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UNITED STATES v. SALVITTI

May 3, 1978

UNITED STATES of America
v.
Augustine SALVITTI



The opinion of the court was delivered by: FULLAM

 FULLAM, District Judge.

 The defendant, Augustine A. Salvitti, Executive Director of the Redevelopment Authority of the City of Philadelphia, has been found guilty by a jury of accepting a $27,500 bribe in connection with his official duties. He stands convicted of one count of conducting the affairs of an enterprise through a pattern of racketeering activity (the "RICO" statute), 18 U.S.C. § 1962; three counts of mail fraud, 18 U.S.C. § 1341; and one count of extortionate interference with interstate commerce (the "Hobbs Act"), 18 U.S.C. § 1951. The defendant now seeks a judgment of acquittal, or a new trial.

 I. THE FACTS

 The evidence in support of the jury's verdict disclosed the following facts. Penrose Industries, a closely-held corporation controlled by one William Sylk, entered into a long-term lease with the Redevelopment Authority for a tract of land near the Philadelphia Airport, and built a large warehouse on the property. The lease included an option to purchase the tract upon favorable terms. Penrose Industries suffered financial reverses, and was unable to pay the rent. Eventually, the Redevelopment Authority terminated the lease and successfully pressed litigation in the state courts to evict Penrose and terminate its interests in the property. While an appeal from this decision was pending, *fn1" the then Mayor, James H. J. Tate, during the concluding weeks of his term of office, authorized a new contractual arrangement with the Penrose interests; the general effect of this document would have been to waive the earlier defaults, reinstate Penrose as a tenant, and reinstate the original option agreement. The execution of this new agreement by the parties named therein was under way when the new Mayor, Frank L. Rizzo, took office in January 1972, but it had not yet been signed by Philadelphia Industrial Development Corporation (PIDC) which was a mortgagee of the property and a named party in both sets of agreements. PIDC refused to sign the new arrangement and it was promptly repudiated both by Mayor Rizzo and by the City Council. Thus, at that point, the City had won at least the first round of an eviction proceeding, and had obtained a very large judgment against Penrose Industries for unpaid rent and failure to maintain the property; Penrose Industries had at least some lingering rights to assert equitable defenses to the original foreclosure action and, if the "Tate agreement" were upheld as valid and enforceable, Penrose Industries had a long-term lease with option to purchase (at a price which did not reflect the substantial increases in land values which had occurred in the interim). Meanwhile, the property was vacant, was producing no current income, and was providing no jobs for city residents.

 Moreover, the pendency of these unresolved issues prevented the City agencies from disposing of the property elsewhere. And they were aware that one Jerome Heilweil, owner of an enterprise known as Star Metals, Inc., was very anxious to acquire and occupy the tract; and that his firm, which was a substantial employer of local labor, would probably be forced to relocate outside of Philadelphia unless the Penrose tract could be made available to him.

 It is clear that, during 1972 and 1973, efforts were being made at various levels to dispose of the Sylk/Penrose Industries claims through settlement. But there is sharp conflict in the testimony of various witnesses called by the Government, concerning who was in favor of, and who opposed to, a settlement of these claims. It is clear that Lynne Abraham, Esq. (now a judge of the Municipal Court of Philadelphia) selected by Mayor Rizzo to serve as Executive Director of the Redevelopment Authority, and who occupied the post of Executive Director from August 1972 to November 1973, was strongly opposed to making any payment to the Sylks, and that Isador Gottlieb, Esq., the RDA lawyer who had been handling the transaction throughout the entire period, and James Crawford, Esq., Ms. Abraham's choice as general counsel to the RDA, were of the view that the Sylk/Penrose claims were utterly lacking in merit. Eventually, these three individuals came to the view that, in order to extricate the Authority promptly from the legal snarl perhaps a settlement in the range of $100,000 to $200,000 should be negotiated.

 Judge Abraham testified that, throughout this period, she was constantly being pressured by Philip Carroll, the Deputy Mayor, to settle with the Sylk interests for between $400,000 and $800,000. She testified that Mr. Carroll told her that the Sylks were valued contributors to the Democratic Party, friendly to the Mayor; and that the Mayor contemplated running for Governor of the State, and needed all the friends he could get. She testified further that, when she complained to the Mayor about Mr. Carroll's pressure, and advised him that the proposed payment to the Sylks would be totally improper and probably illegal, the Mayor chided her for not being a "team player," and intimated that she should follow Mr. Carroll's suggestions with respect to the Sylk transaction. Both Mayor Rizzo and Deputy Mayor Carroll testified that no such pressure was exerted, and generally denied Judge Abraham's testimony and its implications. They both testified that Mayor Rizzo was at all times opposed to any settlement with the Sylks. Among other things, they pointed to the undisputed fact that, when the Mayor first learned that the Redevelopment Authority did settle with the Sylks in the fall of 1973, the Mayor issued blanket orders prohibiting the carrying out of the proposed settlement.

 These conflicts in the testimony with respect to the correctness, desirability, and sponsorship of the settlement proposal have only marginal bearing upon the central issue in this case, namely, Mr. Salvitti's involvement in the alleged kickback scheme. Mr. Salvitti became a member of the Board of the Redevelopment Authority some time in 1973, apparently in about September of that year. He became Executive Director of the Redevelopment Authority in December of 1973. There is some evidence that he had been in communication with Mr. Heilweil and had visited his plant before becoming Executive Director, but he denied any such earlier contacts. Be that as it may, when Mr. Salvitti became Executive Director, all of the issues surrounding the Penrose property remained unresolved. The Government's theory of the case is that the defendant soon formed a plan to achieve a resolution of the impasse in a manner favorable to himself. Judge Abraham had been fired as Executive Director in November 1973, and Mr. Crawford, the general counsel, had announced his intention to resign in the near future (he actually departed in the spring of 1974). Mr. Gottlieb, the remaining principal obstacle to a generous settlement of the Sylk/Penrose claims, was in ill health. The defendant brought in a new lawyer, Peter Galante, Esq., to be "co-counsel" with Mr. Gottlieb in the Sylk transaction, preliminarily to naming Mr. Galante general counsel to the RDA. Shortly before Mr. Galante was appointed, the Sylk/Penrose interests had filed a mandamus action in the state courts, seeking to enforce the "Tate agreement."

 At about this same time, Mr. Salvitti signed, and later obtained Board approval of, an agreement to sell the disputed property to the Heilweil firm. This agreement contained rather onerous indemnification provisions protecting the purchaser against loss in the event the Sylk/Penrose interests succeeded in establishing their claims to the property. It is fair to state that this commitment to the Heilweil firm did not exactly weaken the bargaining power of Mr. Sylk. The evidence is conflicting as to whether the Mayor or Deputy Mayor had knowledge of the Heilweil agreement in advance of its approval by the RDA.

 Meanwhile, in April or May of 1974, the defendant met with Mr. Sylk to discuss the settlement of the entire dispute, and suggested to Mr. Sylk that the transaction would proceed more smoothly if Mr. Sylk were to change lawyers. At the defendant's suggestion, Mr. Sylk retained Anthony Pirillo, Esq., a long-time friend of the defendant, to represent the Sylk/Penrose interests.

 The defendant thereafter met with Mr. Pirillo, and advised him that he would shortly be "getting a call" from Mr. Sylk. Mr. Pirillo testified that he and the defendant had an understanding to the effect that Mr. Pirillo's counsel fee in the Sylk transaction would be shared with the defendant.

 Initially, Mr. Galante was of the view that, while the RDA was in a reasonably strong bargaining position, it would be preferable to settle the dispute before entering into any other arrangements to dispose of the Penrose property; he estimated that a settlement in the range of $200,000 to $300,000 should be reasonable. When he first met with Mr. Pirillo to discuss settlement, he advised Mr. Pirillo that $200,000 would be the maximum offer. Mr. Pirillo rejected that figure as "ridiculous" and told Mr. Galante that he should check back with his client, because Mr. Pirillo was certain that Mr. Galante would have greater authority than that. Mr. Galante then conferred with the defendant, who told him that Deputy Mayor Carroll had informed the defendant "that the City was willing to go between $350,000 and $840,000 in settlement of this case." Mr. Galante further testified:

 
"I asked him if he was sure about that and he said he certainly was, there was no question about it" (N.T. 179).

 Mr. Galante then conferred at length with Mr. Gottlieb, and they eventually jointly decided that a settlement within that higher range would be in the best interests of the RDA and the City. A principal factor in Mr. Galante's re-evaluation of the transaction at the higher figure was the intervening event of the new agreement to sell the property to the Heilweil firm. Mr. Galante, who had nothing to do with the negotiation, drafting, or execution of the Heilweil agreement, felt that the RDA and the City would be "in a real bind" if the Sylk claim should ultimately be successful, because the RDA was required not only to pay back the full purchase price to Heilweil ($1.8 million) plus cost of repairs and moving expenses, but also to find an equivalent property as substitution for the Penrose tract, although it was generally agreed that there was no such alternative property available.

 Mr. Galante and Mr. Pirillo thereupon negotiated further, and arrived at a settlement under which the Sylk interests were to receive $575,000 net, in exchange for release of all claims. The settlement agreement was executed as of August 29, 1974, and was ratified by the Board of the Redevelopment Authority at its meeting of September 18, 1974.

 The settlement prompted much adverse comment in the press. Mayor Rizzo denounced the proposed settlement, and issued orders that it not be carried out. He directed the City Solicitor to make an investigation of the entire transaction. Thereupon, the City Solicitor worked out an arrangement to submit the proposed settlement to a panel of three arbitrators. The arbitrators promptly concluded that the settlement was fair and reasonable; under the terms of the arbitration submission, their decision was binding upon all parties. An unusual feature of the arbitration proceeding was that the arbitrators did not have the benefit of the views of anyone opposed to the settlement, or anyone involved in the litigation or in the negotiation of the settlement (e.g., Mr. Gottlieb, Mr. Crawford, Judge Abraham, or Mr. Bellinger [the City's Director of Commerce, who had always been opposed to the settlement]). The only witnesses were City Solicitor Albert, and Mr. Sylk.

 Thereafter, the settlement was carried out, and Mr. Sylk was paid the $575,000. Because of some intervening litigation concerning tax liens, the actual distribution to Mr. Sylk was made in two installments. Mr. Pirillo received a portion of each payment, as his counsel fee.

 The actual distribution of the settlement proceeds was quite involved. For present purposes, it suffices to state that on one occasion, Mr. Pirillo arranged to obtain $15,000 in cash, which was thereupon delivered to the defendant by a young lawyer associated with Mr. Pirillo. Essentially the same procedure was followed on the second occasion, at which time $12,500 was delivered in cash to the defendant.

 II. THE RICO COUNT

 It is clear that the Redevelopment Authority was an enterprise engaged in interstate commerce, or whose activities affected interstate commerce, and that the defendant was an employee of RDA. There are only two substantial legal issues involved in this aspect of the case: Does the evidence establish a "pattern" of racketeering activities, and was the defendant conducting the affairs of the RDA "through" a pattern of such activities?

 Addressing the latter question first, I believe the jury could rationally conclude that the receipt of a bribe in connection with his official duties is sufficiently related to the activities of the RDA as to come within the statutory language. The more difficult question is whether the evidence discloses the kind of "pattern" which Congress had in mind.

 While the question is a close one, I have concluded that a single, ongoing scheme to defraud by obtaining bribes or kickbacks, which involves a series of unlawful acts, can establish a "pattern" for purposes of RICO, and that it is not ...


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