United States v. Scarfo, Criminal No. 11-740 (RBK)

• Decision Date: 19 September 2012
• Docket Number: Criminal No. 11-740 (RBK)
• Parties: UNITED STATES OF AMERICA v. NICODEMO S. SCARFO, et al.
• Court: U.S. District Court — District of New Jersey

UNITED STATES OF AMERICA

v.NICODEMO S. SCARFO, et al.

Criminal No. 11-740 (RBK)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY CAMDEN VICINAGE

Dated: September 19, 2012

NOT FOR PUBLICATION

(Document Nos. 199-201, 203, 204, 222, 262)

OPINION

KUGLER, United States District Judge:

Currently before the Court are motions submitted by multiple defendants under Fed. R. Crim. P. 14(a) seeking severance of various counts and parties in the instant action. For the reasons set forth below, the Court will deny all defendants' motions without prejudice.

I. Introduction

This case arises out of the Government's October 26, 2011 Indictment charging thirteen defendants in twenty-five counts of criminal activity. The Indictment includes eight conspiracy allegations:

(1) conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act ("RICO"), in violation of 18 U.S.C. § 1962(d) (Count One);

(2) conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371(Count Two);

(3) conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 (Count Three);

(4) conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h) (Count Twenty);

(5) conspiracy to commit bank fraud, in violation of 18 U.S.C. § 1349 (Count Twenty-One);(6) conspiracy to make false statements in connection with a loan application, in violation of 18 U.S.C. § 371 (Count Twenty-Two);

(7) conspiracy to obstruct justice, in violation of 18 U.S.C. § 1512(k) (Count Twenty-Three); and

(8) conspiracy to sell or transfer firearms and ammunition to a prohibited person, or to possess a firearm by a convicted felon, in violation of 18 U.S.C. § 371 (Count Twenty-Four).

While only one defendant, Nicodemo S. Scarfo, is named in all twenty-five counts, all defendants now seeking severance—Gary McCarthy, Howard Drossner, David Adler, Donald Manno,¹ William Handley, John Parisi, William Maxwell, and John Maxwell² — are charged in the RICO conspiracy. The Government alleges that while the Defendants, led by Mr. Scarfo and co-defendant Salvatore Pelullo, formed a criminal enterprise to achieve a wide array of illegal ends, all of these various acts are united by a common theme: specifically, a conspiracy to "take over, loot, and/or conceal the looting of a publicly-held financial services company located in Texas [called] FirstPlus Financial Group ('FPFG')." Gov't Opp. Mem. 3. Therefore, the Government concludes, a joint trial of all defendants on all counts charged in the Indictment is both appropriate and warranted.

II. Defendants' Motions to Sever

While the various arguments supporting each defendant's motion are summarized in some detail below, they generally strike two common themes: first, a single trial will be unmanageable from a logistical and managerial standpoint and will unduly strain the Court's resources; second, evidence that the Government plans to introduce at trial, including Defendants Scarfo's and Pelullo's alleged ties to La Cosa Nostra ("LCN") and associated acts of violence,will create so-called "spillover prejudice" which will compromise the moving defendants' right to a fair trial.

A. Gary McCarthy

Defendant McCarthy, a transactional, tax, and estate planning attorney, performed legal work at the request of his one-time client, Defendant Pelullo. The work related primarily to acquisitions made by FPFG. McCarthy Br., 3. The Indictment names McCarthy in the four conspiracy counts: to violate RICO (Count One); to commit securities fraud (Count Two); to commit wire fraud (Count Three); and to commit money laundering (Count Twenty).

Defendant McCarthy advances two principle grounds in support of his motion to sever. First, he asserts that trying the case as charged in the indictment would give rise to a so-called "monster trial." Id. at 6. He notes that district courts in the Third Circuit have granted severance to defendants involved in very large "monster trials" based on various manageability and logistical concerns.³ He argues that the joint trial envisioned by the Government would implicate virtually all of these concerns. Id. at 8-14. Relatedly, McCarthy urges the Court to adopt a burden-shifting rule from the Second Circuit regarding large trials: if a joint trial involves at least ten defendants and if the Government reasonably expects it will take more thanfour months to present its case, then the Government should make an "especially compelling justification for a joint trial." Id. at 8 (citing United States v. Casamento, 887 F.2d 1141, 1151-52 (2d Cir. 1989)). Because the proposed trial meets these conditions, McCarthy asserts that the Government should have the burden of establishing that severance in this case is not appropriate.

Second, McCarthy argues that failure to sever his case will compromise his right to a fair trial. Specifically, he fears that trying the counts in which he is not named will "potentially" cause the jury to find him "guilt[y] by association," resulting in so-called "prejudicial spillover." Id. at 14. He claims that severance is warranted because of the difference between the amount of evidence he believes the Government will offer against him and the amount of evidence that will be offered against other defendants such as Mr. Scarfo and Mr. Pelullo. Id. (citing United States v. Gatto, 746 F. Supp. 432, 445 (D.N.J. 1990) ("Denial of a motion for severance is inappropriate . . . if there is a great disparity in the amount of evidence between the moving defendant and his or her codefendants.")). In addition, he asserts a heightened danger of spillover because the charges not pending against him are "provocative"; that is, they relate to firearms possession, alleged threats of violence, and alleged ties to La Cosa Nostra. Id. at 14-15.

Defendant McCarthy asks the Court to apply a seven factor test to determine whether severance is warranted. Specifically, the Court should take the following into consideration:

(1) The number of defendants and the number of counts;

(2) The complexity of the indictment;

(3) The estimated length of the trial;

(4) Disparities in the amount or type of proof offered against the defendants;

(5) Disparities in the degrees of involvement by defendants in the overall scheme;

(6) Possible conflict between the various defense theories or trial strategies;

(7) Prejudice from evidence admitted only against co-defendants but which is inadmissible or excluded as to a particular defendant.

Id. at 19-20 (citing Gatto, 746 F. Supp. at 446). Applying these factors to the instant case, McCarthy asserts that severance is appropriate.

Finally, McCarthy asks this Court to grant his severance motion because of the possibility that "a joint trial will deprive a defendant of the ability to present exculpatory testimony from a co-defendant." McCarthy Br., 21 (citing United States v. Boscia, 573 F.2d 827 (3d Cir. 1978)). Although he does specify which defendants might seek exculpatory testimony from which co-defendants, McCarthy offers this principle as an independent basis for severance.

Accordingly, Defendant McCarthy requests that the Court sever the firearms and ammunition counts (Counts Twenty-Four and Twenty-Five) from those in which he is implicated. Moreover, he requests not to be tried with any Defendant named in seven or more conspiracies. Id. at 22.

B. Howard Drossner

Defendant Drossner is a certified public accountant. The Indictment charges him in twenty-two counts, including six conspiracy counts: to violate RICO (Count One); to commit securities fraud (Count Two); to commit wire fraud (Count Three); to commit money laundering (Count Twenty); to commit bank fraud (Count Twenty-One); and to make false statements in connection with a loan application (Count Twenty-Two). In addition, he is charged with the substantive wire fraud violations (Counts Four through Nineteen).

Defendant Drossner seeks severance on grounds related primarily to spillover prejudice. Specifically, he argues that the "core" of the indictment centers on allegations of financial fraud; thus, it is inappropriate for the government to set forth "extremely inflammatory information regarding La Cosa Nostra and its purported operations and use of violence" because those issues are "irrelevant" to the securities fraud charges and because the indictment does not allege that Mr. Drossner knew of or was involved in organized crime activities. Id. at 3-5. He similarly argues that the firearms-related charges are "totally unrelated" and "inflammatory andprejudicial." Id. at 10. Furthermore, he claims that the mortgage fraud conspiracy is "facially and practically" unrelated to the securities fraud charges. Id. at 9-10.

Defendant Drossner offers additional spillover-related arguments in favor of severance. First, he claims that, in general, the indictment makes very few "specific allegations" against him. Id. at 6, 7-9. That is, while the counts relating to the mortgage loan contain specific allegations of his involvement, there is no such specificity with respect to the securities fraud charges. Id. at 15. Thus, trying these two sets of counts together would create a

substantial risk of confusion and spillover prejudice that might induce the jury to convict Mr. Drossner of a massive securities scheme in which he was not involved or unfairly impact Mr. Drossner on the [mortgage fraud counts] because of . . . the potential for the jury to conclude that if he is charged with multiple offenses he must be guilty of something. Id. at 15-16.

This danger is heightened, Drossner continues, because the evidence against him in the securities fraud counts is "so minimal compared to the other defendants." Id. at 16 n.5. Further, Drossner asserts that the jury will be likely to confuse the facts of the securities fraud counts with the facts of the mortgage fraud counts. Id. at 17. He also suggests that the jury may convict based on evidence that would be inadmissible in separate trials as improper propensity evidence. Drossner Reply Br....