United States v. Scarfo

• Decision Date: 15 July 2022
• Docket Number: s. 15-2811,15-2826,15-2844,15-2925,19-1398
• Citation: 41 F.4th 136
• Parties: UNITED STATES of America v. Nicodemo S. SCARFO, Salvatore Pelullo, William Maxwell, and John Maxwell, Appellants
• Court: U.S. Court of Appeals — Third Circuit

41 F.4th 136

UNITED STATES of America

v.Nicodemo S. SCARFO, Salvatore Pelullo, William Maxwell, and John Maxwell, Appellants

Nos. 15-2811

15-2826

15-2844

15-2925

19-1398

United States Court of Appeals, Third Circuit.

Argued July 6, 2021

Opinion Filed: July 15, 2022

Michael E. Riley [ARGUED], Law Offices of Riley and Riley, 2 Eves Drive – Suite 109, Marlton, NJ 08053, Counsel for Nicodemo S. Scarfo

Troy A. Archie [ARGUED], Afonso Archie & Foley, 21 Route 130 South, Cinnaminson, NJ 08077, Counsel for Salvatore Pelullo

Michael N. Huff [ARGUED], 1333 Race Street, Philadelphia, PA 19107, Counsel for William Maxwell

Mark W. Catanzaro, 21 Grant Street, Mount Holly, NJ 08060, Counsel for John Maxwell

Rachel A. Honig, Sabrina G. Comizzoli, Mark E. Coyne, Bruce P. Keller [ARGUED], Office of United States Attorney, 970 Broad Street – Room 700, Newark, NJ 07102, Norman Gross [ARGUED], Office of United States Attorney, 401 Market Street, Camden, NJ 08101, Counsel for Appellee

Before: AMBRO, JORDAN, and BIBAS, Circuit Judges

OPINION OF THE COURT

JORDAN, Circuit Judge.

TABLE OF CONTENTS

I. Overview...––––

II. Background...––––

A. The Organized Crime Origins...––––

B. The FirstPlus Takeover...––––

C. The FirstPlus Fraud...––––

D. The Investigation and Takedown...––––

E. The Damage...––––

F. Indictment and Pretrial Proceedings...––––

G. Trial...––––

H. Post-Trial Proceedings and Sentencing...––––

I. Appeals...––––

III. Investigation Issues...––––

A. Collection of Pelullo's Cell Site Location Information...––––

B. Filter Teams...––––

1. Background...––––

2. Challenges to Filter Team Procedures...––––

3. Challenges to Ex Parte Proceedings...––––

4. Crime-Fraud Exception...––––

IV. Pretrial Issues...––––

A. Speedy Trial Act Claim...––––

B. Admission of La Cosa Nostra Evidence and Denial of the Maxwells' Motion for Severance...––––

1. Admission of LCN Evidence...––––

2. Denial of the Maxwells' Severance Motion...––––

V. Trial Issues...––––

A. Scarfo's Joint Trial with Former Counsel Donald Manno...––––

1. Background...––––

2. Sixth Amendment...––––

3. Due Process...––––

B. Pelullo's Sixth Amendment Ineffective Assistance of Counsel Claim...––––

1. Background...––––

2. Ineffective Assistance of Counsel Claim...––––

C. Convictions for RICO Conspiracy Under 18 U.S.C. § 1962(d)...––––

1. Constructive Amendment of Indictment...––––

2. Jury Instructions and Sufficiency of the Evidence...––––

D. Firearm Conspiracy Conviction Following Rehaif ...––––

E. Sufficiency of Evidence to Support William Maxwell's Convictions...––––

1. Conviction for Conspiracy to Unlawfully Transfer or Possess a Firearm...––––

2. Convictions for Wire Fraud and Conspiracy to Commit Wire Fraud...––––

F. Juror Issues...––––

1. Background...––––

2. Disclosure of the District Court's First Conversation with Juror #8...––––

3. Purported Coercion of the Jury by the District Court...––––

4. Purported Coercion of the Substituted Juror by Other Jurors...––––

5. District Court's Response to Report of Juror Misconduct...––––

VI. Sentencing Issues...––––

A. Pelullo's Sentencing Challenges...––––

1. Guidelines Sentencing Range Calculation...––––

2. Loss Amount Enhancement...––––

3. Victim Number Enhancement...––––

4. Substantive Reasonableness...––––

B. Joint and Several Forfeiture Liability Following Honeycutt ...––––

1. Background...––––

2. Honeycutt and Its Progeny...––––

3. Post- Honeycutt : John Maxwell...––––

. Post- Honeycutt : Pelullo...––––

C. Delay in Forfeiture of Pelullo's Property...––––

1. Background...––––

2. CAFRA...––––

3. Due Process...––––

VII. Brady Issues...––––

A. Denial of Scarfo's Request to File a Motion for a New Trial Pursuant to Rule 33(b)...––––

B. Pelullo's Motion for Remand Based on Giglio Evidence...––––

VIII. Conclusion...––––

I. OVERVIEW

Everybody calls me a racketeer. I call myself a businessman.

– Alphonse Gabriel Capone

The four appellants before us – Nicodemo Scarfo, Salvatore Pelullo, William Maxwell, and his brother John Maxwell – were convicted for their roles in the unlawful takeover and looting of FirstPlus Financial Group, a publicly traded mortgage loan company. Their scheme commenced with the Defendants'¹ and their co-conspirators' extortion of FirstPlus's board of directors and its chairman to gain control of the company. Once they forced the old leadership out, the Defendants proceeded to drain the company of its value by causing it to enter into expensive consulting and legal-services agreements with themselves, causing it to acquire (at vastly inflated prices) shell companies they personally owned, and using bogus trusts to funnel FirstPlus's assets into their own accounts. The Defendants and their crew ultimately bankrupted FirstPlus, leaving its shareholders with worthless stock.

Each Defendant was convicted of more than twenty counts of criminal behavior and given a substantial prison sentence. Now, in this consolidated appeal, their combined efforts challenge almost every aspect of their prosecutions, including the investigation, the charges and evidence against them, the pretrial process, the government's compliance with its disclosure obligations, the trial, the forfeiture proceedings, and their sentences. Although they raise a multitude of issues, only one entitles any of them to relief: the government has conceded that the District Court's assessment of John Maxwell's forfeiture obligations was improper under a Supreme Court decision handed down during the pendency of this appeal. Having jurisdiction pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a), we will affirm all the convictions and sentences, except for the forfeiture portion of John Maxwell's sentence. We will remand that for the District Court to reassess what share of the forfeiture sum he should pay.

II. BACKGROUND ²

A. The Organized Crime Origins

This case has its roots in organized crime, and, like other mob cases, it gets its start with family – both biological and made. Nicodemo Domenico "Little Nicky" Scarfo Sr. was the "boss" of the Philadelphia branch, or "family," of La Cosa Nostra ("LCN") for most of the 1980s.³ See United States v. Pungitore , 910 F.2d 1084, 1098 (3d Cir. 1990). He oversaw nearly a decade of murders, gambling, and extortion for the benefit of LCN. Id. at 1097-1102 ; see also United States v. Scarfo , 850 F.2d 1015, 1016 (3d Cir. 1988).

By the time the Defendants here began their FirstPlus scheme, however, he was out of the game, serving a lengthy federal prison sentence. Pungitore , 910 F.2d at 1152. His son, Nicodemo Salvatore "Nicky" Scarfo (the "Scarfo" in this opinion), wanted to fill the power vacuum, but his attempted takeover of the Philadelphia LCN family did not go according to plan. On Halloween in 1989, as he was having dinner at a restaurant, masked assailants ambushed him, shooting him several times but, no doubt to their chagrin, not killing him.

When he recovered, Scarfo sought the help of the Lucchese LCN family, which operated in northern New Jersey. He had an "in" with the Luccheses: their boss was incarcerated in the same prison as his father. According to the government's expert on the structure and operations of LCN, eventually the Lucchese family integrated Scarfo into their organization as a "made member" – someone who has been "fully inducted" and has "taken an oath of loyalty to the family." (JAC at 8280-81.) Being a made member meant that he had to generate money for the Lucchese family and share with it the profits of any criminal activities he pursued.

Scarfo's longtime friend Salvatore Pelullo, although not a blood relative, had a close relationship not only with Scarfo but with Scarfo's father too. The older Scarfo treated Pelullo as his nephew. Pelullo became an "associate" of the Luccheses – a criminal colleague who hadn't been "formally initiated into [the family's] ranks." Pungitore , 910 F.2d. at 1098. The government's expert testified that an associate like Pelullo had to "share ... the profits of any of [his] criminal activity" with the family, and he had to answer to a made member, such as Scarfo, who would "supervis[e] and direct[ ]" his actions. (JAC at 8286-87 (trial testimony of government LCN expert).)

Before the events at issue in this case, Scarfo and Pelullo had each earned criminal convictions. Scarfo was convicted in 1990 of assaulting a woman in a hospital elevator, and then in 1993 for racketeering conduct. In 2002, he was convicted of running an illegal gambling business. Pelullo, meanwhile, was convicted of bank fraud and making false statements to the SEC in 1999. Three years later, he pled guilty to wire fraud.

B. The FirstPlus Takeover

In 2007, Scarfo and Pelullo stumbled on "the golden vein of deals" – an opportunity that seemed so lucrative, they thought they could ride it into retirement. (JAC at 1781-82.) That opportunity was FirstPlus, a Texas-based mortgage company whose main operating subsidiary had recently exited bankruptcy after falling on hard times. Following that restructuring, FirstPlus began receiving periodic, multi-million-dollar "waterfall" payments from its bankruptcy trust.⁴ At that point, it was essentially a dormant parent company receiving the waterfall payments but doing no business.

After the payments started coming in, a former FirstPlus employee, Jack Roubinek, had the idea to locate investors and gain control of FirstPlus. In early 2007, he contacted his attorney, William Maxwell, and asked him to research the possibility of investing in FirstPlus. At around the same time, Pelullo learned about FirstPlus from his business acquaintance David Roberts, a mortgage broker from Staten Island. A group including Pelullo, Roberts, Scarfo, Roubinek, and Gary McCarthy (Pelullo's attorney and an eventual codefendant) gathered in Philadelphia to discuss a potential takeover of FirstPlus.

At first, according to Roberts, their thinking was "to try to raise money to buy [FirstPlus's] stock[.]" (JAC at 1791.) That plan, however, fell through: the group realized that none of them had the money needed to buy the stock. Luckily for them, however,...