davis also disclosed the source of the proffer: "We received that information from an individual named William Columbo [sic]." Memorandum and Order at 3 (June 30, 1988) (severance hearing). At this time, all negotiations between Palumbo and the government broke off.

On November 25, 1987, Agent Dueker testified about Palumbo before a grand jury in the Southern District of Illinois:

Q. You've mentioned William R. Palumbo and he is a new name mentioned in Count Two of the proposed indictment which is the conspiracy to distribute more than a thousand pounds of marijuana charge. Mr. Palumbo's involvement according to your investigation was what?

A. Mr. Palumbo was used by Mr. Brock and Mr. Fischer in San Francisco in 1984. That's the first time Mr. Palumbo became involved. He assisted them by locating a shipyard in San Francisco which was used to unload the hundred sixty-five thousand pounds of marijuana which came in in April of 1985.

He worked for them initially, he was not knowledgeable of what was going on but after observing what had been transpiring, he became suspicious and according to the cooperating witnesses Mr. Palumbo became aware that marijuana was involved in the transaction in San Francisco in 1984. He was again used in 1985 to set up the shipyard in New Orleans which was used to bring in the load in April of 1985.

Transcript of Grand Jury Testimony at 17-18 (Nov. 25, 1987). The Grand Jury indicted Palumbo that same day.

Palumbo, alleging that the government breached its promise not to use information gained from the proffer against him, timely filed a motion for a Kastigar hearing. ² After the hearing, the district court denied Palumbo's Motion to Dismiss (and his motion to bar the use of certain evidence) because, in its opinion, "[t]he government clearly established [its] knowledge of Palumbo's involvement prior to the proffer." Memorandum and Order at 3 (June 27, 1988) (Kastigar hearing). Three days later, however, the district court, relying on the government's breach in Florida of its additional promise not to divulge the source of the proffer, granted Palumbo's motion to sever his trial from the trial of his co-defendants. Palumbo attempted to appeal the district court's Kastigar ruling refusing to dismiss the indictment directly to us, but we dismissed for lack of jurisdiction. Palumbo then pled guilty to violations of 21 U.S.C. section 846 (conspiracy to distribute marijuana) and 26 U.S.C. section 7201 (tax evasion), but specifically reserved his right to appeal the district court's decision on the Kastigar motion pursuant to Fed.R.Crim.P. 11(a)(2). ³ The district court sentenced him to twelve years imprisonment. Palumbo appeals the district court's decision.

II.

In Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972), the Supreme Court considered whether prosecutors could compel certain testimony "by granting immunity from the use of compelled testimony and evidence derived therefrom ('use and derivative use immunity')" without violating an individual's Fifth Amendment privilege against compulsory self-incrimination. Id. at 443, 92 S.Ct. at 1655. After reviewing the historical underpinnings of immunity statutes in conjunction with the Fifth Amendment, the Court held that use and derivative use immunity "is coextensive with the scope of the privilege against self-incrimination, and therefore is sufficient to compel testimony over a claim of the privilege." Id. at 453, 92 S.Ct. at 1661. The Court went on to say, however, that individuals testifying under a grant of immunity (pursuant to 18 U.S.C. Sec. 6002) need not rely solely on the government's promises and good intentions to use the statement properly:

"Once a defendant demonstrates that he has testified, under a state grant of immunity, to matters related to federal prosecution, the federal authorities have the burden of showing that their evidence is not tainted by establishing that they had an independent, legitimate source for the disputed evidence." [Murphy v. Waterfront Comm'n, 378 U.S. 52, 79 n. 18, 84 S.Ct. 1594, 1609 n. 18, 12 L.Ed.2d 678 (1964) ] ... This burden of proof, which we reaffirm as appropriate, is not limited to the negation of taint; rather, it imposes on the prosecution the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony.

406 U.S. at 460, 92 S.Ct. at 1664 (emphasis supplied)....